加载中...
共找到 39,010 条相关资讯
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.
Operator: Good morning. My name is Julienne, and I will be your conference operator today. At this time, I would like to welcome everyone to the SoFi Technologies First Quarter 2026 Earnings Conference Call. [Operator Instructions] With that, you may begin your conference. Unknown Executive: Thank you, and good morning. Welcome to SoFi's First Quarter 2026 Earnings Conference Call. Joining me today to talk about our results and recent events are Anthony Noto, CEO; and Chris Lapointe, CFO. You can find the presentation accompanying our earnings release on the Investor Relations section of our website. Unless otherwise stated, we'll be referring to adjusted results for the first quarter of 2026 versus the first quarter of 2025. Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve risks and uncertainties. These statements include, but are not limited to, our competitive advantage and strategy, macroeconomic conditions and outlook, future products and services and future business and financial performance. Our GAAP consolidated income statement and all reconciliations can be found in today's earnings release and the subsequent 10-Q filing, which will be made available next month. Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and our subsequent filings made with the SEC, including our upcoming Form 10-Q. Any forward-looking statements that we may make on this call are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events. And now I would like to turn the call over to Anthony. Anthony Noto: Thank you, and good morning, everyone. We've had a remarkable start to 2026. Our relentless member focus continues to drive innovation across our business, leading to our 18th consecutive quarter of the Rule of 40 with a score of [ 72% ] reflecting 41% revenue growth and 31% EBITDA margins. Notably, this was the second consecutive quarter that we have generated more than $1 billion in cash revenue. In Q1, we generated over $1 billion in cash revenue, consisting of approximately $690 million in cash revenue from net interest income and about $390 million in cash revenue from interchange fees, brokerage fees, technology and loan platform fees and loan origination fees. In fact, in both 2025 and 2024, more than 100% of our adjusted net revenue was cash revenue at $3.8 billion in cash revenue in 2025 and $2.7 billion in cash revenue in 2024. Our durable growth with an acceleration in revenue growth and strong returns and profitability is fueled by our consistent focus on innovation and brand building. Our mission remains the same. We help people reach financial independence to achieve their ambitions, helping them get to the point where they have enough money to live where they want, have the size family they want, the house they want, the career they want and retire when they want. Other financial institutions pick and choose the products they offer based on how much money they can make off of their customers. And as such, they don't deliver the holistic experience people need to make their ambitions a reality. That's why SoFi delivers the everything financial app with unquestionably the most comprehensive set of digital financial tools and resources to help our members get their money right. Our critical success factor is helping people spend less than they make and invest the rest. Savings is not enough. Saving will help you get by, but investing is critical to get ahead to achieve your dreams. In order to achieve this critical outcome, we must help our members borrow better, save better, spend better, invest better and protect better. we cannot just offer the products that are the most attractive financially. We need to be there for our members not just for the large financial decisions in their lives but are all the days in between. It's not just our opinion that SoFi's the best. We are hearing it from others as well. In March, we ranked #1 in the J.D. Power 2026 U.S. Investor Satisfaction Study for do-it-yourself investing. This award validates our approach to building our Invest product in a thoughtful member-centric way, and we're excited to now be helping a record number of members invest for a better future. Also just this month, SoFi was named the #1 U.S. Bank by Forbes in their World's Best Banks ranking, beating out institutions that have been around for decades. As part of this comprehensive survey, response were asked to rate banks on a customer service, digital services, financial advice and perhaps, most importantly, trust. Our goal is to become a household trusted brand name, so we couldn't be more proud of this recognition that we are building trust with our members. While we are pleased with these achievements, it's still day 1, and we are far from where we aspire to be. In fact, this recognition further fuels our drive, continuous iteration and learning leading to innovation is the key to our success. It powers our growth and it strengthens our returns for shareholders. Over the past 8 years, we've grown members by more than 20x from 650,000 to 14.7 million members. In Q1, we once again added a record number of new members at 1.1 million new members, increasing total members by 35% year-over-year to 14.7 million. We also added a record 1.8 million new products in Q1, increasing total products by 39% year-over-year. We now have 22.2 million products. SoFi continues to accelerate with 43% of new products opened by existing SoFi members versus 40% last quarter and 36% in Q1 of 2025. This clearly demonstrates the effectiveness of our everything financial services app strategy and our ability to build deeper multiproduct relationships with members, which in turn will drive higher lifetime value. Our strong member and product growth powered our revenue growth in the first quarter. Adjusted net revenue was ahead of expectations at $1.1 billion. This is up 41% year-over-year, an acceleration from last quarter's very strong growth rate. Our Lending segment had a particularly strong quarter, generating $629 million in adjusted net revenue. Importantly, our net interest income and origination fees in the Lending segment totaled $639 million this quarter. In total, we had our best quarter ever for loan originations at $12.2 billion, which was up nearly $1.7 billion from just last quarter and included record originations across personal, student and home loans. Of the $12.2 billion in originations, $9.2 billion was for our Lending segment and $3 billion was for our loan platform business. The development of our loan platform business over the last 18 months has allowed us to better meet the borrowing needs of more members. Our strategy for what we put in the balance sheet versus through the loan platform business remains guided by the principle that LPB loan originations reflect the incremental volume we would not otherwise originate for SoFi's balance sheet for a variety of reasons, including capital ratios, managing the overall growth of the balance sheet and their credit profile of borrowers. In addition to being able to serve more members through these two channels, they also provide greater revenue diversification. For example, Balance sheet originations provide very visible and recurring cash revenue generation through net interest income over the life of the loan. In Q1 2026, we generated $690 million in cash net interest income which provides revenue visibility further contributing to our durable performance and cash generation. But this also comes with default risk and capital usage over the same time period. LPB loans, on the other hand, paid the majority of cash upfront but free up capital instantly and remove their credit risk for SoFi. Together, financial services and our technology platform generated revenue of over $500 million an increase of 24% year-over-year and representing just under half of our total revenue. Our Financial Services segment continues to deliver impressive revenue growth, up 41% year-over-year to $429 million. The Technology Platform segment delivered net revenue of $75 million, which was negatively impacted by the loss of a previously discussed large customer. Total fee-based revenue across our business was $387 million, up 23% from the prior year. In addition to delivering durable growth, we delivered strong returns and profitability. In the first quarter, adjusted EBITDA was $340 million, up 62% year-over-year. Our adjusted EBITDA margin for the quarter was 31%. Our incremental EBITDA margin was 41% as we continue to balance reinvesting in the business to drive long-term growth and profitability. Net income in the quarter was $167 million at a margin of 15%. Earnings per share were $0.12 or $0.13 on a constant stock price basis quarter-over-quarter. Finally, our tangible book value ended the quarter at $9.2 billion, up 83% year-over-year and $7.21 per share, which is up 57% year-over-year. It is clear that our diversified business is uniquely built to deliver a winning combination of growth and returns. And we continue to invest heavily to make our existing products even better to build new products to help our members get their money right and to further strengthen our trusted brand name. These investments will power our durable compounding growth and drive strong returns as we continue to scale. Let me now spend a moment discussing our brand building efforts which are key to driving new members to SoFi, feeding our productivity loop and growth. In the first quarter, our unaided brand awareness rose to an all-time high of 10%. That's up 300 basis points from a year ago. This is a reflection of our ability to meet our members where they are with the message of financial empowerment. So far in 2026, we completed another successful season of TGL presented by SoFi which recorded significant fan engagement and momentum. We also kicked off the NBA playoffs with the SoFi Play-In tournament featuring 6 incredible win-or-go-home games that brought in nearly 20% more viewers than last year and set new records for social and digital viewing. We also expanded our talent partnerships, adding two world-class golfers to Team SoFi, Justin Thomas and Charley Hull. Justin and Charley are true winners who share our passion for helping people get their money right. Beyond our strong sports marketing efforts, we are engaging with members earlier in their lives so they can build a better future from day 1. For example, this year, we kicked off our Future Wealth Summit, a national campus tour designed to help college students navigate key financial decisions and plan for life after graduation. Students today are making some of the most important [ frontal ] decisions of their lives without the guidance they need. We're excited to bring practical education on banking, credit monitoring and investing to put them on the path to success. Turning now to product innovation, starting with crypto, which has been a key focus over the past year. We believe the crypto super cycle that is underway will completely transform financial services, enabling frictionless money movement. We are well positioned to benefit from this super cycle given our unique position as a tech company that is underpinned by the strength and stability of being a national bank. This is why we've been building a strong foundation on which we can develop and grow multiple new products and businesses and realize the benefits of crypto and blockchain across our entire ecosystem. In December, we took a big step forward on this journey with the launch of SoFiUSD. This managed the first national bank to launch its own stablecoin on a public permissionless blockchain. So SoFiUSD is at the heart of our strategy to make it faster, cheaper and safer for people around the world to move money. During Q1, we began minting SoFiUSD, the next step towards building compelling use cases for the coin. We also formed an important partnership with Mastercard to enable SoFiUSD settlement across their global payments network. This will create interoperability between digital assets and fiat currencies and eventually allow for the settlement of transactions 24 hours a day, 7 days a week versus just during business hours now. This brings me to our new big business banking offering, which was officially launched earlier this month. Today, companies operating fiat and crypto are forced to use multiple providers and are left waiting days for transactions that should take seconds. As a nationally chartered bank, we saw a tremendous opportunity to bring fiat and crypto banking to businesses on a single, integrated and fully regulated platform. Our big business banking clients can hold funds in regulated business deposit accounts with institutional-grade safeguards, move money and crypto in real time with API-driven payments and given fiat and crypto instantly through native SoFiUSD net and burn capabilities while maintaining reserves within SoFi's regulated environment. We will start with companies that are operating in crypto or crypto adjacent industries, but as more and more companies look to operate across both fiat and digital assets, SoFi will be able to support those needs at scale, including on behalf of other large banks. Turning now to an update on SoFi Plus, our premium membership. Plus is positioned to be the best of every SoFi product, all wrapped into one member experience. On April 1, we relaunched SoFi Plus with significantly enhanced benefits to bring the best of SoFi strategy to life while making a product a pay-only subscription. With the relaunch, we expanded our benefits, which now include our highest APY in deposits at 4.5% for up to $20,000, 1% matched in deposits into taxable SoFi Invest accounts, 1% match on crypto purchases, unlimited one-on-one sessions with financial planners, a boost on SoFi credit card rewards and so much more. Overall, this membership can unlock well over $1,000 in annual value for a fee of just $10 per month, less than the cost of today's lunch and we will continue to roll out product enhancements and expand our offering while also providing special member options for military members and young adults as well as through our SoFi At Work partnerships. The initial results of SoFi Plus since April 1 relaunch have been incredibly positive. We have seen strong growth in new paying subscribers and the vast majority of new Plus paying subscribers or existing SoFi members who subsequently take out an additional product after signing up for Plus. SoFi Plus is not only driving a recurring and visible cash revenue stream that is enhancing the awareness of the significant breadth of SoFi products as an everything app and in turn, driving greater cross [indiscernible] and increased lifetime value. I would encourage everyone listening to try our rewards calculator on our website to see just how much you can earn from SoFi Plus. Now to our Tech Platform segment. We entered 2026 with the most comprehensive set of capabilities we've ever offered banks, fintechs and brands. Given the breadth of our products, which extend well beyond the capabilities we acquired through Galileo and Technisys, we will be launching a new unified brand and restructured go to market later this year. Over the coming months, we will roll out the new brand, SoFi Technology Solutions. The new brand reflects the more comprehensive set of products and services that we now offer enterprise clients across a total of 4 platform businesses. First, in processing, we continue to see strong momentum with our client rollouts on our modern cloud-based processing platform. We have 13 new clients that generated revenue in the first quarter that were not generating revenue a year ago including successful implementations with fintechs and major consumer brands. We've built a healthy pipeline of additional customers and are excited to get more programs off the ground in the future. For example, in 2026, we are launching an expanded relationship with 1 of the top 3 telecommunication brands in the U.S. and a new program with a financial services firm in the short-term lending space. Our second platform, Banking Core Ledgers and Services includes our modern banking core and the many turnkey API powered solutions needed for banking-as-a-service offerings. In this business, we are about to take a major step forward. This summer, we will complete the implementation of our new core platform with SoFi Bank, our first scaled launch with a U.S. regulated bank. This will serve as a launching point to bring our new banking stack to other institutions. For SoFi Bank, our new core process platform will integrate seamlessly with our payments, fraud and card capabilities and importantly, will support ledgering for stablecoin in day one. In fact, the modern core will serve as the backbone for our planned crypto endeavors. We look forward to bringing this new banking stack to other institutions and building the next generation of our digital application platform. Our vision for our third technology platform business, Payment Hub, is to provide self-serve payment options across every type of money movement, including stablecoins that are faster, cheaper and more secure. Our API-first approach makes it easy to connect to ACH, same-day ACH, wires, FedNow, person-to-person payments and real-time payments. Partners can manage payment flows with ease, maintain compliance and offer a better customer experience. And we'll soon add SoFiUSD payment APIs to our big business banking offering. The fourth SoFi Technology Solutions platform focused is our risk and fraud platform. Within this platform, we currently offer 7 products that address transaction fraud, account identity verification and account takeovers including Galileo instant verification engine for real-time API-based account verification, our payment risk platform for transaction fraud and an identity verification service, which covers advanced compliance and sanction scenarios. These products leverage our latest models, often using over 600 data points for a single decision, and we are launching additional products in 2026 to further bolster our risk and fraud offering. Turning now to innovation within our Lending segment, which is driving record originations across all 3 loan categories. Starting with personal loans, we would support our mission of helping members reach financial independence. With the SoFi Personal Loan, members can refinance absurdly expensive credit card debt held at other institutions so they can stop paying for other people's rewards and focus on their own financial well-being. During the first quarter, we originated record personal loan volume of $8.3 billion, taking share from competition and helping even more members get their money right. We see significant opportunity to help more people refinance high interest debt, and we will continue to innovate with new product features and leverage technology to improve the member experience. For example, we're rolling out our Personal Loan Doc Coach which uses AI to validate members pay subs and other documents, streamlining the application experience and driving cost savings over time. We're also testing new credit model features that can leverage enhanced data pools. This has the potential to help us make even better decisions that potentially extend credit to more members in the future. SoFi Student Loans help more and more students finance their education while they are in school as well as supports students who have already graduated by helping them refinance their debt at a lower rate. Student Loans have been a great way to introduce the SoFi brand and what we stand for to members early in their financial journey. Over time, we'll be there as their financial needs grow, which is why the value generated by our student loan business extends well beyond the interest income we collect on the initial loans. In Q1, we had our best quarter of student loan originations ever at $2.6 billion. This is up 2.2x year-over-year but originations volume is more than just a number. In generating this volume, we helped nearly 10,000 members finance their education so they can realize their ambitions, and we helped over 10,000 members to completely pay off their student loan debt. Turning to Home Lending, which is an area I'm particularly excited about. We've been hard at work creating a fast seamless experience for our members who want to purchase a home, refinance an existing loan or draw equity. Even while the overall home lending market is stagnant, momentum has been building in this business. We set origination records for 4 straight quarters, including Q1 when we originated $1.2 billion in home loans. This is up nearly 2.4x from the first quarter of last year. Here, too, we continue to innovate. For example, last week, we announced a new equity line of credit experience, making it possible for members to access to equity in their homes through a seamless end-to-end experience on the SoFi platform. Finally, we continue to see healthy growth in our tangible book value. We recognize there has been ongoing discussion around last year's capital raises and their impact on dilution. As we previously explained, these capital raises were opportunistic with proceeds intended to be deployed across a range of opportunities. Based on our analysis, the capital raises would not be dilutive to tangible book value on a per share basis. And this has proven to be the case. Our tangible book value per share increased 57% year-over-year to $7.21, up from $4.58 per share and is up 3% quarter-over-quarter from $7.01 a share. This is nearly $340 million of an increase in absolute terms. As you can see, our financial results are being driven by continuous innovation that is providing real value to our members. We continue to focus relentlessly on driving innovation and developing products and solutions to help our members navigate all the major financial decisions in their lives and every day in between. We will continue to put our members first and help them achieve their American dream. Over time, the trust that we build with our members will lead to deeper relationships. This, in turn, will drive a higher lifetime value per member and will power our compounding growth and returns. With that, I'll turn it over to Chris. Chris Lapointe: Thank you, Anthony. We've had a solid start to the year. Our innovation in brand building is powering exceptionally strong revenue growth. In the first quarter, adjusted net revenue grew 41% to $1.1 billion. This is a further acceleration in the growth rate from the prior quarter. Importantly, we generated $1.1 billion in cash revenue in Q1 which includes approximately $690 million from net interest income and approximately $390 million from interchange fees, brokerage fees, technology and loan platform fees and loan origination fees. Cash is defined and accounted for the same universally no matter what type of company it applies to. In the first quarter, these cash revenue streams were nearly equivalent to our total reported adjusted net revenue. This is the first time we have disclosed our cash revenue as we think it's a helpful financial measure to consider given the different accounting treatments companies use. As we mentioned, it's our second consecutive quarter of more than $1 billion in cash revenue, but I would also note that 100% of our reported adjusted net revenue was cash revenue in both 2024 and 2025. This means that the scale and seasoning of the loans on our balance sheet has reached the point where the upfront noncash premiums on new originations are being balanced by pull to par and other mark-to-market impacts on the existing portfolio leaving the vast majority of our reported revenue being approximately equal to our cash revenue. We have consistently said that over the life of the loan, there is no difference between fair value accounting and cost accounting, and we are seeing that play out in our reported results. In addition to our strong revenue growth, we delivered strong profitability during the quarter. Adjusted EBITDA was $340 million, up 62% year-over-year at a margin of 31%. Net income was $167 million at a margin of 15%. Net income was up 2.3x year-over-year, and earnings per share was $0.12, which was negatively impacted by $0.01 due to a decrease in discrete tax benefits related to employee stock compensation given share price movement between Q4 2025 and Q1 2026. At a constant share price quarter-over-quarter, EPS would have been $0.13. This was our tenth consecutive profitable quarter. Turning now to our segment performance, starting with Financial Services. For the first quarter, Financial Services net revenue was $429 million up 41% year-over-year. Contribution profit was $196 million, up 32% from last year, and contribution to margin was 46%. Net interest income for this segment was $228 million, up 31% year-over-year, which was primarily driven by growth in member deposits. Noninterest income grew 55% to $201 million for the quarter. During the quarter, we continue to see healthy growth in interchange up 54% year-over-year, driven by nearly $25 billion in total annualized spend across money and credit card. We also had record brokerage fee revenue, which more than doubled over the past year. In terms of our loan platform business, one of our key differentiators at SoFi is having both a very strong balance sheet and an established loan platform business supported by a diverse set of partners that go well beyond private credit asset managers. In fact, during the quarter, we added $3.6 billion of new commitments with 3 new partners, including a leading global bank, a prominent insurance group and a top 5 global private asset management firm. Our diversified model allows us to efficiently channel loan volume based on a number of factors, including borrower demand, capital levels and credit risk with a focus on maximizing risk-adjusted returns. Each channel we utilized provides benefits to our business. For example, our balance sheet lending generates stronger revenues over the life of the loan, whereas LPB generates capital-light fee income with no retained credit risk or loss share agreements. Having this optionality will allow us to generate more a consistent growth through a variety of environments. Overall, during the first quarter, we saw exceptional demand from members, which is reflected in our record personal loan originations of $8.3 billion. Given our very strong capital ratios, we channeled nearly $5.4 billion of personal loans to our balance sheet and approximately $3 billion through our loan platform business. This deliberate decision resulted in lower LPB originations relative to the fourth quarter, although LPB originations were up 90% year-over-year. I would note that we had significant demand from LPB partners over and above what we decided to fulfill this quarter, but we did sell all demand from our contractual commitments and more. Turning to our tech platform business, where we delivered net revenue of $75 million in the first quarter reflecting the exit of a large client who fully transitioned off our platform prior to year-end. Contribution profit was $12 million at a contribution margin of 16%. Turning to our Lending segment performance, which was very strong during the quarter. In addition to record personal loan originations of $8.3 billion, we also saw record originations in student and home loans. Student loan originations were $2.6 billion, up 2.2x from the same period last year. Home loan originations were $1.2 billion, up 2.4x from the prior year. For Q1, adjusted net revenue for the segment was $629 million, up 53% from the same period last year. Contribution profit was $382 million with a 61% contribution margin. These strong results were primarily driven by growth in net interest income, which increased 39% year-over-year to $500 million and the balance of the growth came from loan origination fees, which were up 36% year-over-year in home loan sales, which were up more than 2x year-over-year. Capital markets activity was strong in the first quarter. We've sold or transferred to our loan platform business, $3.8 billion of personal and home loans. In terms of home loan sales, we closed $765 million at a blended execution of 102.1%. Additionally, we sold $89 million of late-stage delinquent personal loans in line with prior quarters. In addition to our loan sales, we executed a $919 million securitization of loans originated on behalf of our partners through the loan platform business. The transaction priced at an industry-leading cost of funds level with a weighted average spread of 86 basis points, our best execution for any securitization deal to date. To meet standard industry risk retention requirements, we contributed loans from our balance sheet that represented a 5% vertical slice across the securitizations tranches. Importantly, we do not retain any first loss or horizontal risk position. Turning to credit performance. Our credit remains strong, performing in line with our expectations and driving attractive returns across all loan types. Our personal loan borrowers have a weighted average income of $154,000 and a weighted average FICO score of 745 while our student loan borrowers have a weighted average income of $161,000 with a weighted average FICO score of 767. For personal loans, the estimated all-in net charge-off rate was flat quarter-over-quarter and down nicely from a year ago. Excluding the impact of delinquent loan sales, the estimated all-in annualized net charge-off rate was 4.4%, which was the same as last quarter and down roughly 40 basis points from the first quarter of 2025. Including the impact from the [ DQ ] sales, the net charge-off rate was 3.03%. This is up 23 basis points from the fourth quarter, but down 28 basis points for the first quarter of 2025. The sequential increase was primarily a function of us maintaining consistent [ DQ ] sales of around $90 million per quarter while our balance sheet grew at a faster pace. Beyond balance sheet, 90-day delinquency rate was 47 basis points, down 5 basis points from the last quarter. For student loans, the annualized charge-off rate was 65 basis points, down 11 basis points from the prior quarter. Beyond balance sheet, 90-day delinquency rate was just 10 basis points, down 4 basis points from the prior quarter. The data continues to support our 7% to 8% net cumulative loss assumption for personal loans, in line with our underwriting tolerance, although we continue to trend below these levels. Our recent vintages originating from Q4 2022 to Q2 2025 have net cumulative losses of 4.64% with 36% unpaid principal balance remaining. This is well below the 6.32% observed at the same point in time for the 2017 vintage, the last vintage that approached our 7% to 8% tolerance. The gap between the newer cohort curve and the 2017 cohort curve widened by 9 basis points during the quarter. In fact, this gap has widened each of the last 7 quarters since we began measurement. Additionally, looking at our Q1 2020 through Q4 2025 originations, 61% of principal has already been paid down with 6.8% in net cumulative losses. Therefore, for life of loan losses on this entire cohort of loans to reach 8%, the charge-off rate on the remaining 39% of unpaid principal would need to be approximately 10%. This would be well above past levels at similar points of seasoning, further underscoring our confidence in achieving loss rates below our 8% tolerance. Turning to our fair value marks and key assumptions. As a reminder, we mark our loans at fair value each quarter, which considers a number of factors, including the weighted average coupon, the constant default rate, the conditional prepayment rate and the discount rate comprised of benchmark rates and spreads. These markets are developed alongside a third party, which feeds our actual loan level data into their proprietary model and are reviewed by our independent auditor as detailed in our filings. At the end of the first quarter, our personal loans were marked at 105.4%, down 27 basis points from the prior quarter. This was driven by an increase in the discount rate, which was due to a higher benchmark rate as well as a modest decline in WACC and a modest increase in the default rate assumption. These changes were partially offset by a modest decrease in the prepayment rate. At the end of the first quarter, our student loans were marked at 105.2%, down 40 basis points from the prior quarter. This was driven by an increase in the discount rate due to a higher benchmark rate and was partially offset by a modest decrease in the prepayment rate. The WACC and default rate assumptions remained relatively consistent with the fourth quarter. Turning to our balance sheet. In the first quarter, total assets grew by $3 billion. This was driven by $4.1 billion of loan growth, partially offset by a reduction in cash, cash equivalents and investment securities of $940 million as a result of using some of our equity to fund loans. Total company-wide cash at quarter end was $3.8 billion. On the liability side, total deposits grew by $2.7 billion to $40.2 billion primarily driven by growth in member deposits. Our net interest margin was 5.94% for the quarter, up 22 basis points sequentially. This included a 25 basis point decrease in cost of funds, partially offset by a 2 basis point decrease in average asset yields. We continue to expect a healthy net interest margin above 5% for the foreseeable future. In terms of our regulatory capital ratios, we are very well capitalized. Our total capital ratio of 21% at quarter end is well above the regulatory minimum of 10.5% as well as our additional internal stress buffer. Tangible book value grew $4.2 billion year-over-year to $9.2 billion including the benefit from new capital raised in 2025 as well as organic growth in earnings. The tangible book value per share at quarter end is $7.21 up from $4.58 a year ago, a 57% increase. Let me finish by providing our outlook for Q2. In line with market expectations, we now expect an interest rate outlook consistent with the Fed funds futures and no rate cuts in 2026. Now for our specific guidance. For the second quarter of 2026, we expect to deliver adjusted net revenue growth of approximately 30% from Q2 '25, which would equate to roughly $1.115 billion, an adjusted EBITDA margin of approximately 30%, which would equate to roughly $330 million and an adjusted net income margin of approximately 12% to 13%, which equates to roughly $0.10 to $0.11 of EPS. As I mentioned in our call in January, each year, we have seasonal payroll taxes during the first two quarters of the year, and we are accelerating marketing expenses in the first half of 2026 in addition to our significant investments in product innovation. This increased expenditure will drive growth in the back half of 2026 and over the long term, and it is reflected in our second quarter guidance. Looking beyond Q2, we expect to see continued revenue growth and strong growth in EBITDA, net income and EPS, which will get us to our full year guidance, which remains unchanged. Overall, Q1 was a solid start to the year. We continue to have strong momentum in our business and are on track to hit our 2026 and medium-term guidance. Let's now begin the Q&A. Operator: [Operator Instructions] Our first question comes from Andrew Jeffrey from William Blair. Andrew Jeffrey: I appreciate you taking the question. Anthony, I wonder if you can put a little finer point on the decision process by which you determine how much you want to hold on your balance sheet in terms of personal loans versus the LPB. Wouldn't it behoove the company to maximize platform sales in this environment, hence, fee income? I'm just trying to understand exactly what the puts and takes are when you look at that decision every quarter. Anthony Noto: Sure. Thank you for the question. We have a lot of optionality when it comes to thinking about how to deploy our capital and how to optimize revenue and profits. Our goal, as we say each quarter is to drive durable revenue growth through innovation and branding and to deliver strong returns. And so when we think about the two options, if we're going to put loans on our balance sheet, they obviously require capital and they have credit risk. But they also have a revenue stream that lasts 2 to 3 years as it relates to personal loans. And so that generates really attractive net interest income to us. But obviously, there's a limit to how much we can put on our balance sheet based on our capital ratios and other risks that we're balancing. LPB revenue, on the other hand, doesn't require capital. We're basically producing on behalf of somebody else. And so it doesn't have retained credit risk and it has the cash flow upfront. And so we'll use those underlying factors as we think about the considerations. But what I said in the prepared remarks and what I'd say here is the loan platform volume that we do is essentially the volume that we would not otherwise do for our balance sheet based on all the factors that I just considered. So putting less on our balance sheet may be a driver, and therefore, we don't want to underwrite it, and we, therefore, do with our loan platform business. Similarly, depending on what our revenue streams are a year from now, we want more NII in that period relative to cash flow in this period. Some people will raise the question about concerns about private credit. We're not really seeing any issues in our own performance nor in the demand that we have for LPB revenue and loans from our partners. In fact, we have demand above our contractual obligations that we have on volume that we're producing. But the volume that we put through that channel is volume that we would not otherwise do in our balance sheet because of either our concerns on credit ratios or the capital ratios or credit profile or growth overall on the balance sheet. So it's a good option to have. But I wouldn't think about it as maximizing near-term revenue, it's a balance between near term and longer term revenue. Operator: Our next question comes from Dan Dolev from Mizuho. Dan Dolev: Really strong results here. Congrats. Chris, a question for you. Can you maybe give us some color on the segment level guidance? And then I have a very quick follow-up. Chris Lapointe: Yes, sure. So as I mentioned in our prepared remarks, we feel really good about our 2026 outlook. We're going to be growing 30% top line and delivering $0.50 of EPS. From a segment perspective, as we've said in the past and in any given period, some of our segments may grow faster than expected. Some may be a bit slower. But we're going to effectively allocate capital and resources to the best opportunities that we see in front of us. Given the strong start that we've had to the year, we now expect lending adjusted net revenue growth of at least 30% for the full year of 2026. We expect our tech platform net revenue to be approximately $325 million for the full year. We continue to expect our Financial Services adjusted net revenue growth of at least 40% and then we continue to expect corporate revenue to be in line with what we did in 2025. Operator: Our next question comes from Kyle Joseph from Stephens. Kyle Joseph: Two quick questions and I hate to focus on accounting rather than results, but I get a lot of questions here. Chris, just give us your thoughts, walk through your accounting on and rationale for capitalizing the market expenses and how you see that impacting EPS and EBITDA. And then just a follow-up there. Just talk about the JPMorgan facility and the difference between a loan sale versus borrowing. If you could give us some clarity on both those much appreciated. Chris Lapointe: Sure. Thanks, Kyle. So in terms of the capitalized marketing costs, at a high level, what I would say is that we sometimes partner with third parties as an efficient top-of-funnel marketing channel where we pay success-based commissions for acquiring revenue-generating money and invest members. This does not include acquisition of our lending or our credit card members. From a high-level accounting perspective, those payments are incremental, and we're only incurring them upon successful acquisition of the member so under ASC 340-40, they're accounted for as contract acquisition cost, which is very similar to capitalized software expenses that drive future revenue. As a result, we capitalize those costs and amortize them over the expected member life to better match the cost with the debit interchange and brokerage revenue that those members generate over time. What's also important is that the amortization is treated as an expense in EBITDA and net income, i.e., it lowers EBITDA and net income. So we're simply aligning the timing of the cost with the revenue that it supports. And then as it relates to the JPMorgan loan sale. Prior to September of 2024, we had a senior secured loan on the balance sheet that had no affiliation with JPMorgan. In September of that same year, we opportunistically sold the loan via a special purpose entity to JPMorgan. At the time of the sale, JPMorgan held a controlling interest in the special purpose entity and SoFi did not retain a controlling interest. At that time and what is customary with any new loan sales, we obtained an independent third-party true sale opinion as part of confirming that the transaction method requirements for sale accounting under GAAP, including legal isolation. Based on that, the loan was appropriately derecognized from our balance sheet. Anthony Noto: And just want to emphasize one important point about the marketing expenses that are amortized. They are subtracted from revenue, and therefore, they do result in a lower EBITDA is those amortized marketing costs are not excluded from EBITDA. They are expensed against revenue and lower EBITDA. Operator: Our next question comes from Devin Ryan from Citizens JMP. Devin Ryan: Another question on loan platform. Obviously, good to see a few new partners and expanded capacity this quarter. Can you just characterize the current depth of demand from third-party capital providers and where there's the most interest rate now? And also just how that evolves through the quarter just given some of the pockets of volatility. It sounds like a little change there. But ultimately, just kind of what that pipeline looks like. And then on the other side of the equation, [indiscernible] just hear about what you're seeing from customers in terms of personal loan demand and also how you're optimizing the funnel to move faster on originations or just even improve market awareness? Chris Lapointe: Sure. I'll hit on the loan platform piece, and then I'll let Anthony hit on some of the personal loans. But on the loan platform, business demand from capital partners, it remains extremely robust. We announced several partnerships last year with Blue Owl, Fortress and others, and those partnerships are going extremely well. Each of the partners is buying at their contractual level and even above that in several quarters and each of our partners who have come up on term in their existing contracts have extended their contracts. In addition to that, we recently signed up and announced 3 new partnerships totaling about $3.6 billion of commitments over the course of the next 2 years, and that comes from a large investment bank, a large asset management firm and an insurance fund. So the demand that we're seeing is pretty broad-based. It's across asset managers, it's across insurance funds and several investment banks. We couldn't be happier with the demand that we're seeing. And as Anthony mentioned, it's a great situation to be in to have the flexibility both on the balance sheet with the capital ratios that we have as well as the demand that we're seeing from capital markets participants. Anthony Noto: And then as it relates to demand, we had a record originations in personal loans [indiscernible] loan refinancing as well as in home loans, our home loans business more than doubled year-over-year, and I believe our [indiscernible] loan business also more than doubled year-over-year in originations and personal loans remains quite robust. We continue to iterate and learn and innovate on every one of our businesses. While these businesses have scaled quite meaningfully and they've been around and they're long tenured, there's still innovation that can be driven. In personal loans, we continue to find new channels of demand. It is definitely a product that is primarily being used today to refinance expensive credit card debt. And so it's real savings with real amortization of expenses that help people get to a better point financially and get to the point that they spend less than they make and invest the rest. So it's a really critical product for our members. On [indiscernible] and refinancing, we had the highest amount of originations that we've had in our history, which is quite remarkable. And it's a product that again helps people lower the cost instantly relative to their existing federal student loans or even private student loans at a higher rate, and that's a product that will definitely benefit even more so as rates go down, given the amount of savings they have today versus benchmark rates that will only improve. The savings in personal loans are dramatic. The savings in [indiscernible] loans are less attractive, and getting more attractive as rates come down. And then in home loans, we're iterating every day to try to get to an outcome that is super fast for our members. We would like to ideally, and I hesitate to say this because I don't know that we'll ever get there, but we're aspirational. We would like to ideally get to a 10-day application to close on a new home on a first lien loan. Getting to 10 days would be remarkable and would be a unique value proposition. Again, we're trying to differentiate each one of our products based on fast selection content convenience and better together. On the home loan, product is largely one but I think comes down to speed, ease of use, which can be a great benefit from AI, which is what we're using to try to drive that faster experience. So strong growth in all 3 products. Credit is performing well, a lot of capital on our balance sheet, we're taking advantage of the opportunity. Chris Lapointe: The only other thing I would add, going back to the loan platform business point and what's driving some of the demand that we're seeing from capital markets participants is just this flight to quality situation that we're seeing. We're constantly hearing from our partners that they're really pleased with the execution that they're getting on our [indiscernible] particularly with the REIT securitizations that we're doing. We just did a securitization in January that was upsized and we were able to achieve the best spread that we've ever been able to achieve on one of our securitizations. So I think that's also what's driving some of the demand that we're seeing in the market. Operator: Our next question comes from John Hecht from Jefferies. John Hecht: Thanks for the commentary, especially on the cash-based revenue. First question is you guys have very good momentum in new member additions. I think it was like 1.1 million, which was a record this quarter. Where -- like what channels are you getting these from? And are there any changing characteristics of the new members now relative to, say, a couple of years ago? Anthony Noto: The characteristics of our member acquisition are in line with where they've been historically. Each business has an individual marketing plan that benefits from different channels. The lending business has historically been one that relies on legacy channels such as direct mail, but is heavily influenced by affiliate partnerships. Our SoFi Money product is a broad-based digital strategy that we leverage to drive good marketing efficiencies. Our brokerage business continued to benefit from broader selection and IPOs, alternative assets, private offerings in addition to single stocks without commissions or robo accounts and our ETFs. And that, again, is really an affiliate and visual marketing channel acquisition product. Crypto is the new kid on the street, and we're developing new opportunities for marketing there. I would say we launched crypto in a really fast get to market. If we didn't have the technology platform business, there's no way we've been able to launch crypto buy sell and hold in such a short time period or SoFiUSD. And so we benefit from having that platform. That's something we haven't marketed aggressively yet. We want to make sure the product was scalable and one that was meeting the needs of our members, and we have that confirmation now so we'll continue to benefit from increased awareness of SoFi crypto impacting the P&L. Our credit card boost is actually doing pretty well, and we're excited about the changes that we've made over time. We're starting to see people transition from balanced transfers with 0 APRs actually paying a full APR at a reasonable rate. And so that's contributing to the numbers that we reported this quarter both on the interchange side as well as the revolving side. And then our debit interchange, the amount of debit interchange we're driving today is quite significant and scaled and is also contributing. When we talked about the $390 million of noninterest cash revenue, it's now large enough and scaled enough that it's contributing to the overall business and the marketing that we can put behind it is scaling as well. The last part that I'll mention is SoFi Plus. We launched SoFi Plus in January of 2025. And it wasn't that great of a product at first. But like with most things we launched, we learn, we iterate, we learn and we iterate, and we relaunched in April 1, it's doing phenomenally well. We're pretty excited about it. It's meant to be a product that's the best of SoFi in one subscription product. It's $10 a month. It's more than $1,000 of value. It's primarily a product our existing members are buying. And not only are they signing up for that product that is going to generate a recurring revenue stream kind of like the net interest income that we have that's very visible and recurring, but moreover, it's driving cross-buy. 50% of the people that sign up for SoFi Plus, which again, are largely existing members take out another product. So not only does it drive the direct revenue stream, it's driving additional cross-buying building awareness of us [indiscernible] at everything happened in Financial Services. Operator: Our next question comes from Kyle Peterson from Needham. Kyle Peterson: I wanted to dive a little more into the tech platform. I appreciate the segment guidance you guys gave. So I guess I just want to see if you guys give any more granularity on how the year should unfold there? I know you guys have several partnerships and product wins from last year that should be going live as the year unfolds and you also have the refresh. So just see like how the year should unfold and what the different puts and takes are to get you guys there from the 1Q run rate? Anthony Noto: Sure. Chris gave you a specific guide for the year on revenue. Clearly, the business revenue was negatively impacted by the loss of one large customer, which we've talked about in the past. So that shouldn't have been a surprise. The tech platform revenue, if you do like-for-like on a year-over-year basis was up about 12% year-over-year. We expect that year-over-year growth rate on a like-for-like basis to accelerate throughout the year both from our existing members growth as well as new partner ads. We mentioned in the prepared remarks that we have 13 new partners that have launched in Q1 2026 and generated revenue in Q1 2026 that were not generating revenue in Q1 of 2025. So that revenue will scale over time. It doesn't come instantly. We also have one partner in the quarter that has an existing installed base, and so that's contributing. We have another integration that will take place throughout the year of a partner with a large installed customer base, which will generate revenue as well. One of the things that may be hard for people to understand is the significant benefit that we have from owning the technology platform on our own innovation. Obviously, the resources there aren't unlimited. We made the decision last year to build out crypto buy sell and hold, made the decision to launch SoFiUSD. Those products are launched and they will start to generate revenue in 2026. That will be incremental, but they definitely use resources that would otherwise be used for other partners and other services. We're excited about the strategy that we have in SoFi Technology Solutions and the 4 areas being processing, core banking and ledgers, payment hub as well as risk platform. And that go-to-market against those 4 products will help us build good sustained growth and our objective is to get back to 20% to 25% compounding growth over the years to come. This is obviously a year in which revenue is going to be disappointed because we lost that large customer, but we'll try to continue to outperform it and deliver on the numbers that Chris shared with you earlier. Operator: Our next question comes from Pete Christiansen from Citi. Peter Christiansen: Anthony, I'm just curious how you're thinking about where we are in the credit cycle generally. Obviously, credit performance was pretty good this quarter. With the backdrop of certainly higher tax refunds this year. I guess there's some perception that some underlying data that's pointing to things could get a little bit more challenging later this year, giving to you a political macro stress. Just curious on how you're planning the business around some of these perceptions. Anthony Noto: Yes. Credit performance has been strong as we reported. We have an early warning dashboard that looks across a number of macro and microeconomic factors in the performance of our own loans as well. And if that turns yellow and then red, we reduced the tiers that we're willing to underwrite. We're not in that situation in any way, shape or form. The current loans are performing well. The macro has also continued to perform well. And not only are we seeing the strong trends in our own loans across the 3 that we operate in. We're also seeing strong demand from loan platform business buyers and otherwise more broadly. We have a lot of capital on the balance sheet. We have the flexibility to meet the demand from the consumers so the combination of strong demand from consumers plus strong performance in credit and adequate capital would be not to be able to meet that demand and hold some of it on our balance sheet and continue to generate increasing net interest income. As Chris talked about, we had $690 million of cash net interest income and we want to continue to grow that. It's a great baseline of revenue that allows us to invest aggressively because it's super profitable in these other areas, which helps build up the other revenue stream, which is the noninterest cash revenue of $390 million. And for those that aren't familiar, that $390 million reported in the quarter represents the interchange from debit and credit cards. It represents the fees from loan platform business, our technology revenue our brokerage revenue and our referral fee revenue as well as origination fees that consumers pay us, and it's a cash number. Operator: And our last question today will come from Don Fandetti from Wells Fargo. Donald Fandetti: Home Lending was obviously a large market and you've had some growth there. Would you consider doing anything on the acquisition side sort of building on what you've done in the past? And if not here, like where would you look for potential acquisitions? Anthony Noto: The M&A market is very vibrant. There's a lot of assets for sale. We're remaining disciplined and looking for things that can help us accelerate strategically. We feel like we've done the right acquisitions in home loans, that's not an area that we're currently focused on. It's really driving organic growth and we continue to optimize the operation to quickly meet our members' needs. We're still investing a lot in the home loans. As I mentioned, the business more than doubled from origination standpoint year-over-year. So we're doing a much better job meeting the needs of our members. As it relates to M&A more broadly, I would say we're prioritizing things tied specifically to SoFi Technology Solutions, technology platform business. We've talked about the fact that we'd like to have a revolving credit processing as well as a core tied to that. As we mentioned in the prepared remarks, on July 1, we will launch SoFi Bank on a new modern quarter as well as ledger, and that will unlock a lot of other capabilities that we'll bring to our partners including simultaneously launching big business banking with an API format and an exchange network for Fiat and crypto currencies. And so the areas that we would probably prioritize from an M&A standpoint are really in the technology space, specifically revolving credit as well as crypto and blockchain services. We want to build out the same infrastructure services that we have in Fiat and crypto. So staking as a service, stablecoins as a Service, wallet as a service, et cetera. Thank you all. Thank you all for joining today. I want to end with a closing remark. If you've taken anything away from today's call, please take away these key points. Our strategy and execution continue to be unmatched by any company I can think of at our scale and put SoFi in a class of one. We've achieved 18 consecutive quarters of exceeding the Rule of 40, far exceeding it again this quarter at 72%, with 41% revenue growth and 31% EBITDA margins when other companies are stumbling, our revenue growth is accelerating. Most importantly, we generated more than $1 billion in cash revenue, with $690 million in cash net interest income paid to [ Aspire ] members at $390 million in cash revenue from debit and credit card interchange revenue, tech platform revenue, brokerage revenue, LPB revenue, referral revenue and origination fees. These non-lending businesses, which do not require capital and are at lower risk were in their infancy only a few years ago. but now they have reached the critical scale to meaningfully contribute to our overall growth and profitability for years to come. Our focus remains on executing to ensure we're iterating, learning and innovating like never before to generate escape velocity in delivering on our mission for our members. Our goal is to have the greatest impact to our members of any company in the world. And in doing so, we will be the winner that takes the most in driving value for our shareholders. Thank you for joining us today and we look forward to seeing you next quarter. Operator: Goodbye. This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to Evercore's First Quarter 2026 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Evercore management and the question-and-answer session. [Operator Instructions] I will now turn the call over to Katy Haber, Head of Investor Relations at Evercore. Please go ahead. Katy Haber: Thank you, operator. Good morning, and thank you for joining us today for Evercore's First Quarter 2026 Financial Results Conference Call. I'm Katy Haber, Evercore's Head of Investor Relations. Joining me on the call today is John Weinberg, our Chairman and CEO; and Tim LaLonde, our CFO. After our prepared remarks, we will open up the call for questions. Earlier today, we issued a press release announcing Evercore's first quarter 2026 financial results. Our discussion of our results today is complementary to the press release, which is available on our website at evercore.com. This conference call is being webcast live in the For Investors section of our website, and an archive of it will be available for 30 days beginning approximately 1 hour after the conclusion of this call. During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various risks and uncertainties, and there are important factors that may cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. I want to remind you that the company assumes no duty to update any forward-looking statements. In our presentation today, unless otherwise indicated, we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and the GAAP reconciliations, you should refer to the financial data contained within our press release, which is posted on our website. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closing. I will now turn the call over to John. John Weinberg: Thank you, Katy, and good morning, everyone. Our record first quarter results reflect the strong momentum that built throughout the second half of 2025 as well as the benefits of our multiyear investment strategy. Firm-wide adjusted net revenues were $1.4 billion, double from a year ago and a newly quarterly record for the firm. Revenues increased 8% sequentially from the fourth quarter, marking the first time in 15 years, we've delivered growth from that period. We've now delivered 3 consecutive quarters of adjusted firm-wide net revenues over $1 billion. Performance in the quarter was broad-based across all of our businesses with our strongest revenue quarter ever for our North American advisory business and a record first quarter for EMEA Advisory, PCA, PFG, Equities and Wealth Management. Further, our results continue to underscore the strength of our client franchise, the benefits of our diversified business model and the consistent execution of our long-term strategy. First, I want to briefly discuss the current market environment. As we entered 2026, the backdrop for dealmaking was robust, supported by healthy levels of strategic activity and continued engagement from both corporates and financial sponsors with the expectation that these trends would carry into the year. We are seeing continued CEO and boardroom confidence, particularly around large-cap transactions, and financing markets are open. However, conditions have become more mixed in recent months. Despite this, M&A activity experienced a strong quarter. Industry-wide, announced global M&A activity, excluding several large direct AI investments totaled over $1 trillion in the first quarter, up 11% from the prior year period with large-cap strategic transactions continuing to outperform. At Evercore, client engagement remains strong. We continue to see healthy levels of activity across a broad range of sectors, products and geographies with particular strength in large-cap strategic M&A, including in areas where we have made recent investments. Many sectors, including health care, industrials, real estate, infrastructure, financials and certain areas of technology continue to operate at high levels. Our backlog remains strong and is replenishing at a healthy rate. This quarter was an exceptional quarter, demonstrating the breadth of the firm's capabilities, and we are pleased with our results. As we have noted in the past, investors should not place too much emphasis on any one quarter. This holds true in very strong quarters as well as challenging ones. And we would encourage you not to extrapolate these results. We are constructive on the outlook of our business and believe we are well positioned to serve our clients across a range of market environments. While ongoing geopolitical and macroeconomic certainty could extend transaction time lines if it persists throughout the year, we believe the underlying conditions for a strong M&A environment remain, albeit with some bumps along the way. Turning to Talent. Since our last call, 3 senior managing directors have joined our investment banking practice in health care, equity capital markets and private capital advisory. All 3 committed in 2025 and were included in our year-end SMD count of 171. 3 additional SMDs have committed to join our franchise in key areas, including health care, industrials and private capital advisory this year. In addition to our externally hired talent, we started the year with a class of 8 promoted investment banking SMDs. In total, we now have 182 SMDs in investment banking with more than 45 ramping, positioning us to drive sustained growth in activity over time. Let me -- now let me turn to our businesses. In North America Strategic Advisory, we achieved a new quarterly record for revenue reflecting strong transaction announcements, trends carrying on from 2025 and strong activity levels across both corporates and financial sponsors. While exit activity among financial sponsors has been mixed recently, we continue to see increased engagement from a year ago. Our EMEA Strategic Advisory business delivered a record first quarter with strong activity across a number of sectors and geographies. In the first quarter, we advised on a number of significant transactions globally, including Warner Bros. Discovery on its $110 billion sale to Paramount Skydance, Devon Energy on its $58 billion merger with Coterra Energy Jetro Restaurant Depot, on its sale to Sysco for $29 billion, Apellis on its sale to Biogen for approximately $5.6 billion and Beazley, on its recommended cash offer by Zurich Insurance Group for 8.2 billion pounds. Industry-wide activist campaigns declined in the first quarter. Although our strategic defense and shareholder advisory group continue to be busy. The liability management and restructuring business maintained robust activity levels in the quarter with continued strength in client dialogues in recent months. Our private capital advisory -- our private capital markets and debt advisory team remained active, particularly with structured minority deals despite some lengthening in transaction time lines. The private capital advisory business delivered a record first quarter New deal activity continues to be elevated, particularly on the LP side, while GP-led continuation funds remain active. We are also seeing strong momentum in newer product areas, including private credit and secondaries. The Private Funds Group also delivered a record first quarter despite a challenging environment for fundraising. Our Equity Capital Markets business had a solid quarter with revenues in line with the prior year. The business experienced strength across health care and energy as IPO and follow-on issuance trends are -- were very healthy. In the quarter, we led -- we were lead left bookrunner on Diamond Energy's $2.2 billion follow-on for the third largest U.S. E&P follow-on offering ever. Our Equities business delivered a record first quarter driven by healthy levels of volatility, which contributed to strong performance across our trading businesses. Our teams continue to provide differentiated insights and thought leadership to clients amid increased market volatility. And finally, our wealth management business had record first quarter revenues. While we saw some moderation in performance and AUM relative to the year-end, reflecting weaker markets, client engagement remains strong. Overall, our performance in the quarter highlights the progress we've made in scaling our platform and expanding our capabilities as we continue to support clients in an increasingly complex environment. We remain encouraged by the level of dialogue and activity we are seeing across our global franchise. Looking ahead, we recognize the potential for continued uncertainty in the near term. we believe the underlying long-term drivers for growth remain intact and position us well to navigate the environment and capture opportunities over time. Let me now turn it over to Tim. Timothy LaLonde: Thanks, John. As John mentioned, we are pleased with our strong performance in the first quarter. Before I get into the details, I want to highlight some factors that drove the outperformance including several large transactions that looked as if they might close in the fourth quarter and then slowed and closed in the first quarter of this year. In addition, there were other large transactions that were on track for a second quarter closing this year and then accelerated into the first quarter. Given this and the strong environment of the last several quarters, we experienced the greatest number of large transaction closings in any quarter in our history. Accordingly, we would expect our second quarter to be closer to what we experienced in last year's second quarter, which was a record. And in aggregate, we believe our first half will reflect continued strong performance and we remain enthusiastic about the outlook for our business. Now turning to the quarter. For the first quarter of 2026, net revenues, operating income and EPS on a GAAP basis were $1.4 billion, $331 million and $7.20 per share, respectively. My comments from here will focus on non-GAAP metrics which we believe are useful when evaluating our results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release, which is on our website. Our first quarter adjusted net revenues were approximately $1.4 billion, up 100% versus the first quarter of 2025 and up 8% sequentially, representing a new record quarter for the firm. Adjusted operating income for the quarter was $354 million, up 205% year-over-year and adjusted earnings per share was $7.53 and up 116% versus the prior year period. Our adjusted operating margin for the quarter was 25.3%, up from 16.6% a year ago, an improvement of approximately 870 basis points, reflecting a combination of the strong environment and our high first quarter revenues. Turning to the businesses. Adjusted advisory fees were approximately $1.2 billion in the quarter, up 123% year-over-year, representing a record quarter. The growth was driven by a significant increase in large transaction closings as mentioned at the start of my remarks as well as a continued increase in productivity across our platform. Underwriting fees were $55 million, in line with the prior year period. Commissions and related revenue was $63 million, up 14% year-over-year driven primarily by higher trading volumes. Adjusted asset management and administration fees were approximately $24 million, up 8% versus the prior year. Adjusted other revenue net was approximately $15 million, reflecting higher interest income, partially offset by losses on our DCCP hedge portfolio as equity markets modestly declined in the quarter. Turning to expenses. Our adjusted compensation ratio for the quarter was 64% down approximately 170 basis points from the first quarter of last year and down 20 basis points from the full year of 2025. The decline in our compensation ratio was driven by continued improvement in revenues, reflecting market share gains, partially offset by our continued investment in talent which is core to our growth strategy. We are striving to make additional progress on our compensation ratio over time. balancing that with investment in our business and the competitive market environment. While compensation expense and our ratio depend on numerous factors, including some for which we have limited visibility at this point. As I mentioned last quarter, we expect compensation ratio improvement this year will likely be meaningfully more modest than what we achieved in each of the last 2 years. Our goals are constant to deliver excellence to our clients, and to create value for our shareholders over the medium to longer term. Adjusted non-compensation expenses were $150 million, up 21% year-over-year. The non-compensation ratio was 10.7%, an improvement of approximately 700 basis points versus the first quarter of 2025, driven by stronger revenues. The increase in noncomp expenses year-over-year was primarily attributable to: first, higher technology and information services costs reflecting increased licensing costs and investment in development and technology, which are intended to yield future benefits. Second, higher professional fees, including certain costs related to higher client activity levels, some of which may be recoverable and a variety of other general corporate costs. And third, increased travel and related expenses driven by higher levels of client activity and engagement. In order to support our growth, business diversification and technology initiatives, we would expect to see a similar growth rate in noncomps in 2026, in line with what we experienced in the last couple of years. Our adjusted tax rate for the quarter was 3% compared to a negative 39.7% a year ago. Our tax rate in the first quarter is primarily impacted by depreciation of the firm's share price upon vesting of RSU grants above the original grant price, generating a substantial tax benefit. We anticipate that our effective tax rate in the remaining 3 quarters of this year will be more similar to what we have experienced in those quarters during prior years. Turning to our balance sheet. As of March 31, our cash and investment securities totaled nearly $2 billion. Similar to past years, our cash balance is down from year-end due to the payout of bonus compensation in March and share repurchases. In the quarter, we returned a total of $673 million of capital, which is a new quarterly record amount. through the repurchase of 1.9 million shares and the payment of dividends. Consistent with historical practice, we bought back stock through net settlements of RSU vesting and in the open market, offsetting the dilution from the RSU grants that were issued in the quarter as part of our annual bonus compensation process. It is important to note that as the 1.9 million shares we repurchased in the quarter, approximately 900,000 were through net settlements of vesting RSUs in early February, at an average price of approximately $345 per share, which has been our historic practice. The remaining approximate million shares were repurchased in the open market at an average price of approximately $302 per share. Altogether, the blended price per share was $322. Separately, our Board declared a dividend of $0.89 per share, an increase of 6% from the prior dividend declared. Our first quarter adjusted diluted share count was 44.4 million shares, down over 500,000 shares from the fourth quarter, driven by share repurchases in the quarter partially offset by the vesting of RSUs. We remain committed to repurchasing shares to offset dilution from our bonus-related RSU brands. For the sixth year in a row, we have repurchased a number of shares greater than RSUs issued as part of our bonus process. We continue to remain -- maintain a strong cash position and take into consideration our regulatory requirements. The current economic and business environment, cash needs for the implementation of our strategic initiatives, including hiring plans, and preserving financial flexibility. We are pleased with our record performance in the first quarter. And while we continue to be mindful of the continued market uncertainty, we remain optimistic about our medium- and longer-term prospects. With that, we will now open the line for questions. Operator: [Operator Instructions] And our first question comes from Alex Bond with KBW. Alexander Bond: I guess to start, it would be great to get your thoughts around what's happening in the software space at the moment and how stress and lower valuations in the public market there. have impacted both deal activity and sentiment on the M&A side? And then also, it would be great to get your thoughts around what the potential opportunity could be there. On the longer term, on the restructuring side, if stress persist in that market? And any of that -- if you view that as an opportunity just given the scale of your tech M&A practice. So yes, just any thoughts there would be helpful. John Weinberg: Sure. On software, there's definitely a slowdown, but it's not a standstill. And it really does depend on the companies themselves. We're seeing, on the one hand, there are some certain situations that we are working on that have actually slowed substantially. There are other situations that we're in the middle of right now where we're seeing real opportunity in discussions with respect to consolidation as well as other opportunities that people are looking for. As you know, software is very different in terms of how it really is applicable to the market that it's in. And not everyone is going to be really responding the same way to what looks like a hesitation in the software markets. On the M&A side, we're seeing -- as I said, we're seeing activity. On the public offering side, we are in discussions, and we just have to see how that plays out. I think in many respects, and it won't surprise you that I say this, we're going to have to see some of this play out. In terms of restructuring, we are seeing a lot of activity really across the board, multiple sectors. We definitely are seeing software opportunities on the restructuring side. But our business is so diverse with so much opportunity, and we are really seeing an expansion. As you know, we had a record year last year, and we are on a very good pace this year. So I'd say that we're seeing it, but it's not really dominating the business or lots of other things. There's a lot of liability management opportunities out there that we're participating in. We are doing a lot of business with corporates as well as sponsors. So from our perspective, the restructuring business is strong, but software is not dictating it, but there is software opportunities within it. Operator: Our next question comes from Ryan Kenny with Morgan Stanley. Ryan Kenny: I want to dig in a little bit on the Europe side. So you've been focusing on expanding into Europe and you do have the EU weighing overhauling the merger rules. So are you seeing any uptick in demand? Or is there a pause and kind of wait and see what happens with the merger rules and any impact from energy prices in Europe is viewed kind of as disproportionately impacting Europe versus U.S. So what are your thoughts on Europe right now? John Weinberg: Well, as you saw or as I said, our European business had a record first quarter. And as you know, a big part of our experience in Europe right now is that we've been in a real build mode, and we've added substantial people and assets throughout Europe. We feel really good about those people, and we feel like we've really been able to build a much more diverse and deep business. So we're seeing a lot of activity. And our dialogues are up. And I think because we have such high-quality people, we're in a lot of the boardrooms and really having the opportunity to really have really consequential conversations. So from our perspective, what we're seeing and maybe this is limited more to us because we're growing it so much, but we're seeing a lot of activity, and we're in the middle of some really consequential strategic discussions. Do I think that Europe will slow down because of the examination of merger rules? I really don't right now until people really decide that they don't think they're going to be able to get things done. And that, from our experience is not the case at this time. Operator: Our next question comes from Jim Mitchell with Seaport Global Securities. James Mitchell: John, maybe just a follow-up question on financial sponsors, I guess, particularly as it relates to the middle market, which has been kind of the slowest in rebounding. We understand the AI and software valuation impact. But outside of that, it still seems sluggish. So can you discuss how much of a pause maybe the IR wars caused and other factors still holding sponsors back and how you see activity levels shaping up for the remainder of the year, just particularly in the middle market side. John Weinberg: Well, I think you nailed it, which is the larger large-cap market in financial sponsors where they have big high-quality assets, there is -- we're still in the art of the possible. There's a lot of activity there when there's a really good big asset. There is a lot of activity and a lot of interest. Middle market has slowed. There's no question. It's a slowdown. It's not a standstill. There are business -- there are transactions getting done. Our experience is that we are seeing a real pickup in our opportunity to pitch. Our pitch rate is higher now than it was this time last year. So we're seeing a lot more in us. Some of that, I think, is that we've really built out our sponsor business. And as you know, our -- one of our big objectives was to take what we thought were several really powerful sponsor-related franchises and bring them together to really have a coherent offering to financial sponsors generally. And we actually see the fruits of that and that we're seeing a lot more. So our pitch rate is up -- actually, our win rate is up. And so we're feeling momentum in that business. Having said that, your original premise is what we are feeling and what I've been seeing, which is smaller deals, middle market things are really slowed. And it's not to say they won't happen but I think that it's not nearly as buoyant as we hoped it would be in the beginning of the year. Operator: Our next question comes from Daniel Cocchiara with Bank of America. Daniel Cocchiara: In your prepared remarks, you mentioned that some deals were accelerated from 2Q and to the end of 1Q, just given added uncertainties within the market, I would think that would be more likely to see those conversations extended rather than shorten. So I would love to hear maybe just like some of the nature of those conversations in terms of why they may accelerate them? And is this a trend that's continued into the second quarter? Timothy LaLonde: Yes. Thanks for the question, Daniel. Look, Really, I would say don't read too much into that, the acceleration. I mean at any one time, we're working on a very large number of transactions and each 1 has its own story. And this -- there is some element of randomness and lumpiness to our business. It's always been that way. And it just so happened that this quarter, there were a couple of them that got on a little faster track and went a little more smoothly than anticipated, and they happen to have significant fees attached to them. And that's all. This is -- there's not some broader trend at play here. Daniel Cocchiara: And I guess just kind of one follow-up. Like in a saturated market with so many different players spanning from the pure-play investment banks to bulge brackets, what exactly does Evercore do to differentiate themselves? And what is it about your franchise that really makes want to -- make clients want to work with you over the competition on these larger-scale transactions? John Weinberg: Well, I think what we hopefully are able to communicate to clients is that we understand their business, that we put their interests first and that we are highly capable. What we've tried to build as a firm that has extraordinarily capable and competent people who really know the business and know their sectors. But at the same time, are serving the clients in every respect and that we've been able to engender confidence in both management teams and boards. And that's really what we aspire to do. We've hired some really high-quality people. I think the people of Evercore in today's world are top-notch and A+ level, and that's what we really have worked really hard to do. And we hope we have given them a culture, which has them working together so that we have everybody pulling on the same or in the same direction. And so I'm hoping that really what really is our competitive edge is we're able to deliver better results for our clients in an ethical and client-oriented fashion. And that's what we -- that's really what we hope our clients see and hopefully, why they choose us. Operator: Our next question comes from Brendan O'Brien with Wolfe Research. Brendan O'Brien: I just want to drill down on the dynamics in the PCA business. On the one hand, volatility and valuation concerns could impact price discovery and potentially weigh on activity. But on the other, you could also argue that the slower pace of exits could prove to be a tailwind for the business. So just wanted to get a sense as to what you're seeing and hearing from clients. And also if you could potentially just provide some color on what's driving the relative strength in LP-leds relative to GP-led? John Weinberg: Well, as I think we said in the call, PCA had a record year last year and has had a record first quarter this year so far. So there's real momentum to the business. We have a pretty equal balance between LP and GP were quite balanced. I think the dynamics of the business is that it continues to be able to present clients with real alternatives in terms of how they want to get liquidity to move assets to an ownership position that they're comfortable with and really allows people the flexibility beyond the pure merger or IPO market to really monetize and to actually assign ownership. And so what we're seeing is there is just a continued interest in the flexibility that PCA is able to offer. In addition, there are lots of different new products that our PCA Group is undertaking. They're very creative in how they think about the market. And as secondaries grow and becomes more powerful, they are doing better and better. As you know, they have a very high market position, and they are really, I think, presenting to the market highest quality advice. And so really, what we're seeing is that this is a very powerful growth engine for our firm. And I think we feel really comfortable with the way they're defining their market and how they're addressing that market. Operator: Our next question comes from Nathan Stein with Deutsche Bank. Nathan Stein: Was hoping you could break down the advisory revenue split across M&A and non-M&A businesses broadly? And how do you expect that to trend from here? Timothy LaLonde: Yes, sure. I think what we've seen in the past as it's been about kind of 45-ish percent. I would say it's still over 40%. And by the way, the non-M&A businesses are doing great. We're really pleased with the strength of their performance, the backlog, the outlook. And having said that, we may be at a point in the cycle where M&A is strengthening a bit relative to some of the other businesses. And so it's possible that as we move forward, you could see that statistic come down a bit due to the strength of the M&A market. But those businesses continue to perform well, and we're really pleased with both their performance and their outlook. John Weinberg: Yes. And what you probably have seen is that we continue to invest in our M&A business, which clearly is a very important part of what we offer clients. But we've also been allocating capital and investing in non-M&A businesses to diversify what we're able to provide to clients and really what we're able to deliver for shareholders, which is some diversification. We are not a balance sheet bank, which all of you know. So there are certain things we're not going to be in. But everything that is not really balance sheet driven, we're thinking very aggressively about how do we participate and can we really create a position where we have some competitive edge. I think we really feel good about the people who come to Evercore and the people we hire. And therefore, I think we have real opportunity across the board. Operator: [Operator Instructions] We'll go next to Brennan Hawken with BMO Capital Markets. Brennan Hawken: I wanted to drill into the lesser comp leverage expected this year versus recent years. So recognizing it's probably a question poll, you guys also said that you don't expect all that much revenue growth year-over-year in the second quarter. So the sort of strong note we're starting on here is not indicative. But could you talk about the different factors and how much of a factor it is maybe tougher comps and therefore slowing revenue growth versus the continued elevated market -- competitive market for talent, both acquisition and retention out there. Timothy LaLonde: Yes. Sure, Brennan, I'm happy to answer that. The first thing I would do is point out -- you did characterize my comments correctly. But I'd point out that in the last couple of years, I would say we made by my measure, pretty strong improvement, meaning we went from 67.6% down to 65.7%. So that was 190 basis points. And then as we move from '24 to '25, we went from 65.7% to 64.2%. That's another 150. And so that's 340 basis points, then we reduced another 20 basis points this quarter. So that's 360 basis points in just a little over 2 years, which at least by my measure, is pretty strong improvement. And we're striving to continue to make improvement and we're hopeful that we can and we will I think what I intended to convey is that it just won't be the same magnitude, we don't think, as we saw in the last couple of years because it's just hard to keep it going at that rate. And then you raised the question is -- whether my comments based on outlook for revenue or and/or outlook for the continued competitiveness in the environment for hiring and retention. And I think it's the -- on the revenue, as you heard in John's comments, I think we remain optimistic and enthusiastic about our outlook. The backlogs, pipelines continue to look good. activity levels remain high. And we're hopeful that this recovery has -- and our performance in it has some real legs to it. And so I wouldn't interpret anything I've said as a reflection of our views on the revenue outlook. It is the case, I think that competition remains high for the best talent. We're, of course, committed to obtaining the best talent. And as you've seen these last couple of years and into the early part of this year, we've continued to be pretty proactive. And augmenting our partner ranks and really strengthening that in a way that looks like it's earning positive returns for us, and we're continuing to attempt to do that. So I think I think the key takeaways here is we are striving to make continued progress, although it might not be the same magnitude we've seen in the last couple of years, where we remain optimistic about the outlook. And -- but yes, the market for talent remains competitive. Brendan O'Brien: Got it. I know it's one question, I can re-queue for sure, but you mind if I ask a follow-up? With operator just on hold, so I'm guessing we're towards the end here. Timothy LaLonde: Sure. Please. Brennan Hawken: Right. So it's sort of a related -- it's actually a real follow-up, Tim, on that point, like you guys -- and clearly, the revenue rate, your productivity numbers have been great. So the hiring is very effective, like this is not a criticism. It's just a question of like mocking facts. Is sort of the competition for Talent, has it like scaled to a level? And is it that the talent you guys are hiring has also scaled to a level where maybe a return to the sub-60% comp ratio is going to be more challenging. And therefore, like you guys are driving the business and you want to make sure that you're not compromising on standards and whatnot. So that's just sort of like reality and a lot of nature now. Or is that the way we should think about it? Timothy LaLonde: Yes. So Brennan, thanks again for the follow-up question. I think it's interesting as part of -- as you can imagine, we're always doing internal exercises that analyze our results and our returns and where we can do better and so forth. And I've just been through some exercises recently to look at the returns on our partner hiring. And I would say that the NPVs and the IRRs have been pretty good. And what we're focused on, first and foremost, is serving our clients with excellence. But secondarily, building value for the firm. And I'm wanting to be careful that when we're doing what I would call positive NPV partner hiring and partner hiring that has pretty good IRRs associated with it. I don't suboptimize by focusing solely on the comp ratio and thereby foregoing certain hires or additions that are clearly adding value. And so that would be the first point. Look -- and on the sub-60% what I've been, I think, saying hopefully, pretty consistently over these last quarters and even years is we're focused on making improvement next quarter and the quarter after and the quarter after that. And I -- we're still a ways from sub-60. And so I'm just trying to do better than we did last year. And then at the end of next year, you can ask me how much improvement I think I can make in '27. But for now, we're just trying to improve from where we are. John Weinberg: Let me make one comment about the marketplace for talent. Your presumption, which is that it's more competitive and it's hard to get people is absolutely true. The ante has been raised. Spending virtually every day in the market talking about it, you -- I'm sure you know that a big piece of our strategy is bringing in A+ players. And an A+ player will without doubt, create value for the firm. And so we're spending a lot of time on really bringing the high-quality people. And I think what's happening for our firm is that because we have really been able to create momentum for our franchise that we are seeing more and more highly talented people who actually are interested in coming to us because we have a firm, I think that people really think has momentum and really is going to provide them an opportunity to work with other talented people and to provide even better service for their clients. And so I think that as it's getting more competitive as difficult as it is, I think it's not easier for us, but I think that we are actually finding real success with high-quality people continuing even as the market gets more competitive. Brennan Hawken: Yes. That's clear in the numbers, too. Operator: Our next question comes from James Yaro with Goldman Sachs. James Yaro: So 2025 was a heavily large strategic M&A driven market. I'd just love to get your thoughts on a few things as it relates to that particular part of the market. To what degree do you believe the large strategic deals could actually accelerate from here, which is already a fairly strong base. Maybe within the answer, could you speak to the ingredients that you hear in the boardroom that are driving a large cap activity? And could you also comment on considerations around the antitrust backdrop in the U.S., perhaps ahead of and after the U.S. midterms? John Weinberg: Okay. Well, with respect to the M&A market generally and large cap, there is no question that large cap has been a major part of the market probably for the last 18 months or so, maybe even more. And part of that is that companies and managements are seeing that it is more and more acceptable and actually welcomed by shareholders. As you know, throughout the time that certainly I've been on Wall Street, there are times when the market is really excited about big strategic deals and there are other times when the market really is looking for something else. And right now, amidst uncertainty and some instability, big deals are actually welcomed. And there is an opportunity in the current regulatory environment to get deals done, whereas there have been other regulatory environments that are not as friendly to larger deals. And I think there is a perception that if you're going to do a larger deal and a management team and a Board, you better put it on the agenda and be looking at it and make a decision if you want to do it because this is a good time. Not every deal is going to be waved in but there is a willingness to consider these on the regulatory side that I think is quite promising and positive. And so we see this continuing. We see that there is going to continue to be strength. Some of the factors -- you asked what the factors are. Well, clearly, there are some factors that really exist that really have existed before, but they're quite strong right now. Number one, CEO confidence is very sound and quite high. Number two, the economy despite the fact that there is a dislocation and there is some uncertainty geopolitically, the economy is quite resilient. Number three, the financing markets are not just open, but they're really abundant. And so there's real financing opportunity. And so there is a real can-do attitude. And I think finally, I think Boards are very comfortable that scale is good right now for lots of different reasons whether it has to do with how do you deal with AI? How do you deal with the world around you? How are you thinking about your supply chains and things. Scale is actually looked upon as a positive, not a negative. And so that's another reason. So I think all those factors are pointing to the fact that not that everybody is going to do a big deal, but there's a lot of very large companies that are thinking about deals, and we're seeing those in the boardrooms that we're in. Operator: Our next question comes from Mike Brown with UBS. Michael Brown: So cash continues to really run at high levels here and the buyback activity was accelerated in the quarter. How are you thinking about maybe that cash level? And can you just give us an update on capital allocation here as you think about share buybacks? And then is it possible that we could see more inorganic M&A here? You've got some quite good success here with Robey Warshaw. Could we see more deals in the future? Timothy LaLonde: Yes, sure. So Look, we've always been committed to returning capital to our shareholders. And I think if you look back, we're pretty proud of our track record, which includes consecutive years of dividend increases, 6 consecutive years of repurchasing shares at least equivalent to our RSU issuance as part of the bonus process and, in fact, in many years, significantly more. And so we're very cognizant of the return of capital to shareholders and committed to it. And then with respect to acquisitions, look, we're always seeking to create value, whether it's through developing our people internally, hiring people externally. We certainly evaluate situations from time to time. But I would say we've not been a serial acquirer, and we're highly selective. John Weinberg: Yes. And what I'd say about the strategic acquisition side is Robi Warshaw was a unique opportunity for us. and we were really excited to do that. We're not looking to use our capital by doing acquisitions. In fact, to do an acquisition is a very high bar for us. So I would just say, if you're thinking about how we're going to use our capital, it's going to be in terms of we're going to return capital. We're going to be looking at really high-quality talent to bring in and really drive our base businesses. We're going to look at new businesses and talent that can help us drive those and build those out. And I think probably last on the agenda is we are looking at the landscape and we're always open to thinking about something strategically. But you can -- I think what I'd like to make sure you understand is it's not a priority for us. Where we do it if something really came along that was really exciting for our franchise, but I think it's a very high bar. Operator: Our next question comes from Devin Ryan with Citizens Bank. Unknown Analyst: Neil Eloff on here for Devin. Our question is on AI and the impact of the business model. There have been a lot of headlines suggesting that AI will eventually lead to some decompression. So would love to get your thoughts on the narrative and maybe that protects the sector? And then also if you guys could quickly touch on like AI implementation at the firm and what productivity gains you're already seeing? John Weinberg: Why don't I start and let Tim carry it through in terms of implementation of the firm. We think that AI provides tremendous opportunity. And we're spending a lot of time understanding both how it impacts us internally as well as how it's going to impact businesses in the longer term. There is no question that there is an investment theme that having AI as a part of business, there are going to be certain businesses that are going to do a lot better because they have AI and they're doing -- using AI. There are other businesses, they're going to feel impaired by what AI can do to basically somehow undermine what they actually do and what they bring to the market. And both of those possibilities create value to -- if you're looking at the strategic side and the M&A side. So we think that we have to be very cognizant of what's happening in the market, the impact that AI has on different companies and really how that's going to change the competitive landscape sector by sector, business by business. For us internally, I'll let Tim answer it, but we're spending a lot of time on it. Timothy LaLonde: Yes, sure. Look, echo John's comments about the landscape, which is we're excited about AI in 2 ways. And one is what John just described because we think it may change the very structure of certain industries or types of businesses. And that type of structural change is good for a firm like ours, which advises on situations like that. So we do think that over time, AI with respect to our market will create opportunities, and we're, of course, in the middle of that and doing what we can to assist our clients in evaluating all of that. And then internally, we're also excited. We -- by the way, in the past year, we have a new Chief Information Officer who has joined us. And then we've also continued to augment that team at the top levels. And it's an area in which we're investing. And we think that in the shorter run, what one is likely to see is productivity enhancements, and those could be both with our banking team and possibly with the way we run our business inside of corporate. And then in the longer term, I think you could see opportunities for continued deal efficiencies, and I'm talking about processing now and potentially idea generation. And so we're working hard at this, as I'm sure many firms are. And we think there's some real opportunity. But I think I'll leave it at that and... Operator: And we'll take a follow-up from Alex Bond with KBW. Alexander Bond: Just wanted to ask around the ECM outlook for the remainder of the year. It does seem like there's a decent amount of pre-IPO activity at the moment, especially with some of the larger deals rumored to launch later this year. So could you just share how you're thinking about the ECM opportunity through year-end? And also maybe help us size up the potential there maybe relative to last year's full year results. John Weinberg: Well, we see that the ECM business looks quite healthy. There's some very high-quality large companies that would like to get to market. And we don't see any reason why that's not going to happen. As you all know, there -- if geopolitical gets really difficult, that could interrupt some of the equity market opportunities. But we don't really see that right now. And we think that it's very possible that this could sustain itself. We do a lot in the biotech side, and we see real opportunities there throughout the year. So I think our point of view is that equities is going to continue to be strong, that the ECM opportunities will actually play out quite nicely and that some of these big deals will be successful and they will fuel the market and create excitement. So we think that for the most part, unless there's a real interruption we could easily see a healthy ECM market that compares quite well to last year. Operator: And our final question is a follow-up from James Yaro with Goldman Sachs. James Yaro: I just want to clarify one of your comments. And then thinking about the run rate further afield. So I just want to confirm that you expect the second quarter revenues this year to be closer to 2Q '25 levels. And then is that in part because of your comments around certain larger deals closing faster in the first quarter. So then if I sort of run that out further, that would mean that maybe a more normal cadence of deal closings not impacted by deals closing faster would be sort of the back half of the year? Is that a fair way to think about it? Timothy LaLonde: Yes. I think the first part of your question, I think you characterized things appropriately. We did talk about some deals that look like they would close in 4Q being a bit prolonged in closing in 1Q and then other deals that were significant that look like they were going to close in 2Q accelerating and therefore, ended up with a quite large 1Q. And then we're -- we would encourage people to look at our business and evaluate it across a multi-quarter time frame. And that's kind of always -- our business, the nature of our business has been that it's a little bit lumpy, and that's been true for years. And so we're encouraging a multi-quarter outlook. And then secondly, I think -- and you heard it quite strongly from John, and I have exactly the same view, which is we think business is good. We are coming off a record year last year, a record quarter this quarter. Activity levels remained strong across essentially all of our businesses. And so we're enthusiastic about the outlook. And that's probably, I think, if you take all of those comments in totality, that's a fair representation of what we think. John Weinberg: Yes, I agree with that. And one thing that I'm sure that you're aware of and seeing as we are, the fee environment, there are lots of -- there are more large fees and big deals that are in and around than really I can remember. And I think what that does is it does create lumpiness. So I don't think that's going to be something that we're going to be rid of in the near future, and maybe I hope we don't. I think that we are seeing really high-quality big things inside the firm right now. We anticipate that some of those will not happen. But we believe that some will happen. And I think that there is a -- it's a very healthy market right now. And I think we feel really good about the fact that we're participating in a very tangible way. How that translates into quarter by quarter by quarter, I think we've always said it's going to actually play out and there will be lumpiness. And -- but I'm sure that you're used to that, and you've seen it and maybe there's even more lumpiness if the fees are big. Operator: Thank you. This does conclude today's question-and-answer session as well as the Evercore First Quarter 2026 Earnings Conference Call. You may now disconnect.
Operator: Good day, and welcome to Blackbaud's First Quarter 2026 Earnings Call. Today's conference is being recorded. I'll now turn the conference over to Tom Barth, Head of Investor Relations. Please go ahead, sir. Tom Barth: Good morning, everyone. Thank you for joining us on Blackbaud's First Quarter 2026 Earnings Call. Joining me today on the call is Mike Gianoni, Blackbaud's CEO, President and Vice Chairman; and Chad Anderson, Blackbaud's Executive Vice President and Chief Financial Officer. Please note that our comments today contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our most recent Form 10-K and other SEC filings for more information on those risks. Today's discussion will focus on non-GAAP results. Please refer to our press release and investor materials posted to our website for full details on our financial performance, including GAAP results, full year guidance and long-term aspirational goals. We believe that a combination of GAAP and non-GAAP measures provides a more representative view of how we measure our business. Unless otherwise specified, we will refer only to non-GAAP financial measures on this call. Please note that non-GAAP financial measures should not be considered in isolation from or as a substitute for GAAP measures. We've also provided a slide presentation with supplemental data and additional highlights and financial metrics. The earnings release, supplemental tables and presentation are available in the Investor Relations section of our website on blackbaud.com. And with that, let me turn the call over to you, Mike. Michael Gianoni: Thank you, Tom. Good morning, everyone. We appreciate you joining today. We delivered solid execution against our operating plan to start 2026 with a continued focus on efficiency and a strong pace of product innovation. AI enablement remains key to our success, both in terms of the capabilities we're delivering to customers and in the way Blackbaud is operating. We continue to invest aggressively in innovation to produce meaningful product enhancements throughout our portfolio, including generative and agentic AI capabilities. Our products enable our customers to dramatically improve engagement levels, raise more money and lead their organizations while increasing operational efficiency, ultimately allowing them to spend more time executing on their missions and less time on administrative tasks. No company can better help our customers deliver on their meaningful missions in Blackbaud. Blackbaud brings nearly 45 years of specialized domain expertise, serving as a system of record for our customers with deeply embedded workflows purpose-built for the social impact sector. Further, we have invested and continue to invest heavily in cybersecurity and AI governance to help ensure that our customers' data remains secure and that our AI solutions use data responsibly. Many organizations in our vertical markets have limited IT resources and face turnover and staffing shortages. We win because our solutions are intuitive, require fewer complex customizations and integrations and translate advances like AI into practical outcomes customers can trust, building confidence that is supporting longer contract terms at renewal. As I mentioned last quarter, over 20% of our customers are on 4-year or longer contract terms. This quarter, we continue to see a nice mix of new customer logo wins and selling additional solutions to our existing customers. Some examples of new logos were competitive displacements across many of our verticals. This includes several private K-12 schools that purchased our total school solution, a performing art center who moved to Financial Edge NXT and Advisory+ to unlock potential donors and meet their expansive goals, a well-known veterans organization, which replaced a fragmented siloed fundraising environment with our end-to-end solution, allowing a better view of their donors and improving their collaboration across the fundraising team and a U.K.-based nonprofit buying Raiser's Edge NXT as part of a wider digital transformation project and now can benefit from our AI innovation and solutions. To be clear, we are all in on AI and are confident that AI strengthens our ability to deliver differentiated solutions and drive future growth as well as also improving how we run Blackbaud. While in the first quarter, our first agentic AI offering, the fundraising development agent launched into general availability ahead of schedule, we're still early stages of broader commercialization, which we view as potential upside over time as we make guidance and investment decisions. Our engineering teams are using leading generative AI tools, such as Microsoft GitHub Copilot, Anthropic Claude and other approved solutions to accelerate development, reduce time to remediate software issues and increase throughput on new product delivery. We're also expanding generative AI features across our portfolio, including Blackbaud AI Chat, which provides contextual answers and can initiate actions within workflows. Blackbaud AI Chat is differentiated because it's embedded within our systems of record, leveraging customer permissioned data, Blackbaud-specific data and years of social good benchmarks within a governed environment. Our competitive differentiation is clear. We have a data moat, one of the most robust sets of philanthropic and social impact data processed and secured in real time, combined with decades of domain expertise, native integrations across systems of record, engagement, financial accounting and intelligence further strengthen that advantage. These AI capabilities are seeing strong adoption momentum. Usage of AI-powered workflows has expanded meaningfully over the past several quarters and more than half of our Raiser's Edge NXT customers use machine learning-enabled donor prospecting, generating nearly 30 billion predictions annually and creating a feedback loop and improves outcomes across our customer base. These capabilities are powered by an extensive and diverse set of data sources, including Blackbaud Institute survey and benchmarking data, licensed data sets from leading providers, identity resolution capabilities and specialized philanthropic data sets, such as Blackbaud Giving Search. Our applied intelligence layer aggregates behavioral signals across the ecosystem to feed predictive analytics and advanced AI models, supported by strong governance, cybersecurity and a focus on data integrity. We have embedded new agentic AI solutions in our products that can operate with appropriate access to customer permissioned data and workflows. Agents For Good is a new product category for Blackbaud. And as I mentioned earlier, in Q1, we launched our first Agent For Good solution, the Blackbaud Fundraising Development Agent, which is an agentic virtual team member that can proactively take on complex tasks, workflows and initiatives while operating within strong governance and oversight by power users. This agent natively embedded within the trusted Blackbaud environment enables teams to identify and steward donors that they do not have the capacity to reach today, unlocking new revenue streams at a fraction of the cost possible in the past. This fundraising development agent is a new revenue line and a significant accomplishment for Blackbaud. To frame this a bit, the pricing model is an annual subscription fee similar to the majority of our products. It's still early, but we expect the price will be in the tens of thousands per year, and we expect to cross-sell subscriptions to thousands of existing customers in addition to new logo sales. Applicable donations raised by the development would be processed through Blackbaud Integrated Payments platform, driving additional transactional revenue. This new development agent is already producing results for our early adopter customers and is now commercially available with several new customers in Q1. Additionally, we have run a number of webinars and sales events for our existing customers where attendance was oversubscribed and the reception was enthusiastic. We couldn't be more pleased. And this development agent is the first of many agents we plan to introduce across our product portfolio as part of our Agents For Good initiative. To reiterate, we believe this agentic AI solution embedded within our system of record provides a competitive advantage to Blackbaud. Our agents leverage our proprietary and customer-specific data within existing workflows, underpinned by strong AI governance and cybersecurity framework. Additionally, we offer our solutions through multiyear subscription model and do not utilize seat-based pricing. Now turning to how we use AI internally. We continue to identify, experiment and scale solutions across engineering, sales and marketing, customer success and the back office to improve speed and operational efficiency. For example, we're using AI to write code, better qualify inbound interest, support sales development and improve customer support workflows, helping teams focus more time on high-value interactions. While our record of past performance is compelling, we're just getting started. In addition to improving our operations, go-to-market capabilities and increased pace of innovation, we have successfully addressed many of the challenges the company faced over the past few years, allowing us to focus on the value creation opportunities ahead in the near, mid and long term. Last quarter, I walked through our longer-term aspirations. As a reminder, from 2026 through 2030, we are targeting double-digit annual EPS growth driven by the following: organic total revenue growth of 4% to 6% annually with potential upside based on viral events and new product launches, such as our Agents For Good catalog. Adjusted EBITDA growth of 6% to 8% annually while expanding our adjusted EBITDA margin to 40% plus. Slide 24 in our investor deck provides more detail on the planned initiatives to drive continued margin expansion, most of which are already underway. We expect this improvement in EBITDA to translate to strong free cash flow growth. The $285 million midpoint of our 2026 cash flow guidance range represents a 25% CAGR since 2020. These strong cash flows drive a purposeful capital allocation strategy with consistent stock repurchases as a core tenet. We expect to deploy 50% plus of our cumulative free cash flow generated between 2026 and 2030 towards stock repurchases and continue to reduce our common stock outstanding. This is a continuation of our significant stock repurchase program over the last couple of years in which we reduced common stock outstanding by approximately 14% since Q4 2023. Based upon the planned growth across revenue, EBITDA and cash flow as well as our aggressive repurchase of our shares, our goal is non-GAAP EPS CAGR of 13% plus between 2026 and 2030. We're off to a good start in 2026 in that regard, with expected non-GAAP EPS growth of 17% at the midpoint of our 2026 guide, and we're confident in our ability to deliver double-digit EPS growth in '27 and beyond. To conclude, we believe Blackbaud is a compelling investment with multiple opportunities for strong shareholder returns. From an operating, financial and strategic perspective, we are pleased to be carrying momentum into the years ahead. We look forward to our continued journey. I would like to congratulate the entire Blackbaud team for a good start here in 2026. And as always, thank them for their job well done. Thank you. I'd now like to turn it over to Chad to walk through Q1 results and our guide for the remainder of 2026. Chad? Chad Anderson: Thanks, Mike, and good morning, everyone. I'll walk through our first quarter 2026 financial performance and then discuss our full year 2026 outlook. In Q1, we continue to balance cost management with growth opportunities and innovation. As we do each quarter, we were focused on durable subscription-led performance, prudent expectations around transactional revenue and steady progress on profitability and cash flow. Our Q1 performance reflected continued demand for our mission-critical solutions and growth in transactional revenue volumes. As always, transactional revenue can be variable quarter-to-quarter, and our guidance philosophy assumes performance that is consistent with historical patterns and does not include any assumption for viral giving events. Q1 organic revenues grew 4.2% to $281 million. Non-GAAP adjusted EBITDA of $99 million was up $7 million with an approximately 1 percentage point improvement to adjusted EBITDA margin. The mid-single-digit organic revenue growth and improved EBITDA margin speaks to the power of our operating focus, which positively impacted earnings per share. Non-GAAP EPS increased to $1.14, up 20% compared to $0.95 last year, and our free cash flow was up nearly $50 million year-over-year to $37 million in the quarter. Our strong expected free cash flow for the year gives us confidence to continue investment in a number of critical areas like go-to-market initiatives, product innovation and share repurchases. In Q1, including the net share settlement of employee stock compensation, we bought back approximately 4.5% of our shares outstanding at the end of '25 -- 2025 and continue to demonstrate a strong commitment to our belief in the value of Blackbaud. It was a solid start to the year. Now moving on to our 2026 outlook. Based on our first quarter performance and our current view of the operating environment, we are reaffirming the full year guidance ranges and assumptions we provided in February, including significant earnings and cash flow improvements. The detail on these ranges can be found in our earnings release and investor presentation on the website. As a reminder, we expect 2026 quarterly financial performance, including revenue growth and profitability to be heavily weighted to the back half of the year and particularly the fourth quarter. Looking to 2026 and beyond, we believe free cash flow will grow significantly, and we anticipate utilizing at least 50% of our cumulative free cash flow from 2026 to 2030 for share repurchases. Beyond that, the company has tremendous optionality for dynamically allocating capital to its highest and best use based on market conditions, including additional stock repurchases, repayment of debt or synergistic tuck-in M&A. We have a lot to be proud of, executing well through recessions, financial crisis, COVID and the shift to the cloud through a commitment to providing meaningful solutions to our customers and strong execution of our operating plan. On our journey to becoming a Rule of 45 company, we remain committed to providing investors with an attractive financial model balanced between growth of revenues, earnings and cash flows, along with prudent and purposeful capital allocation strategy, and always, we remain focused on providing enhanced value to our customers and our shareholders. Thank you all. Mike and I would be happy to take your questions. Operator? Operator: [Operator Instructions] We will now take our first question from Brian Peterson with Raymond James. Brian Peterson: Congrats on the strong quarter. So Mike, maybe starting with you. I know you made the comment on AI in thousands of customers on Agents For Good. Was that comment specifically about 2026 adoption or is that a little bit longer term? And as you've had these webinars and kind of early adopter customers, are there any cohorts whether that's by end market or maybe by products that they use that you think would be the first to lean into the agentic functionality? Michael Gianoni: Yes, Brian, thanks for the questions. So as I mentioned, we announced in general availability, our first fully agentic product, the development agent. Importantly, too, that we announced that we have a new category of products that will be announced throughout this year and go forward. That's the first one. There will be more coming. So that was in early adopter mode back half of last year, first part of this year, went to general availability in March. That is targeted to thousands of existing Blackbaud customers. That's the target. So we're ramping up sales. It just went to availability about a month ago, 6 weeks ago or so. It's a great opportunity. We've had hundreds and hundreds of customers on webinars super interested and excited about this new product. It provides them scale that they can't get to today. And it's a new category for us and for our customers. So really great start achieving our planned numbers, and it's product one in the category of many coming. Chad Anderson: Mike, since we're on the topic of AI, I just want to take a moment on how we're continuing to invest in AI. As I mentioned during the call, we're reaffirming our guidance for the year. However, just to ensure you model quarterly spreads correctly, we expect adjusted EBITDA dollars to decline slightly year-over-year in the second quarter due to planned AI investments for customer-facing products as well as for internal operations. Michael Gianoni: Yes. Just to hit on that a little bit. Our quarters are never linear anyway. They haven't historically been linear. We're always weighted to the tail end of the year with giving, holiday giving, things like that. Full year guidance is great. We're investing in AI. We're partnered with Anthropic, investing in their tools. So really happy for our first quarter results and the guide for the year. Operator: Our next questions come from the line of Rob Oliver with Baird. Robert Oliver: My question, Mike, and Chad, one for me, is you guys called out some nice new logo wins in the quarter. And I know you guys have talked in the last year or 2 about that being a really important part of your go-to-market motion now. So I was wondering if you could help us try to put some precision on that, quantify in any way sort of perhaps as you look at, say, new bookings, what percentage of that is perhaps new logos? And how does that change relative to before you guys started to really focus on the new logo motion? Anything there you can provide for us about some of the context around the new logo wins would be -- and the progress there would be helpful. Michael Gianoni: Yes, Rob, thanks. Our sales teams are divided into vertical market teams. So they're focused on specific markets. For example, K-12 teams only sell to K-12, nonprofits, higher ed, et cetera. And then they're further separated into back-to-base sales and new logo sales in each of those markets. And we've got really good motion in back-to-base and new logos. Back to base, just quickly mentioned, this new development agent is predominantly early targeted to back to base because it's embedded inside of our system of record products, like RE NXT. However, we think these new capabilities will drive new logos also because new customers will want to buy the system of record to get access to the agentic AI solution that's embedded inside of it. So that's kind of one part. But we're seeing a nice set of wins across the verticals in new logos and even on enterprise deals. One of the deals we closed in the first quarter is one of the largest deals in our history. And I think that deal was a 5-year contract. It's an enterprise deal with a large nonprofit. They bought pretty much the product portfolio to very large veterans, not focused nonprofit, which I think is outstanding. And they bought several products from us across the portfolio, a really great competitive enterprise win in a long-term contract. So K-12, nonprofits, YourCause, and I've named a bunch of customers in last quarters on YourCause, a lot of Fortune 500 customers signing up for YourCause. So we've got kind of a flywheel effect on new logos and stickiness for our existing customers. The other thing I'll mention is we've got some really unique Blackbaud-only things going on that we don't talk a ton about. We do with customers, but not in these calls. We got something called the Blackbaud Verified Network. That is a network effect where we've connected our YourCause customers to our nonprofit customers. So for example, a new logo customer buying, let's say, Raiser's Edge NXT will buy that platform to do fundraising, of course. But they're in the Blackbaud Verified network, which means they're connected to hundreds of YourCause customers and millions and millions of employees, and they can promote themselves in the network. So it's a connected network between nonprofits or fundraisers and kind of global Fortune 500 companies using those platforms, using our payments rails and it's only available at Blackbaud. It's a connected network effect, which is interesting, and that's getting attention from new logos as well. Operator: The next questions are from the line of Parker Lane with Stifel. Tom Roderick: When you look at the investments that you plan to make around the AI opportunity, I think you said adjusted EBITDA dollars might be a bit lower year-over-year as a result of that investment. How much of that is coming from... Michael Gianoni: Parker, we said in Q2. Tom Roderick: In Q2? Yes, okay. Michael Gianoni: It's a smoothing comment around the quarters, not the year. To be clear, we only guide to the year, as you know. But go ahead. Tom Roderick: So as we look at that investment, though, how much of that is going to come in the form of R&D and sales and marketing and other OpEx items versus potential impacts to gross margins as customers take on more consumption elements as part of these agents? Michael Gianoni: Yes. We see an opportunity to improve our gross margins year-over-year. We have in the first quarter, you could see with our results. So we've got some great gross margin improvement opportunities. Some of that is continued closure of 2 outstanding legacy data centers. Some of it is to get away from some legacy software infrastructure we use from vendors that we're not going to need in the future. Those will end. So we see gross margin improvement opportunities. Our investments -- a lot of the AI investments are for new product builds, like the Agent For Good category, and we'll be announcing new products as we go throughout this year, either in early adopter or general availability. Again, development agents is sort of the first one out in the gate from a general availability standpoint. We also have a lot of investments in tools we use and in engineering. There's just a tremendous opportunity for AI enhancements in engineering. We have agents now that we've built in engineering that obviously, we use things like Anthropic Claude for code generation, but things we've built for user stories, acceptance criteria, code scaffolding, and it's been reducing workloads from days to hours. And so we're building agents in engineering to run engineering to get more engineering scale. And that's a big flywheel effect, and we're seeing that happen already. AI assistant anomaly detections for governance, integration, just a lot of AI innovation in productivity in engineering. And that's sort of the inside picture, the outside picture is these new products we're bringing to market. Operator: Our next question is from the line of Kirk Materne with Evercore ISI. Peter Burkly: Mike, I was wondering, can you talk through some of the thought process on the pricing structure around sort of the agents and sort of subscription model? Obviously, a lot of folks are talking about sort of outcome-based pricing and things like that. I know ultimately, it's all about the value delivered to your customers. So how do you guys land on that? And how are you making sure they start seeing the value kind of out of the box to get them excited about and really creating a reference flywheel as well? Michael Gianoni: Yes, you bet. We're looking at all the pricing models available to us with these new AI products. So this first product, the development agent is a pricing model, which is like our other products. It's an annual subscription fee in a multiyear contract. It's not usage-based yet. So that's a great model. We don't have any seat-based pricing. I think you know that. So we've got annual fees for our subscription products. And then we've got -- more than 1/3 of our company is transaction-based pricing now, which is arguably outcomes-based because it's a percentage of a transaction, a little over 1/3 of our total revenue. But for the AI products, the first one is an annual subscription fee, and we're looking at other models. We've got more products coming out, so we're looking at usage models and other models of pricing, and there'll be various pricing models based on the product and where the product fits. The thing that's really exciting, though, Kirk, is the availability of the addressable market changes because our solutions are purchased from our customers' IT budgets, right? But there are other budgets that our customers have. They have budgets for hiring more people for fundraising, which is an available different budget, not an IT budget, right? There's budgets in other hires of different vendors that we can reach into outside of the traditional IT budgets where they purchased Blackbaud products. And so we're looking at total spend of our customers outside of IT budgets as a growing addressable market for us. Operator: At this time, I'll hand the floor back to management for any further remarks. Tom Barth: Okay. Well, thank you, everyone, for joining us today. We will be attending a number of investor events in May and June to include several investor conferences, which are listed on our IR website. We hope to see you then or hope to speak with you very soon and wish you continued success. Have a great day. Operator: This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.
Operator: Good morning. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 PPG Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Alex Lopez, Director of Investor Relations. Please go ahead, sir.. Alejandro Lopez: Thank you, Tracy, and good morning, everyone. This is Alex Lopez. We appreciate your continued interest in PPG and welcome you to our first quarter 2026 earnings conference call. Joining me today from PPG are Tim Knavish, Chairman and Chief Executive Officer; and Vince Morales, Senior Vice President and Chief Financial Officer. Our comments relate to the financial information released after U.S. equity markets closed on Tuesday, April 28, 2026. We have posted detailed commentary and the accompanying presentation slides on the investor center of our website, ppg.com. Following management's perspective on the company's results, we will move to a Q&A session. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. The presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials, which are available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information, please refer to PPG's filings with the SEC. Now let me introduce PPG Chairman and CEO, Timothy Knavish. Timothy Knavish: Thank you, Alex, and good morning, everyone, and welcome to our first quarter 2026 earnings call. Before we begin today's call, I want to take a moment to remember our dear friend and colleague, John Bruno. His passing last week is a tremendous loss. John was not only an exceptional contributor to our company, but a wonderful husband, father and friend whose leadership, intellect, compassion and human touched everyone who knew him. Thank you to the many of you that reached out. It meant a lot to us here at PPG, but more importantly, meant a lot to his family. Now I'd like to start by providing highlights of our first quarter 2026 financial performance, and then I will share our outlook. I am pleased to report that PPG delivered solid performance in the first quarter demonstrating our ability to maintain growth momentum in a challenging macro environment, led by our differentiated aerospace and PPG-Comex businesses. We achieved organic sales growth of positive 1%, marking our fifth consecutive quarter of higher year-over-year organic sales. This growth was driven by higher selling prices with further selling prices increased, announced and expected price realization for the remainder of the year targeted to offset any inflationary impact much more quickly than prior inflation cycles. First quarter net sales totaled $3.9 billion, up 7% year-over-year with adjusted earnings per share of $1.83 and an increase of 6% versus the prior year. Our segment EBITDA margin was over 19%, reflecting solid execution of our share gains the benefits of our technology advantage products, strong brand recognition, along with excellent commercial execution. Turning to our segment performance. In Global Architectural Coatings, first quarter net sales rose 13% to $965 million with positive 2% organic growth. Organic sales for Architectural Coatings, Latin America and Asia Pacific increased by a mid-single-digit percentage compared to the first quarter of 2025 with equal contributions from selling price and sales volumes. In Mexico, retail sales were especially strong, and project-related sales continued their recovery. Architectural coatings sales in Europe remain mixed by country with a low single-digit percentage decline in total, which was partially offset by favorable pricing. Segment income increased more than 30%, supported by pricing and execution of self-help actions, which drove EBITDA margins up 230 basis points above prior year levels. We expect organic sales and margin momentum to continue into the second quarter of 2026. Also, we continue to reduce our overall structural cost in our architectural business in Europe, and we have 4 manufacturing plants that will be closed in the second half of 2026, resulting in lower fixed costs going forward. Our Performance Coatings segment delivered 5% positive net sales growth to $1.3 billion, led by double-digit organic growth in aerospace and high single-digit growth in traffic solutions and protective and marine coatings. PMC has now delivered 12 consecutive quarters of positive volume growth. As expected, automotive refinish organic sales decreased by double-digit percentage as sales volumes were lower, reflecting customer order patterns stemming from our U.S. distributors during the first half of 2025. On a positive note, we are seeing improvements in the U.S. industry accident claims. February and March industry claims were down 1% year-over-year which now makes 3 out of the last 4 months with low single-digit declines year-over-year, reinforcing a normalization trend after the high single-digit to double-digit declines most of last year. Another positive data point we are seeing our U.S. distributor fulfillment orders sequentially improve as industry level -- or inventory levels normalize. In refinish, as we previously communicated, we expect year-over-year organic sales volume declines in the second quarter as we lap strong prior year first half order patterns. We anticipate volume growth during the second half of 2026. Segment EBITDA was strong at 24%, driven by the strength of our aerospace business despite the unfavorable year-over-year refinish volume comparisons. In fact, the investments that we are making in aerospace to support our customers' demand have resulted in improved productivity and improved output. And we are well positioned to deliver consistent growth in this key end market for the next several years. I would like to again emphasize the important and sizable role that our aerospace business plays as a key growth engine for our company. Demand is expected to remain strong given our highly specialized and qualified products for both the OEM and aftermarket channels. Our backlog remains at about $350 million despite year-over-year output increase. The PPG aerospace business provides unique technology advantage products in various subsegments transparencies, sealants and adhesives, coatings, services and engineered materials. In each one of these verticals, we have a strong presence that allows us to provide a superior customer offering, including excellent distribution capabilities, creating a truly unique value driver for our company and for our shareholders. Another differentiator of PPG aerospace business is the balance is not only between OEM and aftermarket, but also we are not overly dependent on any subsegment as we are well balanced across commercial, general aviation and military. I'd like to highlight just 2 examples of the proprietary technology advantaged aerospace products that are designed to provide customized chemistry solutions inside the can and improve productivity for our customers outside the can. PPG's PRC Seal Caps deliver lightning strike protection for aircraft while significantly improving application time and material usage for our customers. ARE 3D Printed Sealants, our customized gasket solution that offers superior quality and increased customer productivity solutions. Now moving to the Industrial Coatings segment. First quarter net sales grew 4% to $1.6 billion. Organic sales were flat, including share gains that led to 1% sales volume growth well outpacing industry demand as we realize the benefit of the share gains with strength in automotive OEM coatings and packaging coatings. We expect to launch additional share gains in the industrial segment throughout this year and into 2027. From a business unit standpoint, our automotive OEM business delivered flat sales volume which outpaced the decline in global automotive industry production by about 300 basis points. The industry decline was largely due to year-over-year comparisons in China as the first quarter of 2025 was very strong and first quarter of 2026 was tepid. Expectations for China industry comparisons are to improve in the coming quarters. For PPG, due to our strong product portfolio and commercial execution, we expect to continue outgrowing the market in the second quarter and for the full year in 2026. Organic sales for our Industrial Coatings business were down a low single-digit percentage as lower volumes due to inconsistent demand were partially offset by positive pricing actions in this business. Packaging coatings organic sales increased by a double-digit percentage year-over-year, growing significantly above industry rates. Sales volumes for PPG are up over 20% on a 2-year stack basis, driven by share gains as customers continue to select our leading technologies. Segment EBITDA margin was negatively impacted by regional mix as China automotive production dropped in comparison to a particularly high level in the first quarter last year. Looking ahead, we expect sequential margin improvement driven by incremental industry and PPG sales volume growth, selling price realization and aggressive cost management. With the impact of the Iran war, costs have risen for raw materials, energy, logistics and packaging across the coatings value chain. In this rapidly evolving macro environment, we are focused on our ability to supply our technology differentiated products and services to our customers, which will allow us to maintain our organic growth momentum. I'm expecting the actions we are taking, combined with PPG's portfolio strengths to offset geopolitical-driven impacts. To date, we have had limited impact from supply shortages and we have the ability to leverage our unique broad and global supply chain footprint to securely source raw materials and drive competitive pricing for those raw materials. Additionally, we are leveraging our years of expertise in product formulation technology and our ability to maximize the use of AI to optimize products to drive reductions in our raw material costs. Considering our procurement capabilities, our global footprint, our formula flexibility, our portfolio strengths and the current macro environment, the impact of PPG is expected to be a mid-single-digit percentage in the cost of goods sold for the remainder of the year. We expect to fully offset these costs and we are proactively raising prices to secure raw materials for our customers. Given the distribution models and price mechanisms we have in place, we expect to deliver price cost realization much more rapidly than we did in previous inflation cycles. This realization will impact our Global Architectural Coatings, Performance Coating segments. First, and then flow through our Industrial Coatings segment. Importantly, there are areas where we anticipate potential upside to the second half of 2026, such as our growing aerospace business, on our architectural coatings Mexico business where demand has been strong. Additionally, industry demand in automotive refinish has been recovering faster than we initially expected. As a result, we are reaffirming our full year 2026 EPS guidance range of $7.70 to $8.10. Again, let me reemphasize, our top priority is supporting our customers' needs through technical expertise, products with consistent quality and continuity of supply even as market conditions remain highly dynamic. Now let me talk about our balance sheet and cash. Our strong balance sheet continues to provide financial flexibility. We ended the quarter with cash and short-term investments of about $1.6 billion. We repaid $700 million of debt that matured in the first quarter and returned approximately $260 million to shareholders through dividends and share repurchases. Our cash deployment remains focused on maximizing shareholder value creation. Looking ahead, our accelerating organic growth momentum and proactive pricing actions position us well for the year. For the second quarter of 2026, we expect strong growth in aerospace, Architectural Coatings, Latin America, protective and marine coatings, automotive OEM coatings and packaging coatings, while demand in Architectural Coatings Europe, automotive refinish coatings and in global industrial end-use markets will remain below prior year. We expect overall pricing for the company to be positive, with the strength from our Performance and Architectural Coatings segment and flat year-over-year price in the Industrial Coating segment, with all 3 segments having improved pricing versus the first quarter. This will result in organic sales growth for the second quarter in the range of flat to positive low single digits versus the prior year. Given our ability to outperform the macro through our commercial momentum, combined with our pricing realization and self-health actions, we expect to deliver adjusted earnings per share growth in the range of flat to a positive low single-digit percentage for the second quarter versus the prior year period. We are confident in our strategy and the strength of our portfolio, we're delivering higher growth and earnings despite challenging market conditions. Thank you to our PPG team around the world who make it happen and deliver on our purpose every day. We appreciate your continued confidence in PPG. Now before we open the line for questions, I would like to congratulate Vince on his upcoming retirement on this, his final PPG earnings call. Thank you, Vince, for more than 40 years with PPG. Thank you for being a great contributor to our company, a driver of results, a driver of shareholder value, great mentor to many talents, a great teammate to our operating committee, a great partner to the last 3 CEOs and a great friend to me. Thank you, Vince. As PPG makes the CFO transition, we are delighted to welcome Jamie Beggs as our new Chief Financial Officer. With her extensive background and financial leadership, Jamie brings a wealth of experience that will be instrumental in driving our continued growth and success. Please join us in extending a warm welcome to Jamie as we work together to achieve new milestones and create lasting value for our stakeholders. We are thrilled that Jamie is joining our team. Now operator, please open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Our best to you, Vince and our very best for John's family as well. I guess, Tim, first off, on your comments on price cost recovery will be much faster than prior period. Can you just outline some of the specific changes you've made to support that? And then related to that, you've been very calibrated in the past with pricing with previous inflation cycles to kind of maintain your market share, et cetera. Do you expect volumes to hold this go around as well, just given the near 20% increases you've implemented thus far? Timothy Knavish: Yes. Thanks, Ghansham. Look, the difference this cycle from a volume standpoint is, as you know well, for the last 3 years, we've been building our organic growth muscle, right? So we have to tremendous momentum from an organic growth standpoint that will help as we move forward with price increases. And if you compare it to a couple of cycles, the pre-COVID cycle of 2017, '18 took us about 1.5 years to get to run rate neutrality. The 2021 cycle, which was the post COVID, combined with the Texas freeze took us about a year. Now we're talking months. So it's a combination of 2 things, Ghansham. Number one, we've always had a good pricing muscle. And with each cycle, we refine that. We learn, we get better, we get faster. Now from a volume standpoint, we're combining it with positive momentum on the organic growth muscle that we're that we've been building and demonstrating results for these last 5 quarters or so. So we're confident that we're going to be able to strike the right balance between pricing and volume. Operator: Your next question comes from the line of Michael Sison with Wells Fargo. Michael Sison: Nice start to the year. And congrats to you, Vince, and John will be sorely missed. In terms of your outlook for the second half, Tim, how do you see volumes sort of shaping up sort of at the midpoint? Any effects from the [indiscernible] conflict on each of the segments? And just give us your thoughts on the type of volume growth that could be -- that's kind of embedded in your outlook? Timothy Knavish: Yes. Thanks, Mike. And everything, unfortunately, you kind of have the time stamp right now because it's just so fluid out there, right? But based on today's environment, we feel good about the second half volume. A couple of things. First of all, aerospace beat our own expectations in Q1, and we continue to see improving output there. And as you know, we're essentially sold out. So every incremental output that we get is an incremental volume for us. Second, and this is a significant one for us. We had said all along that Refinish would have positive volume in the second half, it's recovering a little earlier than we expected, and we got 2 really good sets of data points in U.S. collision claims rates as well as improving U.S. distributor fulfillment orders. Then on top of that, we've got the industrial segment share wins that we will continue to launch as we move through the year. And finally, Mexico, it's really recovered nicely for us. Retail is doing great. And with each passing quarter, projects get a little better. And in some of our other businesses, packaging doing great up double digits, PMC is doing well and has been doing well for a couple of quarters. We've got a good order book there. We have not seen any order book changes with the Iran conflict. Obviously, we've seen change in feedstock pricing, but when it comes to volume and order books based on today's current environment, we have not seen any negativity in our order books. Vincent Morales: Yes, Mike, this is Vince. Just to peeling back a little on the refinish comments. Just as a reminder for everybody in the baseload, we had very strong refinish activity in the first half of '25 distributors stopped up inventory. We were well above market. the second half, the patterns hurt us. So we have much easier comps. So we still expect muted volumes in refinish for the year, but the comparisons are why Tim said, we expect growth year-over-year in the second half. Operator: Your next question comes from the line of John Roberts with Mizuho. John Ezekiel Roberts: And it was good to see the PPG family come together for John Bruno. And welcome, Jamie and Vince again, thank you very much for all the good service. And good luck with the Penguins, tonight. Tim, on your guidance on Slide 9, raw materials, how much higher do you think costs are going up for the smaller competitors who maybe buy raw materials through distributors? And with the dynamic pricing that's going on out there, are there gaps opening up between competitor pricing? Or is it relatively orderly and competition is generally moving up together? Timothy Knavish: John, thanks for your support of Mr. Bruno. It's really hard for me to say what our smaller competitors are seeing. But what I will say is we are getting more favorable deals and contracts and agreements because of our volume, right? So even though prices are going up and we're projecting basically mid-single digits here based on today's knowledge, but -- and that's on the back of our volume, our global footprint and our ability to get the best deals in the market because of our scale. So I would imagine that our smaller competitors are likely like we're seeing higher prices than what we're seeing on the input costs. Operator: Your next question comes from the line of Chris Parkinson with Wolf Research. Christopher Parkinson: Vince, a sincere congratulations. And most importantly, thank you for the life advice going back to 2015 before I was even married. And I must disagree with one of my colleagues here, go Flyers. Okay. In terms of the second half of the year -- sorry, that was in honor of our friend. In terms of the second half of the year, Tim, perhaps you could just give us kind of the puts and takes. Obviously, you've been very proactive in pricing in terms of those dynamics, which is helpful in terms of to contemplate, but also that you could have some positive mix effects, specifically in PC. So could you just kind of go through your thought process in terms of how you're thinking about margin in the second half, what you want to take, what you need to see or just overall? Timothy Knavish: Yes. Thanks, Chris, and thanks for your support here recently with the passing of John as well. The -- first of all, I'm confident that we'll have positive volume in the second half. I'm confident that our net EBITDA margin will improve in the second half. And that's because of a number of things. Number one, aerospace will continue to grow, good margin contributor. The refinish recovery that we've already talked about, a big impact on our net-net margin. Mexico continuing to grow. That's a good contributor to our net margin. So from a mix standpoint, it's really all good news for us, right? And then from kind of a top line and gross margin impact standpoint, it's all those 3 things added together, plus the launch of our Industrial segment share gains as we progress through the -- and these are ones that are already locked in. So we've got a favorable mix. We've got pricing actions underway. Yes, raws will be higher, energy costs will be higher and logistics costs will be higher. But we feel good about the playbook and the actions that are in place to drive not only the price cost side of the offsets, but also these other really PPG portfolio differentiators that will drive elevated mix in volume as we move through the second half. Vincent Morales: And baked into our guidance, Chris, if you recall, we still have cost actions we're taking. We have several plants coming out in Europe in the second half of the year. And so that will help from a cost structure perspective. Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: First, the best to John's family. And Vince congrats and thank you, sincerely. Tim, just on the 20% -- on the price increases you've announced, how should we think about the realizations that you will realize and -- and beyond the current spike in raws, the sustainability of these increases when and if oil prices and other input costs come down. Timothy Knavish: Yes. So thanks, David. Thanks for your support. So we announced -- I announced to the world price increases up to 20% and -- and that's because I had to notify our customers around the world that there are some products that will have to go up that much, right? It will be -- we'll have -- the actual realization will be spread out depending on customer size, depending on what products they actually buy depending on the actual cost impact of those products. So in order to offset the mid-single-digit cost of goods sold increase that we're expecting for the remainder of the year, we need to realize low single digits to offset that as a total company. And then we're ready if the situation gets worse, if we have to flex more moving through the year, we'll do more, and we'll drift our price up to mid-single digits. But right now, based on today's operating environment, net-net, we need to get solid low single digits to offset mid-single-digit COGS inflation. Now what happens if and when it comes down the other side, just like there's a lag going up, there will be a lag coming down. And also, what's yet to be determined, Dave, is what's the impact of the structural damage to petrochem facilities in the region that may stretch out when -- how and when things back down. Vincent Morales: And just a reminder to everybody, in the prior cycles, in almost every business we went out for more than one price increase as the situation has developed. So again, this is not uncommon that we price for what we know today, and then we adjust as necessary. Operator: Your next question comes from the line of Frank Mitsch with Fermium Research. Frank Mitsch: Yes, rest in peace, John. We lost a truly great one. Vince, I'm roughly calculating that this is your 80th conference call as I was wondering if you could take a moment or 2 and recap the highlights of each one of those conference calls and perhaps they'll put a plaque in the conference room where these conference calls are held. But my business question is free cash flow generation was negative in the first quarter as is typically the case. I was wondering how you look at the potential for free cash flow generation in 2026? And feel free to be as bold as possible so you can give Jamie a stretch target. Vincent Morales: Frank, if you look at our cash from ops, we were up about $50 million versus the prior year. We did have elevated capital spending lower than the prior year, which was our target. So again, our cash forecast did not change versus what we gave in January. We're expecting a good strong cash here. Can you talk about the priorities? Timothy Knavish: Yes, yes. Look, first of all, we were thinking about a dartboard rather than a plaque here. We expect a good proxy walking around number for us is for our cash flow to be about 10% of our sales, right? And then the prioritization of that, of course, we got -- we got a dividend that not everybody has. We'll keep that going. We've got some really good organic investments like what we're doing in aerospace, for example. We've been looking at M&A. It's not our #1 priority. It's not the tip of the spear for us, but we will do deals when they make sense for our shareholders. In my 3.5 years, we've done 2 small bolt-ons. So we'll use that if and when the right asset comes along at the right price. But beyond that, I think we're now at 10 straight quarters of doing repo, and you should expect me and Vince and my new CFO to follow that same pattern. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: A 2-part question. What about the present, what about the future? In the quarter, what was the currency benefit to EBIT year-over-year? And you speak about getting ahead of raw material cost inflation, but you do sell to the auto OEM industry. Do you think that, that an industry area where you will be ahead of raw material inflation or behind on it and in your spending for aerospace that you speak about being capacity and cost [indiscernible], at a point in time you are late a little bit because you have more capacity to be available as [indiscernible] or it doesn't work that way? Timothy Knavish: Yes. Jeff, we might have lost you at the tail end of your question, but I think I've got all 3 parts of them. So I'll take auto. Go ahead, Jeff, please. Yes, you're very choppy, Jeff. We lost you at the end. Jeffrey Zekauskas: But what -- Timothy Knavish: Yes, go ahead, please. Jeffrey Zekauskas: Just try to answer the questions, we'll go from there. go from there. Timothy Knavish: Okay. Thank you, Jeff. I'm going to take the 2 and I'll let Vince take the currency one. On auto, I mean, look, we all know it's the toughest of our businesses to get pricing, but we get pricing. If you look at the last cycle, we got pricing coming out of COVID and on the Texas freeze. One thing that helps with this situation, actually, Jeff, is it's such an acute and well-known event and driver to inflation and petrochem feedstock that you start from a stronger point of not having to demonstrate and explain and convince. Now that said, as you know, we also have some index contracts that will automatically move but will automatically move with some time lag. So in our guide, in our normalization by run rate normalization by the beginning of '27, Q1 of '27, we've got all of that factor in, okay? Now aero, absolutely, you will see increases in output volume and therefore, revenue for our aerospace business going forward. I would put it in a couple of different buckets. One, we're continuously improving output with some of these incremental debottlenecking kinds of investments that we've been making round numbers over the last year. So we've put about $150 million into those kind of investments. And they're paying off as we go, you'll see some improvement in late '26 into '27 coming out of those investments. Second, we announced a new plant to the tune of about $380 million that will be more of a step change in volume output as we get out into like the '28 time frame. The third category Jeff, is we've got a lot of engineering work happening right now. We're not done with investments, and I can't get ahead of my board or anything, but we're still working on additional investments. So you should, going forward, expect to see a nice increase in our aerospace revenue. Vince, do you want to take the currency? Vincent Morales: Yes. Jeff, the currency impact for Q1 was less than $0.10 year-over-year positive. That was included in our guide for the year and for the quarter. If you look at the balance of the year, so the remaining 3 quarters, the total is going to be less than half of that and most of that in Q2. So again, all included in our original guide back in January. Operator: Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Vince, congratulations to you. Appreciate all of your help over the last 20 years or so, and you'll be greatly missed, as well Mr. Bruno, of course. My question maybe for Tim, is on the subject of M&A. I think you made a small acquisition recently in [ Ozark ] as part of [ Traffic Solutions ]. Curious about that deal. But maybe more importantly, can you put external growth into forward context for us, Tim, I think you've been quite focused on organic growth now that you have 5 quarters of expansion under the belt. Do you feel like you have a little bit more license to grow [indiscernible]? Or should we expect PPG to remain highly disciplined as you have a [indiscernible]? Timothy Knavish: Yes. Thanks, Kevin. So [ Ozark ], I would call that an opportunistic asset. Highly synergistic for us with double underlying under highly -- we paid -- we got a good price relative to what it was sold for a number -- a few years -- just a few years ago. Walking around number, Kevin, about $100 million in revenue. So it's a small bolt-on, but what it does because of the highly synergistic nature of it is it actually helps our margin position and cash generation position for that small business force of traffic solutions. So it raises its margin profile a little bit. But the reason we have that in our portfolio is it's a really consistent cash generator for us that we can use to then deploy that cash on things like new aerospace plants. And it's steady because it's safety and infrastructure, it's very, very, very stable. And so it just kind of spits off cash for us year-over-year. And now those are -- that will deliver financial -- great financial returns for us and our shareholders because of the high synergies and the relatively low purchase price. Now more broadly, I am very pleased with how the teams have grown that organic growth muscle. And Kevin, I remember some of our conversations 4 or 5 years ago. And so we're not done. So we're pleased with 5 straight quarters of organic growth, and by the way, outperforming market over those 5 quarters. So I think we've always had a license. We've always had a strong enough balance sheet to do whatever M&A we want. But the way I think about it is, first of all, it's got to be the right asset. I'm not interested in just buying something so that I can put another [ plaque ] somewhere or paying something purely for the sake of raw material synergies. I want to buy something that adds to our future organic growth and margin profile. Second, it's got to be the right time. The last few years has not been the right time as we've been first of all, exiting some things in our portfolio and tripling down on organic growth. I think we can handle some deals now, but it still has to be at the right price because I've got some pretty darn good organic investment opportunities that have great financial returns. And so I'm really -- to use your word discipline, we will continue to be disciplined, but I do think we have the right license to do selective M&A. And you've seen us with 2 small bolt-ons this year. We actually did a kind of a productivity outside the can, [ Allied Products ] acquisition earlier in the year to help industrial refinish pipeline. So it's still not the tip of the spear for us. We will still be extremely disciplined. We will look at every asset that comes available, but it's got to meet the right assets, the right time and the right price. Operator: Your next question comes from the line of [ Duffie Fischer ] with [ Vertical Research Partners ]. Unknown Analyst: Two questions on refinish. So first, when you anniversary Q2 revenue will be down about 10%, has that done anything structurally to the margin there? Do you need to do any restructuring to reset that on a profitability basis? And then second, once we get through the snapback in the second half, should we think about that business structurally being kind of flat volumes and price of 2% to 3% going forward? Timothy Knavish: Yes. Duffie, I think you're pretty close there. We don't -- as far as the go forward, right, the go forward, it's not going to be a high-volume growth industry. But it's still a good revenue growth and EBITDA growth machine for us because of our ability to capture value for the total value that we deliver, because of the work we've been doing to expand our TAM, right, we're selling more into the body shops now than we ever did beyond just the coatings right? So when you think about digital tools, Moonwalk, [ Allied products ], we just have a bigger target TAM. That's enabling us to grow. And then we've had a really good run of share gains there. And so as the market normalizes, this will be -- it will never be our highest growth business but this will be a nice low single-digit growth business for us with really good margin and really good cash. Now to the first part of your question, we have not had to do massive restructuring with this decreased volume. So what you should expect instead is as things normalize in the second half, you should expect outstanding leverage because you've seen some of that negative leverage in the second half of last year, right? So you should expect a really nice snapback in larger leverage. Now define snapback though, that's really a bottom line snapback. We'll reach this industry, we expect to return to normal over the last x number of years and normal being a minus 1, minus 2 industry volume. We'll do better than that because of our expanded TAM and then a really nice EBITDA machine for us. Operator: Your next question comes from the line of James Hooper with Bernstein. James Hooper: I'd like to go back to aerospace, please. We've got Europe running out of jet fuel flight cancellations and other potential issues if the conflict continues. Can you remind us what your split of OEM and aftermarket is? And can you give a little bit of detail about how aerospace growth could be affected in flying in our [indiscernible]? Timothy Knavish: Thanks, James. I'll give you the spoiler alert answer first, and I'll give you a little more details. We see no impact of the potential slowdown in flight miles in some parts of the world in 2026. And here's why. First of all, the business is balanced roughly 50% OEM, 50% aftermarket. And then it's balanced across commercial aviation, general aviation and military. So kind of one of those subsegments may be affected from a flight mile standpoint, but it's one of many subsegments. And then even that subsegment has learned a very hard lesson coming out of COVID. What the commercial customers did is they radically depleted their inventories of aftermarket products, including a lot of what we sell. And because of the strength across the breadth of this industry, that has never been able to be rebuilt. And I still get phone calls like literally weekly about restocking and our ability to keep aftermarket parts and components in stock and rebuild. So what you should expect, if that does happen, I think we would be rebuilding aftermarket inventory for some time period while the -- all the other segments that I mentioned remain red hot. And I think, if anything, it could be an improved mix for us. Because typically, your aftermarket mix is a little richer than your OEM mix. So I watched news like everybody does, I see the impacts and I see customer, CEOs talking about this on the news, but we see really no impact here because don't forget, because of what's going on in the world here and the NATO rebuilding their own defenses, the military side of the business growing tremendously on both OE and aftermarket as well. Okay. Operator: Your next question comes from the line of John McNulty with BMO. John McNulty: Give condolences to John's family, a great guy. And Vince, it's been a really, really great ride. So appreciate all the help. Just a quick one on the protective and marine business. I think the expectation was that we were going to see that the growth in that business moderate just given the huge success you've had over the last 1.5 years or 2 in that? And yet you still put up high single digits. I guess, can you help us just think about what drove that presumably stronger-than-expected volume and how we should think about that throughout the rest of 2026? Timothy Knavish: Yes. So we did -- we have been stacking like lots of double-digit and high single-digit quarters for multiple years. So just by the laws of big denominators, we did expect that to come down somewhat, but we are very pleased that in Q1, we still put up high single-digit, high single-digit growth up of much bigger denominator. I'd say in the short term, the real strength is Asia and has been Asia and both marine newbuild and marine aftermarket have been stronger. But we -- look, there's a lot of protective coatings work going on around the world. There's a lot of data center work going on around the world. We just launched and announced a comprehensive end-to-end offering for data centers. There's a lot of infrastructure work going on. So we see that business continuing to be a growth engine for us for the rest of -- and, frankly, beyond because it's got some strength in some segments that are relatively unaffected by some of the macro issues that are affecting other places. Operator: Your next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: Thank you Vince and my condolences [ on course ] for the Bruno family. John, he was a wonderful man. Could I ask you to talk a little bit about the Industrial Coatings margins? They came in a little bit softer than expected. You did call out Chinese mix on the auto OEM side, and I guess there was a little bit of negative price, I think, is a function of the index contracts. But can you just help us understand why the margin contraction was so great and how to think about it through the balance of the year? Timothy Knavish: So Vincent, you could answer the question for me because you nailed it, right? So let me just give a little more color to it. So the biggest impact was China auto. As predicted, it was going to be down. I think it was down well into the double digits as far as China auto builds for the quarter. And that -- we outperformed that a bit because of some of our wins, but it was still down significantly. And that is -- that's a really good operating margin business for us. Because if you think about it, 1 out of every 3 cars in the world is built in China, so the scale and the leverage is stronger on the upside when things are in produce in China, but the negative also happened. So that was the biggest. The second was even though we're talking constantly over these last 2 months about raw material increases, we were still rolling off some index contracts from the deflationary cycle, mostly in our automotive and our packaging businesses, which are both in Industrial segment. We should be wrapping up the roll-off of those in Q2. We've got a few more that have to roll off, but that's really been the drivers. Number one, automotive OEM builds in China; and number two, index contracts. Vincent Morales: And just to add some more color on China auto builds. So last year, as Tim mentioned, a very, very strong quarter for the industry for PPG. This year, the reverse. On a 2-year stack basis, we're almost flat in China. So again, we had -- the comp issue is really what we're dealing with. Operator: Your next question comes from the line of Josh Spector with UBS. Joshua Spector: My congratulations to Jamie and condolences to John's family. He'll be sorely missed. I did want to ask on pricing and surcharges specifically. How much are you using surcharges this cycle versus prior years? And then kind of similar again, on auto OEM, have contract structures changed to allow that? Or has the cycle of recovery become a lot faster in that part of the business? Timothy Knavish: Yes, Josh, we do -- we are using surcharges in some of our businesses more this time because freight costs are up, right? Whereas most of our contracts and even noncontractual businesses we're typically talking about raw materials, but we've got 2 additional ones that don't get as much attention, but are pretty significant to that MSD contributor and that's logistics cost because of diesel fuel and European energy costs because of what's going on. So I'd say in those 2 specific areas, we're using surcharges more than we typically have. Beyond that, it's largely been our typical price increase, which we prefer. They're stickier. And again, on the auto question, most of the auto contracts are designed around raw material inflation, less so around freight and energy. But those are discussions that we should have with our customers first, and we've started those discussions. So more to come there. But most of the index contracts that we have in auto and packaging are pretty much limited to raw materials. Operator: Your next question comes from the line of Matthew DeYoe with Bank of America. Matthew DeYoe: Yes, just echo what everybody has been kind of saying, Vince, congrats on a great career. And clearly, the sentiment on John, it was just such a core salt of the earth, guy. So yes, it's a huge loss. I wanted to ask on the OEM side in China. There's often discussions in the market around Chinese competition or China moving downstream coatings is one area where I feel like maybe there's roadblocks to how far China can compete globally. But in that market, are you seeing better competition? Are there pushes to adopt local suppliers for the auto companies? And then on the refinish side, I mean -- well, I'll just stop there and I'll let you answer first. Timothy Knavish: Okay. Thanks. So there's no doubt that the China automotive OEM industry has gone through an absolutely radical transformation in the last couple of years with Western JVs dramatically shrinking and the China domestics dramatically increased. And there's also no question, Matt, that those Chinese domestics have worked hard to get Chinese supplier content on the vehicles. But I would say thus far that has all been on, let's call it, hard parts, rigid part, [ rigids ] that the Chinese companies can produce. When it comes to automotive coatings in China, there is already more competition in the rest of the world because you've got the traditional 3 plus you've got the 2 Japanese players and 1 Korean player. But the finished film on a vehicle, it's very hard to duplicate, very hard to reverse engineer all the way back to resin formulation, which is really the backbone of automotive OEM coatings. And so that gives automotive OEM coatings some protection. I don't know what my peers do, but I know we produce the secret sauce outside of China and ship it into China. So the coatings by nature of you're buying kind of mixed chemicals and the end product is a finished film on the vehicles, which because of the transformation that happens in the application and curing process is different than the mixed chemicals. It does give a nice buffer of protection for automotive OEM coatings versus other automotive parts. Operator: Your next question comes from the line of Laurent Favre with BNP. Laurent Favre: I'd like to come back to the [ MSD ] inflation point, please. And we're seeing energy solvent, lots of spot prices on upstream chemicals that more than 50%, sometimes 100%. And I understand you guys don't buy products that are just out of the cracker, but still, I'm wondering how it's only are those spot numbers not coming through in actual contract negotiations? Or are the [indiscernible] producing resin and additives being squeezed? Or is it that you have contract protection for the rest of the year, but then you will see further inflation into 2027? Timothy Knavish: Thanks, Laurent. I'd say 2 comments on that. Of course, our suppliers are seeing that energy impact, mostly in Europe. And we've got that built into that blue box of mid-single digits overall cost of goods sales inflation. And then the second piece of energy is logistics costs, and we've got that built in there as well. And so we have all of that, everything that -- you got to timestamp it based on our best estimates of today's operating environment. But we've got that all built in. We're absolutely seeing what you described. But we've got that all built into our guidance. Vincent Morales: Yes. Laurent, as you're fully aware, most large coating companies do not pay anything close to spot, especially when you have commodity inflation spikes. So we're contracted and we are negotiated. Most of our raw material supply, not only for the quarter but for the full year. Timothy Knavish: And one final comment I'll make, really, Laurent, on your question and even more broadly, on the whole raw material and total inflation. One big difference between this cycle and the cycle coming out of COVID, which was a combination of post-COVID recovery and the deep Texas freeze, at that time, you'll recall that coatings industry volumes were very high. A lot of coatings companies could not keep up with customer demand. So that is a significant difference when it comes to what does a coatings company see, particularly a large coatings company see versus what is being seen upstream. Supply-demand, economics still matter. And that's a big differentiator between this cycle and the last cycle. Operator: Your next question comes from the line of Patrick Cunningham with Citi. Patrick Cunningham: I'd like to echo my deepest condolences to John's family and the PPG family and thank you to Vince for your partnership over the last few years. For Architectural EMEA, I think you mentioned closing 4 manufacturing plants in the second half. Could you quantify the fixed cost savings there and cost to deliver? And then maybe more broadly, how you are thinking of the long-term strategic value for the business -- Timothy Knavish: Yes. Are you there, Patrick, we lost you a little bit? Patrick Cunningham: I'll just try again. [indiscernible] you mentioned clean and -- yes, yes. And then the [indiscernible] long-term sort value -- Timothy Knavish: Right. So yes, 4 plants, here's a good walk-in around number for you. You'll see the savings in 2027. But a good walk in a round number is about a $25 million reduction in our fixed cost base from the closure of those 4 plants, and that will go on in perpetuity for us. Now in total, you'll see about a $50 million structural restructuring benefits for our company this year. You'll see another $50 million next year, with $25 million of that $50 million being tied to these 4 plants. Now that's not the only kind of fixed cost reduction initiative. We've got some restructuring, some back-office people costs being reduced. We've got a lot of formula optimization costs going over there as well. So the value to this business, when markets are even flat, this business delivers really good earnings and really good cash to us. That's the value in the portfolio. We have, over the last couple of months, seeing a little better volume. We had a good March in architectural Europe. So as you think about this market getting to flat volume and the mission of this business in our portfolio is to spin off good earnings and good cash so that I can deploy that in some of our higher growth, higher technology businesses. Every -- we're constantly evaluating each of our businesses' mission and how they're performing to that mission in our portfolio. But that's how we're viewing it today. And we've got -- we're not waiting. We're not sitting around hoping and waiting for a European recovery. We're building a business that can perform well at flat volumes. Operator: There are no further questions at this time. I would now like to turn the call back over to Alex for closing remarks. Alejandro Lopez: Thank you, Tracy. We appreciate your interest and confidence in PPG. This concludes our first quarter earnings call. Operator: This does conclude today's call. Thank you all for attending. You may now disconnect.
Operator: Greetings. Welcome to the Materion First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, Kyle Kelleher, Director, Investor Relations and Corporate FP&A, you may begin. Kyle Kelleher: Good morning, and thank you for joining us on our first quarter 2026 earnings conference call. This is Kyle Kelleher, Director, Investor Relations and Corporate FP&A. Before we begin our remarks this morning, I would like to point out that we have posted materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access the materials to the download feature on the earnings call webcast link. With me today is Jugal Vijayvargiya, President and Chief Executive Officer; and Shelly Chadwick, Vice President and Chief Financial Officer. Our format for today's conference call is as follows: Ju will provide opening comments on the quarter. Following Jugal, Shelly will review the detailed financial results in addition to discussing expectations for the remainder of 2026. We will then open up the call for questions. Let me remind investors that any forward-looking statements made in the presentation, including those in the outlook section and during the question-and-answer portion, are based on current expectations. The company's actual performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release we issued this morning. Additionally, comments regarding earnings before interest, taxes, depreciation, depletion and amortization, net income and earnings per share reflect the adjusted GAAP numbers shown in Attachments 4 through 8 in this morning's press release. The adjustments were made in the prior year period for comparative purposes and removed special items, noncash charges and certain discrete income tax adjustments. And now I'll turn over the call to Jugal for his comments. Jugal Vijayvargiya: Thanks, Kyle, and good morning, everyone. I'm pleased to be with you today to discuss our first quarter performance and share what we're seeing for the remainder of the year. VA sales were up 10% year-over-year, excluding precision clad strip, reflecting strong demand across most of our end markets. Electronic Materials sales increased 18% versus last year, driven by AI-led demand for high-performance memory and data storage applications, along with strengthening demand in power applications and communication devices. Precision Optics delivered 43% year-over-year top line increase with new business coming online across multiple end markets and applications. While Performance Materials sales were roughly flat, excluding precision clad, this was primarily due to shipment timing. The order book continues to build driven by strong demand in aerospace and defense, energy and telecom and data center. We expect a meaningful step up in sales in Q2 and throughout the rest of the year. As for precision clad strip, the production ramp-up is progressing well and remains on schedule. We are now producing at the same rate as before the quality issue. We also delivered strong earnings in Q1 with EBITDA margins exceeding 20%, a record for our first quarter, given our typical seasonality. Electronic Materials continues to be an outstanding performer, achieving record profitability on very strong sales. Precision Optics continued to exceed expectations delivering its fifth consecutive quarter of profitability improvement through strong execution on its expanding top line. Turning to our end markets. It's encouraging to see most markets in the high single-digit to low double-digit growth rate. Even more importantly, our order book continues to strengthen. We exited the first quarter with the highest backlog in our company's history. Order backlog is up more than 20% year-over-year and 15% since the start of the year. Defense orders remain strong with $60 million received in the first quarter, and we have more than $300 million in open RFQs. Over the last 12 months, aerospace and defense order rates are up 50%, energy is up 20% and semiconductor is up 10%. We are seeing clear acceleration across many of our end markets, and our teams are preparing to meet the higher levels of demand. Going a layer deeper. I want to step back and frame a broader trend that is having a significant impact on Materion, the rapid proliferation of AI. When people think about our role in AI, they often focus on our semiconductor deposition materials and with good reason. We are a leading supplier of advanced electronic materials that enable advanced node chips and data storage devices. We're in the midst of an AI-driven semiconductor growth cycle and that strength is evident in our Electronic Materials performance. But our impact on AI extends far beyond the chip itself. Materion has become a critical enabler of the AI ecosystem not at the edges, but at the core. AI acceleration depends on advances in semiconductor performance, high-speed connectivity, next-generation optics and high-reliability energy and space systems. Each of our 3 businesses provides foundational materials for these applications. Our Performance Materials business plays a strategic role across the infrastructure powering AI F.rom advanced data centers to global connectivity networks and next-generation energy systems, our engineered alloys and beryllium-based materials enable performance, reliability and safety at scale. We supply growing nickel materials for fire protection systems and data center build-outs and specialty alloys for connector technologies and high-speed semiconductor fab equipment. Our materials support the wireless backbone that carries AI-driven data, including towers, undersea cables and base stations. In energy, our beryllium alloys enable breakthrough nuclear reactor technologies needed to deliver the continuous power AI will require and are widely used in oil and gas drilling and processing equipment. In space, our materials are integral to propulsion systems, spacecraft structures and launch components supporting global connectivity and observation networks. Our Precision Optics business provides advanced optical coatings and engineered components essential for data center expansion, immersive AR/VR technologies and advanced semiconductor manufacturing. Our solutions support connectivity and semiconductor equipment applications, and we supply optical filters and systems for satellite technologies that enhance communication and earth observation capabilities. As semiconductor devices become smaller and more complex, advanced optics have become increasingly important for lithography, inspection and metrology, improving accuracy, boosting yield and enabling scaling for next-generation chips. Our Electronic Materials business sits at the center of semiconductor innovation, supplying the advanced deposition materials and engineered targets required to manufacture chips at the most sophisticated nodes. These materials power both high-performance computing and data storage devices used in data centers as well as the semiconductor components that enable global connectivity. Beyond deposition, we provide a range of high-value niche materials supporting AI, including alloys for next-generation nuclear reactor technologies, specialty metals for base station applications and chemicals used in satellite heat shield tiles. While smaller in scale, these applications highlight the depth of our capabilities and our ability to solve complex materials challenges in high reliability environments. As AI workloads scale, demand for the engineered materials we produce is rising rapidly, and we are already seeing that momentum reflected in customer demand, order rates and new business wins. Looking ahead to the remainder of 2026, we are energized by the growth our businesses are experiencing and the opportunities emerging across our markets. We're seeing momentum build across the company in our end markets, our incoming order rates and the new business opportunities our teams are securing. Our results reflect their hard work and commitment. We now see a path to delivering low double-digit top line growth for the year while continuing to seize opportunities for the future. This gives us even greater confidence in delivering results toward the high end of our earnings guidance provided in February. I want to express my gratitude to our global teams for their dedication and unwavering commitment to excellence. Their work, driving innovation, ensuring quality and supporting our customers is the foundation of Materion's success. And finally, I'd like to thank our customers and shareholders for their continued trust and partnership. With that, I'll turn the call over to Shelly to review the financial details. Shelly Chadwick: Thanks, Jugal, and good morning, everyone. During my comments, I will reference the slides posted on our website this morning, starting on Slide 11. In the first quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were $261.8 million, up 10% from the prior year when excluding Precision Clad Strip. All in, value-added sales were up 1%, reflecting broad-based demand across our portfolio. Growth was led by semiconductor and aerospace and defense, consistent with the momentum Jugal outlined. Electronic Materials delivered another very strong quarter with 18% growth, supported by continued strength in semiconductor applications and new business wins. Precision Optics grew 43%, driven by new programs across multiple end markets and marking its highest quarterly sales since 2021. Adjusted earnings per share were $1.27, up 12% from the prior year. Turning to Slide 12. Adjusted EBITDA was $52.9 million or 20.2% of value-added sales, a record first quarter margin for Materion and an increase of 9% year-over-year. We delivered 140 basis points of margin expansion, driven by higher volume, favorable price/mix and strong operational performance, particularly within Electronic Materials and Precision Optics. Moving to Slide 13. Let me review first quarter performance by business segment. Starting with Performance Materials, value-added sales were $139.5 million in the quarter, down 13% year-over-year, but up 5% sequentially. This year-over-year decline was driven by lower precision clad strip sales as production levels ramped through the quarter. Outside of clad, we saw strength in aerospace and defense and telecom and data center, partially offset by timing in energy orders. Adjusted EBITDA was $28 million or 20.1% of value-added sales, down 32% compared to the prior year period. This decrease was driven by the lower clad strip volume and the impact of operational challenges in the back half of 2025 that amortized into this year. Looking ahead, we expect meaningful sequential improvement in the top and bottom line, driven by stronger aerospace and defense sales and higher PMI shipments with momentum building into the second half. As Jugal highlighted, the order backlog continues to expand, and we are well positioned to support higher demand levels throughout 2026. Turning to Slide 14. Electronic Materials delivered another exceptional quarter. Value-added sales were $91.6 million, up 18% year-over-year, driven by semiconductor strength as our materials continue to enable advanced node technologies and AI-related applications. Adjusted EBITDA reached a record $25.9 million, up 95% year-over-year with more than 1,000 basis points of margin expansion and a record adjusted EBITDA margin of 28.3%. The meaningful improvement reflects higher volume, favorable price/mix and strong execution across the segment. For the remainder of 2026, we expect to see continued growth, supported by semiconductor market outgrowth and contributions from new business wins. On Slide 15, Precision Optics value-added sales were $30.7 million, up 43% year-over-year, driven by new business wins and growth across every end market. This marks the segment's strongest quarter since 2021 and its fourth consecutive quarter of top line growth. Adjusted EBITDA was $5.5 million or 17.9% of VA sales with significant year-over-year margin expansion. This reflects higher volume, favorable mix and continued execution on the business transformation. The segment has now delivered 5 consecutive quarters of bottom line improvement. We expect both top and bottom line growth to continue in 2026 as new business ramps in key high-growth markets and the transformation progresses. Now moving to cash, debt and liquidity on Slide 16. We ended the quarter with a net debt position of approximately $474 million and $192 million of available capacity on our existing credit facility with leverage slightly below the midpoint of our targeted range at 2.1x. We strategically built inventory in Q1 to support expected sales growth in Q2 and into the second half, which temporarily constrained free cash flow generation. We continue to expect strong free cash flow for the full year as volume increases and working capital normalizes. Finally, turning to Slide 17. Our record backlog and strong order rate momentum exiting Q1 give us increased confidence in our full year outlook. We now expect low double-digit top line growth for 2026 and are affirming our adjusted EPS guidance of $6 to $6.50 with growing confidence in delivering toward the upper end of that range. With the strong start to the year, we also remain committed to making progress toward our midterm EBITDA margin target of 23% while generating strong cash flow over the balance of 2026. This concludes our prepared remarks. We will now open the line for questions. Operator: [Operator Instructions]. Your first question is coming from Daniel Moore from CJS Securities. Dan Moore: obviously, you gave a lot of color, Jugal, but always good to talk. Start with semi. Maybe just talk about the sort of the cadence of order rates exiting Q1 and into Q2. And obviously, you talked about many of the different applications. Just a sense of how your customers see the outlook for kind of '27 and beyond maybe relative to what those expectations would have looked like 6 or 9 months ago? Jugal Vijayvargiya: Yes. As you know, Dan, I mean, semis was a really good quarter for us here in Q1, up 16% on a year-over-year basis. In fact, up, I would say, about 40%, if you exclude some of the China business, which we know have been going through some changes, and we've talked about that over the last 12 to 18 months. So a very, very strong Q1 for us. We expect semi to continue to be a very strong Q2 and then the rest of the year. Our order rate for semis have been improving sequentially. I would say that our exit out of Q1 was stronger than the exit out of Q4, and we expect that sort of trend to continue. I mean, the great thing with semi for us is we really do play in all the areas of semi, so whether it's power semiconductor or communications, data storage, logic devices, memory devices. And so I think we're seeing that -- we're seeing the growth rate across really all of those areas. So it's not concentrated with 1 or 2 areas. And so we expect it to really be more of a broad-based growth in the remaining quarters as well. When we look at, for example, our high-performance memory in our data storage, which is really much more aligned towards the AI applications, our sales were up 47% on a year-over-year basis in Q1, and we expect that to continue as well. So we -- and then, of course, from the profitability side, and I know you didn't ask that question, but I'll add it to it, the business has performed with EM, which semi really mainly resides in, has performed very well, and our profitability in this business is improving substantially on a year-over-year basis as well. So we expect this to continue. We'll see what '27-'28, of course, has to bring to your point about maybe what are our customer is saying. But I think for the rest of the year, we expect strong order intake and a very good growth curve on a year-over-year basis. Dan Moore: Really helpful. Switching to aerospace and defense, orders up 50% year-over-year. Obviously, you announced the CapEx funded projects for the large prime last quarter. Just how does the war in Iran change your outlook and growth expectations? And just maybe a little bit of kind of under-the-hood dialogues with customers, not necessarily for the rest of this year, but looking out into '27 and beyond as well? Jugal Vijayvargiya: Yes. Well, defense, in general, was getting a lot of attention, even prior to the conflict that started, right? And there was a discussion about higher budget for this year or next year. And I think the war has just strengthened that talk in Washington. And so what I would say we're seeing and we've been talking about over the last 2 or 3 quarters is the open RFQs, right? We started out saying a couple of quarters ago that when we had $100 million in open RFQs, we kind of increase that, say, $150 million, $100 million in open RFQs. And at this stage, we sit at $300 million-plus open RFQs. These are inquiries that have come in from various primes from different countries on the defense side of our business. The $60 million that we booked in Q1 is a record for us. We haven't booked -- we haven't had a $60 million Q1 ever. And so the momentum, I would say, has certainly shifted even more. It was there before the conflict, but certainly, that has aided the order rate as well as the open RFQs that are on the defense side. So we expect this trend to continue during the rest of the year and probably the next 3- to 5-year window as well, and that certainly plays into our overall aerospace and defense market. As you know, some of our space activities are certainly related to defense area as well, and we see the same type of trends that I'm highlighting here in that area as well. So in general, defense is a strong market, and I think will continue to be a very strong market and probably even become a stronger market as we get into the next 1 to 2 years. Dan Moore: I'll sneak one more in and jump back in queue. But -- and I know you don't guide quarterly, but just looking at the low double-digit growth -- top line growth for the full year, obviously, a meaningful inflection from what we saw in Q1. So just how do we think about the cadence of that growth? Do you thinking about kind of double-digit growth starting in Q2 or do you see it maybe a little bit more back-end loaded? Jugal Vijayvargiya: Well, I think considering the fact that overall, our business was about 1% in Q1, certainly up 10% year-over-year, excluding the precision clad. So we're already seeing the 10% or the, let's call it the double-digit growth even in Q1 when you exclude the precision clad, we expect double-digit growth really for each of our quarters. And certainly, it will be more of a growth in the back half of the year, no question, but we expect strong growth throughout the year. Shelly Chadwick: And maybe just to pipe in, Jugal, on that, we think how that translates through to bottom line. I think we'll see probably a 15% to 20% step-up from an EPS perspective next quarter, but even much more meaningful step-ups in the back half as that flows through. So looking at a really great outlook for the rest of the year. Operator: Your next question is coming from Mike Harrison from Seaport Research Partners. Michael Harrison: I was hoping you could address a couple of questions on the Performance Materials segment. I guess just in terms of the precision clad strip quality issue, it sounds like there was kind of some amortization of that impact dragging on Q4, and it also impacted Q1. I'm just curious, how should we think about Performance Materials earnings in the second quarter compared to what is obviously some unusual weakness in Q1? And then can you also give some additional color on, is this quality issue fully resolved? What changes had to be made? And I know you said you ramped back to where you were before the issue came up. But I guess how much additional capacity or capability do you have beyond what you had before this issue came up? Sorry for like 6 questions in one there. Jugal Vijayvargiya: No problem. Yes, let me start with the quality issue and kind of where things stand and then Shelly will jump in, I think, on the financials and what we expect in Q2. I would say that our team has made significant progress and really very, very good progress in working with the customer and resolving the quality issue. We had indicated in the last time that we spoke that we were back up and running. It was really just a matter of ramping here in Q1, which I think the team did and has done a really nice job of ramping. And like I indicated, we are back to running at the rate that we were running prior to the quality issue. So we're producing now at those rates and starting to ship at those rates to the customer. So the team is very excited about the rest of the year in Q2, Q3, Q4. We expect good growth, I would say, in each of the quarters as we go forward. So there are certainly changes that we made to our manufacturing processes and changes that not only did we make to that manufacturing process, but there are great learnings that you take across the entire company, and we're doing that. We're in the midst of actually doing that across our entire company so that we can be -- we can continue to improve and be a better company overall. We, as I said, have back to the earlier production schedules, and we still have capacity. So if the customer wanted higher volumes, the capacity is there, and we certainly can do that. And we're working with the customer on what type of volumes they like for the rest of the year. But we expect the rest of the year, like I said, to be at or better than the production levels that we had prior to the quality issue. Shelly Chadwick: And maybe just to hit the profitability side, right? So it's great to see the production levels back to kind of normal rates. That obviously ramped during the quarter, right? So a big impact on the quarter from an underutilization of the plant perspective. And as you know, we're going a little bit slower, taking a few more steps that are impacting the profitability right now, but we'll see a really strong step-up on the top line in Q2 and then very normalized, I would say, both top and bottom line in the back half for the clad specifically. When I look at PM overall, which I think was also in your question, we're going to see a meaningful top line step-up next quarter, more than a couple of hundred basis point step-up from a profitability perspective. And again, working past some of the operational issues, working past the clad item in the back half, we'll see even better profitability. Michael Harrison: All right. Very helpful there. Then I had a broader question on Performance Materials. I just was wondering if you can help us understand how we might think about pricing going forward because you've got a portion of the business that's more beryllium-based -- and arguably, there aren't substitutes for some of those products and there aren't many alternative sources either. So maybe help us understand what portion of your sales are more towards the beryllium and harder to substitute side of the spectrum versus products that are alloys and maybe could be subject to competition from other metals or could be substituted for other alloys. Does that question make sense? Jugal Vijayvargiya: Yes. No, it absolutely does. And let me address that because that's probably 6 questions. And one also like you indicated on the earlier one, but let me address, I think, some of the points that you've brought up here. I'd say roughly about half of our sales are somehow beryllium or beryllium-based type of materials that we supply and the other are non-Beryllium type. Certainly, beryllium type of business is a very good rich mix business for us. We tend to look at the business in terms of much more of a longer cycle and more harder to change, sticky type businesses, I think, tend to be better from a profitability standpoint, from a -- obviously, from a sales security standpoint. And I think beryllium provides that, right? I mean, so whether it's the defense side or whether it's some of the aerospace side or even some of the energy side, I mean, that's what beryllium gives us is it gives us a longer runway in terms of sales as well as I think it gives us some better mix, and better profitability, like you indicated on that. We do have to keep in mind, of course, that there's always a substitution risk, but it does take a longer period of time. And beryllium's performance, the material performance far exceeds, of course, other materials. So I think pricing is certainly an important enabler for us in this business. It has been, as you know, Mike, I mean, if you look at the last 5 to and kind of where the profitability was and where the profitability of the business is today, pricing was an important enabler to that. We continue to focus on that. We continue to look at what opportunities we have in pricing. And yes, but in general, I would say we like, I think, the direction that the business is headed. We like the mix -- the general mix of the business in terms of some of the markets that we're -- that beryllium is being used in. That certainly broadened, I think, the use overall. So I think overall, in PM, as Shelly indicated, we see a little bit of a downturn here in Q1, and we kind of explained kind of what those are, but we expect it to be right back to the type of levels that you are used to on PM in a very short order. Michael Harrison: All right. Then in terms of the defense RFQs and this $300 million number, are you the incumbent in most of those applications? Or are a lot of them new technologies? And I guess these quotes, is this business that could come to you in the next 12 to 24 months or could it be spread out over a much longer period? Jugal Vijayvargiya: Yes. So I would say, in many cases, of course, we are the incumbent because in many cases, the primes and the government is looking to produce more of things that we already do. But I would say there are a number of things that we're involved in that are new, both in our optics business and in our Performance Materials business. There are new activities that we are involved in both on the state side as well as in some cases, outside the U.S. But -- so it's a mix. Of course, when we win a business, typically, as you know, it's a 12- to 24-month type of a window. In some cases, it's maybe even a longer window. So if we get a multiyear order, 3- to 5-year type of order, that certainly could be the play as well. But in most cases, it is in the next 12- to 24-month window is how we look at these businesses. We're -- we've been increasing this number. Like I indicated, I think when Dan asked the question, just within the last 2, 3 quarters, this number has grown to $300 million. It was starting out around $100 million. And we've been increasing the dollar amounts that we've been actually booking. This feeds right into our record backlog that we talked about, the highest backlog that our company has ever had as we exited Q1. So that's how we see the business kind of playing out over the next 12 to 24 months. Michael Harrison: All right. This is my last one, I promise. Just on Electronic Materials and the gross margin strength that you're seeing there. Q1 was almost 1,000 basis points higher than the gross margin rate you had in '22 or '23. I'm curious how much of that strength would you attribute to mix that maybe is going to fluctuate or normalize over time? And how much of that improvement is more sustainable in nature? Just trying to understand if something north of 40% gross margin is what we should be modeling going forward? Jugal Vijayvargiya: Yes, Shelly, I think, can comment on the numbers, but let me just tell you a little bit about, I think, the last couple of years and what we've done to the business, Mike, we've talked about it. As you know, the semiconductor market and the electronic materials market in general, had a little bit of a downturn over the last couple of years. We took the opportunity to make significant operational improvements and cost improvements in that business, and that's benefited us. So as the volumes are now coming in and the volume for Electronic Materials was $90 million plus, right, for Q1. I mean the flow-through has been really, really fantastic because of the significant improvements the business has driven over the last couple of years. So I think that's been a key contributor to our margin expansion. Shelly Chadwick: Yes. And maybe just to add to that, Jugal, I think if you go back a few years, we felt the margins in Electronic Materials were not what they should be, right? And so there was certainly a lot of upward potential when we think about where EM margins could go. And so the work that has been done was really impactful. And now that we see the volume coming in on top of that, we're seeing margins that are much closer to typical what I would call Electronic Materials margins. Now was this quarter particularly strong? Yes. And we've talked about the fact that this does bounce around a little bit with mix. The mix absolutely is positive right now, and it will move around a little bit. But I think we expect this trend to continue in terms of delivering stronger margins in EM. Operator: Your next question is coming from Samuel McKinney from KeyBanc Capital Markets. Samuel McKinney: The business transformation and cost initiatives have obviously been the focus in Precision Optics recently, but the first quarter value-added sales was the best quarterly figure for that segment in years. Can you just talk about what's driving that top line improvement and the associated operating leverage within that business? Jugal Vijayvargiya: Yes. Sam, as we've highlighted, I think, in our remarks, and we've talked about it in the last couple of quarters, the team has made really, really great progress in transforming that business in a very short order. When you look at kind of how things finished out in Q1, 43% year-over-year growth on the top line, highest since 2021, almost 18% of EBITDA margin. You may recall that even when you go back several years and you kind of look at the peak of that business, it was about a 20% EBITDA margin, right? And so the team has done a nice job of driving the turnaround of that business, and we feel very good with where we're positioned for Q2 and the rest of the year. top line has been an important enabler of that turnaround. And that's a combination of general market improvement, I would say, but also significant new business activities that our folks have been involved in, in markets such as semiconductor and automotive, defense, some of the key markets that, that business participates in. There's a lot of new business initiatives that they've been involved in. And the most importantly is we've been able to close on those new business initiatives and get sales, in fact, in Q1 and then for the rest of the year. So the top line has been recovering as a result of both market and that. And certainly, the transformational activities on the operational side, cost side have been important enablers. Samuel McKinney: Okay. And then with the Chinese portion lagging the overall semiconductor business, can you give us an update on the progress made and when you expect to start deriving benefits from the Konasol acquisition? Jugal Vijayvargiya: Yes. That's an important activity for us, as you can imagine, for the rest of this year and then because it's an item that we're looking for key contributions in the '27-'28 time frame for sales. We expect that we should have some level of small-scale activity perhaps at the end of this year. But really, I would say, '27-'28 is when we start to have a meaningful impact into the semiconductor business, into the EM business for that. The Chinese component, as we have spoken, certainly is a year-over-year headwind. But the rest of our markets are performing very, very well in that area. Like I highlighted earlier, the business was up 16% in Q1, 40%, 41% actually for -- excluding the Chinese activity and strong order intake, very, very strong order intake that's happening in that business across all of our areas of semi. And so we expect very solid growth in the rest of this year, which is, I think, one of the reasons why we feel that our business can be low double digits type of growth rate for this year. Operator: Your next question is coming from David Silver from Freedom Capital Markets. David Silver: I had a couple of questions, I think, mostly on Electronic Materials. But I think you sort of touched on some of these before. And let me preface my remarks. I did have to step away for like 2 minutes. I apologize in advance if I'm making you repeat yourself. But the growth on the electronic materials side, top line and at the EBITDA level, very, very strong. I was wondering if you could maybe characterize it a little bit. So one thing would be whether the bulk of the improvement was tilted maybe towards Milwaukee versus Newton? Or was it very broad-based? And then maybe just a comment. would I be correct in assuming the top line growth is mostly due to volume and not so much to price? So I'll just stop there, but price versus volume component. And then is tantalum participating as much as the sputtering targets and the deposition products? Jugal Vijayvargiya: Yes. Well, first of all, very impressive growth, like you indicated, our top line has done very well in that business. When we look at our semiconductor business, we really look at it more from an angle of the type of semiconductor that we end up serving, right? So we end up serving power semiconductor, which is a very strong part of our business, memory, so both, I'll call it, legacy memory, but then also high-performance memory is an important part of our business. And then it cuts across communication devices, data storage, logic devices. So it kind of goes across really all of those. And our factories, you mentioned Milwaukee, we have Newton with the Tantalum business, but we also have facilities in Brewster in Buffalo and [indiscernible] in Singapore, Taiwan, et cetera, that support these businesses globally. We are seeing growth rate across all of these businesses. And we're seeing order intake be really good across all of these businesses. So it's not a single area that we are seeing the growth rate in. The market, I think, is coming through on all of these areas. I want to talk about new business. So one of the areas -- one of the reasons that we're seeing the growth is new business initiatives that our teams have driven over the last couple of years that now that the market is recovering, we're starting to see the benefit of that, right? So as you know, in Electronic Materials or in semiconductor type market, it takes about 24 months -- 18 to 24 months to qualify new products at customers. But we did that. In many cases, we did that over the last 18 to 24 months when the markets were a little bit challenged. Now that the markets are recovering, we are seeing the benefits of those new business initiatives come through in our sales. So it's market recovery is certainly an important part of it. New business wins and new business initiatives that we've been able to get is certainly an important part of it. And certainly, price is an important part, but it is not the main part, right? So there's a little bit of price in here, I would say, but not really a significant part of the growth story that we have for electronic materials or, let's say, the semiconductor business. David Silver: Okay. Great. And then if I was to just ask a question on the Performance Materials side. And again, apologies if I'm making you repeat yourself. But in your current guidance, the upper end of a range of $6 to $6.50, you have discussed the resumption of normal operations on the precision clad strip line. I believe there was also a timing or the belief that there might be another line of Precision Clad strip starting up at some point this year. Again, apologies if I missed it, but what is the assumption for that or do we have any clarity on when that large customer might be back and utilizing that most recent clad strip line? Jugal Vijayvargiya: Yes. So in our facility, we have a level of capacity that we are using for that customer, and we do have more capacity if that customer comes back with, let's say, higher levels of demand. We are -- as I indicated earlier, David, is that we are back to pre-quality issue type of production levels. And so we are producing that, we are supplying that to the customer. And if there is a demand during this year to go higher, we are prepared and we can go higher. I mean it really depends on what the customer -- what type of orders the customer gives us. As you know, and we've talked about it, they're also looking at their U.S. application and kind of the approval on the U.S. side. If that happens, that may trigger higher levels of demand. If it does, we'll utilize that capacity to do that. But I want to -- I think -- in general, I want to stress, though, I think on the PM side that in Q1, I know our margins and our sales level were a little bit depressed from our historical levels. We expect a step-up in Q2 and then further step-ups in the back half of the year. And these are not based on -- solely based on a precision clad type of recovery. These are broad-based type of recoveries that are happening across defense, across aerospace, across industrial, across energy. All of those areas are contributing, in fact, to that business, our order rate that we've been getting indicates exactly that. So we're -- I believe we're really well positioned to have a meaningful step-up in that business in Q2 as well as the rest of the year. David Silver: Okay. I meant to start off with this comment, but I really did appreciate that extra slide you put in, I believe it was Slide 8, where you highlighted kind of some of the key end uses for your products. It's great that it's all kind of laid out in one place like that. I appreciate it. Kyle probably did some work on this, and he's going to buy himself some more work as I go through it with them. But anyway. One other question on budgeting or your guidance page. And in particular, I wanted to hone in on the CapEx budget, $75 million, and then there's another $25 million, I guess, for mine development. But in that $75 million, certainly, there's a sustaining sustaining component of it. But if you could kind of hone in on the growth-oriented or discretionary part of that $75 million in CapEx that you expect to spend this year. Just where are those incremental resources targeted for? Shelly Chadwick: So yes, as you know, we've had pretty strong capital spending over the last several years because of the organic opportunities that we've had laid out, and you see that coming through in our results, which we're happy about. I would say we've got projects in each of our businesses that are focused on expanding capacity and capabilities as well as sort of recapitalizing and making sure that our plants are up to snuff and ready to produce at the levels we need them to produce that. So I wouldn't say it is -- it's all Performance Materials or it's all EM. We've got big meaningful projects in each business, even some in optics as that business is performing really well. So I wouldn't call it discretionary so much as continuing the support of organic growth and what we expect going forward. David Silver: Okay. So not one major project to call out, more broad-based... Shelly Chadwick: Sorry, I was just going to mention, we talked about the $65 million investment that we're getting from a customer to expand capacity in the beryllium side of the business, and that will be somewhat additive, not all spent in 1 year, but you'll see that come through as sort of customer funding and additional CapEx, and that's obviously all on the TM side. Thank you. Your next question is coming from Dave Stones from [indiscernible]. Unknown Analyst: Just want to maybe circle back to some of the EM new business wins. I know it was mentioned in the prepared remarks, and it sounds like a lot of that 12 to 24 months is kind of starting to come to fruition. Maybe if you could just go a little deeper into what's working and what that sales cycle looks like now and maybe how the top of the funnel has changed. I got actually you're probably seeing more inbounds than you were at this time a year, 18 months ago? Shelly Chadwick: Yes. So are we getting more requests and opportunities from a new business perspective particularly the EM, right, Dave? Unknown Analyst: Yes. Jugal Vijayvargiya: Okay. I got it. So yes, as I indicated, I think in the earlier comments, we've been working with the customers over the last couple of years on a number of different initiatives, and those initiatives have been coming through, and then that's been contributing to some of the sales increases that we're seeing right now. But that's not slowing down, right? That's not slowing down. That's not stopping. We are working with our customers on other new business initiatives across the whole semiconductor space, across the entire EM space, and we'll continue to do that. Typical validation or, let's say, verification, qualification cycle lasts maybe somewhere in the 12 to 24 months is probably more reasonable and some where you have just a small modification or something like that could be 12 months, but longer when you have a new product, it's maybe more of a 24-month type of a cycle. And we continue to have that. Our funnel is strong, and I think it will continue to contribute towards the growth that we are expecting over the next year. Unknown Analyst: Understood. Appreciate that. And just maybe a follow-up on that. With those new customers, I mean, are you seeing them be more trial customers where they're maybe only tasking you with a smaller portion of their projects and there's room to expand or do you see them being full scale out the gate? Jugal Vijayvargiya: Both. I mean we're seeing -- in some cases, we're seeing a scenario where maybe we're entering in as perhaps like, let's say, a second supplier or a third supplier with a smaller share. In other cases, they're brand-new projects. They're brand-new projects, in which case that we are working with them on the majority of the volume or perhaps even all of the volume. So it cuts across, I think, with a number of different opportunities that we have. Operator: We reached the end of the question-and-answer session. I'll now turn the call over to Kyle Kelleher for closing remarks. Kyle Kelleher: Thank you. This concludes our first quarter 2026 earnings call. A recorded playback of this call will be available on the company's website, materion.com. I'd like to thank you for participating on this call and your interest in Materion. I will be available for any follow-up questions. My number is (216) 383-4931. Thank you again. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. My name is Jennifer, and I will be your conference facilitator today. At this time, I would like to welcome everyone to TWO's First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Ms. Maggie Karr. Margaret Field: Good morning, everyone, and welcome to our call to discuss TWO's first quarter 2026 financial results. With me on the call this morning are Bill Greenberg, our President and Chief Executive Officer; Nick Letica, our Chief Investment Officer; and William Dellal, our Chief Financial Officer. The earnings press release and presentation associated with today's call have been filed with the SEC and are available on the SEC's website as well as the Investor Relations page of our website at twoinv.com. In our earnings release and presentation, we have provided reconciliations of GAAP to non-GAAP financial measures, and we urge you to review this information in conjunction with today's call. As a reminder, our comments today will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are described on Page 2 of the presentation and in our Form 10-K and subsequent reports filed with the SEC. Except as may be required by law, TWO does not update forward-looking statements and disclaims any obligation to do so. I will now turn the call over to Bill. William Greenberg: Thank you, Maggie. Good morning, everyone, and welcome to our first quarter earnings call. I would like to begin by addressing the recent developments regarding the merger plans that we initially disclosed last December. As we described in detail in our proxy statement, in March, we received an unsolicited all-cash proposal from CrossCountry Mortgage. After careful consideration and in coordination with our financial and legal advisers, our Board unanimously determined that the CrossCountry proposal was superior and in the best interest of shareholders. And on March 27, 2026, we executed a new merger agreement with CrossCountry, pursuant to which CrossCountry agreed to acquire Two Harbors for $10.80 per share in cash. In connection with entering into this agreement, we terminated the prior merger agreement with UWM. Yesterday, we announced that we signed an amendment to the new merger agreement with CCM. Under the terms of the amended agreement, CCM will increase the per share cash consideration payable to Two Harbors' stockholders to $11.30 per share, an increase from $10.80 per share under the original merger agreement. The amended agreement follows our Board's thorough evaluation of an unsolicited competing proposal received on April 20, 2026, from UWMC. After consulting with our financial and legal advisers, including assessments of the competing proposal's terms, proposed financing, regulatory path, deal certainty, and other factors, the TWO Board determined that the CCM transaction as amended, continues to be in the best interests of TWO and its stockholders. The business combination with CCM pairs the country's leading retail originator with RoundPoint's best-in-class servicing platform, creating a fully integrated mortgage company. We are confident that this merger is in the best interest of shareholders, allowing them to receive the certainty of cash and reinvest the proceeds in a manner that best suits them. The transaction is expected to close in the second half of 2026 and is not subject to any financing condition. Prior to closing, we intend to continue paying regular quarterly dividends, but not stub dividends, consistent with past practice. We will hold a special meeting to approve the CrossCountry merger on May 19 at 10:00 a.m. Eastern Time. If you have already submitted your vote in favor of the CCM merger, your vote remains valid. If you have not yet voted or if you previously voted only on the terminated UWM transaction, please submit your vote as soon as possible. Your vote is very important. Our Board unanimously recommends that all shareholders vote in favor of the transaction with CrossCountry. Now let's turn to our quarterly results as summarized on Slide 3. At the start of the quarter, RMBS' performance was buoyed by the continued decline of implied volatility and the announcement on January 8 by the FHFA Director instructing the GSEs to purchase $200 billion of Agency MBS in an effort to explicitly tighten mortgage spreads as part of a larger effort to lower mortgage rates. However, mostly as a result of the outbreak of the Middle East conflict, the performance of risk assets, including RMBS, deteriorated over the balance of the quarter. Amid this backdrop, for the first quarter, we had a total economic return of negative 2.0%. Please turn to Slide 4. Forecasts for inflation and economic growth became more uncertain as the quarter unfolded. And as a result, the Federal Reserve left rates unchanged at their February and March meetings. As you can see in Figure 1, market expectations for the Fed's effective rate at 2026 year-end rose from 3.06% on December 31 to 3.57% at quarter end, essentially wiping away any prospects of Fed cuts in 2026. Economic statistics over the quarter were mixed, punctuated by a weaker-than-anticipated employment report on March 6, with the unemployment rate unexpectedly rising to 4.4%. Normally, such an outcome would likely result in a bull steepener with short rates falling more than long rates. In this instance, rekindled concerns over inflation, both from continued elevation of core PCE inflation and from the oil price shock were strong enough that rates did the opposite, rising into the end of the quarter. As you can see in Figure 2, the U.S. Treasury yield curve bear flattened with 2-year yields rising 32 basis points to 3.79%, while 10-year yields increased 15 basis points to 4.32%. The Fed's median forecast released in March continued to price in 125 basis point cut in 2026, though forecasts for core PCE inflation increased from 2.5% to 2.7%, which Chairman Powell said partly reflected incoming inflation news since the last report. Please turn to Slide 5. Our DTC platform has made excellent progress since we began making our first loan in June of 2024. In the first quarter, we funded $92 million in first and second liens, about the same as in the fourth quarter despite rising interest rates. We also brokered $38 million in second liens. At quarter end, we had an additional $57 million in our pipeline. These are still small numbers, which, to some extent, are expected given the low note rate nature of our servicing portfolio. However, we believe the upcoming combination with CrossCountry should bring the origination efforts to a new level, and we expect that our recapture efforts should improve substantially, benefiting our servicing customers. Now I would like to hand the call over to William to discuss our financial results. William Dellal: Thank you, Bill. Please turn to Slide 6. Our book value decreased to $10.57 per share at March 31 compared to $11.13 per share at December 31. Including the $0.34 common stock dividend, this resulted in a negative 2% quarterly economic return. Please turn to Slide 7. The company incurred a comprehensive loss of $24.7 million or $0.24 per share. Net interest and servicing income, which is a sum of GAAP net interest expense and net servicing income before operating costs, decreased as a result of lower float earnings rates and lower balances due to MSR sales and seasonals, as well as lower servicing fee collections on lower UPB, partially offset by lower financing rates. Mark-to-market losses on Agency RMBS and TBAs were due to higher interest rates and wider spreads in the first quarter versus gains in the fourth quarter driven by bull steepening in rates. The decrease in mark-to-market losses on MSR was driven by a slight favorable change in valuation inputs and assumptions used in the fair valuation of MSR versus an unfavorable change in Q4, as well as lower portfolio runoff and lower MSR balances as a result of sales and lower experienced prepayment speeds. Other derivative instruments utilized for purposes of hedging our interest rate exposure, including swaps, futures and inverse interest-only securities, experienced net mark-to-market gains in Q1 versus net losses in Q4. You can see the individual components of net interest and servicing income and mark-to-market gains and losses on appendix Slide 20. Please turn to Slide 8. On the left-hand side of the slide, you can see a breakdown of our balance sheet at quarter end. We ended the quarter with over $500 million of cash on the balance sheet. As we said on our last earnings call, we repaid our convertible senior notes of $261.9 million in full on January 15, 2026, maturity date. RMBS funding markets remained stable and available throughout the quarter with repurchase spreads at around SOFR plus 15 to 18 basis points. At quarter end, our weighted average days to maturity for Agency RMBS repo was 71 days. We financed our MSR, including the MSR asset and related servicing advance obligations across five lenders with $1.5 billion of outstanding borrowings under bilateral facilities. We ended the quarter with a total of $977 million in unused MSR asset financing capacity. We have $69 million drawn on our servicing advances facility with an additional $81 million of available capacity. I will now turn the call over to Nick. Nicholas Letica: Thank you, William. Please turn to Slide 9. In his opening comments, Bill discussed the up-down nature of mortgage performance over the quarter. Ultimately, risk sentiment took an abrupt negative shift in late February with the onset of hostilities in the Middle East, leading to wider spreads for RMBS. Though mortgage spreads widened, they outperformed the increase in volatility due to favorable supply-demand technicals aided by the administration's explicit support of the mortgage basis. At quarter end and even today, the situation in the Middle East is highly fluid with a broad range of outcomes. For the near term, geopolitical tensions will remain the primary driver of market sentiment and economic outlook. That said, the widening of spreads by quarter end made performance outcomes more balanced and improved the return potential of our portfolio. At March 31, the portfolio was $11.9 billion, including $8.9 billion in settled positions and $3 billion in TBAs. Our primary risk metrics quarter-over-quarter were not much different. Our economic debt to equity was lower at 6.4x while our portfolio sensitivity to a 25 basis point spread tightening decreased slightly from 3.7% to 3.2%. Throughout the quarter, given the elevated level of macro volatility, we kept interest rate risks low in aggregate and across the curve. You can see more details on our risk exposures on appendix Slide 17. Please turn to Slide 10. As previously discussed, January was an excellent month for mortgage performance with the Bloomberg MBS Index delivering 52 basis points of excess return, its best month in over a year. Implied volatility as measured by 2-year options on 10-year swap rates fell to 73 basis points on January 27, its lowest level since October 2021. Spreads ratcheted tighter after the January 8 announcement directing the GSEs to buy MBS, adding to what was already a constructive supply-demand picture with money managers enjoying consistent inflows of capital, banks driving CMO demand through floater purchases and REITs raising capital in the equity markets. Current coupon spreads reached quarterly tights on January 12 with nominal and option-adjusted spreads tightening by 10 to 15 basis points from the beginning of the quarter. In response, we lowered our mortgage exposure given historically tight treasury spreads, mostly by selling 4.5% specified pools and 5% TBAs. However, over the course of February and March, driven predominantly by the start of the conflict and the attendant increase in realized and implied volatility and the flattening of the yield curve, performance deteriorated. As you can see in Figure 1, implied volatility on 2-year 10-year swaptions finished the quarter up 5 basis points nominally to 85 basis points. Current coupon spreads versus swaps on a nominal and option-adjusted basis widened by 26 and 15 basis points, finishing the quarter at 141 and 60 basis points, respectively. With mortgage spreads cheaper, we reversed course and managed our spread exposure higher by quarter end, simultaneously adding some 5.5% specified pools. As you can see in Figure 2, the spread curve, both nominally and risk-adjusted, steepened over the quarter with lower coupons close to unchanged, while 4.5% and higher coupons widened. Peak spreads were in the 5.5% to 6% coupons. Please turn to Slide 11 to review our Agency RMBS portfolio. Figure 1 shows the performance of TBAs and specified pools we own throughout this quarter. Hedged performance versus swaps across the coupon stack was mixed with some belly coupons and higher coupon specified pools eking out a positive return, while the performance for most of the stack between 4.5s and 6s was negative. Hedge performance versus treasuries was better as longer-end swap spreads tightened over the quarter. Even so, the Bloomberg MBS Index, in which performance is measured against treasuries, had an excess cumulative return of minus 36 basis points over February and March. 30-year mortgage rates finished up about 25 basis points quarter-over-quarter to 6.5%, though they touched 6% in both January and February, allowing savvy and fast-acting borrowers to find the best rates in years. Prepayment rates for refinanceable loans jumped higher in March, reacting to the multiyear lows in mortgage rates. Though absolute prepayment rates refinanceable coupons reached similar levels as observed in October 2025, they were actually more benign after adjusting for rate incentive. Thus, the prepayment S curve was not as reactive as it had been in the fourth quarter when the media effect was more elevated. With prepayment rates on higher coupon TBAs remaining fast, the call protection offered by our carefully selected specified pools was evident as can be seen in Figure 2, which shows TBAs versus the specified pools we owned by coupon. For 5.5 coupons and higher, our specified pools paid at a fraction of TBA speeds. On aggregate, pool speeds increased to 9.8% from 8.6% CPR quarter-over-quarter, mostly driven by increases in speeds from these higher coupons. Please turn to Slide 12. Activity and demand for MSR in the first quarter remained high with servicing transfers topping $93 billion UPB, outpacing Q1 2025, though below the prior 2 quarters. We continue to see most of the supply coming from nonbank originators with a broader array of buyer types, which include other nonbank originators, banks and REITs. Figure 2 shows that with mortgage rates at their current level of around 6.5%, the share of our MSR portfolio that is considered in the money drops to 1%. If mortgage rates were to drop to around 5%, the portion of our portfolio in the money would rise to about 9%. The housing market remains slow, and persistent inventory shortages in many markets is expected to continue to put upward pressure on prices. That said, there are pockets of weakness in Southern markets with builders continuing to offer buydowns to move inventory. Housing affordability, which had been improving since mid-2025, is likely to reverse given the rise in mortgage rates. On a broad basis, we anticipate home prices to rise in the single digits annualized and for housing turnover to continue to trend about 5% higher year-on-year, especially as primary rates today are lower than a year ago at this time. Please turn to Slide 13, where we will discuss our MSR portfolio. Figure 1 is an overview of our portfolio at quarter end, further details of which can be found on appendix Slide 23. In the first quarter, we added $152 million UPB of MSR through flow sale and recapture channels. Given the increase in mortgage rates and wider RMBS spreads, the price multiple of our MSR increased slightly quarter-over-quarter to 5.9x. 60-plus day delinquencies remained low at under 1%. Figure 2 compares CPRs across those implied security coupons in our portfolio of MSR versus TBAs. Quarter-over-quarter, our MSR portfolio experienced a decrease in prepayment rates to 5.6% CPR, reflecting lower housing turnover that is typical in the winter months. Importantly, prepays have remained below our projections for the majority of our portfolio, which has been a positive tailwind for returns. Finally, please turn to Slide 14, our return potential and outlook slide, which is a forward-looking projection of our expected portfolio returns. We estimate that about 65% of our capital is allocated to servicing with a static return projection of 11% to 14%. The remaining capital is allocated to securities with a static return estimate of 11% to 15%. With our portfolio allocation shown in the top half of the table and after expenses, the static return estimate for our portfolio would be between 8% to 11.4% before applying any capital structure leverage to the portfolio. After giving effect to our unsecured notes and preferred stock, we believe that the potential static return on common equity falls in the range of 7.3% to 12.9% or a prospective quarterly static return per share of $0.19 to $0.34. Looking ahead, the situation in the Middle East remains highly fluid. The economic disruptions caused by this conflict are inherently hard to gauge. While technical factors in the RMBS market are a positive for the sector, the outlook for interest rate volatility is less certain. It's worth noting that while there was a substantial increase in volatility off the quarterly lows in Q1, volatility for much of the term structure only went back to levels last seen in Q4 2025. Relative to that time frame, current coupon spreads finished the quarter slightly tighter than they were then, which reflects the explicit support the sector has received from the administration. In addition to demand from the GSEs, the latest proposals for the Basel III end game could provide a lift as banks should have more capital to use to purchase MBS and hold mortgage loans, which could reduce securitization rates and RMBS supply. In total, RMBS hedged with swaps possesses good nominal yield with a balanced performance profile, albeit with a key dependency on the direction of volatility. The MSR market remains very well supported with a broad range of buyers. We favor the portfolio construction of pairing MSR with RMBS, which we expect will deliver attractive returns over a wide range of market outcomes. Thank you very much for joining us today. And now we will be happy to take any questions you might have. Operator: [Operator Instructions]We will go first to Doug Harter with BTIG. Douglas Harter: Just talking about kind of the book value performance in the quarter. Hoping you could help break that down between the 2 strategies and kind of how MSR performed and how kind of the hedged agency would have performed just as we think about those components? Nicholas Letica: Doug, this is Nick. Thank you for that question and a very good one. Over the quarter, we saw our MSR -- hedged MSR strategy performed extremely well over the quarter, that was a positive. The hedged securities part of the portfolio was an offset to that. I think over the quarter, there was a fair amount -- big pickup in both realized and implied volatility. Convexity hedging costs over the quarter were definitely a pickup from the prior quarter. And if you look at the -- anecdotally, if you just look at the basis points traveled or the range that the market traded in, in terms of the 10-year, you definitely would see a pickup that would make sense in that context. So, it was a better quarter for hedged MSR versus hedged securities. The one thing I will say is in terms of like relative performance among the REITs, and I saw the comment you made in your note about us last night. I would say there are 2 things. First of all, we have generally a higher expense base. So, when you actually -- I think if you look at the portfolio in isolation relative to other REIT portfolios, I think on a comparative basis, it probably looked pretty favorable. The expense -- a higher expense base because of our servicing business is an offset to that relative to some peers. And the other part of it is that unlike other peers, the peers that had raised equity over the quarter and had some accretion relative -- owing to the fact they're trading over book value and some of that adds to their performance. I think with those adjustments, I think that the portfolio performance would actually look relatively favorable, if that makes sense. Operator: And we'll go next to Bose George with KBW. Bose George: Can we get an update on your book value quarter-to-date? Nicholas Letica: Bose, this is Nick. We are up about 2%. Bose George: Okay. Great. And then I'm not sure if you can answer this, but in terms of the merger, is the situation with UWM over? Or does that remain kind of live until the shareholder vote? William Greenberg: Well, as we disclosed last night, we executed a revised merger agreement with CCM, right? We are working through the process in terms of getting that merger to completion. There is a shareholder vote, which is scheduled for May 19, and we're excited about that transaction, and we're focused on doing everything we can in order to bring that to completion. Bose George: Okay. Great. But I guess that's good. I was just curious; there's still room for bids until the vote happens. Is that a fair statement? William Greenberg: The merger agreement is very, very prescribed and lays out the details and the circumstances for how someone should do that if they were so interested. Operator: We'll take our next question from Jason Weaver with JonesTrading. Valentin Alvar: This is Valen Alvar here filling in for Jason Weaver. Just had a quick one for you. Can you walk us through the financing package supporting the $11.30 cash consideration, whether it's debt sponsored, private equity, internal cash? And also, whether the merger agreement contains a financing condition or a market carve-out tied to book value per share, mortgage spreads or like rate volatility at close? William Greenberg: Yes. Thanks for the question, and I appreciate it. As you might expect, everything that is disclosable has been disclosed in the merger agreement, which is filed publicly. So, I would refer you to that document to answer some of your questions. Operator: And at this time, there are no further questions. I'll turn the call back to the speakers for any additional or closing remarks. William Greenberg: I'd like to thank everyone for joining us today. And as always, thank you for your interest in Two Harbors. Operator: This does conclude today's conference. We thank you for your participation.
Operator: Welcome to the Stanley Black & Decker First Quarter Earnings Call. My name is Shannen, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to the Vice President of Investor Relations, Michael Wherley. Mr. Wherley, you may begin. Michael Wherley: Good morning, everyone, and thanks for joining us for our first quarter earnings call. With us today are Chris Nelson, President and CEO; and Patrick Hallinan, Executive Vice President, CFO and Chief Administrative Officer. Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we will refer to, are available on the IR section of our website. A replay of today's webcast will also be available beginning around 11:00 a.m. Eastern Time. This morning, Chris and Pat will review our first quarter results, along with our updated outlook for 2026, followed by a Q&A session. During today's call, we will be making some forward-looking statements based on our current views. Such statements are based on assumptions of future events that may not prove to be accurate, and as such, they involve risk and uncertainty. It's therefore possible that actual results may materially differ from any forward-looking statements that we might make today. We direct you to the cautionary statements in the 8-K that we filed with our press release and in our most recent '34 Act filings. Additionally, we may also refer to non-GAAP financial measures during the call. For applicable reconciliations to the related GAAP financial measures and additional information, please refer to the appendix of the supplemental presentation and the corresponding press release, which are available on our website. I will now turn the call over to our President and CEO, Chris Nelson. Christopher Nelson: Thank you, Michael, and thank you all for joining us today. I am pleased to report that Stanley Black & Decker delivered a solid start to the year, outperforming our expectations on the top and bottom lines in the first quarter as we demonstrated continued progress on our strategic priorities. We are confident in our strategy and in the team's ability to continue to execute and deliver results. For the first quarter, revenue was up 3% overall and flat organically. This was ahead of our expectations, driven primarily by a well-executed outdoor products preseason. Our adjusted gross margin rate of 30.2% was down 20 basis points year-over-year, essentially unchanged. Adjusted EBITDA margin of 9.2% was down by 50 basis points year-over-year, slightly ahead of our planning assumptions for the period. Adjusted earnings per share were $0.80, $0.20 ahead of the high end of our first quarter guidance range of $0.55 to $0.60. Pat will unpack this further later in the call. Additionally, on April 6, we announced the successful completion of the previously disclosed agreement to sell our Aerospace Fasteners business. This portfolio change is consistent with our strategy to focus on our core business and commitment to enhancing shareholder value. The vast majority of the approximately $1.6 billion of net proceeds have already been applied towards debt reduction. We are now positioned with a stronger balance sheet and have unlocked the ability to deploy capital to accelerate shareholder value creation. We expect our capital allocation strategy to be biased towards share repurchases, which the Board has authorized. Turning to our first quarter operating performance by segment. I'll start with Tools & Outdoor. First quarter revenue was approximately $3.3 billion, up 2% year-over-year. Organic revenue was down 1% as a 4% benefit from targeted pricing actions was more than offset by 5% of volume pressure. Currency was a 3% benefit in the quarter. As we discussed in February, our base case assumption was that top line volatility, especially within the North American retail channel, would persist through at least the first quarter. Consistent with our expectations, competitors continued to take price and we honed our approach to promotions for select products. Also, as expected, our results this quarter reflected a decrease in volume, primarily driven by lower retail activity in North America. This was partially offset by a strong initial sell-in for outdoor products as we approach the peak selling season. International growth and prioritized investment markets such as Eastern Europe, United Kingdom and Latin America was an encouraging outcome. Additionally, increased sales generated by professional end user demand in the U.S. commercial and industrial channel indicates that our growth investments are building momentum in the market. Tools & Outdoor first quarter adjusted segment margin was 8.7%, which was consistent with our plan. Now for additional context on the top line performance by product line in first quarter. Power tools organic revenue declined 2%, and hand tools, accessory and storage organic revenue declined 3%, which were both driven by factors consistent with the broader segment performance. Outdoor organic revenue increased 1%, driven by encouraging preseason sales for spring 2026, particularly for ride-on and zero-turn mower offerings. While we are still in the early stages of the outdoor season, our performance thus far reflects strong execution by our team, including effective order fulfillment. Now Tools & Outdoor performance by region. In North America, organic revenue declined 2%, reflecting trends we discussed for the overall segment. The U.S. commercial and industrial channel delivered high single-digit organic growth, demonstrating a strong return on our targeted investments in brand activation for the professional end user. I'll talk more about this in a moment. Point-of-sale performance in the quarter was aligned with our expectations and broadly consistent with reported home improvement consumer credit card data. In Europe, organic revenue was up 1%. Growth in prioritized investment markets, including the United Kingdom and Eastern Europe, was partially offset by softer market conditions in other parts of the region. The rest of world organic revenue was flat, with double-digit growth in Latin America, offset by pockets of market softness in Asia and the Middle East. Turning now to Engineered Fastening. First quarter revenue grew 10% on a reported basis and 7% organically. Revenue growth was comprised of a 6% volume increase, 1% higher pricing and a 3% currency tailwind. The Aerospace business continued its strong performance, achieving 31% organic growth in the quarter. The automotive business delivered 4% organic growth, outpacing the market, driven by strong North American demand and strength in global fastener systems for auto OEMs. General industrial fasteners organic revenue declined low single digits. Adjusted segment margin for Engineered Fastening was 12% in the quarter. Year-over-year expansion of 190 basis points was primarily due to improved profitability in Aerospace and favorable automotive volume and mix. Overall, through disciplined execution, both the Tools & Outdoor and Engineered Fastening segments delivered revenue on a reported and organic basis that was better than expected despite the challenging operating environment. Segment margin rates were also in line with expectations this quarter through disciplined execution, operational cost improvements and targeted refinements to promotional strategies. We believe the results are evidence of the momentum we're building. We have conviction in our strategy and are confident that we are taking the actions required to ensure sustainable growth and shareholder value creation into the future. Thank you to our team for maintaining their customer-centric approach and for advancing our vision of building a world-class branded industrial company. Our ambition is anchored by 3 core strategic imperatives: purposeful brand activation, operational excellence and accelerated innovation. I would like to share a few updates regarding how our efforts are taking root. Starting with DEWALT. You've heard us talk many times about safety as a core end user priority and value proposition of the products we deliver. Our Perform & Protect lineup is designed to provide product features to defend against dust inhalation, loss of torque control and tool vibration without sacrificing the performance that professional end users demand. DEWALT has over 200 Perform & Protect solutions that are attracting professional end users and converting them into users of the DEWALT platform. These types of end user oriented solutions, combined with our ongoing investments to expand our field service and sales teams contributed to the strong commercial and industrial performance in the quarter, including professional contractors fully converting from competitor offerings to DEWALT cordless solutions and lead construction contractors outfitting large new project job sites with DEWALT. In addition, last quarter, we indicated that the STANLEY brand was positioned to return to growth in 2026. I'm pleased to share that our targeted investments are supporting new listings, largely driven by the initial phase of our product refresh and new product introductions. We are seeing green shoots and are on pace to return to growth with the STANLEY brand by midyear. Our expanded field team and trade specialists serving the professional end user are driving meaningful traction with our global channel partners, building demand as we grow together. I will now pass the call to Pat to discuss progress on a few key performance metrics and to outline our 2026 guidance. Patrick Hallinan: Thank you, Chris, and good morning to everyone joining us today. Before we jump into the guidance, let me start by providing a bit more detail on our adjusted EPS outperformance in the first quarter, which, as Chris noted, was $0.20 above the high end of our guidance range from February. Above-the-line operating outperformance made up about half of the outperformance, driven by Outdoor. The remainder of the outperformance came from below-the-line items, most of which didn't change our full year view on those items materially. For example, our forecasted first quarter tax rate was 30%, and that landed at 26% due to the timing of a discrete tax item. But we have not changed our view on the full year tax rate of 19%. Now let me walk you through our updated guidance and other assumptions for 2026. There are a few key updates embedded in this guidance you should be aware of. First, the CAM deal closed on the early side of the anticipated window. Practically, that resulted in us removing CAM's expected second quarter contribution from our guidance. that 1 quarter adjustment lowers our expected Engineered Fastening segment pretax profit by about $15 million, but it also lowers second quarter interest expense by a similar amount, meaning it has essentially no impact on second quarter or full year adjusted EPS guidance. Second, there have been numerous tariff policy changes since our last earnings call, which prompted new assessments and assumptions. We expect that all-in, these tariff policy changes and our updated tariff assumptions equate to net tailwind for us this year on a gross basis compared to our assumptions at the beginning of the year. In the near term, we have a temporary period of lower tariffs since the replacement Section 122 tariffs are lower than the former IEEPA tariffs. Our base case assumption is that new Section 301 tariffs will be introduced at the same level as the old IEEPA tariffs, which means our underlying tariff costs would be virtually the same by August as they were prior to the Supreme Court ruling in February. This is our current expectation, but that is subject to change as policy is finalized, and we will update our assumptions as appropriate. Third, since the start of the conflict in the Middle East, we have seen inflationary cost pressures in resins and freight. Last, we have also seen meaningful inflation in recent months in battery metals and tungsten, which is applied to the tips of our sawblades and drill bits for increased durability and heat resistance. We believe the combined impact from these inflationary pressures roughly offsets the benefit from the tariff tailwind in the year. Moving on to our actual guidance metrics. For 2026, we expect adjusted earnings per share to be in the range of $4.90 to $5.70, representing growth of 13% at the midpoint and remaining consistent with our original adjusted earnings guidance. We now anticipate total company revenue will be about flat compared to the last year, which is slightly lower than prior guidance because of the removal of CAM from the second quarter expectations. We still expect organic revenue to grow by a low single-digit percentage year-over-year. This outlook reflects on our focus in pivoting to growth and our confidence in seizing the share opportunities across our key markets. We continue to expect 50 to 100 basis points of full year benefit from foreign exchange, which should predominantly land in the first half. Moving to gross margin expectations. We anticipate adjusted gross margins will expand by approximately 150 basis points year-over-year, consistent with prior guidance. This is supported by top line expansion, price, ongoing tariff mitigation efforts and continuous operational improvement. We believe we are firmly on track to meet this target, and I will talk more about it on the next slide. We plan to continue growth investments in 2026 to further advance our robust innovation pipeline and fuel market activation, with the goal of enhancing brand health and accelerating organic growth. We expect SG&A as a percentage of sales to remain around 22%. We will continue to manage SG&A thoughtfully, allocating capital to strategic investments that position the business for long-term growth. Free cash flow is expected to be in the range of $500 million to $700 million, including projected taxes and fees associated with the CAM divestiture. Excluding such payments, free cash flow is expected to be in the range of $700 million to $900 million, consistent with our original guidance. Our free cash flow performance is expected to be accomplished through a disciplined and efficient approach to working capital management, progressing inventory towards prepandemic norms, while remaining attentive to our ongoing tariff mitigation and footprint optimization initiatives. We were pleased to deliver progress on inventory reduction in the first quarter. Looking at our segments, we are planning for organic revenue growth and segment margin expansion in both segments. Tools & Outdoor is still expected to deliver low single-digit organic growth in 2026, led by market share gains in what we anticipate will be a roughly flat market. Organic revenue in the second quarter is expected to be up in a low single-digit range as our recent commercial efforts continue to gain traction and as we start lapping the promotional disruption that started in the second quarter last year. Throughout the rest of 2026, we also expect to see sales trends improve from our new product launches and commercial initiatives, with a focus on outperforming the market. Adjusted segment margin is expected to improve year-over-year, driven primarily by sustained pricing actions, tariff mitigation, operational excellence and thoughtful SG&A management. Engineered Fastening is expected to grow low-single to mid-single digits organically, which is slightly lower than our prior guidance, reflecting just 1 quarter of contribution from CAM rather than the 2 in our original guidance. Adjusted segment margin is expected to improve year-over-year, primarily due to continuous operating improvement and volume leverage. Turning to other 2026 assumptions. Our GAAP earnings guidance of $4.15 to $5.35 includes pretax non-GAAP adjustments ranging from $10 million to $65 million. This GAAP guidance is higher than prior guidance due to an expected $260 million to $280 million gain on the sale of our CAM business, which is largely offsetting charges that are primarily related to footprint actions. Our full year interest expense is now expected to be about $270 million, which accounts for 3 quarters without CAM and the resulting lower debt profile as well as lower interest in the first quarter. Now for second quarter guidance. We anticipate net sales to be around $3.9 billion, down slightly year-over-year due to the sale of CAM, but up by a low single-digit percentage on an organic basis. Adjusted earnings per share are expected to be approximately $1.15 to $1.25. In the second quarter, the benefits of pricing, tariff mitigation and productivity initiatives are expected to deliver an approximate 300 basis points year-over-year improvement on adjusted gross margin, offsetting the continued impact of volume deleverage from the second half of 2025. Additionally, our adjusted EPS for the quarter assumes a planned tax rate of approximately 20%. One additional comment to make on tariffs has to do with 232 tariffs, which were altered by a policy change on April 6. The way 232 tariff policies are applied is complex, and broad industry headlines are not always good barometers of our profit-and-loss impact. Although there was much speculation in the market about our outsized exposure to these higher 232 rates, we assess the incremental headwind to be just $15 million on an annualized basis and less than $10 million for 2026. But recall, the net of all the 2026 tariff changes, inclusive of 232 tariff changes, and our updated assumptions for the rest of the year, indicate that tariffs are going to provide a tailwind relative to our prior assumptions and will be offset by inflationary impacts caused by the war, battery metals and tungsten. Turning now to Slide 8, let's take a step back and look at our expected implied first half and second half adjusted gross margin performance on a year-over-year basis in accordance with our full year and second quarter guidance. We expect meaningful progress for each half of this year, with roughly 150 basis points of implied improvement in the first half and roughly 200 basis points of implied improvement in the second half. In the first quarter, we were essentially flat on AGM, down 20 basis points year-over-year due to the timing of the tariff cost realization and volume deleverage offsets we had anticipated and called out in February. As a reminder, we saw peak tariff expense and volume deleverage in the second half of 2025. The impact of both these elements rolls off our balance sheet and into our first half 2026 income statement. We expect tariff mitigation will make a bigger contribution to margin improvement as the year plays out as we continue to make progress on USMCA compliance and shifting production for our U.S. tools business from China to North America. Looking ahead, we remain fully committed to achieving adjusted gross margins of 35-plus percent, a long-standing objective that continues to guide our efforts and priorities. We anticipate reaching this milestone by the fourth quarter of 2026, and we continue to target 35% to 37% adjusted gross margin by the end of 2028, as we stated on our last earnings call. The other important topic on this slide I want to cover is the debt reduction that resulted from our closing the CAM divestiture to Howmet Aerospace for $1.8 billion. This is not reflected in our first quarter financials because the deal closed on April 6, after the end of the first quarter. However, this has dramatically improved our intra-quarter balance sheet and also provides us with a clear opportunity for a more flexible capital allocation approach. Net proceeds from the CAM transaction were approximately $1.57 billion, net of projected taxes and fees. We have used the vast majority of these proceeds to reduce debt in the second quarter. We said we would target 2.5x net debt to adjusted EBITDA. The closing of CAM and our EBITDA growth focus will deliver this result. The only reason we aren't there today is due to normal seasonality of operational cash flows. But we are firmly on track to be at or around 2.5x by year-end. Achieving this critical financial milestone provides us with greater capital allocation flexibility. We are now well positioned to respond to market dynamics, invest in growth and enhance shareholder value creation. We remain committed to disciplined capital allocation and accelerating value creation for our shareholders, including funding organic growth, returning excess capital to shareholders efficiently, and if and when appropriate, considering bolt-on M&A, all the while we strive to maintain an investment-grade credit rating. In the near term, we are firmly focused on accelerating organic growth and using excess cash to opportunistically repurchase our shares. The recent authorization from our Board of Directors for $500 million in share repurchases provides us with the flexibility to do so. In summary, 2026 is set to be another important year for our company. With a strong foundation set, a sharpened portfolio, disciplined cost and capital allocation and a relentless focus on our customers, we are well positioned to deliver growth and create long-term value for our shareholders. Thank you, and I will now turn the call back to Chris. Christopher Nelson: Thank you, Pat. As you heard this morning, our success will be determined by how effectively we execute our strategy, which is firmly anchored by our 3 strategic imperatives: activating our brands with purpose, driving operational excellence and accelerating innovation. As Pat outlined, we are focused on continuing to proactively manage factors within our control to effectively navigate evolving market conditions. We remain committed to driving towards our near-term targets and long-term goals. As we look ahead, I am energized by the opportunities that lie before us and I'm confident in our strategy and the team that is executing it. We are building on our hard-earned momentum to serve our end users, and we are now positioned to accelerate shareholder value creation. We are now ready for Q&A, Michael. Michael Wherley: Thanks, Chris. Operator, we can now start the Q&A. Operator: [Operator Instructions] Our first question comes from the line of Nigel Coe from Wolfe Research. Nigel Coe: I'll try and keep the first one simple. I wondered, can you maybe just unpack for us the improvement in gross margin from first half and second half, about 4 points. I'm guessing there's a bit of CAM benefits, you mentioned tariffs -- sorry, USMCA compliance. I think there's some productivity. Maybe just help us unpack that 4-point improvement. Patrick Hallinan: Yes. Nigel, great question. It's a long-term focus for us. So we have every intent on hitting it. And the good news when we talk about the third quarter in particular is we could see effectively that gross margin percentage already on our balance sheet. And from here, the only things that could really change that is if sales change meaningfully down or there was some very big new spike in inflation. So I mean, we can see the 34-and-a-fraction percentage gross margin for the third quarter already in our balance sheet. And when you think of that stepping up from the first half to the back half, you're talking about really 3 big factors that go beyond normal seasonality of outdoor or the CAM issue that you mentioned, because these are really the ones that are going to sustain it and drive it long term, which is it's about 40% of the delta is net productivity benefits from our ongoing continuous improvement initiatives, another roughly similar amount from adjusting our fixed cost structure to the current volume environment that became apparent in the back half of last year after tariff pricing. And then the final portion, so about 20% of the delta, is just the ongoing tariff mitigation efforts. So 3 levers of continuous improvement, adjusting to the current volume environment and then the ongoing tariff mitigation drives us there. And we have every confidence we'd get there. And sustaining it will be continuing to keep our cost structure attuned to the volume environment and dealing with inflation as it plays out the balance of the year on however the war unfolds and however kind of battery metal situation unfolds. Nigel Coe: Okay. And just a quick follow-up on the tariffs. You made it very clear that the temporary benefit from IEEPA is offset by raw material inflation. But I'm just wondering if the -- the IEEPA benefit seems like it could be quite material. So I'm just wondering if it does create some temporary benefits in the P&L during the year, then washes out, so is that washed in pretty much every quarter? Christopher Nelson: Nigel, this is Chris. I'd say that if you look at the benefit that we see right now, it's -- we think about it, as Pat outlined in the comments, as being a temporary benefit because we do expect the 301 to be reinstated at similar levels to IEEPA. And the assumptions that we have in for that intervening period, while all in with all the changes that were mentioned, are a net tailwind, they do offset some of the inflation that we're seeing right now not only in battery metals, but what we're experiencing due to higher -- some higher input costs that we'd say are driven by the conflict in the Middle East. So net-net, there is a bit of a tailwind, but the base assumption is that we are going to see a tariff environment that is roughly equivalent to what we left in IEEPA as when the 301s are put in. Operator: Our next question comes from the line of Julian Mitchell from Barclays. Julian Mitchell: Just wanted to home in a little bit more on the Tools & Outdoor volume environment. The outdoor pickup, I suppose, is encouraging. Just wondered kind of what you thought underpin that and how you're expecting the T&O volumes to play out over the balance of the year given there's some market share efforts but also maybe a slightly more muted consumer demand backdrop in total? Christopher Nelson: Yes. This is Chris, Julian. I'll start with outdoor and say that I'm very proud of the team and encouraged by the way that they were able to execute in our -- what we would consider to be our preseason time frame. And the ability to fulfill orders, I think, positions us to be able to have a nice selling season. It remains yet to be seen which direction that selling season is going to be, but we think we're well positioned to be in a good position for whatever that selling season looks like. So we could experience some upside if we see increased sell-through. Overall, in the Tools & Outdoor environment, what I would say, and I'll say that really we haven't seen any material changes to what we would say underlying demand to look like. We did -- last call, we talked about the fact that we expected to see an inflection in Q2, partially due to the previous year comps where we -- where as you understand, we had disruption in normal promotional volumes and timing. So those coming on this year is going to be a net tailwind as we think about volume relative to last year, as well as the fact that when we talked about what we're going to do to hone some of our promotional strategies in those periods versus what we had in Q4, we expect those tailwinds to be kicking in in the second quarter. And we're excited to see that they are on pace for performing as we would have expected them to. But the underlying demand, as we came into the year, we thought about it being relatively flattish, and we still see it as being relatively flattish. But we feel good to be positioned from a relative basis year-over-year to be able to see the growth in quarters 2 and 3 that we had outlined as a part of our plan. Julian Mitchell: That's great. And then just when we're thinking about price and cost movements, as you said, there's a lot sort of moving around in terms of costs within the year because of tariffs and your own price initiatives. I suppose, any more color you could kind of give us on how you're thinking about that price net of cost delta in that gross margin guidance that you laid out on Slide 8, as we go through the year? And how is the sort of elasticity on price to volume playing out year-to-date? Patrick Hallinan: Yes, Julian, I would say we haven't really changed our viewpoint materially for the year on price. I mean as we've said on many calls in the past, we can have deltas of up to 100 percentage points, or 100 basis points rather, in any given quarter on how promo mix dominates or not volume, and that can cause a 100 basis point swing in our reported pricing in a given quarter. But in terms of the price we plan to execute and the adjustment to promotions or select targeted opening price point, hasn't changed in any material fashion from the start of the year. And I just would remind you, in this environment, most of the price we took -- we obviously took last year to dollar-for-dollar offset estimated tariff costs. And then we would reclaim our margin relative to those tariff costs by tariff mitigation and that is still very much our game plan. So the structure of everything stays the same for this year. As you heard, we have some tariff tailwinds, largely from 122s being lower than IEEPA's, and then we have some inflation from battery metals, tungsten and oil derivatives from the war. And those roughly offset in the year. Obviously, those things can change on us during this year because there's more trade talks going on this year and there's obviously still to see how the war plays out. And if and as those inflationary factors become more apparent in the back half or the middle of the year, we'll decide what that means for pricing in the latter part of the year or to set up 2027. But right now, if you asked us, our 2026 price plan is consistent with our opening guidance and everything is playing out in accordance with that, and any inflationary factors from this year that affect the go-forward, we'll deal with in the back half of the year or the early part of '27? Operator: Our next question comes from the line of Tim Wojs from Baird. Timothy Wojs: Thanks for all the details. Maybe just to start out, Chris, you mentioned -- I think you guys kind of went through the wall a little bit more with price than some of your competitors. And now some of those competitors seem to be kind of implementing more price as we're kind of coming through into 2026. And I'm just kind of curious if you're starting to see any sort of shift on the ground in terms of how that's impacting just kind of your relative POS performance in those various categories. Christopher Nelson: Yes. So as we talked about last call, we were seeing and we're expecting to see more competitive price movement in Q1, and we did, in fact, see that. So I'd say that, combined with the actions that we had taken as we did the view of what we needed to surgically adjust in our promotional and kind of some of our pricing on more of our elastic items, we have seen what I'd say to be, for lack of a better term, more of an even playing field on pricing as the competitive dynamic has played out. In addition to that, as we have adjusted our pricing and promotions coming into the year, as you might imagine, we're tracking it SKU by SKU to understand the impact and is it in line with what we anticipated and what we modeled out. And to date, it has performed in that manner. So we're encouraged by what we're seeing going into Q2. Now I will say that the majority of those promotional repositionings do come in in Q2. So we're keeping a close eye on that. And once again, we are going to see more promotional activity versus last year in that area. But right now, we are seeing it react as we anticipated. And once again, to reiterate what Pat was talking about, that that would be -- that we're confident in being along the lines of where our guidance was on price with the understanding that it could vary a little bit quarter-to-quarter based upon promotional uptake. Timothy Wojs: Okay. Great. No, that's really helpful. And then just I had a follow-up just on CRAFTSMAN. I think there's plans to do a bigger relaunch of that product later this year. I was just kind of curious about the timing and kind of if that could have a more material impact on sales and margins. Christopher Nelson: Yes, it's a great question here. So the way we have kind of scripted out has been that, obviously, going back several years, we started really putting investments and dollars behind the brand health and the go-to-market and sell-through in the DEWALT brand. And we continue to see and are very encouraged by what we're seeing there, particularly in the professional channels, as I think we referenced that we've seen -- and where we saw last quarter high single-digit sales in our professional North America construction and industrial channel, which is very encouraging. Next from there, what we have, and we highlighted this a little bit in the prepared remarks, is that we have been working over the past couple of years to also refresh the lineup in the STANLEY brand, which we have started by launching our measuring and layout SKUs. And we'll continue to see this year more on the V20 platform coming out in the STANLEY brand. So we're in a position, we're encouraged by what we're seeing there as well as the dedicated selling resources we put in place in Europe, that we're in a place where we expect to, as scheduled, inflect into growth by mid-year. CRAFTSMAN is the one that we were spending a lot of time repositioning the cost on it from a platform perspective. And we've been now launching -- we have one of our largest-ever launch -- NPD launch cycles this year for the CRAFTSMAN brand since we've owned it. And we expect by year-end to have a lot of that in market and see the benefit in -- by the end of the year going into 2027 as we move into growth on the CRAFTSMAN brand. So yes, you I guess I answered more than you asked, but that's how we've been thinking about it for our core brands and that we should see that CRAFTSMAN momentum by year-end and certainly going into 2027. Operator: Our next question comes from the line of Sam Reid from Wells Fargo. Richard Reid: I just wanted to maybe drill a little bit deeper on the status of your USMCA tariff initiatives, and then also maybe just talk through kind of the status of the China tariff mitigation as well? Christopher Nelson: I'll take that one, I guess. So if I think of USMCA, we had talked about how we wanted to make sure that we were getting towards or exceeding the industrial averages for what USMCA qualifications look like. As we had talked about at the beginning of this, I guess, early last year, we were well below average with roughly 1/3 of our products USMCA qualified. We've been making tremendous progress there and are a little bit ahead of pace on those activities. And we will certainly expect to be at or exceeding that average in the not-too-distant future. So we're on pace to a little ahead on the USMCA front. And then just to reiterate, we had stated that we intend to be less than 5% of our sales in the U.S. coming from China-sourced product by the end of the year, and we are as well on pace for that. And we -- even with all the changes that we've seen and modifications in tariff policy with IEEPA, 122s, et cetera, we have continued on the same path of the strategy that we had initially laid out, which was to, first and foremost, take care of our customers, making sure that we have availability, and then to make sure that we are able to, through operational moves and leveraging our global footprint, continue to mitigate the cost of those tariffs to ensure that we are driving towards a margin position that allows us to continue to invest in the innovation and brand health that we need to be successful. And we've been -- I give great kudos to the team for the way that they have been working tirelessly to ensure that those projects move on pace or ahead of pace that we expected. So we feel good about where we are there. Operator: Our next question comes from the line of Jonathan Matuszewski from Jefferies. Andres Padilla: This is Andres on for Jonathan. First, you called out stronger outdoor sell-in ahead of the spring season and higher conversion in the pro channel. Can you expand on what's driving those trends and the sustainability of outdoor demand from here? Christopher Nelson: Well, I think that from an outdoor perspective, we have a channel where people are optimistic about seeing good season. Inventories were at a level where people were making sure -- we're in a position to want to be in a good position to have the proper inventory for when the selling season came. And our team was able to produce and execute and fulfill those orders in a timely fashion. We're at the very, very beginning of the key outdoor season, so we'll see how it plays out. But we are in a position to take advantage of any upside that the market may offer. And I think that's the best thing we could hope for at this point. So once again, congratulations to the outdoor team and what they've been able to accomplish. Now what we've been able to see in the growth in the professional channels, both in the U.S. and in rest of world, and we referenced, and I did earlier, the high single-digit growth in the U.S. commercial and industrial channel, that's really been driven by a multiyear strategy for us to invest in the workflows that we need, with the products that we need for those key trades that we're focused on. And we've been -- we continue to round out that product offering. And I referenced a lot of what we're seeing with the momentum in our Perform & Protect product line in the DEWALT brand. And then we continue to invest in our go-to-market and our service and sales force around the world. And I think that the combination of those 2 things as well as the activity level that we see in the professional channels bode well for us to be able to continue to grow, we believe, above market rates with -- in those professional segments and particularly with the DEWALT brand. Operator: Our next question comes from the line of Joe Ritchie from Goldman Sachs. Aanvi Patodia: This is Aanvi on for Joe. I wanted to spend 1 minute on like the CAM divestiture. Recognize there's been some shift in the guide because of the timing on the close. So if I understand it right, it's $15 million as a net impact for the year. Can you help me understand what -- you said that it would not have a significant impact on Q2. So just any puts and takes around the interest offset as well as the profit for the second quarter and the year? Patrick Hallinan: Yes. When we gave initial guidance for the year, obviously, we had the uncertainty of the specific timing of the CAM transaction. And so we indicated at the start of the year that every quarter that CAM is in our results, it's roughly $110 million to $120 million of net sales and roughly $10 million to $20 million of pretax profit. And the year played out very much in line with that. So taking CAM out of the second quarter for virtually all but a day of the second quarter resulted in roughly $110 million net sales reduction and roughly a $15 million pretax operating profit reduction. But as we indicated in the call, there is a reduction in second quarter interest expense that's roughly equivalent to that. And so those things, the loss of contribution relative to the loss of interest expense, roughly offset each other on a pretax basis, and that leaves the quarter and the year unaffected. Obviously, the CAM transaction provides net proceeds of just below $1.6 billion, which we use towards debt paydown in the quarter. And so you'll see, all else equal, our leverage being down by that amount in the second quarter. Also some working capital will come out. CAM was a pretty working capital intensive business, but that was expected in our year-end results anyway. And so those are really the big puts and takes. There's kind of no other big puts and takes on that. And what was uncertain at the beginning of the year is, would that happen inside of '26, and when. And obviously, we know the answer to that now. Aanvi Patodia: Got it. That's helpful. And just as a follow-on, since you've been talking about the impact from CAM as well as the [ OPG gas walk ] together. If you could like provide some color on what -- why this change [ is instated ], what it really means? And I know you've quantified it as well, but anything we should keep in mind for the quarter, in particular? Patrick Hallinan: Yes. Well, you're referring to for select gas walk-behind product in outdoor. We transitioned to a full manufacturer on our own model to certain products being licensed, and that's how we provide those to our channel partners to have a full rounded-out product offering. That really occurs the back 1/3 of this year. So it has very little to do with this spring summer selling season. It has more to do with kind of the end of that season and how the early parts of '27 play out. And as we recall, that's really a change on the top line of a couple of hundred million dollars that net-net is accretive on the bottom line. And that's a project plan that's ongoing and is tracking as we expect at this point. So there's no real big changes to that. And we called out that along with CAM at the beginning of the year just because they were things that we anticipated would really change our reported versus our organic sales in the third and fourth quarter of this year. And that's the only reason we talked about them together, is the impact they had on reported versus organic sales for the back half of the year. Operator: Our next question comes from the line of Brett Linzey from Mizuho. Brett Linzey: My question is just regarding the pro and the tradesmen replacement cycle on battery platforms. I've always thought about that as really a 5 to 6-year churn, but curious what you see as a life cycle there. And then how are you seeing the next pro replacement cycle setting up for some of those pandemic units starting to churn? And then anything from an innovation standpoint that's maybe activating some of that demand and what the milestones might look like internally there? Christopher Nelson: Yes. It's a good question. I would say, honestly, we think about the replacement cycle as being a little bit more applicable in more of the DIY segment in being that kind of time frame that you're talking about. Because the reality is that the professionals, they have such a high intensity of use and that it's usually accelerated and not as applicable for that time frame, as well as the fact that often they are going to kind of tool up all-in for a new job site as they go job site to job sites. So what we have seen is that the strength that we see in certain areas in the commercial and industrial world, specifically with data centers, we see great demand there on our battery platforms to support the growth going forward. Now as it pertains to what we see in the DIY, we think that that is kind of behind us from a -- what could have been seen as a pull-ahead of volume that needed to needed to shake out over time. I think that's behind us. And what we're seeing from the DIY world is more of an overall effect of the depressed consumer and lower-than-average kind of project and renovation and repair work going on. As far as what we see for the products that we have been making sure that we drive in order to continue to build out that battery platform, there's really a couple of things that we've been doing, is, one, working with each one of our core battery platforms at the 20-volt XR level, FLEXVOLT, and then launching POWERSHIFT so that we have then 3 core platforms that we can build around in the professional segment. And then making sure that we are really building out all of the tools that each key trade could need and would want to optimize and make them more efficient and safer as a part of their workflow. So we've been making sure that we not only drive and optimize those 3 core platforms, but then also the tools around them to ensure that we take advantage of what we see as a really strong installed base for our professional batteries and tools around the globe. Operator: [Operator Instructions] Our next question comes from the line of Chris Snyder from Morgan Stanley. Christopher Snyder: I wanted to ask about the competitive environment. It sounds like some of the competitors took price action in Q1. But I guess, do you see any changes in the competitive environment as we look into the back half of the year? And the reason I ask is because it seems like while you guys are seeing a tailwind or a tariff offset from the move from IEEPA to 122, I would imagine a lot of the Asian competitors in the market are seeing even a more significant tariff offset on that rollback. So just wondering, what does that mean to you guys around potential price competition in the back half of the year? Christopher Nelson: I think there's a couple of things in there. Once again, our calculus and baseline would say that we think that the 301s are going to largely replace IEEPA. So in the back half of the year, we're not anticipating there being a significant change in the environment, as one. So I think that that would be kind of more of a steady type of environment as a result. So that's kind of anything that would happen in the near term would be temporary in nature. And as we look at the combination of our strategies and how it stacks up versus our competitors and what we have for our global footprint and how we're driving towards really high percentages of USMCA qualified product, which have a much lower tariff exposure, we believe that we are at parity to probably mildly advantaged as we think about going forward in that environment as well. So what you did reference, which I think is important to note, is we have seen the pricing environment play out more in line with what we thought it would. And we did see those moves in Q1 in the competitive set that I think is important as we move into Q2 and the strategies that we said that we're going to be following to make sure that we see the opportunity for us to pivot towards growth in Q2 and Q3. Operator: Our final question comes from the line of Rob Wertheimer with Melius Research. Robert Wertheimer: It seems like the overall consumer trend is stability in the world feels a little bit more unstable. So I wonder if you could comment on trends through April for Europe and the U.S., just to see if that has continued. Christopher Nelson: Yes, Rob, we -- obviously, we can't start talking about the end of Q2 as we just wrapped up Q1. But I would say what we've experienced through the end of the first quarter, is consistent with the back half of last year, which, as you hint, in a really challenging global macro backdrop, I would say the pro and the consumer hanging in better than one might expect. Obviously, there's been softness in the back half of last year as tariff pricing went into effect and volumes adjusted to that pricing around a 1:1 elasticity, and that continued into the back half -- or the front half of this year. And our outlook anticipates that while the buyers will continue to be challenged, they kind of hang in there where they've been the last 3 quarters. And that's what our outlook is based upon. We'll see as the war plays out if that changes. And if it changes, we'll adjust to the upside any production that we need to produce if the consumer heals up a bit. And if the consumer ticks down a bit, we'll be mindful of managing our total cost structure while preserving the long-term investments we want to grow the business and pivot towards growth. But I would say your characterization is where our guidance is, which is, in a challenging world, kind of buyers being relatively steady where they've been in the last 3 or so quarters. Michael Wherley: That is all the time that we have for Q&A. We'd like to thank everyone again for their time and participation on today's call. If you have any further questions, please reach out to me directly. Have a good day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Avantor's First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Chris Fidyk, Vice President of Investor Relations. Chris, you may begin the conference. Chris Fidyk: Thank you, operator. Good morning, and thank you for joining us. Our speakers today are Emmanuel Ligner, President and Chief Executive Officer; Brent Jones, Executive Vice President and Chief Financial Officer; and Steve [indiscernible], Senior Vice President and Chief Accounting Officer. The press release and our presentation accompanying this call are available on our Investor Relations website at ir.avantorsciences.com. Following our prepared remarks, we will open the call for questions. A replay of the call will be made available on our website later today. During this call, we will make forward-looking statements within the meaning of the U.S. federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update these forward-looking statements as a result of new information, future events or other developments. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website. With that, I will now turn the call over to Emmanuel. Emmanuel Ligner: Good morning, and thank you for joining us today. Let me begin with a few financial highlights for the quarter. First quarter results exceeded our expectations due to improved execution in BioScience and Medtech product segments, and we have reaffirmed our full year guidance. VWR Distribution and Services generated $1.15 billion of revenue in the first quarter, down 5% organically versus the prior year. This performance was in line with our expectations despite soft market condition in Europe and adverse winter weather in the U.S. I'm pleased to report that in the quarter, the VWR e-commerce platform showed green shoots of improved performance in traffic, conversion and revenue growth following multiple upgrades as part of our digital road map as well as the successful relaunch of vwr.com. Importantly, Q1 results provide evidence that the VWR segment is stabilizing with financial performance in line with our expectations. Turning to BMP. BMP revenue was $431 million in the first quarter, down 2% organically versus the previous year. This was ahead of our expectations due to better-than-expected execution from process chemicals and new sales. Brent will discuss the details in his remarks, but [indiscernible] had a heavy influence on a year-over-year growth metrics. I'm pleased to report that revival efforts are already taking hold in BMP. In Q1, we saw modest improvement in BMP operational performance and we also saw strong commercial performance given the enhanced focus with which our team are working. BMP had a book-to-bill of more than 1.1x in the quarter. Other element of the P&L, including margins were generally in line with expectations, and we generated $0.17 of adjusted EPS in the quarter ahead of our expectation. There are 3 key messages I want to convey about their first quarter. First, Revival is already having a positive impact on Avantor. Across the organization, we see a clear improvement in execution and increased accountability. Our team has a more intense focus on serving customers and we are taking a data-driven approach to user their performance. Second, improved execution has translated into improved and more stable operational performance, most notably within the VWR platform and BMP manufacturing. Improved execution is also reflected in the strength of our order book and demand funnel. Third, we believe that we are turning a corner financially. We believe that VWR's growth rate reached a bottom in Q1 and that BMP's growth rate will reach a bottom in Q2, which position Avantor for organic revenue growth in the second half of this year. We moved the company forward in the first quarter, and I'm encouraged by the momentum and positive energy across the organization. In the interest of continued transparency, I want to share 2 examples of actions that we have taken as part of Revival. Please turn to Slide #4. Revival begins enhanced with people. And for Revival to be successful, we must have the right talent in place. One of the first things we have done is move with speed to recruit exceptional leaders and enhance our leadership structure. This slide summarize the change we have made to the senior leadership team, defined as my direct reports plus their direct reports. We have moved quickly to refresh approximately 25% of this leadership group filling positions such as Chief Operating Officer, Chief Procurement Officer, Head of VWR Sourcing and Head of VWR pricing. Recently, we welcomed [ James Finn, ] our Chief Digital Officer, who joined us from Medline. And last week, we announced that [indiscernible] will join us from [ Cytiva ] to lead BMP and serve as our Chief Transformation Officer. We expect to announce the addition of other high-impact leaders soon. Many of those talent investments are self-funded with increased productivity. Year-to-date, our overall headcount is down approximately 2%. I had a very clear vision on how the leadership team should be constructed and in short order, we have supplemented internal talent with external talent. We have a diverse set of leaders in place with skills and experience will allow us to best execute the Revival agenda. Please turn to Slide 5. Enhancing operation is one of our 4 most priorities. So I wanted to dig deeper into action underway within this important revival pillar, which is led by our COO, Mary Blenn. In the first quarter alone, we completed over 8 weeks of kaizen events across our operational network. I participated in several of those kaizen events as did other senior executives. In parallel, we established a CapEx council that meets monthly to plan, review, sanction and monitor our capital commitments with one eye focused on near-term needs and the other high focused on long-term strategic requirements. Our CapEx Council has sanctioned 12 projects recently, one of which is depicted in this slide. This project focuses on a downstream production process at an important North American manufacturing facility, where the current workflow is a people-intensive process with scope for improvement. We reimagine the process during a kaizen and as a consequence, are moving forward with a project to install modular automation equipment in a previously unused space in the facility. The before and after images on this slide demonstrate how this automation project will radically simplify workflows. Furthermore, this investment will enhance quality, compliance and throughput, it will reduce our cost per unit, and it will free up capacity for the team to focus on higher-value activities. We expect to earn highly attractive returns on the capital we deploy. This is just one example of the approach we are taking globally. In all our projects, including the $20 million of incremental investment we announced previously, we use tools such as [indiscernible] and kaizen to rethink the way in which we work, and we are marrying that with rigorous data-driven analysis to measure the financial consequence of our investment. I will conclude my opening remarks with a few words about the news that Brent will depart Avantor next month. Brent, we are all deeply thankful for your leadership and contribution to Avantor, including the development of a deep and talented finance team. I wish you and your growing family nothing but the best in the future. Thank you, Brent. R. Jones: Thank you for the kind words, Emmanuel. It's been a privilege to serve as the CFO of this great company, and I'm grateful to have worked with such a wonderful group of people. The finance function will be in good hands with Steve, who is an outstanding leader, and I remain completely confident in Revival and Avantor's future prospects. With that, please turn to Slide #6, where I will review our Q1 financial results. In Q1, we generated $1.581 billion of revenue, which was down 4% on an organic basis and flat year-over-year on a reported basis. Adjusted EBITDA in the quarter was $219 million, with a margin of 13.9%. Adjusted EPS in the quarter was $0.17 due to good execution in BMP, specifically process, chemicals and new sale, allowing us to outperform our expectations. Free cash flow in the period was $25 million. Excluding restructuring costs, free cash flow in the quarter was $39 million. Both figures were within expectations and reflect a meaningful and anticipated headwind associated with customer prebates. We repaid approximately $105 million of debt and ended the quarter with an adjusted net leverage ratio of 3.3x adjusted EBITDA. Leverage increased by 0.1 points sequentially and year-over-year, primarily due to lower trailing 12-month adjusted EBITDA. Please turn to Slide 7. Revenue for the VWR Distribution & Services segment was $1.15 billion in the first quarter, down 5% organically versus the prior year. The primary driver of the organic revenue performance was a decline in volumes with industry dynamics and European market weakness, both contributing. We estimate that severe winter weather in the U.S. negatively impacted segment revenues by about 50 basis points. The bulk of the revenue declined sequentially versus Q4 2025 is due to seasonality. In the quarter, the VWR e-commerce platform showed green shoots of improved performance in traffic, conversion and revenue growth rates in the U.S. and Europe. This followed multiple upgrades as part of our digital road map as well as the successful relaunch of vwr.com. Enhancing our digital capabilities remains one of our top strategic priorities. Adjusted operating income for VWR was $105 million in the quarter, representing an adjusted operating margin of 9.2%. The year-over-year decline in margin is due primarily to volume and net price capture. Increased freight costs were also a headwind. The bulk of the margin declined sequentially versus Q4 2025 is due to seasonal declines in revenues with a number of other puts and takes. There are 2 key takeaways from the VWR quarter. First, we are pleased with the positive impact our upgrades had on e-commerce performance. Second, and perhaps more importantly, the VWR platform is stabilizing with Q1 performance in line with our expectations. We will address the stability again in our guidance commentary. I will now discuss our other segment, Bioscience and Medtech products or BMP. BMP revenue was $431 million in the first quarter, down 2% organically versus the prior year. This was ahead of our expectations due to better-than-expected execution from process chemicals and new sale. In the quarter, process chemicals grew double digits organically due to improving operations and strong order performance. Fluid handling and new sales were down double digits in the quarter, due in part to difficult comps as we had anticipated, while research and specialty chemicals declined about 100 basis points organically. Pricing was positive in the quarter. Last quarter, we indicated new sale and the serum and electronic materials businesses within research and specialty chemicals would be headwinds to growth in 2026 and and that this comp headwind is primarily due to normalization of idiosyncratic customer ordering patterns and shipments in 2025. In the first quarter, this dynamic in aggregate was a mid-single-digit headwind and to the organic revenue growth of BMP. Adjusted operating income for BMP was $103 million in the quarter, representing an adjusted operating margin of 23.8%. The year-over-year decline in margin is due to inventory provisions, lower volumes and mix, among other things. Key headwinds in the sequential margin decline were volume and mix. There are 2 key takeaways from the BMP quarter. First, our efforts to enhance operations are bearing fruit as our operations showed increased stability in the quarter. More specifically, BMP back orders declined modestly in Q1, and we have better line of sight to improved operational performance. Second, we had strong order performance in the quarter with a book-to-bill of more than 1.1 for the whole of BMP. Order trends were healthy across all business units, and we saw particular strength in our process chemicals order book. I will now turn the call over to Steve Eck to discuss our guidance. Steven Eck: Thank you, Brent. Please turn to Slide 8. We reaffirmed our 2026 guidance this morning, but I want to make a few supplemental comments. In Q2, we expect to generate adjusted EPS of between $0.19 and $0.20 per share. Next, as everyone is aware, the Middle East conflict has created inflationary and supply chain pressures that are rippling around the world. At this stage, we are more concerned about the price of raw materials and services rather than their availability, but our concerns could evolve if the conflict persists. As of today, we estimate that inflationary pressures stemming from the Middle East conflict represent an incremental headwind of approximately $10 million to $20 million to our 2026 operating income, and our reaffirmed guidance incorporates this headwind. We have established a task force whose responsibilities to identify, monitor and mitigate these inflationary headwinds. Next, on VWR. The financial performance we saw in Q1 was largely in line with our expectations. We believe that VWR is turning a corner and that VWR's growth rate reached a trough in the first quarter. We expect that VWR's growth will improve gradually over the course of 2026, with the segment showing positive organic growth in the second half. In BMP, the year-over-year comp headwinds from the idiosyncratic customer ordering patterns and shipments mentioned by Brent and new sales, serum and electronic materials will increase sequentially from Q1 to Q2, and we faced another tough comp in fluid handling as well as tougher comp and process chemicals. Therefore, we expect BMP's year-over-year organic growth in Q2 will be worse than the Q1 experienced by more than 500 basis points. There is no new news in these comp dynamics as our assumptions about their impact are unchanged versus 90 days ago. We believe that Q2 will mark the low point for BMP growth in 2026. Finally, we expect the adjusted operating margins of both segments to increase sequentially from Q1 to Q2 in line with seasonal patterns. I will conclude with a comment on capital allocation. Debt reduction remains the top capital allocation priority, and we remain committed to reducing our adjusted net leverage ratio sustainably below 3x. With that, let me turn the call back to Emmanuel. Emmanuel Ligner: Thank you, Steve. I will conclude our prepared remarks by reiterating the key takeaways from the quarter. Number one, revival is already having a positive impact on the organization. Number two, improved execution has translated into improved operational performance. And number three, we believe that we are turning a corner financially and now believe that the growth rate of VWR reached a bottom in Q1 and that the growth rate of BMP will reach a bottom in Q2. This, combined with our tangible revival progress, give me confidence that Avantor will return to positive revenue growth in the second half of this year. Finally, I want to extend my gratitude to our Avantor associates across the globe for their dedication to serving our customers. Thank you for embracing revival and the new ways in which we are working together. I am incredibly pleased with the progress we are making together as a team. With that, operator, we are happy to take questions. Operator: [Operator Instructions] The first question today comes from Dan Leonard with RBC. Unknown Analyst: My first question, can you talk a bit more about any countermeasures you're taking to offset incremental inflation? And I'm thinking of transportation costs specifically, but it sounds like there are other watch areas as well. Emmanuel Ligner: Yes. I think, Dan, if I understand correctly your question, you're talking about the measures we are taking, again, the inflation that we are seeing. Is that correct? Unknown Analyst: Correct. Emmanuel Ligner: All right. Dan, first of all, thank you for the question. I think it's important to also review the fact that we have a new Chief Procurement Officer, [ Keith Balzo ] is joining us from Cytiva, I worked with them a lot in the past, is a really, really good person. We've put in place a task force. The good thing about what we see in the Middle East is that the inflation will happen in 2 areas. The first in inbound and outbound threat. And of course, the team is really looking at our contract and seeing what we can do on that side. And then the other thing is a few critical materials, which will not be in short supply, but really where we will see inflation. So we have a task force in place already evaluating the impact. I think, Steve, in the opening remarks, talked about the $10 million to $20 million headwind that we are seeing that we are contemplating in the reforming of our guide. And I think it's really an action for us in terms of monitoring and in terms of things what we can pass to our customers. Unknown Analyst: Okay. I appreciate that. And then as a follow-up, Emmanuel, can you talk about the significance of that book-to-bill in the BMP segment? And what is the lead time required to translate that greater than 1.1 book-to-bill to revenue growth? Emmanuel Ligner: Yes. No, it's a very good question, Dan. Look, I think if we look at what we shared in Q4, our order intake in process chemical was high single digit in Q4. And with the operation and the Revival impact on operation, we were able to deliver a double-digit growth in Q1 in terms of revenue. The very positive things and what we are very encouraged is that in Q1, our order intake was double digit. So there is a sequential acceleration, and it's down again to revival on the commercial side. A lot of those products are between between 30 to 60 days, 90 days lead times. It also depends on the customer that gave us some blanket order with a lot of visibility. We have asked the commercial team to work on this. to make sure that through the [indiscernible] process that we have put in place, we are helping as well the operation to have a good visibility of what is coming. So we are super encouraged with what happened in both operation and commercial due to revival. And so 60 days, 90 days. That's why we are positive and confident about the fact that we'll go back to growth in the second half of the year. Operator: The next question comes from Patrick Donnelly with Citigroup. Patrick Donnelly: I was hoping for just a few more specifics on 2Q. Helpful to hear the VWR and BMP pieces. Can you just talk about overall organic growth and then also the margins for each and how we should think about that margin cadence for 2Q and going forward? R. Jones: Yes. Yes, Patrick, it's [indiscernible] take this. Look, I think for Emmanuel and Steve as well as my comments there, you see a bottoming in VWR in Q1, we expect to see continued improvement in that business sequentially. There are more shipping days in Q2 than Q1. So even keeping at the same pace that we did in Q1, even though recognizing that's a seasonally lighter quarter that easily gets us within the range of our guidance there. Even though on BMP, you'll see lower organic growth that has to do more with the idiosyncratic competition we brought up it's a nice sequential increase, but not substantial there. You put those together, you get better fixed cost absorption against that, and then you'll see modest increases and margin against that sequentially. You marry that to revival working in other cost outs there and that very comfortably gets you to the range of our guidance. Patrick Donnelly: Okay. That's helpful. And then maybe just on the BMP side, helpful comments there. Can you just talk about what you're hearing from customers? Obviously, some mixed data points out there. Are there certain segments you're seeing a little more strength? And then again, I guess, the visibility into that recovery and confidence level of that recovery as we work our way into the second half and beyond just with the market positioning there. Emmanuel Ligner: Yes. Patrick, I think there's not much change in terms of market dynamics versus what we shared in our last call 90 days ago, biopharma market is healthy, in particular, in bioproduction. We see that in our order book. This is also particularly in process chemicals for Q1 in terms of revenue but also in order, as I just talked about. We also see a strong funnel for us, again, we have pushed commercial team to have a better visibility on the opportunity. So we are looking at a strong funnel. Around academy and government, nothing really changed. The market is pretty stable. There's maybe a lower level of activity than what we will prefer, and we continue to assume that customers are a bit reluctant to spend money in that part. NHI funding is stabilizing, capitalizing incremental demand that will represent upside potentially, again, if the customer decided to spend their budget. Bottom line is that the end market we exactly as we were expecting it. All right. And I think there's no assumption that there's major change during the year. I just want to maybe add one comment. We shared in the past that despite the difficulty that we had we never let down the customers, in particular in bioprocessing. And I think we can really say that [indiscernible] I meet customers there is strong feedback about the service level and the engagement that we have. And this is again reflected in our Q1 order book and the book-to-bill, which is 1.1x. Patrick Donnelly: Okay. And Brent, just to close the loop on 2Q, is there a specific organic number you can give? R. Jones: We're -- you're probably talking about a decline of 500 basis points there for the quarter on top line. Operator: The next question comes from Vijay Kumar with Evercore ISI. Vijay Kumar: Congrats on a good execution here. Brent, wishing you the best as you transition here. Maybe Emmanuel, I heard the term confidence in the business bottoming error. It sounded very constructive. And when you think about VWR bottoming out in Q1, what gives you the confidence that VWR bottomed out? And Brent, if VWR has bottomed out in Q1, why is 2Q organic minus 5% when you guys just did minus 4% in Q1? R. Jones: Do you want to -- the we're talking about at the firm level there, Vijay. So you're going to see more decrementals in BMP taking the firm rate down to minus 5% there. So you'll see a sequential improvement in VWR and then going backwards by 500 basis points or more in BMP. Emmanuel Ligner: Yes. I was going to add that around VWR. I think we had a strong reset of VWR last year. We shared with you that we've lost market share. Q1 was really the tail of those market share loss. We have really stabilized the situation with VWR. And we also looked at the order trend, okay? We look at the contract conversion, the new contract we win, we measure the engagement of our commercial team. Everything that we are doing on VWR, in particular, around the e-commerce channel has been executed phenomenally well. We're super happy with that, with strengthening the [indiscernible]. And I think this is why we're expecting stabilization really of Q2 and then onwards positive growth. Vijay Kumar: Understood. No, that's helpful. Maybe one follow-up Emmanuel for you. We're starting the first half, somewhere down mid-single rate minus 4% to minus 5%. What improves in back half, right? Is it just comps getting easier in the back half? Or is the business turning? Is there a bridge from first half to second half, how we get to positive growth in the back half? Emmanuel Ligner: Sure. I think this is what I -- what we said in our opening comments, all right? So bottom for VWR Q2 bottom for BMP, stabilization of VWR. And then we have the order book that we just talked about, which is really on crashing on the BMP side. And I think basically, the confidence about the impact that revival has on the commercial intensity on the operation excellence and also on the fact that we are bringing all those talents, which some of them are already having an impact and there are many more coming. So I think this is a combination of all of this that give us confidence that second half will be back to growth. And of course, [indiscernible] as well in terms of VWR in particular. R. Jones: And Vijay, coming off -- taking the comp piece aside, not a dramatic sequential increase that we have baked in the plan, certainly, Q1 to Q2, and then we aren't getting more specific on the back half, but broadly beyond that. And just to be super clear into Q2 you'd say about minus 5% at an enterprise level, improvement in VWR coming up sequentially coming off a negative 5% in Q1. And then going backwards, about 500 basis points more in BMP, you can put that math together and gives you a clean picture for that, and that does not require a significant sequential ramp for the company in Q2. Operator: Our next question comes from Catherine Schulte with Baird. Catherine Ramsey: Maybe as you look across your manufacturing and logistics footprint, I guess, what portion of facilities would you say are in good shape today versus still needing some investment? I think you mentioned you've greenlighted projects. What kind of investment do those projects entail? And what's the time line to complete those? Emmanuel Ligner: Yes. Thanks, Catherine. Look, I think I visited probably all of them. I think there's maybe a few factory where I have not been like India, which I'm planning to go by the end of May and maybe 1 or 2 in the U.S. So I don't have yet the complete picture of all our sites. But look, we have excellent sites. I was recently in Poland, and Briar in France and [ Luban ] in Belgium, I think, generally speaking, the -- look, in terms of projects, there's always projects to happen in every site, right? There's not one site that consume all our CapEx or not. Every site as their project, we encourage every leader to look at to apply lean and kaizen on the site to make sure that we have productivity, okay? I think Mary is driving a huge improvement on that side where we are measuring the productivity by site. And therefore, every site leaders are encouraged with the help of our internal lean team to come back with projects that are going to create productivity, and we just shared one of them. So those projects are very different. We did 12 in Q1, but I think we will have more coming on into the rest of the year. And I think this is where we are on curage as the team is responding very well in there. Catherine Ramsey: Okay. Great. And then can you just walk through how the BMP idiosyncratic order pattern comp base throughout the year? I think you said they were a mid-single-digit headwind in 1Q will be higher in 2Q. But how does that look in the back half? And does BMP get back to positive growth at some point in the back half of the year? R. Jones: Yes. I mean the idiosyncratic gets a little better in the back half of the year. If you recall, the primary driver on the back half is going to be headwinds in electronic materials, and I would just continue to think about sequential improvement here. And that's really the theme we're driving. We're really trying to talk through here is sequential stability than modest growth against that. Emmanuel Ligner: Yes. I think we shared in the past call that new sale, serum and electronics had actually different timing in the past. And so new steel serum giving a headwind first half, electronic material giving headwind in the second half. And I think this is important for us to continue to work with the supply chain team, but also with our customers so that we come back to a normalization of the customer ordering pattern and, therefore, shipment across the year. Operator: Our next question comes from Casey Woodring with JPMorgan. Casey Woodring: Maybe to start, can you walk through the price versus volume performance in the quarter? You said pricing was positive in BMP. So assuming that was down in VWR. So some more color on pricing in the quarter and updated pricing expectations for the year would be helpful. And we'll also be curious to hear your updated thoughts around gross margins and where those could land on the year, just given some of your comments around freight costs and such. R. Jones: Well, so Casey, broadly in the quarter, and let's talk about this on the gross margin side. And I think the right way to think about it is sequentially. And we talked about -- we talked on the last call about taking the 31.5% gross margin -- adjusted gross margin is a jumping off point to think about to think about this year. And on a total company basis, you really had the decrementals on volume offset by pricing actions that came from the beginning of the year. And then you have other puts and takes with with freight and et cetera, there. We saw somewhat better performance there. We like that. We believe that will continue to grind up during the year. on a full year-over-year basis, price cost spread was negative. Again, that's due to the VWR margin reset we saw beginning in the second half of of last year, but we like to set up for that. We like the execution, and then we believe you'll see a grinding up certainly into Q2. And then we're not being more specific about the back half of the year. But certainly, our guide is predicated on that gross margin improvement. Casey Woodring: Understood. And then as a follow-up, can you just talk briefly about free cash flow performance in the quarter. You did $25 million here in 1Q, but reaffirmed the $500 million to $550 million guide. So just curious if the free cash in the first quarter was in line with your expectations. And I guess the guide does imply a pretty big step-up moving forward. So maybe just walk through how you plan on getting there, the puts and takes? And any sense for just phasing and how back-end loaded that range is? R. Jones: Yes. No, certainly, Casey. So we noted that it was consistent with our expectations. Our guide is before restructuring expenses. So then it was around $40 million when you exclude restructuring expenses, we cited the significant prebate. If we had not had the significant prepay in the quarter, we would have looked a lot more like last year, and then we would expect a similar sort of ramp throughout the year. there weren't really any other significant moving pieces. If you look at the cash flow statement, there weren't working capital swings or otherwise, it drove it different way. So really, the story in the quarter on the relative was the prebate as well as on the absolute -- on the year-over-year lower earnings. And again, that will -- it's not unusual for Q1 to be lower on a seasonal basis, and then you'll see strong continued sequential improvement, which you've seen from us. Operator: The next question comes from Brandon Couillard with Wells Fargo. Brandon Couillard: Emmanuel, on the VWR business, you talked about some market softness in Europe would that region deteriorate sequentially? Or is that just a year-over-year comment? And then the 50 basis points of U.S. weather impact in the U.S. in the quarter. I guess I would have thought you would have made up those orders at some point in the quarter. Did those get pushed out into 2Q? How do I think about the impact of that? Or they just lost revenue in general? Emmanuel Ligner: Just on the weather, I think what we were saying is it did impact. But fortunately, the team works very well and finished to deliver what we were expected. So VWR in Q1 was really spot on in terms of our expectations. So again, another confidence about the team capable of being flexible and really make it works. So that's the comment. On Europe, I think there is some softness in particular in the industry in Germany and in a couple of areas like this. Also, I think remember that in Europe, we are very proud of being the largest distributor there. And so it's the places where the market is when you are the #1 always impact you a bit more than anybody else. I think there is Look, it's an area where we didn't have a leader for a long time there. I think we have [ Christophe ] now, which is really taking care of that. We did some reorganization and the team is reverted right now. And so that's where it's -- we have confidence in the second half in Europe as well. Brandon Couillard: Got you. And then maybe Steve or Brent, on the inflationary impact, the $10 million to $20 million, nice to see you're able to absorb that in the guidance for the year. Two questions. Do your contracts generally allow for freight-related surcharges to be passed through? And number two, to what extent have you kind of, I guess, stress tested those assumptions? Are there other known unknowns that could push you above that range as you look out the next few months that you've heard about? Unknown Executive: Brandon, let me start just a quick comment on the contract and then I'll let Brent and Steve answer for the rest. We tested that during COVID and post-COVID inflation. I don't know if you remember. So we have a tool in place for surcharge it's working well in some area, in geographical area -- other geographical area, it's a bit more difficult. But we are looking at the success story that we had post-COVID when we had huge inflation, and we are just putting a team in place to make sure that we reproduce that and not only one geography, but across the entire territory. So the answer is, yes, maybe not every contract but a huge majority [Technical Difficulty] potential headwind we see in the year related to the Middle East conflict that we're carefully watching that situation and estimating the impact that it could have on our operating income. And like Emmanuel said, we are monitoring weekly and looking for every opportunity to mitigate that impact on our results, the best we can. R. Jones: Brandon, I'd just add, you coined a phrase known unknowns there. I suspect -- I don't know if we can never know an unknown. We certainly thought very deeply about this. So we think we've identified that appropriately. Operator: The next question comes from Matt Larew with William Blair. Matthew Larew: I wanted to ask about the bioprocess portfolio. You referenced BMP as a category in down slightly in and then improving in the back half. Many of the bioprocessing peers, I think, at this point are closer to normalized growth in the high single digits. So Emmanuel, just curious if you think on a on a long-term basis as is now a chance to really review the business if this is a portfolio that you think can grow kind of at that market rates and maybe how long you think it will take to get back there? Emmanuel Ligner: Yes. No doubt. Look, the BMP negative growth into Q2 that we are anticipated. And for that segment to be at the bottom is mostly due to what we talk about the seasonality and the speed static purchasing that we've seen, in particular into serum and new sale last year, all right? So it's a really what is the core of that segment, which is processed chemical. We've seen double-digit in process chemicals in Q1 and in revenue, but also in order, a positive book-to-bill. We think that the market is 6%, 7%, like our peers looked at it, and we are really pushing the team to make sure that we are growing at market or even above market for the rest of the year. Again, the focus that we've done on Revival around commercial intensity as well as operation, give us confidence that we'll go back in the second half of the year to grow on both segments. And we're getting -- every day, we're getting more optimistic about the business. Matthew Larew: That's great. And then Emmanuel, you joined last July. And so then there almost a year, you referenced the 25% of kind of top leaders changing the number of folks that you've brought in from other companies. In response to Catherine's question, you've been out to most of the facilities. I guess where would you assess in terms of the structural kind of personnel changes that you would like to make the -- any kind of accidents you wanted to implement and get going? Where would you say you're at in terms of getting that started and really ready for the company to jump off versus additional structural changes that you think need to be made to position the company? Emmanuel Ligner: And this is a very good question. Let me first because I like to be precise. I joined mid-August exactly. So it's not yet a year, right? It may be more time to celebrate my anniversary. But I'm super the about, first of all, the reaction of the team internally, all right? We have some really good talent internally. There's absolutely no doubt. And what we are trying to do is just buying this internal talent with additional external talent. Some of the roles that we've shared today and that are in that early slide, a role that we have created, that we didn't have in the past, okay? And so I think where I am today, well, look at need a strong right-hand person and the CFO search is on its way, someone that can really be a partner to really continue to push and execute revival. But I will say, generally speaking, at my anniversary. So in a couple of more months, I think we will be almost there. We will announce soon some additional executive member that we should be able to position a couple of weeks to share with you around [indiscernible] and CIO, and I think we will be there. Nevertheless, let me just say one more thing. Talent is always something which is very dynamic as well, okay? And what we are trying to do is to make sure that we do not lose the talent that we have as well. But this is always something very dynamic. And I think we are constantly making sure that we are motivating our talent. And one of the things that we're doing in revival around simplification is also about changing the delegation of authority to make sure that we empower the right people to make the right decision at the right place, at the place of impact as close as possible to the business. And I think, again, this is something that the team is reacting very quickly and very nicely. And I think the first quarter, we're pretty happy with our results, and we are very optimistic about the rest of the year. Operator: The next question comes from Michael Ryskin with Bank of America. Michael Ryskin: Great. I've got a couple of minor ones I'm going to throw in. First, you alluded to prebates a number of times. Just wondering if you could expand on that, just sort of the magnitude of it in the quarter, was that unusual for 1Q? Just sort of the impact that had on numbers is how to think about that going forward? R. Jones: Yes, Michael, it's Brent. So prebates are associated with enterprise contracts with large customers. We started talking about that in Q2 or Q3 of last year. We had a meaningful impact from payments due to that in Q4 of last year, that had very significant. We're not specifically quantifying it, but it had a very significant impact on the cash flow let's also be clear. It was anticipated. It was expected in our guidance as expected and how our cadence was going to get. Emmanuel Ligner: Michael, I will also look at it in a sense that if you do not renew and do not win contract, you don't have prebate. So we'll look at it as well as a positive. Michael Ryskin: Okay. Okay. And then on the VWR business, I hear your comments about 1Q. You expect that to be the organic low point, and you talked about some improvement in 2Q and beyond. You've got easier comps in the second half. But still, you did post a negative 5% organic trend on a negative 3% comp. So could you just talk about share dynamics, share gains, share losses, maybe touching on the prebates and the enterprise customers there? Just confidence that, that's really stabilized and is going to be less and less of an issue going forward? Emmanuel Ligner: So we talked about last year, we had some share loss. I think I explained as well that you don't lose share at a one-off, all right? It's a headwind that gone month after month, it takes time for our competitors to convert the loss that -- the win that they had, which is more or less on paper at the very beginning. And this is where we are. We are, first of all, on a seasonal low quarter. We are at the tail of those losses. And we talked also about the fact that last year, we renewed contract, we renew contract with opportunity to grow license to go hand. And this is what we are doing. We're happy about what's going on right now. And so we have that tangible point, which is stabilization, stabilization of our commercial activity we win contracts, we renew contracts. We lost some contracts. We lost some share within a contract. The customer gave us a certain share of wallet. There's a huge dynamic here. But what I can tell you is we are stabilizing. And that's the most important thing. It's a stabilization. And as we are moving into the second half of the year, we have an easy comp. And that is because we are stabilizing because we are taking the action that we are taking in particular in e-commerce that we are confident about the fact that Q1 is the bottom. Michael Ryskin: Okay. Okay. If I could squeeze in one small follow-up. To Patrick's question, I think you pushed you on 2Q organic and margins. I want to make sure I understand the margin cadence properly. It sounds like you're pointing to some gradual improvement through the year, including on the gross margin on just looking at prior seasonality that seems to go against that. Is there anything unusual in gross margin that I'm missing for this year that would explain that? R. Jones: Yes, Michael, I think we're coming up sort of the rebate for the company. We have significant revival productivity initiatives. There's always the noise of mix within that. And we're also not pointing to heroic improvement in that, just the kind of classic revival productivity and other things along with along with just better top line to better absorption against it. Operator: The next question comes from Dan Arias with Stifel. Daniel Arias: Brent, just curious how much of the plastic ware portfolio within VWR is yours versus OEM? I ask as I'm just sort of thinking about oil sensitivity and resident put cost, trying to understand how much you have control when it comes to managing inflation just versus sort of being at the mercy of whatever the OEM provider decides to do on price, et cetera? Emmanuel Ligner: Dan, Emmanuel here. We have a huge portfolio, and I don't have the data. I don't think -- I'm looking at Brent right now. I don't think we have the data in front of us. So I apologize, this is something that we can follow up. What I can just reinsure is we have also a new sourcing leaders in in VWR and Emilia is really leading that. So Emilia and Keith are really working hand to hand in the task force to make sure that we are controlling and making sure that we are negotiating best deal we can and passing through the increase we manage to see. Daniel Arias: Okay. Fair enough. Maybe just sort of looking ahead a little bit and thinking about 2027, which I know is a long ways away, but are you -- does the operational improvement that you feel like you have confidence in right now? Does that give you confidence that EBITDA margins will be up next year? Emmanuel Ligner: Let me answer in 2 parts. First of all, let me echo comments from over already it is April '26. It's a bit premature to talk about '27. And I just want to reiterate what I said in the past. I take my comments very seriously. And for me, it is just too early to put a detailed take in the ground. However, and saying said that, I'd like to make a few more observations on the future. look, today, we are pleased with our Q1. We are looking into a second half of the year, which is going to be positive, and we are optimistic about that. Revival is having an impact, and I'm confident that Revival for the rest of the year will have a greater impact. And so we feel that we will exit 2026. And by the end of the year, I think as well that we will have more capital deployment flexibility a higher level of confidence across the organization and revival is going to accelerate to have an impact on the entire organization around commercial, team around operational, team around the rest of the support functions. And so all what I see today over the last 9 months almost, give me confidence, and I am optimistic that 2027 will be a growth year. Chris Fidyk: Operator, we have time for one more question, please. Operator: Our final question today comes from the line of Dan Brennan with TD Cohen. Daniel Brennan: Great. Maybe just on the distribution business. Could you just zoom out and talk to what you're seeing in kind of the broader market? There's a lot of uncertainty, what's happening with pharma spending certainly in the U.S. academic government trends. I'm just wondering versus what you're delivering, kind of how is the broader market doing? And then related to that, like are you guys assuming positive price in the back half of the year? R. Jones: Do you want to answer the price for the back of the year? I'm sorry, Dan, we have very modest price baked into our plan here. Emmanuel Ligner: And then I think from an overall market -- yes, sorry, from an overall market, I would say what I just said 3 months ago, I think we are where we are academic and government stable, maybe at a low level. Education is a question mark. Education segment is a question mark. There's pocket in Europe, as we discussed about that include industrial that are really struggled given the macroeconomic environment. There are geography differences. And again, we are in so many different segments, including mining and pharma. Look, we are thinking that from us, and that's very important, we are stabilizing. The team is motivated. We are implementing the plan that we have, in particular in digital. We're super happy to have our new Chief Digital Officer, [ Jim Finn ] and that will really help us to think that the market is probably at a low single digit, and we will be back to growth in second half. I think this is where we are today. And of course, we will continue to monitor the macro environment on this. Daniel Brennan: Maybe just a final one. I know you called out that material headwind in Q2 from the BMP across those different businesses. Is there any more sounds like it's idiosyncratic very company-specific, but you've got -- it's pretty big. So could you provide any more color on that, like the [indiscernible]? And then it sounds like Brent that current materials is a headwind in the back half of the year. Sorry, if I missed in prior calls, you got to discuss those. But any additional color you can provide on those would be helpful. R. Jones: Well, look, Dan, I think we've talked about it broadly where it comes as a headwind. But in in the first half of last year due to some timing, both customer orders and our fulfillment, you saw very, very strong performance in new sale. Now that also has very strong margin contribution. That becomes -- that's a headwind right now. You also saw a very strong performance in serum. Then in the back half of the year, we saw exceptional performance in the EM business particularly in Q3. So new sale we talked about discretely, but for the research and specialty chemicals piece of it, that EM and serum just provides a headwind in the front half in the back half to just make the segment comps more difficult. So that's why you see us calling out specifically how we're doing process chemicals and other pieces there. So they're unburdened by those comp pieces, and I continue to point you all to the sequential performance we have in these through the year, moving away from the pieces on the comps. Emmanuel Ligner: All right. Thank you, Steve. Thank you, Brent. Thank you, everybody, on the call to joining us today. We moved the company for 1 in the first quarter, and I'm encouraged by the momentum and positive energy across the organization, revival is having an impact. Avantor is turning a corner financially, which gives me confidence that we will return to positive growth in the second half of the year. I look forward to updating you again next quarter. And until then, be well, everyone. Thank you. Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: _Good day, and welcome to Expand Energy 2026 First Quarter Earnings Teleconference. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Brittany Raiford, Vice President, Treasurer and Investor Relations. Please go ahead. Brittany Raiford: Good morning, everyone, and thank you for joining our call to discuss Expand Energy's 2026 First Quarter Financial and Operating Results. Hopefully, you've had a chance to review our press release and the updated investor presentation that we posted to our website yesterday. During this morning's call, we will be making forward-looking statements, which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs, goals, expectations, forecasts, projections and future performance and the assumptions underlying such statements. Please note that there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our press release yesterday and in other SEC filings. Please recognize that except as required by applicable law, we undertake no duty to update any forward-looking statements, and you should not place undue reliance on such statements. We may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers. For any non-GAAP measure, we use a reconciliation to the nearest corresponding GAAP measure that can be found on our website. With me on the call today are Mike Wichterich, Josh Viets, Marcel Teunissen and Dan Turco. Mike will give a brief overview of our results, and then we will open up the teleconference to Q&A. So with that, thank you again. I will now turn the teleconference over to Mike. Michael Wichterich: Thanks, Brittany. Good morning, and thank you for joining our call. The team delivered another solid quarter. Honestly, they make great execution look easy. Over the past 2.5 months, I've had the opportunity to work with our team and spend time with our customers, speak to potential domestic and international counterparties. I got to tell you, I'm more optimistic today about our industry and company than ever. There is no disputing our industry is in the midst of a major demand growth. The big 3 drivers of demand, AI power, the reshoring of heavy industry and global LNG growth are converging to make the future bright for natural gas. All of this was happening even before the recent events of the Middle East. So now in addition to structural demand growth, energy security has pushed the U.S. natural gas to the forefront. Expand is uniquely positioned to take advantage of these events. Simply put, we have positioned ourselves to be in the right place at the right time. For example, our Gulf Coast assets sit at the epicenter of LNG. In fact, our largest customers today are LNG facilities, and there is an increasing recognition of the strength and competitive advantage of our Haynesville position. According to third-party reports, today, we own 72% of the lowest breakeven inventory in the basin, allowing us to deliver certified natural gas directly to LNG facilities with minimal risk of basis bloods. Fundamentally, we see LNG as a natural extension of our business. Demand in the region is not just LNG, AI-driven power and industrial demand is rapidly growing in the region. When you combine structural demand growth in energy security, we believe the Gulf Coast is well positioned to become a premium price market. Our Appalachia assets sit at the core of AI power demand. We believe the Northeast will soon see demand growth of 4 to 6 Bcf per day. In-basin demand growth will unlock pipeline-constrained production. We're also seeing a renewed optimism to build infrastructure to serve more Americans in the Northeast and Southeast markets. In-basin demand growth, combined with new infrastructure, will unleash our low-cost inventory and create substantial value for both Expand and our shareholders. Now let's turn our attention to the first quarter. Financially, we did well. We generated $1.7 billion of free cash flow inclusive of working capital inflows. True to our word, our strong cash flows were used to reduce gross debt by $1.3 billion and returned over $290 million to our shareholders through base dividends and buybacks. Operationally, like our peers, we kept Appalachia assets running with an impressive 98% uptime during Winter Storm Fern. Our Gulf Coast assets were impacted by the storm, resulting in some shifting of CapEx from first quarter to second quarter. Importantly, our full year production and capital guidance are unchanged. A lot of you, and frankly, a lot of our peers are anxious to hear about the progress in the Western Haynesville. Early production results from our first well have been encouraging. We are pleased with our execution and cost competitiveness on the well and have more wells planned this year. So stay tuned. Last year, we made tremendous operational improvements, but we see room for continuing operational improvements across the portfolio. and are excited about the early impact of machine learning and AI is having on lowering cost, enhancing well productivity. I see this as our own self-help program. Marketing and Commercial has been our primary focus for the quarter. As promised, we have attacked this opportunity with discipline and urgency. The time is now for us to improve our margins, grow cash flow per share. Our goal this year was to increase the number of commercial opportunities evaluated to ensure that we are achieving the best risk-adjusted returns for our shareholders. I'm happy to say we've made great progress on this front. On our last call, we stated the size of the prize of this effort is about $0.20 of margin improvement, which equates to approximately $500 million of repeatable incremental free cash flow per year. We do not believe that we have to swing for the fence searching for one transformational deal. We will be disciplined and create value by stacking singles and doubles across 3 general categories: First, reaching premium markets. Our expansive footprint across 3 different operating areas gives us access to more customers and options to optimize our flows. To be clear, we are changing our mindset to be a more customer solution-focused company. In the past 6 months, we've added a combined 0.5 Bcfd of term sales and firm transportation to end users, extending our reach to premium markets. Second, monetizing volatility. In the first quarter alone, we generated nearly $90 million incremental value, a greater example of how we can capture and monetize the volatility we see in the market. While this was primarily driven by unique events, these are the types of gains we're looking to achieve more sustainably. Finally, facilitating and capturing new demand. Today, we announced a new offtake SPA with Delfin LNG for 1.15 million tons per year, extending our market reach to global demand centers. We see great value in this transaction as it's bigger, reaches market sooner and cheaper compared to our previous agreement, which has been terminated. Our LNG strategy will be dynamic and shape of the economic merits of each agreement partnership or joint venture. We will take a portfolio approach, continuing to add to our LNG opportunities over the next several years with different types of contracts. In parallel, we'll continue to pursue opportunities to broaden our power sector customer base. supplying natural gas to a growing number of power generators, load-serving utilities and increasing our exposure to data centers and hyperscalers. We have no doubt that Expand is built for this moment. Why? We're the largest natural gas producer in North America. Counterparties want to do business with someone who's going to be around for the next 20 years. The depth of our portfolio, combined with our investment-grade balance sheet, provide that confidence. We are in the right place at the right time. Nearly 90% of expected U.S. demand growth can be served by our assets. Lastly, we have a team that can execute. We reset the economics of our Haynesville position last year. And today, we continue to see opportunities to strike more value from every dollar of capital we deploy across our portfolio. Before we take your questions, I would like to take a moment to thank Brittany for her service as interim CFO. She did a terrific job. I'd also like to welcome Marcel Teunissen to the team as Executive Vice President and CFO. Marcel is the kind of leader who can elevate our entire organization. He brings deep experience that aligns perfectly with the opportunities we've highlighted today. I'd also like to note our CEO search is progressing well and remains on target for the time line I presented on our last call. However, the team is not waiting around. The Board and management team are fully aligned. We are executing our plan today, and we see numerous paths to reaching more markets and improving our margin. Thank you. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Matthew Portillo with TPH. Matthew Portillo: Wanted to start out on LNG. Could you perhaps discuss why the Delfin LNG project was attractive to Expand? And then maybe more broadly, could you talk about your thoughts on the global gas market as it relates to supply-demand balances and how this might play into your LNG marketing portfolio from a time to market perspective. Michael Wichterich: Great. Thanks, Matt. This is Mike. Number one, our LNG strategy is really an extension of our Haynesville. We think about it more broadly than I believe most, which is we think about first, delivering gas to Gillis, which we think will ultimately be a premium market because it's connected to all of the LNG facilities. In fact, LNG facilities are our biggest customers today. When we start to think about on the water, of course, LNG, we think about that as international pricing. We want exposure to the prices, whether it be JKM or TTF or others. Delfin is the start, and we'll call it a foundational sort of contract in order to start to capture the LNG market opportunity and the premium pricing. It kind of flows into our bigger marketing plan. When I think about the 3 different sort of categories, we want to be in premium markets. We think LNG will do that as we move into Europe and to Asia. Two, of course, volatility. It's a different volatility sort of shape than our Henry Hub exposure. And then, of course, new demand, that's a new facility that's getting built. And so it is actually helping new demand in the area. And in fact, that gas will come from both Sabine Pass and [indiscernible] pass. Dan, why don't you tell them a little bit more about the details? Daniel Turco: Yes. Thanks, Matt. So as you know, we originally had an agreement with Delfin in Vessel II, and we had this opportunity where our conditions precedent date passed, and we terminated that contract. And as Mike said, we believe in the global LNG demand here. And so we had the opportunity to look at Vessel I and take out a larger position. And important to that as we terminated the back-to-back contract as well. So as Mike alluded to, this gives us all the integrated strategy that we're trying to do, facilitate that new demand through that SBA reach premium markets, get that asymmetry and importantly, we have some of the control on the water, either ourselves or through long-term partnerships where we can create more value and take a portfolio approach to our supply position and our sales position downstream offered different terms and tenures of sales and also different indexations. The other important aspect I'd point out here is, we're trying to integrate this through our value chain. So we have a long-term partnership with Delfin. We're negotiating with them right now to be the gas supply managers. So we're integrating it right through our value train. That differentiates us and brings more value to us. And we think bringing more value to the customers, we'll be able to offer different solutions. Matthew Portillo: Great. And then maybe as a follow-up on the marketing side. If we look out over the medium term, at least to us, it feels like it might be a bit of a challenge given the inventory exhaustion for smaller producers around the Gulf Coast to maintain a supply level that can keep up with demand growth over the next few decades. And I was just curious if you see an evolution in Gulf Coast supply-demand balances? And specifically, do you think we need to see more pipeline capacity coming out of the Northeast to help bolster supply on the Gulf Coast over the medium to long term? Michael Wichterich: It's Mike again. Generally, we agree. We agree. We have a lot of demand coming to a very small area. That's, of course, near our Haynesville asset. So we feel pretty well positioned, and we're fortunate to have a deeper inventory than most. And so we'll be able go a lot longer than everyone else. Long term, when you start thinking about 20-year contracts, of course, you need to find other supply in different basins. That, of course, can come from the Northeast. We're always worried about can it be done or not should it be done? We definitely think it should be done. So more gas will have to come from Appalachia. And of course, we'll benefit from that on our own assets. And of course, everyone knows that there's going to be more gas that's coming from the Permian as well. Operator: Our next question comes from the line of Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Marcel, I welcome, first of all, I wonder if I could take advantage of this being your first call. You obviously joined from a retail company, but you have a tenure at Shell, long tenure at Shell before that. So I wonder if you could maybe just share with us why did you take this position? What do you think you bring to the table? And if I may, on that last point, we know Mike is very keen on getting the breakeven down in market is a big part of that. So I wonder if you could share your thoughts on how you think you fit into that strategy. And I guess my follow-up is on one of my favorite topics, which is cash return on balance sheet, you appear to have inherited a pretty stellar balance sheet in the first quarter. My question is, when you think about hedging, when you think about volatility what is the right capital structure in terms of balancing things like cash returns versus continuing to delever. Marcel Teunissen: Well, great. Thank you, Doug. Thank you for the question. It's a pretty long run. So it's good to get out there. So maybe just by way... Douglas George Blyth Leggate: Part in Part B. Marcel Teunissen: Yes. Okay. I'll take them all. So my -- just by way of my background, so I've been in the energy sector for almost 3 decades, and I've worked in the upstream, the midstream, the downstream on the oil side, the gas side. And also in every part of the world, so I bring an international perspective on that. And I've done finance jobs, obviously, but also commercial, corporate development strategy, jobs and operations. The last 5 years, as you mentioned, I've been in the Canadian downstream company, really on the customer demand side working on optimizing the integrated margin, capital allocation and the likes. And prior to that, I spent almost 25 years at Shell, which the last many years, on Shell's integrated gas business. So that's how I kind of come to the job. And then to Expand, I think most of it has been said by Mike, right? I think the Expand platform is just incredible in terms of its size, in terms of its positioning here within the U.S. And it's at a time that the energy market is really -- both in the U.S. and globally is going to transform fundamentally and we're well positioned. And then you look at the strategy where we are we want to capture more value by being integrated into that value chain, and that's why I bring a lot of kind of experience and background. And so I'm excited about the opportunity and what we can do here with the team, incredible people and as is an incredible business and platform to kind of grow from. So that's kind of the background and why I joined and the opportunity I've seen. In terms of breakeven prices, right, you asked a question what I believe around breakeven prices. We are kind of leading there within the industry, well below $3 now on a breakeven price. And that breakeven price by capturing margin will just create more value for our shareholders when we do that. So we'll continue to work on the cost side as Mike also alluded to with Josh and his team but also by capturing more of that upside on the margin, we will just improve our relative position even further. So that's an important part. The balance sheet. Made incredible progress on the balance sheet. And the way I look at that, it's important for us to be investment grade. We're a big company. We are a counterparty. People need to be able to rely on us. And of course, we're in a very cyclical business. So we want to be investment grade, not just in the good times, but through cycle, and that's important. You've seen after Q1 that we now have peer-leading kind of leverage, and we reduced most of the free cash flow we generated in the first quarter to reduce our gross debt and, of course, to put some additional cash on the balance sheet as well. And then going forward, this continued -- our strategy continues to be anchored on that balance sheet as we think of the opportunities that we have. Now having said that, I think given the allocation of free cash in the first quarter and the progress that we've made relative to what we laid out at the start of the year, we can rebalance a little bit the pace of that and also kind of lean a bit more on the shift that kind of balance to shareholder returns in the form of buybacks. So that's kind of how we think through this. Let me pause there unless, Doug, there was a part of the question that I... Douglas George Blyth Leggate: No, I think you've given -- I just want to -- maybe just on that last point. So at the end of the day, your breakeven is still above where the gas price is right now. So is share buybacks more of a -- I mean, do you think about that as opportunistic? Do you think about it as ratable or when you're theoretically at a gas price, which is burning cash, by definition, below breakeven. Is now the right time to back your stock? Or is now the right time to put cash on the balance sheet. I'm just trying to understand where buybacks fit in the seriatim of priorities? Marcel Teunissen: Yes. So I think we do both, right? And we can walk and chew gum. We're still generating cash. Of course, our hedging program means we are realizing prices well above what you see in the spot markets at the moment as well. So I think that's important. And think of our buyback program is opportunistic, right, relative to the value we can get in buying back. And so it's a capital allocation question, and it's a balancing act, and I think you highlight that well. Operator: Our next question comes from the line of Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: Maybe to start off with an operational question. You guys made tremendous progress on well cost last year. CapEx also came in lower in the first quarter, but you also had kind of lower turn in lines I wonder if you had any comments on leading edge well costs are you still making progress on efficiencies? And maybe any comments on increased competition for services or higher prices you're seeing out there? Josh Viets: Kevin, yes, we continue to make progress on our operational efficiencies. Just just in the last couple of weeks, we've drilled the fastest well ever within our Utica program in Southwest Appalachia. So the teams continue to do a phenomenal job and finding ways to unlock new value. I think we'll continue to see those strides. An area of focus right now is for us perfecting how we drill our 3-mile laterals in the Haynesville. And so I still see upside there. As far as pressure on services, of course, we've seen an uptick in rig counts in the Haynesville. We really haven't seen the impacts of that show up in our business yet. Our costs have been stable I would say, outside of some near-term inflation around diesel prices, which is largely tied to the conflict in Iran. But beyond that, I would say the cost structures have been relatively stable. Kevin MacCurdy: Great. I appreciate that detail. And then maybe for my second question, I'll move to the Western Haynesville. And I realize that program is still pretty early. But is there anything you can share with us on what you saw in the first well in terms of -- where you think well costs are going to go, where you think you can take your expertise from the legacy Haynesville and translated over to the Western Haynesville? And any thoughts on production on that first of all? Josh Viets: Yes. So the well has been online for the last couple of months now, came online in early March. And so we're still monitoring well performance there. I would say we've been very pleased with what we've seen to date. We liked what we saw when we initially drilled the pilot well there. So we knew we were getting into a really good overpressured reservoir there. But again, it's still early. We want to be methodical about how we appraise those results. We've also, just here recently in the last week, spud our second well about 50 miles to the north of our first producing well. And I do think on the cost side that I have every expectation that we will continue to work ourselves down the cost curve. We're by far the most proficient operator in the Haynesville. We've built up a lot of history drilling our deep hot wells in the southern part of the Louisiana core. So of course, we're going several thousand feet deeper, but there is a lot of learnings that we can translate into the Western Haynesville position. In fact, when we just look at our first well that we drilled in the area last year, we're already on the lower end of the cost curve relative to what we've seen from competitors. And again, that's on one well. And I have every expectation that we'll continue to leverage those learnings and continue to work ourselves down the cost curve. Operator: Our next question comes from the line of Neil Mehta with Goldman Sachs. Neil Mehta: Yes. Marcel, congratulations and looking forward to working with you again. And Mike, you gave us a little bit of an update on the CEO process. It sounds like you're tracking for a Q3 or Q4 event, but just any mark-to-market on how you're progressing through it, how you're attacking this process and what you're looking for in timing? Michael Wichterich: I like the way you said that mark-to-market. Look, number one, the team is not waiting for a new CEO. I think you should see from our behavior and our quarter results here and efforts on marketing that there's no waiting for a CEO to show up before we do something. So #1 job is just to continue to create value for our shareholders. With that, of course, we're looking for our leader, and we still expect to be on the same time. The mark-to-market, I'd say, is still kind of at the money on my 6-month sort of prediction of when this person would show up. We don't think that we'll find the perfect person. We think we're trying to build the perfect team. And so with that team, you'll hear about Marcel's background. Of course, we have marketing with Dan, Josh, and so we're thinking it very holistically. We expect to have an energy person, not someone from Starbucks or Chipotle to come into this job, something more closer to our business. But on path, on strategy, I think that's fine. And now today, it's just about execution that we continue until this person's arrival. Neil Mehta: Okay. That's really helpful. And then -- just the follow-up on the hedge to wedge strategy. You have a good slide in the deck just talking about how volatile the gas environment has been. We've been living in this $2 to $6 range. Obviously, in the shoulder, we're below the midpoint of that range. And so the hedging strategy has worked out pretty well for you guys. But do you have some competitors out there that are running a much more unhedged program. As you guys think about the balance sheet being where it is, what's the right approach to hedge the wedge? And just while we're talking about hedging just any comments on the gas macro broadly as we set up for '26. Marcel Teunissen: Well, thanks, Neil, and good to hear your voice and looking forward to working with you. It's Marcel here. Let me answer the question on hedging, and then I'll pass it on the macro back to Mike. So coming in from the outside, and obviously, risk management is a critical part of how we manage the business. So -- and I've studied the hedge to watch program and all of that, and it is the right approach for our company. And I think if you look at it, really the volatility of the market, which you point out, it's just much faster than how we can plan for capital. So by hedging the wedge, we really create that kind of -- we protect the downside while we preserve the upside, and that creates consistency in the cash flow generation as well as predictable returns. So for where we are with the balance sheet as well, I think it's the right approach. It's not a static approach, and you've actually seen that in the first quarter, right? So we kind of lay out what we want to do, and then we optimize around that position in a way, not in a speculative way, but really from an approach of risk management and then optimization -- and I think the last thing I would say is that being the largest player in the market, we have a lot of information on what is moving around there, and that allows us to just capture a bit more, make the program more efficient, and you can expect that we continue to do that. Michael Wichterich: Yes. On the macro front, when we think strategy, we don't think this year, it's like trying to predict the weather, of course, and even next year. We're thinking much longer term. We think that large macro program -- macro demand is sort of amazing. Generally, I think that, that macro shows up bigger in the Gulf Coast before the Appalachia because LNG is on the schedule that you can see, you can see massive sort of growth in Calcasieu Pass and Sabine Pass. So think that will be a premium market. That's not to say Appalachia won't get its fair share with AI demand in power generation, but definitely it feels like Gulf Coast is positioned to be impacted first. Operator: Our next question comes from the line of Scott Hanold with RBC Capital Markets. Scott Hanold: Yes. I'd like to kind of go to some of the commercial stuff you all laid out in Slide 8 on your presentation deck. It seems like you've defined what the LNG, the industrial side, the power side is as catalyst. How do you think about the ideal allocation reaching to those various end users? And do you think one area is under, I guess, underlooked by other companies. It feels like industrial is an opportunity you all have that I don't hear others talking about as much. Michael Wichterich: Yes. I mean, I think about it in timing more than anything. I think the Gulf Coast, when I think about what's going to show up, LNG is going to show up first. That makes the Haynesville particularly valuable. What people that are missing, of course, is the rest of the world, International actually are much, much more optimistic about the demand, the world's demand and the need for LNG. And so if we overperform, I feel like it will be in that area. When we get to industrial, industrial will come, but those are always big projects. We haven't seen the FIDs yet like we see on LNG. Power is just all over I mean it's every -- whether it be in Louisiana or Texas or in Appalachia, we're seeing tremendous sort of discussion about power. But when that generation equipment comes on is a little bit to be [indiscernible] . And so it feels like that's secondary right now. It's not that we're not chasing it. We chase it every day. But LNG is here, and so you can plan for it and you can start building your asset to serve it. Scott Hanold: And when you think about the LNG opportunity, obviously, you signed the Delfin agreement. But given what's happened in the global LNG market right now, how competitive is it? Is it tough to be able to contract in this market given the heightened nature of it? It's my analogy would be if your house is on fire that's not the time you call your insurance agent for more coverage, right? So how is that LNG market? Can you actually get things done? Daniel Turco: This is Dan. In terms of contracting on this -- I'll talk about it on the supply side and the sales side, right? On the supply side, this Delfin contract is a long-term SBA. So that's priced at a cost of liquefaction. So it's easy to get those kind of deals done at the moment. There's a few more in the market that are available that we're looking at. And then on the sales side, this is, again, a longer-term business driven by long-term relationships. LNG doesn't trade like really any other market in the world. It's really driven by long-term relationships, fundamentally underpinned by long-term contracts. And we've been in discussions with counterparties already on how we could end up supplying them, supplying them different. So in the real near term, yes, the markets are priced to perfection. So if you're going to get a short-term strip in this year, you're going to have to pay up for it on the U.S. Gulf Coast, but we're setting up this business for the long term. So we expect to add supply positions and have a sales portfolio on the other end, where we can market differently and a mix and a real portfolio approach to longer-term contracts and shorter-term contracts and spot exposure. Operator: Our next question comes from the line of John Freeman with Raymond James. John Freeman: I wanted to go back on the marketing side on that. Slide 13 that you've got sort of you show sort of the 3-pronged sort of strategy to achieve this $0.20 uplift. And the first one, the facilitating and capturing new demand like Delfin is obviously, longer term, back in we test are 4, 5 years or more. So you sort of get to realize those versus the other 2 which are already underway, the premium markets and the monetizing volatility, where you're just trying to kind of ratably expand those. I'm curious like if the ultimate prize, the $0.20 kind of uplift, like how much of that can you all achieve with just those other 2 kind of buckets, the premium markets and the monetizing volatility. Michael Wichterich: Of course, it doesn't matter where it comes from. And ultimately, our ability to execute will determine exactly where it is. In our view, today, we think this is about 50-50. 50% on facilitating and capturing new demand and 50% in the other 2 categories. Between those categories, they're a little bit intermingled. So exactly how they're broken out, we don't, and we don't think about it that way necessarily because they're often combined, but think about the bottom 2 of those things is sort of near term and about half in the top -- the very top one about half and a little bit longer. John Freeman: That's great. And then the you'll remove the heat map slide in the presentation this time. I'm just making sure there's nothing changed in the way that you all sort of think about that relationship between kind of production CapEx in the natural gas price. Josh Viets: Yes, John, this is Josh. That's right. I mean it's not in the deck, but it's absolutely helping us formulate our views on production and therefore, CapEx and it all centers around taking a 3- to 5-year view on a mid-cycle price. And of course, there's been a lot of volatility. Mike talked about this earlier. -- in the near-term gas markets. But as we think about the business over the next couple of years, we think delivering that 7.5 Bcf a day given the current price outlook makes sense. If we see those fundamentals change, of course, like we've done in the past, we'll be responsive to those changing market conditions. Operator: Our next question comes from the line of [indiscernible] with JPMorgan. Unknown Analyst: Maybe just to follow up on John's question, are you starting to think about your activity levels changing at all where current natural gas prices are, the 27 strips fall into below $3.60. Are we getting closer to a price where you would consider moderating some activity or at least maybe building some deferred productive capacity as you've done in the past? Josh Viets: Yes. We're obviously looking where the strip is landing and we'll always be responsive to pricing. That plan that we laid out and as the heat map that was referenced earlier is predicated on that $3.50 to $4 price range. Of course, we're still in that today, but we're not stuck to it. And so just like we've done in the past, 2024 and 2025 was a great example of this. Our toolkit is there, and we know how to leverage flexible operations. And if we see markets soften further we'll absolutely be in a position to defer turn in minds, slowed out our completion activities as we see those the best measures to better align our production with price. Unknown Analyst: And my follow-up, just on the balance sheet and how you're thinking about capital allocation. You paid down $1.3 million in debt in April, that meets your commitment to reduce debt by at least $1 billion this year. How do you think about allocating the incremental free cash flow after the dividend for the remainder of the year? Should we think about that going mostly to buybacks at this point? Josh Viets: I think the way that we look at it is that having achieved the goal that we set out at the start of the year, we can now look at night allocation, whereas in Q1, it went primarily to debt reduction, right? In the rest of the year, we can rebalance that with share buybacks and shareholder distributions. Operator: Our next question comes from the line of Phillip Jungwirth with BMO. Phillip Jungwirth: Can you come back to the Delfin gas supply manager comment from earlier in the call? Just what all does this entail this imply that you'd look to take additional offtake from the project? And if you look at other LNG opportunities, what all goes into the assessment as to whether that's an ideal project for Expand to participate in to partner with. Josh Viets: Phillip, the gas supply manager, that's something that's under negotiation with Delfin at the moment, and that's supply from upstream, where we would be managing all the gas into the facility, manage that capacity. It sets up naturally for us given our footprint and how our growth and what we're doing versus Delfin building that out that capability on their own. So it's kind of a win-win for both of us. So it's the opportunity to supply to them and to manage the capacity into the facility. And then we're creating a long-term partnership. They're looking to do other vessels later on. And again, we'd be in the mix of supplying -- supporting that new demand, getting after our strategy of facilitating capturing new demand. And then when we look at all the other projects, we're looking at similar aspects. We like the integration through our Haynesville asset. We think we're well positioned to be able to supply to these facilities. We already are supplying around 2 Bcfd to these facilities. So we have conversations with them. And then we look at all these projects in terms of value and economic risk. And we believe in the long-term demand both in the U.S. Gulf Coast and globally in LNG. So we're going to look at all these projects individually in terms of their economic merit. But essentially, we're trying to build a well interconnected portfolio on our upstream and through to the LNG market. Phillip Jungwirth: Okay. That's great. And then can you talk about what kind of role you see Expand playing in the Northeast for new power demand projects? I mean you clearly have the dominant position in the Haynesville, but there's certainly a larger competitors up there in Appalachia. So just how do you see the opportunities for Expand here versus the Gulf Coast considering the different competitive dynamics? Michael Wichterich: Yes. Thanks for that question. This is Mike. In general, when I think about the Appalachia, I think about it in 2 buckets because we have Northeast PA, which we actually are dominant in that particular area, and that's where our competitive advantage is on power generation, which is actually PJM, and that's the right market for it. And so we're definitely in negotiations and discussions with power providers in that area in particular. And again, we feel like we have a competitive advantage there. In Southwest App, location to the western side of that. And so we think we can be competitive on that side of the basin as some of our other competitors are further east. But the overall strategy is to focus on where we're the best. And so we're thinking about Northeast PA in that market. Operator: Our next question comes from the line of Neal Dingmann with William Blair. Neal Dingmann: My first question just, Mike, simply on your strategy. I'm just wondering specifically, I know you've mentioned really taking a full integration focus. And I'm just wondering, could you give us some details of what specific transactions make the most sense in the coming months? Would it be just simply like those -- the Delfin agreement? Or maybe what else should we be looking for as part of your strategy? Michael Wichterich: Sure. We're a producer. And as a producer, we think of 2 things: Sell more gas at higher prices. And so that's what we do. And so our focus is really pushing towards new demand and better pricing. And therefore, we're focused on our marketing. We think the time is now. That's where the opportunity is. And so number one, we want to sort of continue to look at the LNG value chain and push that because it's nearer term, and it's close. And of course, we can actually provide our actual gas in the Haynesville. I like the -- I think the word we just used interconnectivity, I really like that, Dan. So that's sort of the first deal. But doesn't mean we are competing heavily, of course, for power generation in Northeast PA, like I already mentioned. Neal Dingmann: Got it. And then just on the -- my second question, just on the incremental free cash flow on the $0.20 NIM that you continues through there to capture. Am I correct I'm thinking this is still -- I mean, what are you thinking around timing around that? Is it a couple of years? Or could it be even longer if some of the agreements are not FID-ed? Or how should we think about schedule of this? Michael Wichterich: Yes. Like we just talked about, we think about it in 2 general buckets. We have 3 categories, but 2 generally buckets. We have our near-term bucket that's happening now. I mean that's what you're seeing in our marketing that we just saw this quarter in the $90 million. And so that is a now answer. Let's chase, of course, long term, LNG, power, those are 3 years. And so -- but we have a lot of value to capture and to execute in this moment here in time. Operator: Our next question comes from the line of Charles Meade with Johnson Rice. Charles Meade: And your whole team there. My first question, I think, is probably for Josh, but you guys will fill it as you choose. It's specifically about the cadence of CapEx and activity in '26. If we look at your 2Q, volumes are essentially going to be flat and CapEx is up. And I'm curious, is that just some activity sliding from 1Q into 2Q? And -- or is that -- is perhaps already -- does that reflect some decisions you've already made to maybe defer tills or build some DUCs in 2Q is that's the low part of the curve for '26? Josh Viets: Yes. Charles, thanks for the question. Q2 will end up being the high point of our CapEx for the year. Just the way the program was set up. It is a little bit more front-end loaded D&C activity is going to be just slightly higher in Q2 relative to the second half of the year, we'll actually have a couple of rigs across the Appalachia region coming out in the second half of the year. So that will leave CapEx just a little bit lower. And the other artifact in Q2 is just on our non-D&C CapEx. So it shows up in the guide. That's a little bit higher than what we'll see in other quarters in the year. That's really just timing of our leasehold acquisition program. We have several things that have been in the work, works over the first quarter of the year. We expect those to close in Q2. And then also Q1 tends to be a little bit lighter with our capital workovers, just because the weather conditions where as we get into the spring, it's much more favorable. So workover activity also picks up in Q2. But again, as we get into the second half of the year, activity will moderate just slightly. Production will grow modestly across Q3 and Q4, again, assuming the market is there. But really, I think the main thing there is that we are in a position where we expect to deliver 7.5 Bcf a day at $2.85 billion of CapEx. Charles Meade: Got it. And then Mike, my follow-up is probably for you. It's really about your financial approach to pushing further down the value chain with these commercial opportunities. It looks to me that for the most part, what you guys have done is decided to sign up for capacity or transport rather than take equity stakes in projects. But an exception that seems to be your approach to storage where you guys actually have spent money to get equity stakes in those facilities. So can you kind of tell us about how you evaluate looking at signing up for capacity versus buying equity stakes? And if that if that approach is either changing over time or changes between the kinds of opportunities you're looking at? Michael Wichterich: Sure, sure. Happy to take the question. Thank you. Generally speaking, we think about our capital allocation from a sort of a disciplined financial view. And then we think about it long term. Our first goal is always sell more gas, higher pricing. So I want to repeat that about 10x. So we're on the same page. But when you think about how to facilitate that, how do we facilitate it? We've facilitated it with NG [indiscernible], our ownership there because we wanted to move more gas to Gillis. We thought about it in FT to move our guests further east into the Southeast market. We think about it on a long-term value accretion basis, and that's our first threshold. Well, first is strategic then discipline on financials. So when we think about any sort of capital that's not in what we'll call it, the commitment side. It's got to be accretive, and that's long-term accretive. So I don't think we've changed our opinion on how we think about value. We have our nonnegotiables that's still in place today. So we will act when we can achieve our strategic goals and certainly create long-term value. Operator: Thank you. Ladies and gentlemen, due to the interest of time, I would now like to turn the call back over to Mike for closing remarks. Michael Wichterich: Well, thank you, everyone, for joining our call. I'd like to leave you with 3 things today. Number one, our industry has experienced unprecedented structural demand growth. We are excited about the future as I'm sure you are. Second, we are in the right place at the right time. Our assets are are reaching 90% of the expected demand growth in this country, and our Haynesville is sitting on the epicenter of growth because of the LNG market. We think we are in the best position to take advantage of that. And third, our strategy is clear. We are not waiting for a new CEO to show up before we act. We are acting now. We are chasing value now. So we look forward to updating you about the progress, and thanks for joining the call. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and thank you for standing by. Welcome to the AbbVie First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's call is also being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Ms. Liz Shea, Senior Vice President, Investor Relations. Elizabeth Shea: Good morning, and thanks for joining us. Also on the call with me today are Rob Michael, Chairman and Chief Executive Officer; Jeff Stewart, Executive Vice President, Chief Commercial Officer; Roopal Thakkar, Executive Vice President, Research and Development and Chief Financial Officer; and Scott Reents, Executive Vice President and Chief Financial Officer. Before we get started, I'll note that some statements we make today may be considered forward-looking statements based on our current expectations. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated in our forward-looking statements. Additional information about these risks and uncertainties is included in our SEC filings. Abby undertakes no obligation to update these forward-looking statements, except as required by law. On today's conference call, non-GAAP financial measures will be used to help investors understand AbbVie's business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we'll take your questions. So with that, I'll turn the call over to Rob. Robert Michael: Thank you, Liz. Good morning, everyone, and thank you for joining us. AbbVie is off to an excellent start to the year, with first quarter results exceeding our expectations across our diverse portfolio. We are delivering top-tier growth and continue to strengthen our long-term outlook with pipeline advancements and strategic transactions. Turning to our first quarter performance. We achieved adjusted earnings per share of $2.65, which is $0.07 above our guidance midpoint. Total net revenues were $15 billion beating our expectations by $300 million and reflecting robust sales growth of 12.4%. I'm especially pleased with the momentum in immunology and neuroscience, which are both delivering share gains in growing markets. Based on this strong performance, we are raising our full year adjusted earnings per share guidance by $0.12 and now expect adjusted EPS between $14.08 and $14.28. Turning now to R&D. We are making meaningful progress advancing programs across all stages of development. Recent highlights include the U.S. regulatory submissions of Rinvoq for Alopecia Areata giving us a potential new source of growth in dermatology and Skyrizi subcu induction in Crohn's with an approval decision expected later this year. We also saw promising interim data from our Crohn's platform study, combining Skyrizi and our own alpha 4 beta 7, which has potential to deliver transformational efficacy. In obesity, we announced early-stage data for our Amlin Analog 295 with very encouraging weight loss results. In oncology, we are now expecting the regulatory submission for [indiscernible] by the end of this year, which is earlier than our previous expectations. We also expanded our emerging oncology pipeline by closing the Remagen agreement, giving us a novel PD-1 VEGF bispecific antibody. We will continue to augment our portfolio with business development to access external innovation. And given our strong growth outlook, we have significant financial capacity to pursue both early and late-stage opportunities. Lastly, as part of AbbVie's $100 billion commitment to U.S. R&D and capital investments over the next decade, we recently announced construction of several new manufacturing sites. This includes a $1.4 billion investment to build a pharmaceutical manufacturing campus in North Carolina, and a $380 million investment for 2 new plants in North Chicago. These strategic investments will strengthen AbbVie's ability to produce medical breakthroughs in immunology and neuroscience, oncology and obesity. In summary, the fundamentals of our business are strong, and we are well positioned to deliver top-tier growth for the long term. With that, I'll turn the call over to Jeff for additional comments on our commercial highlights. Jeff? Jeffrey Stewart: Thank you, Rob. I'll start with the quarterly results for immunology, which delivered total revenues of $7.3 billion reflecting impressive sales growth of $1 billion. Skyrizi total sales were $4.5 billion, up 29.2% on an operational basis, exceeding our expectations. We continue to demonstrate exceptional performance across psoriatic disease, where we are gaining share and have clear leadership over all biologics and orals by a very wide margin. The psoriatic market is growing robustly, and we feel extremely confident in Skyrizi's best-in-class profile, including high and durable efficacy on both skin and joints as well as simple quarterly dosing, which collectively gives us a distinct advantage relative to all the existing and emerging therapies in this area and we continue to generate compelling evidence to support Skyrizi as the preferred treatment option for psoriatic disease. At the recent AAD meeting, we presented new data highlighting Skyrizi's strong efficacy in genital and scalp psoriasis, which are very difficult to treat areas, often leading to significant social and emotional burden to patients. The FDA has recently approved adding the new study results in these high-impact area to the SKYRIZI label. We also now have long-term efficacy and radiographic data in psoriatic arthritis demonstrating Skyrizi's durable efficacy with nearly 90% of patients showing no radiographic progression through 5 years of treatment. This data will enhance our existing leadership in the important PSA segment where Skyrizi's is the frontline in-play patient share leader in both the derm and room segments. Performance also remains very robust in IBD, where Skyrizi is on track to deliver more than 30% global sales growth across Crohn's disease and ulcerative colitis this year. Competitive dynamics within IBD are playing out in line with our expectations, with Skyrizi continuing to capture a leading share of total new patient starts in the U.S. in the quarter. including very significant in-play leadership in the frontline setting, which is the strongest signal of overall physician preference for Skyrizi I'm also pleased with the compelling results from our recent subcutaneous induction study for Crohn's with data, particularly in the bio-naive population that we believe compares very favorably versus the competition and we look forward to providing an additional dosing option for physicians and IBD patients later this year. Turning now to Rinvoq, which is also performing above our expectations. Global sales were $2.1 billion, up 20.2% on an operational basis. Demand remains strong across all of Rinvoq's indications. We are now achieving high-teens in-play patient share in and are seeing a nice inflection in prescriptions across gastro, especially in UC, following the recent expanded label supporting access to Rinvoq earlier in the treatment paradigm for IBD patients. We are also planning for the potential near-term commercialization of 2 additional indications, [indiscernible], which will meaningfully expand Rinvoq label and where we have also recently expanded our field force to support these emerging opportunities. Lastly, in immunology, HUMIRA global sales were $688 million, down 40.3% on an operational basis, reflecting biosimilar competition and in line with our expectations. Moving to neuroscience, where we continue to outperform our expectations as well. Total revenues were nearly $2.9 billion, up 24.3% on an operational basis. In migraine, our leading portfolio continues to gain market share with [indiscernible] and Botox Therapeutic each delivering robust double-digit sales growth. In psychiatry, Vraylar global sales were $905 million, up 18.4%, reflecting strong prescription growth in both bipolar disorder and adjunctive MDD. Vraylar has significant close to branded competitor, and we expect continued momentum following the introduction of new lower doses, allowing prescribing flexibility as well as pediatric usage. Moving to Parkinson's disease. We continue to see encouraging uptake for VYALEV, which is on track to achieve blockbuster revenue this year. Total sales were $201 million, up approximately 10% on a sequential basis. We are also preparing for the potential approval and launch of Tavapadon in the U.S. later this year. an exciting new oral treatment for patients with Parkinson's and a very complementary addition to our growing Parkinson's portfolio with Biolab and Duopa. Tavapadon has demonstrated strong efficacy as both a monotherapy as well as an add-on to the standard of care, and we believe it will be a sizable commercial opportunity. Moving now to oncology, where total revenues were more than $1.6 billion, down 3% on an operational basis. Venclexta continues to perform very well. especially in CLL as combination use with BTK inhibitors are emerging as a preferred fixed treatment duration globally. We've recently received full approvals in the U.S. and the U.K. as well as positive CHMP opinion for Venclexta's use with BTKs for that fixed treatment course. Total Venclexta sales were $770 million, up 9.7% on an operational basis. Continued sales growth from [indiscernible] also helped to partially offset the expected sales decline for IMBRUVICA, which was down 24.7% due to IRA pricing and competitive share pressure. Moving now to aesthetics, which delivered global sales of nearly $1.2 billion, up 5.1% on an operational basis. Botox cosmetic total revenues were $668 million, up 17%, reflecting a favorable price comparison in the U.S. as well as modest market growth globally. Juvederm Global sales were $232 million, down 2.9%, reflecting continued headwinds in key dermal filler markets. While economic headwinds have continued to impact market conditions globally, the long-term prospects for the category remain attractive given high consumer interest and low penetration rates. As the industry leader, we are investing in promotion and innovation support patient activation. I'm particularly excited about the potential for [indiscernible], our fast-acting short-duration toxin which, once approved, we expect will be market expanding and complements our toxin portfolio very nicely. While [indiscernible] is delayed in the U.S. we continue to anticipate approval and launches this year in key international markets, including Europe, Canada and Japan. So overall, I'm extremely pleased with the execution and continued strong performance across our commercial portfolio. And with that, I'll turn the call over to Roopal her comments on our R&D highlights. Roopal? Roopal Thakkar: Thank you, Jeff. We continue to make good progress across our pipeline. I'll start with dermatology programs in immunology. As Jeff just mentioned, new data was presented at the recent AAD meeting, highlighting SKYRIZI's strong efficacy in genital and scalp psoriasis and long-term efficacy, including radiographic data in psoriatic arthritis. These recent presentations add to the growing body of evidence supporting Skyrizi's best-in-class profile in psoriatic diseases. Its strong durable efficacy on both skin and joint measures, favorable safety and tolerability profile and convenient quarterly maintenance dosing, give us confidence that Skyrizi will continue to be the preferred first-line treatment option for patients with psoriatic disease. Additionally, Discussions are ongoing with the FDA regarding revised label language related to tuberculosis evaluation for Skyrizi. While TV monitoring has become fairly routine prior to initiating treatment with biologics, updated language would allow health care providers to use their clinical judgment. Moving to Rinvoq. The regulatory application for alopecia areata was recently submitted to the FDA approval decisions are anticipated later this year in Europe and Japan and in early 2027 in the U.S. [indiscernible], Phase III studies for both Rinvoq and lutukizumab are progressing well and remain on track for 16-week top line results in the second half of this year. Turning to gastroenterology. All co-primary and key secondary endpoints were met in the Phase III AFFIRM study with Skyrizi's cutaneous induction in Crohn's disease, demonstrating very high levels of endoscopic response and clinical remission. While not a direct head-to-head comparison, when matching these data against results from the Skyrizi IV induction program, the subcu induction achieved numerically higher results across key end points. We are extremely pleased with the strong performance demonstrated by subcutaneous reduction, especially considering that this study enrolled a very difficult-to-treat patient population. 2/3 of the patients received prior advanced therapy with half failing 2 or more therapies and a third failing [indiscernible] or a JAK inhibitor. Data in those who had not previously experienced advanced therapy were particularly noteworthy, where 61% of Skyrizi patients achieved endoscopic response and 73% achieved clinical remission at week 12. This is 45 points higher than placebo on both measures. These are very impressive results, which will continue to support first-line use. These data reinforce Skyrizi's best-in-class profile and provide an additional induction dosing option for patients with Crohn's disease. Our U.S. regulatory application was recently submitted with an approval decision anticipated later this year. Subcu induction for ulcerative colitis is also being assessed and we will be discussing options with health authorities. Next, on to other gastro programs. An interim analysis was recently completed on our Crohn's disease platform study. In the cohort evaluating Skyrizi plus our novel anti alpha-4 beta-7 antibody, ABBV-382, the combination resulted in a higher rate of endoscopic remission at week 12 and at week 24. The rate was double that of either monotherapy arm. Endoscopic remission was achieved by approximately 42% of patients receiving the combination at week 24. These results were absorbed -- observed in a broad population that had severe and refractory disease, which included 82% advanced treatment failures and 53% of patients failing 2 or more advanced treatments, of the patients that previously received advanced therapies, 63% failed an agent with an overlapping mechanism with the combination and 20% failed a JAK inhibitor. At baseline, patients had a mean Crohn's disease activity index of 325 and a simple endoscopic score of 14, which represents a very treatment refractory patient population. Achieving this level of endoscopic remission in this setting is a particularly meaningful achievement as this endpoint is an objective measure of mucosal healing and is associated with long-term benefits, including reduced rates of hospitalization, surgery and disease progression. Safety of the combination was consistent with the profiles of the monotherapies no new signals were observed. These results demonstrate the potentially transformative level of efficacy that our novel combination can achieve. The study is expected to complete in the third quarter with presentation at a medical meeting anticipated by early next year. A Phase IIb study is planned to begin this summer in patients with Crohn's disease and ulcerative colitis to evaluate Skyrizi in combination with both 382 and with our extended half-life TL1A antibody. In parallel, we will be evaluating Phase II acceleration options for Skyrizi plus 382 in Crohn's disease. In the Skyrizi plus lutikizumab cohort, the combination did not sufficiently differentiate from monotherapy Skyrizi and will not be moving forward. In the early-stage immunology pipeline, we are nearing completion of a Phase I study for an [indiscernible] inhibitor, ABBV-848 and and plan to begin a Phase II study in rheumatoid arthritis later this year. This potent inhibitor has the potential to provide biologic-like efficacy, a favorable safety profile with no box warnings and convenient once-daily oral dosing I will now discuss neuroscience. Top line analysis was recently completed on our Phase II trial evaluating ABBV-932 in bipolar depression. In the study, the overall difference observed between the drug treated and placebo groups was not statistically significant. However, in a prespecified subgroup analysis of bipolar I patients an efficacy signal was observed. The safety profile of 932 was generally similar to placebo, including rates of extrapyramidal events, demonstrating the potential for a more favorable tolerability profile compared to Vraylar. We are evaluating next steps to continue 932 development in bipolar 1 patients. Dose escalation work continues for emraclidine in both schizophrenia and elderly patients. In schizophrenia, we have cleared the 100-milligram dose and will begin evaluating 150 milligrams. Phase II studies in monotherapy and adjunctive schizophrenia as well as psychosis related to Alzheimer's, Parkinson's and Louis Body Dementia are planned to begin in the fourth quarter. Moving to our psychedelic acid brain. Additional data from an ongoing Phase II study in major depressive disorder will be available this year. Several studies are planned to begin in 2026, including a Phase III trial for single course acute treatment in MDD, a Phase IIb evaluating repeat dosing for chronic use in MDD and a proof of concept Phase II and post-traumatic stress disorder. And in Parkinson's disease, we remain on track for an approval decision for tavapadon in the third quarter. Turning to our solid tumors program in oncology. [indiscernible] is progressing well across a broad range of tumor types. At the upcoming ASCO meeting, early-stage safety and efficacy results for Tmab-A in head and neck and ovarian cancers will be presented. Based on these results, we are engaging with regulators regarding ways to accelerate programs for Temab-A plus pembrizumab in frontline head and neck cancer and Temab-A plus bevacizumab in front-line ovarian cancer. In colorectal cancer, we have made a decision to update our strategy in the third line plus setting and will now focus the pivotal program on Temab-A in combination with bevacizumab in an all-comers population as opposed to pursuing monotherapy in cMET selected patients. Targeting all comers will allow Temab-A to reach a substantially broader population. Temab-A plus bevacizumab demonstrated improved response rates and disease control versus current standard of care regardless of c-MET expression levels. Treatment with Temab-A at 2.4 milligrams per kilogram plus [indiscernible] achieved an objective response rate of 30% and and a confirmed disease control rate of 97% compared to rates of 0% and 70%, respectively, for [indiscernible]. Given the expanded patient population for the all-comers Phase III trial, we anticipate faster enrollment compared to the study in cMET selected patients. Initial data readout is expected in the second half of next year. In lung cancer, Temab-A received its first breakthrough therapy designation as a monotherapy in second-line plus EGFR wild-type non-squamous non-small cell lung cancer. We are in the process of planning a Phase III trial in this setting. SP369624356 In small cell lung cancer, a Phase III trial for monotherapy, ABBV-706 recently began in relapsed refractory patients. Two Phase II studies evaluating 706 triplet combinations in frontline patients are also planned to initiate this year. These trials will evaluate 706 in combination with atezolizumab plus [indiscernible] cell engagers. Moving to AbbVie 96 dose escalation data in late-line metastatic castration-resistant prostate cancer will be presented at ASCO. Based on these results, we are in the process of discussing acceleration options with regulators in order to advance into Phase III trials as quickly as possible. We also continue to augment our solid tumor pipeline through investments in external innovation, including one with Castro Therapeutics, we recently began a Phase I study to evaluate a [indiscernible] inhibitor in advanced solid tumors harboring KRAS mutations. This next-generation inhibitor has the potential to provide an improved efficacy and safety profile based on increased potency and specificity against the most relevant KRAS mutations, while sparing H and NRAS [indiscernible]. Our strategy is to combine this pan KRAS inhibitor with Temab-A in pancreatic, lung and colorectal cancers. In hematologic oncology, our Phase III trial evaluating monotherapy [indiscernible] in third-line plus multiple myeloma is tracking ahead of schedule. We anticipate a response rate readout in the third quarter with potential to also see an interim analysis on progression-free survival. If this interim analysis is positive, regulatory submissions would occur later this year. Progress continues in earlier lines of therapy as well. The increasing use of anti-CD38 antibodies in earlier treatment setting is driving a need for CD38 free BCMA combinations, particularly those that can provide the convenience of monthly BCMA dosing combined with an oral agent. Plans are underway for a Phase III study evaluating [indiscernible] in combination with [indiscernible] in second line plus patients, including those that were exposed or refractory to a CD38 antibody or who lost response to a BCMA, CAR-T or ADC. Moving to other areas of our pipeline. In aesthetics, the FDA issued a complete response letter for our [indiscernible] application related to manufacturing questions. The CRL did not identify any issues related to safety, efficacy or labeling of [indiscernible] nor has the FDA requested any additional clinical trials be conducted. We will be working closely with the FDA to address their feedback and determine next steps for resubmission. In obesity, positive top line results were announced from a multiple ascending dose study, evaluating our long-acting amylin analog, ABBV-295. In the study, 295 demonstrated clinically meaningful weight loss of nearly 10% and after only 12 weeks of treatment despite enrolling a predominantly male nonobese population, 295 was well tolerated with mostly mild and transient GI-related adverse events no cases of severe nausea, vomiting or diarrhea were reported. These early results are encouraging and reinforce our view that our long-acting amlin analog has the potential to provide strong weight loss with favorable tolerability. In the next phases of development, higher doses of 295 will be tested in patients with obesity, including every other week and monthly regimen. Interim data from our Phase I study in obese patients are anticipated later this year. Our Phase II program is now expected to begin in the third quarter. To summarize, significant progress continues with our pipeline, and we look forward to additional important data readouts, regulatory submissions and approvals throughout 2026. With that, I'll turn the call over to Scott. Scott Reents: Thank you, Roopal. Starting with our first quarter results. We reported adjusted earnings per share of $2.65 and which is $0.07 above our guidance midpoint. These results include a $0.41 unfavorable impact from acquired IP R&D expense. Total net revenues were $15 billion, this reflects top tier growth of 12.4%, including a 2.1% favorable impact from foreign exchange. Adjusted gross margin was 83.6% of sales. Adjusted R&D expense was 15.1% of sales, and adjusted SG&A expense was 22.7% of sales. The adjusted operating margin ratio was 40.8% of sales, which includes a 5% unfavorable impact from acquired IPR&D expense. Net interest expense was $645 million, the adjusted tax rate was 15.4%. Turning to our financial outlook. We are raising our full year adjusted earnings per share guidance to between $14.08 and and $14.28. Please note that this guidance does not include an estimate for acquired IP R&D expense that may be incurred beyond the first quarter. We now expect total net revenues of approximately $67.3 billion, an increase of $300 million. The impact from foreign exchange on full year sales growth remains roughly in line with our prior expectations. This upgraded revenue forecast includes the following approximate assumptions for several of our key products and therapeutic areas. We now expect Skyrizi global revenues of $21.6 billion, an increase of $100 million, reflecting demand growth in psoriatic and IBD indications. Rinvoq global sales of $10.2 billion, an increase of $100 million, reflecting strong performance in the room and gastro indications. Total Neuroscience revenues of $12.6 billion an increase of $100 million, reflecting momentum across the portfolio. Moving to the P&L for 2026. We continue to forecast full year adjusted gross margin above 84% of sales. Adjusted R&D expense of approximately $9.7 billion and adjusted SG&A expense of approximately $14.2 million. We now anticipate an adjusted operating margin ratio of approximately 47.5% of sales, in line with our previous expectations after including the roughly 1% unfavorable impact of acquired IP R&D expense incurred through the first quarter. We also now expect adjusted net interest expense of approximately $2.7 billion, a reduction of $100 million, primarily related to favorable rates on our debt issuance. Turning to the second quarter. We anticipate net revenues of approximately $16.7 billion. This includes an estimated 0.6% favorable impact from foreign exchange. We are forecasting an adjusted operating margin ratio of approximately 50%. We -- we expect adjusted earnings per share between $3.74 and $3.78. This guidance does not include acquired IPR&D expense that may be incurred in the quarter. In closing, AbbVie continues to deliver outstanding results and our financial health remains very strong. Our capital allocation priorities remain focused on the future as we are investing in the business at record levels, have financial flexibility to pursue compelling business development and returning capital to shareholders through our strong and growing dividend. With that, I'll turn the call back over to Liz. Elizabeth Shea: Thanks, Scott. We will now open the call for questions. In the interest of hearing from as many analysts as possible over the remainder of the call. We ask that you please limit your questions to 1 or 2. Operator, first questions please. Operator: First question comes from David Amsellem from Piper Sandler. David Amsellem: So appreciate all the metrics you have on Skyrizi, but I wanted to get your thoughts on the competitive landscape, particularly with the rollout of code are you thinking about its impact on [indiscernible] going forward, if any? And give us some color on your counter detailing messages to practitioners regarding the product as you enter this period with more intensive competition. Jeffrey Stewart: Yes. Thank you, David. It's Jeff. I'll give you some flavor on that. As I mentioned, it's just such an exceptional product. We see in our audits and our trackers that over the last couple of quarters despite incredibly high share, really over 4x basically the in-play share and total share versus the next leading competitor, our NBRx has accelerated and continued to hit all-time highs. And that's because of a few of the items, right? The superiority data that we have on skin clearance is just exceptional. So we have head-to-head trials in 5 mechanisms in psoriasis, including the 2 oral agents, the [indiscernible] and [indiscernible]. We can show category-leading durability in the real world. It's just exceptional adherence given the dosing cycle and the ability to keep the disease controlled. We have that leading PSA indication with that new 5-year joint stability data that Roopal and I highlighted and then this new data on hard-to-treat areas like the scalp, the genitals, the hands and feet, head to toe for Skyrizi, so to speak. So those are just really, really powerful messages to the physicians who write this medication. I would say there's other things around the -- maybe the oral competitors you highlighted. Look, the launch is quite early. The way that we look at this is, certainly, we're able to communicate that it's not an oral Skyrizi the efficacy parameters are quite a bit lower when you match all the controls. You understand the populations, which our medical teams and our commercial teams are able to highlight Certainly, PSA is a huge market value driver, and there's not a lot of evidence there. There's also some complexities really just even around an oral in the adherence there, and we have some data and evidence on the orals in the category as well. So we're well prepared for this dynamic. So we think that we can navigate this competitor quite well. And we may see, in fact, we saw it with Otezla over a decade ago that there's going to be some market expansion as well. So again, the teams are prepared. We're very confident, and hopefully, that gives you a little bit of flavor of the dynamics in the market. Robert Michael: And David, this is Rob. What I would add is, I mean, we obviously contemplate competition. when we provide guidance. We've obviously now once again taken up the guidance for Skyrizi. We continue to see upside to consensus forecast for Skyrizi going out every year and growing each year. And so we have a tremendous amount of confidence. We are well aware of the competition that's coming in. We factored that in, and you can see the asset continues to perform exceptionally well. Operator: Next, we'll go to Chris Schott from JPMorgan. Christopher Schott: Just first one for me is on the Skyrizi alpha 4 beta 7 program. Can you just comment a little bit on what dosing looks like for this combo and where you see this fitting into the competitive landscape? So is this kind of a second line drug post Skyrizi or something that could eventually actually get to frontline? And the second question is just maybe building on that and looking at kind of the broader I&I competitive landscape. It does seem like there's significant development across the space. I think the Street is increasingly concerned about this means relative to your portfolio. So can you just kind of address your -- like how you think about sustaining the competitive position you have in I&I how important the Skyrizi combo is, your ability, again, freedom to operate with BD and I&I. Just help us a little bit in terms of how you're envisioning that playing out over time. Roopal Thakkar: It's Roopal. I'll start. The dosing -- I would say, Skyrizi, you know the dose, it's already in the label. So the other assets, 382, the alpha beta 7 and the TL1A, the goal there is to optimize those. So in fact, while we start gearing up for a Phase III study, we have a Phase IIb plan. We had preplanned that ahead of time. And in this quick interim look that we have had we've already observed a non-flat slope, so meaning an exposure correlation with 382, meaning patients with higher exposures did better. So what we'll do in the Phase IIb is in fact, study a higher dose of 382 in combination with Skyrizi. So there's a potential that the efficacy could go even higher. The goal with this one will be likely monthly dosing, co-formulation work is ongoing. And while we're finishing that work, we'll also be speaking with regulators and there's a potential to further accelerate. I don't think we need to wait for the Phase IIb to be totally finished. If we see something while we're conducting the trial, we can pivot relatively quickly. We would anticipate starting, I would say, roughly where we sit today in about 2 years in the Phase III or even sooner. And the team will be looking at ways to accelerate. And as I stated, the TLA will be added into this platform as well, and we'll be studying ulcerative colitis along with Crohn's. So as you think about IDD and competitive dynamics, what you see coming from AbbVie is next-generational therapies and really raising the bar on efficacy, as we stated on the endpoint in my opening remarks, we doubled the endoscopic data. And that's really what's most critical. It's the most objective and that's what clinicians are looking for. So as we look to the future, you see that what we're doing, we see other competitors coming entering. But we see these as monotherapies and even the Phase II data observed to date regardless of mechanism the data do not differentiate from where we sit today with Rinvoq and Skyrizi. So the goal here for the whole portfolio that we've spoken about is to raise that standard of care meaningfully higher. And again, Rinvoq and Skyrizi do that very well today even against emerging competition. And the data that I speak about are battle-tested Phase III data in very difficult-to-treat populations. That's going to hold for the near term, and we have not seen a competitor that can beat that other than us with our own combinations, and we have more to come. So that's, I think, the way to think about how we think about immune technology. Robert Michael: And Chris, this is Rob. I'll just add to Roopal's comments. The way we've been thinking about business development over the last couple of years, is to support that strategy. So you've seen us add through business development, new mechanisms, TL1A, IRAK4 [indiscernible] as we think about this combination approach. We acquired Nimble to give us the oral peptides capability. So that obviously plays an important role in the future of immunology. And then I'd say the one that doesn't get enough attention is the Capstan acquisition with the B-cell depletion approach with the in vivo CAR-T platform. as we think about the future of immunology, now we're thinking about growth beyond Skyrizi and Rinvoq, we certainly see a trend there. And so we've been very active with business development over the last couple of years. to add depth to our immunology pipeline so that we can continue to remain ahead of the competition. And we have tremendous amount of confidence given our long-term experience here. We obviously have -- or commercial powerhouse, but I'd say our R&D organization understands the space very well. And I think we positioned ourselves for long-term growth. Operator: Next, we'll go to Mohit Bansal from Wells Fargo. Mohit Bansal: Just wanted to double click on the IRAK4 that you are developing in RA. So you try its is a space where after HUMIRA, there's not a lot of options which are safe as well. So like what gives you excitement about IRAK4 compared to what is out there in the world in terms of in terms of therapies which are being tested in imitates because is trying to become a win work without the box warning here. Roopal Thakkar: Thanks, Mohit. It's Roopal. We have very early data. This is a partnership with [indiscernible], and we saw some data. Clinical data in China in a small study. And what we observed there was biologic-like efficacy. So something like existing therapies, including the anti-TNF class and what we saw preliminarily in that data, similar to our combo data and IBD, a relationship with PK and response rates. So we have the opportunity here to do this Phase IIb study to see if we can push efficacy even higher. And what we like about that is it's another oral. And potentially the safety profile as it's played out to date, we don't anticipate a boxed warning. So that would be a differentiator versus the anti-TNF class and the JAK inhibitor class. So that's what gets us excited about this particular molecule ahead. Operator: Next, we'll go to Louis Chin from Scotiabank. Louise Chen: Congratulation I wanted to ask you, first, if you could provide more color on your opportunities for an extended half-life IL-23 and also your oral peptide IL-23. And you still plan to enter the clinic with those this year. And then just on your combos, just curious if you plan to look at those for first line or save those for more refractory [indiscernible] Roopal Thakkar: It's Roopal. So yes, we do have it's called ABB-547, which you'll hear more about. And that is our asset based on all of our experience with Skyrizi and IL-23 inhibition and this is what we'd like to advance. And this would be a longer-acting version. And to your point, the dosing has already initiated Along those lines, we also anticipate dosing our long-acting IL-23 TL1A bispecific antibody and the nimble anti-IL-23 asset both of those will be first in human this year. The goal for those are to -- at least for the long-acting is to be slightly longer acting than Skyrizi but not too much longer acting. And the reason for that is, I should state, is that when we take all these factors given that Skyrizi is already available as quarterly, and that is very, very convenient and the data are all very compelling when you look to the maintenance data. I know we've seen some short-term data. But when you look at Skyrizi, and this extends well beyond week 16, we've demonstrated Pass 100 responses of approximately 60%, passing 90 responses, exceeding 80%, and that's already happening with quarterly dosing. And what I would say there is similar to what Jeff had stated, we also are focused on all of our assets on difficult-to-treat manifestations that includes [indiscernible], genital scalp psoriasis that Jeff has mentioned. Now the other important fact here and why I said the long-term duration is important, is that 30% or so of patients with psoriasis will go on to develop psoriatic arthritis. And again, that's why durability and long-term data are very important. Now the reason I made the comment on the half-life of where we want it to be, we want to offer choices in the future. And that will matter, I would say, to the -- most of our clinicians who want to individualize the therapy for example, on this longer half-life. If an infection, for example, were to occur or there's a tolerability issue and you have a very, very long half-life biologic, the prolonged pharmacologic persistence could limit the ability to rapidly discontinue therapy. And also, you could have clinical scenarios that may necessitate switching therapies prior to full washout. And if you have overlapping mechanisms of actions that could pose challenges. So we are targeting 2 or 2.5x of where Skyrizi is today, and that would create another option and that would be along with the oral that I said would also be focused on a slightly longer half-life on that one than what we see today for orals, because what we know and Jeff pointed this out, the adherence matters with orals. We see it with Rinvoq, but we have very potent efficacy. For the oral from Nimble, we would like to see higher potency and a longer half-life in case someone slips up and misses a dose. So that's how these are being developed. And as you stated, they're both in the clinic this year. So we anticipate data hopefully by next year, if not sooner. And then I apologize, I think I had the combo question on how we're positioning this. Well, the data that we have to date, we're in an all-comers population, and you see particularly refractory. And when we've seen that with Skyrizi and Rinvoq and you pivot to a naive population, the efficacy getting in higher. So we are not going to restrict at all how we would study patients because it's important to clear second line and third line and even come after Skyrizi. In fact, we had Skyrizi patients in the study. We had vedolizumab patients in this study. we had Rinvoq patients in the study. That's an important market because second and third line continue to evolve and grow. But in IBD, the front line is also important. Many of our clinicians want to tackle the inflammation right away in the best possible way they can. Because with gut inflammation, you can run into problems, it results in hospitalizations, structuring and irreversible damage that can result in surgeries. So nobody wants that. So if you have the best therapy, we believe there's many clinicians that will want to use that early on in the course and not hold out. So we're very excited about the data that we've observed because we see that high level of efficacy in this interim analysis across different lines of therapy in IBD. Operator: Next, we'll go to Terence Flynn from Morgan Stanley. Terence Flynn: Great. Rob, I was just hoping you could elaborate on your thoughts on M&A. Obviously, it's been a very active year so far across the space, seeing companies lean in really at that kind of $5 billion to $10 billion deal size. You mentioned comments on immunology and some of the work you guys have done on the early-stage side. But do you see a need here to maybe be more aggressive and also push into other areas quicker than what you're currently doing? Would just love your broad high-level thoughts there. right. Robert Michael: Terence, it's Rob. So I'll take that question. So yes, we have been and continue to be very open to acquiring external innovation, really with a major focus for us in neuroscience, oncology and obesity. And to the extent we see a differentiated asset in any of these areas, whether early stage, late stage or even on market, we are very willing to pursue it. I mean, today, we have an on-market portfolio and an emerging pipeline that gives us a clear line of sight to very strong growth into 2030. So we are operating from a position of strength and we have ample financial capacity. So if you think about over the last 2 years, we have added significant depth to our pipeline, including deals with [indiscernible], as I mentioned earlier, [indiscernible] and [indiscernible] to name a few. I see each of these opportunities as an opportunity to really drive growth in the next decade and beyond. But that said, while we don't need BD to deliver top-tier growth this decade, we're not opposed to near-term revenue drivers that are differentiated in our core areas of focus. Operator: Next, we'll go to [indiscernible] from RBC Capital Markets. Unknown Analyst: Just 2 on Skyrizi, please. So first one is when I look at the 1Q Skyrizi sales, you look at it versus the IQVIA scripts, it looks like net pricing is flat. So slightly better than that low single-digit erosion you guided. I guess, first, can you clarify if there were any one-off items in 1Q for Skyrizi? Or is that discrepancy from IBD and IV induction. And then how should we think about that pricing step down through the year, if you are on track for low single-digit decline? And then just following on [indiscernible] successful exclusivity extension to 2037, what's your confidence in extending Skyrizi's LOE? Is there any time lines you have there? Or any signals you have for potential biosimilar settlements. Scott Reents: This is Scott. I'll take your first question regarding Skyrizi pricing. You are correct. And in the first quarter, Skyrizi pricing was relatively flat. That's really just a comparison issue on a year-over-year basis in the quarter, a gating, if you will. On a full year basis, we continue to... [Technical Difficulty] Operator: Please standby, the conference will begin again shortly. I apologize for technical difficulties. We are experiencing technical difficulties. Again, please stand by. Thank you for standing by. Liz, you may go ahead. Elizabeth Shea: Okay. Sorry. I think we were in the midst of answering the question about sales [indiscernible] Yes, go ahead, Scott, sorry. Scott Reents: Great. Thanks, Liz. I apologize for the technical difficulty there. I'll start from the beginning again with respect to your question on first quarter Skyrizi, you are correct. The price was flat in the quarter, relatively flat. It was just a comparison year-to-year when we look at it from a full year basis, we do continue to expect low digit pricing for the full year. So that means while we've not given specific gating guidance, if you will, you'll see continued low single digits for the remainder of the year. And I think that when you think about that price. That's something we've talked about low single-digit in the immunology franchise across the board from rebates low single digits over time. And so Skyrizi is going to be very consistent with that. There was a slight amount of inventory destock as well. So the total demand number was consistent or right around 30%. I think that's consistent with what you would have seen in IQVIA. Robert Michael: And then [indiscernible], this is Rob. I'll take your question on Skyrizi. Look, although Skyrizi's competition of matter patent expires in 2033. We do have later expiring IP granted and in process that embodies Skyrizi significant innovation. And this includes patents expiring in the U.S. in the mid-2030s and later. Now it's important to note that regulatory data protection for Skyrizi does not expire until 2031. So we do not expect to see biosimilar application filings until the end of this decade. But clearly, we have a strong track record of vigorously defending our patents and protecting our innovation, and I would expect that to continue. Operator: Next, we'll go to James Shin from Deutsche Bank. James Shin: I have one for Roopal on [indiscernible] PD-1 VEGF. Given [indiscernible] is relatively behind some of the other PD-1 VEGF we all know. Is there any angle or differentiation to make up for a lost time and then sticking with oncology rule, what should we envision for [indiscernible] Do you see this being a transformational kind of readout is getting a competitive space in frontline [indiscernible] Roopal Thakkar: For the PD-1 VEGF, the key for that and what you've heard previously from us and other dose, the [indiscernible] deal that we just talked about, the DLL3 TCE. The key for these assets are in combination with our emerging ADC portfolio, in particular, Temab-A where I highlighted some readouts to come at ASCO. And that for us is the key looking forward, especially across colorectal cancer lung cancer, I noted combinations in pancreatic cancer today. So this, wherever we see a PD-1 we can utilize that in combination. So that's where the innovation occurs where we're going to use our ADCs wherever we can to replace chemotherapy provide higher efficacy, potentially longer durability because of better tolerability. And if the data point us in this particular direction, you could have a biomarker population. So physicians were able to individualize care and optimize that benefit risk. So you would see an efficacy contribution from ADCs and with an asset like 148. The other place that's under consideration is in the [indiscernible] alpha space in ovarian. There could be potential for 148 there. So you can see how it can be introduced across multiple tumor types. And regarding DLBCL discussions will be ongoing with the current readout where we saw improved PFS and no detriment to OS that discussion is ongoing. And then we still have the potential for second line DLBCL and even front line DLBCL data this year. And that frontline is at [indiscernible] plus R-CHOP. So I would say a very simple and potentially easily adoptable regimen. So again, potential for readouts this year. And if you do see a benefit there, I would say, in front line is the largest opportunity for [indiscernible] Operator: Next, we'll go to [indiscernible] from Canaccord Genuity. Unknown Analyst: First, for the additional indications for Rinvoq. As they start to come through, Vitiligo and Alopecia areata will be next. Are you still thinking all those indications can be $2 billion in aggregate or are you getting more optimistic on that front? So what's your latest thinking on the contribution from those and additional efforts you're putting in the derm space and then just on tavapadon in Parkinson's, just how you're thinking about that product, how it will fit into the treatment paradigm within Parkinson's mono versus combo and then the overall opportunity for it. And if you'll put more resources within the Parkinson's franchise as well. Jeffrey Stewart: Thanks. It's Jeff. And I would say that we have been very, very encouraged over the data that we've seen as these products have read out. And the first of the the third wave of the Rinvoq indications was giant cell arteritis, which was the smallest of the bunch. What we've observed has been quite interesting in the rheumatology community as we've started to highlight the benefits of of Rinvoq for GCA, it actually has what I would call a spillover effect onto RA and PSA. So the rooms get more and more comfortable. So these indications, we believe, will build on top of each other. We still look at that $2 billion as a reasonable base case. But I would say, basically, we're leaning towards more, let's say, bullishness. And one of them has to do with certainly the timing of vitiligo this is the -- will be the first truly systemic drug for vitiligo. And we look at the data, and it seems to continue to build over time. Now this isn't like atopic derm itch. -- where you get like in 1 or 2 days, you get something profound on the symptoms. The patients need to be consistently taking the medication, but it just continues to be this really significant burn in terms of stopping the inflammation. So that's very positive. So the first in vitiligo I would say the other thing that surprised us is there are approved JAKs in alopecia. We can see their revenue level, but the efforts were not very significant and basically, the Rinvoq data, again, cross-study comparison is twice as good. So I would say we're sort of really leaning towards that we can have some upside to that initial approach, I would say, primarily driven by alopecia areata given the profound changes that we're seeing. And I would be remiss if I didn't say that we're also very excited to see how the ultimate readouts are in HS. We built the HS market. And so with HS, with basically [indiscernible] and the readout for Rinvoq, that's also another nice portfolio play for us. So they're meaningful meaningful approaches that we have as we get closer to that. Robert Michael: And then this is Rob. Just to add to [indiscernible], just maybe to zoom out a little bit. I mean obviously, we're very excited about this next wave of indications and the impact they can have on the asset. When we look at overall Rinvoq expectations, at least for what sell side consensus is modeling we still see broadly upside on Rinvoq in each year with that number growing each year. And so this will contribute to that. But I'd say the underlying performance of the approved indications also is very strong. Jeffrey Stewart: And to move to tavapadon, again, is the idea of building these deep portfolios. Obviously, we have the small product with [indiscernible], which had the surgery [indiscernible] is continuing to progress towards that blockbuster status. It's progressed much faster than we thought even 18 months ago. And with the approval of tavapadon we can actually play with an innovative molecule and brand in front of Violet. So we're bringing this into the oral market, which is about 85% of the market right now. And as you highlighted, it's attractive in both monotherapy setting as well as an add-on setting to the standard of care levodopa/carbidopa. Our physicians are reacting to the monotherapy side, particularly for patients that are younger okay? And there are significant amount of younger patients where they could be on these oral medications for a decade or more, and they try to want to spare, which we've seen like the emergence of dyskinesia if you're sort of using over time too much levodopa/carbidopa. So that's very important adding on to control the dyskinetic events and sort of spare again, this march towards dyskinesia that you see is also something that is brought up by the thought leaders. I would also say that the adverse event profile is remarkably different than we've seen with, let's say, the older generation of these agents. So you see again, far less dyskinesia, you see less edema, you see amazingly low sedation, which is just a horrific side effect of the older medications as well as basically compulsive disorders. So we're super happy with this. We're looking forward to the launch here, and we've started to build out our team in Parkinson's, like we have for dermatology for those additional indications. So a nice catalyst that's coming here at the end of the year. Robert Michael: This is Rob. I'll just add. [indiscernible] obviously then complements [indiscernible] and giving us a very strong footing in Parkinson's. And we think about neuroscience overall for the company, I've said before that we are now the industry leader, and we expect to be the industry leader in [indiscernible] for a very long time [indiscernible] giving us essentially a business of Parkinson's that we expect to peak above $5 billion. That's 1 of $5 billion-plus franchises between psychiatry, migraine and Parkinson's that we think can really drive AbbVie's leadership in neuroscience is probably another area that doesn't get enough attention. Operator: Next, we'll go to [indiscernible] from Guggenheim Securities. Unknown Analyst: On the call today, especially on the pipeline. So I have one, maybe following up on the comments you made around HS data coming later this year. So I was just curious if you could maybe just level that sort of expectation of what you're hoping to see from both [indiscernible] from those readouts that we should get soon? And then the other one, tend to make looks like that's moving a little faster than you thought potentially filing this year, obviously, a pretty competitive space. Just curious if you can based on how things are evolving in that market where you see the differentiation for your product would be relative to a competitor? Roopal Thakkar: It's Roopal. On HS, the 16-week data is what we anticipate for Rinvoq and [indiscernible] and the way these are designed, they're slightly different. So lutakizumab will be enrolling patients that have already been on advanced therapies and treatment-naive patients. And if you go back to the Phase II data, that was 100% TNF IR and a very refractory patient population with quite severe HS, and we saw very strong data in that setting, we did conduct some data in naive patients, and that data looks even stronger. The issue in HS for all of us in drug development is control of the placebo rate. So for luticizumab being in naive and failure populations, we will be utilizing a high score 75. And hopefully, that serves to reduce that placebo rate but then if that data looks good and the potential for approval, you would have an agent that could play in both areas of the market. And then secondly, on Rinvoq, that is going to be 100% bio failure population. And because of that, that has the potential ability to control some of the placebo effects and we'll have the standardized high-score 50. So if both look good and are approved, you'll see a dynamic that's not dissimilar to what we have in IBD, where you have a frontline very powerful asset and then one that can come later on in case there's a loss of response like a Rinvoq. And that's consistent with what we see with Crohn's and UC. And I think it will be beneficial to both assets, if approved, if we're able to take them both to market, again, strategically like we've done the setup in IBD and what's driving what we see as being the potential of those assets is best-in-class efficacy and, I would say, ease of use. And I think that segues into the 383 [indiscernible] question, we do see the crowded market, as you've stated, but the opportunity is still tremendous. And that opportunity exists if you have the right asset with the right profile. And what [indiscernible] brings is very high substantial efficacy that we've seen, and that is, we think, associated with the strong binding to BCMA. It has a slightly lower affinity for the T cell side of things and the T-cell engagement. And that has set up what we believe to be a best-in-class safety profile and we have a somewhat extended half-life. So what you could then see happening if we're successful, is a singular priming or step-up dose and immediately going to the full dose, you would see very low CRS. And if that's the case, you have the potential for outside of hospital outpatient like setting where you could give the asset, and it's something consistent with what we've seen very successfully with [indiscernible] particularly in heme cancers 80% of these are treated in the outpatient. So [indiscernible] is designed for that in the community setting. And then after the full dose, after the priming dose or step-up dose, you're immediately able to dose on a monthly basis, which is very convenient for the clinic, you don't take up a chair. And then for the patient who doesn't have to keep coming into the hospital. So that currently, the profile I just described doesn't exist. So entering a little bit later is okay. We believe if you're bringing the right profile. Recall, we've had some success with Skyrizi coming in third as a 23 and Rinvoq as a third JAK inhibitor. But we believe the profile is going to be the key driver of the potential uptake in the future. Operator: Next, we'll go to Asad Haider from Goldman Sachs. Asad Haider: First, Rob, just maybe for you in the context of the statements that you continue to see upside to consensus forecast for both Skyrizi and Wink going out each year and that upside growing each year. Just curious as to how that triangulates with your calculus of no longer updating mid-term guidance for these products? And related, are there still areas of where you see meaningful disconnect versus consensus outside of those 2 products. And then maybe if I could squeeze one in for up. Just on obesity, as you think about doing -- building a broader portfolio around 295, just what might that look like in the context of Rob's earlier comments on obesity as an area of potential PD interest? Robert Michael: Okay. So, it's Rob. I'll take your first question. And recall, our previous long-term guidance really served a very specific purpose ahead of the HUMIRA LOE. But I wouldn't rule out doing it again in the future if it made sense. That said, when I look at the current state of AbbVie's business, the long-term outlook and the pipeline is replacement power, we have never been in a stronger position. I mean we are the clear leader in immunology and neuroscience with a portfolio of assets that are demonstrating very significant growth, in many cases, north of 20%. And both areas have a pipeline that can deliver transformational improvements over existing therapies. When I look at sell-side consensus, I mentioned, we do see upside. We see upside for the total company revenue in every year with that upside growing. I already mentioned that we expect to -- we have upside versus the sell side on Skyrizi and Rinvoq. We expect to exceed the peak consensus that's in those models. I already mentioned in neuroscience that we see upside versus expectations for the migraine in Parkinson's [indiscernible] right now, what we see in consensus is peaking at below $4 billion. We've said several times, we expect them to each peak in excess of 5. And then we look at our oncology pipeline assets. Roopal just highlighted [indiscernible]. We haven't really talked about Temab-A. We believe both of these have significant multibillion-dollar peak potential and both have really not even been described any value by roughly half of the cell site. And so we will continue to highlight this in our commentary when we see the upside Clearly, the previous long-term guidance was very granular more than really anyone in the industry has ever provided but we did it at a time where it was important to help understand what the company will look like on the other side of the HUMIRA LE, we're now in a very strong position. We can deliver top-tier growth for the long term, puts us in a position of strength to continue investing in the business. I already mentioned our commentary around BD. We're very active in the BD area open to areas of differentiation within our -- within each of our core areas. And so we think the setup is very strong. And so I wouldn't rule out giving another long-term update at some point. But clearly, we have a lot of confidence in the outlook, and we'll provide updates as we see Fed. [indiscernible] as you heard, the initial strategy is to drive as high of efficacy as we can, but clearly balance that with tolerability because that's what's going to drive ultimate durability. We've seen too many people fall off their current [indiscernible] assets because of tolerability. So, so far, we see that shaping up nicely and notable weight loss in a nonobese population. So that opportunity still exists and along with our ability to further increase dose and what we saw in the multi-ascending dose. So that strategy will play out over the course of this year and next year before we start designing Phase IIs. But the key is to optimize that efficacy, tolerability to drive that durability to the patient can experience those benefits long term. That could be in an early patient population naive, but we understand many of those patients will be coming off of their increase. The other opportunities that we would be looking for externally or anything that can augment that weight loss but maintain tolerability. If we see that in a subcu that's combinable, that would be very important and oral would be something that we could be interested in. Also any other assets that would allow the optimization of being able to retain muscle and have a majority of the weight loss come from fat. We still see there's an opportunity there. So there will be some other areas that we would be interested in. Other unique areas are in immunology and potential combinations with our own assets. There's a substantial amount of obesity in psoriasis today, and that's a set up and something that we are exploring now and also even higher rates of obesity in [indiscernible]. So that could be a potential other combination. And recall, with our tremendous amount of experience and presence in the aesthetics channels for any type of asset that comes up, that sets us up very nicely and could have a very good go-to-market synergy because of that aesthetics channel. Operator: Next, we'll go to Dave Risinger from Leerink Partners. David Risinger: I missed part of the call, so hopefully I'm not repeating something. But with respect to AbbVie 295, the amylin [indiscernible] has stated that the secret sauce and [indiscernible] is that it dialed out the calcitonin. So can you please comment on 29 activation of amylin one relative to calcitonin. And also, if you could discuss its half-life because the press release suggested the potential for monthly dosing and just wanted to get clarity on the half-life and your level of confidence in monthly dosing. Roopal Thakkar: It's Roopal. Again, and I'll talk about. So yes, we have a DACRA molecule it signals through Amylin and calcitonin. And we -- I don't think we know yet where the secret sauce is relative to outcomes. As we stated, the weight loss was substantial in only 12 weeks in a mostly male population that had a BMI of around 29%. We anticipate in later stages of development, BMI is in the range of 36 and 37. And more than 50% of the patient population would be women where most of the weight loss comes. So we still see a tremendous amount of potential there. The safety profile looked very strong. The potential upside is a benefit to bone because of the calcitonin signaling. And as we develop the molecule, we'll be able to obtain, for example, [indiscernible] to monitor bone and to see and compare if there's less loss of bone and preservation of bone, that could be very important for women, especially as they get older. And we know with rapid weight loss, you do see loss of bone density. So at this stage, we see this as a potential advantage because of the efficacy and tolerability that we've seen to date. The half-life is approximately 270 hours. And what we did observe is every other week and the potential for monthly, the pharmacodynamic effect should also be considered along with half-life. We've seen examples of that. Skyrizi is a good example in psoriasis. The half-life is 28 days. If one is considering a dosing interval at around 1 to 2 half lives, you see Skyrizi is a type of molecule that really over delivers beyond its half-life. And so far, the pharmacodynamic effect with 295 does create the potential for once a month dosing, I would say, particularly in the maintenance setting, which would be really important from a tolerability and convenience standpoint. Elizabeth Shea: Operator, we have time for one final question. Operator: For a final question, we'll go to Steve Scala from TD Cowen. Steve Scala: Rob, just to be clear, cars consensus is $33 billion in 2031. So are you saying there's upside to that? And Rinvoq is $16 billion in 2031. Are you saying there's upside to that? And would you care to add whether or not you think it's just marginally low or whether there is significant upside. And then secondly, during periods of past economic uncertainty, I think AbbVie has observed and stated that aesthetics businesses were fairly resilient. But this time, it seems to be different. So is my recollection correct? And if so, why is it different this time? Robert Michael: Steve, I'll take the first question, Jeff will take the second question. So the numbers that you're quoting from are consistent with what we've -- what we're seeing in terms of sell-side consensus. And yes, -- we do expect the peak potential for both Skyrizi and Rinvoq to exceed those estimates. Obviously, the sell side doesn't go out much further than that. and we think they obviously have more runway. And so we do think there's a significant runway and upside opportunity for both assets. Jeffrey Stewart: Yes. And Steve, you remember correct on we -- several years ago, we referred to some recessionary type dynamics around the Great Recession, for example, we had a [indiscernible] has the legacy business where we saw sort of compression and then a more rapid response to robust growth. But in this case, we've seen this more lingering inflationary dynamic that we haven't seen for 40 years. I think we're seeing relative stability in the markets now. I mean, low single low single-digit growth for toxins still decline for fillers. I do think it's a different cycle of pressure on the consumer -- but you're correct in terms of what we had said previously with different types of recessionary issues. Elizabeth Shea: All right. Thanks, Steve, and that concludes today's conference call. If you'd like to listen to a replay of the call, please visit our website at investors.abbvie.com. Thanks again for joining us. Operator: Thank you all for joining the AbbVie First Quarter 2026 Earnings Conference Call. That concludes today's conference. Please disconnect at this time, and we hope you have a wonderful rest of your day.
Operator: Hello, and welcome to FirstEnergy Corp.'s First Quarter 2026 Earnings Call. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Karen Sagot. Vice President of Investor Relations. Please go ahead, Karen. Karen Sagot: Thank you. Good morning, everyone, and welcome to FirstEnergy's First Quarter 2026 Earnings Review. Our earnings release, presentation and related financial information are available on our website at firstenergycorp.com/ir. Today's discussion will include the use of non-GAAP financial measures and forward-looking statements, which are subject to risks and uncertainties. Factors discussed in our earnings news release during today's conference call, and in our SEC filings, could cause our actual results to differ materially from these forward-looking statements. The appendix of today's presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. Please read our cautionary statement and discussion of non-GAAP financial measures on Slides 2 and 3 of the presentation. Our Chairman, President and Chief Executive Officer, Brian Tierney, will lead our call today, and he will be joined by Jon Taylor, our Senior Vice President and Chief Financial Officer. Now it's my pleasure to turn the call over to Brian. Brian Tierney: Thank you, Karen. Good morning, everyone. Thank you for joining us today. We are off to a solid start this year with first quarter core earnings 7.5% above last year, reflecting our customer-focused investment plan and strong financial discipline. We are on track for a successful year with expected results in line with our 2026 earnings guidance range of $2.62 to $2.82 per share and our long-term outlook remains strong. The team executed extremely well in the first quarter despite numerous storms that rolled through our service territory. Our employees demonstrated a strong commitment to our customers by their performance safely restoring power. What I observed during the first 3 months of this year further strengthens my commitment to our strategic direction. We are investing in our electric system to improve reliability, resiliency and the customer experience, listening and responding to our communities and investing in our people to be safe, well trained and productive. By doing these things, we improve the well-being of our customers, our communities and our teammates and provide a strong value proposition to investors. Over the last 3 years, we have fundamentally transformed FirstEnergy. We sharpened our strategic focus and strengthened our alignment around our core values. I am pleased to share with you that we have recently completed a couple of key hires, further strengthening our leadership team. I am pleased to announce Chris Beam as our new President of West Virginia and Maryland. Chris replaces Jim Myers, who retired after 40 years of remarkable service. I'm also pleased to announce that Dan Puskas has agreed to serve as our Chief Information Officer after serving on an interim basis for the last 6 months. Both Chris and Dan bring deep technical industry and leadership experience to the executive team. At the core of our strategy is improving the service we provide to customers. Each of our business units are working with customers, elected officials and regulators to prioritize investments for local needs. Collaboration with our key stakeholders drives alignment and better outcomes for customers and better results for our company. You see this in action across our footprint, and is a key reason why we are positioned for long-term success. Our investment plans focus on fundamentals, addressing aging infrastructure, reducing operational risk and building more capacity to serve growing customer demand. For instance, in Pennsylvania, we are accelerating investments under the long-term infrastructure improvement plan that we expect will significantly improve reliability particularly across the rural portions of our service territory. In West Virginia, we see a compelling opportunity to support economic development with new generation, which is strongly aligned with the state's energy goals. And our transmission investment plan remains a key focus, given the location and critical nature of our system in PJM. Across the company, our business units are executing against tailored investment plans and regulatory strategies that are focused on improving the customer experience. Affordability remains central to how we lead the company. On average, our rates are 20% below our in-state peers with the T&D component of our bill being 35% below those peer companies. We are proactively having constructive conversations with elected officials and regulators in each of our states to look for ways to address questions around affordability for our customers. The main driver behind the affordability conversation today is a demand and supply imbalance from a capacity market construct that is not attracting any significant incremental generation. Our conversations with key stakeholders are about how we get more dispatchable generation at a fair price while still protecting our existing customers. We believe that PJM's proposed reliability backstop procurement auction could be a step in the right direction, although there is a significant amount of detail needed to ensure the right amount of dispatchable generation is procured at affordable rates. Additionally, we still have the capacity auction cap in place for the next 2 auctions through 2030. These were initially negotiated by Governor Shapiro on behalf of all PJM customers. We are also discussing what we can control through operational efficiencies, alternative distribution rate designs and innovative solutions on other costs on the customer's bill. Since 2022, we have reduced our base O&M by more than $200 million or 15%, and we are continuing to look for ways to work smarter and more efficiently. We are also exploring other ways to protect our customers. For instance, in Pennsylvania, we recently filed an innovative proposal to reform our default service program protecting customers from higher supply rates on variable price contracts. Had this mechanism been in place in 2025, customers would have saved $80 million. We want to protect them from paying higher prices in the future. Customer affordability continues to be a significant part of our regulatory strategy, and we are proactively working with stakeholders to balance affordability and the critical investments required to ensure a safe and reliable electric system. Looking ahead, the rapidly evolving energy landscape will continue to require new transmission and generation investments that are above our current plan. Substantial investments in our transmission system are needed to ensure we proactively address aging equipment before it fails. We believe that new transmission capacity is a critical component to energy dominance and economic development. We continue to see ongoing opportunities with regional transmission planning investments through the PJM open window process. Our scale, planning expertise and strategic location position us well for these types of opportunities. Over the last 4 years, we have been awarded more than $5 billion in competitive projects, and we expect more opportunity in future solicitations. Turning to generation. In West Virginia, in addition to the recently filed CPCN for our 1.2-gigawatt natural gas facility, our data center demand in the state continues to grow with approximately 1.8 gigawatts of highly credible projects, an increase of 50% since February. Beyond that, we are having constructive dialogue with prospective customers representing over 6 gigawatts of load in West Virginia. This data center growth would support incremental generation and economic development which is strongly aligned with Governor Morrisey's 50 gigawatts by 2050 initiative and a significant priority for FirstEnergy. We are prepared to move forward with incremental generation projects as additional large loads enter our pipeline and become contracted, subject to regulatory approval. Our data center interest continues to grow beyond just West Virginia. Approximately 4 gigawatts of our total pipeline is in final contract negotiations and are expected to become contracted with the construction agreement within this quarter, nearly doubling our contracted demand. This is an exciting time for our industry and our company. We are confident in our customer-focused strategy and our operating model that aligns with key stakeholders and local needs. Our focus is to drive great outcomes for our customers, communities and teammates which will result in a strong value proposition for investors. Now I'll turn the call over to Jon to discuss our financial results and regulatory updates. K. Taylor: Thanks, Brian, and good morning, everyone. Yesterday, we reported first quarter GAAP earnings of $0.70 a share against $0.62 a share in the first quarter of 2025. Core earnings were $0.72 a share, increasing 7.5% from $0.67 a share in Q1 of last year, with each of our regulated businesses reporting increases year-over-year. You can find more details on our results, including reconciliations for core earnings and the strategic and financial highlights document we posted to our IR website yesterday afternoon. . Earnings growth largely reflects execution against our regulated investment strategy, with 75% of our capital program under a formula rate. In the quarter, transmission rate base increased to 13% and including a 19% increase at our integrated businesses and an 11% increase from our stand-alone transmission segment. Additionally, continuous improvement and innovation continue to be a focus of the management team, with our base O&M down close to 5% in the quarter. Automation increasing the speed of enhanced data transparency for better and more timely decision-making and technology enhancements are pillars to our cost management program. These innovative solutions are making us more efficient and provide better insight into information so we can make the best cost-effective decision for our customers. In fact, in each of our base rate filings planned for this year, our comparable base O&M is lower than what was approved in the last rate case, demonstrating our commitment to continuous improvement and innovation, allowing us to minimize rate impacts to customers. Our overall financial performance resulted in a consolidated return on equity of 9.8% on a trailing 12-month basis and continues to be in line with our targeted returns. Our investment program continues to be on track with $1.4 billion of customer-focused investments in the quarter, representing a 33% increase compared to the first quarter of 2025, with nearly all of the increase in formula rate investment programs that are focused on improving the reliability and resiliency of the electric grid. Overall, we are very pleased with our performance and confident in the path ahead. In late March, Moody's raised its outlook on FirstEnergy's senior unsecured rating to positive resulting from our improved credit profile as well as our low risk rate regulated T&D operations. Also in March, we successfully completed an $850 million debt offering for FirstEnergy, Pennsylvania with an average coupon of 4.4%. We were pleased with the strong interest in this deal as it was more than 5x oversubscribed. We also successfully completed planned debt offerings for 2 of our transmission companies, MAIT and ATSI with issuances of $250 million and $175 million, respectively. For the rest of the year, our financing plan includes $1.7 billion in subsidiary debt offerings and a modest amount of common equity. As we discussed previously, our current 5-year plan includes up to $2 billion of equity or equity-like securities, including $100 million annually from our long-term employee benefit programs, with expected annual common equity issuances at approximately 1% of current market capitalization. Turning to regulatory updates. In West Virginia, hearings for our proposed 1.2 gigawatt combined cycle gas generating facility are scheduled for mid-July. We're pleased with the time line for this proceeding and anticipate approval for the project in the second half of the year. We are simultaneously working through contracts for major equipment, EPC and gas supply with all of us work on track. Upon regulatory approval, we expect to be in a position to execute these agreements and we'll update our financial plan, reflecting this investment. Also in West Virginia, we plan to file our base rate case in May, reflecting a $1 billion increase in rate base since our last case in 2023. Based on our filing schedule, we expect new rates effective in the first quarter of 2027. In Ohio, on April 22, we made the prefiling notices for our 3-year rate plan, which will be formally filed next month. Since our last rate case filing in 2024, we have invested more than $1.3 billion in Ohio's distribution system. As part of our filing, we are proposing to increase our investments by nearly 15% to approximately $800 million annually to focus on improving reliability for our customers. Proposed customer bill impacts are less than 3% each year, and we expect new rates to go into effect mid-2027. In Pennsylvania, as of April, our approved infrastructure investment program is now being recovered through the distribution system improvement charge, which supports recovery of nearly 50% of FirstEnergy, Pennsylvania's capital investment program. This capital program and related surcharge are important tools to ensure we meet our customer commitments from our last base rate case in 2024. And finally, PJM recently opened the planning window for 2026. We anticipate the open window will address needs in a few areas, including portions of our system. The PJM Board is expected to approve projects in the first quarter of next year. We are off to a strong start this year. Our capital investments supported by our constructive regulatory frameworks and strong financial discipline are improving the customer experience and will continue to provide solid regulated returns to our investors. We are reaffirming this year's capital investment plan of $6 billion and our core earnings guidance range of $2.62 a share to $2.82 a share, with most of the remaining earnings growth compared to 2025, materializing in the second half of the year. We are also reaffirming our long-term core earnings CAGR and of 6% to 8% through 2030 and targeting near the top end of that range, with growth based off our 2026 guidance midpoint of $2.72 a share. We're confident in our outlook for this year and beyond, and we're looking forward to the incremental opportunities ahead. Now I'll open the call to your Q&A. Operator: [Operator Instructions] Our first question comes from the line of Shar Pourreza with Wells Fargo. Shahriar Pourreza: Obviously, lots of upside there on data centers around your systems. The messaging is getting more and more constructive there. But maybe just focusing on comments centered on West Virginia, you highlight 6 gigawatts of load there, incremental generation that's needed. Could we just get a sense on the timing of the spend, your turbine queue status for the incremental generation? And maybe just how that should affect or impact the profile of the CAGR since you're already growing near the higher end. Brian Tierney: Yes. So let me start with the queue of our turbines. We're on track to receive delivery of equipment to be able to be online in 2031, with the power plant. Everything is proceeding according to plan there. West Virginia is a state that is open for business not just for data centers, but for everything else. And being led by Governor Morrisey, who's saying we want 50 gigawatts by 2050. And so it's a place where we're looking to invest to meet that demand and to attract that demand. So disproportionately, data centers are moving to West Virginia because of its open for business stance, and we're happy to be investing into that. I'll ask Jon to comment on what things -- timing of spend and what that might mean to our growth. K. Taylor: Yes, Shar. So we anticipate we'll get approval of the existing application in the second half of the year. If I had to guess, it's probably going to be early in the fourth quarter. What we've told people is, upon approval, rate base growth would increase from just over 10% to just over 11%. And obviously, we'll be very focused on translating rate base growth into earnings growth. So -- more to come on that. We'll update the plan as soon as practical after approval, but we're really excited about this opportunity as well as the opportunities that are in West Virginia associated with the additional data center demand. . Shahriar Pourreza: Got it. Perfect. And then just lastly, Brian, I mean just the affordability rhetoric in Pennsylvania, I mean, the governor's tone and one of your peers obviously recently pulled its rate case. Can we just get a sense on how you're thinking about the political backdrop, the rate case timing? I mean can you just invest in Pennsylvania through the LTIP program and the rider, can you stay out further until the affordability concerns are kind of more muted? Brian Tierney: Yes. So on these affordability issues, I think it's really important that we stay close to our executives, our regulators and our customers on the issue and talking about what's impacting the affordability. So I was just down in Philadelphia last month and met with Governor Shapiro and talked about these issues. He's extremely knowledgeable on energy issues and plugged into what's driving the cost. I also mentioned in our last rate case and our rates just went in effective there a year ago, first quarter of 2025. The main issues there were reliability and investment in the state. And John Hawkins is addressing those issues every day, making sure that we're making the required investment in Pennsylvania and driving improvement in reliability. So since 2024 in Pennsylvania, our customer average interruption duration is down 27 minutes. So the things that were important in the most recent rate case, we're addressing and we're doing and making happen. And in terms of affordability, we're staying in touch with people and talking to people like Governor Shapiro, Governor Sherrill in New Jersey and making sure there will be no surprises in any of our states when we come in for a rate case. Operator: Our next question comes from the line of Nick Campanella with Barclays. . Nicholas Campanella: I wanted to follow up on the discussion you were having on West Virginia. And I'm just kind of going back to some of the comments in your prepared about exploring ways to kind of protect customers and drive economic growth at the same time. It seems like there's a lot of interest in Virginia with the 6-gigawatt backlog you highlighted. And I know we'll figure out what happens with the CPCN and the first gigawatt, which is really more IRP driven. But just what are kind of the frameworks that we should be thinking about to facilitate the next phase of load growth in the state? Do you need to file a separate tariff? And just since you're vertically integrated, are there other models kind of across the sector that you think are working well that you would be interested in replicating in West Virginia? Brian Tierney: Yes. So thanks for that, Nick. I think the most important thing is that when you look at data center developers, hyperscalers, there's been somewhat of a political pushback to data center development and the impact in affordability and cost. And I think in response to that, the hyperscalers, data center developers are taking a stance of, we want to make darn sure we're paying our fair share, our full fair share for everything that we are consuming in the energy landscape. And so when we're talking to these folks and negotiating with them, they are coming from a stance of we're paying for what we're taking, whether it's transmission, generation, land. And in some states like Michigan, I saw Jeff Blau on CNBC earlier this week, talking about something they're doing in Michigan, even lowering electricity rates for existing customers by some development that they're doing in places like Michigan. I think the models are out there and the smart things for us to do are replicate the places where these things have worked well rather than just stopping development. And I think if we work with stakeholders in West Virginia and other states, if we're transparent about who's bearing what costs and if there's a net positive to customers in the state. Those are models that we should adopt and develop and continue to impact energy dominance and economic development. Nicholas Campanella: And then I mean just one follow-up I had is just as we layer in some of the additional capital to the plan, just how you're thinking about the funding and financing mix. And yes, maybe I'll leave that there. K. Taylor: Yes, Nick, this is Jon. So as we talked about before, specifically on the West Virginia generation investment, if we get the AFUDC cash recovery, that will help fund a portion of the investment. So we expect up to about 35% of that investment to be funded with new equity. And as we layer new investments into the plan, I don't anticipate it to exceed that amount. Operator: Our next question comes from the line of Steve Fleishman with Wolfe Research. . Steven Fleishman: Sorry, probably going to hit the same topics that have already been hit to some degree. So just in Pennsylvania, first, the -- so we had Shapiro's comments early in the year, then we see unanimous -- pretty much unanimous settlement with PPL still to be approved. And we have this reaction to filing a case and pulling it, although I think they did file it kind of earlier than normal. So just maybe you could just take these different pieces and what's the takeaway? Is it just -- I think you're in a stay out. So I assume you're not going to file early out of the stay out. Was that really a lot of the issue here or be curious your thoughts. Brian Tierney: Like I don't think we should read something into Pennsylvania from what's recently happened. Like we view it as a place that wants our development, wants increased investment, wants to improve the customer experience but is also cognizant of the affordability issue, like Governor Shapiro is really thoughtful on these energy issues, and he saved customers and PJM billions of dollars from the caps he negotiated. So he's not some person who wants to shut down investment or stop economic development in the state of Pennsylvania. And so we're proceeding with our investment plans. We're happy with our ability to invest there and our returns. And we're being cognizant of the affordability issue as the governor would expect us to be, and our customers would expect us to be. And that's true in the state of Pennsylvania, and it's true in all of our states. And I think the key issue is engagement with the executives in our states, with the regulators, with the legislators. And like I said, I met with Governor Shapiro last month in Philadelphia, and will continue to meet with them and talk about these issues that are important to our customers in Pennsylvania and all of our states. It's about engagement and transparency, and we're going to keep doing that in Pennsylvania, in all of our states. It's part of our job. It's important that we do that on behalf of our customers. Steven Fleishman: Okay. That makes a lot of sense. So -- and then just back to West Virginia, I know you're finalizing a lot of these contracts for the power plant and I think the initial number was kind of -- I don't know, it goes back, I think, about a year. So just any sense of kind of where the final costing kind of ends up on it? . Brian Tierney: Yes, we're still confident in our estimates of about $2.5 billion for the plant. That's what we filed. We had some contingencies in there, of course, let there be no doubt. It's a seller's market when you're talking about turbines and the like. And I think the sellers need to be thoughtful about how much they're going to squeeze that pricing because that goes to the affordability issue and there are political implications related to that. And I think people like governors and legislators and others are going to be looking at the equipment suppliers and saying, "Hey, you're impacting the affordability to our customers and your profitability and your squeeze on people looking to have energy dominance in the United States need to be measured rather than running free." And so we're confident in the numbers that we have and confident that our partners will be thoughtful about any price increases they try to pass through in a seller's market. Steven Fleishman: I guess they might have a lot more business to come afterwards to be thinking about in West Virginia. So okay. Brian Tierney: Yes, we -- that's a good point, Steve. We'd love to be a repeat customer -- and Steve, we'll do that with people that are long-term partners to us, and we'll be reevaluating that as we go forward. So thank you. Operator: Our next question comes from the line of Jeremy Tonet with JPMorgan. Jeremy Tonet: I'll try not to ask on Pennsylvania here. Just maybe if you could turn towards transmission in the PJM open window here. Just wondering any incremental thoughts you might be able to share on what the scope of the opportunity set is for you? Or just any other color in how you feel about that process at this point? Brian Tierney: So Jeremy, I think looking at past performance as an indicator for the future. $5 billion that we've been able to secure over the last 4 years. We've changed how we've done things from doing everything by ourselves to partnering with some others where we think some of our neighbors and us might come up with a better solution than each of us doing it on our own. And we've changed things to be more competitive as we've gone forward. So our business model continues to evolve in this competitive landscape. We think that benefits our customers in terms of affordability. We think it offers better reliability and resiliency solutions. And so we'll continue to develop our business plan under Mark Mroczynski, who's leading that effort for us, but we've been pleased with the incremental investment we've been able to secure in the competitive process and are confident that we'll be able to have similar success in the future. K. Taylor: Yes, Jeremy, this is John. The only thing I would add to that is if you think about our transmission CapEx plan, 80% to 85% of it is not the competitive projects. It's just the existing work and the investments that are needed on our existing system. And that will be a continuing theme for us just given where our system is situated, the age of the system. So as we move into the future, I anticipate additional transmission investments on the core system in addition to the regional transmission projects that you asked about. Jeremy Tonet: Understood. That's helpful. And then just want to turn, I guess, to affordability. And I appreciate the disclosures and how epi appears to be among the lowest bills in all the states that you operate in. And just wondering how that resonates with local stakeholders there and particularly thinking about New Jersey, given the new administration there. Brian Tierney: Yes. So let me start with New Jersey. We finished a rate case where rates went into effect the early part of '24. And the main issue there in that rate case was investment in New Jersey and improving reliability there. And so we started down the path of the clean energy corridor and enabling that we've shifted away from that to other type growth. I was in Lakewood, New Jersey earlier this month, the amount of growth is phenomenal. Since 2,000 that city in New Jersey has more than doubled in population. And so a big part of the last rate case, investment in New Jersey, enabling growth and enabling reliability. And Doug McCoy and his team, the President of JCP&L there are making that happen. And so we need to be cognizant of affordability. As we go in for rate cases, Jon, I think for each of the rate cases that we're going into today, the O&M burden is less than it was in the last rate case. So we're talking the talk, walk in the walk on affordability but also making the investments that are demanded from us by our customers and regulators and trying to strike that right balance. K. Taylor: Yes. And I would say, obviously, making improvements in reliability are important. We talked about Pennsylvania having a 20% improvement in outage duration. If you look at New Jersey, 24 to 25, it's a 16% improvement, which is about 47 -- or excuse me, 49 minutes of outage duration per customer. So pretty significant. So it's important that we continue with this plan, with this investment strategy because we're not where we need to be, but we're on the path to get there. Jeremy Tonet: Got it. And just a quick follow-up there. Just wondering, in these conversations, do you see distinguishment as far as your bills being lower, lower wallet share than others in state? Is that being appreciated and differentiated in your thinking in conversations with others in the state? Brian Tierney: I do, Jeremy. I think those are important facts to point out the idea of what the share of wallet is if our rates are increasing at a rate that's lower than inflation. Those are all important things for us to point out. But at the same time, we recognize that customers are being squeezed not just by our bills, but by things like gas bills, food bills, pharmaceuticals and other things. And so we do need to be cautious, aware, empathetic to those issues but also point out what the facts are. And if our bills are lower, if we're increasing less than inflation, that means that the value we're delivering to our customers is increasing over the periods that we're talking about. So yes, those facts are really important. Operator: Our next question comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: Just one for me. You noted the impressive cost-cutting measures as a tool to help with affordability? If I heard you, Brian, I think you said O&M expenses were down 5% year-over-year and came in below the levels approved in the latest rate case. Can you elaborate on that? Was that across all jurisdictions. Are those savings structural or ongoing? Or were they more onetime in nature, whether related to the weather and maybe lower run plant run times or something like that? Were these related to AI and automation? Or how do those cost savings, were they helpful or potentially harmful in terms of reliability? Any additional details would be helpful. K. Taylor: Yes. I mean, Andrew, so there's obviously a little bit of timing in each quarter that you go through in terms of when you incur maintenance work and maintenance activities. But we've been at this continuous improvement, cost management program for quite some time, and you're seeing sustainable benefits from the work that we've done historically really starting in 2022 to now. And so this is a lot of sustainable cost savings that are going to help us move into the future, and it's around moving from a more reactive historical performance decision-making process to a much more integrated analytical risk-based decision-making process using data and analytics to help us inform the decisions that we make to be much more efficient with our resources and where we deploy our resources, whether it be capital or O&M. And so it's much more predictive, much more proactive decision-making that's really driving a lot of our cost management program. So I kind of view it as a much more sustainable part of the company moving forward. Brian Tierney: And also add to that, have we changed our business model to focus on our 5 business units, we are shrinking our service core and increasing our business unit presence. So we're moving more of our customers' management and focus closer to the customer in each of those business units, and that's having the related operational success that we've talked about earlier in the call. Andrew Weisel: Okay. Safe to say you see opportunity for more? . Brian Tierney: Always. Always. Operator: Our next question comes from the line of Ross Fowler with Bank of America. Ross Fowler: Maybe we'll turn this to FERC for just a second. Obviously, you've got the NOPR out there, the colocated load order and the backstop procurement, so not a shortage of things going on. You obviously took this up to the D.C. circuit with a petition for review. So maybe can you sort of scope out the decision time line there? What you frame is the range of outcomes? Is this sort of an all or nothing, in your favor or not? Brian Tierney: Yes. On a lot of this stuff, Ross, it's more to come, whether it's the NOPR or the other issue that you mentioned. And I think our biggest thing there is we think the large loads should pay their fair share, but we think it should be to the utility company, to the transmission provider who's providing the service and have the opportunity to earn a return on that. So it's not just you pay it, it's out of rate base and the utility operates something that they're not earning on. We think it should be a model even similar to what you have in natural gas pipelines, where you have an open season and people sign up to contract with the pipeline company. But they are paying the pipeline company and the pipeline companies earning a return on their investment. So we don't think CIAC should be outside of that model for network improvements. We think that the large load should pay for their network improvements, but they should be paying the utility and the utility should be earning on their invested capital for that incremental investment to serve them. Ross Fowler: Understood, Brian. And then on the backstop procurement, you kind of said you're evaluating the proposal there from PJM and there might be some things to do there. It's still too early to talk about that? Or are you still flushing that out? Brian Tierney: Still fleshing it out. But Ross, I think a large part of this is who pays and for what. And I'm not sure of PJM's value standing in between the people who are making the investment and the people who are paying for it. I just -- I don't see why PJM is a clearinghouse for any of that adds any value. I think that the people making the investment, the power plant developers and builders should contract directly with the end-use customers rather than having some middleman in between and then another middleman being the electric distribution companies. The long and the short of deregulation was that customers bear the risk of capacity and energy markets. And customers have gotten the benefit of that for the last 20 years. And now it looks like prices are going to be higher. What I think we need to be careful about, whether it's the backstop or anything else in capacity and energy markets is customers for paying for something they're not getting. And that's exactly what's happening in today's capacity markets. People are paying for new capacity, and they're not getting new capacity. Existing capacity owners should get something that's reasonable but not as high as new capacity. And so today, customers, residential customers are wasting their money in the PJM capacity markets, and that should stop. Ross Fowler: I mean, certainly, Brian, we've contracted before we can contract again. I don't know what difference it makes that PJM gets in the middle. It's bilateral contracts or bilateral contracts, right? I mean that's... Brian Tierney: Yes, the wrong people are going to end up paying with PJM in the middle. Like the whole idea of deregulation was that the utility companies are just wires companies and they don't take generation capacity and energy commodity risk. And I'll tell you, going forward, if we get the Phase 2, and I'll tell this to PJM and anyone else who listen, we are not going to sign contracts where our companies take commodity risk on generation and energy. It's not going to happen. So Phase 2 has got some real hurdles to overcome. And if Phase 2 is going to work, they need to contract with us. And the way it's structured today, we're not signing contracts. Ross Fowler: Yes. I mean, that's not your business model, right? Your business model is regulated wires, right? Brian Tierney: And it's not what the legislators in 4 of our 5 states asked for. They said, "You don't do that. You're out of that business." And believe me, we listen to our legislators. We listen to our regulators and we respond accordingly. Operator: Our next question comes from the line of Anthony Crowdell with Mizzou Securities. . Anthony Crowdell: Just a quick one on Ross's question. Brian, you just talked about your view of the backstop auction, all the stress that it creates. Does the state regulators that you -- the states you operating, does the regulators share that same view? Or any insight you can provide to the governors or the regulators share a similar view to how you're viewing what's going on right now in the capacity markets? Brian Tierney: I think they absolutely do, Anthony. Look at the law that was just passed last summer here in Ohio, where the legislature took a very firm view of utilities cannot own generation and the market and the legislature took the view that the market will solve the problem and not the utilities. And so -- we heard that. We listened to that, and we're not going to own generation in Ohio, and we're going to let people contract with each other in whatever market they choose to contract in. But yes, Ohio just completely doubled down on that a year ago. So they're firmly an agreement with us. And if you look across our deregulated states, everyone but West Virginia, the markets are -- the legislation is clear that we don't own generation. And that is handled through markets and the utility provides T&D services and is not involved in the commodity. So yes, they're firmly in agreement with us. Operator: Our final question this morning comes from the line of Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just to follow up on some of your comments on New Jersey earlier. I know you guys have been considering kind of the right timing to potentially file another rate case there. Any updated thoughts on what that could look like? Brian Tierney: Look, I think given the governor's executive orders and where we are in our rate case cycle, we'd be very, very thoughtful about when we move forward, and there would be no surprise to the governor, the BPU or anyone else in the state of New Jersey when we do come in. But -- no, we just -- no surprises is our biggest mantra. And that won't happen as a surprise, we'll come in at the right time. But the important thing in the last rate case, and I hope it's the important thing in the next rate case is, are we investing in New Jersey for economic development, for growth, and for reliability and balancing that with affordability. And that's our job, and we'll do that openly and transparently whenever we do come in for a rate case in New Jersey. You're not a customer of ours there. Are you, Carly? . Carly Davenport: I'm not at the moment, but I might be at some point, but that's really helpful. I appreciate that. And then maybe just one question on Maryland. I know you guys have the plans to file there soon as well. Just any impacts that you're looking out for from the Omnibus bill that was recently passed in Maryland just in terms of any risk around changes to the regulatory process on the back of the legislation. K. Taylor: Karl, this is Jon. It's kind of too early to tell right now. I mean we've historically used a historical test year in Maryland, but other components of the legislation, we're working our way through. and we'll update our plan accordingly. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect your lines.
Operator: Hello, and welcome to the Q1 '26 IDEX Corporation Earnings Call. [Operator Instructions] Now I would like to turn the call over to Jim Giannakouros, Vice President of Investor Relations. Please go ahead, Jim. James Giannakouros: Good morning, everyone, and welcome to IDEX's First Quarter 2026 Earnings Conference Call. We released our first quarter financial results earlier this morning, and you can find both our press release and earnings call slide presentation in the Investors section of our website, idexcorp.com. On the call with me today are Eric Ashleman, President and Chief Executive Officer of IDEX; and Sean Gillen, our Chief Financial Officer. Today's call will begin with Eric providing highlights of our first quarter results and an update on our business outlook and strategies. Then Sean will discuss additional financial details and our updated outlook for 2026. Following our prepared remarks, we will open the line for questions. But before we begin, please refer to Slide 2 of our presentation where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. As IDEX provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Eric. Eric Ashleman: Thanks, Jim. Good morning, everyone, and thank you for joining us today. Please turn to Slide 3. IDEX delivered a strong first quarter and continue to see our growth strategies gain traction as we expand and integrate capabilities in targeted advantaged markets powered by 8020. I'd like to thank our teams around the world for their disciplined execution, agility and focus as they help drive long-term value creation. In the first quarter, IDEX delivered organic sales growth of 5% and adjusted EBITDA margin of 26%, which reflects a margin expansion of 50 basis points year-over-year. These results were above our expectations and reflects strong performance across each of our segments. Additionally, orders were better than expected, growing 10% organically year-over-year. Strength was most pronounced in our Health & Science Technologies, or HST segment, where secular drivers continue to fuel growth across high-value applications in data center, semiconductor and space and defense markets. The strong backlog build in HST improves our visibility to deliver continued solid growth for the balance of the year and into 2027. Finally, orders in our Fluid & Metering Technologies, or FMT segment, grew 9% organic year-over-year. This was driven by strong order activity in our water platform and our pumps businesses. In our general industrial business units, we are off to a good start to the year, and it's encouraging to see signs of improvement in these end markets. Taking our Q1 performance and backlog build into account, we are raising our full year 2026 financial outlook. Sean will get into greater detail later in the call. Before turning it over to Sean, I'd like to walk through a live example of IDEX's capabilities to drive long-term value as 8020 drives growth, margins and earnings. Please turn to Slide 4. At the highest level, this starts with a very high-quality portfolio of market-leading applied technologies used in environments where performance is critical and failure is not an option. Space and defense is a prime example of faster growing durable end markets where we are increasingly deploying resources in the HST segment to expand our opportunity set. In simple terms, we provide critical components that move, manage, filter, focus and protect data, energy and fluids in space and defense systems. These markets benefit from growing demand for space-based connectivity and breakthrough defense technologies with long program lives and rising system complexity creating a multiyear growth runway. Importantly, our participation spans multiple touch points across the portfolio from optics enabling secure data transmission to Mott's filtration solutions supporting propulsion and thermal management, alongside other engineered components for mission-critical systems. These solutions are co-engineered early with customers, allowing us to move quickly, adapt as requirements evolve and reinforce our role as a trusted partner. Please turn to Slide 5. For more than a decade, 8020 has helped us improve focus, margins and execution. Within our growth platforms, we are increasingly using it as a growth tool, segmenting markets more deliberately, clarifying where we win and actively reallocating capital and talent toward the highest value opportunities. What's different today is the quality and scale of growth emerging from our platform, 80s customers and markets. As demand concentrates in more complex, higher value applications, our pivot toward durable growth areas is reinforcing a stronger overall outlook for IDEX. This momentum also creates a flywheel effect, strengthen our advantaged platforms allows us to further simplify, rationalize and refine the portfolio, driving higher growth, stronger margins and enhance shareholder value over time. It might seem counterintuitive to some, but we grow fastest by focusing and doubling down on fewer customers over time as we help winning customers quickly grow share within advantaged spaces. Our component orientation allows us full flexibility to move right or left into the other application arenas to apply 8020 again, moving up the peaks and valleys of dynamic growth as we compound value. We complement this work with balanced and disciplined capital deployment, maintaining a strong balance sheet for flexibility, investing organically, actively pursuing tuck-in acquisitions and returning capital to shareholders. We repurchased $76 million of IDEX shares in the first quarter and expect to maintain that pace throughout 2026. With that, I'll turn it over to Sean to walk through the quarter in more detail, including segment performance and our updated outlook. Sean Gillen: Thanks, Eric. Good morning, everyone, and thank you for joining us today. Please turn to Slide 6. As Eric mentioned, in the first quarter of 2026, IDEX delivered better-than-expected financial performance. Organic revenue growth of 5% was better than we forecasted, with notable strength in HST. Adjusted EBITDA margin expanded 50 basis points year-over-year on productivity improvements, positive volume leverage and positive price cost, partially offset by mix. And adjusted EPS came in significantly higher than our guided range in the first quarter. Overall, our orders grew approximately 10% organically in the quarter, again, led by HST's organic order growth of 17% year-over-year. FMT orders grew 9% organically in the first quarter and FSDP orders declined 4% organically. As a reminder, we typically enter any given quarter approximately 50% booked overall. But the strong order activity in HST is driving a backlog build that offers greater confidence in our ability to deliver better financial performance than we outlined entering 2026. In FMT and FSDP, the rapid fulfillment nature of those businesses limit our visibility to approximately midway into any given quarter. Touching on some of the more meaningful business demand trends in the quarter, we saw a continuation of strong order activity in areas influenced by AI, which for us is most meaningfully in power generation for data centers, semiconductor manufacturing and optical switching. We also continued to see strength in municipal water, mining, pharma and space and defense. Organic sales in the first quarter grew 5%, with HST growing at 11% and FMT growing at 2%, while FSDP was down slightly. On a consolidated basis, organic sales growth was balanced between volume and price contribution. IDEX adjusted gross margin declined 40 basis points year-over-year to 44.9%, reflecting productivity gains and volume leverage being more than offset by mix. Adjusted EBITDA margin expanded 50 basis points versus last year, reflecting productivity gains, volume leverage and cost discipline more than offsetting negative mix. The first quarter is our seasonally lowest cash flow period. Free cash flow of $86 million declined $5 million versus last year, driven mostly by higher working capital investment due to higher growth. We continue to expect free cash flow conversion of at least 100% on an annual basis. We ended the quarter with strong liquidity of approximately $1.1 billion. And finally, we spent $76 million to repurchase IDEX shares in the quarter, and we remain committed to that quarterly pace for 2026. Now quickly some color on our results by segment. I'm on Slide 7. In HST, organic orders increased 17% and revenue grew 11% organically. Volumes increased in advantaged markets, including semiconductor OE and consumables, data center applications and space and defense. And notably, these exposures are, as Eric mentioned, in the areas we have pivoted the portfolio towards in the last few years and where our integrated growth strategies and platform building reside. Pharma was also an area of strength in the quarter. HST adjusted EBITDA margin expanded 100 basis points year-over-year as positive volume leverage, positive price/cost and productivity benefits more than offset unfavorable mix and acquisitions. Turning to Slide 8. In FMT, organic orders increased 9% and organic sales increased 2%. Orders growth was supported by our intelligent water platform and our mining exposures, partially offset by global softness in chemical end markets. Looking at our leading indicator industrial order rates, they showed growth in the quarter as orders and revenue in these businesses were slightly better than we had expected. Our water platform continued to perform well, contributing to both the order and sales growth in the quarter. FMT's adjusted EBITDA margin declined slightly by 10 basis points year-over-year as productivity benefits were more than offset by mix and volume deleverage. Please turn to Slide 9. FSDP organic orders declined 4% year-over-year and organic sales decreased 1%. Our Fire & Safety franchise grew high single digit in the quarter as we continued to see strong demand for our fire and rescue tools in North America and stable demand in Europe. This growth was offset by an expected decline in dispensing. This decline in dispensing was due to tough comps and project volumes in North America and Asia. We expect to see stability in our dispensing business on a sequential basis. FSDP adjusted EBITDA margin increased 30 basis points year-over-year as strong productivity improvements more than offset mix and volume deleverage influences in the first quarter. Please turn to Slide 10, where I'll touch on capital deployment. Like I mentioned earlier, we drove $86 million of free cash flow in the first quarter, which is our seasonally lowest cash-generating period in a given calendar year. Our gross leverage position as of the end of the first quarter is at roughly 2x. As outlined last quarter, we continue to maintain a balanced approach to capital deployment. In the near term, we will focus on organic investments to drive growth, bolt-on M&A and capital return to shareholders. In the quarter, we paid $53 million in dividends and repurchased $76 million in shares. We plan on maintaining the share repurchase level per quarter through the rest of 2026. Now I'd like to discuss our updated guidance for 2026. Please turn to Slide 11. For the full year 2026, we now expect organic growth in the 3% to 4% range, an increase over our original 1% to 2% organic growth guidance coming into the year. Our overall IDEX organic growth guidance balances approximate high single-digit growth for HST and flattish outlooks for FMT and FSDP. These outlooks reflect HST's strong order book and relative stability in our FMT and FSDP segments. Adjusted EBITDA margin is expected to be in the 26.5% to 27% range in 2026, unchanged from our previous guidance. We continue to expect productivity benefits throughout IDEX businesses and solid leverage and margin expansion at HST this year. However, volume decrementals in FMT and FSDP and mix influences keep our near-term margin expansion expectations unchanged. We are increasing our adjusted EPS guidance for 2026 by $0.20 to $8.35 to $8.55, representing mid- to high single-digit growth year-over-year. For the second quarter of 2026, we expect 3% to 4% organic growth, adjusted EBITDA margin in the 26.5% to 27% range and adjusted EPS of $2.07 to $2.12. Also, I wanted to provide an update on tariffs. We continue to monitor the changes closely and adapt our businesses accordingly. While the IEEPA tariffs have been repealed, the administration has implemented new tariffs in reaction to this. For our businesses, these new tariffs are largely consistent with the ones repealed such that we currently do not anticipate much of a net impact to our financial results. As it relates to the expected IEEPA refunds, we have taken the requisite actions to apply for these and we'll keep you updated, if applicable, as it is expected to play out over the coming months. With that, I'll turn the call back over to Eric. Eric Ashleman: Thanks, Sean. I'm on Slide 12. As we step back, we feel very good about the start to the year and the momentum building across IDEX. Our performance reflects strong execution, increasing traction in our advantaged markets and continued progress as we execute our growth strategies. The demand signals we're seeing within our growing backlog reinforce our confidence in the direction of the portfolio. Many of the demand trends in our advantaged markets are expected to remain robust well beyond 2026. At the core of this progress is 8020. It continues to sharpen our focus, guide where we invest capital and talent and help us scale growth across platforms and applications that matter most. Just as importantly, it is enabled by our teams and our culture, one that emphasizes trust, collaboration and accountability across the organization. We recognize there's still work ahead as we continue to execute our strategy and further enhance the quality of growth across the portfolio, but we are encouraged by what we are seeing, confident in the path forward and excited about the value creation opportunity in front of us. With that, we appreciate your continued interest in IDEX. And I'll turn the call back to the operator for your questions. Operator: [Operator Instructions] And our first question comes from the line of Joe Giordano with TD Cowen. Joseph Giordano: Just curious on how to think about the guide here. So 1Q comes in 5%, 2Q guided 3% to 4%. Given the orders here, why should the second half organic decelerate from the pace that we're on now? Or is this just kind of, look, there's a lot going on in the world and we're just playing it safe? Sean Gillen: Yes. I think to give a little bit of color on that, it's really around -- I think HST should continue at a pretty similar clip, as we mentioned, high single-digit to double-digit growth at HST, and that's really driven by the order backlog, as you referenced, where we've seen that momentum. And I think in FMT, in particular, is where we saw good performance in the quarter. The end of the quarter was stronger than the beginning, seeing some sequential improvement. But as the outlook for the year, still seeing or forecasting a growth outlook that's a bit flat. And that's probably a little bit of the macro world, 1 quarter into the year, some uncertainty in the macro world, and what we're seeing the visibility, keeping that around flat. So that's a little bit of color as first half of the year as we move into the second half. Joseph Giordano: And then what needs to happen at HST to get margins back to like that 30-ish percent range that you were at a couple of years ago? Like which -- is that incumbent on life sciences picking back up? Like what's kind of needed there to get back to historical highs? Sean Gillen: Yes. Good question. And I think there's two pieces to that. One is the acquired -- the recently acquired businesses, which are performing quite well and are driving a lot of the growth as more of the growth in that business has come from the acquired businesses, there still, margins are strong, but they're not quite at the segment average yet. And what we'll take to get there is, as we talked in the last couple of quarters, some continued focus on 8020 to drive margins higher in the acquired businesses. So as they get their margins up and the growth continues to come from them, that will have a mixed benefit. And then the other piece is, as you mentioned, life sciences, kind of flattish to slightly down in the quarter, and that's a nicely profitable business for us, so a little mix there, but would expect growth to return to that as we go forward as well. Operator: Your next question comes from the line of Matt Summerville with D.A. Davidson. Matt Summerville: A couple of questions. Just on one of the last points Sean made. Can you give a bit more context as to why you expect to see what sounded like maybe some sustained inflection from here in the life sciences portion of HST? And then I have a follow-up. Eric Ashleman: So I think, look, the life science business is about exactly where we thought it would be. The core fluidics and optical filters, franchises that drive the bulk of the profits there are still growing low single digits. And honestly, the drivers on both sides remain the same. So pharma really, really strong. And then the pressure points coming largely from both the China market for our end customers and then the funding, NIH funding academic pressures that we've seen for a while now. I think for us in the first quarter, remember, about a year ago, this is just starting to play out. Now we're pretty deep into it. And I think most people are expecting that it will remain at this pressure. And so we had a call here that coming into the year, we thought these customers, some of our customers that depend on us, we're going to be a little guarded in some of the inventory positions of IDEX product. We saw that play out as we thought. But the dynamics here remain exactly as we've been talking about over the last few quarters, and a low single-digit growth, some positives, some negatives and -- but a ton of innovation and things that are going on here that I think longer term will give us a lot of confidence in where this market is going to go. Matt Summerville: Can you also maybe highlight just how you saw incoming orders cadence through the first 3 months of the year, what you're seeing in April thus far across the businesses? And specifically, I'd be curious as to how the general industrial book-to-bill has been trending in both FMT and HST. Eric Ashleman: Yes. I mean it's a little different depending on the segments. The HST side, with the momentum that we're seeing there has less of a nonlinearity profile, it's has been generally pretty strong for a while, and kind of saw it that way -- play out that way in the quarter. On the FMT and FSDP segments, which are certainly more fragmented, broadly indexed to industrial markets, that was interesting. It was pretty soft in the beginning of the year in January, it came back a bit in February, and it was a much stronger March. And then we've kind of stayed at that level here in April. One thing that's interesting, we've talked a lot about the businesses that we use as diagnostics for kind of near-term health. And while those were overall positive, they didn't move positive in a uniform way. So we don't have sort of every member seeing the exact same thing, the little mix, and even the project business that we saw in there, we don't get a lot of it, but that tells us something, too. Almost all of those, you can trace back, the successful ones back to some of the same mega trends that we're referencing in HST, data center work, energy grid, things like that. So I think it's improving. It's better than we had obviously modeled originally for the quarter. But I would still put it in sort of a mixed place. And I think largely that's because of the overhang of the geopolitical situation. Operator: And your next question comes from the line of Nathan Jones with Stifel. Nathan Jones: I guess I'll follow up on the short cycle industrial question. Maybe you can talk a little bit more about the pieces of that, that you -- where you're not seeing some improvement and maybe what you think is required to get those businesses going in the right direction again? Eric Ashleman: Well, in a few places where that played out, I'd say those businesses are a little bit more indexed to chemical markets and some of the ones that we mentioned or kind of core energy. So their exposure there probably explains some of it. They're also probably the most fragmented businesses. A lot of the orders there are 1 or 2 here, and they have really quick lead times. So as somebody is uncertain. They're the kind of businesses that you really don't have to make much of a commitment because we're going to be able to quick turn all of the product. So I would say that's -- those would be the 2 characteristics. Again, this wasn't a lot of businesses, but there is some mix, there is a mixed nature of how these ran out over the last 4 months. Nathan Jones: Fair enough. I'm going to ask the HST margin question a little bit differently. You've seen good positive growth for the last 3 quarters and the incremental margins have been in the low 30s. I think I would have expected, and I think you would expect long term, those incrementals to be higher. Can you maybe just run through the pieces that are keeping those depressed? I know you talked a little bit about acquisitions. There's probably some drag on that. But maybe just some color on what's depressing those a little bit? What it takes to get back to kind of maybe into the 40s on incremental margins? And when you think you'll be able to get those incrementals to move back to a more historically normal level? Sean Gillen: Yes. So for the last quarter or 2, and in this quarter, the flow-through in HST was about 33%, so in that low to mid-30% as you referenced. As you think about kind of the guide for the year, we see that improving slightly, getting to kind of those mid-30%. And all that's really in line with where we expected it to be for the year so far. And then kind of what needs to happen to have it tick up, I think it's a couple of points, which I referenced. It's the acquired businesses, which are below the segment EBITDA margins of kind of 26%, 27%. As we take some 8020 actions, what I mean by that is as we start to prune some pieces of the portfolio within those businesses that are dragged on the margin within the acquired businesses and continue to grow the higher value add, higher margin parts of the acquired businesses. And I'm thinking Muon, Micro-LAM and Mott being some of the ones that have some room for improvement in overall margin. So that's kind of point one. Those acquired businesses. And as you mentioned, a lot of the growth you're seeing are coming from those businesses. So as they continue to provide more of the earnings power, getting their margin up will help increase the flow through towards that 40%. And then part 2 is life sciences, which is a nicely profitable business for us. As that grows, it has strong a leverage and EBITDA flow through. I haven't seen that in the first quarter or 2, but for all the reasons that Eric mentioned, you would expect that to improve as we move through this fiscal year. In terms of getting to 40%, as I mentioned for the year, the guide contemplates kind of mid-30 flow-throughs as I think as we get into next year and some of those 8020 actions take hold and some improvement in some end markets, I think we'll get towards that 40%. Operator: Your next question comes from the line of Deane Dray with RBC. Deane Dray: You called out some strength in the water business in FMT. Just kind of give us a sense of where that demand is. How much of that is kind of the flow business versus projects? And what are your assumptions for the balance of the year? Eric Ashleman: Yes. No, it remains a really strong part of the story. And the municipal-facing side of that, that's kind of our core inspection and analytical software piece has been really good. We had some nice equipment sales in particular, this particular quarter to back that up. So the hardware side was nice. Again, I remind people, it's a really great business that's very, very focused around storm water, storm water flows, so overflow conditions and remediating those are a big part of what they do. That remains really, really relevant as we see given the nature of infrastructure and catastrophic weather events. So it's just really well positioned. The part that's giving it an added boost this year is we do have a component of that platform that is focused on high-purity water, largely for semicon applications. That has actually been headwind for that group in the last year or so, it's flipped over. It's now positive and growing as well. So we've got kind of both of those firing. That accounts for the high single-digit growth that we posted and we continue that to sustain. Deane Dray: Great. And just as a follow-up, I wanted to ask about M&A activity in your sector, but that was done away. And just what the implications are, and what the thoughts might be. So first, we've seen some deals in the storm water space [indiscernible] to overflow. I mean, I think that's just a validation of how much a focus this is. Where do you see growth rates for you all in terms of -- is it M&A? Is it organic? That's the question. And then the second one, there was a really interesting transaction in fire and security recently which I think is a validation of your commitment to this business. So just 2 different sectors, interesting M&A away, what are the implications for IDEX? Eric Ashleman: Yes. Well, certainly, I mean, you're paying on 2 spots where we play, and we do very, very good work with in both cases, very critical technologies applied to get jobs done that are highly valued. So I think both from small deals to large deals in the spaces that you referenced here, you're seeing appreciation for work of that nature and quality. And so I think it's a testament, a continued testament to kind of where we are, where we're positioned and the way that we see those businesses as well. As things play out and businesses change hands, I mean we always kind of look at that and just see if that has a competitive impact on the market, and we're very, very close to those worlds and customers, and we'd respond accordingly in any way we had to. But think bottom line here is it's -- I take it as a testament to the quality of the work that we do. Operator: Your next question comes from the line of Bryan Blair with Oppenheimer. Bryan Blair: Nice start to the year. I was hoping you could offer a little more color on HST's visibility. Starting with backlog expansion. I think last quarter, you had cited around $100 million in year-on-year build. Where does that fit now? And given the investment trends and project orientation of some of the HST's advantaged markets, how are you thinking about underlying demand support through the back half and into 2027? Eric, you had alluded to solid runway in your prepared remarks. I was just curious if you can offer any additional detail. Eric Ashleman: Yes. Well, as you saw, we drove a nice backlog number again, increase for HST this quarter. And it's interesting here. We're getting more visibility than we've typically had for classic IDEX, and you can see that growing in HST, and it's really growing in these faster-growing order wins and application spaces. And the nature of it is these are moving fast. In many cases, these are novel solutions, where we're just kind of bringing them to market. And then you've got customers here that are trying to ramp pretty aggressively. And so they're giving us and as well as other suppliers some good visibility to the road ahead to make sure that we've properly capitalized, we've got labor lined up, we've got materials available. So we get more than we typically would, let's say, in certainly in FMT and other places, even much of the rest of HST. So that accounts for some of it. That being said, it's anything that we are recognizing here, of course, is within a 12-month period, and it's -- you don't -- it's actually pretty linear as it runs. Also, in the discussions that we have with customers as we're booking it and we're working with them, that same spirit runs into discussions about out years. So what comes next in terms of technology is something we talk about, what kind of volume requirements might be needed there so that, again, we get the jump on any capital we and others might need to lay in. That's why we're able to point towards continued growth beyond a 12-month horizon here because of those conversations that kind of look forward, that, again, is a little different from what we've typically experienced in IDEX, but it's something that we had planned to be part of our growth story here, and it's playing out that way, hence the references to confidence both for this year and the out-years. Operator: Sorry for that. Let me go next to Mike Halloran with Baird. Michael Halloran: I'm going to tell you that I have the user error. I might have hung up on you right when Deane was asking his first question, and I came back on. So I apologize ahead of time if I asked anything that's redundant here. So could you help me a little bit with the sequential dynamics you're assuming for the remainder of the year. Obviously, [indiscernible] are really good. As we sit here today, the short-cycle piece seems like it's going in the right direction, all LC tools, a couple of end market headwinds. Eric, maybe simply, do you feel like we're at an inflection point or close enough to an inflection point to be comfortable with the trajectory on those short-cycle pieces yet? Obviously, you just talked about the higher growth areas, the investment areas you feel good there. But maybe more just on the short cycle dynamic trajectories you work through the year and how you think about sequentials? Eric Ashleman: Yes, we did talk about this a little earlier, but I think it's worth restating. We definitely saw a cadence of improvement across really the 4 months of the year, kind of weak in January, a little better in February, pretty strong March, and then it sort of held at that level in April. [indiscernible] actually, I think that's a testament to the resilience of these markets in the face of some pretty concerning or uncertain headlines geopolitically. I did reference though, as you know, we have these diagnostic businesses that could give us some insight into strength of inflection. And that usually comes about when they're all moving in the exact same way. That's the one piece that I pointed to and said, we've got a few that are not moving in the same direction. They're okay. They're stable, but they're not jumping yet. So I think -- and that matches the conversations we're having. You still see an awful lot of references to what might play out in terms of energy, energy pricing, material availability, all the usual suspects when something like this is going on in the world around us. So I think we're better. I believe it is an indicator of how strong maybe that industrial world wants to run here. But I would also say pretty reasonably guarded because of some of the things that are out there. So the way that we have it modeled, we kind of have it probably appropriately conservatively modeled that's flattish running out kind of not too far from our original assumption. But I think that's the right call based on what we're seeing and what we're hearing. Michael Halloran: So is it fair to say then that the delta in the guidance here, obviously, the uptick is partially in the first quarter strength? But it's -- we're tied to the internal growth initiatives, the investments you've made internally and with some of the M&A than it is any real change in the cyclical dynamics? Eric Ashleman: That's absolutely true. Michael Halloran: Okay. And then just quickly, just thoughts on buybacks versus the M&A side of things and how you're thinking about the pipeline and acquisitions as we sit here today? Sean Gillen: Yes. The pipeline on M&A continues to be active and continues to be kind of focused in that bolt-on type size of deal. We have sufficient capacity to take that on while continuing to maintain the current buyback levels. We did $76 million in the quarter. I mentioned that we'd expect that cadence to continue for each of the quarters through this year. And at those levels, we still have more than enough capacity to execute on bolt-on M&A as it comes into focus. So I'd say kind of no change from a capital allocation specifically as it relates to repurchase, and then still focused on M&A with a pipeline that's active and focused on that bolt-on world. Eric Ashleman: And then I would just add, the cultivation for those tuck-ins. I mean it continues to improve. So the more traction we get on our initiatives, largely -- almost all of which involves some integration of units. People see that. They recognize that and increasingly want to be a part of it. Operator: Our next question comes from the line of Bryan Blair with Oppenheimer to continue his follow-up questions. Bryan Blair: I actually cut out a bit. I appreciate you letting me ask a follow-up. I'm not sure if this was just addressed, so apologies if it was the case. I wanted to circle back to FMT trends and just the disconnect between order rates being kind of high single-digit range over the last 4 quarters relative to sales being 1%, give or take, on average. It sounds like trends are generally positive. And there is that disconnect between order and revenue recognition. Just trying to get a sense of how much conservatism you're baking in versus something else that would drive continued delta on that front? Sean Gillen: Yes. Good question. I think that's where -- looking at a quarter or 2 in FMT can be a little bit misleading because a lot of that order activity is consumed within the quarter. If you look over a longer, call it, kind of 4-quarter period, normalize for some of those movements that will help. But in the order activity that we saw in the quarter, which was strong at 9% organic, water really led the way on that performance, and we would expect that performance to continue as we have them pegged in kind of that high single-digit growth. And we saw some notable bright spots in our mining end markets in the quarter as well as in just the overall pumps market. Some of that was a little bit of demand coming in Q1 that we might have expected in Q2. So that probably led to the order growth being at 9% in excess of the sales growth and in excess of what we expect for the balance of the year. But I do think, as you mentioned, there's a touch of conservatism as you think about the guide on flattish growth in FMT. Eric has touched on it. I mentioned it earlier in the call. But there's a piece of that as well, given that we're just 1 quarter in, the world is kind of uncertain. While the trend seems to be reporting in the right direction, not extrapolating that for the balance of the year. Operator: Our next question comes from the line of Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: So sort of a trend we're picking up this earnings season. Just some companies talking about this higher energy prices, the near term may be some volatility, but long term maybe positive impact for their businesses. And I know direct energy exposure is not huge for IDEX, but I'm wondering how you're thinking about your business in that context? Eric Ashleman: Yes. We do have a segment involved in energy. A lot of it's downstream custody transfer. We're kind of a cash register for a lot of the industry. So it never directly correlates. It's not a wellhead kind of business. But I would say, higher energy prices and activity tend to have kind of a derivative impact positively over time. We saw some of that in the first quarter. You'll note we didn't put it -- list energy as a significant pressure point whereas we have in some of the preceding quarters. We've seen certainly more activity there, more money being put to work, U.S. exports, all of that stuff. So as that happens, it generally kind of back feeds into the markets that we're a part of. So we've kind of got that in a slightly better place. We'll watch it as -- obviously, this whole story runs out. There's a lot of volatility there. But the energy exposure at IDEX at least now has moved more to the green. Andrew Buscaglia: Yes. Okay. That's interesting. And then yes, and Eric, the last couple of quarters, the execution has been strong. And you're talking about 8020 and the growth investments you're making. But is there any other subtle changes to the 8020 process that's been going on under the hood? Are you doing anything differently in terms of that process that's driving these better margins? Eric Ashleman: Yes. Well, I think the 2 extensions of the playbook, which we've had in place a long time here, really, it's in the areas where we're growing and acquiring businesses. We're integrating some of the units together into these growth platforms in the way that are a little different from kind of classic IDEX. And so when you do that, it does add another dimension. It's kind of making -- taking a 2-axis story and makes it 3 axis. And so you have to be cognizant of how you define 80s and 20s, how you allocate resources, sometimes crossing business units. So we're doing a lot of work this year to kind of write that code, codify it and train it in those areas because, as I referenced in my opening comments, I mean, what's exciting about it is the scale of opportunity here also grows. And so you're seeing some of that come on to the board here. I had a graph in the slide deck that showed sort of this -- the difference between a customer set that's declining as we focus on the winners, and then sales and margins ramping on the backside of that. That's, that code book, it works, that extension. So very, very exciting piece of it, very much pivoted towards growth. And then, of course, you get almost one-for-one margin support as we grow the company. So that's a great question, and that's sort of the new chapters that are being written right now. Operator: Your next question comes from the line of Dan DiCicco with BMO Capital Markets. Unknown Analyst: Great. Slide 4, space and defense, were a lot of these products already in place? Or have you kind of tweaked and tailored some of these solutions and platforms to better align to these markets? And then is there any more opportunity here down the road? Eric Ashleman: Well, I mean, this whole industry, particularly on the space side, is developing really, really fast. There's almost always something new there. But we're actually leveraging kind of an early incumbency position. We long ago studied this market, kind of helped. Frankly, I'd argue we've helped it develop. And as we've done that, that's given us presence in the rooms with the people that matter to help solve problems along the way. So you have an incumbent position that was very thoughtfully deployed and then that access point allowed us to see where things needed to go from there. And then our innovation stream is actually enabling it. So I'd argue you have some of all of that. And then just as space, there's a reason we highlighted it here, I think it's tremendous in terms of growth, growth potential, both in terms of depth of applications as well as the number of people that are starting to play here. So just couldn't be more excited about it, absolutely. Unknown Analyst: Great. And then just maybe if you could just touch quickly on your overall exposure in just power generation and then more specifically around fuel cell power support? Eric Ashleman: Yes. Well, we mentioned in our data center applications in the pneumatic space, we've long talked about that's some of the work that we do there. It's behind the meter, power gen to power data centers essentially with standby power, and we do a very, very critical job there of thermal management within those applications. And so yes, that is an area that we've capitalized on. We've helped support and are excited about for the future. Operator: Your next question comes from the line of Vlad Bystricky with Citigroup. Vladimir Bystricky: So nice quarter, obviously, and like the positive outlook for '26. I did want to ask you, you mentioned some price cost pressures impacting gross margin in 1Q. So can you just talk about what price cost was in the quarter, how you see it evolving going forward through the year and whether you're expecting to take or need to take incremental price related to tariffs or any other inflationary pressures? Sean Gillen: Yes. Good question. For the quarter, to the EBITDA line, price/cost was a net positive, not to the same magnitude that we saw in a couple of quarters in the last year given tariff pricing actions, but positive to the quarter. I would expect that to continue, kind of be net even a little bit positive. We're not contemplating any second round price actions in the guidance that stands today based on what's happening in the world. If it continues and we need to do those things, those are, of course, actions that we'll continue to do. I think the tariff example is a good one in that it shows that the businesses within IDEX have the ability to move price in accordance with what they're seeing in cost. And so if we do start to see some sustained price pressures or we expect that, on the cost side, we will revisit our price assumptions and actions with our customers. So for the quarter, positive kind of for the guide, I expect that to continue and can be revisited depending on what happens in the businesses. Vladimir Bystricky: Got it. That's helpful. Appreciate that, Sean. And then I think you talked a little bit about life sciences where you're seeing sort of some pressures in China and NIH. I guess could you just talk more about how you're thinking about the potential for a more positive inflection within life sciences in HST over the coming quarters or into '27? Eric Ashleman: Yes. Well, we're going to focus where we can focus, and that's in core innovation with the customers that we've long had relationships with. And there's some -- the team is driving some great things there. We're seeing that now playing out positively largely in the pharma space. There's just a number of things going on in that area. Even some of the questions around geography and how that's going to all play out, given that the world turns in different ways there. I'd say we actually are helping customers think through that, too, because we've got great global scale. And so if people want to position -- reposition assets or target different markets around the globe, we can support that, and we're talking through those situations with customers, too. So for us, we're just going to focus on what we do best, which is kind of double down on the global span that we have, the scale that we have within the business. Remember, those are long been integrated units where people are used to working together and driving that scale of solutions and then bring innovation to bear in the markets that are inflecting the most positively. Operator: Your next question comes from the line of Rob Wertheimer with Melius Research. Robert Wertheimer: I apologize. You've had a lot of success in some of the growth investments you've made. And I'm curious how much kind of remains in the pipeline, products you haven't launched, products you're developing. Maybe you could characterize how far along that curve you are. My second question, I'm not sure you want to answer. But of the total order growth, maybe in dollars, how much was attributable to kind of your new markets or advantaged markets or growth investments you've done versus the general cyclical rebound? Eric Ashleman: Sure. Well, look, I think these spaces have a lot of potential, not just this year, but in later years. It's one of the reasons we've indexed so positively that the years past 2026, we see as being very good for us because we're involved in the discussions. We're working on the technology. We're talking about problems that need to be solved. We know kind of when those would go to market and how they would run out. And obviously, the investment cycle here has got multiple chapters and we're exposed to it. To your second question, it's related actually to the first. I mean I wouldn't give a specific number here, but I mean much of what we're talking about is you can point back to recently acquired units, very specific investments, the choices that we made to link to units of this quality. So a fair amount of it is coming from there. What I particularly like about it is we're kind of pinging these different worlds from multiple points. And so think of those as entrances into really great application spaces, each one of which has their own subsequent chapters to write through our innovation efforts. So we talked about data centers. We talked about kind of behind-the-meter power gen over there. We're also involved in really interesting things related to optical switching and how that's going to play out. We've got valves there that are positioned around liquid cooling and other aspects of thermal management, broad semi exposure, which has been very positive for us. We're involved in everything from consumables to metrology to lithography. You've got these nice little entry points, each one of which, again, just has the sort of extended discussion about here's what we need today, here's what we're going to need tomorrow and here's what we're thinking about in terms of the future. Water in the FMT space, some of those same characteristics. We're providing data and data sets to people that are now starting to think about how that could be comingled with their own AI applications. So really, really like how the investments that we have made linked to advantaged spaces and then have this nice runway potential. Operator: Your next question comes from the line of Robert Jamieson with Vertical Research Partners. Robert Jamieson: Just a quick one on CapEx and just the step-up that we're seeing this year. I know no change in guidance, but is this more related to capacity or automation investment? And is that more specific like the HST segment? Just trying to think about where that bulk of the incremental investments being directed towards? Sean Gillen: Good question. And as you mentioned, we have guided and no change to the guide on that front, an increase in CapEx for the year. And it's really supporting all the growth that you're seeing. So it is overweight towards HST. There's the nature of the business. There's no 1 or 2 really big ticket items in terms of CapEx that we need to drive the growth. It's really across a variety of the businesses. But we are allowing for more growth CapEx to be spent in this year to help support the growth and the demand that we're seeing. And that's in the form of equipment and other things like that to help support the growth. So not a huge step up but a meaningful one. It's still relatively low in terms of kind of the overall size of the business, but budgeted for some growth in CapEx for the year. Eric Ashleman: This is actually an area where 8020 helps us a lot as well in line with our component orientation because if we make choices to, let's say, move on from a small part of the business, very often, it's the same capital or the same technology that we would run faster-growing applications across. So it actually kind of gives us an internal funding source or an offset so that it keeps CapEx increases at a nice level, too. So that's another lever that we have that comes out of 8020 work. Robert Jamieson: That's great. Super helpful. And then just taking a step back, just given the strategy and the pivot over the last couple of years on advantaged markets with secular tailwinds. I mean, what are maybe some of the top 2 or 3 secular themes outside of AI where you think that IDEX is most under indexed today and potentially when to invest more aggressively in? Eric Ashleman: Well, look, I mean, when you step back, what's nice about the changes that we've made is -- I actually start with the things that are constant. So we essentially always have kind of moved either fluids, gas or light. That's basically what we're doing even in these advantaged spaces. So we've got great technologies, great access here. I'm particularly excited in terms from an end market perspective. We highlighted space and defense for a reason. I think that, that's just getting off on the ground, and we were there from the beginning. And so our positioning there is really, really good. Our optics technologies and specifically tie very nicely to that world. And here's where the acquisition work comes in very handy because we're actually kind of moving technologies and joining them across a couple of the businesses here to create solutions that are pretty novel and really could only kind of come from us. And that's part of the thesis, too. So I think how we position MSS, the Material Science Solutions platform, that's where optics sits. I mean that whole thesis really gives us a nice jump-off point into virtually every market that we've talked about here that is advantaged. So continuing to expand it through bolt-on tuck-in work. That's why we're excited about that as well. There are some other things we'd like to bring in as our presence increases. So more to come here, but I think off to a great start and kind of playing out the way that we had hoped and expected. Operator: Your next question comes from the line of Brett Linzey with Mizuho. Brett Linzey: Question regarding your CapEx-intensive businesses. I guess, as you parse through the composition of your growth in activity, how are those performing versus the more OpEx-oriented businesses? And I guess as IDEX has grown in areas like material science and defense and space, what does that mix look like today? And how has that evolved? Sean Gillen: I'd start by saying, I mean, none of the businesses we're in are that capital intensive. And so you're seeing an increase in CapEx, but it's really in line with growth and angle towards the HST segment as well as some other platforms where we're seeing that growth. So I don't think that there's a material shift in the CapEx intensity of the business. We're just allowing for some capital to support the growth that we're seeing. So no material move in terms of what you should expect in terms of CapEx for our businesses going forward. Eric Ashleman: Yes. That continues to be part of the filter set. When we think about it, space, the technology set or acquisitions, I mean we're looking for kind of max innovation at relatively low capitalization requirements. There's -- not just from the economics of it, but that gives us the agility, the optionality of moving the technology fast. So it's all kind of part of the -- for us, it's simply rising here because, frankly, the growth rates are rising. Brett Linzey: And then just shifting over to Fire & Safety, so encouraging to see the strong demand in North America. You noted the relative stability in Europe and Asia. The stable Europe comment, I think, is maybe a change in trend. Perhaps just some color there. Are the local spending priorities maybe firming up and shifting a little bit to the upside here? Eric Ashleman: Yes. I mean I think on the Fire & Safety European front, I recall it was late in the summer last year. We had that turned down kind of unexpectedly. We saw some very specific positioning over to alternate spend. That actually came back to something more normal at the end of the year and it's basically remained there. So it's not widely growing, but it's kind of back in its normal corridor, and I think that was actually kind of a temporal shift. And then we've seen, again, the further from home markets have been stable for a while. And as you said, most of the growth strength on the North American side. Operator: And our final question comes from the line of Joe Giordano with TD Cowen. Joseph Giordano: Appreciate it letting me have the follow-up here. Just like one last kind of bigger picture question on M&A. Eric, as you moved into some of these newer areas like when you bought Mott, you bought Muon, I think from an investor angle, it seemed a little bit more -- are these more complicated? Is this a way from core a little bit more. And then obviously, those businesses started a little slow and now are doing quite well and are directly aligned with what your strategy is. So I'm just curious, as you look back on the last couple of years with these businesses, what's like the takeaway in your head? Does this like reinforce that IDEX knows how to do M&A as a core competency? Does it inform you on timing of when is appropriate to do this and how much work we need to do through the businesses that are in these kind of markets? Just curious like what's your -- I know we're in a good place to talk about it now, but just curious like what you guys kind of like took away from the -- from getting from where you were when you started to where you are today? Eric Ashleman: Yes. No, no. Thanks for that. Well, look, a big part of the thesis here was supporting stronger growth for the company. I mean, that's why we went down this direction. And I think one of the insights that comes out of this, given all that you cited, is actually, I put it -- in the end, I put it into a strength category. I mean these are mission-critical markets where the uptick on growth takes a little longer than maybe we would like out of the gate. But that actually becomes the moat for us once we get through it. So that defensibility of people that are super risk-averse, got to make sure everything is going to work right, make sure that we're a trusted partner. All those things have always been true at IDEX. They're probably even more true in these kind of critical markets. So that delayed some things out of the gate in terms of take-up and adoption. And it was, remember, a pretty crazy world at the same time. But what we're seeing now is the backside of that. And so the same characteristics, I actually think are massively in our favor because that's the deep moat that now surrounds us. We're in the room. We're having a discussion. We are at the table to say, hey, what comes next? Then what can we do? Then what can we do? And now we have more pieces and parts to play with. We're not a single business in there. We're actually a couple of units to [ 3. ] We've got more people in the room. We've got more depth, and we've gained that trusted partner status. So I think that's the insight and I think it's a net positive as we sit here today. Operator: That concludes our question-and-answer session. I will now turn the call back over to Eric Ashleman for any closing remarks. Eric? Eric Ashleman: Yes. Well, thanks, everyone, for your interest and support of IDEX. I'd say to sum up here, we're very pleased with the strong start to the year. HST, in particular, continues to build strong sequential momentum within its target advantaged growth markets. As we said during the call, perhaps most encouraging for us is the fact that many of their wins have long multiyear tails that points to a really nice growth over time. With FMT and FSDP, we saw some encouraging positive signs of early inflection, but we still most likely need to clear the uncertainty of geopolitical stuff to move materially to the next level of support. Our businesses there are really well positioned to capitalize on that strength as it plays out from here. So I think bottom line, our growth strategy is supported by our growth platforms, expanded through thoughtful M&A and operational integration are powering IDEX towards a really bright and successful future, and we look forward to updating you as we go along the way. Thanks so much. Operator: That concludes today's call. You may now disconnect.
Operator: Good morning, and welcome to the Markel Group First Quarter 2026 Conference Call. [Operator Instructions] During the call today, we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They are based on current assumptions and opinions concerning a variety of known and unknown risks. Actual results may differ materially from those contained in or suggested by such forward-looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward-looking statements is included in the press release for our first quarter 2026 results as well as our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the caption Safe Harbor and Cautionary Statements and Risk Factors. We may also discuss certain non-GAAP financial measures during the call today. You may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in the press release for our first quarter 2026 results or in our most recent Form 10-Q. The press release for our first quarter 2026 results as well as our Form 10-K and Form 10-Q can be found on our website at www.mklgroup.com in the Investor Relations section. Please note, this event is being recorded. I would now like to turn the conference over to Tom Gayner, Chief Executive Officer. Please go ahead. Thomas Gayner: Thank you so much. Good morning, Day, and good morning to all. This is indeed Tom Gayner, and I'm joined this morning by my teammates, Brian Costanzo, our Chief Financial Officer; and Simon Wilson, the CEO of our Insurance Operations and Executive Vice President of the Markel Group. Andrew Crowley, the President of Markel Ventures and Executive Vice President of the Markel Group is also with us and available for questions. Thank you all for joining us today. Our headline is that we continue to do more of what's working and less of what's not. I'm deeply grateful to my colleagues who continue to adapt and improve our operations throughout Markel Group. We all look forward to sharing our progress with you this morning. We're also delighted to take your thoughtful questions and for your ongoing interest in Markel. First, I'll make a few opening comments. Then Brian will run through the financial results. Following Brian's comments, we'll turn the bulk of the call over to Simon, who will address our ongoing actions in our insurance operations and our progress to date. Insurance is our largest business and the one where the most change continues to be underway. As such, it's appropriate to focus and allocate the most time there. Following Simon's comments, we will open the floor for questions. Continuing to do more of what works and constantly learning and iterating is not a new idea at Markel. It's been a hallmark of the company for nearly 100 years. As we state in our cultural statement that we call the Markel style, we look for a better way to do things. That means being creative, adapting to changes in technology up to and including those being brought about by the development of AI and every other form of change and progress underway. Internally, we control what we can control. We've taken extensive steps to focus on serving our customers, improve efficiency, develop new products and services, expand our geographical reach by opening and developing new markets and continuously improving and refining our operations in every nook and cranny throughout the company. I'm beyond grateful to my teammates for their unrelenting actions to continuously learn and improve. Our financial results show that our actions are working. Brian will give you details and explain some of the nuances from one-off events and business mix changes from last year. But net-net, we're confident that we are making progress and that it is showing up in our results. Externally, outside our 4 walls, we continue to see cyclical pressures and softness in some end markets. For example, property-related insurance coverages and certain industrial end markets like transportation equipment and residential construction continue to show normal signs of cyclicality. Longer term, those markets provide ample opportunity for good returns on our capital and continued growth, but they do not do so in a straight upward line. Curves are involved, both up and down, and that is normal. In aggregate, our businesses continue to produce healthy amounts of adjusted operating income, cash and long-term growth. Your company contains diverse, resilient, high-quality businesses designed to produce all-weather returns and cash flows. That is the design of the Markel Group. With these cash flows, we enjoy a 360-degree set of reinvestment opportunities to put that cash to work. We continue to deploy that cash with patience and discipline. Each incremental dollar goes to the highest and best use available. Sometimes that means funding incremental growth in one of our existing businesses. Sometimes that means adding to our investment portfolio of publicly traded securities. Sometimes that means acquiring new businesses and sometimes that means repurchasing our own shares. Sometimes that also means building up our liquidity and optionality for future opportunities, something we've been emphasizing of late. We maintain a strong balance sheet. We believe balance sheet strength will provide timely and unique advantages to grow and long-term stability to our operations. As we observe the broader investment landscape and participate in conversations, we are observing more data points about global conflict, supply chain disruptions, low consumer sentiment and softening job markets. Despite those factors, the animal spirits in the financial market seems largely unfasedased. As such, the number of external opportunities that appear attractive to us remain limited. Fortunately, as we've demonstrated over the last several years, we can and are continuing to repurchase our own shares. In 2023, we repurchased $445 million of our own stock. In 2024, we made $573 million in repurchases. In 2025, we did $430 million in share repurchases as well as redeeming $600 million of preferred stock. We've done that largely with cash from operations and not by levering the balance sheet. So far in 2026, we've repurchased $134 million of our own shares, and we remain highly attentive to opportunities to continue to do so. At this point, we've reduced our share count by roughly 10% from the peak of nearly 14 million. It's taken slightly more than 5 years for that 10% reduction to occur. At current prices, I would expect it to take us less than 5 years to purchase the next 10% of the share count. The math suggests that repurchasing our own shares makes sense as our #1 on the list of capital allocation choices right now. We remain disciplined and methodical as we do so. That should help us to persist through thick and thin. And we think that, that consistent behavior will serve our owners well. We also continue to have a balance sheet, which keeps us in good shape to pursue opportunities when it makes sense to do so. We enjoy a strong degree of optionality. We maintain the flexibility and ability to play offense in a wide variety of environments, not just the one we see today. And while we are reporting our quarterly results to you today, we manage this business with a longer time frame. Looking out over the next 5 years, I think it's reasonable to expect that our insurance operations will grow and earn healthy returns on equity. I expect the same from our industrial consumer and financial operations. I expect our public equity portfolio to compound at healthy rates and for our fixed income operations to provide appropriate interest income while protecting and preserving our capital. All of our businesses will face natural ups and downs, but I am confident in the direction of travel. Those increasing amounts of earnings and cash flows should end up being divided by fewer share. We think that you, as our fellow owners will be well rewarded with those results. In our equity operations, we continue to invest with discipline and patience in keeping with our long-standing 4-part investment discipline. We invest in profitable businesses with good returns on capital and not too much debt, run by people with equal measures of talent and integrity, with reinvestment opportunities and capital discipline at fair prices. There are no changes to that process. In fixed income markets, interest rates increased during the quarter. The good news is that we remain matched in currency and duration to our insurance liabilities and largely hold our fixed income securities to maturity. The other good news is that amidst rising concerns about credit quality, our portfolio remains as high quality and pristine as we know how to make it. There were no credit losses in our fixed income portfolio in the quarter, and I do not expect any going forward. Our public equity portfolio declined 5.2% in the first quarter compared to a 4.4% decline in the S&P 500 with broader market volatility. Our approach is designed to withstand equity market volatility. We believe our public equities portfolio will continue to produce strong returns for our shareholders over the long term. In many ways, we've gone through a healthy amount of change in recent years at Markel. At our core, though, we remain unchanged in the enduring things that matter. We remain dedicated to relentlessly compounding your capital. Our specialization and diversification, which we talked about in our very first annual report as a public company in 1986, remains just as relevant today as it was then. And as time has shown, it works. I believe that will continue to be the case. Our values build value. With that, I'll turn it over to Brian. Brian Costanzo: Thank you, Tom, and good morning, everyone. Before reviewing our first quarter results, I want to briefly remind listeners of the reporting and disclosure enhancements we implemented beginning in the third quarter of 2025. These changes were designed to improve transparency and better align our reporting with how we manage the business. We now present operating revenues and adjusted operating income as key performance metrics, both of which exclude unrealized investment gains and losses as well as amortization expenses. We also now report our results across 4 operating segments: Markel Insurance, Industrial, Financial and Consumer and Other, while providing a divisional view of our insurance businesses, organic growth for our industrial, financial and consumer businesses and annually providing capital metrics for all segments. With that, let's turn to the results. Starting off with Markel Group's consolidated results for the first quarter of 2026. Operating revenues, which exclude net investment gains, were $3.6 billion or flat when compared to Q1 2025. Operating income, which includes unrealized gains and losses, was a loss of $273 million compared to income of $283 million in Q1 2025. Net investment losses were $728 million compared to net investment losses of $149 million in the first quarter of 2025. Adjusted operating income, which excludes net investment gains and amortization expenses, totaled $498 million, a 4% increase versus the first quarter of 2025, driven primarily by improved underwriting performance in Markel Insurance offset by the nonrecurrence of a gain from our investment in Velocity in the financial statement in the first quarter of 2025 and to a lesser extent, lower margins in the Industrial segment. Operating cash flow for the quarter was $16 million versus $376 million in Q1 2025. Operating cash flows for the quarter were net of payments totaling $108 million made to reinsure our exposures on our Hagerty business as part of the transition of that business to full fronting and also reflect lower premium collections resulting from the runoff of our global reinsurance business, along with higher payments for income taxes. Comprehensive loss to shareholders was $340 million versus comprehensive income of $348 million in Q1 2025, driven largely by unrealized movements in our investment portfolio. Moving to Markel Insurance. Adjusted operating income for Markel Insurance in the first quarter 2026 was $369 million compared to $282 million in the first quarter of 2025. Markel Insurance underwriting gross written premiums were $2.2 billion, a decrease of 21% for the quarter versus the first quarter 2025. This was driven by the expected impact from our exit of Global Re and the transition of our Hagerty program to a fronting model, which together totaled $797 million in underwriting premiums in the first quarter of last year compared to just $23 million this year. As I mentioned on last quarter's call, the exit of our $1 billion gross written premium global reinsurance business and the transition effective January 1, 2026, of our partnership with Hagerty to a pure fronting model will decrease underwriting gross written premiums for the full year 2026 by approximately $2 billion. A significant portion of the global reinsurance premiums were written in the first quarter of last year. We expect these changes over the long term to benefit our combined ratio, adjusted operating income and our returns on equity. Adjusted underwriting gross written premiums, which excludes the impact of the exit of Global Re and the Hagerty transition, grew by 10% in the first quarter versus Q1 2025. This increase was driven by our International division within our professional liability and marine and energy products and our Programs and Solutions division, driven by growth in personal lines and programs, partially offset by a decrease in premium volume in our Wholesale and Specialty division due to declines in property driven by a softening rate environment and in general liability due to our continued underwriting actions and remixing of the casualty portfolio. Earned premium decreased 2% to just under $2 billion in the first quarter of 2026. The combined ratio for Markel Insurance was 93% compared to 96% in Q1 2025. The improvement in the combined ratio was driven by improvements in our current accident year loss ratio. First, we had lower catastrophe losses this year with $35 million or 2 points of losses from the Middle East conflict this year versus $66 million or 3 points of losses from the California wildfires in the first quarter of 2025. Second, we had a 4-point improvement in our attritional loss ratio, driven by no losses on our CPI product line this year, a lower loss ratio within our International division and our U.S. property and general liability lines and the exit last year of our risk-managed D&O book within our Wholesale and Specialty division. The Global Re division reported a combined ratio in the first quarter of 114% as we continue to build margins and solidify reserves. The results from the runoff of our Global Reinsurance division unfavorably impacted the insurance segment's combined ratio by 2 points. Prior year releases were 5 points in the current quarter versus 7 points in the first quarter of last year, down slightly due to lower takedowns this quarter within our international professional liability lines. At a divisional level within Markel Insurance, starting with International, gross written premium of $861 million was up 28% versus Q1 2025. We grew across the International division, driven by strong growth in professional liability cyber. The combined ratio of 90% compares to 89% in the first quarter of 2025, with the first quarter of this year, including 6 points of losses from the Middle East conflict and the first quarter of last year, including 6 points of losses from the California wildfires. Within our Wholesale and Specialty division, gross written premium of $673 million declined 9% versus Q1 2025, driven by a softer property and marine premium rate environment and decreases in binding contractors and casualty. The combined ratio improved to 93% in Q1 '26 versus 100% in Q1 2025, with the largest impact coming from lower loss ratios due to our underwriting actions and the exit of the risk-managed D&O book last year. Within our Programs and Solutions division, gross written premium was $656 million in Q1 2026 versus $806 million in Q1 2025. The 19% reduction was driven by the previously announced shift of our Hagerty program to a full fronting arrangement, which reduced gross written premium by $220 million. Excluding this impact, the Programs and Solutions division gross written premium was up 12%, driven by personal lines property programs and growth in our Bermuda platform. Our Programs and Solutions combined ratio improved to 91% compared to 97% in Q1 2025 due to improved loss ratios, primarily due to 3 points of impact from the California wildfires in the first quarter of last year and more favorable development on prior year loss reserves. Moving now to the consolidated investment portfolio. Net investment income for Q1 2025 totaled $256 million, up 8% from Q1 of last year. This reflects higher interest income on fixed maturity securities and higher dividend income on equity securities due to higher yields and higher average holdings in 2026 compared to 2025. These increases were partially offset by lower interest income on cash and cash equivalents, driven by lower average cash and cash equivalent holdings and lower short-term interest rates in 2026 compared to 2025. Fixed income portfolio yield during the quarter was 3.7% and reinvestment yields averaged 4.1%. Within the public equity portfolio, losses totaled $728 million versus $149 million last year. We made net purchases of $28 million during the quarter. The portfolio ended the quarter with a market value of $12.3 billion and pretax unrealized gains of $8.2 billion. Moving to the Industrial segment. Industrial segment revenues for the quarter were $883 million, a 6% increase versus Q1 2025, including 4% organic growth driven by increases in sales in precast concrete products, partially offset by lower revenues from sales of car hauling equipment due to softening demand within the auto industry. Adjusted operating income was $49 million, down 16% versus Q1 2025, driven by a lower segment operating margin due to changes in the mix of business. Turning to our financial segment. Financial segment revenues were $162 million for the quarter, representing a 9% decrease versus Q1 2025, driven primarily by a $31 million contribution in Q1 of last year from a gain related to our minority investment in Velocity offset by an increase in revenue from both higher investment management and program services fees. Organic revenue growth for the segment was 10%. Adjusted operating income totaled $36 million versus $80 million in Q1 2025, reflecting the $31 million onetime contribution from Velocity last year and a $14 million impairment of an equity method investment in an asset management firm in the first quarter of this year. Further, we're aware of the recent story regarding State National's fronting operations and potential credit exposure to a capacity provider. While we acknowledge a current shortfall in collateral against our total exposure, management is actively pursuing all available recourse options under our contracts to obtain additional collateral. We do not believe this situation will have a material impact on Markel Group's earnings or capital position. Moving to our Consumer and Other segment. Revenues for the Consumer and Other segment were $281 million for the quarter, a decrease of 3% versus Q1 2025, driven primarily by slower demand for new housing, partially offset by the contribution of our acquisition of EPI. Organic revenue growth for the segment was down 6%. Adjusted operating income was $40 million compared to $32 million in Q1 2025, with the increase driven primarily by the acquisition of EPI. Finally, regarding capital allocation, during the quarter, we repurchased $134 million of common shares, reducing total shares outstanding to 12.5 million. With that, I will turn the call over to Simon. Simon Wilson: Thank you, Brian, and good morning, everyone. It's pleasing to share another solid quarter for Markel Insurance. As Bryan outlined, the overall combined ratio for Q1 '26 was 92.8%, a more than 3-point improvement versus the comparable period and in line with the steady progress we reported in the previous 2 quarters. Our reported 93% combined ratio included a 2-point drag from our now exited Global Re business. While the combined ratio showed material improvement over last year, GWP growth at first glance looks to have declined significantly. The 2 main drivers of this reduction were the strategic decisions to exit reinsurance and a change to our Hagerty program, where we now provide services for a fee versus taking underwriting risk. Excluding these 2 items, year-over-year GWP growth was 10% in the first quarter. Our primary financial goals at Markel Insurance remain sustaining underwriting profitability and maximizing our return on equity. The decision to cease writing new business in Global Re is a clear example of this commitment. The old adage that top line is vanity, bottom line is sanity is and will remain a core mantra in this business. Our focus on the bottom line will be challenged in the softer insurance cycle. In more challenging markets, our underwriting teams are giving clear direction, always stay focused on profitability and growing businesses where we have a sustained competitive advantage. That said, I'd like to think of Henry Ford's famous remark that we should always remember that the airplane takes off against the wind, not with it. We are present in more than 100 product areas and operating in 16 countries. In no market do we have a share greater than 2%. And in most territories, our share is less than 1%. When people ask me, where does the opportunity lie? -- my response is that we have potential everywhere. We need to remain disciplined about which opportunities we take. We are looking forward to the challenge and remain confident we will find areas of profitable growth. Recent improvements in our financial results are important and provide clear evidence of progress. However, the transformational changes we've made to the organization over the past year will drive our future success. After 1 year into the CEO role, allow me the opportunity to outline how the business is positioned across our 5 core pillars: strategy, structure, oversight, operations and culture. On strategy. Our goal is simple. We aim to be the preeminent specialty insurer on the planet. We win in the market by focusing on 4 key areas: number one, customer focus. We obsess over the customer. Everything we do must provide something that the standard market does not. Number two, market-leading expertise. We build local expert teams across the globe who deliver deep capability in every product that we sell. Number three, speed. We make decisions and serve customers at speed, all enabled by leading technology and local empowerment. And number four, consistently doing the right thing. We honor long-standing commitments, act with integrity and fairness while providing dependable claim service. On structure, Competing successfully in many different areas of the specialty insurance industry across many geographies requires us to operate a business of businesses. In this model, specific leaders have clear responsibility for and control over their P&L. Today, we have 14 distinct business units across Markel Insurance, each with a single leader and a discrete P&L. These business units are grouped under our 3 ongoing divisions to ensure proximity to executive leadership. Clarity of business ownership and simplicity of decision-making sits at the heart of the new structure. Each P&L leader is responsible for selecting their teams, producing their strategy, agreeing to their business plan, designing their product set and overseeing their expenses. Their total compensation is aligned to the long-term profitability. A second key structural change was shifting most resources from the corporate center to the business units themselves, aligning capabilities with business needs and giving leaders greater control over the resources that they use. On oversight, our new structure empowers P&L leaders to build market-leading businesses with clear accountability. By shifting ownership into the organization, executive management can focus on setting expectations and monitoring performance at both the financial and strategic levels. Our financial reporting and management information now fully align with this structure, giving us much clearer visibility into performance and enabling us to quickly identify and address issues where they arise. On operations, technology and AI. People often ask me, what are we doing with technology? What does our tech stack look like? And more recently, how are we approaching AI? I want to make 2 things clear. First, I have a great deal of personal interest in this subject. I truly believe that the winners in our industry will be the companies that develop exceptional operational capability and maintain a culture of continuous improvement. Every leader at Markel Insurance is expected to aim for excellence in operations and technology. Second, within our business of business structure, there's no single answer to what we are doing around technology and AI. Our products span highly diverse markets from excess casualty to workers' comp to global war and terrorism across multiple geographies. A single technology solution for this breadth of business doesn't exist. So what are we doing in operations and technology and AI? A lot. More specifically, each of our 14 business units have developed a strategic plan outlining how they will invest to become best-in-class in their respective markets. These plans are tailored to distinct customer groups and include core system modernization, enhanced data and analytical capability and AI deployment. We are committed to investing in operational excellence and technological excellence. Within Markel Insurance, the current state of our technology is mixed. For example, our London market data and analytics capabilities are outstanding. Our growth in U.S. personal lines has been driven by exceptional operational leadership. At the same time, we need to bring our U.S. wholesale and specialty operations up to the required standard. Our operational investment is occurring at a time where we stand to benefit from rapid advances in AI. Historically, the specialty nature of our businesses made it hard to find a market-leading technology tailored to our needs. Scale was insufficient, forcing us to build bespoke systems or to heavily customize off-the-shelf solutions. Both these types of systems are costly to maintain and typically struggle to keep pace with broader technological advancement. AI changes that. We can now develop cutting-edge solutions for our specialized businesses far more quickly and at a significantly lower cost. AI is helping us serve our brokers faster and policyholders more effectively. AI is helping us create new value, provide more quotes more quickly, which supports premium growth. We also see AI augmenting underwriting judgment and claims adjudication with the potential to improve loss ratios in selected classes of business. We do not believe AI threatens the core economic value we provide, including risk transfer onto a balance sheet with a customer focus. Instead, it expands our ability to serve our customers and helps us assume more profitable risk. For example, we deployed Harvey AI into our London Market warranties and indemnities business last year and extended it to our U.S. financial institutions and environmental lines in the first quarter of this year. We also partnered with Cytura to build a data ingestion system for our U.S. Wholesale and Specialty business that will significantly accelerate our underwriting analysis and speed to quote. In parallel, we are building a new operating model from the ground up to revolutionize our competitiveness in the hard-to-place U.S. small and midsized U.S. wholesale market. Operational excellence is something that I expect from our leaders. We're fully embracing AI across the organization. Our business of businesses model is an asset, allowing individual units and their leaders to deploy AI quickly and locally without having to wait in a centralized prioritization queue. We are on the road to transforming our operational capability. On culture, the culture that permeates Markel Insurance is one which encourages leaders and their teams to build businesses that will endure over a long period of time. We expect our business leaders to act like owners. We talk about how to win, not doing work. We have a respect for authority, but a distain for bureaucracy. The clarity of our structure and its alignment with the new P&Ls provide a strong degree of transparency and accountability. There is a building sense of excitement for what we can achieve. In short, the Markel style when 40 years ago is alive and well. In conclusion, for the past year, I've emphasized what we're doing to bring clarity to Markel's insurance strategy while simplifying the structure underpinning it. These changes aim to empower great leaders to go out and build great businesses. Markel Insurance is now positioned to do just that and to return to the very top of the global specialty insurance marketplace. Achieving this goal will take time, but we are on the right path. And with that, I'll pass you back to Tom. Thomas Gayner: Thank you very much, Simon. And with that, Eiley, we will now open the floor for investor questions. Operator: [Operator Instructions] The first question comes from Mark Hughes with Truist. Mark Hughes: A very strong growth in the international insurance business. I think you've talked about professional lines, marine and energy. How sustainable is that? I know you've put some new initiatives in place to drive the top line. How do you think about the longevity of that market opportunity? Thomas Gayner: Let's have the man who was running that international insurance business speak to that. Simon Wilson: Yes. Actually, a lot of things happened just after my tenure as well. So credit to Andrew McMellan over there in London and the rest of the world. It's an important question, Mark. There is a number of specific initiatives and growth areas that we've put in place around about the second -- at the start of the second half of last year. So we bought an MGA called MECO in the first half of last year. That started putting premium on the book from 1st of July forward. We opened up in Italy, which was a new measure. We took part in some structured portfolio solutions, which are like London market facilities, which were new to us during the course of last year. And so a number of things there are new initiatives that have taken off, which is probably new things that will not have as bigger growth increases during the remainder of this year. There are also a lot of things where we invested in people, in technology, in teams, in new products, which are now coming to critical mass, I suppose. So this time last year, they were still getting going, and now we're seeing some real momentum building behind those. So there is some natural growth underneath there. I think, to be honest, 28%, which we struck this year will be at very much a high point. But I'm pretty confident that we'll see for the duration of the year, you should expect decent growth from international probably in low to mid-teens of the -- sort of from a GWP perspective. But yes, 28% was a terrific start to the year. And we genuinely believe, and this is the most important point, that, that is profitable growth with our international operations because they're finding new places to go and compete with new and high-quality teams that we're bringing into the business. Mark Hughes: And a related point, the favorable development in international was very strong. Was there -- I won't say one-timers related to that, but was there anything unusual? Or is that you're just seeing good underwriting performance emerge in that line? Brian Costanzo: Yes, Mark, this is Brian. I would say this quarter was a pretty quiet quarter on the reserving front. Really no kind of chunky increases, chunky decreases, pretty much our normal kind of just releases of kind of our margin and what we do on a regular quarter-over-quarter basis coming through in the period. Certainly, the one kind of thing year-over-year is we did have some bigger releases a year ago in that international professional book. That book is still holding up very well. It just is not quite as big of a release this year as it was a year ago. Mark Hughes: Yes. And then on the other side of the coin, GL, a lot of talk about the kind of re-underwriting declines in GL premium in the U.S. Can you give us an update on that? How much of that is market? How much is maybe inflation, loss inflation? -- how much progress have you made on those initiatives? And when might that return back to positive growth? Simon Wilson: Yes. Thanks, Mark. It's Simon. I think from a U.S. GL, we did a lot -- this is the area of the book of business where we've probably done the most work to re-underwrite. And the 2 major things where we've re-underwritten. The first is to lower our average limits quite significantly, probably north of 20%. So if you think you were writing $15 million lines and now $10 million lines, $10 million lines quite often now are $7.5 million or $5 million. So we've spread the portfolio more broadly, and we've lowered the limits per risk that we're taking quite materially, especially in the excess areas of that particular book of business. What that does is protects us a little bit more from what we call a frequency of severity problem. And what I mean by that is what we're seeing in the U.S. is that when we see cases going to court or being settled, those numbers are often a lot bigger now than they were maybe 8, 9, 10 years ago. People call that social inflation. Well, the way that we and several of our peers have dealt with that is by reducing limits. So if one of our insureds were to have a claim against them, our net loss and gross loss will be lower than it would have been, say, 7, 8, 9 years ago. Now that takes time to bring that down, but I think we're in a much better shape in terms of our limit profile over the whole book of the business. Now because we're not writing as much limit, that will have a slightly depressing effect on the amount of premium that you take in. So -- but I'll take that trade any day because I think it helps profitability. The second thing we've done in that book of business, which is material, is reduce the proportion of construction-related business that we're writing from around about, I think it was 40% to 45% of that book of business down to around 20% and maybe slightly below 20% now. We saw a lot of impact on our book. And when we took some of the reserve strengthening a few years ago, it was really that construction part of the book of business that were causing us issues. And we've moved pretty hard and fast to reduce that proportion within our book overall. Again, that hurts us on the top line but benefits us on the bottom line. And that's absolutely the mantra that we're running. Now that we've gotten into a position where we feel much better about the shape of the book and the way in which it reacts in the circumstances we see ahead of us, we can now start to look for opportunities. There are still opportunities within the U.S. casualty market for us to look into and the way in which we choose to go and underwrite that risk and market to it. I would signal one note of caution on that, though, in that clearly, the trend -- the claims trend in U.S. casualty business continues to run in probably, we think, the low double digits at the moment. And where we did see very good rate increases probably for the past year or so, we've started to see those rate increases come under a bit of pressure in the last, I would say, 2 to 3 months. And perhaps one of the reasons for that is as the property market has become more competitive, some of those underwriters are now looking for alternative ways to deploy capital and they're moving into the casualty market. I will say this, and I can't tell you how much I mean it, we will not follow a casualty market down, and we will not lose discipline in that area. It's so critical to us that we keep that casualty portfolio in a position which we've gone into it now and start to go into just be in areas where we feel confident that we can make an underwriting profit over a long period of time. But casualty, there's been a huge lift credit to the people that have been involved in that. It hasn't been easy at the front line in the market because we've had to say no to a lot of brokers that we used to say yes to. And you can imagine how that might go down from time to time. But the heavy lifting, I think, in many respects has been done and I feel very, very good about where the portfolio is at the moment. Mark Hughes: And then one more, if I might. You talked about the collateral issue and your potential exposure. Any numbers you can share related to that situation? Brian Costanzo: Yes. I mean, as we sit here today, Mark, we acknowledge we've got a shortfall in the collateral. A lot of work is going into that. Weeks ago, we engaged an outside actuarial firm to kind of take a look at this for us at another level, get another opinion in the door. We're not going to share a number today or anything forward, but we certainly believe that, that is not material to our operations and capital position. Operator: And your next question comes from the line of Andrew Klingerman with TD Cowen. Andrew Kligerman: My first question is around book value per share. It sequentially in the quarter came down to $1,553 from $1,566. And it was in part due to a loss on the equity portfolio of about $58. So I'm wondering now with the S&P 500 Q-to-date up, I think, more than 9%, where would that book value be now, assuming that equity gain? Could you help out with that in the equity portfolio? Thomas Gayner: Yes, Andrew, it's Tom. It will be higher. We wouldn't do mid-period calculations on that, but your math would be correct and the number would be higher. That first quarter equity market volatility is something we've had decades of experience with. That's just normal mark-to-market stuff. Those changes were unrealized gains and losses, not anything realized. Andrew Kligerman: Okay. But I would think materially higher. But anyway, 2 quick housekeeping ones. One, the $14 million impairment on an asset manager, could you clarify what that was? And then on the industrials, 6% revenue growth, but 16% operating income decline due to business mix change. What was that business mix change? So 2 kind of just clarification items. Thomas Gayner: Yes. I'll ask my partner, Andrew, to chime in as well. On the industrial market, again, almost like the equity markets, that's just normal volatility. It's a relatively soft overall GDP kind of environment out there, the K-shaped economy that people talk about. Well, we've got both pieces of the Ks going on out there, and I think the economist description of that is real. I'll ask Andrew to chime in from that point. Andrew Kligerman: Yes, Andrew, on the financial question first, from time to time, we test business units for impairment around here. That's part of normal GAAP accounting procedures. Sometimes there's triggering events that cause us to do that on a shorter-term basis. In a small business unit within there, we felt like the carrying cost was not appropriate. We tested it for impairment, and we concluded that an impairment was the case. However, if you step back and you think about the cash earnings potential of that segment, there is no change. That performance was already baked into results you've seen in recent quarters. So I think you need to separate out the noncash charge versus the cash potential of that business going forward. As it relates to your transportation question, you're right. We mentioned mix in the quarter and the transportation being a drag there. One, I think Tom hit it on it today and just now again. Two, if you recall, 4 or 5 quarters ago, Brian actually laid out a nice narrative around these are cyclical businesses, but they produce great returns on capital over time. Just to add a little data for you, look, dry van shipments, which is one measure of industry volume, have declined from all-time highs a few years ago to multi-decade lows today. There's a whole host of factors contributing to that oversupply during post-COVID years, weakened freight rates, higher financing costs and now elevated fuel costs, at least temporarily. The good news is this equipment must be replaced over time. And as the economy grows long term, so does the demand for this equipment. Our businesses operating in that segment are market leaders. They operate with no debt. They're led by industry veterans, and they maintain a long time horizon for each investment that they make. And we continue to believe we're still well capitalized -- well positioned to capitalize on growth in the future. Thomas Gayner: And I'll close Andrew, just one second, Andrew, probably, I appreciate the detail. Let me add one bit of color to your comments about the amplitude of the cycle this time around. So in the immediate aftermath of the onset of COVID, there was a super cycle of demand for these businesses were wonderful and produce sort of above long-term trend line results. We're now in a period where that equipment is out there. It's part of the inventory. It's getting used up. So we're through a soft part, but the size and scale of the amplitude of that wave has been bigger this time around than normally has been the case. Last thing I'll say about it is if we had the opportunity to buy those businesses again at the price we paid for it, we would do it in a New York minute because they produce wonderful returns on capital measured over meaningful periods of time, and we have every expectation that will continue to be the case, and we would love to find more of them as we can. Brian Costanzo: Maybe real quick on the impairment, Andrew. It's a little bit different than the normal impairment. So Here, we're talking about a single equity investment that goes through an impairment calculation. That's a little bit different in the accounting world, not to go too deep into that in terms of the evaluation and what's done on an individual security that we hold versus a business impairment. And they run through different parts of the financial. So the impairment on an equity investment, you see that go straight to adjusted operating income and our kind of reoccurring earnings, whereas if you had an impairment on a business unit, it would go into the amortization kind of below the line section. So we're talking about the former here, not the latter in terms of the evaluation we did. Andrew Kligerman: That was very helpful. And just 2 last hopefully, real quick ones. Simon, I love your comment about vanity and sanity. And as we look at the rates from a backdrop in the release, you talked about notable rate increases in personal lines and general liability and notable decreases in property, cyber and energy. Any quick numbers you could share with us? And then I have -- I'm sorry for so many, one more quick one. Simon Wilson: I'm turning to Brian's notes on this, you might be able to give you a bit more detail on that. Brian Costanzo: Yes. So if you look at kind of where we are, I mean, property, as you would expect kind of what we're seeing there from a rate decrease across our portfolio, I'd say, high single digits across the gambit from a decrease standpoint. That varies dramatically depending on the size of accounts. So larger accounts, we're seeing a lot more of that. That's where we're doing probably more judicious underwriting, smaller SME accounts, not as large. So it kind of -- it does vary based on the spectrum. Maybe the other place I'll go, casualty, Simon talked about that and just kind of what we're seeing, our view on trend in the low double digits. Rates are still in the double digits, but they are weakening a little bit from where we would have been in the low teens a year ago, now into the lower double digits range. On the personal lines side, I mean, a lot of products in there, but most of that book is in our personal lines property space, not nearly under the same amount of pressure there as the general property market. We write that on an E&S basis. It's very customized in terms of the coverage and what's out there. Those rates are more flattish compared to the broader property market. Andrew Kligerman: Got it. And I guess, lastly, stock looks like it's trading off about 7% this morning. It looked like some pretty stellar property -- I'm sorry, property casualty results, a little mixed elsewhere. What do you gentlemen think it takes to kind of get the stock moving up north from here? Thomas Gayner: Performance. And I think we've demonstrated a few quarters of doing that. And if the market disagrees with the performance that's happening, we'll continue to repurchase shares. And we are price sensitive in our repurchasing. So when things are -- when the stock price is going down, we buy more. Operator: Your next question comes from the line of Andrew Anderson with Jefferies. Andrew Andersen: On the collateral discussion, if I look at some statutory data related to this reinsurance relationship at year-end, it looked like the collateral relative to the recoverable was near 100%. So I guess my question is, has there been some loss development on this relationship? Or is the collateral shortfall that you're thinking about in a low single-digit million range? Brian Costanzo: Yes. Sure, Andrew, it's Brian. So we evaluate loss ratios on all of our programs every quarter. So you're right, if you go to our annual statement, we would have had a loss ratio where the collateral was sufficient. We did increase that loss ratio a little bit here in the first quarter as we react to incurred claims trend. So that is what creates the shortfall that we're looking at today. Like I said, we're getting an independent actuarial review with a third party, bringing in some other data, bringing in more robust data to really refine that estimate a little bit better than what we've got today. So that's kind of our next step in the process, along with the State National team that's done this for a long, long time, continuing to pursue all their avenues under the contract to get additional collateral and offset against where we sit today. Andrew Andersen: Okay. And Simon, I think I heard you mention underlying claim severity running low double digits. How should we think about your implied reserve margin today? And how much conservatism remains embedded in those carried reserves? Simon Wilson: Yes. So when I made those comments, it was a general comment about the industry. So claims trend. If anyone knows what the claims trend is in casualty, if they could tell the industry, that would be fantastic. So I think that is genuinely a -- that is obviously what we get paid to do to try and have a view on that. But coming back to that, how do we feel about the reserves? We have been extremely conservative in our reserving of that GL portfolio because we saw this start to happen 3 and 4 years ago. And I think looking back on that, I would say, Markel were one of the first canaries in the coal mine to really see these trends developing. And therefore, when we've looked at those reserves, over the last, I would say, 18 to 24 months, we haven't had to touch the GL reserves a great deal specifically to strengthen those ones up. So I feel with the re-underwriting that we've been doing recently and the way in which that the portfolio as a whole has performed against those GL reserves that we've got, look, from what we can see, I feel quite good about that. What we will be watching for, though, is this pricing dynamic, which I mentioned in comments earlier. If people start to get ultracompetitive in U.S. casualty, that is where things go badly wrong in this industry. And I am concerned, and I'll say this on the call, about a number of kind of new entrant MGAs in the space backed by sidecars and private capital effectively, which in some areas being very competitive in areas that we know have caused significant losses in the past. And that is where people might get hurt, certainly financially, I think, over the next few years, we're going to be staying out of those games, and we're going to keep focusing on the areas where we know we can perform and bring some tremendous value. But from a reserve perspective, from my perspective, everything we've done on that -- doing that conservatively early has put us in a nice position to start producing the results that we've done in the last few quarters. And to Tom's point around performance, that's exactly what we're focused on for the next few quarters as well. But Brian, you might have some extra detail on that. Brian Costanzo: Yes, I couldn't agree more with what you say, Simon. Maybe one thing I would add on the casualty space specifically, we've talked about this a little bit before, is we do have a reinsurance protection that we started pseudo, call it, 2019 and forward. It's a risk attaching treaty. So it's not perfect to that. But that is a stop-loss treaty in terms of how it functions. So that also gives us a backstop if we were to have to strengthen reserves. And we've done some nominal strengthening of the gross since we have took our charge in 2023, not very much of that falls down to the net. But overall, as Simon says, we've been able to -- we took a big crack at it over a couple of quarters in '23 and then a big swing at the end of '23. We have not had to do so much with that since that time, which is what we had intended to do when we did all the deep dives, brought in third-party firms, took a really long and hard look at the construction trend, what is that construction defect kind of tail risk factor and longer tail than maybe the industry had projected there. And that's a lot of -- that drove a lot of the re-underwriting actions we were talking earlier about is kind of what we saw coming out of some of those reserving observations and being out in front of that and really adjusting the portfolio to the areas where we feel we can compete and do well from a profitability standpoint. Operator: Your next question comes from the line of Mark Hughes with Truist. Mark Hughes: I think you've touched on this, but kind of some sense of what you think the noninsurance business profitability might be in coming quarters. Tom, you pointed out how you're just looking at some cyclical pressures in certain end markets and these businesses have certainly created a lot of value. But when we think about kind of profitability through the balance of the year, it sounds like insurance, good. And then how should we think about those noninsurance businesses? Thomas Gayner: I think the first quarter gave you a pretty good picture of just the conditions in the economy, and we have 20-some businesses out there array through industrial and consumer. We've got some that are doing very well. We've got some that are setting all-time records, and we have some that are on the softer side of the curve. So I don't really have an aggregate point of view other than that they have always done a pretty good job of coming through. And I'm looking at Andrew, if you want to add a comment to that. Mark Hughes: Yes. I agree with what Tom said. I think if you simplify the 3 divisions together, one, adding industrial to consumer and other, you start to see just more flattish. And then within Financial, we called out in our comments both a $31 million gain related to the sale of Velocity last year as well as the $14 million impairment of an equity method investment within. If you take those 2 numbers and you simply appreciate the unique nature and in one case, noncash nature, financial is also flat. So overall, I think when Tom colors the first quarter, we are not a company that adjusts earnings, but I would encourage you to look at it through that lens and marry that with Tom's comments around it's a reasonable representation of the state of affairs. Thomas Gayner: Yes. And let me conclude just by drawing back to the 80,000-foot level, if you look at Markel Group as a whole. So first quarter is done. As we went into this year, here's the sort of back of the envelope math we were looking at. With the business plans that existed within our insurance operations, that's in round rough numbers, call it, $700-some million of underwriting profits. that we think was a reasonable number. And I think we're on track to hit something like that. If you add the industrial, commercial, financial businesses, that set of businesses last year made about $850 million, rough, rough, rough. We fully acknowledge that we thought it would be down from that wonderful result last year, but not by major amount. So just in round numbers, so we can do math in our head, call it, $750 million, something like that. You take the investment income, the recurring interest and dividend income, that's pretty solid. That rounds to $1 billion, and we're on track on that. If you take the equity portfolio and just normalized returns, let's say we're at 8% total return normal expectation that we've got 2% of that through dividends. So 6% of that would be the normal unrealized gain that would take place. That's another $700 million or $800 million. So you add all those numbers together and you get to a number of over $3 billion. There's a couple of hundred million dollars of interest expense and you have tax expense, some of which is deferred by virtue of the fact that we have the unrealized depreciation taking place in the equity portfolio. You add all those kinds of numbers up even on an after-tax basis, you get to double-digit returns on the capital we have, and we're continuing to divide them by fewer shares. And just to give you some numbers on that, it was interesting because I know the 3 of you who have asked questions, and Mark, I appreciate the fact you've asked a broader question. We oftentimes get compared against insurance company peers and not so much to some of the industrial company peers and the holding companies that I would include. But let's keep it within the yellow lines of insurance. I was looking this morning. So with our share count at about 12.5 million shares, as I said in my comments, that's down about 10% from the peak of 14 million shares, and it's taken us about 5 years to do that. Going through the list of looking at things, Allstate these days is down about 260 million shares. And basically, you go back 5 years, they bought in 10% of their shares in 5 years as well. Going in alphabetical order, American Financial Group has about 82 million shares outstanding. If you add 10%, that would be 90 million shares. We have to go all the way back to 2011 to get to where they've taken out 10% of their share count. Go to Arch Capital, a wonderful company, 359 million shares outstanding currently. Again, you go back about 5 years, and they have bought in 10% of their shares as well. W.R. Berkley, a wonderful company we have a lot of respect for, about 380 million shares. You got to go all the way back to 2014 to see them having 10% more shares than they do right now. Berkshire Hathaway, which obviously we admire and think a great deal of. You got to go back to 2019. So 6 years, it took them to buy 10% of their stock in. Chubb at 391 million shares, again, about 5 years since they were at a 10% increase to that. So same kind of time frame we've done that. Fairfax currently at 22. Similarly, it would be a 5-year count to go back to get that 10% in. Hanover Insurance Company, 35 million shares. I say you got to go back 7 years for them to have bought in 10%. Kinsale, 23 million shares. They've just recently started buying in some stock, but the stock count has been going up. And if I were them, I would do the same thing, their valuation. You look at us, again, it's taken us 5 years to do it. I think it will take us less than 5 years for the next. Progressive, 586 million shares. You got to go back to 2010 for them to have had 10% more shares outstanding than they do right now. RLI, wonderful company, 91.8 million shares outstanding. You go back over the 17 years of data I'm looking at, they've never bought back a meaningful amount of stock. And again, ROI has been very well valued. So I think that's a correct capital allocation decision on their part. Travelers, 216 million shares. And again, it would be about just a little over 4 years for them to have bought in 10% of their share. So I think we actually stacked up pretty well. And again, someone was asking me about the stock price and I said performance. Well, again, actions speak louder than words. So you're seeing us execute. And even through some of the challenges that we've had over the last couple of years, which we've spoken frankly and honestly about all the way along, we still had enough money buying 10% of the shares and not add to balance sheet leverage to do it. That's been out of cash flows. I think it's a very strong statement. And given the conditions of the business right now, the people we have running it, I'm optimistic about how the next several years play out. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tom Gayner for any closing remarks. Thomas Gayner: Thank you very much. We appreciate your participation. We look forward to catching up with you. We've got the reunion coming up on May 20 here in Richmond. We would love to see you there. It's a wonderful way to instead of hearing from 3 or 4 of us to hear from hundreds, if not thousands. So we would love to see you here in Richmond on May 20 for our annual meeting, which we call the reunion. Thank you. :p id="-1" name="Operator" /> This conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Nabors Industries Ltd. 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 this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead. William Conroy: Good morning, everyone. Thank you for joining Nabors' first quarter 2026 earnings conference call. Today, we will follow our customary format with Tony Petrello, our Chairman, President, and Chief Executive Officer, and Miguel Rodriguez, our Chief Financial Officer, providing their perspectives on the quarter's results along with insights into our markets and how we expect Nabors to perform in these markets. In support of these remarks, the slide deck is available both as a download within the webcast and in the Investor Relations section of nabors.com. Instructions for the replay of this call are posted on the website as well. With us today, in addition to Tony, Miguel, and me, are other members of the senior management team. Since much of our commentary today will include our forward expectations, they may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties, as disclosed by Nabors from time to time in our filings with the Securities and Exchange Commission. As a result of these factors, our actual results may vary materially from those indicated or implied by such forward-looking statements. Also, during the call, we may discuss certain non-GAAP financial measures such as net debt, adjusted operating income, adjusted EBITDA, and adjusted free cash flow. All references to EBITDA made by either Tony or Miguel during their presentations, whether qualified by the word adjusted or otherwise, mean adjusted EBITDA as that term is defined on our website and in our earnings release. Likewise, unless the context clearly indicates otherwise, references to cash flow mean adjusted free cash flow, as that non-GAAP measure is defined in our earnings release. We have posted to the Investor Relations section of our website a reconciliation of these non-GAAP financial measures to the most recently comparable GAAP measures. With that, I will turn the call over to Tony to begin. Tony Petrello: Good morning, thank you for joining us to review our first quarter results. The quarter included several important operational and strategic milestones. I will highlight those today. I will begin with the situation in the Middle East and its effects on our business. Today, our rig footprint in the Gulf region consists of 53 rigs operating under our SANAD land drilling joint venture in Saudi Arabia, four rigs working in Oman, three rigs in Kuwait. We conduct large casing running operations in both Saudi Arabia and Abu Dhabi. Our Canrig subsidiary is also active across the region. It operates with manufacturing and repair facilities in Saudi Arabia and Dubai. Across the region, our staff number is approximately 7,000 including SANAD. Today, we have maintained our pre-conflict operating tempo across each of these operations. Our clients in the region continue to follow through on planned activity. Importantly, they have not communicated any material change to their forward plans. The impact on our financial results so far has been limited. Miguel will address the financial implications in his remarks. Many of you have asked, whether Lower 48 operators have increased their activity in response to higher oil prices. First, oil futures are steeply backwardated. While supported for incremental production, forward pricing remains below current front-month levels. This tempers the near-term activity expectations. Second, changes in drilling plans require confidence in sustained pricing. Given current volatility, it remains early for broad-based revisions to existing drilling programs. In the Middle East, approximately 7.5 million barrels a day of production was shut in according to the EIA. This total could actually increase in April. Restoring this shut-in production will require time, capital, and operational execution. As a result, supply disruptions in the Middle East may persist beyond the near term. This dynamic should provide underlying support for both commodity prices and activity levels in other regions including the United States. In short, we see tightening supply. We see durable demand. Markets will adjust. Let me now turn to our financial results for the quarter. Adjusted EBITDA totaled [inaudible]. Notwithstanding the financial consequences from the conflict, our performance was essentially in line with the expectations we outlined on our last earnings call. This outcome reflects progress across our key strategic priorities: operational excellence in the Lower 48, measured growth in the international markets, technology that improves returns for our customers and for Nabors. We expect them to drive further improvement through the year. Let me turn to the market environment and our positioning. The oil market shifted sharply in early March as the hostilities began. Since then, near-month WTI has remained volatile around $90. The current oil market is more constructive than in 2025. However, operators have not broadly adjusted activity in response to these price levels. As I noted earlier, the futures curve remains backwardated. We remain aware of global supply and demand balances alongside inventory trends. These trends may offer the opportunity for additional drilling activity which we are positioned to capture. Next, let me address Venezuela. We have five rigs in the country. While our fleet remains idle, we have maintained a small local staff. We have operated in the country since the 1940s. The resource base remains significant, and the long-term opportunity is substantial. Under the right circumstances, Venezuela presents a meaningful opportunity. Recently, a number of operators have expressed urgency to expand their operations in Venezuela. We are ready to support their activity. Discussions are underway to determine suitable commercial terms. We will structure these agreements to protect our capital in-country. Turning to the US market. Operators are evaluating the global dynamics we discussed earlier. For the most part, large public operators are not moving quickly to increase capital spending even with higher oil prices. Resolution of the conflict along with a clear view of its impact on global supply would allow operators to adjust their plans with greater confidence. Since February, near-month WTI has moved more than 10% on seven trading days. This level of volatility complicates planning and capital allocation. Our approach in this market is to continue doing what we have been doing: deploy advanced technology that increases efficiency and improves operator EURs and returns; pair this with tight cost control and capital discipline. Turning to natural gas. Several factors are shaping its near-term outlook. The conflict is affecting global LNG flows, with disruptions to exports through the Strait of Hormuz. This may increase LNG exports from the United States. Also, in the US, year over year, natural gas demand for electricity generation declined in 11 of the past 12 months. Renewables have displaced some gas-fired generation. These dynamics are reflected in current natural gas pricing. Over the longer term, US LNG exports and domestic consumption are expected to increase. Additional Gulf Coast LNG export capacity will come online, including projects such as Golden Pass, Port Arthur, and CP2. Data center power generation requirements continue to expand. These could add up to 6 Bcf a day of natural gas demand by 2030. In international markets, including the Middle East and Latin America, expanding gas development continues to support drilling activity. In the Lower 48, gas-directed activity currently comprises more than 20% of our working rig count. We can respond quickly to increased demands across gas-producing basins. Next, I will share a few perspectives on Nabors' current business. In the Lower 48, the momentum that started toward the end of 2025 has continued through the first quarter. We added four rigs during the first quarter and a total of eight rigs since November 2025. This progression was a positive surprise that brought our rig count to 66 at quarter end. Our count currently stands at 66. Since the beginning of the year, these incremental rigs have primarily come from public operators. They are spread across producing areas with four in the Permian, three in the Haynesville, one in the Eagle Ford. We believe this diversity across basins is healthy. Turning to SANAD, the newbuild fleet in Saudi Arabia continues to expand. SANAD deployed the fifteenth newbuild during the first quarter. Four more new rigs are planned to commence working during 2026, bringing the newbuild total to 19. The twentieth should start up in early 2027 as planned. Notwithstanding the current conflict, SANAD has also resumed operations on one of its suspended rigs. The second is scheduled to start up late this quarter. These additions, both occurring in March, are a testament to the capability of our workforce in the kingdom. While conditions in the Middle East remain fluid, this level of activity reflects the customer's commitment to its prior development plans. Operators across the Eastern Hemisphere are advancing plans to expand activity. In Latin America, the activity improvement in Mexico continued in the quarter. Late in the first quarter, we restarted a rig there earlier than planned. That brings our total to four working. All of these are offshore platform rigs. They are large high-spec units with economics above the segment average. In Argentina, we started one rig in the first quarter as planned. We have another rig scheduled to work there in the third quarter. The second rig should bring our rig count in the country to 14. This further strengthens our position as the leading drilling contractor in Argentina. Now I will turn to the US market. Since the beginning of this calendar year, the Baker Hughes weekly Lower 48 land rig count has declined by three rigs. Nabors’ rig count in this market has increased by four. To date, higher oil prices have had limited impact on overall market activity or our rig count. Over the same period, our return has moderated. Let me add some context on our Lower 48 performance. Our count began rising in December, supported by groundwork laid earlier in the year. This performance reflects our high-spec rigs, advanced technology, experienced crews, and strong field performance. We have also grown our rig count while maintaining pricing discipline. Looking ahead, we are increasing our forecast to reflect more rigs in the current quarter. We expect to maintain a higher level through the second half of the year. We also surveyed the expected drilling activity of the largest Lower 48 operators; the group accounted for approximately 44% of this market's working rig count at the end of the quarter. The first quarter data reflects announced M&A activity. The results provide useful insight into operator behavior. In aggregate, these operators reduced their rig count during the first quarter. This is consistent with broader market trends. Looking ahead, the group expects to add approximately 15 rigs through the end of the year. These additions are concentrated among two operators. Both have indicated they are responding to current market conditions. Beyond these operators, the overall sentiment generally favors incremental activity, though this tone is not expressed in expected rig counts. We continue to improve our ability to execute commercially and operationally. Now the survey shows Lower 48 industry utilization is headed higher. With this combination, we believe our rig pricing will increase progressively through 2026 and into 2027, reaching the mid-thirties. I will now comment on the key drivers of our results. I will begin with our International Drilling segment. Notwithstanding disruptions in several markets, this business continues to expand. For perspective, since 2023, the Baker lower 48 rig count has declined by approximately 12%. Nabors' international rig count increased by 16% over the same period. The rig count in markets where we operate was essentially flat during this time. We achieved our growth even as we wound down operations in several countries. SANAD also had rigs suspended and it elected not to renew certain contracts. This performance demonstrates the value of our geographically diversified portfolio of businesses. Today, we see additional prospects across the Middle East, Asia Pacific, and in Latin America. In the Eastern Hemisphere, we see approximately 20 opportunities in markets where we operate or which we consider attractive. Beyond Venezuela, where I mentioned prospects to resume operations are improving, we see additional opportunities across Latin America, primarily in Argentina with a smaller number in Colombia. We prioritize operations that utilize our innovative technology, offer multiyear term contracts, and generate attractive financial returns. In Saudi Arabia, in addition to the planned rig starts through early 2027, SANAD is advancing discussions with the client for the next group of five newbuild rigs. We expect to conclude these discussions in the coming months. That group will bring the total number of newbuilds to 25. Turning to performance in the US. On our previous earnings conference call, we suggested our daily gross margin in the Lower 48 was stabilizing. That proved to be the case in the first quarter. For the second quarter, we expect a modest uptick. Commercial and operational performance support this outlook. We maintain pricing integrity and control costs. Our rig count is outperforming the industry. We are well positioned to capitalize on future opportunities to add to our working rig fleet. Let me briefly update you on our high-end rigs including the PaceX Ultra. The PaceX Ultra rig established the benchmark as the industry's first rig with a 10k PSI mud system. It is also equipped with expanded setback, upgraded rig components. The first unit continues to work for a catalyst in South Texas. It delivers the high performance that our client and we expected. We have agreements to deploy two more PaceX Ultras later this year, and we are in discussions with multiple operators to upgrade specific rig capabilities. These upgrades enable them to drill increasingly challenging wells. The PaceX Ultra's economics reflect the rig's market-leading capabilities and value proposition. Including the NDS content, on these rigs daily revenue is well above the $40,000 mark, and they work on term contracts. These developments reinforce the value of our rigs. Our solutions contribute directly to customer performance while generating attractive returns for Nabors. Next, let me discuss our technology and innovation. We include a full drilling automation package from NDS on our PaceX Ultra rig and also include our integrated MPD package. This combination positions the PaceX Ultra as the most capable drilling system in the US market. We are committed to expanding NDS' services globally, particularly among the NOC customer base. During this quarter, we had modest international growth. We believe there is a strong appetite as operators follow the US by prioritizing efficiency performance gains. I will conclude with our capital structure. To be clear, our highest priority remains debt reduction. On top of the substantial progress we made in 2025, during the first quarter we redeemed the balance of the notes due in 2028. This action reduces future interest expense and supports free cash flow generation. As Miguel will detail, we outperformed our free cash flow expectation for the first quarter largely outside of SANAD. This cash flow provides capacity to further reduce debt and strengthen the balance sheet. To summarize before turning over to Miguel, the first quarter brought unexpected volatility to the global energy industry. Our diversified portfolio across businesses and geographies helps us manage that volatility and continue to perform. Now let me turn to Miguel to discuss our financial results in detail. Miguel Rodriguez: Thank you, Tony, and good morning, everyone. Before turning to our results, I want to briefly address the evolving market backdrop, particularly in light of the Middle East conflict. From an operational perspective, our business in the region has remained stable. We continue to operate in Saudi Arabia, Kuwait, Oman, and the Emirates without disruption, maintaining a consistent cadence of activity. As planned, our SANAD joint venture added rigs in Saudi Arabia during the first quarter. That said, the conflict did introduce some operational friction during the quarter, primarily affecting logistics, supply chain, and crew rotations. In the US, our customers, especially the majors and public E&Ps, have remained disciplined in their approach to activity levels. We are encouraged by the progress of our rig additions in the Lower 48. These gains reflect strong commercial execution from the fourth quarter rather than a broad-based shift in customer behavior. While we believe the Lower 48 market is showing early signs of improvement, overall activity levels have not yet changed meaningfully. With that context, I will review our first quarter performance and outline our guidance for the second quarter. I will then conclude with updates on capital allocation, adjusted free cash flow, and capital structure. Now turning to the first quarter. Our consolidated revenue was $784 million. The sequential decline was driven by two main factors. First, the expected seasonal reduction in our Rig Technologies segment reflecting lower capital equipment deliveries and parts sales. This was compounded by approximately $3 million of logistics disruptions in the Middle East. Second, the previously announced step down in dayrate for our marquee rig in the Gulf of Mexico, which transitioned to a workover rate at the start of the year. Consolidated EBITDA was [inaudible], representing an EBITDA margin of 26.1%, down 164 basis points sequentially. The decline was driven primarily by our International Drilling and Rig Technologies segments. Importantly, our EBITDA was consistent with the expectations we communicated during our previous earnings call. Our EBITDA results include approximately $3.5 million of adverse impact related to the Middle East conflict across our International Drilling and Rig Technologies segments. Now I will provide you with details for each of the segment results. International Drilling revenue was $419 million, a decline of $4 million or 1% sequentially. EBITDA was $121 million, decreasing $10 million or 7.6% quarter over quarter, yielding an EBITDA margin of 28.9%. The sequential decline in EBITDA reflects anticipated labor costs in Saudi Arabia associated with Ramadan and the Eid holiday, in addition to time-related impacts from the unplanned transition of two rigs moving from oil-directed to gas-directed drilling. Results were also impacted by the previously announced conclusion of certain short-term high-margin activities in the Eastern Hemisphere during the fourth quarter, continued activity disruptions in Colombia, and incremental costs related to the Middle East conflict. Our average daily gross margin was $16,880, which fell below our guidance range. This was driven by several factors: the aforementioned transition of two SANAD JV rigs from oil to gas drilling, which required contractor inspections and acceptance procedures temporarily disrupting the planned drilling schedules. While strategically beneficial, these transitions weighed on our first quarter results; operational challenges related to the Middle East conflict including impacts on logistics, supply chain, and crew rotations, resulting in a shortfall of approximately $2 million; and the continuation of activity disruptions in Colombia combined with the adverse impact of a stronger Colombian peso weighing on our cost structure. Average rig count for the quarter was 92.6, slightly above the high end of our guidance range. Our exit rig count was 93 rigs. The fifteenth newbuild rig in Saudi Arabia, the resumption of one previously suspended rig also in the kingdom, the redeployment of one rig in Argentina, and the earlier-than-planned reactivation of an offshore platform rig in Mexico late in the quarter. These additions were partially offset by the previously announced roll-off of three very low-margin workover jobs in Saudi Arabia, which SANAD elected not to renew for economic reasons, and a small number of contract expirations in other international markets during the quarter. Moving on to US Drilling. Revenue was $241 million, essentially flat sequentially. EBITDA was $88 million, representing a margin of 36.5%. EBITDA exceeded our guidance, driven by stronger-than-expected activity in the Lower 48. Alaska and offshore results were in line with expectations. Looking specifically at the Lower 48, revenue was $192 million, an increase of $11 million, up 5.9% sequentially reflecting higher activity. Average rig count increased by 5.5 to 65.3 rigs, above the top of our guidance range. During the quarter, we added rigs across several basins. The continued robust progress in our rig additions reflects strong coordination between our commercial and operations teams, combined with pricing discipline, excellent service quality, and rigorous execution, which all have been well supported by our high-quality customer portfolio. Currently, we have 66 rigs working. Average daily revenue declined to $32,650, reflecting some repricing as rigs rolled onto new contracts. Leading edge daily revenue remains in the low-$30,000 range. Average daily margin was $13,177, in line with our expectations. Turning to Alaska and US offshore. On a combined basis, revenue was $49 million; EBITDA was $17 million, a decline of $9 million sequentially with EBITDA margin of 34.7%. These results were in line with our guidance and primarily reflect changes in the work scope and mix. Now turning to Drilling Solutions. NDS revenue was $106 million, largely flat sequentially. EBITDA was $39 million resulting in a margin of 36.4%. These results were in line with our guidance, reflecting growth in our international markets offset by a modest decline in the US from third-party rigs. Importantly, the segment converted approximately 94% of EBITDA to free cash flow during the quarter, a new record and underscoring its low capital intensity. Now on to Rig Technologies. Revenue was $27 million, down $11 million sequentially. EBITDA was approximately $5 million, a decrease of $4 million from the prior quarter and below our guidance. The sequential decline was expected following strong year-end sales in the prior quarter. EBITDA was further impacted by parts delivery delays related to the Middle East conflict, representing approximately $1.5 million or roughly 50% incrementals. Turning to the second quarter, our EBITDA guidance assumes $6 million to $8 million impact considering that the inefficiencies in the Middle East will persist through the quarter across all segments, but primarily within International Drilling. In International Drilling, we expect average rig count to range from 93 to 95 rigs. This reflects the addition of two rigs in Saudi Arabia including the commencement of the sixteenth newbuild rig and the redeployment of a second rig previously suspended, as well as the contribution from rigs that commenced activity in Q1. Average daily gross margin is expected to improve to a range of $17,400 to $17,500. This increase reflects the benefit of the incremental rigs and a full recovery from the first-quarter impacts related to Ramadan and Eid, along with a return to more stable drilling activity. Our outlook, however, does not demonstrate the full earnings power of our international franchise, as it incorporates the estimated impact from inefficiencies related to the Middle East conflict. While we remain cautious regarding the evolving situation in the region, the quality of our fleet, combined with our continued superior execution and performance, positions us well for a strong second half of the year. Accordingly, we expect to deliver full-year segment results fairly in line with our full-year guidance. Turning to US Drilling. We expect the average Lower 48 rig count to increase to a range of 67 to 68 rigs. This includes some level of churn, albeit at a much reduced level compared to prior quarters. Daily adjusted gross margin for the second quarter is expected to average approximately $13,300, a modest sequential improvement driven by pricing. While the overall market environment remains somewhat constrained, we see targeted opportunities to add our rigs. This is driven by our strong and disciplined operational and commercial execution combined with our solid customer portfolio. We will continue to evaluate incremental opportunities based on asset availability, capital requirements, and crew capacity. Therefore, we are updating our activity outlook for the Lower 48 drilling business with an improved full-year outlook. We currently expect to exit the second quarter with approximately 69 rigs and to maintain activity at or near that level through the remainder of the year. At these utilization levels, we expect our pricing to trend higher over time, moving from the low-$30,000 range to reach the mid-$30,000s as we progress through this year and into 2027. For Alaska and US offshore combined, we expect EBITDA of approximately $15 million, reflecting the conclusion of an offshore O&M contract and planned maintenance for one of our rigs, which is also offshore. Over the medium to long term, we expect strong operations in Alaska. Drilling Solutions EBITDA is expected to be approximately $39 million, which is in line with the first quarter. Finally, Rig Technologies EBITDA is expected to be approximately $3 million. Next, I will discuss our capital allocation, adjusted free cash flow, and liquidity. First-quarter capital expenditures totaled $159 million, below our guidance range, mainly due to timing shifts in the SANAD newbuild milestones. Our Q1 CapEx included $72 million related to the in-kingdom newbuild program in Saudi Arabia. Total capital spending was closely in line with the fourth quarter, which amounted to $158 million including $78 million of newbuild-related spend. Looking ahead, we will continue our disciplined and flexible approach to capital investments. For the second quarter, we anticipate capital expenditures in the range of $180 million to $190 million, including $75 million to $80 million for the SANAD newbuild program. For the full year, we expect capital expenditures to remain in line with our prior outlook of $730 million to $760 million, including $360 million to $380 million for SANAD newbuilds. However, the timing and level of spend remains subject to market conditions and project pace. The cadence of the SANAD newbuild milestones may shift between quarters. Potential activity above our current guidance in the US will be evaluated carefully in the context of market visibility, asset readiness, and requirements, overall return and funding thresholds, and contract term. We remain firmly committed to managing capital spend at or below our guided range. Turning to free cash flow. During the first quarter, Nabors consumed $48 million of consolidated adjusted free cash flow. We exceeded our midpoint guidance range by more than $35 million. Importantly, free cash flow outside of SANAD was nearly breakeven, representing a meaningful outperformance relative to our expectations. This beat was mainly driven by a better-than-expected working capital progression and capital expenditures below plan levels. While this free cash flow outside of SANAD may be modest in absolute terms, it marks a very solid result, given that our first quarter is typically the most cash-intensive period of the year driven by payments of cash interest, property taxes, and annual bonuses, among others. This distinction in the origin of cash is important, as free cash flow generated outside of the SANAD JV is available to Nabors for debt service and other corporate purposes. For the second quarter, we expect to generate approximately $10 million of consolidated adjusted free cash flow with SANAD consuming approximately $10 million. Based on the continued momentum in our Lower 48 business, a constructive outlook for our international operations, and the compounding effect of our capital discipline, we are well positioned to exceed our full-year guidance. Finally, I would like to make a few comments regarding our continued focus on our capital structure. During the first quarter, we redeemed the remaining $379 million of senior guaranteed notes maturing in 2028, extending our nearest maturity to June 2029 and leaving a very manageable $250 million maturity at that time. We remain focused on further strengthening our balance sheet and capital structure with an objective of reducing net debt leverage to approximately one time over the long term. I will provide updates as we progress towards this goal. With that, I will turn the call back to Tony. Tony Petrello: Thank you, Miguel. I will close with a few points. First, we continue to support our clients in the Middle East even as the operating environment has become significantly more challenging. We have maintained operational continuity and mitigated risk with strong management. In Saudi Arabia specifically, our SANAD JV remains on track for growth. The newbuild deployment schedule is unchanged. Discussions for the fifth tranche of new rigs are progressing. Each tranche is expected to generate more than $60 million in annual EBITDA. This program represents a significant, differentiated, long-term growth opportunity in our industry. Second, in the Lower 48, strong performance has resulted in growth in our rig count as well as free cash flow. Customers continue to select our high-spec rigs and integrated NDS solutions to improve both performance and returns. We expect to deliver further progress through the year. Third, our free cash flow reflects disciplined operations across the business. We are firmly committed to using free cash flow to reduce debt. The message today is clear. Nabors is a stronger company. We deliver. Returns are improving. The business is more resilient. We are creating value in Saudi Arabia and across our international franchise. We are expanding technology-driven earnings and we are continuing to improve the financial quality of the business. There is more work to do, but we are on the right path and we are confident in the value creation ahead. Thank you for your time this morning. We will now open the call for questions. Operator: To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. The first question comes from Daniel Kutz with Morgan Stanley. Please go ahead. Daniel Kutz: Hey, thanks a lot. Good morning. Unknown Speaker: Morning, Doug. Daniel Kutz: So I wanted to ask, with the US Lower 48 rig count where you are at today, about 66 rigs, that is up from a low of just under 60, and then you have guided to go to 69 in the second half of this year. Can you talk about how, for the rigs that you have reactivated or are planning on reactivating so far, some of the mobilization or restart costs and how that has translated to maybe some pricing upside with customers? But perhaps more importantly, what is the Nabors Lower 48 supply stack beyond that 69 active rigs planned for the second half? I think the last time that you were at that level was roughly two years ago. What would it take? What is Nabors’ appetite? What is the cost involved? What is the pricing you need to see to reactivate rigs beyond the current plans for the second half this year? Thanks. Tony Petrello: Sure. So beyond the 69, I think I divide it into two categories. The first category, the next 11 or 12 rigs on top of that, that tranche is a relatively digestible number. And then beyond that, there is a second level, another roughly 15 rigs where the cost gets incrementally higher. So that is where we would do it. The first tranche, we are ready, able, willing to execute on both tranches. Obviously, there will be price increases associated with it, and we do not see that as being much of a problem. Daniel Kutz: Got it. Fair enough. And then maybe just one on capital allocation. Could you remind us if you have put out, or what type of net leverage target you are targeting longer term or through cycle? Basically, what I am driving at is, is there a net leverage level where you might be comfortable—I feel like you have been very clear that using free cash to reduce debt is at the top of the capital allocation priority list, in addition to the SANAD newbuild program and maintenance, obviously. But at what point would you be comfortable—what kind of net leverage level or liquidity level would you be comfortable moving some other capital allocation priorities up the list, whether it is shareholder returns or accelerating PaceX Ultra upgrade investments or any other investments? Maybe it is to upgrade and mobilize stacked US rigs for some international unconventional opportunities. Just how do you think about what the longer-term balance sheet and liquidity level that you would need to see to consider some other uses of capital, and what would potentially be on that list of capital uses? Thanks. Miguel Rodriguez: Thank you, Dan. So, look, first of all, starting with the PaceX Ultra, we are in the process of deploying two additional Ultras during the remainder of the year. These rigs, I want to reiterate, are the best possible rigs we can think of in the entire Lower 48 market, not only for the technology aspects on the rig itself, but the full integration with the Nabors portfolio of services. The performance of the first rig has been outstanding, and I invite you to look at our press releases around the PaceX Ultra. We will continue to invest in this type of integrated technologies and rig as we continue to see interest from our key customers. That is number one. Number two, we have been clear that our medium- to long-term roadmap in terms of net leverage is around the one time. This is a medium- to long-term objective. Tony and I remain very optimistic about our progress and the outlook not only in 2026, but into 2027 and beyond toward this goal. Once we get there or close, we will seriously contemplate other capital allocation initiatives. One of them will certainly be returns to shareholders, whether in the form of share buybacks or dividends, or both for that matter. But first of all, we believe our shareholders will get a better benefit by us continuing to reduce gross debt, and that remains the number one goal. Daniel Kutz: Great. All makes sense. Thanks a lot. I will turn it back. William Conroy: Take care. Operator: The next question comes from Derek Podhaizer with Piper Sandler. Please go ahead. Derek Podhaizer: Hey, good morning. So on the Lower 48, you added eight rigs since last year, sitting at 66. You expect to move to 69 by the end of the quarter. From there, you called for a steady rig count in the back half of the year, but now you are expecting private stack incremental rigs as the eight rigs you described were added primarily from the publics. You talked about the survey, two operators adding 15 rigs. In this setup, should we not see some upside to your second half rig count above the 69 versus being steady? Could you help us with the moving pieces here and how we should think about it? Tony Petrello: Obviously, if all things click and there are no setbacks, there should be upside in the story here. We have made no secret of the fact that we have two additional rigs in process. But we are trying to be cautious as well because this market has the ability to turn on a dime. We do not want to get over our skis right now. We are comfortable changing the guidance that we have for the year to the 69 number, but we are not yet ready to move it to the next number. Derek Podhaizer: That is fair. I appreciate that. Flipping over to Saudi, you have the newbuild program going. You are considering the next tranche to happen over the next couple of months. I am trying to think through your upside torque if Saudi were to add incremental activity once we get to a world post resolution here. It sounds like all your suspensions are going back to work. Is there any ability to accelerate the newbuild program from the initial cadence or is there potential for adding rigs into the JV that are outside of the country? Thoughts around upside torque if we see Saudi add incremental rigs in a post-conflict world? Tony Petrello: Sure. First of all, let us put the whole thing in context of the Saudi Arabia market as a whole. There are currently 251 operating rigs in general—192 onshore, 59 offshore. Of the original suspensions, 82 were onshore, 37 were offshore, and there has been a resumption of 36 offshore and four onshore. We do not think all those suspended rigs are going to come back necessarily—maybe up to another 20 or so—and there is line of sight to at least 12. Given where we are and what our ramp has done so far, I think it is a very positive sign. Obviously, if the market demands incremental production, they will have to reassess their plans, and we are in a great position to be part of that, whether it is additional rigs within the Nabors existing fleet from other markets or not, or acceleration of a newbuild. Probably acceleration of the newbuild program will not solve a short-term need. So my guess is, if it is going to come, it will come from Nabors’ other assets somewhere else. The other thing I would say is that our relative position there has really improved a lot. Our operating fleet is now really weighted to natural gas development. We remarked how we actually changed in the quarter some rigs from oil to gas. Ninety percent of our rigs are now directed at gas projects, just to give you an idea. Nabors’ share of the gas work is about 40%. Our overall market position is approximately 28%. We have to acknowledge Aramco’s role here; they have been steadfast in supporting SANAD throughout everything, including this very challenging environment. Also part of the story there is the rollout of technology. NDS is now beginning to make inroads with performance products. For casing running, we are already a large player in the region with a substantial operation in the UAE. Globally, Nabors on land is now the third-largest casing running provider; in the US, we are the second-largest. In that region, we are a key player. When you look at the current environment and what may happen post this dispute in terms of the need for these NOCs to resume activity—and if you take into account the UAE’s recent announcement and aspirations to grow production—I think we are really well established in the region to take advantage of that. Does that make sense, or do you have any other color you wanted? Derek Podhaizer: That was great. Appreciate all the color. Very helpful. I will turn it back. Operator: Next question comes from Scott Gruber with Citigroup. Please go ahead. Scott Gruber: Tony, encouraging comments on the activity volumes you have already seen and that are forthcoming, and also on the rate side in the US. I am curious around the drivers behind the rate inflation you see coming. I assume there is a component of market tightness, but is there also a component to getting compensated for these upgrades? Some color on that move into the mid-$30,000s—Is that mainly market or is it a combination of market and compensation for upgrades? Tony Petrello: I think it is a combination of things. First, you have to remember over the past two years there has been a reduction in the overall number of marketable rigs. Second, well programs’ demands have increased, particularly among larger customers who want to do four- or five-mile laterals. That involves upgrading rigs and components. They recognize that means extra cost, therefore extra pricing as well. But those add-ons are very high-return. That plays to Nabors’ strength because our existing X rigs are more than capable of handling these large upgrades like the 10,000 PSI with expanded setback and other specs. The X rig was designed from day one to be that kind of rig, and the market has finally caught up to the X rig. Basin dynamics also matter. In West Texas, there is tightening—churn has come down and pricing is directionally up. South Texas is improving strongly—churn is cut in half and market tightening is lifting pricing. North Dakota is slightly higher, driven by pockets of customers increasing rig count with some planned acceleration into 2027, so pricing is directionally up. East Texas is flat with churn persisting and utilization under pressure; pricing is about flat to slightly up, reflecting the gas story. The Northeast is steady and flat given pipeline constraints. Combine reduced available rig supply, higher operator capability demands, Nabors’ ability to add technology to rigs, and a greater focus on performance contracts to recognize the value we provide—put that together and it drives a path to increased pricing and better returns on capital. You must exercise discipline and execute performance that justifies it. Those are the requirements to make it happen. Scott Gruber: That makes sense. I appreciate that color. And did I hear correctly that Saudi did not renew a couple of contracts on a few workover rigs? If so, can you provide a bit more color there? It is a bit surprising in light of restart needs. Generally, what are you hearing from customers in the region around calling on workover rigs? Miguel Rodriguez: We were very clear about these rigs coming down during our last earnings call, where we mentioned that SANAD has elected, rightly so, not to extend these workover contracts due to pricing considerations, and they were very marginal in terms of EBITDA and free cash flow contributions to the venture. So you are correct—these rigs came down, and we announced this during our last earnings call. We need to remain focused on the trajectory of our additions in international, Saudi included. The number of rigs that we added in Q1 outperformed our expectations, primarily by the late addition in Mexico, with Saudi remaining on plan even with all the headwinds—adding the fifteenth newbuild as well as one of the suspended rigs coming back to work. In Q2, we expect to remain on track in Saudi and elsewhere. Our outlook of reaching 101 rigs at the end of the year remains unchanged. In Q2, to be very clear, we are going to exit at 95 rigs. Scott Gruber: Got it. I realize these workover rigs have always kind of contributed minimally. But given the backdrop, is Saudi coming back to try to contract those rigs again, or are other customers calling? Miguel Rodriguez: The SANAD team remains poised to put these rigs back to work at the earliest opportunity. But as Tony mentioned, there are still a number of suspended rigs. We do not know how many of those are going to come back to work. If my memory serves me well, it is about 46 rigs that still need to come back to work. There are probably opportunities for these workover jobs, but if I am at Aramco, I would give priority to gas drilling or oil drilling, as opposed to workover. The team is working on putting these back to work. They are not in our 101 exit by the end of the year. Tony Petrello: I do not know if you are referring to a separate class of rigs called workover rigs that are not drilling rigs. The class we are talking about involves a drilling rig doing certain workover jobs, which is different. There is another class of rigs—workover rigs—which we are not in; SANAD is not in that business. That separate business depends on Aramco’s plans in terms of activating production. In a market where they need to accelerate production, you could see some extra workovers in that class. But that is a whole different class of rigs. Scott Gruber: Got it. I appreciate the color. Thank you. Operator: The next question comes from Keith MacKey with RBC. Please go ahead. Keith MacKey: Hi, thanks and good morning. Maybe just to start out on free cash flow. Miguel, you mentioned you would be in a good position to exceed your free cash flow guidance for the year. Can you run us through some of the factors there? I know you have maintained your capital guidance, but at the same time there are some incremental rigs in the US and maybe a bit of upgrade capital and reactivation capital that you might not have expected initially. Can you take us through some of the big pieces of free cash flow and, to the extent you are comfortable, where you think the year might land given how things have unfolded so far? Miguel Rodriguez: Sure, Keith. I will not tell you where we are going to land. What I can tell you very clearly is that with the improved outlook in the Lower 48, our constructive view around international and the number of opportunities we continue to see even outside of the Middle East—even considering the headwinds around the conflict persisting—combined with very strong capital and pricing discipline, Tony and I firmly believe that we are going to outperform our earlier guidance around adjusted free cash flow. Where is that going to come from? Primarily incremental EBITDA, as a result of the improved activity outlook and remaining firm around international performance. We are maintaining, as you rightly mentioned, our CapEx range, which by itself is a testament to our discipline around where we deploy the money and what our thresholds are. We continue to make strong progress on working capital in general. Q1 is good evidence of this. These are the key building blocks I can give you. I am sure you will run your models and arrive at something that will likely make sense. We remain robust and optimistic about the outlook in the US, the strength of our international franchise, and our ability to continue to manage and be disciplined around pricing, working capital, and CapEx. Tony Petrello: As your question anticipates, there is a clear focus on optimizing incremental capital expenditures. As the year has gone by, that has been an increasing priority, particularly with aspirations of some of these new contracts. Extracting more from what we have today is a high priority, and hopefully that translates into the numbers you are hearing about. That is also one of the dynamics at work here. Keith MacKey: Got it, and I appreciate the comments. Just turning to the Middle East, it is impressive you are able to maintain the same operational tempo given everything that has gone on there, and the broader international outlook still gets to 101 rigs by the end of the year. Can you talk about what you are seeing on the ground in the Middle East, how you are able to maintain drilling operations with minimal disruptions, and given persistent production shut-ins, do you think customers will continue to be able to drill for the foreseeable future? Or will there have to be some slowdown in drilling programs at some point? Tony Petrello: Let me give you some color on what we have been navigating operationally. It has been a huge logistics strain. On the travel side, you have crew rotation issues. There are fewer airlines, for example, in Saudi. Turkish Airlines, Saudia, and FlyDubai are operating, and Emirates is just now resuming. No European airlines serve Saudi. All that puts strain on the situation. On the supply side, we had a need for drill pipe; we had drill pipe in Jebel Ali but could not get it out. That meant internally we had to use spare equipment from operating rigs to fill gaps, which drives a lot of activity to optimally allocate everything we have. On top of that, with the vast majority of our imports coming through the port of Dammam on the Gulf side in the Eastern Province, that has been an issue. We are shipping from the Red Sea and trucking 850 miles, just to give you an idea. That adds time and extra expense. All these things are navigable. One thing I would like to comment on is our people in the region have been incredibly supportive of continuing operations. Our major customer Saudi Aramco in particular is totally supportive. Any concerns about safety, they respond. Despite the conflict and rockets flying in the region, our crews are focused on doing the job every day and are committed to it. That is a great sign of commitment. In general, together with a stronger Lower 48 with improving pricing and continued balance sheet improvement through 2026 to 2027, we are constructive on international despite headwinds, and we see growth in the Middle East and outside the region in Latin America. We think our capital discipline puts us in a great position to outperform and meet the free cash flow guidance Miguel mentioned. That is the whole package. Keith MacKey: Got it. Thanks very much. Operator: That is all the time we have for questions today. I would like to turn the conference call back over to William Conroy for closing remarks. Please go ahead. William Conroy: Thank you very much, everyone, for joining us. If you have any questions or care to follow up, please reach out to us. And thank you, Ashia, for hosting the call this morning. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. Welcome to Scotts Miracle-Gro's Second Quarter 2026 Earnings Webcast. I'm Brad Chelton, Head of Investor Relations. Speaking today are Chairman and CEO, Jim Hagedorn; President and Chief Operating Officer, Nate Baxter; and Chief Financial Officer and Chief Accounting Officer, Mark Scheiwer. Jim will provide a strategic overview Nate will provide a business update, and Mark will follow with a review of our financial results. In conjunction with our commentary today, please review our earnings release, 8-K filing and supplemental financial presentation slides which were published on our website at investor.scotts.com, prior to this webcast. During our review, we will make forward-looking statements and discuss certain non-GAAP financial measures. Please be aware that our actual results could differ materially from what we shared today. Please refer to our Form 10-K filed with the SEC for details of the full range of risk factors that could impact our results. Following the webcast, Executive Vice President and Chief of Staff, Chris Hagedorn, will join Jim, Nate and Mark for an audio-only Q&A session. To listen to the Q&A, simply remain on this webcast. To participate, please join by the audio link shared in our press release. As always, today's session will be recorded. An archived version will be published on our website. For further discussion after the call, please e-mail or call me directly. With that, let's get started with Jim's update. James Hagedorn: Good morning, everyone. Results count and ours speak for themselves. Through our first 6 months of the fiscal year, we continued on our growth trajectory and made progress toward every single one of our full year financial imperatives. This marks over 2 years of driving improved results and 4 years of hard choices, self-help and financial recovery. More importantly, we delivered 2 major accomplishments that are the final pieces of our journey. They include closing the quarter with leverage at 3.71x debt-to-EBITDA, the first time in 4 years that we're below 4x and the divestiture of Hawthorne. We're at the point where everything we've been working toward is coming together. Leverage is in a normal state where we're comfortable operating. Gross margin expansion is on track for our targets. Our mix strategy to focus on high-margin branded products is working. And free cash flow, EBITDA and EPS are all exceeding expectations. When you look at our total performance, here's where we find ourselves today. We continue to hone our superpowers and invest in strengthening our brands, R&D, supply chain and sales. We have substantial growth opportunities and are taking market share. Our retail relationships are stronger than ever. Our consumer is healthy and engaged. We have a proven and battle-tested leadership team. And we've lived up to all of our commitments. The real question is where do we go from here? First, we're ready to embark on the first tranche of the multiyear share repurchase program we announced last quarter and said would begin once leverage was comfortably in the 3s. We're there. The ultimate goal is to buy back at least 1/3 of our outstanding shares. It will be earnings accretive, won't add to our debt level and has 0 implementation risk. That's why it's the only significant M&A we're interested in. I've asked Mark to move forward with the repurchases in a way that can be easily modulated based on our results and capital allocation needs while maintaining leverage in the 3s. When you look at our accomplishments in total, it's clear we're one of the best consumer product franchises in America. It's just not showing up in our share price. And that's okay because it makes the timing of our share repurchase even more attractive. We don't think we're properly valued. And when you layer in our growth plans, were the type of investment that should appeal to anyone who wants to be part of a market leader with a lot of upside. There's a second answer to the what's next question and that involves moving to the next stage of growth. The 2030 target of an incremental $1 billion in top line sales, a gross margin rate approaching 40% and total EBITDA north of $1 billion. And this is where Nate comes in. He's created the building blocks to unlock this growth through a multiyear plan he calls SMG 2.0. Among the building blocks are channel and category expansion in conjunction with deep investments in our brands, innovation, marketing, advertising and supply chain. We think upwards of $800 million of top line sales growth under SMG 2.0 will be generated through e-commerce alone. We, like our brick-and-mortar retail partners are shifting more resources to activation initiatives and marketing approaches to drive consumer takeaway into this channel. I want to make it clear that legacy retailers will continue to play an important role as the incremental sales we are projecting will primarily come from POS through their online sites and our joint partnerships. To maximize our potential in this area, our product assortment must change to reflect the type of SKUs that are more conducive to selling online while addressing consumer unique needs. This is where much of the innovation work will focus. Nate is putting together a strong team that is future-oriented and can help us execute upon SMG 2.0. We're also expanding our capabilities with data and analytics for better insights and we're advancing the use of automation, technology and AI. Nate is strengthening our marketing function and our approach to business development and product assortment. In line with this, I have executive level news to share. We're announcing the hiring of a Chief Brand Officer to serve as Nate's partner in leading the brands and marketing. This is particularly important as we create new and more powerful consumer experiences. The person we've selected has agreed to start in June and we'll make a formal introduction in the coming weeks. The only reason I'm delaying the announcement is to allow our new Chief Brand Officer to work with his current organization on a transition plan. Here's what I can tell you today. He's a significant talent who has served in a leadership role at a global New York agency known for its innovative work in digital marketing, social media and emerging trends. He's a real talent who 100% understands the changing nature of marketing and where we need to go. We know him and he knows us. With his solid creative instinct and experience in brand media and campaign strategies, he will jump-start our marketing mission, especially as we move further into the online space. Another plus is he's passionate about Scotts Miracle-Gro and our category. With Chris Hagedorn coming off Hawthorne, he'll be able to devote more time to our core business, filling a real need for us. His [ remit ] will be expansive as he takes responsibility for some of the big things that are critical to SMG 2.0 and our growth targets. Chris will lead company strategy with focus on business development. He'll also work on product assortment to ensure we're giving consumers what they want and need in the online marketplace. Government relations, corporate communications and sustainability are within his purview as will be the strategic application of AI. All this plays into the SMG 2.0 playbook. As we look to the rest of the year, we're reaffirming our guidance and will not let commodities steer us off course despite global supply pressures from the Iran war. Most of our commodities are locked where we are exposed to higher costs, we can cover them within our existing budget and plans. Fiscal '27 is a bigger unknown. I can assure everyone we will control what we can control and take pricing in fiscal '27 if necessary. We will not sacrifice our gross margin goals. This point in time is the result of a righteous endeavor. We have worked our way out of 4 very tough years that were filled with hard work and many unpleasant choices. There were suffering along the way. But the management team, our associates and Board did what needed to be done and it worked. SMG 2.0 marks a new starting point for us, another journey that will take our business well into the future. Next up is Nate. Nate Baxter: Welcome, everyone. I want to start by thanking our associates for their hard work this past quarter. We are executing this year's operating plan with discipline and focus. Our first half performance reflects the impact of this work and demonstrates we're on a clear path to the 2030 targets that Jim outlined. I first want to provide clarity around SMG 2.0. It is grounded in 2 realities: the evolving consumer and the evolving retail environment. The face of our core consumer is changing as we move from baby boomers and Gen X to millennials and Gen Z. At the same time, how all consumers shop is shifting. They're in more control than ever. They increasingly buy online, through retailers, social platforms and direct-to-consumer channels. They want organics, naturals, and products that fit their lifestyles. They take recommendations from influencers and they become influencers themselves. Our retail partners are changing too, concentrating more on sell-through via their online sites. We are there with them. This is reflected in our double-digit e-com sales increase for multiple quarters. The marketplace is dynamic and there are more competitive pressures from digitally native startups with low barriers of entry to traditional CPG companies expanding their presence. The good news is there is more than enough opportunity for us. We have an incredible advantage with our superpowers and market position. Delivering on Jim's 2030 goals will require us to create a more rich lawn and garden experience for consumers. That's what SMG 2.0 is all about, transforming for future growth. Here are the building blocks. Innovation and SKU rationalization to optimize our portfolio, including moving with greater speed to bring new products to market, channel expansion, primarily e-commerce, but also in expanded retail partnerships and professional do-it-for-me space. Category growth by bringing emerging consumers in more demographic groups into our world, connecting them through new approaches to marketing, including positioning Scotts Miracle-Gro as a lifestyle brand. Operational efficiencies and savings to support margin expansion and ensure the best-in-class supply chain. Let me walk you through each of these, starting with innovation and SKU rationalization. We are realizing the benefits of a multiyear effort to optimize our portfolio through new products, including extensions into spaces where we have not played and the sunsetting of low-margin lines in favor of the higher-margin SKUs. The rationale is twofold. One, it supports top line sales and margin growth; and two, it makes room for new products that appeal to emerging consumers and are better suited to selling and shipping online. So far in fiscal '26, we've introduced 83 new product SKUs, accounting for $41 million in revenue. These range from K-31 grass seed and Turf Builder Liquid Lawn Food to Miracle-Gro Indoor Plant Food and small bag soils, and we have more innovation to come. We are also moving with speed. We brought the Ortho Mosquito and Flying insect traps to market within just 6 months. And Chris and his strategy team are targeting tuck-in M&A to help us fill other portfolio gaps quickly. On the SKU rationalization front, we have line of sight to eliminate 30% of our lowest-performing SKUs by next fiscal year. This will be margin accretive, while reducing complexity and providing better choices for consumers. Turning to channel expansion. E-commerce is clearly the growth engine. In partnership with our retailers, we have a team dedicated to maximizing POS through digital marketing and product assortments optimized for online. But brick-and-mortar is still important. We have product gaps here and are addressing them by strengthening partnerships with retailers across channels. Some of our new SKUs include bigger sizes suited to roll property owners with larger loans, for example. We're also exploring channel diversification through the do-it-for-me with the recent launch of a pilot program for small- and medium-sized professional lawn and garden service providers. It's early days, but we're seeing sales traction with fertilizers, grass seed and controls for larger coverage areas. The full season performance will gauge our future here. Our foray in the do-it-for-me reflects a start-up mentality we're instilling throughout the company. Move with speed, test the market, gather learnings and fail or succeed fast. This entrepreneurial spirit is part of the cultural shift we're making. Turning to category growth. We are attacking this through marketing and consumer activation efforts to engage emerging consumers and drive frequency of product use. We have campaigns this spring, specifically for Hispanic consumers, a key demographic group for us. These coincide with more product listings in Hispanic-centric retail stores. In Q2, we also launched an initiative with Bonnie Plants and Gardenuity to provide ready-made growing kits for people who are new to the category. These kids remove the barriers to gardening, simplify the process of growing and set new gardeners up for success. The goal is to convert them into lifelong garners. On this note, our live goods venture with Bonnie Plants is performing really well this season. They have focused on improved sell-through and quality and the results are starting to show. And finally, on operational effectiveness, we continue to invest in our business, mainly focusing on factory automation and technology implementation across the enterprise. We're pursuing a dual-track approach to AI transformation. On one hand, we're investing in the foundational work, building a modern data lake and implementing SAP S/4HANA is our next-gen enterprise resource planning system, because organized accurate data is the bedrock of any successful AI deployment. But we're not waiting for that foundation to be fully in place before we act. In parallel, we're reimagining core processes with an AI-first lens, embedding intelligence directly into how we operate. The data foundation and the AI transformation are advancing together each reinforcing the other. AI is already playing a role in back office and data insights as well as consumer experiences. To date, we're working on about 40 use cases of AI ranging from consumer chat and voice agents to automated content generation, intelligent product search and productivity tools. Beyond efficiency, AI is directly contributing to top line growth through optimized e-commerce performance and personalized consumer engagement while protecting the bottom line through cost avoidance in areas like data security and process automation. As an example, we've developed 3 commercials in this past quarter using AI, saving about $0.5 million in production costs. All our tech investments support our operational efficiency goals and have the potential to deliver significant savings. When you combine them with our investments in automation and other efficiencies, we are striving to deliver supply chain and savings of at least 1% annually. That equates to around $35 million in high-return cost savings each year contributing to gross margin improvement. We've covered a lot of ground. If you take anything away from today, it's this. Jim has set the financial targets and SMG 2.0 is our road map to achieve them. We are making progress on its building blocks, while at the same time, remaining highly focused on our fiscal '26 plan. We have many great things happening across our company and its go time for our teams. Everyone is rising to the occasion. Here's Mark with the financial details. Mark Scheiwer: Thank you, and hello, everyone. Jim and Nate provided an excellent update on our growth strategies and consistent progress towards our financial targets. We have early season momentum, and we've delivered on strong performance, further galvanizing our confidence in the full year outlook, supported by disciplined execution despite dynamic macro environment. While we're halfway through fiscal '26, I'll remind everyone that the first 6 months represent approximately 25% of our full year POS. The season is in front of us, and consumer sell-through remains the primary focus with increased investments in marketing, media and consumer activation now kicking into high gear. We're tracking to our targets for net sales growth, gross margin expansion and leverage reduction. As Jim previously explained, in moving towards the execution of the multiyear share repurchase program, I will be the gatekeeper and we will be mindful of maintaining leverage comfortably in the 3s. Looking at our results. You'll recall, we are excluding Hawthorne, having classified it as a discontinued operation last quarter and completing its divestiture in early April. In the second quarter, total company net sales increased 5% to $1.46 billion. For the first 6 months, net sales increased 3% to $1.81 billion, in line with our full year net sales guidance of low single digits in our U.S. consumer business. Our focus on higher-margin branded products is meeting expectations. Sales of branded products through the first half increased 8%, partially offset by expected declines in mulch and nonbranded product sales. We discussed in previous calls that we expected retailers to increase purchases as we drew closer to the POS consumer sales curve. This has played out in the second quarter. The increase in shipments to retailers is attributable to 3 factors: one, strong, seasonal and retailer support of our branded products initiative, including year-over-year growth in branded soils and grass seed; two, an increase in early season fertilizer sales compared to the second quarter of fiscal '25. Last year, through joint consumer activation efforts, reinforcing our multi-bag purchases, our retail partners experienced strong demand and sell-through of our fertilizer products. This year, our customers are doubling down in anticipation of a stronger spring performance. and three, early replenishment orders related to higher-than-expected POS sell-through of controls products due to more favorable weather conditions in the West, one of our early season markets. From a regional perspective, consumer takeaway was strongest in the West, where POS dollars were up nearly 15% from the previous year-to-date. As a reminder, beginning in the last quarter, we expanded our POS data to include our 15 largest customers, including e-commerce and only for branded products, excluding mulch, private label and commodity items. Taking a closer look at consumer engagement through the first 6 months, POS dollars were plus 4%, closely mirroring our total net sales growth. That was driven by fertilizers, plant food, Ortho and Roundup, coupled with consistent e-commerce growth. E-commerce POS trends continue to demonstrate the effectiveness of our channel expansion. Year-to-date e-comm POS dollars were up 22% with growth in every category and customer. Gross margin continues to be a strong story. Year-to-date, we delivered over 200 basis point improvement over prior year driven by favorable mix and sales of higher-margin branded products, along with supply chain savings from ongoing efficiencies. Pricing actions early in the year also contributed. In the quarter, the GAAP and non-GAAP gross margin rate was 41.8%, a 280 basis point improvement and a 240 basis point improvement, respectively, over prior year. For the first 6 months, the GAAP gross margin rate was 38.5%, a 260 basis point improvement and the non-GAAP adjusted gross margin rate was 38.6%, up 230 basis points from a year ago. As it relates to potential headwinds from the Iran war, for our full fiscal year, most of our cost of goods sold are locked as we have purchased produced and hedged a significant portion and are enacting contingency plans to minimize further impacts in the year. Moving down the P&L. SG&A in the quarter increased 12% and to $199.2 million compared with $177.8 million in the prior year quarter. Year-to-date, SG&A is up 5% from $291.3 million to $305.1 million. The increase in SG&A was expected and reflects our increased media and marketing spend to drive consumer takeaway of our branded products. SG&A spend is on track to our full year target of around 17% to 18% of sales. Moving to non-GAAP adjusted EBITDA. For the quarter, it was $437.4 million versus $401.6 million a year ago. Year-to-date, it was $440.2 million, a nearly $38 million improvement over $402.5 million in the corresponding period. Below the line, interest expense declined from lower debt balances and interest rates. For the quarter, interest expense was $31.3 million compared with $36.6 million in fiscal '25. For the first 6 months, interest expense was $58.5 million versus $70.5 million in fiscal '25. We leverage at 3.71x an improvement of 0.7x versus a year ago was a result of higher EBITDA and continued deployment of free cash flow to debt reduction. Year-to-date, free cash flow was favorable by more than $100 million over prior year from higher net income from continuing operations and our focus on working capital management and disciplined inventory management. Our current year plans and execution are driving improvement on the bottom line. For the quarter, GAAP net income from continuing operations was $263.3 million or $4.46 per share compared with $220.7 million or $3.78 per share a year ago. Adjusted non-GAAP net income from continuing operations in the quarter was $267.8 million or $4.53 per share versus $233.7 million or $4 per share last year. For the first 6 months, GAAP net income from continuing operations was $215.6 million or $3.65 per share compared with $154.7 million or $2.64 per share a year ago. And adjusted non-GAAP net income from continuing operations was $223.3 million or $3.78 per share versus $183.5 million or $3.13 per share in prior year. Looking ahead to fiscal '27, commodities are a primary focus. Given the volatility of the Iran war, it is too early to estimate with certainty what we might face next year. but we expect to manage any impacts while continuing to invest in our superpowers and advance our growth initiatives. Jim talked about our confidence to cover material cost increases with pricing adjustments which would be consistent with how we've navigated the high inflationary period of fiscal '22 and '23 in the early stages of the war in Ukraine. Nate and his team are also driving supply chain savings and working on sourcing contingencies to ensure we have optionality heading into fiscal '27. As always, we will develop hedging strategies to provide more cost certainty. Overall, we are pleased with our performance as we enter the peak lawn and garden season. We are reaffirming our fiscal '26 guidance and have a high degree of optimism for the long-term financial goals. In early June, we will provide a seasonal update at our William Blair Annual Growth Stock Conference in Chicago, and we will follow that up with a deeper dive into SMG 2.0 and our financial priorities at our Investor Day on August 4 at the New York Stock Exchange. Here's the operator. Operator: [Operator Instructions] And our first question comes from Jon Andersen of William Blair. Jon Andersen: Two quick questions for you. Could you talk a little bit about what you're seeing in terms of the kind of the I guess, the restage on the lawns business and fertilizer and how some of that -- I know you've done some work on the assortment and pricing structure and how that's performing. And then I know another part of your strategy is to really drive deeper into e-com and would love an update on that as well. And maybe a last point is just -- was there any kind of -- anything unique in the quarter from a shipment perspective and retail inventory level perspective that we need to consider as we think about fiscal third quarter results? Nate Baxter: All right. Jon, this is Nate. I'll start. I'll start with the bottom. So shipments remain strong. Obviously, through Q2, they were strong and they remained strong for the first part of Q3. So not seeing any issues there. I'm not concerned about inventory levels. Slightly elevated versus this time last year, but I think supports the bullishness of the retailers and us on the category. On e-com, I'm really happy with where we are. We're up double digits. We've gained both market share and are seeing a real adoption of some of the innovation because we brought a lot of that to market through e-com-first, and we'll talk more about that at Investor Day, but I'm pleased with our progress so far. For Lawns, I'm going to let John Sass, our GM of lawns, just comment because I think that's probably the most important point that you asked. So John? John Sass: Yes, Jon, great question. I think our lawns business, we talked about it a lot in the past 1.5 years here, what -- we are transitioning from a product program to a portfolio and really selling a 4-step type of solution for consumers. The first phase of that was last year when we adjusted media plans and our promotional plans, which we had a great response from consumers and our retail partners. And this year is the rollout of the product piece of that. So this year, we just introduced a new Turf Builder Lawn Food product that's for kids and pets. It's a great solution that is now showing up in retailer stores right now. And our adjustment to our media and advertising continues. So we're really enhancing and showcasing the 4 feedings a year, really getting consumers back into a program that will give them a great lawn solution. So I would say the early part of the season, we're step 1 through the program. We're seeing another sell-through of our Halts, our first step in the program over 20%, which is a great sort of first indicator for us going into the season. And now we go into the weed and feed part of the season. So off to a great start, a great continuation from last year. James Hagedorn: I might just throw in, Nate, [ that Davitt ]. Where we had the biggest gap in share is really controlled on the online business on e-com. So you want to talk a little bit about what you're seeing with Ortho? Mike Davitt: This is Mike Davitt. When you start to think of the Ortho business, how consumers are searching for controls product has changed over the last few years. Obviously, we have a ton of products that sell multiple solutions. Consumers are moving to specifics. If you look at the portfolio we launched with mosquito, with ant, and with specific weed products, we're giving consumers new solutions that they're looking for. So as Nate talked about this next generation of consumer, we're doing it in dot-com first. Nate Baxter: Yes. And it's across all our categories, we have a lot of room to grow with market share. Controls is the biggest opportunity for [ sure ]. Operator: Our next question comes from Peter Grom of UBS. Peter Grom: Great. So I wanted to ask on SMG 2.0. And I think the commentary was helpful, but I wanted to dig into the $1 billion sales target and gross margin approaching 40%. My guess is we'll get more color in August, but how should we think about building to these targets? Is it linear because that you'd expect kind of equal contributions to the top line and margin expansion over the next several years? Is it more back-half weighted? Not trying to get fiscal '27 guidance, but I'm just kind of curious how quickly some of these actions can begin to show in the P&L. Nate Baxter: Yes. So you're right, Peter. We'll certainly get into much more detail as we go to Investor Day. I would say right now, I would just look at it as linear. I don't think it will play out that way. But our focus clearly is the biggest piece of the pie to go get is e-com. So Jim talked about it in his prepared remarks. This is an area that Chris is going to focus on with product assortment. Tuck-in M&A. But we have strength in other categories, whether it's expanded programs with our retailers as well as focus on Hispanic. So I would say it's early days. We'll lay out a year-by-year road map for you when we get to the August meeting. But from my point of view, I'm really comfortable. Remember, [ the nettability ] and we're obviously overshooting. And again, we'll get into that detail during Investor Day. James Hagedorn: But I would -- Hagedorn here. What I would throw in there is just getting share equal to what we have in sort of big box retailers. That's the vast majority of this. So this is one where just getting our share online up will give Nate most of what he needs to get that $1 billion. Peter Grom: Understood. That's really helpful guys. And then I guess just a quick follow-up on the gross margin for this year. Obviously, really strong performance. It seems like the mix benefit from the branded products emphasis is really showing through. And I don't think that was originally contemplated in kind of the gross margin [ of plus 32% ] or what have you. So can you maybe just speak to maybe what we've seen year-to-date how is it progressing versus what you were anticipating? And then as you think about reiterating the outlook, is that simply conservatism or are there certain headwinds that we need to contemplate in 3Q and 4Q? James Hagedorn: Listen, you guys are constantly thinking like there's some trickier or something. Look, I would say it's good, it's happening, right? I mean, so it's a positive. Nate and I were dealing with -- and this was a big factor in last year's calls about private label and are you guys losing out on private label. I think you guys are aware that with a couple of giant customers, we basically said, we don't care about the mulch business, take it, okay? But when we take it, we're taking our promotional money with us. And if you want that promotional money, then put it into our branded business. So to the extent that you guys were kind of living it live with us last year, and I think some people were criticizing us for it. [indiscernible] was a vulnerability. We took the marketing money and said, if you want the marketing money, you're going to put it behind branded, and they did, okay? And so to some extent, a little bit of a surprise because some of the strategy, Nate and I were figuring out on the airplane to go visit some customers and deliver like a sort of hard line which we're not negotiating on this. And so I think the result, to some extent, is choices we made not as well planned as you thought, but it was basically saying we're not going to lose money on this stuff. And if you find somebody who can make it cheaper, God bless, but all that money that's going into marketing it, that stays with us unless you want to redeploy it. And so I think that has worked out really well for us. Nate Baxter: Yes. It is those 2 things. It's mix and supply chain and as always, I'm very proud of our supply chain organization and they can continue to deliver and even over-deliver. Jim is right on the mix stuff. If you look at our POS year-to-date, we're ahead in dollars versus units. That reflects -- we're doing less heavily discounted units. We said we were going to walk away from that. We leaned into the branded. So I think that just performed a little better than we expected, and we're happy with that. James Hagedorn: [indiscernible] you might as well get finance guy in there because we're talking gross margin and how you feel that. Mark Scheiwer: Yes, no problem. So I think Nate said it best as far as the overperformance year-to-date on some of the branded products in the mix. So I think from an expectation standpoint, I think for the first half, we did see some of that. That gives us confidence as we wrap up the back half of the year, which, I mean, we all know that there will be some level of commodity inflation in the back half of the year that we navigate -- but we definitely feel like we can deliver on the 32% gross margin guide with additional supply chain efficiencies coming in for the back half of the year as well. James Hagedorn: We're learning like, I don't know, you guys could probably criticize and say, this you have to learn. But if you look at like the Halts business, the Halts business was a business that I'm not saying with some decline, it probably was. But we weren't putting anything behind it. And a couple of years ago, we started putting like some radio in it and got like crazy good results. So we started to invest behind Halts. And the numbers are phenomenal. And there's these giant benefit of this, not only are we selling more. But the more we sell, it's the kind of product they have return privileges on. The more you sell, so you're selling out and you're not dealing with returns on it, it's just a very virtuous thing for us. And so I think we're also learning that advertising, marketing activation works. And so that's also helping our margins at and our mix. Mark Scheiwer: and the only other thing, Peter, I'll just bring up. I think in the Q1 call, we talked about a shift in sales from first half to second half. I don't know if we're fully seeing that. So that's part of the overperformance as well. Peter Grom: Awesome. Yes, I never want to be tricked, Jim. So I appreciate all the color, guys. James Hagedorn: I just think you guys asked like somehow is like we're kind of pulling the will of your eye said, no, not at all. It's just sometimes where as surprised as you are, like... Operator: Our next question comes from Jonathan Matuszewski of Jefferies. Jonathan Matuszewski: My first one was for you, Mark. And just if you could remind us of the historical quarterly sequencing in terms of how you secure raw materials for the upcoming fiscal year? And just how we should think about maybe the current prices of raw materials, is that leading you to think about deviating from what you lock in during a fiscal 2Q or this year versus history? Any color there? That would be my first question. Mark Scheiwer: So I'll take a stab, and I'll let Nate jump in as well. Generally, I would just say what you see in our P&L is stuff that was purchased most likely 6 to 9 months previously. We have really great suppliers, really reliable sources and so we can leverage our superpower. So just as that as a backdrop. As we look to '27, really this summer becomes an important part of just working with our suppliers on our plans for next year and our customers. This year is kind of unique, right? Obviously, with the Iran conflict, we're dealing with elevated commodity prices. So I think our approach this year is a little more of a wait-and-see approach. There are areas where we will start to buy for '27 and lock in supply. That will start to happen over the next several months. But really, the summer months here, I would say, will really begin to shore up some of those activities. But again, I just go back around 6 to 9 months is kind of the tail as we navigate that. Nate Baxter: Yes. And I think, Jonathan, it's Nate. I'll just -- urea specifically, we have flexibility. What I would say is we're going to delay purchases a bit this year relative to how we've done it in the past. And we've got the flexibility in our Marysville chem plant to do that. So we've not put production for next year at risk. And I think Jim said it well, we just don't know what we don't know, but we've got a great team that's focused on it and we'll manage and we're committed to our margin walk, and we're committed to taking pricing if we have to. So we'll talk more about '27 as we know more. It's a little early for us, but we're definitely thinking through all the scenarios. James Hagedorn: Look, I think as the ore has sort of carried on and we've seen whether it's resins, diesel, urea, all of the sort of big commodities for us. I think, first of all, the purchasing team has done a terrific job like reducing the risk for this year. And I think Nate has been pushing to sort of understand '27 better. I just think that this is one of those things while some of the stuff we just have to manufacture, and we'll get -- it will end up on the balance sheet and inventory. A lot of our purchasing decisions, I think can get much better if the resolves itself. And so the thing that I would like to make sure that everybody on this call is aware we are not going to sacrifice our margin goals with this idea that by accepting dilution in our margins is somehow okay. Any costs we're seeing, there's not a single country -- company in America that's not dealing with this stuff. And I'm I am not concerned or shy about saying that where we're headed on margins, if we have to use pricing, everybody else will be as well. And so that -- if I was talking to my family like right now, I would say we're not going to give up our goals for our plan because somehow we think we're doing the right thing for the consumer. The consumer -- it could be that, right, for the consumer. But the good news for us is we know when things are bad to the consumer, people garden. They're not -- travel as much. They haven't got the dinner as much, but they stay home and they take care of their home and their yard and garden and spend time there. So this is something where if it's bad for the consumer, I also think we'll see goodness in commodities if the economy starts to get a little wobbly. And so my encouragement to date is just to try to stay loose as you can. This is not [ that '27, it's ] not an issue on commodities. We're not going to eat it. But trying to get too far ahead of it and worry about it, I think, is not the issue. As long as we say, we're going to take pricing to cover the costs. Nate Baxter: Correct. And remember, we play in a really broad set of categories within lawn and garden. And the commodities we've just been talking about are limited to a certain segment of those. Mark Scheiwer: Yes. Jonathan, for perspective urea, for example, less than 10% of our cost of goods sold. So it's like mid-single digits. So to Nate's point, we've got a broad portfolio. Jonathan Matuszewski: Right. And then just a quick follow-up on in-store merchandising. Looks like RONA recently rolled out 100 dedicated Shop in Shops for your brand ahead of spring. Maybe just speak to any productivity boost you may have seen from initial pilots that led to this rollout? And how you think about the opportunity to replicate something similar in key U.S. retail distribution partners? Nate Baxter: No problem. Well, listen, I'm just going to say, I think it's a little early to really quantify the results from that. But again, in the spirit of retail partnerships, that's an important one. You'll see us do more with other retailers, including in the U.S., not necessarily all rolling out this year, but over time, whether it's digital or physical like we're seeing at RONA. I think that just speaks to the nature of where we need to go from a consumer activation standpoint, and we'll be happy to talk more about that test with RONA when we see you in August. I think we'll have more data then. Operator: And our next question comes from Joseph Altobello of Raymond James. Joseph Altobello: I guess I'll stay on the pricing subject. But Jim, I think you your thinking on pricing seems to have evolved over the years. There was a time when you were on hesitant to do it, but now you feel like it seems like you're more comfortable? And I know the situation is volatile, but if nothing were to change on the cost side. Would you view the pricing that you'll need to take next year as manageable from the consumer's perspective? James Hagedorn: I was going to say 100%, but that's probably unsafe. But yes, absolutely feel -- look, we -- Nate and I were down at a big retailer last year, and they were dealing with all the tariff issues like huge -- and I think we were down there for like a couple of percent. And I said, seriously guys, like with all the trouble you have, you're worried about a couple of percent from us? No, I -- yes, I think that the damage we do to this company by not staying on top of our margins is way worse than people who are buying a product once or twice a year in an environment where they're seeing pricing like this. In fact, I think we're probably pretty shy compared to a lot of stuff that people buy. So yes, I guess it has evolved. But I do think that where we're going with SMG 2.0, that is in part, Nate's promotion is based on the results here. And so I am a big time encouraging him to get it done. The share repurchases like I kind of meant what I said, which is I think this is a fabulous opportunity. And I think last year, for those of us who had the sport of being on these calls, there was a lot of frustration on with me on good results that didn't get reflected in the share price. I think my view right now is we'll buy our own shares back. And so the more money that Nate can create faster and deeper, we can buy shares back at a price that I think is attractive. And the Board does as well. So that's kind of where I'm at. And so I think being less comfortable with pricing puts a lot of that stuff at risk. Nate Baxter: And John, I'll just -- sorry, Joe, I'll just add. Remember, I'm looking at this to the lens of a 5-plus year strategy, right? So certainly didn't anticipate 2 months ago what was happening in the Middle East. But like everything else, we've been through this, right? We've seen $900 to $1,000 a ton urea in the past. We've managed through it. We've taken pricing -- to Jim's point, I'm keeping my eye on the long ball, which is a commitment to be a branded-first company with a very, very strong gross margin profile. Joseph Altobello: Very helpful. And just to shift gears a little bit to this e-commerce shift, if you will. How does it impact your margin structure, does it require any investment on your part? Is it required more or less working capital. How does it change your business model, I guess? Nate Baxter: So I mean, it obviously affects all of those. I mean not so much on the working capital, but certainly investing in the people to come in and help us drive e-com with that experience to drive product development, again, is going to pick up a big piece of this. There is a margin delta, but on a like-for-like between brick-and-mortar and e-comm today, and that's something that we'll continue to chip away at by bringing innovation and then bringing costs down on the back end of it. So there's a target, there's a challenge. I'm not particularly worried about it. It's a few hundred basis points delta. And we're putting teams and plans in place to manage that for the long term. James Hagedorn: And Joe, what we're talking about leveraging our retail partners. So we're not going to be doing direct-to-consumer like all across the country where we'll have to build out a massive network and stuff from a cost in perspective. So we leverage our customers through that process. Listen Joe, personally, I think it's really exciting. And we had a Board meeting last week, Thursday and Friday, and at the dinner, I got onto sort of the [ sofas ] which [ as CEO, you can do at a Board ] dinner and just talk about not participating is suicide for us. So this is not something that we really have a choice in. We're underpenetrated. There's all kinds of opportunity. the retailers from our existing brick-and-mortar to other retailers are incredibly enthusiastic and want to play; so they see the opportunity as well that they are underpenetrated in longer garden. And a lot of -- remember, 80% of the volume we're talking about is with our existing retailers. And so it's not like we have a choice. I do think that it's a little bit more expensive to operate. And I think Nate and team will deal with that. But if you [ say to ] yourself, it is not optional, but not playing in the sort of dot-com space works, it just doesn't. And so we've got to figure it out. And I think we have a lot of opportunity there. And if margin is sort of the issue and a lot of new products are going to have to happen in that when people are buying online to make it more convenient to make it ship better because consumers want more choice. This is an opportunity for in the design process to sort of build margin in. Nate Baxter: Yes. And I'll just put a pin in this by saying as we talk about product assortment, we recognize the need for differentiation in these channels and among retailers. And so when I talk about SKU rationalization and innovation, just keep in mind it contemplates that. Operator: And our next question comes from Chris Carey of Wells Fargo Securities. Christopher Carey: I know this is asked. So I apologize for coming back to It. But we're continuing to get a lot of questions around inflation curve, I guess, if you will, into fiscal '27. I know that you're going to be strategic, as you had mentioned already on the call about locking in for exposure, you would look at pricing. I realize urea, as an example, is quite seasonal through the summer. Can you -- at what point is it that you have to kind of make decisions either on locking the current costs or you need to start having those discussions with retailers? And clearly, you have some momentum in fiscal '26. You've put strong investments into market. Does that give you a bit more ability to take pricing, justified pricing if indeed, you see that inflation proved to be a bit stickier into fiscal '27 such that you can continue to achieve the margin targets that you set out there. I just wanted to drill in a bit more on that. James Hagedorn: Well, first, I think it's a good question, okay. I'm not sure what the guys are going to answer on this. I would say that merchandising decisions, we probably got 3 months. I'm looking at sales right now. to he's putting up. So I think that you're probably talking 8 to 12 weeks where these decisions need to be made. So I think that sort of frames your question, which is when do you have to get on top of this? Nate Baxter: No, I was going to say Q3, our fiscal Q3, Chris, that's exactly when we have to make all these decisions. And like I said, the team has done a great job. We understand the dynamics as they are today. We've done a lot of scenario planning, including some simulations. And it will all come together where we have to go sit and talk to retailers for line reviews, and we'll have those discussions with them. And we're always transparent with our retailers about what we're trying to bring to the table. James Hagedorn: Because you're going to see that -- like what happens is as the finance people start working with the operating team to develop numbers for next year, they're going to start putting standards in for what stuff is going to cost. It's got to be relatively certain within that time frame that the standards are going to be higher than where they are today. Nate Baxter: Absolutely. James Hagedorn: So I think this sort of drives you that I think pricing is going to have to be a tool in the quiver this year, and we've got to just agree to that. And if we do see prices down that make for opportunity, if retailers are listening to this, we can probably find ways to get money back if it turns out our costs go down. But I do think pricing is going to be something that has to be used this coming year. I don't want people focusing on next year this year because I think navigating this year is what's important to us. If you look at the results, it's going really well. I think purchasing has sort of minimized sort of pain. I would say, and this -- I had this conversation with the Board. It is a little bit unfortunate. I think we've talked about sort of headwinds that are entirely manageable, which are built as of this year, it just sucks for the managers of the company who are paid on results that we're seeing incentives being eaten up. I tried using what the Board force majeure. I think they were somewhat vulnerable to it, which is the ability of like -- the management team is doing a great job in managing this really well. It just kind of sucks that something that's beyond our control is eating into upside for this year. The good news is we have it covered. And that's what I want people focusing on now. It's pretty soon, we're going to have to start focusing on next year. And I think we've kind of answered that question. Operator: And our next question comes from William Reuter of Bank of America. William Reuter: I have two, which I think will be fairly quick. The first is you mentioned price increases Were these the price increases that were taken kind of in normal line review timing? Or were there additional price increases taken, I guess, maybe at the beginning of the second quarter or end of the first? Nate Baxter: We haven't taken any additional pricing since establishing with the retailers last [ quarter ]. James Hagedorn: I mean we talked about it. Should we put a surcharge on for fuel. I think the issue we got into, to be fair, is probably half of what gets picked up from our plants. Retailers are picking up. And we just figured we get into pricing on a fuel surcharge, they're going to say, well, cool, like we're picking stuff up, you should give us a surcharge. And I think we just basically said we got this manageable. So I think again, for retailers who are listening, we were calm this year in spite of the fact that we had pretty significant increases. But remember, we had a lot of hedges in our diesel. So I think -- we make money on those hedges. Yes. This will be typical line review pricing we're talking about coming up here in the summer months. Nate Baxter: It would be pretty distractive to change pricing in the middle of the load and with retailers. So obviously, try to avoid that all costs. James Hagedorn: We've done it before, but it's been an emergency. William Reuter: Got it. And then, Jim, clearly, you're very focused on the share repurchases as an investment. How should we think about what the leverage profile is going to look like over the next handful of years? Should we assume that more or less, you're going to keep leverage where you are now and that share repurchases will just be at an amount that will kind of keep us where we are today? James Hagedorn: Yes. I mean that's what I would say. We've talked at the Board level. I know Mark has a point of view I think Mark would probably like to be closer to 3.5%. I -- we said in the 3s, I think notionally, 3.75% is a find enough place. Remember, this is one where we can't get all screwed up here because all we got to do is like take our foot off the gas pedal. And what I've told Mark in his gatekeeper role is that in the Air Force, when you're in an air combat situations, anybody can call knock it off. And the fight stops, everybody says what just happened. And Mark has knock it off rights here. And I think that's appropriate as our Head of Finance. And so -- and we'll all respect that. But I'm saying I'm pretty comfortable where we are. and he might like a quarter turn difference. I would just make the sort of argument that to be at, let's say, 3x for maybe even less that basically puts it off another year. And I'm not really willing to do that. We talked about the board. I got support at the board level to do this. Mark, I think is cool he cares about his knock at off rights, and I'm happy for that. So I think the answer is yes. Operator: This concludes our question-and-answer session and also today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome everyone to the RenaissanceRe Holdings Ltd. First Quarter 2026 Earnings Conference Call and Webcast. After the prepared remarks, we will open the call for your questions. Instructions will be given at that time. I will now turn the call over to Keith Alfred McCue. Please go ahead. Keith Alfred McCue: Thank you, Madison. Good morning, and welcome to RenaissanceRe Holdings Ltd.'s First Quarter Earnings Conference Call. Joining me today to discuss our results are Kevin Joseph O'Donnell, President and Chief Executive Officer; Robert Qutub, Executive Vice President and Chief Financial Officer; and David Edward Marra, Executive Vice President and Group Chief Underwriting Officer. To begin, some housekeeping matters. Discussion today will include forward-looking statements including new and updated expectations for our business and results of operations. It is important to note that actual results may differ materially from the expectations shared today. Additional information regarding the factors shaping these outcomes can be found in our SEC filings and our earnings release. During today's call, we will also present non-GAAP financial measures. Reconciliations to GAAP metrics and other information concerning non-GAAP measures may be found in our earnings release and financial supplement, which are available on our website at renre.com. And now, I would like to turn the call over to Kevin. Kevin? Kevin Joseph O'Donnell: Thanks, Keith. Good morning, everyone. We are proud of the quarter's results, which reflect the strength of the RenaissanceRe Holdings Ltd. business model and the value of our three drivers of profit. Once again this quarter, underwriting, fee and investment income all contributed meaningfully to strong operating income. This is gratifying as the balanced contribution is central to the resilience we have been building and advances our strategy of reducing earnings dependency on any single market condition or source of volatility. Before discussing the quarter in more detail, let me start with the broader backdrop. Geopolitical risk is elevated. Markets continue to adjust to a higher-for-longer rate environment and the macro environment remains increasingly fragmented, highly volatile and less predictable. Last year I said that our business is anti-correlated to this kind of environment and our results demonstrate that this remains true today. As the world becomes more uncertain and risk averse, the value of the protection we provide increases. Our business is to underwrite the volatility others seek to avoid. We manage it to reduce our customers' risk in exchange for strong returns to our shareholders. Ultimately, our strategy is to absorb volatility, manage it efficiently in the ordinary course, and produce results over time, recognizing occasional losses will occur. For the first quarter of 2026, we reported operating income of $591 million, a 22% annualized operating return on equity and operating earnings per share of $13.75. Tangible book value per share increased by 1.5% to $233.49. This reflects two influences: retained mark-to-market losses of $357 million and share repurchases of $353 million at a premium to book value. I will address the mark-to-market losses and share repurchases in a few minutes, but we view these as temporary drags on book value per share and believe they help create the conditions for continuing strong overall performance. Turning to our three drivers of profit, we will start with underwriting. We reported strong underwriting income of $589 million driven by excellent current accident year performance and favorable prior year development. We benefited from approximately $160 million of favorable reserve development with a proportionally larger contribution from Other Property. This reflects our proactive portfolio positioning and superior underwriting over the last several years. I want to highlight one accomplishment from the January 1 renewals that we alluded to last quarter. While rates were down low-teen percentages, our team did an excellent job positioning into a more competitive environment. As a result, top line in Property Cat this quarter stayed relatively flat excluding reinstatement premiums. Rates remain adequate and we took an above-market share of new business which demonstrates the strength of our franchise. As I wrote in our most recent shareholder letter, when rates are adequate, underwriters should be taking more risk—and we are. Meanwhile, our Casualty and Specialty adjusted combined ratio was 99.4%. This was consistent with our guidance of high 90s and supports our view that the portfolio performed as expected. David will provide more detail on our exposure to the war in the Middle East. In summary, we have limited exposure through lines narrowly designed to cover these risks, including War on Land and Marine War. I would not characterize our share in either of these markets as being outsized. Moving now to fee income, which performed equally well this quarter. We reported total fee income of approximately $94 million. Performance fees were the main driver of the upside, reflecting strong current year underwriting results and favorable prior year development. Capital Partners continues to be an important source of persistent and diversified earnings. It allows us to leverage our industry-leading underwriting franchise to generate capital-light fees. This complements the income we earn on our balance sheet, creating additional value from our underwriting business. That is another important source of resilience and remains a clear differentiator for RenaissanceRe Holdings Ltd., especially in markets where clients value scale, reliability and flexibility. Moving to retained net investment income, it was [inaudible] for the quarter. We have executed well in difficult investment markets; as a result, net investment income remains robust. This reflects the scale of our invested assets, the quality of the portfolio, and a rate environment that remains favorable. Fixed maturity, short term and private credit rates remained steady to higher during the quarter, which supported net investment income. Recent market moves allow us to extend duration and lock in at higher yields, which should continue to support earnings power over time. We reduced our gold position during the quarter by about half. We originally put that hedge in place to protect the portfolio against inflation and geopolitical risk, and it served that purpose well. As markets evolved, we chose to reduce the position, lock in gains and lower potential future volatility in the portfolio. Importantly, the position remained profitable both in the quarter and since inception. Let me spend a moment on the mark-to-market losses. The same market movements that pressure current period valuations also improve reinvestment yields and support future earnings power. So while book value takes a modest mark today, prospective earnings improve tomorrow. We view that trade-off as economically constructive. In addition, these losses are largely unrealized, so this is more of an issue of timing reflecting the quarter’s shift in the yield curve. The investment portfolio remains high quality and its underlying earnings capacity remains strong. Consequently, we remain comfortable with the overall credit quality of the underwriting securities. That is also true of our private credit portfolio. About 5% of our investment portfolio is in private credit. Our exceptional capital strength and high liquidity are the foundation for this measured allocation to private credit, which enhances our book yield due to the associated illiquidity premium. Robert will provide more color on our credit book in his comments. Shifting now to capital management where our approach remains unchanged. We have a consistent track record of strong earnings performance, excess capital and ample liquidity. That positions us to continue returning substantial capital to shareholders. And this quarter, we repurchased $353 million of our shares. We did so in a disciplined manner, allocating capital where we see favorable risk-adjusted returns. This includes allocating to our own shares when they trade at levels we consider compelling relative to intrinsic value and future earnings power. Since 2024, we have repurchased over 20% of our outstanding shares. This total is almost 11 million shares, or $2.7 billion, up until April 24. We did this at very attractive valuations, very close to current book value, which should boost returns to shareholders with minimal dilution. At the same time, we remain well capitalized to support our underwriting portfolio, our partners and future growth opportunities. Ultimately, capital management should support long-term growth in tangible book value per share and long-term value creation for shareholders. That remains the standard we apply. Looking ahead, the message is continuity, not change. The underwriting environment remains competitive, but rates remain adequate. Ultimately, our objective is to maximize long-term growth in tangible book value per share and operating earnings by preserving margin, constructing the right portfolio and allocating capital with discipline. That has been our approach through the cycle, and it remains our approach today. When we think about the balance of 2026, our outlook remains constructive. The underwriting portfolio is performing well and our earnings model continues to benefit from multiple diversified sources of income. With that, I will turn it over to Robert to discuss the financials in more detail and then to David to provide additional color on underwriting and renewals. Robert Qutub: Thanks, Kevin, and good morning to everyone. We delivered a strong start to 2026 in a quarter with both geopolitical and economic volatility. Our diversified earnings model continued to produce superior returns for shareholders. We generated operating earnings per share of $13.75 and an annualized operating return on equity of 22%. Annualized return on equity was 10.5%, which included $357 million of retained mark-to-market losses. Importantly, each of our drivers of profit contributed meaningfully in the quarter, providing a diversified and resilient earnings profile. There are a few numbers that will help demonstrate this. First, 15 points, which is the contribution from fee income and retained net investment income to our overall return on average common equity in the quarter. This provides a solid foundation of earnings each quarter that we then build upon with income from our underwriting business. Second, $589 million, which is the underwriting income we generated this quarter. This reflects disciplined risk selection and cycle management. And third, $353 million, which is the capital we returned to shareholders through share repurchases during the quarter. We continue to view our shares as attractive at current valuations and share repurchases remain an important part of our capital management strategy. Taking a step back, this performance is a continuation of the strong results we have been delivering over the last three years. In the last four quarters alone, we have delivered $2.5 billion of operating income with an operating return on average common equity of 24%. With such a strong base of earnings, we are better able to absorb volatility from a large event in any one quarter while continuing to grow shareholder value over time. Now, I would like to turn to a more detailed view of our three drivers of profit, starting with underwriting. Let me begin with the key point. Even as rates decline in some parts of the reinsurance market, our underwriting book remains highly profitable. In the first quarter, we delivered an adjusted combined ratio of 72%, reflecting disciplined underwriting and portfolio construction. We reported favorable development across both segments with most of it coming from Other Property where we fully retained it in our bottom line results. Property Catastrophe reported a current accident year loss ratio of 10.2% and an adjusted combined ratio of 19.2%. This reflected 11 percentage points of favorable development across a range of accident years. In Other Property, we had another excellent quarter, with a current accident year loss ratio of 55.5% and an adjusted combined ratio of 56.1%. This included 29 percentage points of favorable development, primarily from our non-cat attritional book. Casualty and Specialty remained in line with our expectations, with an adjusted combined ratio of 99.4%. Shifting to overall gross premiums written, which were $3.4 billion, down 16% from the comparable quarter, or 9% without reinstatement premiums. It is important to remember that our results last year included the California wildfires, which increased loss activity and drove most of the $340 million of reinstatement premiums in Q1 2025. After accounting for reinstatement premiums, Property Catastrophe gross written premiums were nearly flat. Other Property was down 7% and Casualty and Specialty was down 13%. David will discuss this in more detail, but these movements reflect deliberate portfolio shaping towards the most attractive classes of business. Property Catastrophe is generally our highest margin business. We have successfully found opportunities to deploy capital to grow selectively and help offset the impact of downward rate pressure. In Casualty and Specialty, we have continued to trim back exposure in general. We have also reduced on certain specialty classes like cyber, where rates have been under more pressure. Professional liability premiums were up in the quarter; however, this is not reflective of growth in the portfolio. It was driven by lower premium adjustments last year related to negative premium adjustments and a reclassification from professional liability to general casualty. Looking ahead to the second quarter, we expect Other Property net premiums earned of around $350 million and an attritional loss ratio in the mid-50s, and Casualty and Specialty net premiums earned of approximately $1.3 billion and an adjusted combined ratio in the high 90s. Turning now to fee income, we generated $94 million of fees, with management fees of $48 million and performance fees of $46 million. Performance fees were higher than our expectations due to a combination of strong underwriting results, favorable development and a one-time recognition of deferred performance fees related to a return of capital by DaVinci. Looking ahead to the second quarter, we expect management fees to be around $50 million and performance fees will vary by quarter, but should come in around $120 million for the year absent any large loss events or favorable development. Turning now to investments, retained net investment income was [inaudible]. This was down about 3% from the fourth quarter due to lower average interest rates in the first two months of the quarter. We recorded $350 million of retained mark-to-market losses in the quarter. About half of these are related to our fixed maturity portfolio and the other half related to equity losses, consistent with the volatility experienced in the broader market. While increased Treasury yields have a short-term negative impact, they also improve reinvestment yields which support our longer-term earnings power. During the quarter, we took advantage of financial market volatility to adjust the composition of our portfolio. First, we reduced our retained investment portfolio's exposure to gold from 5% to 2%. In doing so, we realized gains from a hedge that has performed well for us and has been profitable both in the quarter and since inception. Second, we increased our exposure to high-quality investment-grade corporate credit, where spreads and all-in yields offered attractive risk-adjusted returns, and at the same time reduced our exposure to shorter-term Treasuries. And third, through these allocation changes, we extended duration on the retained portfolio to 3.4 years from 3.0 years and increased the yield on the portfolio. In the second quarter, we expect retained net investment income to trend slightly up. Finally, I want to briefly address the private credit investments. Private credit assets are diversified across managers, sub-strategies, sectors, geographies and vintage years. We invest through institutional closed-end structures run by high-quality managers. We emphasize senior secured lending and other areas where structure, collateral and manager selectivity provide downside protection. Further, we have limited exposure to currently strained areas such as software or through BDCs. We believe current volatility provides opportunities to selectively increase our exposure to private credit. In summary, our investment portfolio performed well and we took advantage of market volatility to incrementally improve the investment portfolio. We believe these changes will improve expected net income on a growing invested asset base. Moving now to a few comments on tax and expenses. Our overall effective tax rate for our GAAP net income was 6%. We had a few one-off items which benefited the tax rate and we expect it will return to low double digits next quarter. As a reminder, although non-controlling interest results are included in pre-tax income, we are not taxed on the earnings that belong to our Capital Partners investors which reduces our GAAP effective tax rate. This quarter, we also benefited from the Bermuda substance-based tax credits. As you will recall, last year, we were able to realize 50% of the value; in 2026, we are able to recognize 75%. About two-thirds of the value is reflected in underwriting and had a 90 basis point impact on the combined ratio with the remainder in corporate expenses. Inclusive of the credits, our operating expense ratio for the quarter was 4.1%, up from 3.7% in the comparable quarter, or flat when you factor in the impact of reinstatement premiums in 2025. There were a few one-time reductions in the quarter, which pushed this ratio down, but looking ahead, we continue to expect our operating expense ratio to grow to 5% to 5.5% over the year as we continue to invest in the business. Let me close now with capital management, where our earnings strength and consistency continue to generate substantial capital. During the quarter, we repurchased 1.2 million shares for $353 million at an average price of $289 per share. And through April 24, we repurchased an additional $105 million of our shares for a year-to-date total of $458 million. We expect to continue our disciplined approach to capital management in 2026, first by seeking to deploy capital into desirable underwriting opportunities and second, by returning excess capital to our shareholders at attractive prices. In summary, I am pleased with our performance in the quarter. Each of our three drivers of profit continue to deliver strong results and demonstrate the benefits of our diversified earnings model. And with that, I will now turn the call over to David. David Edward Marra: Thanks, Robert, and good morning, everyone. In the first quarter, we delivered strong financial results across each of our drivers of profit and differentiated RenaissanceRe Holdings Ltd. in the market through superior underwriting execution. I could not be more pleased with the underwriters' performance. The team retained profitable business, grew selectively and maintained underwriting discipline with a focus on preserving margin. Rate adequacy across the portfolio remains attractive and should continue to support strong shareholder returns. At each renewal, our underwriting team has two objectives. First, deliver our market-leading value proposition to clients and brokers. That supports a durable pipeline of renewable business, first-call status and favorable signings that are resilient to competition. Second, construct the optimal underwriting portfolio across business segments to support each of our three drivers of profit and generate capital-efficient, attractive returns both in the current year and over time. Our underwriting team's excellent execution of both objectives continues to differentiate RenaissanceRe Holdings Ltd. We combine underwriting expertise, portfolio management and capital flexibility to identify the best opportunities. And we are able to convert those opportunities into signed business because of the value we bring to our clients. We support them consistently over the years, offer large lines, and lead market quotes, often when others will not. We transact with them holistically across products, geographies and balance sheets, and when they have claims, we differentiate with speed of payment and claims insights. This is why we are successful in securing the lines we target even when programs are oversubscribed. It is also why we have been able to capture more than our market share of new demand and continue to shape the portfolio toward more attractive risks. Our first quarter results demonstrate the continued efficacy of these actions. Our portfolio drove underwriting income of over $580 million supported by a strong current accident year loss ratio of 53 and favorable prior year development across both segments. Let me cover our segments in more detail starting with Property. As we discussed last quarter, the January 1 book saw Property Cat reinsurance rates down on average in the low teens for our portfolio. U.S. accounts were down closer to 10% and international and global accounts closer to 15%. At today's rates, and with favorable terms and conditions, Property Cat is still highly accretive with strong rate adequacy. We successfully deployed capital into this attractive market. We retained the majority of our portfolio and deployed $1 billion of new limit. This was a strong team effort and it demonstrates our ability to access high-quality opportunities in a competitive, but still very profitable market. As a result, gross written premiums in Property Catastrophe—our highest margin business—were roughly flat, only down 3% from Q1 2025 excluding reinstatement premiums. Specifically, we deployed additional limit by focusing on two main areas. First, we grew on accounts and layers with the most attractive margins, such as select California deals impacted by the wildfires and certain nationwide accounts. Second, we grew with several large U.S. clients where we captured new demand on business which remains highly rate adequate. Global accounts and international business experienced more rate pressure than the U.S. portfolio. These accounts remain attractive due to the diversified portfolios we maintain with them and the pipeline of renewable business they represent. We also saw opportunities in the retro market to purchase additional protection at attractive terms. Ceded rates were down high teens across our portfolio. We are a significant buyer of retrocessional protection and are a first call for purchasing opportunities, similar to our position in the inwards book. In addition, we upsized our Mona Lisa cat bond at significantly more attractive terms and conditions. Looking ahead, we are making good progress on the U.S. midyear renewals. We have already bound about half of our U.S. midyear portfolio; roughly half of that has been on private terms. The Florida market continues to benefit from strong pricing, reduced social inflation due to tort reform, and robust terms and conditions. As a result of this improved environment, policies at Citizens are at a record low. The shift from public to private markets benefits the entire distribution chain, including increasing demand for reinsurance. We grew in Florida through the Validus acquisition and organically in 2025. I feel confident in the current positioning of our portfolio and our ability to access profitable business on existing programs and new demand in Q2. In Other Property, we continue to shape the book to reduce peak exposure while preserving attractive margins. The business is performing well with strong current and prior year loss ratios, reflecting the quality of our underwriting decisions and our disciplined management of the book. Terms and conditions remain strong, but pricing is under more pressure. We are trimming exposure in the most pressured areas, and improving expected net profitability through ceded reinsurance. Turning to Casualty and Specialty, market conditions are a continuation of those experienced at January 1. We see ongoing rate increases in general liability, which are necessary in order to keep pace with loss trend, and we see increased competition in specialty and credit lines in response to recent profitability. We have been optimizing the Casualty and Specialty book through risk selection, portfolio mix and greater use of ceded reinsurance. Our team has done a fantastic job of underwriting our clients' business across the various classes they purchase. This is especially important for the Casualty and Specialty business, as it allows us to pick the best deals within each class and construct a more diversified portfolio. In general liability, we have reduced on deals which are most exposed to social inflation. Our exposure to this class is down 40% over the last two years, but premiums are down significantly less because of rate increases. In addition, we have been proactively shifting the portfolio mix to weight the best returning business, with specialty and credit now making up more than half of the portfolio. We have consistently used ceded reinsurance in the segment to manage risk and optimize returns, and at January 1, we found new attractive opportunities to increase these protections on long-tail lines of general and professional liability and specialty classes such as marine and energy. Today, we cede 20% of Casualty and Specialty premiums compared to 13% a year ago. As in Property, we see the entire market from an inwards and outwards perspective and are uniquely positioned to construct an optimal net portfolio. These actions are important examples of how we shape the portfolio. They allow us to stay on the right panels, preserve valuable options and enhance the overall quality of the book. Improved margins will take time to emerge, but at the same time, we continue to benefit from the investment income generated by float on casualty reserves. So even in a period when underwriting margins in Casualty remain tight, the business continues to support book value growth and shareholder returns. Before I close, I want to address the war in the Middle East. Based on what we know today, we do not believe the war will have a significant impact on our book for several reasons. First, we have low underwriting exposure to the region. Second, war is excluded from standard property policies. Finally, our potential exposure would come primarily from our specialty portfolios—specifically War on Land and Marine War—and we purchased retrocessional protection on these portfolios. War on Land is a line where property damage from war is explicitly covered, modeled and priced for. Some of the damaged hotels and refineries in the region have purchased this cover, but take-up rates and coverage limits are relatively small compared to property policies. Marine War coverage is included in most marine policies but can be canceled and repriced on 72 hours’ notice. We have detailed information on locations and vessels that have been hit, and we will continue to monitor developments closely as the war evolves. Stepping back, we continue to manage our underwriting portfolio to generate attractive returns even in a competitive market. We are growing where economics are attractive and reducing where they are not. That discipline supports all three of our drivers of profit. Property is contributing mostly through underwriting income and fee income, while Casualty and Specialty is contributing mostly through fee income and investment income. All of these factors support strong shareholder returns and sustainable earnings power. And with that, I will turn it back to Kevin. Kevin Joseph O'Donnell: Thanks, David. In closing, this was a strong quarter and another good example of the earnings power and resilience of our business. Each driver of profit performed well. Underwriting was especially strong, including excellent current accident year performance and significant favorable development. Fee income exceeded expectations. Net investment income remained robust, with stronger reinvestment economics supporting future earnings power. And we repurchased shares in a disciplined way while maintaining a strong capital and liquidity position. Taken together, this quarter demonstrates what RenaissanceRe Holdings Ltd. was built to do: generate attractive returns across environments by combining underwriting expertise, third-party capital management, and investment capability. Three diversified drivers of profit rather than any single one allow us to deliver more consistent earnings through the cycle than we could have produced even three years ago. The market remains competitive, but opportunities remain attractive. Most importantly, we remain focused on the same objectives that guide our decisions every quarter: growing earnings, compounding book value over time and creating long-term value for our shareholders. We will now open the call for questions. Operator: Thank you. And we will take our first question from Elyse Beth Greenspan with Wells Fargo. Elyse Beth Greenspan: Hi, thanks. Good morning. My first question is on the midyear renewals. I was hoping—I guess it is a couple parts. You said you bound around half of the U.S. book already. So I was hoping to get a sense of the pricing you saw on what has been bound, expectations on the remainder that will be bound between now and the midyears. And then are you observing any changes in demand across that renewal? David Edward Marra: Hey, Elyse, this is David. The Q2 that we have seen so far is pretty much a continuation of what we saw in Q1. In Q1, rates were down mid-teens as a portfolio, but that was split between closer to 10% for U.S. Cat and closer to 15% for international and global. We have seen that mostly continue. Into Q2, we are still seeing a lot of opportunities for private terms. If you recall last year in Q2, there was a lot of Florida business that we were able to access on private terms. What we are able to do with these early renewals is lock up our capacity early at terms better than the market, and the clients are able to fill out the placement from there. We are encouraged by how the team has been able to engage in that. New demand is actually higher than we thought at January 1. If you go back a little bit, we were saying $20 billion of new demand in 2024, $15 billion in 2025, and we thought $10 billion was our estimate for 2026. That is looking closer to $15 billion now, but we will not know until all the Q2s are done. We are seeing really good opportunities across the normal Q2s and the Florida book. That growth in demand, I would also add, is from a lot of core personal lines clients which are buying new reinsurance because they have growth in CIB and are keeping up their programs with inflation. So it is a really good combination for us to deploy capital into that. Elyse Beth Greenspan: Thanks. And then my second question, can you give us a sense of how much losses you booked for Iran in the quarter? And I am assuming that all stays within the Specialty and Casualty segment within the combined ratio there. And then would you expect to book additional losses in Q2? Kevin Joseph O'Donnell: Let me start there. As David mentioned, we are generally somewhat underexposed to the lines that are most exposed to the Iran war. We have good transparency on the ships that were hit and the other on-land targeted properties as well. Those are all reserved within our portfolio. Additionally, we are being cautious and thinking about the uncertainty from the ongoing war and being cautious about releasing IBNR within the Casualty and Specialty segment. The losses are within Specialty; they are within Marine, Marine Energy. It is fully reflected. If more happens in the second quarter, we will reflect that in the second quarter, but we feel good about where we are. It is really just a couple of points into the Casualty and Specialty segment, but it does not foreshadow what could be happening going forward. Elyse Beth Greenspan: Thank you. Operator: Thank you. And we will take our next question from Joshua David Shanker with Bank of America. Joshua David Shanker: Yes. Thank you for taking my question. In Robert's prepared remarks, he spoke about the operating expense ratio moving to somewhere around 5.5%. You said on the last conference call that you were talking 5 to 5.5%. You did 4.1% this quarter. I have a few questions. Number one, that is a lot of money—150 basis points in annual expenses. What are you investing in? And two, do you not get the offsetting tax benefit from the payroll tax adjustment? Is that not pushing that down at the same time you are guiding investors to think it is going to rise? Robert Qutub: Josh, thanks for the question. I did address it in the prepared comments, but let me expand. The 4.1% that you saw in the first quarter was down because of some one-time items that came through, typically nonrecurring in the first quarter. The core is probably closer to the mid-4s—maybe around 4.6%. Yes, we are investing in the business. Here is how I see it: 4.5% to 5% is a relatively low expense ratio relative to the industry. We feel good about that. That gives us the opportunity to invest in people and our platform to be able to operate at scale, and we will continue to operate at scale. Specifically, we are building out a new front office system for REMS that we have talked about before. These are significant investments and we expect to continue over time to grow. So, we need that operating expense base to be there. Yes, for expenses that we incur in Bermuda, we will get that tax credit, relative to the people and what we invest in non-people. We did reflect that whatever we are investing will come in as a small offset. And as I said, we expect to grow into this over the course of the year. It is gradual. Joshua David Shanker: So 5.5% is not your targeted 2026 expense ratio. You expect it to creep towards 5.5% through year-end? Robert Qutub: Five to five and a half. We have control over that in terms of how we spend it, but it will grow. Joshua David Shanker: And are these one-time expenses, or is this an investment in capabilities that will moderate in 2027, or do you think that is going to be the new normal? Robert Qutub: People are part of our run rate. When we build out a system in REMS, that is nonrecurring over time. Joshua David Shanker: Okay. Thank you very much. Operator: Thank you. And we will take our next question from Michael David Zaremski with BMO. Michael David Zaremski: Hey, great, thanks. Going back to the commentary about the Specialty segment, the net-to-gross kind of changing, it sounds like that is a permanent change, but there was no guidance change on the combined ratio in that segment. How should we think about it? Are you laying off more tail risk? I know that segment, especially on the marine side, had some cats in recent years, even though I do not know if cats are embedded within that high-90s guidance for that segment too. Thanks. David Edward Marra: Hey, Mike, this is David. I can address what we are doing from an underwriting perspective. In the Casualty and Specialty segment, we have used ceded reinsurance for many years. If you go back about ten years, we ceded about 28% to 30% of the book. So this is in the normal course of how we use ceded reinsurance to shape the portfolio. We see the whole market inwards and outwards, so we are able to make those trades and construct the portfolio with all that in mind. The types of ceded reinsurance that we have grown into have been more quota share on the long-tail book, and on the Marine and Energy book, we have bought more excess-of-loss with broader coverage. Those perform distinctly different roles. The quota share provides risk income in the short term, but it also provides protection if losses deteriorate. And on the energy side, it would provide some protection for events such as the Iran war to the extent that those might grow. It is an effective way to position the portfolio and that is what we are accomplishing now. We expect to continue to see opportunities throughout the year as capacity comes into the market and the year develops. Michael David Zaremski: Got it. That is helpful. Switching to the portfolio, Robert, you talked about some fairly material changes. At a high level, I just want to confirm—taking profits in gold puts additional assets into the fixed income bucket, which probably extended duration. So should we add an additional bump to the fixed income run rate from that reallocation? Or are there other moving parts we should think about? Robert Qutub: Thanks for the question. There was a lot going on in the portfolio, but when you break it down, it comes in three distinct buckets. One is the gold we reduced. As Kevin pointed out in his prepared comments, we knew that was going to be a good hedge. The value accreted to us faster, so we reduced the exposure. We still have a small piece of gold in our portfolio, which we think is a prudent allocation within our investment guidelines. Second, we focused on the structure of the portfolio holding in a higher-rate-for-longer environment. My comment about reducing short-term Treasuries that had a high yield and moving that out to investment-grade credit in a significant way allowed us to extend and lock it in; hence the duration increased. Therefore, we have higher credit quality and an impact to our new money yield that went from 4.8% to 5.1%. We view that as a good structure and a long-term position. Third, we wanted to clarify the importance of private credit to our investment portfolio. We feel good about it, and I think that is what I was trying to share. So if you break it down, it is really those three areas with an outcome of a little bit longer duration and overall a higher yield that you will start to see trending next quarter. Michael David Zaremski: And quickly, if you move further into private credit opportunistically, roughly what type of yields are you seeing? Robert Qutub: We do not share specific yields. We are capturing the liquidity premium that we get above investment-grade positions, which can range from 200 to 300 basis points. It is also hard to look at it as one number because we have direct lending, distressed and secondary, and they have different return profiles over time. They are all performing within our expectations, in some cases exceeding. Operator: And our next question comes from Andrew E. Andersen with Jefferies. Andrew E. Andersen: Hey, good morning. On the new demand at June, is that skewing towards more traditional layers versus aggregate covers? And of the aggregate business, what is the appetite to write that? David Edward Marra: The new demand—we prioritize the quality of the pricing, the quality of the overall risk and the quality of the buyer. We have seen demand come from sustained buyers, nationwide personal lines companies, which are a big core client base for us. There are some aggregate programs in there. Our view on aggregate is that there are good aggregates and bad aggregates. The aggregates placed in the market now and the ones that we write as part of our portfolio are well structured. They are attaching at the capital level, not the earnings level. They are also well priced, and the level of attritional losses is well understood by the market at this point. They make an attractive piece of the overall tower. Our approach to that new demand is to go to market on the middle and bottom end regardless of whether there is an aggregate program. We can secure our line there and then use efficient capital sources on the top end as well and provide that one-stop shop across the board, achieving attractive returns that meet the program for RenaissanceRe Holdings Ltd. shareholders. Andrew E. Andersen: Thanks. And on Other Property, can you talk about how durable the mid-50s attritional loss ratio is as competition increases on that line? David Edward Marra: The Other Property book has had really good performance. It has had several years of sustained rate increases and improvements in terms and conditions. Rate is coming under pressure, but terms and conditions are still holding, and we have seen favorable claims trends. With the current pressure on rates, we have shifted some of the capacity, taken some risk off the table, and found it better priced in the Cat book—mainly some Florida risk. We have confidence in continued sustained returns on the Other Property book, and we have options to manage through some of the softening. Robert Qutub: As I said in my prepared comments, mid-50s is where we feel comfortable given the mix of the portfolio. It will have some ups and downs based on large events that come through. Right now, mid-50s—about 55% plus or minus—is how I think about it. Andrew E. Andersen: Thank you. Operator: And our next question comes from Meyer Shields with KBW. Meyer Shields: Thanks so much. When we think about this year's pricing for Florida at midyear, is there any reduction in the provision for initial skepticism over how well the reforms were going to work? In other words, besides risk-adjusted pricing, is there another discount working its way into pricing, or is that not relevant? Kevin Joseph O'Donnell: We often talk in terms of risk-adjusted pricing. If we look back at our credit for the reforms when they were originally put into place, we have seen more tangible benefit from the reforms, which is coming into pricing. I would say that the overall economics within Florida are reducing on a comparable level to what we saw at January 1, and the portfolio is extremely well rated. We have good flexibility to leverage into the market. We are finding new opportunities to grow in Florida. To give you a sense of how much we like it—relative to David's comment between Other Property and Property Cat—right now Property Cat is returning, particularly in the Tri-County area, stronger returns than some of the Other Property, and we have made some shifts there. We like the portfolio. We have begun to give more recognition for the reforms, which I think is warranted, and we continue to think the market is highly accretive. Meyer Shields: And then a question for Robert. You gave guidance for fees in the second quarter, but the press release also noted some funds returned to some of your partners. Does that have an impact in future quarters’ management fees? Robert Qutub: To make sure I get the question correctly—you are talking about the capital return we had this year for the joint ventures, the $730 million. That is really a distribution. Does it affect this year's performance? No. We will keep in each of the vehicles the capital we need to deploy versus our current expectations. They had a good year in 2025; you can see the NCI was $900 million plus that we earned, and returning some of that back to the investors in those funds is a good thing. That was the bulk of it, the $700 million, and we are positioned well as we underwrite in 2026. Kevin Joseph O'Donnell: One thing I would add: the vehicles are about the same size this year as last year. This is really just returning earnings, and it is our normal process. We do it every year. Meyer Shields: Okay. Thanks so much. That helps. Operator: And our next question comes from Analyst with JPMorgan. Analyst: Hi, thank you. Most of my questions have been answered already. Sorry about that. I will drop off. Kevin Joseph O'Donnell: Sure. Operator: Thank you. And we will move next to Ryan Tunis with Cantor. Ryan Tunis: Thanks. Just one from me for Kevin. Kevin, I was hoping that you could remind us of the history of Ren in terms of appetite for writing for the domestic companies. I feel like at one point there were a good number, and then there were almost none. Given where the health of the market is today, how do you compare that relative history in terms of your willingness, not just to write in terms of size, but breadth of cedents? Kevin Joseph O'Donnell: I have been here almost thirty years and I have seen us participate in lots of different ways in the Florida market. We remain highly influential in the Florida market even today, although it is a much smaller percent of our overall premium. In the early 2000s and late 90s, about 30% of our premium came from Florida broadly, and we participated in a highly structured way over the years. Starting five to seven years ago, we decided to take more of our Florida risk coming through nationwide programs. We always had good participations on some of the larger programs and larger writers in Florida, and then selected more aggressively as we went through the stack of domestic companies. Right now, our participation remains split between some of the larger Florida companies, probably a little bit more breadth into the mid-tier companies, and a lot of exposure still coming from the nationwide. So it is a smaller percent of the portfolio, still large enough to drive the tail in our tail capital for the property cat portfolio for Southeast hurricane. It is a constantly evolving strategy in Florida, but it is one we know extremely well and we have all the levers to think about where best to take it: Other Property, nationwide, large domestics, small domestics. Operator: Thank you. And our next question comes from Tracy Benguigui with Wolfe Research. Tracy Benguigui: Thank you. Most of my questions were asked. I will just ask one. I was going through your proxy and your 2025 ROE target of 10.27% in the STI plan. It stood out given how far above you have been operating. It raises questions about potentially being in the long haul of pricing decreases, given it will take a lot for your ROE to fall to that level. But you convinced me that you could land at 15 just from NII and fees. Could you help us understand how you want investors to interpret this ROE target? Kevin Joseph O'Donnell: It is not a target. It is something used formulaically to produce a change in the slope of the curve in our compensation program. We try to be careful not to put it out there as a target. It is simply a formulaic input to a formula for long-term compensation. There is no perfect way for compensation to work for the types of risk we are taking, where casualty risks are stretched seven years and volatility from Property Cat does not always reflect the performance or quality of the underwriting. It is simply a good way for us to think about how to compensate employees over the long term. My compensation varies with the performance of the company, but more importantly, I am deeply invested in the company with a large holding and I am aligned with shareholders. One way to think about it is closer to cost of capital than a target for ROE, but it is not exactly that. It is a mechanism to change the slope of a compensation scheme. Tracy Benguigui: Got it. Thank you. Operator: Thank you. Our next question comes from Matthew Heimermann with Citi. Matthew Heimermann: Hey, good morning. Two quick questions. First, thinking about having fewer opportunities than you do quantum of capital, and recognizing you have repurchased all the shares you issued with Validus, I am curious whether inorganic corporate development is on the table as you think about the outlook. And if so, given what you have grown into, what would be additive? Kevin Joseph O'Donnell: We are well positioned to think about inorganic growth, having fully integrated our last acquisition, Validus. Nothing has changed. If we see something that advances our strategy and is financially actionable, we would take a look and be able to execute. We feel like we are a complete company with each of the components we need to continue to be successful. If something becomes available, I think we would be on the list for people to call, but we are focused on executing the strategy that we have and we see inorganic growth as an accelerant, not a change. Matthew Heimermann: Following up on the complete platform comment, is it unreasonable to think about business development that might historically have taken place in traditional M&A terms occurring more in dedicated third-party capital solutions? Kevin Joseph O'Donnell: We are always looking at adding different capital to our franchise if it serves our customers. I do not think of that necessarily as inorganic growth. If we start a vehicle or bring a new structure online, that is fundamental to our strategy, not something I would think of as inorganic even if it is a strategy that we do not otherwise attack today. Matthew Heimermann: That is fair. For clarification, I was thinking about it more in terms of maybe there is a book of business at a subscale participant and buying an entity does not make sense, but solving for both parties with additional off-balance sheet capital could make the difference. Kevin Joseph O'Donnell: We can do that. Often that type of structure is a renewal rights structure if it is a takeout from an existing book, and that is something we are comfortable doing. Those are all things that we look at. On some of the more production-focused stuff, the multiples still remain quite high though. Matthew Heimermann: One clarifier—regarding the $15 billion of potential incremental demand at midyear, can you remind us relative to what, just to put it in underlying exposure growth terms? David Edward Marra: The $15 billion we referenced—moving from $10 billion to $15 billion—is for U.S. Cat limit. That is limit primarily exposed to U.S. Cat buyers and U.S. Cat exposure. We had $20 billion a couple of years ago, $15 billion last year, and it is between $10 billion to $15 billion this year. Kevin Joseph O'Donnell: If you use a similar rate online for that relative to the rest, that is a good way to think about the incremental exposure growth. Operator: Thank you. Our next question comes from Alex Scott with Barclays. Alex Scott: Hi. First one I had is on some of the comments you are making around the reduced exposure—over 40% exposure reduction to the most social-inflation-impacted parts of casualty. Could you extrapolate on what you are seeing there? What is preventing enough rate coming through so that it becomes attractive at some point? How far away are we from that? And are any initiatives in states other than Florida working? Would love to hear the thoughts behind the reduction and whether at some point that could become a growth area again. David Edward Marra: Over the last 24 months, the market has recognized that social inflation, and inflation in general in claims, has accelerated. That is when rates started going up. Ten to twelve percent is our estimated range for loss trend, but that will vary by class and subclass. Insurers are getting rate—sometimes above that, sometimes around that. The key is trend is cumulative and that rate has to keep going or we will see slippage in loss ratios in the casualty space. We are happy with where the business is headed; insurers are doing the right things. Rate is the easiest way to measure that. Other important areas are investments in claims handling. The plaintiffs’ bar has been highly successful. Insurers are now investing in the right data and technology, coordinating through the towers better, and making this a C-suite issue. It will take a long time for the investments to come through the numbers because of how these claims develop. We are watching that closely. The third lever for us is optimizing our own portfolio—deciding in an inflationary environment which deals we want to be on and which we do not. We have been reducing on deals most exposed to social inflation—lower layers, structures covering parts of the business most at risk, or where an insurer is not making the right adjustments in claims handling. Going forward, the business is on the right track. We have a substantial and leadership position and are well positioned to grow if we see margins turning around. But given the length of time for margins to emerge, we are going to be cautious for now. Alex Scott: Got it. That makes sense. Then the growth opportunity with some of the large cedents and some nationwide contracts—could you give a little more color on the opportunity? Why are you finding that more rate adequate? And should we think about mix shift—convective storm versus hurricane risk? David Edward Marra: Stepping back, we deployed $1 billion of limit in Q1 into the market. That is the easiest metric. There have been some rate decreases, so rates are roughly flat for us, rather than showing the decreases in the market. Rate adequacy overall in U.S. Cat is still highly adequate, coming off the highs of the best markets we have seen in a generation. We are comfortable with returns in U.S. Cat. Not every Cat deal is created equal—by layer or client. Our goal is to underwrite each deal and client, ensure we have confidence in our independent view of risk, and then act. We see a wide dispersion between the best and worst deals. The team has done a great job not only recognizing where the best deals are, but also using client relationships to lock up lines on those deals early. That is a differentiator and supports deploying capital into a high-margin business that will continue to impact returns going forward. Operator: And our next question comes from David Kenneth Motemaden with Evercore. David Kenneth Motemaden: Hey, thanks for squeezing me in. Just a quick one on Casualty and Specialty, on the accident year loss ratio. If I back out the Iran losses, it looks like the loss ratio deteriorated by 120 basis points year on year, and that is above where it has been running recently. Could you elaborate on what was driving that underlying movement? Robert Qutub: If you go back and compare to last year’s first quarter, comparisons are noisy because of the wildfires and we did take some specialty losses there which would have elevated the current accident year loss ratio. As Kevin said, we printed a current accident year in the high 90s for the segment, but that included a couple of points related to the Iran war going on right now. That is a better starting point before you get events that would drive it up. Kevin Joseph O'Donnell: We are not seeing an uptick in our loss ratio other than adding a couple of points for Iran. Not sure about the reconciliation you are doing, but that is not part of our dialogue in managing the book right now. David Kenneth Motemaden: Got it. Thank you. And maybe just quickly—an update on how you think PMLs will shape up as we go through the midyear renewals? I think you had talked about flat for Southeast wind. Is that still the case, or a little higher now given more opportunities and more demand? Kevin Joseph O'Donnell: As David mentioned, we are deploying a bit more capacity into the market. That will push up our exposure for Southeast hurricane a bit. If I were giving 10,000-foot guidance, I would say relatively flat, biased to a little more exposure, but it is not going to change the overall profile of the risk we are taking as an organization. David Kenneth Motemaden: Great. Thank you. Operator: Thank you. This concludes our question and answer session. I will now turn the meeting back to Kevin Joseph O'Donnell for any closing remarks. Kevin Joseph O'Donnell: Thank you for joining the call. We are proud of the results we achieved this quarter, feel like the book is in great position, and we look forward to talking to you next quarter. Thank you. Operator: This concludes the RenaissanceRe Holdings Ltd. First Quarter 2026 Earnings Call and Webcast. Disconnect your line at this time, and have a wonderful day.
Operator: Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to Entergy Corporation's First Quarter 2026 Earnings Call and Teleconference. 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. And if you would like to withdraw your question, press star one again. I will now turn the call over to Liz Hunter, Vice President of Investor Relations for Entergy Corporation. Liz? Liz Hunter: Good morning. Thank you, John, and thanks to everyone for joining this morning. We will begin today with comments from Entergy Corporation's Chair and CEO, Andrew S. Marsh, and then Kimberly A. Fontan, our CFO, will review results. In today's call, management will make certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation, and our SEC filings. Entergy Corporation does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now I will turn the call over to Drew. Andrew S. Marsh: Thank you, Liz. Good morning, everyone. We had a productive first quarter in which we delivered strong financial results. We launched our Fair Share Plus pledge, and we advanced customer initiatives with the execution of several electric service agreements. Beginning with financial results, today we are reporting first quarter adjusted earnings per share of $0.86. 2026 guidance remains on track, and we are increasing our already strong adjusted EPS outlooks driven by 8.5% retail sales growth. Now I will cover the business updates for the quarter, and as always, I will start with the customer. For several years, we have worked with stakeholders to recruit data centers and capture the transformative impact they can have on our communities through investment, jobs, and other support while at the same time protecting and benefiting existing customers. Earlier this year, we formalized that commitment with the launch of our Fair Share Plus pledge. The Fair Share Plus pledge is a set of guiding principles that ensures that data centers pay their fair share for the power they consume, plus additional benefits for customers and communities. Our pledge aligns with the rate payer protection pledge that our customers signed with the White House. Fair share is achieved in several ways. Minimum bills and contract length cover incremental costs. Termination provisions ensure current customers avoid unneeded costs. Clean energy terms support a potential future transition and strong credit terms give us confidence in all of it. Fair share also means that data centers cover their portion of fixed costs that our current customers pay for today. The fair share portion alone is the source of the estimated $7 billion of benefits we have highlighted, and current customers' bills will be lower than they otherwise would have been because data centers are paying the incremental infrastructure they need as well as their share of fixed costs. The plus component is all of the community benefits originally envisioned by our state and local leaders, including well-paying jobs and targeted workforce development, a substantial influx of new support for schools, nonprofits, and other state and community needs, and multiplier effects from new businesses and employment opportunities that come about because of the data centers. The plus component also includes a stronger electric system with reliability and resilience benefits, lower average fuel costs driven by more efficient generation, and specific customer benefits like low-income or energy efficiency support. The plus component is clearly valuable, and it is in addition to our estimated $7 billion in customer benefits. We are proud that the framework we committed to more than two years ago is already providing significant benefits for our customers and communities, and those benefits will compound well into the future. I cannot say enough about the tremendous work our employees have done to create this transformative opportunity for our communities while also providing so much value for our existing customers. And we are not done yet. In late March, we announced a new electric service agreement with Meta for another data center in North Louisiana. The fair share value from this agreement alone is expected to be $2 billion, which is included in the $7 billion I mentioned. In the plus category, over the next 20 years, Meta has made other commitments: $140 million for energy efficiency programs, and $60 million for our Power to Care program. Entergy Louisiana will match Power to Care funding, bringing the increase to $120 million. For context, that is a five-times annual increase over 2025 levels that will meaningfully improve outcomes for our most vulnerable customers. Shortly after executing the agreement, Entergy Louisiana filed an application with the Louisiana Public Service Commission requesting approval for assets needed as a result of adding the new Meta data center to the system. The investment includes seven new combined cycle units, transmission infrastructure, and battery storage facilities. The cost of the proposed facilities will be covered by payments from Meta, whether from their tariff or other contributions, yet all customers will realize reliability and resilience benefits and lower fuel costs from these investments. We also agreed to pursue another 2.5 gigawatts of renewables and further investigate CCS, nuclear upgrades, and new nuclear to support Meta's clean energy goals. We will add projects to the plan as assets are identified. This month, the commission affirmed that our request falls under their new Louisiana Lightning initiative, and they directed that the procedural schedule should support a decision at the December B&E meeting. The commission's Lightning initiative is part of Governor Landry's Project Lightning Speed to support economic development that provides significant benefits to state and local communities. We are requesting approval for more than $15 billion in capital with about $14 billion in our four-year plan. As a result of the agreement, and pending the approval request, we are also raising our sales and adjusted EPS outlooks. Kimberly will discuss in more detail. Beyond the Meta agreement, so far this year, we have signed ESAs totaling over 1,000 megawatts. These agreements were from multiple industries across all our operating companies, and they indicate that customer growth beyond data centers remains robust in our region. We also continue to receive data center interest within our service area. After all agreements signed to date, including the recent agreement with Meta, we still have a pipeline of 7 to 12 gigawatts of potential data center customers that are not in our plan. Moving beyond the customer growth update, I would like to cover a few more items. Operational excellence remains a key focus area, and we will talk in more detail about that at Investor Day. For today, I will share a couple of highlights. Orange County Advanced Power Station achieved its first fire milestone, bringing it one step closer to delivering reliable power for our customers in Texas. We expect the plant to be fully online in late summer. Recently, our power delivery team identified more than $30 million in capital savings on the Commodore to Churchill 230 kV project. Our engineers developed a solution which improved the design, lowered materials cost, and enabled faster customer delivery. Importantly, the improvement can be applied to future large transmission projects. This kind of innovative thinking combined with the scale of our capital plan continues to lower cost for customers and unlock additional customer investment opportunities. Entergy Texas is working to expand its firm generation capacity to serve a growing customer base. Following the commission's feedback, they issued an RFP in February for combined cycle capacity and energy. Across our system, we continue to expand our renewables portfolio driven by our customers' desire for clean energy options. We have active RFPs for more than 1,600 megawatts of renewables and storage, and we have over 4,500 megawatts of renewables and storage in various stages of negotiation, after selections from prior RFPs in Arkansas, Louisiana, and Mississippi. Roughly two-thirds of the megawatts in negotiation would be owned. In addition, we are actively managing proposals through Louisiana's accelerated renewable review process. These are important tools to help us identify projects supporting customers' clean energy goals. As we indicated on the previous earnings call, Entergy Arkansas filed its base rate case in late February requesting a $45 million rate change, which is less than 2%. Because bill impacts vary by customer type, the residential impact would be less than 1%. Some of the features that we requested include an optional time-of-use rate that provides residential customers with the opportunity to lower bills by shifting energy use to lower-cost hours, and low-income rates that provide a 50% discount on the customer charge for households that qualify for LIHEAP assistance. We also elected to resume Entergy Arkansas four-year FRP after the rate case is resolved. Entergy Mississippi filed its annual formula rate plan with no change requested. Arkansas and Mississippi both have mechanisms to provide cash allowance for funds used during construction for investments to support significant economic development projects. To that end, Entergy Arkansas filed its first annual Generating Arkansas Jobs Act rider in March, and Entergy Mississippi updated its interim facilities rate adjustment in January. One additional comment about Mississippi: The state recently passed legislation authorizing securitization of costs associated with Winter Storm Fern. Kimberly will provide additional details on that as well. Beyond Fair Share Plus, our employees continue to work every day for the benefit of the communities we serve. We recently participated in the industry's LIHEAP Action Day in Washington, D.C. to advocate for energy affordability for our customers in need. Congress approved an appropriations package that includes a $20 million increase for LIHEAP, which reflects growing recognition of the program's importance. For more than 15 years, Entergy Corporation has also provided free tax preparation for low- to moderate-income customers at sites throughout our region. In 2025, our customers received $54 million in Earned Income Tax Credits, putting money directly into our customers' pockets. Finally, we are very excited about our upcoming Investor Day in June. We plan to walk through the clear line of sight for our multiyear strategy and outlooks in detail, and you will hear directly from our leadership team on the opportunities ahead. Highlights will include a conversation with large customers on how we partner together to create better outcomes for our key stakeholders, a view into our operational strategy to successfully execute on the large build cycle ahead of us, a discussion of the work we are doing to unlock additional deployment opportunities, a review of our approach to maintaining financial discipline, and, finally, a deeper dive into the significant near- and long-term customer growth opportunities to sustain our strong growth well beyond our five-year outlook. We had a productive start to 2026 with solid progress and execution across the business, and by continuing to put our customers first, we will deliver premium value to each of our key stakeholders. We look forward to discussing this in more detail with you at our Investor Day. I will now turn the call over to Kimberly for the financial update. Kimberly A. Fontan: Thank you, Drew. Good morning, everyone. I will now review our financial results and provide an update on our long-term outlooks. Our results for the quarter were straightforward. Our adjusted EPS was $0.86, as shown on slide 4. The primary drivers were from the effects of investments made for our customers, including regulatory actions, net of higher depreciation expense, taxes other than income taxes, and interest expense from financing capital expenditures. The per-share increase was partially offset by a higher share count from settling equity forwards. Industrial sales growth was very strong at 15% as new and expansion projects continue to ramp up their operations. Overall retail sales increased 6%. The earnings contribution from retail sales growth was essentially neutral as higher revenue from the industrial growth was offset by the effects of weather, including positive weather in the first quarter of last year. As Drew discussed, the Meta contract creates significant customer and community benefits. In addition, we are refreshing our outlooks to reflect the new agreement and other minor updates. The highlights are summarized on slide 5. This agreement further strengthens our retail sales outlook. We now expect approximately 8.5% compound annual retail sales growth through 2029, driven by 16% industrial growth. Data centers continue to be a significant driver, along with growth from a variety of traditional Gulf South industries, including LNG, industrial gases, petrochemicals, agricultural chemicals, and primary metals. As a reminder, we only add hyperscale data centers to our plan once we have a signed electric service agreement, and then we include them at minimum bill levels. This conservative approach ensures that we can count on the revenue that we have included in our plan. Our customer-centric four-year capital plan is now $57 billion, which is $14 billion higher than our plan last quarter. The increase includes the investment needs resulting from the new customer agreement, primarily seven new CCCTs as well as battery storage projects. All seven CCCTs have in-service dates in 2030 and 2031, such that not all of the capital for these units is in our four-year horizon. For the transmission investments in the filing, we have made a conservative assumption not to include them as we work through financing options. We have also not yet included the renewables or Riverbend nuclear upgrade investments discussed in our filing. These would be added to the plan as specific projects are firmed up. The equity associated with our four-year plan is now $6.6 billion at the lower end of our target range of 10% to 15% of the total capital plan. Our strategy to be proactive in addressing our equity needs provides certainty and flexibility, giving us ample time to raise capital. We have successfully sold forward contracts through our robust ATM program as well as the block transaction we executed last March. The agreements we have in place cover about 30% of our four-year need. With $1.9 billion already contracted, that leaves $4.7 billion to be sourced, which is not expected to be needed until late 2027 through 2029. Our forecast also includes $3 billion of hybrid instruments at parent. Slide 6 summarizes our credit ratings and affirms that our credit metric outlooks remain better than rating agency thresholds. Our plan reflects FFO to debt at or above 15% from Moody's metric throughout the period, giving us capacity to manage events in the business as they occur. Our financial health is bolstered by the work we have done to strengthen our balance sheet and create benefits for customers, including structuring large agreements to protect existing customers and our credit, solidifying our pension funded status, and receiving constructive regulatory mechanisms. You may recall our system experienced an ice storm earlier this year. Mississippi's recent legislation provides a path to securitize the storm cost, which we estimate in the $200 million range. This will lower the overall cost for customers. We will submit our filing by October 5, and we expect the commission to issue a decision within 60 days of our filing. As shown on slide 7, we are affirming our 2026 adjusted EPS guidance and updating our outlooks. For 2026, we are firmly on track, and we remain confident that we will deliver on our guidance. Looking ahead to the second quarter, with other movements in our plan, we expect other O&M to be approximately $0.15 higher than the same quarter last year, reflecting higher vegetation spending and the timing of nuclear maintenance. Beyond 2026, today's update reflects our new capital plan, which includes investment resulting from the latest customer agreement as well as other updates since the third quarter. Our adjusted EPS outlook for next year is now $0.20 higher. As the investment accumulates, the increase grows ratably to $0.50 in 2029 to $6.40. We will extend our full outlook to 2030 at our Investor Day in June. As a preview, the 2028 to 2029 year-over-year adjusted EPS growth was 12%. We expect approximately the same for 2030. Entergy Corporation is executing a differentiated growth strategy delivering strong, sustainable results. Through our disciplined customer-centric approach, we are creating value for all our key stakeholders, including our owners. Our plan is solid with clear line of sight to achieve our outlooks, and we have significant opportunities before us. This update makes our already strong growth profile stand out even more. And now we are happy to take your questions. Operator: We will now open the call for questions. Press star followed by the number one on your telephone keypad. Again, press star 1 if you would like to ask a question. In the interest of time, we ask that you please limit your questions to one primary and one follow-up. Our first question comes from the line of Shahriar Pourreza with Wells Fargo. Shahriar Pourreza: Hey, guys. Good morning. Morning, Drew. So, obviously, a great update this quarter with the Meta deal. I just want to be crystal clear here as today's results just kind of raise the bar again. Does the CapEx increase today fully support the deal, or do you see additional CapEx and earnings accretion as we shift focus to the Analyst Day? You just had a strong update, so should we assume there could be further updates to the capital plan in addition to the roll forward in the June Analyst Day? Thanks. Kimberly A. Fontan: Yeah. Good morning, Shar. As I noted, $14 billion was added to the plan. The filing had about $15 billion, and the CCCTs close outside the period. But what is not in the plan is the renewables that are under the agreement as well as some of the nuclear pieces. So, certainly, there is more opportunity both in the period and beyond, but what we have provided here today is largely around the generation pieces that you see in the filing. Andrew S. Marsh: And what we would probably expect for our Investor Day through 2029—because it is only six weeks away—it is a very short window. We tried to give you a preview of it today. Shahriar Pourreza: Got it. That is perfect. And then just lastly, in terms of financing, what are the specific mechanisms that keep incremental equity funding for the $15 billion in new CapEx under 20%? Is that something that would get replicated beyond the current CapEx plan? I mean, most of the new investment is in Louisiana, but do you see the same accretion from DC clustering in Arkansas and Mississippi? Thanks. Kimberly A. Fontan: We have been able to maintain that 10% to 15% rate on our capital plan for some time, and I do not see any factors that change that. There are a number of factors that help support that, whether it is the mechanisms that we have, the forward mechanisms, the recovery of AFUDC during the construction period, I mentioned funding of our pension status. So it is a variety of mechanisms, but no fundamental structural change that I see that causes that to really shift as we think about new capital. Shahriar Pourreza: Okay. That is perfect. Thank you, guys, and big congrats. You keep raising the bar for the industry. Andrew S. Marsh: Thanks, Shar. Operator: Our next question comes from the line of Nicholas Joseph Campanella with Barclays. Nicholas Joseph Campanella: Hey. Good morning. Productive quarter, like you said. Thanks for all the updates. I just wanted to follow up on some of your prepared remarks. You said that you have a pipeline of 7 to 12 gigawatts that are still not in the plan. You used to have this nice slide around EEI which kind of showed how much equipment you secured to facilitate growth above the plan. So can you just talk about, after this Meta announcement and the other gigawatt that you highlighted as well that you executed on in the quarter, what does the equipment outlook look like for you now? Thank you. Kimberly A. Fontan: Hi, Nick. Appreciate the question. Yes, Drew did confirm that even after this agreement, our pipeline is still 7 to 12, and that underscores the fact that we continue to see that pipeline move and refresh. From an equipment perspective, we will give you a full update in just a few weeks at Investor Day, but we have additional turbines lined up, and we are not standing still relative to continuing to ensure that we can support that incremental growth. We will also talk about what else is out there relative to all of our other industrial customers in just a few weeks. Nicholas Joseph Campanella: Okay. Thank you. Looking forward to that. There was some discussion in the filing at the regulator about exploring new large-scale nuclear studies at certain sites. And, Drew, just maybe given your involvement in NEI, can you talk about where the company stands on committing to large-scale nuclear at this point, what the industry still needs to move forward, and what Entergy Corporation would need to move forward? Is this something that we should be keeping in mind as we get to the Analyst Day update? Thank you. Andrew S. Marsh: Thanks, Nick. Certainly, new nuclear is something that we believe we will need when we look out into the long term. We have talked about this in the past. We do not think we will get to something like 2050 without having new nuclear as part of our portfolio. So it is something that we are continuing to actively explore and investigate, and the agreement that we signed with Meta helps move that forward a little bit. We are in the same spot from a financial risk perspective that we always have been, and that is that there are significant challenges that we still have to overcome from a cost and cost-uncertainty perspective. We are mindful of what that could mean to the balance sheet of Entergy Louisiana or any of our operating companies. We are not going to enter into any agreement that creates an existential risk right off the bat, and we have said that many times. At our Investor Day, we will have some ideas about how we could manage that and how we could move the needle on the costs and the risk associated with construction. That could help us get there, but our balance sheet is not big enough to cover the whole risk by ourselves, and we are aware of that. Nicholas Joseph Campanella: Thank you. Andrew S. Marsh: Thank you. Operator: Our next question comes from the line of Jeremy Bryan Tonet with J.P. Morgan. Diana Niles: Hi, good morning. This is Diana Niles on the call for Jeremy. Thanks for taking my questions today. Andrew S. Marsh: Absolutely. Good morning. Kimberly A. Fontan: Good morning. Diana Niles: Could you elaborate on the 1,000 megawatts of additional ESAs beyond the Meta agreement, and maybe how you would characterize the kind of industrial breakdown there and ramp going forward? Andrew S. Marsh: They are things that you are familiar with—steel, petrochem. I do not have a specific by-industry breakdown. Lots of smaller ones. There are many that are in the less-than-20-megawatt range, but altogether, they add up to 1,000 megawatts. I do not have a specific breakdown for you. I will also add that we probability-weight those non-data-center projects. They are not all in at 100%. And as Kimberly noted in her remarks, the data centers only go in whenever we have a signed ESA. Diana Niles: Got it. Thank you. So to maybe clarify there, there could be upside should the more traditional industrial load all come on at the full capacity? Andrew S. Marsh: That is correct. If it were all to come on—they are probability-weighted for a reason because that does not usually happen—but if they were all to come on, yes, there would be upside. Diana Niles: Got it. Thank you. And to piggyback on the prior question, I saw that the study in the Meta agreement speaks to AP1000s. Was that selection of technology a preference from Entergy Corporation or from the customer? Andrew S. Marsh: We are supportive of any of the technologies out there, and we are investigating and talking with the vendors for all kinds of different technologies. Certainly, the AP1000 is one that has been constructed and built, and there is a full design. It is also a technology that we are familiar with because it is a PWR. So I think those are things that we are comfortable with, and there are some benefits associated with that, but we are more or less agnostic to the technology. What we are more concerned about is the risk sharing for construction. Diana Niles: Got it. Thank you. Appreciate that. Andrew S. Marsh: Thanks. Operator: Our next question comes from the line of Richard Sunderland with Truist Securities. Analyst: Hey. Good morning. Thanks for the time today. Andrew S. Marsh: Hey. Good morning. Analyst: Sticking with some of those other CapEx elements for Meta that are out of the plan, could you speak a little bit more to guardrails, timing, other elements you have an eye to before you would go and add those to the plan? And then, similarly, on the size and scope, I know the transmission you outlined, but what are you thinking about as an order of magnitude on the other buckets? Thank you. Kimberly A. Fontan: Good morning, Richard. Certainly, we saw Meta as well as other customers make commitments or sign up for new solar in multiples of gigawatt amounts. We do have open RFPs to build those as well as looking at our own self-builds that we would put into those RFPs to fill that, and we would be looking to fill that over the next several years. You could see some of that come into this four-year plan, and you could see some of it stretch a little bit beyond that. From a size and scope perspective, 2,500 megawatts in this Meta agreement, 1,500 megawatts in the previous agreement—all provide a good framing around incremental solar that we can have, and then you can have incremental in other areas as well. And I said solar, but it could also be batteries as well. Analyst: Got it. Thank you. That is helpful context. And then turning back to the 7 to 12 gigawatt backlog. Did the Meta addition today move through the backlog and then you backfill with new interest to get back to the 7 to 12 gigawatts? And even on the industrial side, how have some of those trends been relative to crystallizing the 1,000 megawatts that you also referenced today? Any color there? Kimberly A. Fontan: On the 7 to 12, you are exactly right. Meta would have moved through that. It is now in our plan, so it is not in the 7 to 12. That reference is data center opportunity that is outside of our plan. Our 7 to 12 was never our full scope of plan. As things move through, we have additional things coming in as well as additional interest. On the broader customers, what Drew referenced on the 1,000 megawatts is really closing out specific customers—either getting them to sign agreements, which would adjust the probabilities as well. We will give you a full update on that pipeline again in a few weeks, but that continues to be strong as well. Analyst: Great. Thank you. Looking forward to the updates. Operator: Our next question comes from the line of Paul Zimbardo with Jefferies. Paul Zimbardo: Hey. Morning. Can you hear me okay? Andrew S. Marsh: Yes. You were breaking up, but we can hear you now. Paul Zimbardo: Thank you. And again, setting a low bar for everyone by saying a productive quarter—my goodness. One, I did want to clarify, and Kimberly mentioned a little bit, in terms of the conservatism on the minimum take-or-pay minimum bills, is there any way to frame what that benefit can be to earnings or cash flow? Any parameters would be helpful there. Kimberly A. Fontan: We have not given specifics around the minimum bill levels, except to say that on all of our industrial customers we have minimum demand charges, and on all the hyperscalers it is significantly higher than what we have had on traditional customers for the amount of incremental investments that they drive onto the system. In the forecast period, these customers are going to be ramping up, so their minimum bills are coming in during the period and they go into the ramping period. You are going to have more opportunity once they get to full load versus a minimum bill, but certainly there could be some opportunity near term if perhaps they ramp faster. Generally, the minimums are pretty substantial, so there is some margin but it is not equal to full-load operations. Paul Zimbardo: Okay. That is helpful. One other I add—and again, cannot wait for the Investor Day. As we think about the capital you put into the plan today relative to the $0.50 of increase in 2029, is there any information on shaping? Is that kind of back-end weighted in the 2029 CapEx? It seems like there are more earnings to come from that capital. Any flavor you could provide would be helpful. Kimberly A. Fontan: You can see the chasing of the earnings through 2027, 2028, 2029 in the materials. And in my comments, I noted as a preview to 2030 that we would expect the year-over-year from 2029 to 2030 to be roughly the same as the year-over-year from 2028 to 2029. That gives you some indication of how that shapes into that fifth year. Paul Zimbardo: Awesome. Well, thank you very much. Andrew S. Marsh: Thanks, Paul. Operator: Our next question comes from the line of UBS. Please go ahead. Analyst: Yes. Hi. Good morning. Just isolating the Meta update here. Is the $14 billion of incremental capital entirely attributable to the expansion of that agreement? Kimberly A. Fontan: Yes, that is essentially the add here, consistent with what is included in the filing. I went through what we included and what was not, but that is essentially the add. Andrew S. Marsh: There has been a bit of capital added since our last earnings change—you will recall that we added Cottonwood, and there have been some other things that have happened—but certainly, the $14 billion is the key driver here. Analyst: Right. And then on top of that, there is still some residual generation spend that will show up in 2030, and then you talked about the transmission and renewables also not included. When we think about the totality of what that Meta deal is worth in terms of CapEx, it is obviously something north of the $14 billion—an incremental several billion. Is that fair? Kimberly A. Fontan: Yes. Drew mentioned in his comments that it was more than $15 billion that happens outside the period, and certainly depending on where the solar and battery—the renewables—land gives you some upside opportunity there. Analyst: And when should the full earnings run rate be realized on the Meta expansion? I know you are talking about the CODs are 2030 into 2031. Is that when we think about the entirety of the return on the capital being reflected in financials—around mid-2031? Kimberly A. Fontan: The CCCTs finish closing in 2031, so most of your capital is in by then. We gave you the ramp-up through 2030, and we will talk about what longer term visually looks like—without giving you specific outlooks—at Investor Day. Analyst: Okay. That is it for me. Thank you. Operator: Our next question comes from the line of Steven Isaac Fleishman with Wolfe Research. Steven Isaac Fleishman: Hi. Thanks. I think a lot of my questions got answered on this. But it sounds like there is meaningful earnings that come from the Meta CapEx—even though it is largely in place through 2029, the earnings tail a little later as the projects come on? Kimberly A. Fontan: Yes. With all construction projects, you have AFUDC leading up through the construction period and then again in 2030. I would see a similar uptick ratably as to what we saw in the years that we gave you, getting you to the similar type of growth rate in 2030. Steven Isaac Fleishman: Great. And then the $14 billion that you added to CapEx, is that before CIAC or after? Because we do not have rate base to match up. Kimberly A. Fontan: I would think about that related to CCCTs as largely overnight cost. We did not include transmission, and the financing costs are largely not included in there either. Steven Isaac Fleishman: Okay. You also mentioned this renewables RFP separate from Meta—the 4.5 gigawatts, of which two-thirds would be owned. Is that in your plan at two-thirds owned or not? Kimberly A. Fontan: About half of that is not in our plan. We had some projects that we worked to safe harbor or get ahead of relative to other solar interests, but there is a good bit that is not in the plan. Steven Isaac Fleishman: And then on equity—you do not need equity for a while, timing-wise, late 2027 or 2028–2029. How are you thinking about approaching equity? Are you continuing to try to get out ahead of that? Any thoughts on ways to approach getting the equity for this? Kimberly A. Fontan: We do not require equity until well into 2027, but we have been proactive about ensuring that we stay ahead of that. Thirty percent is already on the table. The ATM has been an effective tool, and we were able to use a block last year. We do not require additional equity until 2027, so we cannot speak to specific timing, but I would think about it that way. Steven Isaac Fleishman: Okay. Operator: Our next question comes from the line of Sophie Ksenia Karp with KeyBanc Capital Markets. Sophie Ksenia Karp: Hi. Good morning. Thank you for taking my question, and congratulations on a strong update here. Maybe if you could talk a little bit about the regulatory mechanisms you have, particularly in Louisiana and other areas that may experience significant growth. Do you feel like you have sufficient regulatory recovery mechanisms in place? And is there a risk of some regulatory fatigue if the capital grows as much as it has been growing? Andrew S. Marsh: Thanks, Sophie. Good morning. I think we have adequate regulatory mechanisms in place. You have seen our regulators begin to change some of their processes. A good example is in Louisiana—the Louisiana Lightning initiative—to accelerate reviews for strong economic development projects. That is really the key: if we are providing significant benefits for customers and communities, I think the regulators will be very supportive of these kinds of ongoing activities. I do not know that there would be necessarily any fatigue associated with that. That is why we have really been focused on these things. If we cannot provide benefits, that would be a different story, but we have been able to do that pretty well so far, and we would expect to continue that story going forward. Sophie Ksenia Karp: Thank you. And then a real quick one: how are oil markets and the conflict in the Middle East impacting your industrial customers—either positively or negatively—on the ground in your territory? Andrew S. Marsh: Generally, I would say it has been positive for most of our industrial customers. The spreads between oil and gas have increased, as have geographic spreads between the Gulf Coast and Asia/Europe. Our industrial customers along the Gulf Coast have benefited somewhat from the conflict because it has dislocated prices a little bit. But it is not out of alignment with where we have been over the last decade to 15 years. Prices for oil were a little bit lower early in the year and are higher now, but the spreads they pay attention to are similar to what they have been seeing for a long period, and, frankly, we would expect them to continue to stay in place well after the conflicts are resolved. Sophie Ksenia Karp: Appreciate it. Operator: Our next question comes from the line of RBC Capital Markets. Analyst: Drew and Kimberly, thanks very much for taking my question. If I look at the change in terawatt-hour sales growth from April to this update, it looks like it is just about 3 terawatt-hours. If I try to back into what that means for incremental load from data centers, it seems like it is only 400 or 450 megawatts. Can you talk a little bit about how the Meta facility ramps? If it is 5.5 incremental gigawatts, it feels like there is a ton of terawatt-hour sales that are going to come beyond 2029. I want to understand what that means both for earned returns and also capital deployment beyond 2029. Kimberly A. Fontan: You cut out a little bit, but I think your question was how the Meta agreement ramps and how to think about the terawatt-hour sales you are seeing. Certainly, we have to build to support this customer. You see that in the CCCT deployment, which come online in 2030 and 2031. They are able to get some ramp in the period, but full loads are not going to come online until all of those assets come online. Recall that we have minimum bills on these customers as they ramp, and that minimum bill is reflective of ensuring that they cover the incremental cost they drive over the life of the contract, so that minimum bill may not be directly in sync with the ramp. What we have included in our forecast is the minimum bill here, but you should continue to see a ramp as those assets come online. Analyst: And any flavor for what adding 5 gigawatts to the existing sales forecast does to sales figures through 2032 or so? It seems like a very significant incremental step up. Does it have customer benefits or rate benefits that you can pass back? Any way to think about that? Kimberly A. Fontan: We will give you the sales growth through 2030 in just a few weeks, and then we will show you how we think about opportunities longer term. All customers are benefiting from this ramp and from the minimum bills, to Drew’s point—both from the fair share component ensuring that they are paying their portion of the incremental cost, and that will flow through the traditional mechanisms in Louisiana and similarly in other jurisdictions. So there is opportunity and benefit there for other customers. We will provide you that sales forecast in just a few weeks through 2030. Analyst: Great. Thanks. That is all I had. Operator: Our next question comes from the line of Chris Ellinghaus with Siebert Williams. Analyst: Drew, vis-à-vis the Iran issue, is that providing some impetus or interest in new ESAs and in companies’ calculus of where the world markets are? Andrew S. Marsh: Perhaps. We have a lot of natural advantages associated with where we are located. We are along the river and the Gulf Coast, we have access to global markets, significant energy infrastructure with pipelines and low energy costs, and rail and other transport availability to domestic markets. We are well-situated with a supportive community that values industrial investment. All of that has meant that when people look around for places to invest in industrial facilities, they look at the Gulf Coast. Over the last few years, we have seen a lot of interest in onshoring because of geopolitical uncertainty. I would say that this current situation is a continuation of that. To the extent that people around the world are looking for a stable place to invest, given the opportunities and advantages associated with the Gulf Coast, it becomes a natural potential location. It is a very attractive place to invest. So this situation may cause people to look a little more, but it is not a new scenario, and it goes with the long-term commodity spread discussion I mentioned a minute ago. Analyst: That makes sense. Are there any other Cottonwood-type transactions in your mind, sort of in the hopper? Andrew S. Marsh: We normally do not talk about M&A, but in this case, there is really just not much in terms of other generators that are around. I would not expect asset M&A to be a significant part of our potential capital outlay going forward beyond Cottonwood. Analyst: Given the significant increase to the CapEx, can you give us any idea of how it might alter your thinking about the cadence of dividend payouts over the four-year horizon? Kimberly A. Fontan: We have historically had a 6% growth rate on our dividend, and we are obviously growing faster than that, which affects the payout ratio. Our philosophy has been to balance the growth rate in earnings and sales relative to the growth rate in the dividend. To date, that has been our approach, and I think that is an appropriate balance over the next four years. Analyst: Lastly, Mississippi data center interest seems to be exploding. Can you talk about what is in the plan at this point and whether there is a significant bucket of unplanned at this point? Kimberly A. Fontan: I would reference you back to our 7 to 12 gigawatts, which is not OpCo-specific but our enterprise view of the data centers. We do not provide that breakdown by where they are in the pipeline or by operating company. Still a significant opportunity before us—one that we are working to shore up and capture as much as we can. Lots of opportunity there, but no specifics by operating company. Andrew S. Marsh: And the data centers that are in our plan are already signed. We do not have any data centers in our plan that are prospective. Analyst: Right. Okay. Thanks for all the updates. A great quarter. Operator: Our last question for today comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: Hey, everybody. Good morning. Two for me. First, in terms of financing the incremental $15 billion of CapEx or so for Meta, I understand that Meta is going to be paying for that under the Fair Share Plus commitment as part of the setup, but you are including that in the CapEx and the equity plan. Help me understand how that works from a timing and cash flow perspective. If you are not going to collect the revenue—or how and when will you collect the revenues relative to the construction and equipment payments—and how and when will the $2 billion or $7 billion be returned to customers? How does that work in terms of the timing and how that impacts your credit metrics? I know you reiterated credit metrics, but how does that work in terms of the short-term impacts on credit rating metrics and your conversations with the agencies and cash flows? Kimberly A. Fontan: Our Fair Share Plus is our commitment to ensuring that these customers are paying their fair share, and that covers a number of areas. One is ensuring that they are paying to support not just the incremental costs that they drive, but also the embedded costs that are already in customers' bills. That shows up in ways like in Mississippi—we have talked before about Superpowered Mississippi—where they are deploying $300 million of capital without incremental cost to customers because the embedded costs that AWS is supporting enable us to continue to make investments for customers without incremental cost. Another example is in Louisiana—we have securitized storm costs on bills already related to previous storms, and these customers will pick up their allocable portion of those costs. Customers that were paying will see slightly less cost. That is how that $7 billion effectively flows back to customers. Andrew Weisel: And in terms of the credit metrics and timing issues, is there going to be temporary pressure on the credit metrics during construction? Kimberly A. Fontan: As I noted in my comments, our credit metrics on a Moody's basis are 15% or better throughout this four-year forecast period during this heavy construction period. That has a lot to do with all the constructive mechanisms we have as well as how we are contracting. It does not, in and of itself, put pressure on the metrics because it enables you to make investments as these customers pay a portion of incremental costs that customers otherwise would have paid previously. Andrew Weisel: Okay. Very impressive. And one last one, if I may. The 15% industrial sales growth in the first quarter was notably better than your guidance of 10% for the year, and a big pickup from last year's full-year results of 7%. You mentioned it was a combination of new and expansion projects. Can you elaborate a little bit on what you are seeing? And does that change your expectation for the full year? Kimberly A. Fontan: We did have a good first quarter, but on a year-over-year basis we expect the customers to ramp up—that is what you are seeing there. It does not change what we expect for the full year. It does shore up that those are coming online. Even if the volumes were off a little bit, you would not see a decrement because of the minimum bills and other structures that we have to support. We are comfortable with our guidance, and we are pleased to see the volumes starting to come in. Andrew Weisel: Does it position you toward the high end, or is it too early to say something like that? Kimberly A. Fontan: It is way too early. It is first quarter, so we obviously have to get through the summer and through the end of the year. Andrew Weisel: Okay. Sounds great. Thank you very much. Andrew S. Marsh: Thank you, Andrew. Operator: Thanks, Andrew. And that concludes our Q&A session for today. I will now turn the call back over to Liz for closing remarks. Liz? Liz Hunter: Thank you, John, and thanks to everyone for participating this morning. Our quarterly report on Form 10-Q will be filed with the SEC at a later date and provides more details and disclosures about our financial statements. Events that occur prior to the date of our filing that provide additional evidence of conditions that existed at the date of the balance sheet will be reflected on our financial statements in accordance with generally accepted accounting principles. Also, as a reminder, we maintain a webpage as part of Entergy Corporation's investor relations website called Regulatory and Other Information, which provides key updates of regulatory proceedings and important milestones on our strategic execution. While some of this information may be considered material information, you should not rely exclusively on this page for all relevant company information. This concludes our call. Thank you very much. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines.
Operator: Welcome to Hayward Holdings First Quarter 2026 Earnings Call. My name is Carrie, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Investor Relations and FP&A. Mr. Maczka, you may begin. Kevin Maczka: Thank you, and good morning, everyone. We issued our first quarter 2026 earnings press release this morning, which has been posted to the Investor Relations section of our website at investor.hayward.com. There, you can also find the earnings slide presentation referenced during this call. I'm joined today by Kevin Holleran, President and Chief Executive Officer; and Eifion Jones, Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that during this call, the company may make certain statements that are considered forward-looking in nature, including management's outlook for 2026 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Forms 10-K and 10-Q filed with the Securities and Exchange Commission that could cause actual results to differ materially. The company does not undertake any duty to update such forward-looking statements. During today's call, the company will discuss non-GAAP measures. Reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation. All comparisons will be made on a year-over-year basis, unless otherwise indicated. I will now turn the call over to Kevin Holleran. Kevin Holleran: Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's first quarter earnings call. I'll begin on Slide 4 of our earnings presentation with today's key messages. The headline is clear. We delivered an outstanding first quarter, meaningfully ahead of expectations, highlighted by double-digit sales and earnings growth. Net sales increased 12% against the prior year comparison of 8% growth, driven by strong price realization and positive volume. Adjusted EBITDA grew 15% and adjusted diluted EPS increased 30%, demonstrating the earnings power of our model. Margins expanded further with both gross margin and adjusted EBITDA margin rising despite incremental inflation, tariffs and targeted investments in innovation, operations and customer initiatives. We also made further solid progress on the balance sheet. Q1 is typically a seasonally low cash flow quarter, yet we reduced net leverage from 2.8x to 2.4x year-over-year. These results underscore the strength of our predominantly installed base aftermarket business model and disciplined execution of our strategic initiatives. Given our strong first quarter performance and confidence in our outlook, we are increasing our full year guidance. For the full year 2026, we now expect net sales to increase approximately 5% and adjusted diluted EPS to increase approximately 9% to 13%. Turning now to Slide 5, highlighting the results of the first quarter. Net sales increased 12% to $255 million, driven by strong pricing execution, positive volume and a favorable contribution from foreign exchange. North America and Europe and Rest of World increased 12% and 9%, respectively. As demand remained resilient across our installed base aftermarket, we were pleased to see some of our more discretionary products like automation and heaters outpace core categories in the quarter. This top line growth, combined with disciplined cost management translated into meaningful margin expansion. Gross margin increased 50 basis points to 46.5% and adjusted EBITDA margin expanded 60 basis points to 22.1%. Adjusted diluted EPS increased 30% to $0.13. Overall, this was another quarter of strong execution, delivering balanced growth and increased profitability. Turning now to Slide 6. 2025 marked Hayward's 100th anniversary and 2026 marks the fifth anniversary of our IPO on the New York Stock Exchange. These milestones provide an opportunity to reflect on the significant evolution in the company over the past 5 years. During this period, we've transformed Hayward into a more efficient, more disciplined and better-positioned organization for long-term market leadership. We strengthened our senior leadership team with proven operators to guide the next phase of growth. Innovation remains our engine. We continue to develop industry-leading aftermarket-focused products and solutions to expand our total addressable market. On the commercial side, we've redesigned our commercial excellence programs to support builder, dealer and servicer conversions to Hayward. Operational excellence has long been part of Hayward's DNA, and we further consolidated our manufacturing and distribution footprint to improve efficiency, better serve customers and derisk our supply chain amid geopolitical uncertainty. At the same time, we elevated how we operate day-to-day, accelerating lean and continuous improvement initiatives to drive productivity across the organization. All of this is underpinned by disciplined financial management. We've strengthened the balance sheet, meaningfully reducing net leverage and increased flexibility to invest through challenging market environments. In parallel, we're increasingly leveraging AI across the organization to enhance decision-making, sharpen execution and improve productivity. These are not just incremental improvements. Together, they set a strong foundation for Hayward's next chapter of profitable growth. Turning now to Slide 7. These accomplishments are important, but what matters most is how they translate into results and support future value creation. When you step back and look at our track record, the results are clear. Over the last several years, we've delivered top line growth in line with our long-term targets, while expanding margins and growing earnings, all in a challenging macro backdrop. Specifically looking back to before the pandemic, our 6-year CAGRs from 2019 to 2025 were approximately 7% for net sales and 10% for both gross profit and adjusted EBITDA. That performance underscores the resilience of our organic growth profile. Our position is advantageous and differentiated with approximately 85% of our sales derived from serving the aftermarket needs of a large and growing installed base built over decades. This mix provides visibility and a significant runway for continued growth. Our pricing discipline, operational agility and cost control have helped us expand margins despite inflation, giving us the financial strength to fully fund growth and productivity initiatives. Looking ahead, our momentum is supported by an aging installed base requiring continuous maintenance, repair and upgrade. We are expanding our addressable market through new aftermarket innovations such as OmniX, providing pool owners a low-cost path to a connected pool pad and an improved overall experience. By investing in customer care, we are strengthening our competitive position and driving conversions to Hayward. At the same time, we continue to expand our presence in commercial pool and flow control. With durable secular tailwinds in place, we remain confident in our long-term growth trajectory and our ability to deliver compelling value for shareholders. With that, I'd like to turn the call over to Eifion to discuss our financial results in more detail. Eifion Jones: Thank you, Kevin, and good morning. Turning to Slide 8. I'll walk through our financial performance in more detail. We delivered a strong first quarter with results meaningfully ahead of last year. Net sales increased 12% to $255 million against an 8% growth comparison a year ago. Price realization remained strong, offsetting inflation, and we also saw positive contributions from both volume and foreign exchange. The majority of the net price realization reflects underlying price increases over the last 12 months, including a specific product category increase in Q1 this year related to specialty metal components inflation. A portion of the increase, approximately 2 percentage points, was attributable to incentive mix across the retailer and builder channels. Gross profit increased 13% to $119 million, driving gross margin expansion of 50 basis points to 46.5%. Adjusted EBITDA increased 15% to $56 million, with margin expanding 60 basis points to 22.1%, reflecting cost management and operating leverage in the model. The effective tax rate was 22%. Adjusted diluted EPS increased 30% to $0.13. Moving to Slide 9, segment performance for the first quarter. North America net sales were up 12% to $210 million, driven by positive pricing and volume. Within the region, U.S. sales were up 11% and Canada was up a robust 26%. Gross margin was consistent with the prior year as operating leverage offset incremental tariff and inflationary pressures. Sales in Europe and Rest of World increased 9% to $45 million, largely due to favorable FX gains and relatively stable price and volume. Europe sales increased 14% and Rest of World reduced 1%, impacted by geopolitical disruption in the Middle East related to the ongoing conflict in Iran. Margin performance in the segment continued to improve with gross margin increasing 230 basis points to 35.8% and adjusted segment income margin expanding 280 basis points to 19.4%, driven by improved operational execution. Turning to Slide 10. We have a strong balance sheet and cash flow profile. Cash flows are seasonal in nature with typical cash usage in the first quarter due to extended payment terms offered for the Early Buy program, followed by cash generation in the second quarter, driven by the collection of the Early Buy receivables. Cash flow used in operations was $151 million in the first quarter 2026 compared to $6 million in the year ago period. As a reminder, the first quarter 2025 benefited from $99 million in net proceeds from the sale of accounts receivable, whereas we did not recognize any such proceeds in 2026. We continue to strengthen the balance sheet, reducing net leverage to 2.4x from 2.8x a year ago. While net leverage increased in the first quarter from 1.9x at year-end, this is expected due to the seasonal cash usage tied to the Early Buy program. Net leverage usually rises in Q1 due to the extended Early Buy payment terms, then reduces in Q2 due to cash inflows from those receivables. Importantly, leverage is lower year-over-year, reflecting ongoing balance sheet improvement. We have ample liquidity and financial flexibility to support continued organic investment, strategic M&A and return capital to shareholders, all while maintaining disciplined leverage. Capital allocation on Slide 11. We balance strategic growth investment with stockholder returns, while maintaining prudent financial leverage. As an OEM, we prioritize organic investment into our manufacturing and supply chain footprint, followed by strategic M&A, while remaining opportunistic for share repurchases. In the first quarter, we made a modest anti-dilutive repurchase of approximately $6 million. Turning to Slide 12. We are updating our outlook for 2026. Following a better-than-expected first quarter, net sales are expected to increase approximately 5%, up from our prior guidance of approximately 4%. We now expect adjusted diluted EPS to increase approximately 9% to 13% to a range of $0.84 to $0.87. Geopolitical disruptions and rising costs for specialty metals, freight and resins are currently applying a modest downward pressure on gross margin with some year-over-year compression expected in Q2 before our mitigation efforts are fully realized. We anticipate that these countermeasures will safeguard gross profit levels and allow us to maintain full year gross margin in line with last year, with margins expected to normalize during the second half as our initiatives are implemented. We expect free cash flow in the region of $200 million, exceeding 100% of net income. This outlook includes modest working capital improvement, net interest expense of approximately $45 million, a normalized effective tax rate of around 24% and increased CapEx of approximately $40 million as we continue to invest in upgrading our operational capabilities. Overall, we're confident in our ability to execute in the current environment and remain positive on pool industry growth, supported by the strength and the resilience of the aftermarket. With that, I'll turn the call back to Kevin. Kevin Holleran: Thanks, Eifion. Before closing, I want to thank the team again for their performance. Hayward delivered an outstanding first quarter, highlighted by double-digit sales and earnings growth. Given the strong start to the year and our confidence in our outlook, we are increasing our guidance for the year. Importantly, the company is far stronger today than it was just 5 years ago at the time of our IPO and the structural improvements we've made across leadership, innovation, commercial execution and operations are enduring and continue to compound. With a large aging installed base, industry-leading technologies like OmniX and a disciplined operating culture, we believe Hayward is exceptionally well positioned to deliver consistent growth, expanding profitability and strong cash flow over time. We remain confident in the long-term fundamentals of the pool industry and excited about the opportunities ahead. With that, we're now ready to open the line for questions. Operator: [Operator Instructions] And our first question will come from Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Great start to the year. I wonder, one, just what really surprised you? Was it weather late in the quarter? Was it better Early Buy follow through? And then just around Early Buy, some concern or question about channel inventories, big distributor showing good growth and a competitor kind of talking about some normalization of inventories needed to happen. Just touch on how you're feeling about your inventories and sell-in versus sell-through? Kevin Holleran: Sure. So first about the quarter, Jeff, weather was certainly good. I would say warm and generally dry, which are good for our industry. There were some regions that certainly had some exceptions to that, namely parts of the East Coast with some extremely cold and some precipitation. But in general, I would think weather was a pleasant surprise for the winter months, which are not always that way. I would say the other thing that was really positive is as you look across the geographies and the specific end markets, we saw a nice participation and double-digit growth out of most regions. Overall, U.S. was 11%. Canada continues with its strong recovery in the mid-20% growth. Commercial has been a great story for us, nearly 20% growth. Industrial Flow Control, low double-digit growth. And then Europe, in the low teens growth year-on-year. I would say the one exception to that would be Rest of World, which is where Middle East is part of that. We did see some softness for some obvious reasons during the quarter. But on balance, I would say sales across all end markets and geographies was very strong for us. You mentioned Early Buy. We were well positioned coming into the start of the year with a nice carryover from our Early Buy orders that were received during fourth quarter. Because of some nice flow business in fourth quarter, we were able to really meter the Early Buy shipments both fourth quarter and carried more of that into first quarter of this year, allowing us to really stage the inventory in the channel as the season starts. As for the inventory question, second part of your comments there, we closely monitor channel inventory levels with our partners. And as I said, we were able to manage the timing of those Early Buy shipments to ensure that the inventories remain balanced at year-end, and we feel good about where they are exiting the first quarter. On balance, we're comfortable with overall inventory levels from a days on hand standpoint based on our current outlook for the seasonal demand profile. As of today, our mid-single-digit net sales guide assumes sell-in approximates to the sell-out for the full year. and the normal inventory levels will be achieved within the channel throughout the year and exiting the year. I know you're aware of this, but just as a reminder, the normal cadence for our industry is that sell-in exceeds sell-out in fiscal fourth quarter and first quarter. And then as you work through the season in Q2 and Q3, the sell-out of the channel exceeds what the OEMs or what Hayward sells into the channel. So in summary, we feel comfortable with the inventory levels that are staged in the channel and in the market currently and expect it to stay that way through the year. Jeffrey Hammond: Okay. Good. Just a follow-up here. Eifion, you mentioned some inflation and margin impact into 2Q. Can you just speak to where you're seeing incremental inflation, how the Section 232 update does or doesn't impact you? And what you're doing in terms of price? Is it broad or more targeted? I know there's some issues with ruthenium and other -- with salt chlorinators, et cetera, but just walk us through that. Eifion Jones: Yes. Jeff, before I jump into the response, let me just lead off by saying, despite these high pockets of inflation, which are higher than we originally expected, the team is doing a really good job getting after limiting the impact of these cost increases. And we're executing the playbook that we've become adapted to over the last several years. But to be clear, look, we are experiencing some inflation as we step into 2026. I'd also say, despite -- just to clarify what I said in the call, we continue to expect sequential gross margin to improve from Q1 to Q2, but it will be probably a little bit more modest than we did last year, in part because we'll start to lap price increases that we put into place. But specifically, we're experiencing higher energy-based costs coming through as a consequence of the disruption, I'd say, on a global basis. And we've also experienced slightly higher specialty metal costs earlier in the year, and we've acted quickly. We put 2 price increases and the first one in Q1, which was an out-of-cycle price increase on the alternative salt sanitization line. That went in on orders in Q1, most likely to start impacting invoices in Q2 onwards. And then more recently, early on in Q2, we put in a surcharge of approximately 2.5% which, again, on orders early in the quarter may be affecting invoices positively at the end of the quarter, but certainly rolling on to the full invoice profile in Q3 and Q4 onwards. So those are the necessary actions that we've taken. I'd say as a consequence of both of those actions, we still expect full year gross margins to be comparable to the record we set last year. And the operational team continues to execute all of their supply chain initiatives to limit the impact of any further inflation. There was the second part of the question that you had, second part? It is tariffs. In terms of the tariffs, Jeff, what I would say is the roll of IPA and then the reinstitution of the 122s and to your point, the 232s, we've evaluated the net impact of that, and it's no different from what we thought coming into the year. So we don't see any further headwind to the year as a consequence of this change in tariff regime. Operator: And our next question comes from Nigel Coe with Wolfe Research. Nigel Coe: So I just -- Eifion, I just want to go back to the 10% price in North America. You mentioned a couple of what sounds like unusual contributions. I just wanted to make sure we understand that. And maybe just specify what's baked in for price in your guide? I think it was 3% prior. How does that look right now? Eifion Jones: Yes. As you mentioned, we originally thought pricing for the full year would average broadly speaking, plus 3%, obviously, higher in North America, lower outside North America. We now expect it to be plus 4%. Some of that now is consequential to the benefit we took in Q1, slightly different incentive mix across the channel, retailers and builders earning a little bit less, normal distributors earning their normal margin benefits there. But we've increased guidance up 1% to reflect the pricing positivity. As I mentioned, the Q1 price increase associated with specialty metals impact salt chlorination. That's a very discrete product line. It doesn't affect -- that price increase does not affect the entirety of our product line. So that has a very small positive impact on the full year when you think about total Hayward pricing. The surcharge, which is 2.5%, we've put that in, in early Q2. We have not built that into guidance because we view it as temporary but structural. At any particular point in time, we may withdraw that 2.5%. So it's not appropriate for us to include that within our guidance. But for the balance of the year, we expect pricing to be developing quite similar to what we originally thought, which is, again, mid-single digits for North America, maybe slightly higher in the U.S. specifically, and then lower single-digit development in Europe and Rest of World, overall averaging about plus 4% for the entire year. Kevin Holleran: Just to reiterate what you said, to Jeff, again, we'll be lapping in Q2, Nigel, the tariff off-cycle increase that was announced in Q2 of 2025. So that will start to expire here as we work through the second quarter. Nigel Coe: Okay. And then just you made it very clear that you're not expecting there to be any channel inventory headwind this year, sell-in versus sell-through relatively similar. Do you think that there's any impact though from the price increases? Obviously, there's been a lot of price going in over the last several years in 2026 as well. Is there any elasticity impact here? Are you seeing any mix away towards lower-cost competitors? Any descoping of the pads? Anything you can point to? Kevin Holleran: Yes. I mean we certainly have our eyes peeled for that, Nigel. It's a very logical question with the amount of price that has been passed through to the pool owner. We can't point to anything specific that would say absolutely yes. I would say here in first quarter, we were very encouraged to see positive volume for the first time in several quarters. So that would actually be absolutely contrary to that concern. That said, there is a lot of price there. We continue to try and price products for the value that we think they create for the pool owner, and that's how we're driving our product development and our pricing decisions. Again, when we make these announcements, they're not necessarily blanket same percentage across all product categories or all SKUs, Nigel. We're fairly tactical and specific in where we think the market can accept the pricing, and frankly, where it can't. From a sales standpoint, as we look at first quarter, we were encouraged by some of the sales in numbers on what we would call discretionary products. You don't necessarily need color LED lights on your pool or salt chlorine generators or controls, but we saw a nice sales up in those numbers in the first quarter. So to summarize, we certainly are very aware of the question that you're asking, looking for data and early indication. But thus far, we see that the market is accepting the pricing that we've put in. And we hope it's nearing an end, though. We're not -- we don't want to continue having to put these dollar-for-dollar price increases into the marketplace. So stay tuned on that one, Nigel. Operator: We'll go next to Andrew Carter with Stifel. W. Andrew Carter: First off, I wanted to ask, I think Pentair said yesterday, their sell-out was above what POOLCORP said, that their equipment sell-out was 7%. Could you kind of comment directionally where you were? I think it's interesting in there, you said that weather was favorable. You're heavier skewed to the Northeast. That weather has been absolutely terrible. So I think that'd be late. So if you want to add any context to that. Kevin Holleran: Yes. I mean in terms of sales out with the larger channel partners that we get that information from, I would say our sales out was consistent, Andrew, with really what our full year guidance is. So we saw, call it, mid-single-digit sales out through our larger channel partners, which gives us confidence there. In terms of weather, yes, I mean, some of our larger share geographies, certainly in the U.S. are more seasonal in nature. And we view that -- while sales were okay in those regions, it certainly didn't help us in the first quarter. So we see that as an opportunity as the weather finally starts to turn in the Northeast and the Midwest. I quoted Canada earlier at plus mid-20s, high share region or country for us as well. So it didn't necessarily help. But overall, the balance of the country where we are growing share, which has been very targeted in our go-to-market and our dealer conversion strategies helped mute some of the weather impacts from the Midwest and East Coast, Andrew. Operator: Moving next to Rafe Jadrosich with Bank of America. Rafe Jadrosich: Just on the guidance increase for the full year, can you just talk about sort of what's driving that? Is that just 1Q upside? Is it better price realization or volume compared to your expectations? Or are you seeing it in the order book? What's changed versus what you're expecting a couple of months ago? Kevin Holleran: Yes. Let me start on that, Rafe, and then I'll ask Eifion to give more detail. But for the balance of the year, our guide assumes relatively stable demand environment with some regional differences. In North America, we're expecting pricing, as Eifion mentioned earlier, to be up in the mid-single-digit range, supported by disciplined execution and with modest improvements in aftermarket volume, perhaps offset slightly with new construction activity. And then in Europe, Rest of World, where pricing is more limited and volumes will be broadly flat. So taken together, all of this supports the full year outlook of that approximate 1% increase in the net sales growth. Eifion Jones: Yes, I think you got it, Kevin. The increase from 4% to 5% of top line growth is a reflection of the better pricing performance in Q1, recognizing Q1 typically only represents about 20%, 21% of [indiscernible] sales, but we moved up modestly there. In terms of the EPS guide, we've moved up, I think, a little bit more meaningfully. Original guidance that was $0.82 to $0.86. We've now moved that low end up to $0.84 and top end to $0.87. So about $0.015 increase at the midpoint in those ranges. And that really reflects continued leverage across the SG&A base. And we've been investing in SG&A progressively over the last couple of years. We increased in Q1 year-over-year in SG&A, but less than the net sales growth. So we're beginning to see leverage come across the SG&A base as we talked about as we exited last year. So we're pleased with the development in the EPS, obviously, again, fueled in part by the top line movement. Rafe Jadrosich: Okay. That's helpful. And then just on the -- on your market share, it's obviously tough for us to tell because you have different channel dynamics and sell-in and sell-out. But it seems to us like you're gaining a little bit of market share. One, would you agree with that? And if it's true, like what are the -- what do you think the key drivers are? Is it like were you underpenetrated regionally? Is it like OmniX? Like what's leading to that outperformance relative to the industry? Kevin Holleran: Yes. I mean we think that we are picking up some modest share. It's hard fought certainly because there are some great competitors out there. But this has been a concerted effort several years in the making, Rafe. And it is a combination of things from some great new product launches. OmniX is certainly grabbing a lot of headlines. But there's other products behind it, whether it's entry into a 4-horsepower variable speed or some aftermarket lights or bringing some new cleaner products to the market. As Eifion just mentioned, we've added some resources to our field sales and service teams to provide better service, better support in our efforts to gain the attention of some new dealers out there. And then certainly, geographically, as we spoke, Andrew highlighted earlier some of our higher share regions. We were underpenetrated in some markets, not only around the country, but around the globe. And we've had some very focused regional approaches to try and grow out West and in the Southwest and in the South Central and parts of Florida. So it's a multipronged approach across new product introduction, in-market sales support, marketing programs and focused on some of those underpenetrated markets where Hayward has been historically underrepresented. Operator: [Operator Instructions] We'll go next to Brian Lee with Goldman Sachs. Brian Lee: I guess on the guidance, it does sound like most of it is price in terms of the incremental 1 percentage point on the top line. But you did allude to the fact that volume went positive here for the first time in a while and your tone sounds relatively constructive. I know it's early in the year, but any sense of kind of the demand environment maybe picking up or at least modestly being better and that being a potential tailwind as you move through the year? I know prices obviously helped a lot and looks like it will continue to help. But any additional commentary you can make on sort of what you're seeing here from a demand perspective and what it might translate to for the rest of the year? Kevin Holleran: Yes, I think it's a great question. As you said, when you're framing the question, Brian, it's early in the year, though. And Q1, not all markets are even open for business at that point in time. So while we're optimistic, I don't -- we're not yet confident to assume that there will continue to be market demand or market volume that could assist with the revision to guidance at this point. As we look, the aftermarket continues to be resilient. As I mentioned, we see nice sales in demand for some of the upgraded -- or products that we see adding features and functionality to the pool pad. From a remodel standpoint, there seems to be some pockets of optimism as we interact with our dealers in the first quarter. And new construction, I think it's just responsible for us to assume that it's going to remain flattish until there's some catalyst for us to think otherwise or see otherwise on the new construction side. So we certainly would like to be back in front of this audience in the coming quarter talking about some more bullish outlook on market demand, but we're not yet to the point of adding that as an element of our guidance. Eifion Jones: Yes. Maybe just to tag on one last point, which is a follow-up to what Rafe was asking as well. We have introduced the OmniX, I'll call it, platform into our product range. We started last year. And we've seen good momentum year-over-year in the adoption of OmniX as it was launched attached to that original pump category. That confidence there, that uptick in activity allows us to think about expanding, and we are expanding it across other product categories. So as Kevin just mentioned, we're being reserved a little bit, but the aftermarket remains resilient. Discretionary spend for us, at least both in sell-in and what we can see in sell-out is positive and the adoption of OmniX has been good. Brian Lee: Yes, absolutely. I appreciate that color. And maybe on that point, I know in the past, you guys have kind of shared some product vitality statistics, and you're clearly gaining some share and definitely from a body language perspective, you sound more constructive than some of your peers. So this feels company specific. But is there anything you can share in terms of product vitality, sort of what amount of growth is coming from new products? And -- because that seems like that could be one of the more sustainable uptrends for you from a growth perspective. I get the underpenetrated regions and things of that nature, there's multiple prongs to it. But maybe on the new product front, anything you can share just to provide some additional growth for you guys? Eifion Jones: Yes, sure. It's probably more appropriate for us to share vitality as we come out of the season, so we get a really good view on what's sold out right now for the last couple of quarters we've been selling in. So let's maybe hold the answer to that question until we come out of Q2 when we can get better visibility on vitality out of the channel. What I would say is we -- last year, we did launch and introduce a number of different new products. We're very pleased with the success of that. We featured a bunch of those at the end of last year in our earnings presentation. And as we look at Q1, specifically this year, we're very pleased with what we would call the discretionary side of the product range. It continues as a positive momentum sell-in over the last -- certainly in Q1, but over the last couple of preceding quarters. So we're seeing good adoption of technology, good adoption of features, including lights, control systems, heaters on an LTM basis continues to do well. So from a discretionary perspective, which is attached to a lot of our new product launches, we're seeing very good adoption. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Kevin Holleran for closing comments. Kevin Holleran: Thanks, Carrie. In closing, I want to thank our employees and partners around the world. Your dedication and hard work continue to be critical to the progress we're making across the business. We're encouraged by our strong start to the year and remain confident in our strategy. If you have any follow-on questions, please reach out to our team. We appreciate your continued interest in Hayward and look forward to speaking with you again on the next earnings call. Carrie, you may now end the call. Operator: Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.