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Operator: Good day, and welcome to Nexstar Media Group, Inc.'s First Quarter 2026 Conference Call. Today's call is being recorded. I will now turn the conference over to Joseph N. Jaffoni, Investor Relations. Please go ahead. Joseph N. Jaffoni: Good morning, everyone, and thank you, Stacy. I will read the safe harbor language, and then we will get right into the call. All statements and comments made by management during this conference call, other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar Media Group, Inc. cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during today's call. For additional details on these risks and uncertainties, please see Nexstar Media Group, Inc.'s Annual Report on Form 10-K for the year ended 12/31/2025, as filed with the Securities and Exchange Commission, and Nexstar Media Group, Inc.'s subsequent public filings with the SEC. Nexstar Media Group, Inc. undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. It is now my pleasure to turn the conference over to your host, Founder, Chairman and Chief Executive Officer, Perry A. Sook. Perry, please go ahead. Perry A. Sook: Thank you, Joseph, and good morning, everyone. We appreciate you all joining us today. Michael Biard, our Chief Operating Officer, and Lee Ann Gliha, our Chief Financial Officer, are with me on the call here as always. Nexstar Media Group, Inc. hit the ground running in 2026, advancing our strategic priorities across multiple fronts. We closed our landmark acquisition of TEGNA, following FCC and DOJ approval. We continue to build and grow The CW and NewsNation as national networks. And we delivered strong quarterly net revenue, adjusted EBITDA, and adjusted free cash flow. This year marks the 30th anniversary of Nexstar Media Group, Inc.'s founding, starting with a single television station in Scranton, Pennsylvania. From the very beginning, Nexstar Media Group, Inc.'s growth and success have been grounded in our steadfast commitment to high-quality local broadcast journalism, which we believe is essential to the communities we serve and to American democracy. While our core mission has not wavered, the competitive landscape has changed dramatically in those 30 years. Big tech, legacy big media, and distribution companies have grown exponentially, and despite consolidation within our industry, Nexstar Media Group, Inc. still operates with a fraction of their ubiquitous reach and financial resources, prohibiting us and every other company in our industry from competing on a level playing field. Against this backdrop, our acquisition of TEGNA represents an important step in solidifying our future and our ability to continue providing these valuable services to local communities across the United States. I will now spend a few minutes bringing you up to speed on where we are today with the acquisition of TEGNA. I will start by saying the situation that we are dealing with is unusual, and I would caution against attempting to draw legal conclusions at this stage. We will be as transparent as possible under the circumstances and share what we can at this time. As you know, the transaction closed on March 19 after receiving all required regulatory approvals. As part of that process, we engaged extensively with the FCC and DOJ and provided more than 7 million pages of documentation in response to their inquiries. We also made meaningful concessions to secure our approvals, including agreeing to increase local news programming in nine markets, divest stations in six markets within two years, and extend expiring retransmission agreements through November 30. Under ordinary circumstances, that process, with the concessions and the regulatory approvals, would allow us to move forward post-closing with our integration plans. However, DIRECTV, along with a number of state AGs, filed suit seeking to block the transaction. DIRECTV is a sophisticated company owned by a private equity firm, TPG, with its own commercial interests just as we have ours. That said, the issue before the courts is not the relative commercial negotiating positions of the parties. It is whether this transaction serves the broader public interest, including American consumers and the preservation of local journalism. As such, we believe we will prevail on the merits of this case. We are confident in our arguments, expressed in detail in the FCC's order approving the transaction, that a stronger, more financially resilient local broadcast industry is in the public's best interest. We believe this is a fight worth having for us, for our industry, and for the future of local journalism. Nexstar Media Group, Inc. is a company built on localism, and our track record demonstrates that scale and operational strength are critical to sustaining high-quality local news programming. As the company has grown, we have consistently made meaningful investments in our station infrastructure and in expanding local news programming, which is the most viewed and the most valued programming that we offer. This transaction represents an opportunity to further our longstanding commitment to serving communities of all sizes with high-quality free over-the-air programming, fact-based journalism, and innovative digital and marketing solutions for both our viewers and our advertising partners. We are focused on presenting the strongest possible legal arguments to the court. To that end, we have engaged Beth Wilkinson of Wilkinson Stekloff to lead our trial and appellate efforts, supplementing our formidable antitrust counsel at Morrison Foerster. Beth is one of the nation's most highly regarded trial lawyers, having recently led the defense team that secured a victory for the NFL and its 32 member teams in a major antitrust class action suit challenging the Sunday Ticket distribution and related media agreements. With our expanded legal team in place, we move forward with complete confidence in the merits of our case and our ability to bring this process to a successful conclusion. As far as next steps are concerned, there are multiple legal proceedings underway. First, we filed our notice of appeal of the preliminary injunction before the Ninth Circuit Court of Appeals. Second, the trial in the U.S. District Court for the Eastern District of California. And finally, there is also a separate challenge to the FCC approval of the transaction pending before the D.C. Circuit Court. The court has already denied a request for an emergency stay, finding that it lacks jurisdiction at this stage. Both we and the FCC have been directed to file our responses to the petition by May 11. While we do not have control over the various courts' timeline, in the meantime, in compliance with the court order, Nexstar Media Group, Inc. and TEGNA are operating separately, and we are proud of both teams' continuing focus on execution and their local community commitments. Now let us turn to the first quarter highlights, which include 13 days of the results of TEGNA. In the quarter, we delivered record net revenue of $1.4 billion and strong adjusted EBITDA and adjusted free cash flow of $470 million and $420 million, respectively. At our legacy Nexstar Media Group, Inc. business units, we made strong progress toward our goal of achieving additional operating expense savings driven by further cost reductions at The CW and broader core operating efficiency. The CW network improved year-over-year profitability in the first quarter and is well on its way to achieving profitability by the fourth quarter of this year. Launched just five and a half years ago and featuring Nexstar Media Group, Inc.'s enterprise-wide commitment to unbiased and fact-based journalism, NewsNation was the fastest growing network in primetime across all major broadcast and cable networks in March 2026, growing 85% in total viewers and 100% among adults 25–54 compared to the prior year. The network now ranked 35th in total household viewing for all primetime ad-supported cable networks in the first quarter. As you will hear more from Lee Ann Gliha later, we continue to execute on our capital allocation plan. During the quarter, we returned $56 million to shareholders in the form of dividends and have maintained our 1.86¢ per share quarterly dividend, which represents a 3.7% yield, placing Nexstar Media Group, Inc. in the top tier of all dividend payers in the S&P 400. We also remain focused on deleveraging and repaid $182 million in debt through April 30. In closing, free universal access offered by local broadcast television is not just convenience. It is an essential public service, and central to Nexstar Media Group, Inc.'s mission. If local broadcasters are to continue providing these essential services for future generations, we must be allowed to operate our business in a manner that accurately reflects today's market realities. Now let me turn the call over to Lee Ann Gliha to provide a little more color on the transaction and the interim TEGNA operations and our reporting until the court cases are heard. Lee Ann? Lee Ann Gliha: Thank you, Perry, and good morning, everyone. I wanted to jump on the call today a little out of order to provide you some color on what you will hear from us on the financials and operations given the current situation. Operationally, we are in a bit of an unprecedented place right now with a court order until we can be heard by the appellate court, go to trial, or settle the case. To be clear, we own TEGNA. It is a subsidiary of Nexstar Media Inc., our primary operating subsidiary. And we can use excess cash flow for the combined debt repayment as was our plan. As Perry noted, we repaid $182 million of debt through April 30. We can also execute on whatever actions we need to accomplish our financial reporting and internal control oversight. But as described in the court order, we must hold separate the assets of the TEGNA subsidiary. What this effectively means is TEGNA is operating as it did prior to the transaction, including operating under its own retransmission agreements. All of this, however, remains in flux pending the natural progression of litigation. In addition, the operations of TEGNA will be under the purview of the team at TEGNA rather than under Nexstar Media Group, Inc.'s day-to-day management. So, given the number of variables, I am sure you will appreciate that for now, forward-looking guidance will be limited. We understand the market does not like uncertainty, so we are going to do our best to keep you up to speed as much as we can given the constraints placed upon us. The good news is TEGNA was a public company, so there is plenty of comparable financial data for you to review along with the longer-term projections they provided in their proxy. Now I am going to turn the call over to Michael Biard to provide some color on our results, primarily on the revenue side of the P&L, and then I will return for some more discussion on expenses and capital allocation. Michael? Michael Biard: Thank you, Lee Ann, and good morning, everyone. As noted in this morning's press release and Perry A. Sook's remarks, Nexstar Media Group, Inc.'s consolidated financial results for the three-month period ending 03/31/2026 include 13 days of TEGNA operations, while the comparable 2025 period reflects only Nexstar Media Group, Inc.'s legacy business units. The company delivered first quarter net revenue of $1.4 billion, an increase of $162 million, or 13.1%, compared to the prior year. Among our top-performing advertising categories at legacy Nexstar Media Group, Inc. were department and retail stores, attorneys, and gaming and sports betting, while drugstores and medication, packaged goods, and radio/TV/newspaper/cable advertisers had the largest declines. However, there were no major category outliers in terms of positive or negative performance. On a combined basis, non-political advertising was up 1.2% as TEGNA's large portfolio of NBC affiliations benefited from NBC's broadcast of the Super Bowl and the Olympics in the first quarter. In addition, on a combined basis, overall digital advertising revenue increased a mid-single-digit percentage, driven by strong local digital revenues offset in part by continued declines at TEGNA's Premion segment, due primarily to the loss of a major customer in 2025. For the second quarter, including TEGNA on an as-combined basis, non-political advertising is expected to decline mid-single digits due to a weaker advertising environment. Legacy Nexstar Media Group, Inc. and TEGNA both delivered strong first quarter political advertising revenue driven by strong primary and early spending. As reported, political advertising was $46 million, but on a combined basis, political advertising in Q1 was $78 million, up 89% versus 2022 and 19% versus 2024, driven by strong spending in key states of Texas, Illinois, California, Michigan, Georgia, and Maine. According to AdImpact, industry-wide broadcast political advertising spending was up 79% in the first quarter versus the comparable election cycle in 2022, and up 13% versus 2024, demonstrating the continued importance of broadcast television for candidates and campaigns seeking to reach and engage voters. We anticipate a favorable 2026 political season consistent with our combined historical track records and are prepared at legacy Nexstar Media Group, Inc. to manage any changes regarding access to lowest unit rate by PACs and parties without materially impacting our performance. Turning to The CW, we continue executing our strategic plan and remain on track to achieve profitability in the fourth quarter, with the expectation that we will improve full-year losses by more than 30% this year. While we are facing some near-term advertising headwinds related to Nielsen's transition to big data measurement, improved distribution from our 2025 affiliation renewal cycle will more than offset those impacts. We are also further strengthening The CW's burgeoning sports programming with a multiyear broadcast partnership with the Mountain West Conference beginning this fall and continuing through the 2030–31 seasons. Under that agreement, The CW will televise 13 football games annually, along with 20 men's and 15 women's basketball games each season. In addition, we added six Banana Ball games to our schedule for May and June, broadening the network's overall appeal and audience reach. With 148 additional hours of programming airing in 2026, nearly half of The CW schedule will be sports or sports-adjacent. Importantly, we are continuing to drive strong results from our sports investments. The NASCAR O'Reilly Auto Parts Series on The CW has delivered more than 1 million total viewers for each of its first 12 races in the 2026 season. In addition, ACC men's and women's basketball concluded the 2025–26 season with record viewership, with total audience increasing 6% for the men's games and 26% for the women's. On the digital front, the marketplace is increasingly endorsing the value of The CW programming, and we are strengthening our brand equity by expanding distribution and unlocking new advertising opportunities through groundbreaking partnerships with leading digital platforms. We recently announced a deal with ESPN that will make the ESPN app and website the exclusive streaming home for all CW Sports. Beginning this summer, fans with an ESPN Unlimited subscription will be able to stream CW Sports live across devices and platforms, complementing our free over-the-air broadcasts and MVPD and vMVPD distribution while significantly extending our reach to new audiences and advertisers through ESPN's best-in-class platform. We also announced a partnership with Roku, the largest AVOD platform in the United States, which will bring CW Entertainment programming to The Roku Channel for next-day streaming beginning with the broadcast season this fall. This partnership will provide access to more than half of U.S. broadband households through a dedicated CW-branded vertical hub, further enhancing our digital footprint and monetization capabilities. To close, we are focused on expanding reach and unlocking new monetization opportunities across our portfolio by leveraging our growing sports programming, multiplatform distribution, and digital partnerships to drive incremental value. At The CW, this includes scaling live sports and extending distribution through partnerships like ESPN and Roku. At NewsNation, we continue to build a differentiated, fact-based national news offering that can be monetized across linear, digital, and on-demand platforms. Consistent with Nexstar Media Group, Inc.'s view that programming must reach audiences wherever they are, we are prioritizing broader distribution, improved ad monetization across platforms, and exploiting new revenue streams that position us to compete more effectively in a rapidly evolving media landscape. And with that, it is my pleasure to turn the call back over to Lee Ann Gliha for the remainder of the financial review. Lee Ann Gliha: Hello again. Combined first quarter direct operating and SG&A expenses, excluding depreciation and amortization and corporate expenses, increased by $76 million, driven primarily by $73 million of recurring incremental expense from the acquisition of TEGNA and $4 million of one-time expenses related to cost reduction initiatives taken at legacy Nexstar Media Group, Inc. Excluding one-time expenses, first quarter recurring cash operating expenses were lower by $1 million for Nexstar Media Group, Inc.'s legacy business units. Q1 2026 corporate expense was $106 million, including non-cash compensation expense of $20 million, compared to $52 million, including non-cash compensation expense of $18 million, in 2025. The increase of $54 million is primarily due to $38 million of one-time costs associated with our TEGNA acquisition. Q1 2026 amortization of broadcast rights included in our definition of adjusted EBITDA was $72 million, a reduction of $16 million from $88 million in 2025, primarily due to timing of programming at The CW. Q1 2026 income from equity method investments, primarily reflecting our 31% ownership in TV Food Network, declined by $4 million in the quarter, or 50%, primarily related to TV Food Network's lower revenue. Putting it all together, on a consolidated basis, first quarter adjusted EBITDA was $470 million representing a 33.7% margin and an increase of $89 million from the 2025 first quarter of $381 million. TEGNA operations accounted for $31 million of this difference, with the remainder due primarily to the political cycle. Excluding TEGNA, legacy Nexstar Media Group, Inc. generated $439 million of adjusted EBITDA. Moving to the components of free cash flow and adjusted free cash flow, first quarter CapEx was $22 million, a decrease of $13 million from $35 million in the first quarter of last year, primarily due to delayed spending given the dependency of and plans related to the TEGNA acquisition. First quarter net interest expense was $120 million, an increase of $23 million from 2025, due primarily to $22 million of one-time commitment and funding fees associated with the temporary bridge loan in connection with the acquisition of TEGNA and the refinancing of certain TEGNA indebtedness. On a recurring cash basis, this compares to $94 million in 2026 versus $95 million in Q1 2025. First quarter operating cash taxes were $1 million, as the first quarter cash taxes are related to state taxes. Payments for capitalized software obligations, net of proceeds from disposal of assets and insurance recoveries, were $3 million both in the first quarter of this year and last. In Q1, cash programming amortization costs were greater than cash payments by $10 million as certain programming payments were deferred. We also received an $84 million distribution from Food Network related to 2025 operating cash flows, greater than the $21 million of income from unconsolidated investments reported on our income statement. Putting this all together, consolidated first quarter 2026 adjusted free cash flow was $420 million as compared to $348 million last year. Excluding the impact of TEGNA, legacy Nexstar Media Group, Inc. generated $400 million of adjusted free cash flow. We are currently projecting CapEx in the $45 million range in Q2. Second quarter cash taxes are estimated in the $152 million range. And from an interest perspective, our run-rate quarterly interest expense based on our current balances outstanding as of April 30 is about $187.5 million. That amount will fluctuate with SOFR rates and reduce as we repay debt. In Q2 2026, payments for programming are expected to be in excess of amortization by about $5 million. Turning now to capital allocation and our balance sheet. Together with the cash from operations generated in the quarter and cash on hand, we returned $56 million to shareholders in the form of dividends. We made no repurchases, and we used excess cash to fund the acquisition of TEGNA and repay $28 million of mandatory amortization payments on our debt. Nexstar Media Group, Inc.'s outstanding debt at 03/31/2026 was $12.1 billion, an increase from $6.3 billion at year end, reflecting the impact of the TEGNA acquisition. Our cash balance at quarter end was $379 million, including $12 million related to The CW. Because we designated The CW as an unrestricted subsidiary, the losses associated with The CW are not accounted for in our calculation of leverage for purposes of our credit agreement. In addition, our credit agreement allows us to include the adjusted EBITDA of TEGNA as if we had acquired the business on the first day of the period presented, to add back one-time expenses related to the deal and any operational restructuring, and to include the impact of any synergies we expect to realize within 18 months of the close of the transaction, which we continue to expect we will be able to do, just on a delayed time frame. As such, our net first lien covenant ratio at 03/31/2026 for the last eight quarters annualized was 2.94x, which is well below our first lien and only covenant of 4.75x. Our covenant increased from 4.25x to 4.75x for this quarter and for the next three consecutive fiscal quarters after the acquisition, as permitted under our credit agreement. Our total net leverage for Nexstar Media Group, Inc. was 3.84x at quarter end, using the same calculation methodology. Subsequent to quarter end, we repaid in full our $150 million short-term Term Loan A and made $4 million of mandatory amortization payments. We also closed on the refinancing of our 2027 senior notes with new $1.725 billion of 7.25% senior notes due 2034. Our Q2 2026 cash flow will be deployed first to fulfill our mandatory obligations, including debt repayment, pension and defined benefit plan contributions, our dividend, and then, optionally, repay any additional debt with excess cash flow. With that, I will open up the call for questions. Operator? Operator: We will now open the call for questions. Your first question comes from Daniel Louis Kurnos with Stifel. Please go ahead. Daniel Louis Kurnos: Great. Thanks. Good morning. First, Perry, I appreciate your willingness to be as open and straightforward with us on the process. First, you gave us all of the current existing pieces. Are there any other rulings, actions, or events that you foresee in the ecosystem, either from the FCC or others, that could influence the trial outside of a settlement or your appeal process? And as Lee Ann mentioned, I think you pulled back a little on CapEx. Is there any difference in day-to-day operations or focus on incremental cash preservation while this process unfolds? And then just a quick one for Lee Ann. I totally appreciate that you cannot give guidance under the circumstance. I guess you are kind of directing us to look at what you have said publicly around 2026 and what TEGNA had put out previously as sort of the yardstick, if that is right. That would be helpful to get some clarity there. Thank you. Perry A. Sook: I think we gave you the complete laundry list of all threatened and pending litigation that we are aware of at this time. We are not aware of anything else that is in the offing. So I think you know everything we know in terms of what is in front of us at this time. I will turn it over to Lee Ann on capital preservation and the other aspects of your question. Lee Ann Gliha: Thanks, Daniel. On the CapEx side, we just had a little bit of delay because we had anticipated some different strategies when we combined with TEGNA. But that will all catch up over the course of the year. You can think of Nexstar Media Group, Inc. as continuing to execute on our plan, doing an excellent operational job as we normally do on a go-forward basis. We are completely dialed in and focused on executing on the Nexstar Media Group, Inc. plan. And I think TEGNA similarly is focused on executing their plan. We are not going to be providing any longer-term guidance with respect to either company at this point. Daniel Louis Kurnos: Okay. Fair enough. Thanks, guys, and good luck. Perry A. Sook: Thank you. Operator: Next question, Patrick William Sholl with Barrington Research. Please go ahead. Patrick William Sholl: Hi. Thanks for taking the questions. Just another follow-up on the M&A, or I guess the litigation. Holding the two companies separately, has that provided any sort of update on how you would want to approach operating them together in an instance if the litigation is resolved successfully? Perry A. Sook: The hold separate order also requires that TEGNA operate within the interim operating covenants that were in place prior to the closing of the transaction. So we do have those guardrails, and we have the ability to have conversations with TEGNA. They are required and have done an excellent job of providing financial information, even in the stub period, so that we can present consolidated financials for all of the entities that we own. But other than that, I do not think there is any additional read-through in terms of how we will operate things post hold-separate order. I think that plan is pretty well baked and in place. Lee Ann Gliha: I will just echo that. If and when we get this resolved, we will be executing on our plan as we had originally intended, subject to whatever comes out of the process of the interim. Patrick William Sholl: And then, just in terms of the general environment, is there any sort of impact from the resolution of the tariff issue in terms of advertiser enthusiasm, or have other events offset any potential benefits on that side? Lee Ann Gliha: Not in particular, no. We are seeing a little bit of a weaker advertising environment in the second quarter than we saw in the first quarter. I would not say there was anything in particular with respect to tariffs. I would also just remind you that we have about 60% of our advertising coming from services-based companies, which were not impacted by the tariffs. Patrick William Sholl: Okay. Thank you. Operator: Next question, Aaron Watts with Deutsche Bank. Aaron Watts: Hey, everyone. Thanks for having me on. Two questions. Just a follow-up on advertising. Where are you seeing the softness amongst your large verticals as you look at Q2 and Q3? And what is the messaging from your ad partners and how they are thinking about the ad environment right now? Lee Ann Gliha: Aaron, there is not any one category or any major categories to flag. Michael, in his comments, gave you our top and bottom categories, but there is not any major differential. What I tend to look at is our categories and which ones are increasing versus decreasing on a quarter-to-quarter basis. Last quarter, it was about 50/50. This quarter, it is about two-thirds decreasing and one-third increasing. So I think it is just a general overall weakness. I do not think we have any specific category issue. It is an across-the-board general trend. Perry A. Sook: I would just add that we have one large home improvement advertiser that has gone silent for a period of time that is affecting our numbers. We have some pharma advertising that has not returned as of yet. And then, if the Mets were playing better, our numbers would be better on PIX and our ad sales would be better there. There are a lot of little things, but as Lee Ann said, I do not think there is any one big thing. I will say, as I was driving to the office this morning, I drove past the gas stations that I pass every day, and for the first time there was a four-handle to the left of the decimal point in terms of the price per gallon. I think that is having some effect. My understanding is that people getting tax refunds at the lower end of the socioeconomic ladder have not flowed that money back into the economy at this point. I think people are holding on to that money longer, perhaps to see how things turn out in terms of oil prices and things like that. So I think there is just a conservatism at this moment in time. But I do not think there is anything overarching beyond that. Aaron Watts: That is helpful context. And if I could get one more in, a question around capital allocation and leverage. At the close of TEGNA, you agreed to sell certain stations in tandem with getting that deal approved. You set synergy targets, determined capital allocation policies, and laid out pro forma leverage goals based on the deal construct. To the extent assumptions that went into all of that were to change, whether it is required station divestitures, synergies, etc., how might capital allocation move with it? Appreciating the debt paydown you highlighted today, how important is it to you to maintain the conservative leverage profile you have historically, even if it means delaying other potential outlets for your cash? Lee Ann Gliha: Aaron, we cannot really comment on what might be or what could be, but our track record is that we use our excess cash flow to deleverage. We do not want to be over-levered. We know the public market appreciates lower-leveraged companies. Our focus is to continue on that plan, consistent with our historical track record of deleveraging post transactions. We are still paying down debt in this environment. We paid down $150 million optionally after the end of the quarter, and I think you are going to continue to see that, especially as we flow through 2026 as a political year and have a lot of additional cash flow to achieve that. Aaron Watts: Thank you for the time as always. Operator: Next question, Steven Lee Cahall with Wells Fargo & Company. Please proceed. Steven Lee Cahall: Thanks. You outlined some of the ways that you will not be able to integrate TEGNA. Can you talk about some of the things that you can do that are arm's length? I do not know if there are collaborations through Premion or digital content or news reporting, or do the terms right now really require it to be almost a beyond arm's-length subsidiary? And then, Lee Ann, just a clarification: you said you have access to TEGNA's excess free cash flow, which you can use for debt repayment. Is that essentially their free cash flow, or are there any more limitations that get to excess free cash flow as we think about how much of their cash generation would be available for you to sweep for debt reduction? Thanks. Lee Ann Gliha: I will take the last question first, then turn it back to Perry. I say excess free cash flow because there needs to be enough cash at the operating companies to operate. We have to continue to have an operation. So I mean, subject to minimum cash balance requirements that we have from an operating perspective. All of the debt obligations of the company are joint and several between us and TEGNA. So excess cash flow, as we see fit, will be used to repay that debt. Perry? Perry A. Sook: Steve, there are certain commercial agreements that Michael Biard and I have been discussing that we could enter into on an arm's-length basis with TEGNA under the order, which could include and involve Premion. For example, our CW station contracted with a station in the market to produce a 10:00 p.m. news, and we sent termination notice of that during the pendency of the TEGNA acquisition. We could talk to the TEGNA station in Houston and/or our incumbent news producer to establish another commercial agreement to produce news for that station. There are some things like that we can do, and we will pursue those where they make sense during this hold-separate period. Steven Lee Cahall: Great. Thank you. Operator: Next question, Craig Anthony Huber with Huber Research Partners. Please go ahead. Craig Anthony Huber: Good morning. Thank you. My first question is about the 39% ownership cap. I was very surprised that the FCC did not change the 39% ownership cap first, and then by way of that your TEGNA acquisition could have gone through, as opposed to what they did do, which was just give you a waiver. There has been some talk in the trade press about the FCC at the Commission level potentially reversing out their approval of the deal. Can you touch on that? Where are we with the 39% ownership cap? Do you think it is ever going to get done? What kind of timeline are we on? And why did they not change that first and then do the TEGNA acquisition approval after that? Perry A. Sook: The TEGNA acquisition was approved. We do own the assets. I want to start there, and we feel it went through a fulsome approval process at both the FCC and the DOJ — two expert agencies that regulate this industry — as opposed to the state AGs that have shown no real concern or support for local media, local journalists, local television, until this election year. I do not presuppose to be in the mind of Chairman Carr, but if you look at public statements he has made since he was a Commissioner, whether his party was in power or out of power, he has said these rules are antiquated relics of the past, and they need to go. He is consistent in that position, I believe, to this day. I do not rule out that he will start a proceeding, perhaps this quarter or next, that would be a rulemaking to eliminate the national ownership cap. Imagine if you were Netflix or Google or Amazon and were told you could only reach 39% of the country with your business. There would be some hue and cry around that. Why should those rules apply only to broadcast? We are the only part of the media ecosystem that has a government-mandated cap on our ability to grow. Chairman Carr is totally aware of market realities, why he is taking the actions that he has taken. I think we are still on a path to deregulation, and we are thankful that we were able to make a persuasive case to qualify for a waiver during the pendency of those proceedings. It is not as simple as putting out a press release and saying, rules have changed. There is a lot of legal work that has to go into that, a lot of wordsmithing, a lot of consultation with advisers. I would not presume that those actions are off track. There is obviously a lot going on — a lot of M&A, in addition to ours — under consideration at the FCC and the DOJ. I think these things are moving through the pipeline, and I would not presume that they have stopped or will not move through the pipeline ultimately. Craig Anthony Huber: I appreciate that, and I agree. But it seems like things were done backwards here — that they should have changed the 39% ownership cap first and then gone through the process to approve your deal, getting that finalized after the cap was done. They did not do that. Does that put you in a tougher position with these court cases, that you closed on a waiver as opposed to the regulation changing first and then them doing all their due diligence and approving it? What is your thought on that? Michael Biard: Hey, Craig. I do not think, if you look at the claims that have been made in the litigation, that the order with respect to the cap would change anything. The claims being made by the plaintiffs essentially are outside the FCC's purview. They come from an antitrust perspective, which is really a different analysis entirely than the FCC. I think the FCC could have gilded a complete elimination of the rules in gold and served it up on a platter, and the plaintiffs still would have found reason to complain in this case. Operator: Next question, Benjamin Soff with Deutsche Bank. Please go ahead. Benjamin Soff: Good morning. Thanks for the question. I had two. First, I wanted to ask about the partnerships with ESPN and Roku. Does this represent a shift in Nexstar Media Group, Inc.'s digital strategy, and how are you thinking about balancing growing your digital business versus the opportunity to partner with other platforms? Then on divestitures, I appreciate there is a lot of uncertainty right now, but can you help us think about how a potential divestiture would impact the synergy buckets you have outlined, whether it is retrans, corporate overhead, or operational efficiencies? Thank you. Michael Biard: I do not think it represents a shift in our thinking. With respect to the deals we struck with ESPN and Roku, we look at those as less of a shift and more of an evolution. When you look at the challenges of trying to build digital platforms in the current environment, they are enormous, and one only needs to look at the balance sheets of major media companies that have launched those digital platforms and the long history of losses associated with that. Those businesses are hard to build, capital intensive, and require a lot of ongoing maintenance. When we looked at expanding our footprint in a digital environment, we essentially had three options: build, buy, or partner. For obvious reasons, we went with the latter, and we were able to strike deals with essentially the largest platforms available to us in each of those spaces. Particularly with respect to The CW and the sports on ESPN, where we are in the life cycle of building a sports brand, the opportunity to have our sports available and visible inside the ESPN platform, inside a dedicated CW vertical environment, will reap rewards for us not just in terms of building brand equity, but also our ability to monetize viewership on those platforms. We are extremely excited about that. Similarly, with Roku, trying to build and really maintain a digital business in a CW-only branded environment is extremely challenging in the current landscape — you are going up against behemoths that invest literally billions of dollars every year into their platforms. Being able to tuck into the most popular AVOD platform out there, again with a CW-branded vertical environment, will deliver benefits not just in terms of near-term monetization, but long-term brand equity. Lee Ann Gliha: On the divestiture side, Benjamin, it is premature. If you look at our synergies, there were a number of components. Obviously, retrans and in-market type synergies would have to be reduced. Corporate, maybe not so much. We would have to take a look at it. It is a little premature to think about what that impact could be. Operator: Next question, Jason Boisvert Bazinet with Citi. Please go ahead. Jason Boisvert Bazinet: In normal years, I have never really come across the situation where shareholders own an asset and cannot manage it. I just had a quick question. Can you elaborate on those guardrails that you talked about earlier? Second, are there any incentives that exist on the part of the TEGNA assets — for their salesforce or anything else — that minimize the risk for Nexstar Media Group, Inc. shareholders in this period where we are in limbo or suspended animation? Perry A. Sook: If you go back to the interim operating covenants — and it is reflected in the order as well — primarily financial transactions above a certain size would have to be approved by the board of TEGNA, which is comprised of Nexstar Media Group, Inc. executives and management. That has been approved by the courts. We have the ability to appoint management inside of TEGNA. All of those things together are the governance that will guide us during this hold-separate period. They operate as a subsidiary. We can have conversations with them. The executives running the entity report to the board. We just cannot influence day-to-day decision making. But decisions beyond a certain level require board involvement and approval. We were very comfortable in the way TEGNA was operated during the pendency of the transaction from signing to closing, and those same covenants govern our relationship with TEGNA during the hold-separate period. As to sales incentives, I am not quite sure I understood that part of the question. Jason Boisvert Bazinet: I just get nervous about somebody at TEGNA who does not really know if they have a job, if they are going to get eliminated in some synergy number, and they get distracted and are not as focused on their core day-to-day job. Then sales numbers fall apart on the TEGNA side of the house. But I guess from your answer, the limitation is more around the integration, and there is not a lot of operational day-to-day risk Nexstar Media Group, Inc. shareholders face on the TEGNA side of the house. Perry A. Sook: I think that is fair. If you read the judge's hold-separate order, TEGNA is not allowed to reduce headcount during the pendency of the TRO. We were comfortable in the results and performance of TEGNA during the pendency of the transaction when we were operating under the same structure that we are operating under now. Prior to closing is when anxiety is at its highest, and I would say that in the overlap markets it would have been on our side of the ledger as well. People are looking at the environment around them and at layoffs at Meta and other companies. I think everybody is likely concerned about their job, particularly if they are not doing a good job. We track our levels of attrition and did not see any appreciable changes during the pendency of the transaction. We will continue to track attrition during this hold-separate period to determine if there are trends, but we have not seen it thus far. The TEGNA results for the first quarter were excellent. We only got the benefit of 13 days of them, but we had the financial information for the entire quarter, and they performed very well, as did Nexstar Media Group, Inc., by the results we reported this morning. Lee Ann Gliha: I would echo that. If there was any expectation or indication that we would have a problem, you would most likely see it in that first quarter number, and TEGNA definitely had a stellar first quarter. I will now turn the floor over to Perry for closing remarks. Perry A. Sook: Thank you, everyone, for joining us this morning. We look forward to reporting our Q2 results in early August, which will be our first full quarter of results reporting the combined consolidated results of the new Nexstar Media Group, Inc. Have a great rest of your day. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Thank you. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gray Media, Inc. First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star 1 again. It is now my pleasure to turn the call over to Alan Steven Gould, Vice President of Investor Relations. Thank you. You may begin. Alan Steven Gould: Thank you, Tina, and welcome, everybody. Joining us today on Gray's call are Hilton Hatchett Howell, our Chairman and CEO; Donald Patrick LaPlatney, our President and Co-CEO; Sandy Breland, our Chief Operating Officer; Kevin P. Latek, our Chief Legal and Development Officer; and Jeffrey R. Gignac, our Chief Financial Officer. Today, we filed with the SEC on Form 8-K our first quarter earnings release and updated investor presentation, and later today, we will file with the SEC our Quarterly Report on Form 10-Q. These materials are all available on our website graymedia.com. Included on the call may be a discussion of non-GAAP financial measures, and in particular, Adjusted EBITDA, leverage ratio denominator, net retransmission revenue, and certain net leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in its analysis and valuation of our company. Further discussions and reconciliation of the company's non-GAAP financial measures to comparable GAAP financial measures can be found in the latest investor presentation on our website. All statements and comments made by management during this conference call, other than statements of historical fact, should be deemed forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors that are contained in our most recent filings with the SEC. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. It is now my pleasure to introduce Gray's Executive Chairman and CEO, Hilton Hatchett Howell. Hilton Hatchett Howell: Thank you, Alan. Today, we are very pleased to announce solid results for our first quarter of 2026, with core advertising above our previously issued guidance, political revenue at the high end of our guidance range, and total revenue at the high end of our guidance, even factoring in a recently resolved DISH dispute with one of our MVPDs. Total revenue in the first quarter of 2026 was $768 million, at the high end of our guidance for the quarter. Total operating expenses before depreciation, amortization, impairment, and gain or loss on disposal of assets in the first quarter of 2026 were $622 million, which was $7 million below the comparable period last year. Notably, within these results, our broadcasting expenses continued to decline and were down by $22 million in Q1 2026 as compared to Q1 2025. Net loss attributable to common stockholders was $330 thousand for the first quarter of 2026. Adjusted EBITDA was $154 million in Q1 2026. Political advertising revenue was $30 million, at the high end of our guidance, and compares to $26 million in 2022, the last midterm cycle. As you all hopefully saw by now, on Friday, Gray and DISH resolved the first extended distribution blackout, amazingly, in our company's history. It was a rough negotiation for both sides, and we very much regret how local viewers and advertisers were impacted by the impasse. In the end, we reached a new multi-year agreement that was consistent with our internal expectations. We thank our viewers, our advertisers, and our team for their patience as we navigated that uncharted territory for Gray Media, Inc. Since the beginning of the year, we have successfully negotiated retransmission consent agreement renewals with three of our largest traditional MVPDs representing approximately 39% of our traditional MVPD footprint. We also expanded important MVPD agreements with two of our virtual MVPDs involving a number of our independent stations that carry professional sports. We have no further retransmission negotiations for the remainder of 2026. In addition to these operating results in the first quarter, we acquired WBBJ in Jackson, Tennessee, from Bahakel. We recently completed the acquisition of TV stations in 10 markets from Allen Media Group, and just yesterday evening, we closed on our acquisition of stations in three markets from Block Communications. We currently anticipate closing our remaining transactions with E.W. Scripps and Sagamore Hill in the next few weeks. Finally, turning to Assembly, we were delighted to learn that CBS renewed its successful daytime soap Beyond the Gates for two additional seasons. Seasons 1 and 2 will film at Assembly, and we anticipate leasing additional studio production space. In February, Tennis Channel and TGL announced that it will host all 52 tennis matches for its 2026 season in our 30 thousand square foot soundstage within Assembly Studios. The setup will also have a live audience of up to 500 people, and we will broadcast some of the key matches on WANF and Peachtree Sports in Atlanta, Georgia. To make further progress on future development at Assembly. Looking forward, we are excited to have the upcoming FIFA World Cup games on both our 33 FOX channels and our 47 Telemundo affiliates. We are optimistic that, as the largest owner of top-rated local television stations and a footprint covering most of the competitive races, we will again capitalize on a strong midterm political cycle. I will now turn the call over to Donald Patrick LaPlatney to address our operations. Thank you, Hilton. Donald Patrick LaPlatney: First quarter core advertising revenue was stronger than our guidance and was reported to be approximately flat in the first quarter of 2026 compared to 2025. We finished the quarter up 2% with the boost from the Winter Olympics. As we move into second quarter, we are seeing some softness in core. It appears that the situation in the Middle East and resulting volatility in oil prices is having an effect, causing advertisers to delay their commitments, which limits our visibility. Some of the softness in core is due to the NCAA Final Four rotating away from CBS. Recall last year, we earned $5 million of revenue in April as the largest CBS affiliate group. Let us talk about categories for a minute. We saw strength in gaming, a trend that continued into Q2. Within services, legal, insurance, and financial were strong. Automotive finished the first quarter down just slightly compared to 2025, which is encouraging. Some of the consumer-focused categories experienced weakness, consumer goods and discount department stores in particular. Digital continued its healthy growth in first quarter, up high-teens versus 2025, and our new local direct business growth rate accelerated to 15% over the same period in 2025. Our sales teams continue to perform well against stiff competition for local advertising in a challenging market. Political ad revenue exceeded our expectations in 2026. Our guide for 2026 was $25 million to $30 million, and our actual results came in at the high end, right at $30 million. This compares to $26 million in 2022, which is the most recent midterm cycle. We saw strong spending in Texas, Maine, Virginia, Georgia, and Michigan. We currently anticipate political revenue for Q2 will be in the range of $60 million to $70 million. As I mentioned earlier, we are seeing some softness caused by economic uncertainty as we progress through the second quarter. Our second quarter 2026 guidance is for core ad revenue to be down mid-single digits versus second quarter of 2025. Some of the consumer-focused categories are the most affected. We continue to expand our focus on sports programming. This year, 19 Major League Baseball teams will play in our 16 broadcast sports networks, in addition to 13 NBA teams, 8 NHL teams, 6 WNBA teams, and numerous NCAA and minor league baseball teams. I am also proud to note that our RYCOM Sports division has partnered with the Atlanta Braves as their live production team for BravesVision, producing all non-national games, including 25 games on WANF here in Atlanta and across the Southeast on our broadcast sports networks. Our digital team has completed the transition of all of our digital apps and websites to the Quickplay platform in a remarkably short window. This personalized streaming platform will revolutionize how our viewers find and connect with our content. We believe that we have now built an incredibly strong foundation for continued digital audience and advertising growth. Jeffrey R. Gignac will now address the key financial developments. Jeffrey R. Gignac: Thanks, Pat. In the first quarter of 2026, our broadcasting station operating expenses, excluding network affiliation fees, were up 4% compared to 2025. This was partially due to timing of certain expenses, as was noted in last quarter's call, along with normal inflationary increases. We are continuing our focus on smart cost management, and we are investing in our team and making sure they have the best tools available to efficiently and effectively compete in the marketplace. You will also notice that we are guiding Q2 2026 broadcasting expenses to be down 3% at the midpoint versus 2025. Corporate expenses were above our guidance range due primarily to legal costs associated with completing our M&A regulatory approvals, and as you can see from our guide, corporate is expected to normalize as we complete the additional transactions. Net retrans revenue was down $4 million in first quarter 2026 versus 2025. We did not anticipate the now-resolved distribution dispute when we provided our first quarter guide. I want to focus on that for a second. There are two things to point out in the Q2 2026 net retransmission guide. First, now that we have negotiated all MVPD renewals scheduled for 2026, and we know the impact of the blackout on second quarter, those elements are reflected. Secondly, we now incorporate the four stations acquired in first quarter, but none of the stations that we have acquired since the end of first quarter, into our guide. We currently expect first quarter 2026 net retransmission revenue to be in the same zip code as the quarter that just ended, implying low single-digit growth in net retransmission revenue. Remember that the blackout impacted the full month of April, versus only 21 days in March. And importantly, with all of our renewals now negotiated, we have clear line of sight to growth in net retransmission revenue for full year 2026, even before adjusting for the impact of any of the acquisitions. Turning to the balance sheet for a minute. We finished first quarter with over $1 billion in liquidity. Our leverage metrics at 03/31/2026 were 2.56x consolidated first-lien net leverage ratio, 3.79x consolidated secured net leverage ratio, and 5.94x consolidated total net leverage ratio, each using the calculation in our amended senior credit agreement. These ratios include the pro forma impact of the four station acquisitions we completed as of 03/31/2026. With the closing of the Allen seven-market transaction and yesterday's closing on the Block Communications transaction, we will begin to see the estimated quarter turn of delevering flow into our ratios. It is also worth noting that after we closed the acquisition yesterday, our revolver was undrawn. There was approximately an $850 million working capital swing during first quarter related to the payment of accrued interest. On March 31, we completed an amendment to our senior credit agreement to align the document with the covenants under our secured notes and to incorporate current market standards. We pursued this to give us better access to the market as we evaluate potential refinancing opportunities. Immediately after we closed that, on April 2, we fully repaid the $10 million balance on the Term Loan F that was scheduled to mature in 2029. As we progress through 2026, we are gaining visibility on deleveraging during the year. We are closing, and we will begin integrating, our M&A transactions. Our net retrans revenue is set to grow compared to 2025. Political advertising is ramping. And finally, refinancing to reduce interest expense could further improve our cash flow during 2026. Couple of housekeeping items. First quarter 2026 CapEx was $19 million versus $15 million in 2025. Both periods now include Assembly Atlanta. We are maintaining our $140 million company-wide CapEx estimate for 2026, although we expect that to be back-end weighted as we align the spending with the expected cash inflow from political advertising. Our full-year tax guide came down by $25 million to a range of $90 million to $110 million. That concludes my remarks, and I will now turn the call back over to Hilton Hatchett Howell. Hilton Hatchett Howell: Thanks, Jeff. In closing, first quarter was very busy, and we have already accomplished numerous objectives in Q2 which will have long-term benefits for Gray Media, Inc. We will continue to take actions to enhance value for our advertisers, our investors, and for the communities we serve. We thank everyone for joining the call today. Tina, at this time, we would like to ask that you open up the line for questions. Operator: As a reminder, to ask a question, simply press star 1 on your telephone keypad. We do ask that you limit questions to one and one follow-up. Our first question comes from the line of Steven Lee Cahall with Wells Fargo. Please go ahead. Steven Lee Cahall: First, just a question on your regulatory outlook. I think the last time we spoke, you were encouraged by generally what was happening in Washington, but maybe things were moving a bit slowly in terms of getting transactions approved like the Scripps swaps and some of the Allen Media stations. It looks like, post Nexstar–TEGNA getting approved, the wheels are turning much faster. So I am wondering if you now feel like the regulatory process is something that you understand under this administration, if it is moving at a pace that is conducive to additional transactions. And as you think about potential strategic transactions, I was wondering just how you factor in state AG regulatory risk and if that is different from prior. And then, Jeff, thank you for the retrans outlook for 2026. Any sense of what that might have looked like had you not had the blackout? Is that a point or two addition, or is it not so big now that reverse maybe is a bit more variable than it used to be? And, also, as we think about retrans pro forma for the deals you have done, would that have added or could that still add a point or two as well? Thanks. Kevin P. Latek: Hey, Steven. We announced, as you alluded to, five deals last summer over the course of a couple weeks, and promptly filed those with the SEC and the DOJ, and those transactions are only now coming out of the regulatory agencies. We had to file them with DOJ as well, and our DOJ process pushed our transactions behind the Nexstar transaction and necessitated a very intensive document production and review. I would say a far more intense DOJ review of those transactions than anything we saw in Meredith, Quincy, Schurz, or Hoak under prior administrations. The Department of Justice cleared those transactions just in the last, I think, roughly two or three weeks or so. The FCC, consistent with past practice, has waited for DOJ to resolve its reviews before it acted. So that is why we are seeing these now. It would appear to us on the outside that the FCC and DOJ in particular have received a number of broadcast transactions since last summer—from us and from other broadcasters, some large, some small, some gaining headlines, some not—and that through those reviews, especially of the mega deal and then our little deals, they have really come to understand the competitive situation that we face. As a result, I think they are more comfortable with the transactions probably than they were a year ago. So we are encouraged that we are now seeing the DOJ, after submitting millions of documents at great expense to us, really seems to understand our industry far better than it has probably ever, and that is supportive. We do think that it facilitates the industry—not just us, the industry—continuing to do M&A. For Gray, again, as we have said many times, we are looking at strategic deleveraging transactions, and there are some things we are looking at and some things we maybe look at at a different time. On your last question on that, we have not previously considered state AG theories on antitrust. Without commenting on any current litigation, we are definitely mindful of what is happening, and we are evaluating our opportunities through the lens of potential additional uncertainty under new and novel theories being advanced by some attorney generals in various states. We are working through it, but obviously, we have not announced any other transactions in a number of months. As we evaluate the new FCC and DOJ understanding of our industry and this new uncertainty, we will make decisions accordingly on what might be actionable in this environment versus what might not have been as actionable a year ago. Does that answer the questions? Steven Lee Cahall: That does. Thank you, Kevin. Jeffrey R. Gignac: Okay, great. Thanks. And I guess, let me comment, Steven, on the net retrans question. I will not comment about the specific impact or what it would have been from any individual contract. We always think about it as a portfolio on both sides. For the full year, though, we are thinking of inflationary-type organic growth in net retrans even with the blackout. It is really a continuation of the trend that started in fourth quarter where we were getting back to growing net retrans. But on top of that, there is net retrans that is acquired that will start to flow in on top of that. Operator: And our next question comes from the line of Daniel Louis Kurnos with Stifel. Please go ahead. Daniel Louis Kurnos: Yeah, thanks. Jeff, just to put a finer point on that response to Steve's question—notwithstanding the blackout, which we all knew was coming, so it should not be a surprise to folks, other than that it happened—it seems like the net retrans guide is actually raised, and that is before the transactions, given the commentary you gave us last quarter. So is that an assumption on better underlying subs? Better underlying terms? Just any thoughts you can give us there. And then one for Hilton—one of my favorite subjects, political—and I know they are going to tell you to be careful with what you say, Hilton, because it is too early, and it never benefits anybody to get over their skis. But your 2Q guide is very, very strong. So any way you can help us think through how you are thinking about this political season would be fantastic. Thank you. Jeffrey R. Gignac: Let me just address the retrans since we are on that topic, so that in the transcript it is all together. The short answer to your question, Dan, is yes. It is better sub trends. It is us achieving our objectives on market and getting to market rates as we renew contracts. It is everything together. Look, the blackout is unfortunate, but that is part of the business, and we reached something, as Hilton said, that was mutually beneficial in a long-term agreement there. I will kick it over on the political question to Kevin or Hilton. Kevin P. Latek: I will refrain from using adjectives to describe this. We have said a couple of times we are pretty encouraged, and we have exposure to all but one of the competitive governor and senate races this year. One thing I would mention is a couple years ago, in 2022, we had a number of intraparty very expensive contests that brought a lot of primary money to us. What we discovered at the end of the year is that a lot of the money raised and spent in 2022 was essentially pulled forward to these primaries, and once those primaries were over, the candidates who won did not have any money, and the super PACs were kind of tired of spending on those races, and those campaigns kind of died after the primary. That was something we had not seen before. This time around, there are two or three pretty high-profile senate primaries, one of which essentially ended the other day in Maine. So we are down to two pretty expensive senate primaries—Texas, where we have a number of stations but definitely not a huge presence relative to the 45 media markets there, and then Michigan, where we have a decent presence but we are not in two or three of the markets there. So we have some exposure to those. The impression is that while a lot of money is being spent in those competitive primaries, the map is just different from 2022, where so much money was pulled into second quarter for those primaries. You have seen all the articles on the hundreds of millions of dollars that the PACs and super PACs are sitting on. The candidates have raised, and frankly, have not even allocated yet. One of the senate parties’ super PACs has started reserving time; the other has barely started reserving time. It seems this is going to be a cycle where the money is being deployed more towards general elections and not second quarter primaries. So we still feel very good about this year. I would say recent events and fundraising numbers and successes are pointing to a very engaged electorate, and as we said many times a year ago, the House might have been a potential jump off the downspin of the Senate, and now the House is very much in play. Even the headline in the Washington Post this morning says Dems are feeling they have a real shot now with taking the Senate. You never would have seen that six months ago. Obviously, that may change, but the more people are engaged and think there is a potential change of control, the more motivated they are to raise money and campaign and work the doors and work the phones and vote. We think this is going to be a very, very engaged campaign season, and we have a very good portfolio of number one TV stations in the right markets to capitalize on that. Hilton Hatchett Howell: Did that answer your question, Dan, or are you looking for an adjective? I will take an adjective, if I can get one. Kevin is sitting here kicking me under the table, but suffice it to say—it is going to be extraordinarily strong. What those numbers are going to be, we have learned our lesson. We do not know. But I think it is easy to check our markets, our position, and where the races are, and we do think that we are exceptionally well positioned, the way Kevin so wisely articulated our markets and operations. Daniel Louis Kurnos: Got it. Thanks, everybody. I appreciate it. Operator: As a reminder, please limit questions to one and one follow-up. Our next question comes from the line of Aaron Watts with Deutsche Bank. Please go ahead. Aaron Watts: Hey, guys. Thanks for having me on. Apologies in advance, but one more on retrans. You had described an unprecedented new demand as being at the core of the programming dispute you recently resolved. Is it safe to say you were able to back that demand down? And what risk do you see that other distributors bring that type of a demand to the table in the future? Kevin P. Latek: Aaron, understandably, you have asked what was the detail. We do not comment on specifics in our negotiations. I would say I started doing retrans in 1997, did it pretty much full-time for a decade and a half before coming here, and obviously Gray has done a few retrans negotiations over the last fourteen years I have been here. I did retrans for Comcast and some cable companies in a prior job and a whole bunch for broadcasters. We have seen a ton of retrans contracts through our sixty-some-odd transactions since I came to Gray. I have never seen a provision like the one that was thrown at us as a non-negotiable line in the sand—take it or leave it—as we saw here. It is not something that we were prepared then, or ever, to do. I do not expect other MVPDs will expect to exert control over a broadcast company any more than we would expect to do a deal where we would try to control the operations of another company. The bottom line is it was bizarre. It was incredibly unprecedented in a lot of very deep professional experience, and so we were willing to take the extraordinary step of Gray breaking its long history of never having a major retrans dispute. It clearly was pretty existential for us. We resolved it. The terms were resolved in ways that we felt comfortable with, and that is, unfortunately, all I really can say on terms that are subject to confidentiality that we expect DISH to respect and we will respect. I think it was a one-off. I am not expecting other people, on either side, to ask for a level of control over another company that no one will be willing to give. So let us just leave it at that. Aaron Watts: That is helpful. I appreciate your view on that. And then just one for Jeff. We can see your continued work on the expense side in the first half of this year. How should we be thinking about costs in the second half? Are you lapping any initiatives that will flatten things out, or is the first half expense base a fair baseline for the remainder of the year? Any help would be appreciated. Jeffrey R. Gignac: Yeah. We talked about this a little bit on our first quarter call, Aaron. We did align company-wide raise dates for all nonunion employees to January 1 so that we can manage things better and budget better. Everybody had their own individual anniversary date prior to this, so you can imagine when you have got 5 thousand employees, it is a lot just to keep track of, and this was fair to everybody. That pulled forward some increases in what is our largest expense item. That will average out throughout the year. So the back half—I would not say the first half is necessarily a perfect proxy for the back half. The back half should be, on a comparable basis, getting to a more normalized, inflationary-type rate. We also will have, in the back half of the year, as we report, all the acquired station expenses rolling in. That is the other piece of it here. But they come in under normal SEC reporting as they close. Operator: And your next question comes from the line of Patrick Sholl with Barrington Research. Please go ahead. Patrick Sholl: Hi. Good morning. Just on your advertising guidance, is there any amount of crowd-out from the World Cup, just it being on—drawing advertiser interest to different stations? Donald Patrick LaPlatney: No. The World Cup is a net benefit. There is no question. If you mean preemptions of other programming by the World Cup, there is really no sort of net negative. The World Cup is a positive. Patrick Sholl: Okay. And then with the MVPDs including access to the network streaming services, have you seen that have any sort of impact on local programming viewership? Sandy Breland: Modestly, if any. Our local programming viewership is still extremely strong when you look at our local newscasts, what we are doing on the linear side and, frankly, the streaming side as well. Our local newscasts continue to perform very well. The streaming is totally additive, and if you go back and look at the net viewership across all the different platforms we are on now, that has grown over the last few years and has not diminished. Hilton Hatchett Howell: Pat mentioned this often, but Pat mentioned that FIFA was a positive and not a negative. I really think that our sort of unique degree of NBC exposure to the Telemundo portfolio—we have 47 affiliates; we are the largest affiliate group outside of the major markets that NBC has—and we think it is going to be really, really strong in Spanish-language. We are also very excited about FIFA on our 33 FOX stations in English, obviously. It is going to have a big impact on us, we believe, and having stations in two host cities—in Atlanta and Kansas City—is very beneficial for us. Patrick Sholl: Thank you. Hilton Hatchett Howell: Thanks, Ian. Operator: Your next question comes from the line of Gengxuan Qiu with Barclays. Please go ahead. Gengxuan Qiu: Hey, guys. Thanks for taking my question. I just had a clarification on the guidance for the net retrans distribution. Is there any true-up or catch-up payments that we should think about that were negotiated as part of the resolution? And then, on your comments on organic low single-digit growth in net retrans for the full year, does that take into account any kind of changes from the pending closing of Charter and Cox? Jeffrey R. Gignac: So, Shanna, everything is factored into the guide. Again, I do not want to comment about any specific aspect of the contract—contracts plural, really. There were multiple contracts that were negotiated during the quarter. On your second question, we have factored in our own estimate of when that closes into the guide. I am not going to handicap exactly when that closes, but we are aware of that, and it is factored into what we have put out in the comments about inflationary-type growth for the full year. Operator: Okay. Great. Thank you. Your next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead. Craig Anthony Huber: Great. Thank you. Can you just comment, if you would, where you think the FCC is right now on this 39% TV station ownership cap? I mean, they obviously did the TEGNA deal. They approved it underneath a waiver as opposed to first getting rid of the 39% ownership cap or lifting it. Where do you think we are on the timing of maybe getting rid of that? It has been long overdue, obviously. Thank you. And my other question: the use of AI at your company and your TV stations. Can you just quickly go through with us the benefits in terms of enhancing your services, but also on the efficiency side of things at your station level? Kevin P. Latek: Hey, this is Kevin. To be honest, we have no idea on the timing, and it is just not something we follow. Gray is at 25% under the cap. There is nothing that we could imagine doing in the near-to-medium term that would require the cap to be raised for Gray, so it is just not, frankly, an issue that we follow. I would point you to one of the broadcasters who is close to the cap and lobbying on that issue. We are not; it is irrelevant to Gray. Sandy Breland: On AI, it has really been a multiplier of sorts for our teams—primarily time saving and increasing productivity on both the sales and the news side. It allows us to free up our people on the content side to create more original, sticky content, and on the sales side, it allows us to spend more time on client relationships and growing business, using AI for things like accelerated pipelines for new business and prospecting. It is really a multiplier, amplifying and giving our people more time to focus on the things that we really need them to focus on. Operator: Once again, to ask a question—And with no further questions in queue, I will now turn the call back over to Mr. Hilton Hatchett Howell for closing remarks. Hilton Hatchett Howell: Well, thank you very much, operator, and I want to thank everyone for joining us this morning. We are very pleased with our results that we have reported and really look forward to talking to you at the conclusion of next quarter. Thank you. Operator: Thank you again for joining us today. This does conclude today’s conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 CoreCivic, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeb Bachmann, Managing Director of Investor Relations. Please go ahead. Jeb Bachmann: Thank you, operator. Good morning, and welcome to CoreCivic, Inc.'s first quarter 2026 earnings call. Participating on today's call are Patrick Swindle, CoreCivic, Inc.'s President and Chief Executive Officer, and David M. Garfinkle, our Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. On this call, we will discuss financial results for the first quarter of 2026 as well as updated financial guidance for the 2026 year. We will also discuss developments with our government partners and provide you with other general business updates. During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors including those identified in our first quarter 2026 earnings release issued after market yesterday as well as in our Securities and Exchange Commission filings, including Forms 10-K, 10-Q, and 8-K reports. You are cautioned that any forward-looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future. Management will discuss certain non-GAAP metrics. A reconciliation to the most comparable GAAP measurement is provided in the corresponding earnings release and included in the company's quarterly supplemental financial data report posted on the Investors page of the company's website at corecivic.com. With that, it is my pleasure to turn the call over to our CEO, Patrick Swindle. Thank you, Jeb. Patrick Swindle: Good morning, and thank you for joining us for CoreCivic, Inc.'s first quarter 2026 earnings call. On this morning's call, we will discuss our latest operational results and update you on the latest developments and opportunities with our government partners. Following my opening remarks, I will hand the call over to our CFO, David M. Garfinkle, who will provide greater detail on our first quarter 2026 financial results, as well as our updated 2026 financial guidance. David will also provide an update on our capital structure, including activity on our share repurchase program and other balance sheet initiatives. Before we discuss this quarter's financial performance, I want to share some perspective on what I see every day in this role—the work our team does, and why it matters. Every day, approximately 55,000 individuals are entrusted to our care by our government partners. That means that every day around the country, more than 13,000 CoreCivic, Inc. professionals are responsible for feeding, safeguarding, treating medical and mental health needs, facilitating religious and recreational activities, providing access to legal resources, and delivering programs that help prepare people for whatever comes next in their life's journey. Our colleagues carry out these responsibilities humanely, treating residents and each other with dignity and respect. This is an incredible responsibility and an essential service for our government partners and the communities where we operate. I am extremely proud of our team and the professionalism and purpose with which they carry out their responsibilities, and I am deeply grateful for the trust our government partners place in CoreCivic, Inc. Through these tens of thousands of interactions each day, we have an opportunity to help build safer, healthier, and more productive communities one person at a time. Using that as a North Star enables us to achieve success for all of our stakeholders, including our shareholders. I will now move on to a high-level overview of our first quarter operational performance. Total occupancy for our Safety and Community segments for the quarter was 79.6%, up 2.6 points since the year-ago quarter. The average daily population across all of the facilities we manage was 57,243 individuals during the first quarter of 2026, compared with 51,429 in the year-ago quarter. This increase was driven by more demand for our services, new contracting activity, and the FarmVille acquisition that was completed on July 1, 2025. This is a meaningful increase, and our teams continue to be focused on delivering the highest quality services and environment every day. Federal partners, primarily ICE and the U.S. Marshals Service, comprised 58% of CoreCivic, Inc.'s total revenue in the first quarter. Revenue from our federal partners increased 48% during the first quarter of 2026 compared with the prior-year quarter. Further breaking down our federal mix, revenue from ICE increased $128.1 million, or 96.2%, while revenue from the U.S. Marshals Service decreased by $12.2 million versus the prior-year quarter. Some of this decline is simply a shift in mix where ICE and Marshals share a contract. Populations from ICE in our care increased by approximately 4,500 individuals, or 45%, from the beginning of 2025 through March 31, 2026. We cared for 14,689 individuals, and our average daily population increased by 6,822 individuals in the first quarter of 2026 from the first quarter of 2025. However, since January 2026, when our ICE populations peaked, through April 30, ICE populations in our care have declined by roughly 3,000 individuals. We believe this decline is temporary and event specific, and David will review our population assumptions at a high level reflected in our financial guidance. A key aspect of our ability to meet the increase in demand we have experienced from ICE has been the activation of five idle facilities. Activating idle facilities is challenging work, and activating numerous facilities simultaneously is particularly challenging, but I could not be more proud of our team's progress. Occupancy at our 600-bed West Tennessee Detention Center, where we signed a new contract and began accepting detainees in 2025, has stabilized, and our daily operations are now fairly routine. We continue to receive detainee populations at our 2,560-bed California City Detention Facility where we signed a new contract effective September 1, 2025, and at our 2,160-bed Diamondback Correctional Facility where we signed a new contract effective September 30, 2025. As of March 31, 2026, we cared for 1,817 individuals and 735 individuals, respectively, at these two facilities. We received approval for a special use permit at our 1,033-bed Midwest Regional Reception Center in early March 2026 and immediately began accepting detainees. The facility has been undergoing reactivation since the new contract was awarded in 2025, but there was a temporary delay in the intake process as we worked through legal challenges in the SUP approval process. I want to reiterate our thanks to the Leavenworth City Commission for their collaboration and trust and look forward to bolstering our longstanding relationship with the Leavenworth community. Because of the uncertain timing of the resolution of the SUP matter, we did not include the financial impact of the activation in our initial guidance for 2026. We currently expect this facility to contribute $0.05 to $0.06 in incremental earnings per share for the remainder of 2026, which is included in our updated financial guidance as David will discuss further. Moving to a discussion of the macro business environment with ICE. In late January 2026, nationwide ICE detention populations were at historic highs around 70,800 individuals, an increase of approximately 1,000 from the end of the fourth quarter. However, a government shutdown centered around Department of Homeland Security funding, a reorganization of DHS leadership, and a subsequent impact to enforcement activities, including redeployment of ICE agents to TSA checkpoints, led to a 10,500 decrease in detention populations by early April 2026. While we cannot predict how quickly population growth will resume, the administration continues to indicate a strong emphasis on border security and active ICE enforcement. What has potentially changed is how DHS plans to meet its detention bed needs going forward, including through the conversion of vacant warehouse facilities into immigration detention facilities and/or the acquisition of existing turnkey facilities. As the former has garnered a lot of attention for various reasons, we do not know the future of that strategy. However, as widely reported in the media and in numerous analyst reports, we do believe the potential of turnkey facility acquisitions remains as our government partners look to secure capacity throughout the United States. Nationwide populations from the U.S. Marshals Service, our second largest customer, have declined from the prior year, partially offsetting the increase from ICE as facilities with shared contracts between the two agencies have extended the capacity to ICE due to the higher demand. Marshals populations are also down nationwide due to fewer apprehensions at the southern border. Our average daily Marshals population declined by 1,360 individuals in the first quarter of 2026 from the first quarter of 2025, although we have experienced a steady increase in average daily Marshals populations the past few months. Revenue from our state partners, which comprises 33% of our total revenue in the first quarter, increased 3.6% from the prior-year quarter. This increase includes per diem increases under a number of our state contracts and population growth from the states of Georgia, Montana, and Colorado. This increase is net of a decline in revenue for the transition of populations at our Trousdale facility in Tennessee, which resulted in a decline in populations that we expect to recover in the coming quarters. Excluding the decline in revenue at Trousdale, revenue from state partners increased 5.2%. We continue to see an increase in opportunities at the state level. In addition to increases in populations in our existing contracts, we are in discussions with several states in need of additional bed capacity. At the end of the first quarter, we began consolidating and expanding a state customer population into our Tallahatchie County Correctional Facility in order to provide single-location service for this customer while creating more marketable capacity for a potential new state customer in Arizona. We continue to maintain five idle corrections and detention facilities containing approximately 7,000 beds to meet any federal or state increase in demand. We remain confident that the corrections and detention beds that we provide are the most humane, most efficient, logistically most compliant, most secure, readily available, and provide the best value to the government. Moving on to capital deployment, we remain focused on creating value for our shareholders through operational excellence, meaningful organic growth, an active share buyback program, and, at times, accretive acquisitions. In April 2026, we executed on an agreement to acquire Clinical Solutions Pharmacy, one of the largest providers of mail-order pharmacy services to correctional facilities in the United States. This ancillary business complements our core mission of improving the lives of those in our care, while providing a diversifying revenue stream and meaningful growth opportunities as correctional populations age with more complex and chronic medical needs. CSP's exclusive focus on the corrections market—serving over 600 correctional facilities, including CoreCivic, Inc., across 28 states—uniquely positions it to support the government agencies seeking reliable, clinically advanced pharmacy solutions. CSP is at the forefront of the correctional pharmacy business, with 50% of shipments being fully automated—which is a key differentiator in the industry—filling approximately 60,000 prescriptions per day with no single customer currently accounting for more than 15% of its annual revenue. CSP is headquartered and operates a centralized distribution center less than 30 miles from our Facility Support Center here in Greater Nashville and has nearly 300 employees. I want to welcome the CSP employees to the CoreCivic, Inc. team. We are excited about the future with CSP and look forward to reporting on their progress. David will provide more details on the financial impact of the acquisition. Our first quarter results exceeded average analyst estimates for adjusted EPS by $0.12 and adjusted EBITDA by $13.3 million. While we are pleased with the first quarter results, we expect a sequential decline in per-share results in the second quarter as a result of the recent reduction in nationwide ICE detention population. However, for the reasons I mentioned earlier, we believe this reduction is temporary. Even with this reduction, we are increasing our full-year guidance reflecting our strategic investment in Clinical Solutions and the successful activation of our Midwest Regional Reception Center, which more than offset the decline in our updated forecast for ICE populations. As I noted on our last earnings call, despite full-year 2026 EBITDA guidance near record levels, our stock continues to trade at a discount to our historical trading multiples, which we believe does not reflect the cash flows of our business, particularly considering the ongoing activations of previously idle facilities, giving us visibility into our growth potential in 2026 and beyond. The acquisition of CSP further strengthens that growth outlook. We also believe that our current share price implies a significant discount to the fair value of our real estate assets using just about any valuation methodology. Accordingly, we plan to continue prioritizing our cash flows towards share repurchase, taking into consideration our stock price and alternative opportunities to deploy capital, among other factors. Additionally, the recently completed $100 million term loan supports balance sheet flexibility as we navigate the partial government shutdown environment, and assessed potential asset sales could further enhance our liquidity, enabling us to continue to deploy capital in ways we believe create shareholder value. With that, I will turn the call over to David to discuss our first quarter financial results in more detail, our capital allocation activities, and the assumptions underlying our updated 2026 financial guidance. David? David M. Garfinkle: Thank you, Patrick, and good morning, everyone. In the first quarter of 2026, we generated GAAP EPS of $0.38 per share and FFO per share of $0.64. Special items in the first quarter of 2026 included $2.4 million of expenses associated with M&A activities reported in G&A expense for the acquisition of Clinical Solutions completed subsequent to quarter end. Excluding M&A expenses, adjusted EPS was $0.40 compared with $0.23 in the first quarter of 2025, an increase of 74%. And normalized FFO per share was $0.65 per share, compared with $0.45 per share in the prior-year quarter, an increase of 44%. Adjusted EBITDA was $110.1 million compared with $81 million in the first quarter of 2025, an increase of 36%. Adjusted EPS exceeded average analyst estimates by $0.12 per share and adjusted EBITDA exceeded average analyst estimates by $13.3 million. The increase in adjusted EBITDA from the prior-year quarter of $29.1 million resulted from the activation of four previously idle facilities since 2025 under new management contracts with ICE and the acquisition of the Farmville Detention Center on July 1, 2025. The number of ICE detainees in our care followed national trends, which reached record highs again during the first quarter of 2026, although they dipped at the end of the first quarter for what we believe are transitory reasons. We managed approximately 24% of total ICE populations at quarter end compared with 23% at year end and 25% at March 31, 2025. The increase in adjusted EBITDA also resulted from an increase of $4.6 million in employee retention credits available under the CARES Act during the first quarter of 2026 compared with the first quarter of 2025. During the first quarter of 2026, we collected the final amount we previously claimed. Higher state populations also contributed to the increase in EBITDA. Revenue from our state partners grew 3.6% and included notable increases from Georgia, Montana, and Colorado. Other factors affecting adjusted EBITDA and per-share results included higher G&A expense for one-time transitional expenses related to executive leadership changes, offset by a 10.1% decrease in weighted average diluted shares outstanding as a result of our share repurchase program. Operating margin in our Safety and Community facilities combined was 24% in the first quarter of 2026 compared with 23.6% in the prior-year quarter. Jeb Bachmann: Excluding the employee retention credits from each quarter, operating margin was 23% for both quarters. Patrick Swindle: Revenue during the first quarter of 2026 from the four previously idle facilities we have activated since 2025 totaled $100.8 million, which, when annualized, is approximately 93% of the total annual revenue we expect to generate from these four facilities at stabilized occupancy. As these facilities reach expected occupancy, we anticipate a slight increase in operating margin. Turning next to the balance sheet. During the first quarter, we repurchased 2.3 million shares of our common stock at an aggregate cost of $44.7 million. Although lower than the fourth quarter, this reduction does not reflect a change in our capital allocation strategy. Many factors can affect the magnitude of our share repurchases during any particular quarter, including share price, liquidity, earnings trajectory, alternative opportunities to deploy capital, as well as legal restrictions on trading windows impacted by potential strategic transactions such as acquisitions, dispositions, new contracts, and capital markets transactions. Since the share repurchase program was authorized in 2022, through March 31, 2026, we have repurchased a total of 28.1 million shares at an aggregate price of $444.2 million, or $15.82 per share. As of March 31, 2026, we had $255.8 million available under our board authorization. After taking into consideration these share repurchases, our leverage, measured by net debt to adjusted EBITDA, was 2.8 times using the trailing twelve months ended March 31, 2026. As of March 31, 2026, we had $209.7 million of cash on hand and an additional $131.3 million of borrowing capacity on a revolving credit facility, which had a balance of $425 million outstanding, providing us with total liquidity of $341 million. Just after quarter end, we completed the acquisition of Clinical Solutions, one of the largest providers of mail-order pharmacy services to correctional facilities in the United States. The initial purchase price of $148 million, excluding transaction-related expenses, was funded with cash on hand and borrowings under the revolving credit facility. As Patrick mentioned, we believe this was a unique acquisition opportunity of a segment-leading company in a growing market complementary to our existing business at a purchase price generating a return on capital deployed that equals or exceeds the accretion resulting from share repurchases, reflecting a lower multiple than our forward EV-to-EBITDA trading multiple. To replenish the borrowings under the revolving credit facility used to finance the acquisition, on April 10, we amended our bank credit facility to obtain a $100 million incremental term loan. We obtained the incremental term loan, which has a 364-day maturity and is prepayable without penalty, as a short-term solution to maintain our strong liquidity position as we assess the debt capital markets and potential asset sales that could further enhance our liquidity, enabling us to deploy capital in ways that we believe will create shareholder value. Moving lastly to a discussion of our updated 2026 financial guidance, we expect to generate diluted EPS of $1.51 to $1.61 and adjusted diluted EPS of $1.53 to $1.63, up from $1.49 to $1.59 in our previous guidance. We expect to generate FFO per share of $2.58 to $2.68 and normalized FFO per share of $2.60 to $2.70, up from $2.54 to $2.64. We expect adjusted EBITDA of $453.8 million to $461.8 million, up from $437 million to $445 million. The most notable changes to our guidance reflect Q1 results beating our internal forecast by about $0.05 per share, an increase from our prior guidance of $0.05 to $0.06 per share for the activation of our Midwest Regional Reception Center that we announced on March 11, which was not in our initial guidance, and the acquisition of Clinical Solutions, which we expect to generate $215 million to $230 million of revenue in 2026 and contribute $0.03 to $0.05 per share, net of interest incurred to finance the acquisition, partially offset by a reduction of $0.09 to $0.15 per share from lower ICE populations compared with our previous forecast. As you may recall, our initial 2026 financial guidance contemplated stable or rising ICE populations at facilities where we have federal contracts. Jeb Bachmann: Our forecast reflects the reduction in nationwide— Patrick Swindle: —populations reported by ICE during the second quarter and the related reduction in our ICE populations that I mentioned. We believe the reduction in nationwide ICE populations in the second quarter is transitory, reflecting the short-term redeployment of ICE agents to augment TSA security personnel during the government shutdown, and overall enforcement strategy adjustments within DHS. Therefore, our guidance reflects growth in ICE populations under existing contracts during the second half of the year. Consistent with our past practice, guidance does not include the impact of new contract awards not previously announced because the timing of government actions on new contracts is always difficult to predict. We still have five remaining idle facilities containing 7,066 beds, and we believe incremental demand for more idle facilities will likely be needed once ICE absorbs the recently contracted beds and nationwide ICE populations grow during the second half of the year, as we expect. Our guidance does not include additional acquisitions or dispositions, including the impact on EBITDA such as pricing adjustments, if any, that could result from dispositions. For modeling our quarterly results, Q2 will reflect a reduction of $0.06 per share for the employee retention credits recognized in Q1, the reduction in ICE populations compared with Q1 (aside from activations) amounting to $0.05 to $0.07 per share, partially offset by a seasonally stronger Q2 than Q1 due to one more day in Q2 and because we incur approximately 75% of our unemployment taxes during the first quarter, resulting in a collective per-share increase from Q1 to Q2 of $0.01 to $0.02. Our Q2 forecast also includes growth from the CSP acquisition and assumes higher occupancy at our California City, Diamondback, and Midwest Regional facilities. We plan to spend $60 million to $70 million on maintenance capital expenditures during 2026 and $15 million for other capital expenditures, unchanged from our prior guidance. Our 2026 forecast also includes $40 million to $45 million for capital expenditures associated with previously idle facilities we are activating and for additional potential facility activations, up $5 million from our prior guidance. We expect adjusted funds from operations, or AFFO—what we consider a proxy for our cash flow available for capital allocation decisions, such as share repurchases and growth CapEx such as acquisitions and facility activations—to range from $250.4 million to $264.9 million for 2026. We do not believe the price of our common stock reflects the value of the cash flows of our business. We are trading below historical multiples despite visibility of cash flow growth in 2026 driven by recent contract awards, which is now further enhanced by the acquisition of CSP. Therefore, we expect to prioritize our cash flows to continue executing on our share repurchase program, which has been incorporated into the range of our guidance. The amount of our share repurchases will take into consideration our stock price, liquidity, earnings trajectory, and alternative opportunities to deploy capital as well as legal restrictions on trading windows that I previously mentioned. We expect our annual effective tax rate to be 25% to 30%, unchanged from our prior guidance. The full-year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. We are forecasting G&A expenses in 2026 to range from $160 million to $165 million, unchanged from our prior guidance. I will now turn the call back to the operator to open up the lines for questions. Operator: Thank you. We will now open the call for questions. We kindly request that each participant ask one question and one follow-up question. You may re-queue if you have more questions. As a reminder, please mute your line when not speaking. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Raj Sharma of Texas Capital. Your line is now open. Raj Sharma: Yes. Thank you for taking my questions. I wanted to try to understand the sale of facilities to ICE and what would be a valuation level that you would consider, and just, you know, some color on would this be a great scenario for you with or without a contract on the facility. Patrick Swindle: Good morning, Raj. Thank you for the question. I would say, and I will address that in two parts. One of them is we try to be a very good partner for all of our customers. And in trying to be a good partner, we evaluate the way that we can best support their mission and their strategy. And so that may be our providing turnkey services and managing a facility that we operate. It may be managing a facility that they own. It may be leasing a facility to them. It might be selling them a facility. And as we have conversations with each of our partners, we think about what is the optimal way for us to deliver that service. ICE has expressed the desire that they own certain of the assets that are managed on a turnkey basis nationally. So that has been publicly reported. You have seen it in a number of sources; I have seen it in a number of sources. It is clear that part of their strategy they are considering is whether it does make sense to own some of those assets. Strategically, in thinking about the way that they would approach locations, the way that they would approach individual facilities, they have obviously mapped—you have seen references to warehouses, you have seen references to turnkey operations, what a consolidated ICE operation might look like nationally. And so in thinking about that, we have some of the largest facilities that provide service for ICE nationally, as do some of our competitors. Some of those would be a natural fit for ICE if they were working to build out that network. They ultimately would have to make that decision. When you think about valuation, that is an interesting question because there really is not a comp for what these facilities are worth. So if you were to look at a more actively traded market for assets, you could look at comparable sales and get a reasonable sense of what that value might be. I would argue in this case, we have special-purpose assets. They are highly improved properties. They have been prepared for utilization by ICE. Many of them are in markets or in areas of the country where the cost of construction is very high. We have seen significant increases in inflation in the cost of building detention facilities. So you really cannot look at what I would call comp sales as a guide for what we believe the value of our assets are worth. I look at it through the lens of what does it cost to build a facility today and what would that be on a depreciated replacement cost basis. I think that generally gives the guide for how we would think about what those facilities might be worth in a hypothetical conversation. So I would like to be more specific; it is very difficult to do that, obviously. But I guess in the context of the way we would think about value of our facilities, I really cannot point to a public comp that would be an indicator. If you think about depreciated replacement cost, that is something that we certainly would think more appropriate, but I would really hesitate to pinpoint a value range at this point. And then your follow-up question, which was, would we consider an asset sale without a management contract? We certainly believe it would be the intent of ICE, to the extent they were to purchase assets, to have the private sector continue to manage facilities. But we have to consider the duration of that management contract long term in terms of how we might think about or approach a sale process. So at this moment, we would expect that we would continue to operate. We would expect that we would adjust our pricing based on their ownership of the asset versus our ownership of the asset, in the event there were to be a transaction. But the idea generally that ICE owning an asset would be appropriate strategically for us to consider, I would say our answer to that would be yes, depending on the value that we would derive from selling a potential asset to them or any other customer. Raj Sharma: Great. Thank you. Thank you for that. It is very helpful. And just one follow-on question: what facility utilization levels would you expect to see at the end of the first half and also the end of the year? David M. Garfinkle: I will take a stab at that one. Patrick mentioned in his remarks, from the peak in January through late April, we saw a decline in our ICE populations of about 3,000. So we are projecting that to sustain around those levels through the end of the second quarter and then growing back sequentially in Q3 and Q4. So it is hard to put a specific population number on it, but that is the trajectory as we see it. Raj Sharma: Great. Thank you. I will take it offline. Yeah. Absolutely. Operator: Thank you. Our next question comes from the line of Gregory Thomas Gibas of Northland Securities. Your line is now open. Gregory Thomas Gibas: Great. Good morning, Patrick, Dave. Congrats on the quarter. I wanted to follow up on that last one. Actually, it is related to the implied guidance. Maybe if we could get a little bit deeper in terms of what you are implying as kind of the current run rate for Q2, noting that you kind of expect populations to remain somewhat flat with where they are now, and versus kind of the ramp-up you are assuming in the back half? If you could kind of bridge the quarterly expectations implied by guidance, that would be very helpful. David M. Garfinkle: Yes, thanks, Greg. As I mentioned in my prepared remarks, I bridged Q1 to Q2. Obviously, you have the $0.06 in Q1 for the employee retention credits that would not be present in Q2. And then there was the decline in ICE populations that we are expecting to sustain themselves through Q2. So I would say, rough numbers, there are a lot of puts and takes, but that is around a $0.06 decline from Q1 to Q2—$0.06 to $0.07 somewhere in there—from Q1 to Q2, and then sequentially increasing from there. We do have the acquisition of CSP that will be in for a full quarter beginning April 1. So that will be in for a full quarter in Q2. And then we obviously continue to ramp up our California City, Midwest, and Diamondback facilities. So those will be tailwinds to the decline in ICE populations. That is the way we are thinking about it. And then, you know, we mentioned in prior calls a $450 million run rate. We certainly see that as possible as we get into the second half of the year. Gregory Thomas Gibas: Understood. That is helpful. And if I could follow up on CSP, could you discuss any synergies or growth opportunities related to that acquisition and maybe provide a little bit more detail in terms of its financial profile—what that looks like, growth rate, margin profile, etc.? Patrick Swindle: Yes. Thank you for that question. I will address those two somewhat separately, but also somewhat combined. CSP is going to be a standalone subsidiary of CoreCivic, Inc. So the opportunities for operating synergies are fairly limited. Our goal is to maintain Clinical Solutions as it operates today, to be able to support the platform, provide it with resources, but also for it to be able to grow. This is not a tuck-in acquisition. It is an adjacent expansion of our business. In terms of growth rate, the company has seen exceptional growth historically. I would rather not disclose the rate. The way that I would frame growth rates for Clinical Solutions, at least for the intermediate term, would be: if you were to look at the way we think about the growth that is built into our guidance for 2026 and calculate the five-year compound annual growth rate, it would be just over 10%. If I were to look at the growth potential for Clinical Solutions, it is probably twice that. So it is a rapidly growing platform that has evidenced stability and sustained growth rates in excess of that for an extended period of time. Our goal is to continue to support that platform, give it the space to be able to grow, but also take advantage of some administrative opportunities for synergies that might be available. For example, consolidation on our ERP platform. There are revenue synergies in terms of our customer relationships versus theirs. They do not presently do business with the federal agencies outside of contracting with us, so that is an opportunity for growth. There are a number of overlapping customers. There are a number of non-overlapping customers. And so we really, again, want to be able to support them, give them the space to be able to maximize their capability in the way that they have done in the past. We feel good about the pipeline that is in place for them. I have a lot of visibility into growth into 2027. I think they are really well positioned beyond that. David M. Garfinkle: Nothing to add other than the clarification on the prior comment: the $450 million in the second half of the year excludes Clinical Solutions. So we are still confident, even with the ICE reduction that we are seeing in Q2, the second half of the year will be at a run rate of $450 million, and then CSP would be on top of that. Gregory Thomas Gibas: Got it. That is helpful, Patrick, and I appreciate the clarification, Dave. Thanks very much, guys. Operator: Our next question comes from the line of Benjamin Briggs of Stonex Financial Inc. Your line is now open. Benjamin Briggs: Hey. Good morning, guys. Thank you for taking the question. Congratulations on the quarter. So I just wanted to ask a little bit of a follow-up on your acquisition strategy. Obviously, CSP happened in early April of this year. But just as you are thinking about potential acquisitions going forward—I know you listed, as one of the potential uses of cash of the incremental term loan, that there might be some acquisitions that could happen in the future—any color on the type of additional acquisitions that you might make? Is there any chance that you might build new facilities? Technology platforms for alternative-to-detention programs? Just any clarity on your thinking there would be appreciated. Thanks. Patrick Swindle: Sure. We have always been opportunistic in looking at opportunities for acquisitions. And if you think about the criteria that I would use at this moment, obviously we believe that our share price is undervalued. I think that is a very attractive use of capital for us. So, for an acquisition, to me, the hurdle for us that would justify buying a business instead of our stock—you would have to be very attractively valued. And I think appropriately valued at equal to or less than the ability to deploy capital via share repurchase. That is necessarily going to impact the scope and volume of acquisitions that we might consider or make. There is not an acquisition that is currently planned or in the pipeline. Although, again, we are going to continue to be very opportunistic and look for acquisitions that might be a good fit for us. From a business standpoint, strategically, we are looking at transactions that might be adjacent to us that supplement our growth, that can leverage our competencies and their competencies, and that can ultimately give us the ability to grow on a long-term basis in a sustainable way. We go through seasons. This has presently been a season that has seen a lot of ICE growth. We will go through seasons that do not have that volume of growth, and so we are preparing the platform to be able to grow on a sustainable basis long term. CSP fits within that. But in terms of prioritization, I would revert back to David's comment in his remarks overall, which was that prioritization right now would be toward share repurchases. But again, we will consider other business acquisitions as appropriate, but I do not see anything as imminent that I would point to from a cash flow prioritization perspective. Benjamin Briggs: That is great color. Thanks very much. I appreciate it. Operator: Our next question comes from the line of Joseph Anthony Gomes of Noble Capital. Your line is now open. Joseph Anthony Gomes: Good morning. Thanks for taking my questions. Patrick Swindle: Good morning, Joe. Joseph Anthony Gomes: Just to kind of follow up and put a little bow tie on CSP. I think it said they are in 28 states, so either 22 they are not in. Would there be the potential for a similar type of purchase of another operator that may be in those 22 states as opposed to slowly going, you know, organically through those states? Is there others out there like a CSP that might be of interest at some point? Patrick Swindle: There are other providers in the market, and I can see that as being an attractive way to scale the CSP platform. So I would say to the extent that those opportunities did present, we would consider them. Again, in terms of timelines, I would not look at something as imminent, but I do think there is an opportunity for consolidation within the space. Joseph Anthony Gomes: Okay. And then, Patrick, we have talked over a number of quarters that you are in discussions with other states, some that are not existing customers. Any more color you can provide as to what timing might be as to whether you might get a new contract from a state that is not an existing customer? Patrick Swindle: Sure. I appreciate that question. Timelines with any state procurement, and then particularly with new state procurements, can be widely varied. And so you can go through periods of intense discussion and have that ebb and flow based on relative priorities or alternatives, and certainly it also links to individual state budget cycles. So as we have conversations, you are going to see periods where you think that you are close to an agreement and you find out that it lags a bit. In other cases, you are going to see demand accelerate quickly based on an imminent need that presents, and something either being funded or not funded through the legislative cycle. So I do not really have an update today on timing of what some of those might be. But I would say that we have a very strong state partnership development team that is very quick to accommodate the needs of our customers when they do present, and a number of those organic conversations continue. And certainly, as it warrants, we will provide updates on timing, but historically we have not given a lot of specificity outside of RFPs that are active and underway. So, again, I appreciate the question. I would like to give you more clarity, but I really cannot say more at this time. Joseph Anthony Gomes: Great. Thanks. I will get back in queue. Operator: Our next question comes from the line of William Sutherland of Benchmark Stonex. Your line is now open. William Sutherland: Thanks. Hey, good morning, everybody. Dave, I just want to make sure I am clear on the source of growth in the ICE populations in the second half. That is based simply on the buildouts you are doing, or are you assuming that the national sort of census level will change? Is that correct? David M. Garfinkle: Yes. Exactly right. So we are ramping the three facilities that I mentioned—California City, Midwest, and Diamondback. But the growth that we are contemplating in the second half of the year would be on top of that. Nationwide ICE detention populations are 10,500 lower from the peak in January. So we would expect that growth to resume in the second half of the year. Part of that could be around reconciliation. We did see the redeployment of ICE agents toward TSA checkpoints and some other factors that contributed to the decline. So we would see nationwide populations growing during the second half of the year. That would include not just the activation facilities that we have, but, you know, the contracts that we have had. William Sutherland: Glad I clarified that. And then the second thing I have been thinking about is I have been reading about the interest ICE has in owning facilities and just the greater kind of protection they have in terms of the kind of things that facilities can run into. Are there any states where they are particularly focused on trying to acquire? Patrick Swindle: We would rather not speak specifically to where ICE might be focused. I would revert back to my earlier answer, which is we believe that the broader vision is to develop a nationwide network that consolidates populations in relatively larger facilities but allows them to be able to service the needs of the entire country. And as they map that, they are going to have to make decisions between where they might consider the purchase of a facility outright, where they might choose to continue to contract with the private sector, and where they might consider an alternative like warehouses. Ultimately, they will settle on a strategy that makes sense for them, but I would say that is not necessarily limiting in terms of location. And so as they look back strategically and try to decide where the optimal locations might be, I certainly have ideas on where optimal locations would be from our perspective, but I also would not want to limit the scope to any particular subset of markets because I think that could be unnecessarily limiting in terms of the broader vision of asset ownership by ICE. William Sutherland: Is this a process that feels like it will be determined over a long period of time, or do you feel a sense from the agency that they want to get some decisions made in the relatively near term? Patrick Swindle: I guess the way I would answer that is that the first articles that I saw referencing the strategy broadly were, I believe, around the end of last year. And in that, there was a lot of discussion around 85,000 beds total, some mix of warehouses and turnkey facilities. What has happened since then is they have to consider what has happened in the market and how that would impact various purchases. It has been publicly reported that they have made a number of warehouse purchases, but it has also been reported that they are actively considering those turnkey facilities. And so as you can imagine, if that process was initiated last year, that would be a conversation that is ongoing, and something that, ultimately, they would make a decision on in their own time. I really hate to speculate on timing because in dealing with government, you do see significant movement in timelines from time to time, sometimes accelerating, sometimes decelerating. But, obviously, they have pointed to, very publicly, the idea that some number of turnkey assets would be a critical part of their strategy going forward. William Sutherland: Got it. Thanks for all that color. Appreciate it. Operator: Our next question comes from the line of Marla Marin of Zacks. Your line is now open. Marla Marin: Thank you. So I have a couple of follow-up questions related to CSP. With this acquisition, you now have several business lines that are adjacent or complementary to the core business. Should we be thinking that there are any potential cross-promotional opportunities you see that could lift some of the other business lines now that you have CSP on board, or are they all extremely distinct and, you know, you do not see any opportunities for that? Patrick Swindle: On one hand, the individual service delivery aspects are distinct, but there is meaningful overlap. The more interactions that we have with a particular partner, meeting their needs, the better trusted partner we can be for them. And so I think about the opportunity for cross synergies, most importantly, through the lens of expanding customer relationships where we may have a relationship that is very strong that they may not have, or vice versa. And so cross-selling opportunities absolutely will be available between the various businesses. Relationship leveraging between those is important. One of the really attractive things to us about Clinical Solutions is we believe that their values are very aligned with ours; their culture is very aligned with ours. They have a very strong customer relationship focus and orientation and are very well respected by their customers. So thinking about how we might consider leveraging their capabilities or skill set, it really would be through cross-selling opportunities between the businesses. That said, there is a limited subset of customers in our space, and we all know all of our customers. So, again, for me, it is one of those opportunities you have to prove your value to your customer through delivering great quality service every day through two or three services instead of just one. Marla Marin: And one follow-up on that. You talked before, I think in response to another question, about potential for consolidation within that particular space. Very, very back of the envelope, it looks like CSP as the largest provider in that segment has only about, or slightly under, a 10% market share, which would suggest that there is a significant opportunity to grow that business and potentially consolidate. Is that roughly the right neighborhood to think about—10%-ish? Patrick Swindle: It depends on how you define market, but I would answer your question by saying there is significant runway available to Clinical Solutions, whether that be through consolidation or through outsourcing by customers who presently provide that service in-house. Clinical Solutions has a very technically advanced pharmacy. From a service delivery standpoint, we believe they have an approach to delivery that is industry leading and very scalable. And so as you think about the economics and the desirability of self-operating, if you are a particular state or federal customer, versus outsourcing, you certainly would have to consider both the quality aspects as well as the cost aspects of outsourcing. So, in terms of overall market opportunity, you are in the right zip code. In terms of how that would manifest, that could be both through new outsourcing of currently self-operated facilities or operations as well as through consolidation through potential acquisitions. David M. Garfinkle: And I would add that is really discussing market share, but I would also say it is a growing industry where we have aging prison populations that have medical needs. And so that is growth for that business as well. Marla Marin: Okay. Thanks so much. David M. Garfinkle: Thank you. Operator: Our next question comes from the line of Analyst from Park West. Your line is now open. Analyst: Hello. Can you hear me? Patrick Swindle: Yes. Good morning. Analyst: Good morning. How are you? Good. Just wanted to understand some of the recent population changes. We understand that there have been declines in the population post Q1 and just want to understand the band of outcomes if it does not ramp. Do we have room to change our expense on either the fixed or variable side of the business? And just wanted to understand, too, what you are hearing that would give us confidence that the ramp will continue post Q2, and how much of a ramp do we need in those census numbers to get to the guide? David M. Garfinkle: I will take the first part, and maybe we will tag team on this one, Patrick. There is ability to right-size staffing levels when populations decline. Having said that, we always want to be ready and adequately staffed to make sure we can accommodate demand. But certainly, with lower populations, you have less churn within a facility, you have less overtime, you have less variable expenses. And so there is an opportunity to reduce expenses. But I will turn it over to you, Patrick, on the other reasons why we expect growth in the second half. Patrick Swindle: Absolutely. I am sure, as you have seen, there has been a lot of national disruption in the ICE enforcement approach and a lot of transition occurring within Homeland Security. If I pan back and look at the broader variables: one of them is what is being expressed in terms of national approach. We believe there continues to be a strong commitment to maintaining strong border enforcement and strong interior enforcement. We continue to see them act in ways that indicate that they have an expectation toward increasing need for beds. Those conversations manifest in a variety of ways, including discussions around currently non-contracted facilities. As mentioned on the call, we have 7,000 beds that are available and can meet that need. When you listen to conversations that have been publicly reported talking about the aggregated bed need, they continue to look toward 85,000 to as many as 100,000 beds nationwide. So we have seen no lessening of intensity. We have seen no change in what the expectation would be for the supply need. We have seen the disruption that occurred in recent months, but I believe that is more anomalous than what we have seen along a broader arc. You also have the dynamic of the significant and meaningful conversations that have occurred around funding for ICE and for CBP. The Homeland Security funding broadly has passed reconciliation, which is currently in process. We have seen the initial language that has come out of the Senate committees around funding for ICE and CBP that would fund ICE through the remainder of the current administration. I am not going to handicap what happens in Congress. I have never been good at predicting that, but what I would say is it appears that funding is trending toward sufficient funding for ICE operations at enhanced or higher population levels for the remainder of the administration. If that funding is in place, as new leadership is able to establish and implement its priorities, you are likely to see an increase in populations. I do think that is consistent with their desire to add capacity, and I think we are in a great position to do that. So in terms of being able to make adjustments to cost structure, you do see cost structure adjustments on the margin—typically reductions in overtime more than outright staffing reductions. There is a long process for getting staff cleared, for ramping our facilities, for preparing them for growth. And we absolutely believe that the right stance and position for us right now is to maintain a growth-focused position with full staffing in our facilities to be able to accommodate the growth that we do expect in the second half of the year. David M. Garfinkle: And then to answer your question on guidance, we feel like the range incorporates a range of population growth during the second half of the year. It is hard to pinpoint what the nationwide population would have to be to hit the midpoint of our guidance, but I would say at a high level, if you get back to—nationwide—they are maybe slightly under 60,000 today; the peak was around 70,000 in January. If we get back to that 70,000 number in the second half of the year, I feel our guidance would probably be right in the middle there. It could depend on timing, too. Do they get to the 70,000 number sooner? Do they go higher than 70,000? Then there would be upside to our guidance. If they do not get to 70,000 until the back half of the year, then you are toward the low end of our guidance. That is how we are looking at it. Analyst: Got it. That is super helpful. Thanks, guys. Patrick Swindle: Thank you. David M. Garfinkle: Thank you. Our next question comes from the line of Kirk Ludtke of Imperial Capital. Your line is now open. Kirk Ludtke: Hello, Patrick, David? Brian, Jeff. Thank you for the call. I am just curious, is ICE full steam ahead with their plans to convert warehouses to detention centers? Or has that slowed down? Patrick Swindle: We have seen probably the same things that you have seen in the press around the individual warehouse opportunities. There have been purchases that have been completed. We have not yet seen one of those opportunities be fully built out and ramped. In terms of the feasibility of that, I think that is something that really only ICE is able to assess themselves. I will say that we have looked at those opportunities. If we think about where we have strong capabilities, it would be the traditional type of detention capacity that we have provided. We have a great network of traditional facilities nationwide. We have 7,000 additional beds available to them today. We could scale that up significantly if needed. And so we have the ability to do that with our traditional asset base. Warehouse conversions are challenging. They are difficult and would have to be done on an expedited timeline. And so, I hate to speak in areas where I would look at what a preference or an expressed option or opportunity might be for ICE. But I would say, certainly, for us it is not an area where we would see as much opportunity as partnering with them for whether it be a turnkey asset sale or activation of a new facility that would meet their needs. But, again, if you were to look at what has actually occurred, at this point we have not seen a great deal of movement in terms of activation of new warehouse facilities. Kirk Ludtke: And what is the timing on that? Are we talking months, years? Even if they get all the permits and all the local players go along with it, how long does it take to convert something like that? Patrick Swindle: It is very difficult for me to assess because we always look at it through the lens of what we believe we are good at and what we are capable of, and we can deliver in a way that we think would meet the government's needs. We would really struggle as a company being able to do that on an expedited timeline. The community relationships are very complex—dealing with water and sewer and utilities. The overall construction buildout to meet the requirements is complex and takes time. But, again, I can only answer that through our lens. I cannot address that through a broader lens, and perhaps there are others that could do that more quickly than we could. But certainly for us, it would be an extended timeline to allow us to complete a conversion like that. Kirk Ludtke: Got it. I appreciate it. Thank you. And maybe one of the goals was these facilities are much larger than the type of facilities that you manage. How many beds do you think would be in a typical warehouse? Patrick Swindle: What has been described publicly is somewhat of a hub-and-spoke model, so there would be a mix of large facilities that would be hubs of 7,000 to 8,000 to even 10,000 or more detainees in a single location. Others would be smaller—what I have seen publicly described is something that is 500 or 1,500 beds. So it is a mix of both. We have developed over time a preference in the way that we operate—optimal sizing for a facility is more in the 2,000 to 3,000 bed range as opposed to something larger than that. But, again, ultimately ICE has to make a determination on what is the best fit for them and ultimately decide whether that would be a viable option once they have proposals in place. That is a very large facility. Kirk Ludtke: Got it. I appreciate it. Thank you. And then if you were to sell a facility to ICE and then operate it, how might we think about the margins on a contract like that? Would they be similar to your managed-only contracts now, or higher because it is a more complicated role? Patrick Swindle: I would look at that as being more managed-only-like in terms of the components. There are some components of that negotiation that are very straightforward, which is what are your operating costs on a daily basis and what is the reimbursement level. There are other components that are different from a capital perspective, which is who is responsible for a roof replacement or HVAC replacement or other components, FF&E, within the facility. That is something that we will obviously have to manage through. Depending on responsibility, that could mean that the margin profile could be meaningfully different than our traditional managed-only. But that is something that would have to be resolved through the negotiation because, again, the ongoing CapEx that we have for our facility operations is significant. Understanding responsibility for that would impact what the operating margin would be. Obviously, on a cash flow basis, you would expect that answer to be somewhat neutral because you would be pricing in the additional margin that you need to cover the investments you have to make to maintain appropriate facility operation. But from an operating margin basis, you would be looking at higher margins to the extent that we are responsible for ongoing capital. Operator: Thank you. Our next question comes from the line of Gregory Thomas Gibas of Northland Securities. Your line is now open. Gregory Thomas Gibas: Great. Thanks for taking the follow-up. And first of all, sorry, Patrick, I was not thinking when I addressed you earlier. I wanted to just follow up on how your discussions or interest levels have trended with idle facilities, and as it relates to that, do you expect any additional contracting would likely occur after appropriations are in place or made available? Patrick Swindle: That is a great question. We continually market all of our available bed capacity to both federal and state partners. So we are in constant dialogue in some form around use of those beds. I would say that funding being in place is obviously helpful. I think having visibility that the department is funded through the end of the administration is particularly helpful to the extent that that is ultimately what occurs. I think the recent decline in populations that we have seen could certainly impact timing of any new awards. But I would also say to the extent that there is additional space needed, the entire network has not been built out at this point, and we do believe there are opportunities for additional awards. I would hate to get more specific than that on timing because I do think it is somewhat variable, but I would be surprised if there are not awards within the sector during the balance of this year. Gregory Thomas Gibas: Got it. Very helpful. Thanks again. Patrick Swindle: Thank you. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Patrick Swindle for closing remarks. Patrick Swindle: Thank you, operator, and thank you all for joining our call today. In closing, as we, along with our public sector government partners and private sector peers, celebrate National Correctional Officers and Employees Week, I would like to again express my appreciation to our over 13,000 employees. Their focus and commitment help ensure that everyone in our care is provided with a safe, secure, and humane environment, and that we deliver the highest quality services to every individual for whom we are responsible. We are proud of our team, and we want to celebrate them today with all of you as they make what we do possible. Thank you all for joining the call today, and have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Greetings, and welcome to the LTC Properties, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. Joining us on today's call are Pamela J. Shelley-Kessler, Co-President and Co-Chief Executive Officer; Clint B. Malin, Co-President and Co-Chief Executive Officer; Caroline L. Chikhale, Executive Vice President, Chief Financial Officer and Treasurer; J. Gibson Satterwhite, Executive Vice President of Asset Management; and David Boitano, Executive Vice President and Chief Investment Officer. Before management begins its presentation, please note that today's comments, including the question and answer session, may include forward-looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in the LTC Properties, Inc. filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K dated 12/31/2025. LTC Properties, Inc. undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note this event is being recorded. I would now like to turn the conference over to LTC Properties, Inc. management. Please go ahead. Pamela J. Shelley-Kessler: Good morning, and thank you for joining us. LTC Properties, Inc. is successfully executing our SHOP strategy. Our capabilities, reputation, and culture are resonating with sellers and operators, and these relationships are driving investment opportunities and record external growth. Clint B. Malin: Allowing us to scale incredibly quickly. We have strong conviction that our strategy is the right one to create a higher growth profile company with better risk-adjusted returns to drive shareholder value. With SHOP currently projected to represent 45% of our total investments and 40% of annualized NOI by year-end, the shift in our portfolio mix is dramatically enhancing LTC Properties, Inc.'s long-term ability to grow FFO and FAD per share above our historical rate. We are on track with our $600 million SHOP acquisition midpoint guidance, and with the expected closing of second quarter transactions, we will be more than halfway to that target. Additionally, to further increase our SHOP mix, we would consider transactions that capitalize on attractive skilled nursing pricing by recycling capital into higher-growth SHOP assets. Our operator partnerships, our relationship-centric culture, and our significant investment in the SHOP platform are driving our transformation and positioning LTC Properties, Inc. as a competitive force. I will now turn it over to Gibson for more insight on the portfolio. J. Gibson Satterwhite: Thank you, Clint. Our focus is on optimizing risk-adjusted returns for our shareholders by investing in our SHOP portfolio and opportunistically recycling capital, positioning LTC Properties, Inc. for higher intrinsic growth. As Clint noted, SHOP is expected to account for 40% of our annualized NOI by year-end, with the potential to expand even further. This target incorporates reinvestment of approximately $265 million in planned dispositions and loan repayments from skilled nursing assets this year. Of that amount, $77 million has closed, and $190 million is expected to close in the third quarter. Our guidance projects a July 1 payoff of the Prestige loan, in line with our notice of intent earlier this year. SHOP performance continues to reinforce conviction in our strategy. First-quarter SHOP NOI was in line with our expectations. For our core SHOP portfolio, which consists of 27 communities at or near stabilization, including those acquired through the first quarter of this year, we are reiterating prior guidance of 14% pro forma growth at the midpoint. You can find more information on this portfolio in our supplemental. To frame the impact of our transformation, the pro forma growth rate for our overall portfolio increases to 5% to 7% at our 40% SHOP NOI target, from the low 2% range embedded in triple-net leases. That change is driven by increasing exposure to SHOP assets with growth prospects in the low to mid-teens over the foreseeable future. We can further increase our intrinsic growth rate should we choose to take advantage of opportunities to recycle more capital into SHOP, given the strong pricing for skilled nursing assets. Our 2026 guidance includes platform investments, adding the people and data capabilities needed to scale and support double-digit SHOP growth. We expect the core infrastructure to be largely in place by year-end, enabling us to continue to scale rapidly and best support our operators. Now I will turn the call over to Dave to discuss investments. David Boitano: Thank you, Gibson. LTC Properties, Inc. has spent 18 months building a platform designed to execute with speed and certainty. We are well on track to achieving our $600 million midpoint investment target and believe, given the volume of opportunities we are evaluating, that a comparable level of annual investment is sustainable in 2027 and beyond. So far this year, we have closed around $120 million in investments, with nearly $250 million on course to close in Q2. Additionally, we have signed LOIs for off-market third-quarter acquisitions totaling $90 million. Our pipeline continues to be robust, with well over $5 billion of opportunities under consideration and visibility for continued investment growth. Our relationship-centric approach is working. By the end of the second quarter, we will have 11 SHOP operators, including nine that are new to LTC Properties, Inc. in the past year, reflecting our success in retaining and growing with existing operators at the communities we have acquired. This strong pool of operating partners has been the source of several follow-on investments and provides great momentum as we continue to build our portfolio. Key to LTC Properties, Inc.'s growth is our legacy of deep industry relationships, which, in combination with our transactional agility, gives us an edge in gaining access and insights to growth opportunities. Several investments have come through partner referrals, underscoring the synergy of our culture and our commitment to relationships. A number also have been off-market, demonstrating again the benefit of our relationship focus. Our rapid SHOP growth has not happened by chance. It is strategic and deliberate, reflecting an investment philosophy focused on assets 10 years of age or younger with operators who have deep local and regional knowledge. We emphasize asset quality, size, mix, and market dynamics that favor our long-term competitive position. These criteria guide us toward the right balance of opportunities and durable returns. Today, we are seeing a high volume of potential transactions. Here again, our operator alignment is central to identifying the right assets and markets to support solid long-term performance. Experienced senior housing investors know that community performance depends on strong operating partners. LTC Properties, Inc. is deeply grateful for our operator colleagues and the excellence and commitment they bring every day to the seniors they serve. I will now pass the call to Cece for a review of our financial results. Caroline L. Chikhale: Thank you, Dave. Including year-to-date ATM sales of $95 million, our current liquidity is $585 million, and with $190 million of proceeds expected from asset sales and loan payoffs, we remain confident in our ability to finance future SHOP acquisitions. Our pro forma liquidity totaled $775 million, providing a long investment runway. At the end of the first quarter, our pro forma debt to annualized adjusted EBITDA for real estate was 4.4x, and our annualized adjusted fixed charge coverage ratio was 4.6x. We remain well within our stated leverage target of 4x to 5x, but believe that we can reduce that further over time as a result of our organic SHOP growth. Compared with last year's first quarter, core FFO per share improved by $0.04 to $0.69, and core FAD per share improved by $0.02 to $0.72, representing 63% growth, respectively. Increases were due to SHOP acquisitions and conversions to SHOP from triple net, increases in interest income from loan originations and additional loan funding, and higher rent from market-based rent resets. The increases were partially offset by an increase in interest and G&A expenses, primarily to support our growing SHOP portfolio, as well as a decrease in rent due to asset sales. We are reiterating our 2026 guidance for core FFO per share projected in the range of $2.75 to $2.79 and core FAD per share in the $2.82 to $2.86 range. As a reminder, our 2026 guidance includes $400 million to $800 million of SHOP acquisitions, with SHOP NOI in the range of $65 million to $77 million, and FAD CapEx of approximately $5 million. It also includes $265 million of proceeds from asset sales and loan payoffs. Other assumptions underpinning our guidance are detailed in yesterday's earnings press release and supplemental, which are posted on our website. Now I will turn the call over to Pam for closing comments. Pamela J. Shelley-Kessler: Thanks, Cece. LTC Properties, Inc.'s transformation continues. What began last year through the combination of acquisition and conversions of seniors housing communities ramps up this year with an additional $600 million of SHOP acquisitions projected at the midpoint of guidance, more than half of which will be completed by the end of the second quarter. We are deliberately curating a SHOP portfolio designed to compete effectively today and in the future when new supply eventually comes online. Although new construction starts remain near historical lows nationally, we are accelerating LTC Properties, Inc.'s organic growth profile and reducing our exposure to lower-growth triple-net lease investments while expanding our roster of strong operators to support our mutual growth. In 2027 and beyond, our strategy will focus on tactical growth in SHOP, adding additional high-quality assets and driving outsized NOI growth. As a premier seniors housing capital partner, LTC Properties, Inc. is well positioned to drive substantial growth through SHOP. Our smaller size creates agility, allowing us to drive accretive change faster than our larger peers and move the needle through single-asset and small-portfolio acquisitions. Our SHOP focus over the past 18 months has enabled a successful transformation and created a clear execution advantage. From our cooperative conversions of $175 million of triple-net leased communities into SHOP a year ago, we will have grown our SHOP portfolio to nearly $1 billion by the end of the second quarter and significantly increased our ability to drive future earnings growth. The consistency of our execution and performance is driving results and reinforces the conviction in our SHOP strategy. Our goals remain clear: support our operators who care for our nation's seniors and deliver superior long-term shareholder returns. With that, we are ready to take your questions. Operator: Thank you. We will now be conducting a question and answer session. We will pause for a moment to poll for questions. Our first question today will come from Austin Todd Wurschmidt with KeyBanc Capital Markets. Austin Todd Wurschmidt: Hey, good morning, everybody. Could you provide some additional details around pro forma NOI growth for the 27 SHOP assets in the first quarter? And then maybe give us a sense of how occupancy trended sequentially and year over year within that NOI figure? Thank you. J. Gibson Satterwhite: Hey, Austin. This is Gibson. First, to give you some context around the disclosure: when we gave the pro forma 2025 for the 27 core SHOP portfolio, it was to help give an indication of the growth characteristics in that portfolio to the market and to our shareholders. But we decided against giving that on a very detailed quarterly basis going forward. What we will do is roll that core SHOP performance forward on a quarterly basis so you can track that with the metrics that we have realized during our ownership. For color behind what is going on in Q1 in that core portfolio, it came in line with our expectations for EBITDAR. Rates were a little higher. When we set guidance, we anticipated a little seasonal softness in Q1, which we realized. Directionally, occupancy turned around mid-quarter. If we look at it year over year, the occupancy troughed at a higher level, meaning the occupancy at the trough in Q1 of this year was higher than occupancy at the trough in Q1 last year. We are seeing some green shoots in terms of occupancy increasing since it troughed in February. Looking at the sales pipeline, our leads and tour volume going into the spring and summer selling season, we feel really confident, given what we know right now, in reiterating our guidance. Austin Todd Wurschmidt: A lot of helpful detail, and appreciate the context. With respect to investments, you had $157 million I think you said last quarter that you had expected to close by April. I am just wondering what drove the delay, and did a subset of that or all of those move within the $250 million? Or were there changes in the investment pool? Any details you can provide on that, as well as expected pricing for those assets? Thank you. Clint B. Malin: Sure. Austin, this is Clint. The delay is primarily related to a single off-market follow-on transaction. The seller was focused on a tax-efficient transaction, and to accommodate that we are working with them on structuring a downREIT. The seller needs some additional time to address some tax questions on their side. In working on this off-market transaction, that aspect is what led to a little bit of delay. We are very excited about this deal and about growing with this existing operator. This deal will add two newer and two larger communities to our portfolio, with a continuum of care spanning IL, AL, and memory care. In the meantime, while that was slightly delayed, as Dave mentioned in his prepared remarks, we have added another $200 million expected to close in Q2 and Q3. Dave can talk about rates. David Boitano: Yeah. So cap rates, going-in yields, have been right around 7%. We have been able to maintain that well. We are very pleased with that. It ebbs and flows a little bit from deal to deal, but generally speaking, that is where we have been coming in, Austin. Clint B. Malin: And, Austin, I would like to add some color. As we have increased the pipeline, we are seeing a lot of opportunities. Right now, at the $460 million mark—which includes what we have closed to date and what Dave spoke about regarding investments by quarter—that will get us by 3Q to 75% of our $600 million midpoint guidance. We feel very confident about where our investments are right now. We have eight transactions in total for 12 communities. The average age of that $460 million—again, including what we already closed in Q1—is 10 years, which has been very consistent with what we have talked about. Sixty-five percent of these deals in the pipeline are sourced off-market. With the Q3 closings that Dave spoke about under LOI, that is going to add two more operators—four new operators this year—and get Q3 up to 13 operators. We have two follow-on transactions. Sixty percent of the communities of this $460 million span a continuum of IL, AL, and memory care. The average size of the community is 100 units. Seventy percent of these deals are in primary markets. We feel very confident in our ability to source transactions, and, as Pam mentioned in her comments, we are buying assets that are going to be able to compete effectively against newer assets when those eventually come online. Austin Todd Wurschmidt: A lot of helpful detail, Clint. Just to clarify one thing before I yield the floor. You said you added another $200 million. Is that specific to the operator that is focused on the tax-efficient transaction? Because the $157 million is now $250 million closing in Q2, and then there is $90 million of signed LOIs set to close in Q3. So closer to $300 million. Can you reconcile the adding $200 million versus what I am getting to on the $300 million? Thanks. Pamela J. Shelley-Kessler: Austin, it is Pam. It was $90 million that is under LOI, expected to close probably in the third quarter. Austin Todd Wurschmidt: That is the difference. Alright. Thank you. Clint B. Malin: Thank you. Operator: Our next question will come from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Hi, good morning. Hope you can hear me okay. I wanted to ask about the earnings guidance for the year. There is an implied deceleration from the first-quarter run rate, so I am curious on the drivers there. Is there any triple-net softening in some of the rents versus the conversion to SHOP, any temporary cash flow degradation, or any one-timers in the first quarter that will not repeat? Caroline L. Chikhale: Juan, it is Cece. In the first quarter, there was a little pickup because of timing differences. For the most part, we think we are going to be in line. There is going to be a ramp-up for SHOP NOI, as Gibson has talked about in the past, and we still think it is in line. There is some uncertainty out there in the market with interest rates. We are not sure which direction it will go with the new Fed chair, but we will give you an update next quarter. Juan Sanabria: Great. And second, you mentioned potential monetization of some skilled nursing assets. Curious on the potential scope and where you see market pricing for in-place rents. Clint B. Malin: Thanks, Juan. We are supportive of the skilled nursing industry, and we do not see any immediate near-term headwinds. What we have recycled to date going back to 2025 has been for specific reasons. Prestige, as Gibson mentioned on our last call, was about reducing concentration to an operator and state, and reducing our loan book. Other sales were related to lease maturities and some purchase options. Those were at attractive 8% caps, which we felt very good about. Going forward, we would look to capitalize on the attractive pricing we are seeing in the market. Anything we do would be opportunistic—recycling from lower-growth triple-net leases into higher-growth SHOP assets—and we would look to limit, if anything, and avoid dilution. Our coverage on an EBITDAR basis is almost 2.0x, which is historically extremely strong. We are very comfortable with our skilled nursing portfolio and reduced concentration. Any actions would be opportunistic. Juan Sanabria: Great. So, just to summarize, given the high rent coverage, the yields could be closer to what you are buying SHOP at—around the 7s—given the rent coverage? Clint B. Malin: Thank you. Operator: Next, we will move on to Richard Anderson with Cantor Fitzgerald. Richard Anderson: Thanks. Good morning. I am looking at Slide 12 and the guidance you provided for SHOP. I appreciate you are in growth mode, so it is hard to get a real sense of any same-store organic growth picture. If you were to do a hypothetical stress test of your portfolio, would it be high single-digit NOI growth, putting aside additional acquisitions—the type of growth we should expect when the time comes that you are able to disclose a same-store perspective? J. Gibson Satterwhite: Hey, Rich, it is Gibson. Good question, and I think you have asked similar questions on previous calls. In my prepared remarks, I gave the math of how the higher growth rate in SHOP moves the needle for our overall portfolio, and cited that if you assume low to mid-teens SHOP NOI growth, that was the driver behind that math. What has changed from our prior calls is that now we have some experience with the portfolio. We are really confident in what we are assembling and what the deal team is buying. If you think about the math embedded in that same-store portfolio, we think you can get double-digit—around 10%—NOI growth even without occupancy increases, with a 170 to 200 basis point spread between RevPOR and expense growth. Our guidance includes 140 basis points of occupancy increase and 14% growth at the midpoint; if you strip out occupancy to be conservative, we are still comfortable with around 10% NOI growth assuming about a 5% RevPOR increase. We have seen recent history sustain that. Step back and look at overall supply-demand dynamics—baby boomers turning 80, lack of new supply—and we feel more confident in a higher growth profile going forward. Richard Anderson: You mentioned platform investments being made that you expect to be largely completed and scalable by the end of this year. You and others are growing SHOP through external sources, but then you have to operate it, and you are married to it. How do you stress test the future of your SHOP portfolio? Things can get complicated in this business. What types of people are you bringing in, and what are you doing to manage through tougher environments? Pamela J. Shelley-Kessler: Rich, no one thinks it is a layup. We fully understand and appreciate the intensity with which you build the SHOP portfolio and operations. As we have discussed, we seek out the best managers that are the best in their markets, with strong track records. We supplement that with the data and analytics that Gibson has talked about to help arrive at better decision-making. Our value-add to operators is helping them with aggregating data. That is an expensive task, and that is what we have undertaken. We have hired people to help with data analytics, and we have hired strong asset managers with historical track records managing SHOP portfolios. If you are going to do SHOP, you have to go all in. We have fundamentally changed the way this company thinks and operates, and the way we acquire properties. We are not managers; we are hiring the best managers and helping them create the best outcomes for our portfolio. Clint B. Malin: One thing we have done on top of that is be very strategic with the portfolio we are acquiring—newer assets. We have retained the managers on the majority of all but one community we have closed to date. We have done this by design to curate a stabilized portfolio with the ability to drive continued improvement that Gibson spoke about. We are building larger, newer assets that can compete. We have the combination of the people and the assets to be successful. We have been in the business a long time, and we know this takes a lot of work. J. Gibson Satterwhite: Rich, I will add: the structure is relatively new to LTC Properties, Inc. in terms of our implementation, but we have been hard at work over the last 18 to 20 months, very deliberate about forming a plan, working through the issues with the initial conversions, and executing on that plan. Zooming out, we have had exposure to private-pay senior housing, and we have all been in the business for a long time. We are acutely aware of the challenges operators face. It is a tough business. We feel we have aligned with good operators and hired experienced people on the team, and we want to be there to support them. Richard Anderson: My last question: when you think about structurally how you are compensating your managers, what is the mindset? Percentage of revenues, NOI, incentive-based? Is there a specific model, or is it case by case? Clint B. Malin: It is a general model we are following. We look at base fees calculated on revenues as well as the bottom line—we think that helps align interests in the current 12-month period. We set budgets together, and if budgets are exceeded, we look to reward our operating partners with incentive fees. We are also aligning interests long term with synthetic promotes over time, so that when operators make decisions today between growing occupancy or rate, it is with a mindset of how it can benefit the communities long term and allow them to achieve financial awards through a synthetic promote structure a couple of years down the road. So, current 12 months, the ability to beat the budget, and a long-term horizon on overall performance—we think that is a good alignment of interests for both parties. Richard Anderson: Great. Thanks, Clint. Thanks, everyone. Clint B. Malin: Thank you. Operator: Next, we will move to Michael Albert Carroll with RBC. Michael Albert Carroll: Yes, thanks. Looking at your SHOP operator list, it looks like you have a number of operators within your portfolio. Are there a handful that you have closer relationships with that you want to continue to expand? For some with maybe one or two assets, is the plan for that to grow? How hard is it to have one operator managing one asset—does it make sense to have fewer operators managing bigger portfolios? Clint B. Malin: This is Clint. We started this investment platform mid-year last year through the initial conversions. We would look to grow with all of the operators with whom we have built relationships, and we will be adding three more relationships following this. This is a testament to the effort we put in back in 2024 when we first announced we were going in this direction. We took the time to go out and market what we were doing and let operators know, and this is the result of that intentional effort. Yes, we would look to grow with each one of these operators. Michael Albert Carroll: Is it harder if there are more operators within the SHOP portfolio? Is there a limit—are you fine with what you have now since you are adding three more? Is there a number you want to cap to make sure you can track each relationship? Pamela J. Shelley-Kessler: We have not set any limit. It really comes down to the investment opportunities. As Clint mentioned in his remarks and follow-up Q&A, the majority of our investment opportunities are coming from our operators off-market. To the extent that this is the source of deal flow for us, we would not limit that. We are targeting the best operators in the geographic regions in which we have properties and where we are looking to grow. We would not limit it, though there is a law of diminishing returns. We would not have something like 50 operators, but where we are now and adding operators in the next year or two is very manageable by our asset management team. J. Gibson Satterwhite: We have built into our staffing plan additional resources. The core platform Rich was just asking about—we feel all the major pieces will be in place to allow us to scale, and we have a staffing plan aligned with our growth strategy. Michael Albert Carroll: Switching gears back to the SNF sales. Have you started marketing some of these portfolios, or is it something you would consider if something came up? Clint B. Malin: We are not marketing at this point, but we have received a lot of inbound phone calls. We are engaging, but it has to be opportunistic pricing that works for us to recycle into higher-growth SHOP assets. Michael Albert Carroll: Is there a specific size we should think about for potential sales? Could it be $100-plus million, or is it too early? Clint B. Malin: It would be situational depending on what comes up. It could be larger or smaller. Michael Albert Carroll: Okay, great. Thanks. Appreciate it. Clint B. Malin: Thank you. Operator: Our next question will come from Omotayo Tejumade Okusanya with Deutsche Bank. Omotayo Tejumade Okusanya: Yes, good morning, everyone. I also wanted to focus on Slide 12, the SHOP performance. When you look at the quarterly results disclosed on the page, RevPOR in Q2 2025, when we just had the SHOP conversion portfolio, was almost $10,000. In March, it was around $9,500. It has gradually dropped to about $7,850 by Q1 2026 with all the additional acquisitions. Can you talk about the post-conversion acquisitions—the characteristics of that portfolio that may be driving down RevPOR from the original 13 conversions? Are you targeting different market segments, or how should we think about what is being bought relative to the initial 13? Pamela J. Shelley-Kessler: Thanks, Tayo. It is a very simple explanation. Go back to the original 13 properties in February: 12 of those were memory care. Memory care has a much higher RevPOR. As you see us adding more traditional seniors housing properties into our SHOP portfolio—a mix of IL, AL, and memory care—you see that gradually go down. There is nothing to read into that other than the mix of the portfolio changing as we diversify away from standalone memory care. Operator: There are no further questions at this time. I would like to turn the floor back to Clint B. Malin for any closing remarks. Clint B. Malin: Thank you. Thanks to everyone on today's call for your ongoing support. We look forward to updating you on our progress next quarter, as well as seeing some of you at upcoming investor conferences. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time.
Operator: Good day, everyone. Welcome to CSP Inc.'s second quarter fiscal year 2026 conference call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Michael Polyviou. The floor is yours. Michael Polyviou: Hello, everyone, and thank you for joining us to review CSP Inc.'s results for the fiscal 2026 second quarter, which ended on 03/31/2026, as well as recent operating developments. Today, with me on the call are Victor J. Dellovo, CSP Inc.'s chief executive officer, and Gary W. Levine, CSP Inc.'s chief financial officer. After Victor and Gary conclude their opening remarks, we will open the call for questions. During the Q&A session, we ask participants to limit themselves to one question and one follow-up question, then please re-queue if you have additional questions. In advance, thank you for your cooperation with this process. Statements made by CSP Inc.'s management on today's call regarding the company that are not historical facts may be forward-looking statements as those identified in federal securities laws. Forward-looking statements may include words such as may, will, expect, believe, anticipate, project, plan, intend, estimate, and continue, as well as similar expressions, or are intended to identify forward-looking statements. Forward-looking statements should not be meant as a guarantee of future performance or results. The company cautions you that these statements reflect the current expectations about the company's future performance or events and are subject to several uncertainties, risks, and other influences, many of which are beyond the company's control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the Risk Factors section of the annual report on Form 10-K and quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements are based on the information available at the time those statements are made, and management's good faith belief as of the time with respect to future events. All forward-looking statements are qualified in their entirety by this cautionary statement and CSP Inc. undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date thereof. With that, I will now turn the call over to Victor J. Dellovo, chief executive officer. Victor, please go ahead. Victor J. Dellovo: Thank you, Michael, and good morning, everyone. CSP Inc. returned to growth during our fiscal second quarter as our product sales grew 30% and our service business grew 7% over the prior fiscal year quarter. Our top-line growth and bottom-line improvement were driven by our U.S. Technology Solutions business and some large customer purchase orders. We did see a push–pull pickup in the AZT Protect orders during the quarter with more than 10 of what we call land-and-expand orders with new customers. This was double the amount of AZT Protect orders we signed in Q2 2025. Typically, these orders are used as a test at a single site by a customer to make sure AZT Protect meets our claims and works within the customer's existing cybersecurity infrastructure, which I am happy to report has been the case every time. Then our team goes to work to expand our relationship with the customer through deployment at other sites. This phase of the process has taken longer than anticipated, largely due to evolving stakeholder alignment and internal review requirements. For example, changes within customer teams often require us to reengage and reestablish momentum, while some organizations seek additional validation from initial deployment sites. In other cases, IT teams initially assess the existing infrastructure addressing OT security needs, creating an opportunity for us to provide further education on the distinct requirements of OT environments. We view these dynamics as a natural part of the sales cycle in a complex and evolving market, and they continue to present opportunities for deeper engagement and long-term value creation. We are, however, making progress within the land-and-expand strategy. For example, AZT Protect is now deployed at the fourth plant in a major raw material manufacturer. We have to approach each plant separately, but with AZT Protect's track record it is taking less and less time to add each site. We are seeing similar expansion at other customers where we deployed at a single site in 2025 and are now slowly expanding to additional sites within those organizations. Our most exciting AZT Protect land-and-expand relationship to date was signed in April. It is a three-year agreement for more than two dozen U.S. sites of a global cement manufacturer. The six-figure annual revenue value of this contract will be recorded in the fiscal third quarter. This agreement took approximately 13 months to get across the finish line, but now puts us in a position to pursue the manufacturer's other sites, which number more than 100 around the world. In late March, we entered into an agreement with a leader in cloud-based commercial content automation services to deploy AZT in our ARIA ADR across the company's production infrastructure. And in early March, we deployed AZT Protect at a leading pet food producer. These are examples of how we are consistently evolving our approach to the OT market to shrink time between the initial land and expand. What has helped our effort is the growing awareness by the market of the increasing threats generated by AI and the so-called friendly fire attacks generated by internal sources. Cybersecurity solutions tend to use patches to address cybersecurity threats, but continuous patches are largely ineffective in the OT operating realm. In a friendly fire attack, IT mistakenly sends a faulty update to manufacturing, which can be even more devastating than the attack's impact to OT production. With AZT Protect, no patches are needed, and to date, no breaches have occurred. At the same time, we continue to pursue strategic OEM relationships, most notably with Acronis, as they work to embed AZT Protect into their platform. While these integrations require time to mature, they represent highly scalable opportunities with substantial long-term potential, and we are hoping to begin generating revenue from the Acronis relationship by the end of the current fiscal year. AZT Protect continues to have little in the way of effective competition. However, the unique procurement process and development criteria for each customer, and even each site within a customer, has resulted in various timing delays. Our team is relentless when it comes to realizing the AZT Protect opportunity, and we continue to work through each challenge as it occurs. We are definitely moving the needle. After a month into the fiscal third quarter, we are encouraged by the progress we are making with AZT Protect deployments. During the second quarter, once again, the Technology Solutions business was the primary generator of our top-line growth. Our offerings increase the efficiency and effectiveness of our customers' IT investments in network, wireless and mobility, unified communication and collaboration, data center and advanced technology security. Our managed cloud and managed services practice continued to perform well and grew 11% over last year's comparable period. We continue to benefit from the ever-expanding business and organizational migration to the cloud and the increasing trends for enterprises of all sizes to acquire operational support required once the migration is complete. A primary factor behind this market driver is the growing complexity of the cloud and the unique and specific needs of each enterprise. In Q1, we signed a new MSP customer that is generating nearly six figures in monthly revenue that commenced during the second quarter, and as we mentioned in the press release a week ago, one of the top 15 landscaping companies in the U.S. is engaging us to provide comprehensive managed services. As we look out over the remainder of the year, we believe our service segment momentum can continue. Meanwhile, based on best-in-class services, our customer retention rate remains extremely high, contributing to our expanding gross margins in the service segment. During the quarter, service gross margins increased more than 100 basis points over last year's comparable period. Overall, our fiscal second quarter results reinforce our confidence that fiscal 2026 is shaping up to be a growth year for CSP Inc. After being in the market with AZT Protect for just a short amount of time, we have gained more than 60 unique customers, some of whom, as I noted earlier, have multisite installations underway and additional expansion opportunities. These customers span a broad range of verticals, including steel, energy, manufacturing, water utilities, pharmaceuticals, food, and telecommunications. At the same time, we are dedicated to maintaining momentum in our services business, and we are pleased with the margin expansion realized from these operations during the quarter, as well as the profitability we achieved during the quarter. Overall, we are hopeful of sustained top- and bottom-line growth during the second half of the year and generating full fiscal year growth over last year. With that, I will turn the call over to Gary W. Levine to discuss our recent financial results in more detail. Gary? Gary W. Levine: Thanks, Victor. For the fiscal second quarter ended 03/31/2026, we generated $6 million in revenue compared to $13.1 million for the second quarter ended 03/31/2025. Product revenue grew 30% over last year's quarter to $11.1 million, with the growth primarily attributed to a large one-time purchase order completed for a customer. Service revenue for the period grew 6.6% to $4.9 million. Gross profit for the quarter increased to $4.5 million compared to $4.2 million for the same prior-year period. Gross margin for the fiscal second quarter was 28% of sales compared to the year-ago fiscal second quarter gross margin of 32% of sales. Gross margin realized from product revenue for the quarter was 15% versus 18% for 2025, while gross margin realized for the service revenue was 57% as compared to 55% for the year-ago quarter. Research and development expenses increased 7% to $818,000 compared to $763,000 for the same prior-year quarter as we supported the customization of AZT Protect deployments and OEM embedded developments. Selling, general, and administrative expenses for the fiscal second quarter increased 2% to $4.5 million from $4.4 million for the year-ago fiscal second quarter. The company grew interest income during the quarter by 27.9% due to the increase in financing transactions with customers. We recorded a tax benefit of $568,000 primarily from excess tax benefit from restricted stock awards vested during the second quarter, enabling the company to report net income of $264,000, or $0.03 per share, for the fiscal second quarter, compared to a net loss of $108,000, or $0.01 per common share, for the prior fiscal second quarter. Our strong balance sheet offered us the opportunity to finance customer purchase orders and, as of 03/31/2026, we extended terms on over 30 transactions. We finished the quarter with cash and cash equivalents of $23.1 million, and the balance sheet continues to provide us the necessary resources to execute our growth strategies for the managed services and the AZT Protect product offerings, as well as paying a dividend of $0.03 per share on 06/15/2026 to shareholders of record on 05/21/2026. We purchased 15,510 shares of common stock. Turning to our results for the first six months of fiscal 2026, revenue was $28 million compared to $28.8 million for the same prior-year period. Gross profit for the fiscal six-month period ended 03/31/2026 was $9.2 million, or 33% of sales, compared to $8.8 million, or 30% of sales. Benefiting from the fiscal second quarter tax benefit, the company reported net income of $355,000, or $0.04 per share of common stock, in the fiscal six months ended 03/31/2026, compared with net income of $364,000, or $0.04 per share, for the six-month period ended 03/31/2025. With that, I will turn it over to the operator for your questions. Operator: We will now open the call for questions. If you have any questions or comments, please press 1 on your phone at this time. Please hold for just a few moments while we poll for any questions. Your first question is coming from Mike Price. Please pose your question. Your line is live. Analyst: Mike Price: Good morning. Thanks for taking the question. I know you were just awarded shares, Victor—35,000 shares—but nothing shows more confidence with the growth prospects that you have than when you actually buy shares. And I know the dividend is not payable until June 15, but there is plenty of cash. It seems like Joe Nerges is the only one that has confidence in the company to continue to buy shares. Any thoughts? We will send a message, though, if you actually buy shares. So consider it. Victor J. Dellovo: Yeah, no, not really. You know, if I think at one time I would like to purchase it, I will. I definitely have confidence in what we are doing. I have not sold anything in many, many years, so I think that shows the confidence level that I have with the organization and where we are going. Operator: Your next question is coming from Joseph Nerges with Segren Investments. Analyst: Joseph Nerges: Yeah, good morning, guys. How are you today? Just let us elaborate a little bit on the cement company. You said in the press release that we have installed AZT in over two dozen plants currently in the U.S., and I think you also mentioned on the call that worldwide, what is the opportunity—over 100 plants—if it expands beyond the U.S.? Now with the U.S., by the way, is the U.S. fully deployed with the plants, or do they have more plants to deploy here too? Victor J. Dellovo: No. That was just the first phase. So there is potential for growth in the U.S., but the big growth is a sister company of theirs that has plants outside the U.S. that we are in talks with right now, and there are over 100 plants. Analyst: Joseph Nerges: Okay, so I just wanted to clarify. And as a follow-up, let me get into the press release you guys did on the cement company. I think it was pretty—the bullet points you made were great—and a couple of points that we did not know in the past, we talked about it, especially the savings that the customers are accruing because they have installed AZT. You mentioned $1,000 per plant savings. Can you elaborate on where the savings are coming from? Victor J. Dellovo: It is just from talking to some of these companies. They are saying that they are reducing the patching spend and preserving the life of their assets. So they are estimating that extending these assets for a period of time—a year or two or three—would be, on average, saving close to $1,000 per plant per month. It is pretty significant when you look at if they can extend it for another 12 to 24 months. And there is less downtime, because taking out a whole system and putting a new one in is not something you do in 24 to 48 hours. It takes a lot of time, effort, and planning, and that means that machine is down and they are not making money for the organization. So those are just some cost numbers that came from some of the talks we had with different companies. Every company might have a different number, but based on the one we were just talking to, that is what they are estimating. Analyst: Joseph Nerges: Great. Okay. Also, in the press release, you mentioned requirements. Are these industry requirements or government requirements that you are talking about with the CISAE EPG 20 and IEC 62443? Are these requirements being deployed—who is coming up with these requirements? Victor J. Dellovo: Yeah, sometimes they are industry requirements, sometimes government requirements. It just depends. Analyst: Joseph Nerges: Okay. And the point, basically, is that you said some of the competitors cannot meet these requirements. It looks like it is coming from the fact that their software is too comprehensive to meet some of these endpoints or to protect the endpoint—well, they are not investing, some of the older versions of the software— Victor J. Dellovo: —that are out there to meet those requirements. The new stuff, of course, they are moving forward with, but some of the stuff like Windows 7, Windows 10, they are choosing not to continue supporting that. Analyst: Joseph Nerges: Okay. And this ties into it to some extent. You mentioned the lightweight aspect—the fact that we take less memory and less core—and I guess some of the competitors take much more, just for cybersecurity software. In this case, they cannot meet requirements because the software is too comprehensive, the competitor software, to solve the problem. Victor J. Dellovo: Yeah. The older versions of software—once you start putting it on something like Windows XP—you start loading… You know, we are lightweight because there is not a lot of CPU being used. With an old XP system, there is not a lot of extra memory or CPU just sitting there not being used. Some of the new software from other organizations is CPU-intensive. We are able to keep it at 1% to 2% utilization on the CPU, and the memory is like 16 MB. It is very, very small. I have mentioned that in the last three or four conference calls. Analyst: Joseph Nerges: So, basically, a lot of competition is excluded because they really cannot, with their current software, be able to— Victor J. Dellovo: It is just their go-to-market strategy—what they are choosing to support and not to support. Every organization is looking at the overall market and what makes sense to them. A lot of the software they are doing is on the network side, not so much on the endpoint side. We are very focused on OT only, where some of the big players that are out there are focused on the IT side of it. Analyst: Joseph Nerges: Alright. Well, thanks a lot. Appreciate it. Operator: Your next question is coming from William Lauber with Visionary Wealth Advisors. Please pose your question. Your line is live. Analyst: William Lauber: Yes, Victor, I noticed you guys have a number of new board members. I know it is early on, but can you give a quick review of what they are bringing to the table? Is it some new ideas, or just what they are adding to the board? Victor J. Dellovo: Sure. Jim has been in the OT world his whole life. We worked with him at the largest pharmaceutical that evaluated our products and saw the value in it. He has a lot of contacts. He is very well known in the industry with a lot of the manufacturers of the world—the Emersons, the Siemens, the Honeywells. He has a lot of contacts, and his reputation in the OT industry is second to none. He is very familiar with the AZT product—development, testing, where the value is. He has done a webinar with us—some of you may have attended that probably a year ago or so. So he knows the OT space. We are consulting with him on where we should go, the market strategy, and as a testimonial to how much he believes in the product, he was able to join our board. Analyst: William Lauber: Okay. And then on the land-and-expand, is it budget issues by plant, or is it contract issues—that they might have a contract that goes on for another year or two? What is driving this? Victor J. Dellovo: No, it is just getting inside. The way we do things is quite different, with no patching. People want to see it work. It is a different methodology compared to everyone else—it sounds like magic. We definitely have to go through the testing inside the organization. If we can get one individual to back us up, go through the testing, get it into their lab, get all the applications loaded, go through the whole process—that is how we did it with the big steel plant, and the same thing with the big cement company. You get someone who believes in the product, and it is easier to position it throughout the organization. IT is definitely getting more and more involved, so being able to support our vision on how we can help them has helped us convince the IT folks that we can work side by side with some of the other big endpoint protection products that you are familiar with, like CrowdStrike, which is focused mainly on the IT side of the house. We complement them; we do not really compete with them. Analyst: William Lauber: Okay. So out of all these places where you have landed, if you were able to get, say, 50% of all those different sites, does that make ARIA profitable or breakeven at that point? Victor J. Dellovo: It would be in the right direction. Analyst: William Lauber: And on the cement producer deal, if I have identified it correctly, and if you have done two dozen sites, you have probably gone over the number of their cement-producing sites. So I assume you are probably doing some of their aggregate sites as well. Is that correct? Victor J. Dellovo: Yeah. The ones that were under a particular budget are the ones we targeted. Instead of going one by one—like we have to do with the steel plant because the budgets are separated—we were able to consolidate and do a master agreement to service those plants under one particular budget. There is expansion in that too. Those were the immediate systems that had older software on them that we targeted, but there is expansion inside the 20-some-odd sites that we have in the U.S. And then, like I said, the real big potential is if we can get outside the U.S. to those other 100-plus sites, where there are a lot of systems out there that could be significant. We are working with them. The good part is the IT folks have already seen the product, so I am confident it is not going to take another 13 months to get over the finish line one way or the other. Whether they go with us or they do not, I think we can get that sales process shrunk into a much shorter period of time. Analyst: William Lauber: And would that be an all-or-nothing kind of deal, where you are not going to have to go one by one? Victor J. Dellovo: I think it will be all or nothing. I could be wrong, but I think the way they seem to want to work, it would be all or nothing. To be honest, it is a little too early to give you 100% one way or the other, but my goal is to get the whole thing. Analyst: William Lauber: Yeah, I was kind of surprised. Usually, you guys play things pretty close to the vest, and I have to assume that the talks are pretty advanced for you guys to put that up there publicly. Victor J. Dellovo: Yeah. I try to fill you in as much as I can. There is no guarantee on the other sites, but we are in talks. At least we got the first U.S.-based ones under our belt already. Operator: Your next question is coming from Brett Davidson. Please pose your question. Your line is live. Analyst: Brett Davidson: Alright, good morning. I am going to use you guys as a conduit here, and correct me if I am wrong, but the AZT products are less resource-intensive than some of the competitors’ more robust products, targeting current hardware, whereas the older hardware has less resources available, making AZT an option because it is less resource-intensive. Is that accurate? The question I have is regarding a statement in the release that says, “We continue to work with our strategic partners and distributors on additional multisite deployments across key markets.” Just looking for clarification on what exactly that means. Is the company attempting to obtain commitments, or is this actively working on deployments, or a mix of both? Victor J. Dellovo: That is accurate on the resource point. And it is a mixture of both on the deployments. We are working with the distributors that I have mentioned prior—there are press releases out there—the CDWs, the Rexels, the SolarWinds of the world, with their end-user customers where we have sold maybe one particular site and we are trying to expand. There are a lot of water districts that we have sold into where there is expansion probability in each and every one. We continue to expand with the distribution side to get more of their end-user customers talking to us, and there is also expansion inside the customers that we have already closed small land-and-expand deals with. Analyst: Brett Davidson: So some of these are contracts where we are actively working to deploy on multisite? Victor J. Dellovo: Yeah. Our goal is to get in there, get it tested, get one site, two sites, working, and purchase orders. A lot of what we are trying to do now is not just do a POC where we are giving it away. We are attempting to do more paid POCs where the customer is actually buying a starter kit—one Trust Center and, say, five or 10 licenses—so there is a commitment on both sides. We will help them get it up and running, but they are committed so it is not just kicking the tires. They are committed to a true POC. Then we get in there, they purchase it, we install it, hopefully they are happy, and they evangelize us either at corporate—where we try to do an enterprise agreement—or, in some cases, we have to go to each and every site because of how budgets are distributed across the organization. Analyst: Brett Davidson: And what would you say is the current split of these deals coming through internal sources and through these third-party relationships, these distributors and whatnot? And how many of these types of relationships do we have currently? Are all of them feeding deals through, or are some of the larger ones the majority of this, or is this distributed over the course? Victor J. Dellovo: We are leaning on the channel significantly right now. We are trying not to take anything direct any longer. There is always an exception, but the channel that we have built over the last 18 months—we are trying to build that relationship. Whether we walk them into something or, to be honest, the majority of the time they are walking us into their customers because they have long-term relationships with them. There are three major ones that we have, but there are probably another half-dozen or so smaller resellers or integrators. Collectively, probably 10. It is distributed all over the place. Some of the bigger resellers or integrators we are talking with—we are talking to 75 reps—some better than others, some more aggressive than others, some have better relationships than others, but those are the relationships that we have been trying to build over the last year-plus. We are getting who CSP Inc. is inside their organizations, what our value is, and how easy our product is to position. There is a value to separate them from the rest of the world—that is the messaging we are working with these folks on. We are going to small shows in different areas of the country where they bring in five or 10 different customers, and we do an hour presentation to the customer and then try to build rapport. Analyst: Brett Davidson: So at this point, we have a whole bunch of folks outside the organization that are evangelizing for this product? Victor J. Dellovo: That is correct. Operator: Once again, if you have any remaining questions or comments, please press 1 at this time. There are no further questions in the queue at this time. I would now like to turn the floor back over to Victor J. Dellovo for closing remarks. Victor J. Dellovo: Thank you, everyone, for joining us today. We have made solid progress during the second quarter and are aggressively pursuing our opportunities for the remainder of fiscal 2026, both on the services side of our business as well as AZT Protect, and we look forward to reporting our progress with you in August. In the meantime, thank you to our shareholders for your support and to our team for their dedication and effort, and we wish everyone a good remainder of the day. Goodbye for now. Operator: Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to High Peak Energy 2026 first quarter earnings call. At this time, all participants are in a listen only mode. After the speakers' presentation, will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Steven Solon, Chief Financial Officer. Officer. Please go ahead. Thank you. Steven Bowland: Good morning, everyone, and welcome to High Peak Energy's first quarter 2026 earnings call. Representing High Peak today are President and CEO, Michael Hollis; Executive Vice President, Ryan Hightower; Executive Vice President, Daniel Silver; Senior Vice President, Chris Monday; and I'm Steven Bowland, the Chief Financial Officer. During today's call, we may refer to our May investor presentation and press release which can be found on High Peak's website. Today's call participants may make certain forward looking statements relating to the company's financial condition, results of operations, expectations, plans, goals, assumptions, and future performance. So please refer to the cautionary information regarding forward looking statements and related risks in the company's SEC filings including the fact that actual results may differ materially from our expectations due to a variety of reasons, many of which are beyond our control. We will also refer to certain non-GAAP financial measures on today's call so please see the reconciliations in the earnings release and in our May investor presentation. I will now turn the call over to our President and CEO, Mike Hollis. Michael Hollis: Thank you, Steve. Good morning, everyone, and thank you for joining us. We appreciate you taking the time to be with us today. I'm gonna spend a few minutes walking through our first quarter results, how we're positioned today, and how we're thinking about the rest of 2026. And I'll tell you right up front, the business is doing exactly what we said it would do. We are executing, we're staying disciplined, and we're building a stronger company quarter by quarter. Let's start with the first quarter. We're off to a very strong start this year, and I'm proud of the way our team has performed across the board. We outperformed expectations on every major operational metric. Production averaged approximately 46,000 BOEs per day, which came in about seven and a half percent above the midpoint of our guidance range, which includes the effects of winter storm firm, and with quarter-to-date production coming in as strong as or stronger than Q1 production. Now oil production specifically was up 10% quarter over quarter, which is a meaningful step up and speaks to the quality of both our new wells and our base production. And that's important because it wasn't driven by just one thing. It was a balanced success. We saw strong performance from the new wells we brought on during the quarter, and at the same time, we continue to optimize and improve our base production. That combination is what drives consistency in the business. It's a direct result of the operational work our team has been focused on over the last several quarters, dialing in execution, tightening processes, and getting better in every aspect of the business. Now let's talk about cost, because this is where we really separated ourselves this quarter. Our operations team delivered exceptional cost performance. Lease operating expense per BOE came in more than 17% below our guided range and roughly 22% below the fourth quarter levels. That's a material improvement in a very short period of time. And just as important, it wasn't just a per-unit story. On an absolute dollar basis, our operating cost declined by approximately 7.4 million quarter over quarter. So we spent meaningfully less money while producing more barrels. That's exactly what operational efficiency should look like. Now what drove that? Three primary areas. First, continued optimization of our chemical program, making sure we're using the right treatments in the right places at the right cost. Second, more efficient use of fuel gas. Given the current dislocation between Waha pricing and Henry Hub, we're not making money on our gas at the moment, so we're putting it to work in our own operations wherever we can. That's a practical economic decision and is paying off. And third, continued electrification across our field operations. That's improving reliability, lowering cost, and positioning us well for the long term. Now put it all together. This is a structurally more efficient business than it was just a few quarters ago. Turning to our development program, we are exactly where we need to be. First quarter drilling and turn-in-line activity represents roughly one-third of our planned 2026 program. Capital spending came in right in line with expectations at about 29% of our full year budget. We exited the quarter with 18 wells in progress, and that puts us in a strong position to execute the remainder of the year. Now as a reminder, we guided to deploying roughly 60% of our capital in the first half of the year, and we remain firmly on track with that plan. Execution is steady, predictable, and controlled. Now let's step back and talk about the bigger picture: capital discipline and efficiency, because that's really the core of our strategy. As you know, we made a deliberate shift heading into 2026. We reduced our capital program by roughly 50% compared to last year and we moved into what we are calling maintenance mode development strategy. And the goal is to hold production roughly flat while maximizing free cash flow. And the early results are very encouraging. One key metric we track is net oil produced per dollar of capital invested. Quarter over quarter, that metric improved by more than 60%, moving from about 21,500 barrels per million dollars of capital spent to approximately 35,400 barrels per million. That's a significant step change in efficiency. And, again, it's coming from both sides of the business: strong well performance on new capital and meaningful gains on the base asset. Now let me spend a minute on that base optimization work, because it's an important part of the story. During the quarter, we executed 16 targeted workover projects. These projects increased production from roughly 1,600 barrels of oil per day to about 2,600 barrels of oil per day. That's an add of about a thousand barrels of oil per day, and, importantly, an increase of 63% per well on average for those 16 wells, with relatively low capital intensity. That's exactly the type of work we want to be doing, especially in this current commodity price environment, where every incremental barrel we produce receives elevated spot price. These projects leverage infrastructure we already own, target opportunities we understand well, and they generate extremely high-margin barrels. This is what disciplined capital allocation looks like in practice. Now let's talk about the broader environment and how we're thinking about it here at High Peak. There's obviously a lot going on in the world right now. We've seen significant volatility in commodity prices driven largely by geopolitical developments in the Middle East. Near-term oil prices have moved meaningfully higher, but when we look at the market, and more importantly, when we make decisions, we focus on the back end of the curve. And what we've seen there is a much more modest move, roughly a $10 to $12 increase from around $60 a barrel at the beginning of the year to the low seventies per barrel currently. Now that's constructive, but it's not something that fundamentally changes our strategy. We are not going to chase short-term price signals. We're not going to accelerate activity just because spot pricing has moved. We are going to stay disciplined and develop this asset at the right pace, and that's one that reflects sustainable pricing, capital efficiency, and long-term value creation. Now, with that said, this geopolitical situation, if it persists, we do believe there will be increasing pressure on the back end of the curve over time. And if that happens, it creates a meaningful long-term opportunity for High Peak. More sustained pricing strength means higher incremental free cash flow for years to come. And that's where real value gets created. And importantly, we are positioned to benefit from that environment. We currently have approximately 40% average exposure to spot oil prices based on the midpoint of our production guided range and our current hedge book. Please know that current production is well above this level and gives even more exposure. That gives us meaningful upside to stronger pricing, and at the same time, we've protected the downside. We've established a hedge floor in the mid-$60 per barrel range that provides a reliable base level of cash flow to fund our development program and service our debt. So we've got both upside torque and downside protection. And you saw that show up in the first quarter. Excluding changes in working capital, we generated over 21 million of free cash flow. That's up from a negative 42 million last quarter. And that only reflects less than one month of elevated oil prices. If prices remain higher for longer, that free cash flow number moves up materially as we move through the year and accelerates the time frame needed to strengthen our balance sheet. Again, our priority for that free cash flow is very clear. We are going to strengthen the balance sheet. One additional item to touch on as we talk about strengthening the balance sheet: we recently put an at-the-market, or ATM, program in place. This gives us the ability to issue up to 150 million of common stock. Now just to be clear, there is no requirement for us to issue a single share under this program. This is about flexibility. It's a tool that allows us to be opportunistic if we see dislocations in the market. If we do choose to access the ATM, the use of proceeds is very straightforward. It's about reducing debt, increasing liquidity, and continuing to strengthen the balance sheet. Now let me close with our focus for the year. Look, nothing's changed, and that's by design. Our priorities are clear. First, strengthen the balance sheet through sustained free cash flow generation, debt reduction, and/or increasing liquidity. Second, preserve high-quality inventory by developing our inventory at a disciplined pace and continuing to optimize both new wells and our base production. Third, improve corporate efficiency, focusing on returns, not volumes, and ultimately create long-term equity value and maximize net asset value. We are allocating capital where it drives the highest returns, and we are building a more durable, more resilient business that is built to thrive across commodity cycles. Now stronger commodity prices are helpful, no question. But disciplined execution is what creates long-term value. And that's exactly what High Peak is delivering. With my comments now complete, operator, please open the call up for questions. Operator: Operator. I am so sorry for the technical—I'm sorry. We had some technical difficulties there for a moment. We will conduct the question and answer session now. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question today comes from Jeff Roe with Water Tower Research. Your line is open. Analyst: Good morning. Mike, given where you are with production and 60% of estimated ’26 capital being spent in the first half of the year, can you share some color on production levels progression in the back half of the year? And with the inventory of DUCs that you might exit ’26, any early or preliminary color on 2027? Michael Hollis: No, Jeff. Great question. And as we laid out in our guidance last quarter, we were planning to spend roughly 60% of that budget in the first half of the year, and as we've shown here in Q1, we were right along that. We did about 33% of the activity for the year and came in a little under 30% of the capital spent for the year. So as you look through 2026, the activity in Q2 will be very similar to what we had in Q1. From a production standpoint, yes, we're running hot to our guide today, and up through quarter to date even. And as you look through the latter half of the year, the additional work that we do in the first half—that is, the wells that are going to be producing in the second half of the year. So I think what you'll see throughout 2026 is more of a flat production profile that looks very similar to what we've done to date this year. And, again, yes, it's a little hot to our guided range—above the top end of the guided range. And we hope between base optimization projects that we're working on and the great performance we've had from our new wells—and we're drilling very similar wells throughout the entire year, and that's what's going to be coming online—then we will be in the upper portion of that production range that we guided to originally. But for the CapEx spend, the guided range is still very applicable, and I think we demonstrated that in the first quarter. Analyst: If you think about 2027, Mike, would you plan, from an activity standpoint, another year where it's weighted toward the first half of the year to, as you said, support getting the full benefit of production in the year the wells are being drilled, or as much of it as possible? Michael Hollis: I don't know that we're detailed enough to mica break, as I like to call it, from West Texas slang. But I think if you look into 2027, I would assume a very, very similar program to what we had in 2026. And there was one question I did not answer, which was how many DUCs we would exit the year at. We will exit with roughly nine to ten DUCs in 2026 going into ’27. So we would be set up very similarly to do the exact program that we have in ’26 and ’27. So, again, if you're looking at kind of a CapEx spend in ’27, I think what we have this year, the midpoint of about 270 million, is where you need to be coalescing for modeling purposes. Analyst: On your workover efforts, are you doing anything differently to try to identify wells that need some attention and therefore justify the expense of going in and spending capital that turns into LOE expense but results in the increased production that you highlighted on slide seven? Michael Hollis: No, that's a great question. And Jeff, we've got upwards of getting now close to 400 wells that are producing. So as we go through all of our inventory of producing wells, we do have a list of wells that we think would benefit from this type of intervention more than others. However, if a well is producing fine—everything's good—you probably wouldn't go take that well off production and go do this type of intervention. Typically, what we are looking for—and, again, we don't wanna do too many at one time. We're pretty early in this process. So what we've done to date are wells that we were going to go touch and do work on for some reason or another, and they met the requirements and looked like a good candidate—those are the ones that we went and did. And I think that's how you can kind of assume we will do for this year, maybe even next year. We need more time to watch the production increase that we have from these interventions and how that plays out over kind of a year, two-year time frame to really understand that before we would wanna go and attack a well that's currently producing. And, you know, these are well interventions that we were going to have to do something—think of the, I like to call it a mini stimulation on the well—things like surfactants, acid, more or less cleaning the wellbore out and reducing damage to the formation that happened over time. And we're seeing really good results. I think as you look forward in the two, three years from now, basin-wide, this is going to become one of the new knobs that we can turn in our industry to hopefully be able to extract a higher ultimate recovery out of the wells in the basin. You know, you're hearing this kind of thematically across a lot of the other companies' releases that they are kind of experimenting with some of these things too. So I think this is something that's here to stay and will increase the total recovery of this area. Analyst: Ryan or Mike, we had big working capital swings in the first quarter, which impacted free cash flow, as you noted in your remarks. Can you talk about how much of that activity was isolated to one-quarter events and how we should think about that as you move forward through 2026? Steven Bowland: Yeah. Great question, Jeff. If you recall, for the bulk of the fourth quarter, we ran two rigs, and we also had a couple of really large final frac jobs. So we did have a negative working capital swing of about 35,000,000 in Q1. A lot of that is just that capital from the additional rig and a couple of those final frac jobs kind of working its way through the system. All that's behind us now. So on a go-forward basis, it's more steady state. So I wouldn't expect those large working capital swings on a go-forward basis throughout the rest of the year. Analyst: And just lastly, Ryan or Steve, High Peak had a big unrealized mark-to-market hedge gain in the first quarter, which obviously impacted reported earnings. Can you talk about how that gain would be treated as you move forward in 2026 in a potentially lower oil price environment than what ended the first quarter? Steven Bowland: Yes, absolutely, Jeff. And I think you're referring to a large hedge loss in the first quarter. So the way to think about it, total derivatives loss in the first quarter on paper was about 15.055 billion dollars. Only 17.4 of that was actual cash loss. The rest of it, roughly 140 million, was a mark-to-market loss that was done as of March 31. So the way to think about that: if prices kind of pull back to lower levels throughout the rest of the year, that mark-to-market loss is going to shrink, and any potential cash hedge loss would shrink as well as we progress throughout the year. Michael Hollis: Thank you. Thank you. Operator: Thank you very much. Our next question is from Nicholas Pope with Roth Capital. Your line is open. Analyst: Hey. Good morning, guys. Curious to dig a little bit more on the workovers. And I know you have this slide kinda talking about the benefits of that. It looks like the workover expense for the quarter was actually pretty low relative to what the run rate was in 2025. And so just trying to understand what the activity expectation is going forward. I mean, a lot of wells, obviously, that you're looking at to potentially augment with improved productivity with these workovers, but we're kinda looking at this expense line item. It didn't seem like you had as much work, and it was certainly helpful for the LOE line item for the quarter. Just maybe trying to understand how that splits out—how much is going into capital expenses, how much is in this workover expense, and what that should be going forward. Michael Hollis: No. Great question, Nick. So let me step back to last year. And to kinda answer the question as to why overall LOE is down—you know, LOE is kinda two buckets, right? It's your chemical and day-to-day everyday LOE, and then it's your workover expense. And think workover expense is repairing something on a well and just getting it back to the same kind of state that it was. That's the workover expense. If you look back into last year, kind of the latter 2025, our workover expense started marching up throughout that year because we went and did a lot of those, getting the base production and the wells in tip-top shape, and we spent, call it, a dollar-ish or a little bit more per BOE doing that in 2025. We only have so many wells, and there's always going to be some workover expense. Make sure you don't read through that it's going to zero. But I think a reasonable run rate for workover expense—probably somewhere in the 75¢ to a dollar range—is extremely conservative. Obviously, we are much lower than that in Q1. Now to answer your other question about the type of interventions: again, we touch a lot of wells all the time. Some are designated as expense work—basically getting the well back to its original state. Some are considered capital workovers where you're adding reserves and actually changing the value of the well after the fact. So to that, I would say with all the work we did throughout the quarter, some of these were capital workovers and are in our capital spend for the quarter, and I think that screened very well for the amount of work we did on our D&C budget. The read-through there is we're shaping cost where we can on our traditional D&C budget enough that we're going to be able to slice some of these capital workovers in within the budget we currently have. And on the expense side, again, we wanted to be very conservative with our early guide range. That's why you saw a fairly sizable workover program, because we wanted to say, hey, if we had to continue what we did in ’25, this gives us plenty of money in the budget to do it. But I think you're looking at it exactly right. It's not like we just moved a lot of costs from the expense bucket to the capital bucket, or you would have seen it show up there. Overall total cost is coming down. Analyst: One other piece of this, and I don't know if it's connected or not. It sounds like it might have been the second half of last year, as you stepped out further to the east, you had some of the issues with water encroachment in some of the newer extensional wells. Where does that stand? Has that area just been written off at this point? And are those wells just not really part of the existing production or any plan going forward? Michael Hollis: Great question, Nick. You know, a quarter or so ago, we had a slide that showed a red box right exactly where you're talking about. And, yes, we encountered some extraneous water production in that area. You know, we kinda talked about the impact it had on our inventory. So the only zone we carry inventory in that little red box was Wolfcamp A. And the quick answer is no, High Peak is not going to drill another well in that little red box. And that equated to about 18 wells coming out of our inventory. Now the existing wells that we do have there—we've got three of those wells producing today. We've done some interventions on those wells to reduce the amount of water coming in, so they are very economic. They're just lower production because you're only producing from, call it, 4,000 feet of actual producing rock out of those wells. From an economic standpoint for a new well, no, we would not drill another one. But we will optimize the wells that we do have in that area. But, absolutely, that had an effect with production kind of in the second half of 2025. And, again, all of that kind of rolls through on a BOE basis for your LOE per BOE cost in the second half of the year as well. Analyst: And I think I've talked to you about this before, but total High Peak water handling and disposal capacity relative to what y'all are seeing in terms of water volumes currently? Ryan Hightower: Great question. And, again, we constantly highlight the infrastructure that High Peak has put in place over the last five-plus years. And to your question there on the water system, if you look back a couple years, we were running six rigs, three frac crews, and looking to build to 75,000 to 100,000 barrels of oil a day. Now with that, you need to be able to handle 400,000 barrels of water per day. So we put in very large pipes, very large pumps, several SWDs. So our SWD capacity is a little over 400,000 barrels. Big pipelines that are 24 inches in diameter—we can move around 400,000 barrels a day. And, of course, we recycle almost 95% of what we use on the stimulation side. But just to give you an idea of where we sit today: we're producing roughly, on the gross basis of oil that we produced, pretty close to 45,000 to 47,000 barrels gross of oil. So with that kind of four to one, we're a little over 200, call it 210 to 220,000 barrels of water a day being produced across High Peak. Some of that—being a little bit more than four times—is because you have some flowback from the new frac wells. But we're about 45% to 50% utilized of capacity that High Peak has. We take very little third-party water into our system. It's available. So for folks near and around us, we do have plenty of capacity for disposal. But the infrastructure was built for life of field, and that stretches across our oil, gas, electrical, recycle capability. All of that's built in place. And I think you're seeing that on our LOE cost numbers. And then same thing on our CapEx numbers—as we have built all of our large central tank batteries, you're starting to see the cost per well go way down. Because today, when we drill a new well, all we have to do is add some metering equipment to tie it into an existing battery that's already there. So both sides of the equation are what we've attacked, and we've been able to bring cost down across the board. Analyst: Got it. That is all very helpful. Mike, I appreciate the time. Guys, I appreciate the time. Michael Hollis: Hey. Go ahead. Thanks, Nick. Operator: Thank you very much. This does conclude our question and answer session. We thank you very much for your participation in today's conference. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to FrontView REIT, Inc. First Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Pierre Revol, Chief Financial Officer. Please go ahead. Pierre Revol: Thank you, Operator. And thank you, everyone, for joining us for FrontView REIT, Inc.’s first quarter 2026 earnings. I will be joined on the call by Stephen Preston, Chairman and CEO. Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although we believe these forward-looking statements are based on reasonable assumptions, they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to several factors. I refer you to the Safe Harbor statement in our most recent filings with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements. This presentation also contains certain non-GAAP financial metrics. Reconciliations of non-GAAP financial metrics to the most directly comparable GAAP metrics are included in the exhibits furnished to the SEC under Form 8-Ks which include our earnings release, supplemental package, and investor presentation. These materials are available on the Investor Relations page of our company website. With that, I am now pleased to introduce Stephen Preston. Stephen? Stephen Preston: Thank you, Pierre, and good morning, everyone. This quarter demonstrates the operational and portfolio advancements we have made over the last year. We have elevated the strength of the management team, enhanced our portfolio, deepened tenant and industry diversification, and continued to focus on attractive markets with replaceable rents and high profile street frontage locations. Since the IPO, we have reduced our largest tenant exposure to 3.1%, lowered our top 10 tenant concentration to 23%, and reduced our restaurant exposure from 37% to under 23%. At the same time, we have invested in technology, data, and processes that improve scalability and decision making. FrontView REIT, Inc. is in its strongest position since inception and is poised to deliver compounding growth. Our scalable real estate-first strategy is focused on acquiring fungible, frontage-based assets typically located in dense retail corridors where underlying land value provides downside protection. Today, 77% of our properties are located within a top 100 MSA, and our average five-mile population is 175,000 people, highlighting the vibrant, desirable markets in which we own and operate real estate. Consistent with this strategy, we disclose each of our property locations through Google Maps links on the portfolio page of our corporate website. We also disclose every tenant and its ABR in our filings. I encourage investors to review these best-in-class disclosures which provide detailed, industry-leading visibility into the merits of our real estate, tenant credit, box sizes, and portfolio diversification. As I mentioned last quarter, we will be featuring an acquisition each quarter on the front cover of our investor presentation. This quarter, we are highlighting a Jiffy Lube in Baton Rouge, Louisiana, the second-largest MSA in the state and a top 100 MSA nationally. Jiffy Lube is a national automotive service brand and subsidiary of Shell USA, with more than 2,000 locations across North America. We acquired the property at a 7.4% cap rate on a 10-year net lease. The site sits directly in front of a Walmart Neighborhood Market and across from Raising Cane’s, with direct frontage on Kersey Boulevard and approximately 37,000 vehicles per day. At roughly $160,000 of annual rent, the rent basis is replaceable with arguable upside given the visibility, traffic counts, and surrounding retail demand. We were able to acquire the asset at an attractive price and at a significant discount to market by accommodating a seller-specific time and requirement. This acquisition demonstrates FrontView REIT, Inc.’s reputation as a buyer that can solve problems for sellers and source transactions that are not widely marketed. To summarize, we bought a fungible asset with frontage, with replaceable rent, in a desirable retail node, all at an elevated cap rate relative to the market. Including this asset, we own three Jiffy Lubes representing about 60 basis points of our ABR. In addition to this Jiffy Lube, I would also call your attention to the cover of our annual report where we highlight another one of our properties: a two-tenant building leased to Wells Fargo and T-Mobile. This is an A+ location across from a Walmart Supercenter in urban Dallas. The property is under-rented at $313,000 annual rent, with over 6,000 square feet of rentable area and is situated on approximately one acre of land on a corner with over 295,000 vehicles per day. This is emblematic of the type of real estate we are focused on securing. For the quarter, we acquired 10 properties for $34 million at an average cash cap rate of 7.5% and a weighted average lease term of 9.4 years. These acquisitions were consistent with the characteristics we target across the portfolio, including a median purchase price of $2.3 million, a weighted average Placer.ai score of 26 indicating top 30% of the category within the state, and a median rent per box of $170,000. With respect to acquisition cap rates, we anticipate Q2 2026 to settle around 7.3% to 7.4% with volumes generally in line with our guidance. We continue to see significant depth in the marketplace, particularly in smaller transactions where FrontView REIT, Inc. has real advantages. Since we are not dependent on larger transactions or portfolio deals, we rarely compete directly with large institutional buyers, REITs, or private equity capital. This allows us to secure attractive transactions from multiple sources where our execution and reputation provide us with a competitive edge relative to other, less sophisticated parties in the space. We are also seeing select development opportunities where our extensive retail development experience may allow us to achieve meaningfully wider yields while maintaining a disciplined approach to risk. Our team’s decade of historical experience developing outparcels along with developing retail and large-format shopping centers makes us uniquely qualified to underwrite and evaluate development opportunities. This capability is already established at FrontView REIT, Inc. We have completed several successful, value-creating developments including a Miller’s Ale House to a Raising Cane’s, a Sleep Number to a Seven Brew, a Burger King to a Chipotle, a Twin Peaks to a Jaggers and a Panda Express, and a new Bank of America ground lease in front of our Walmart in Rochester. Collectively, these projects created about $10 million of incremental value, representing an approximately 90% increase in value to our shareholders over and above our original purchase price. Although we do not currently have any third-party development assets under formal contract, we expect to begin a limited development program over the next few quarters and look forward to generating outsized risk-adjusted returns on these assets. Regarding dispositions, we sold five properties for $10 million during the quarter at an average cash cap rate of approximately 6.9% for the occupied assets, with a weighted average lease term of eight years. We sold a Dollar Tree in Vermillion, South Dakota which did not align with our real estate-first focus, and an underperforming McAlister’s Deli. Asset recycling is part of our strategy, and we expect dispositions to be incrementally focused on fine-tuning the portfolio and pruning less optimal locations and concepts. Switching to the portfolio, we ended the quarter at approximately 99% occupancy, with only four vacant assets. Importantly, our view of vacancy is shaped by the quality of the underlying real estate. Historically, when we have re-tenanted properties, we achieved rent spreads north of 110% of prior rent, which reinforces our willingness to be patient and pursue the right long-term outcome rather than defaulting to a quick sale. During the quarter, we successfully re-tenanted three expiring locations: a CVS in Chicago, a Dollar Tree in Newark, and a Twin Peaks in North Carolina. As highlighted on page 3 of our investor presentation, these transactions in total generated over 23% increases in rent relative to the prior tenants, reinforcing the embedded value of our real estate and the strength of our locations. These properties create a temporary drag in 2026 because repositioning takes time. However, the right answer is to be patient. By focusing on quality locations, fungible boxes, and replaceable rents, we can generate stronger outcomes. These re-tenantings create meaningfully greater long-term value than simply selling the asset quickly and redeploying the proceeds. Over time, this approach enhances organic growth as our high-quality real estate appreciates. With multiple proven levers to create value, including active asset management, re-tenanting, and accretive acquisitions, we are well positioned to generate returns both through growth and expertise, not simply relying on outside capital or market conditions. We are aligned with our shareholders and we will continue to capitalize on value-enhancing opportunities, positioning us to outperform. With that, I will turn the call over to Pierre Revol to review the quarterly numbers and guidance. Pierre Revol: Thanks, Stephen. We had a strong operational quarter driven primarily by improved cash NOI and accretive capital deployment. Our adjusted cash revenue, which excludes reimbursement income and non-cash items, increased $707,000 sequentially to $16.3 million. The increase was driven by $75 million of acquisitions completed over the two quarters, as well as a $274,000 lease termination fee related to a dark Take 5 property. We subsequently sold the vacant asset for $1.7 million, generating close to a $700,000 gain over our original purchase price, highlighting the strength of our basis and underlying real estate. During the quarter, we enhanced our revenue disclosure by separately presenting other operating income, which includes termination fees, late fees, and other miscellaneous income generated through active portfolio management. These amounts are a normal part of operating a diversified real estate portfolio, but they are more episodic than base rent or percentage rent. Although this level of detail is not commonly broken out by net lease REITs, we believe the additional transparency helps investors better understand the underlying drivers of our results. This change is consistent with our broader commitment to best-in-class disclosures, is reflected in our Form 10-Q, and is highlighted in both our supplemental and investor presentation. Our non-reimbursable property costs decreased $385,000 sequentially to $263,000 or 1.6% of adjusted cash revenue, compared to 4.2% last quarter. This meaningful improvement was driven by improved occupancy, higher recovery income, and the impact of portfolio optimization work completed in 2025. As Stephen mentioned, we also have three properties currently being re-tenanted that contributed $181,000 of base rent in the first quarter. These three properties have already been leased to four tenants, with the majority of the rent commencement staggered over the next 12 to 18 months. Once stabilized, we expect orderly rent from these assets to increase to approximately $225,000. First-quarter cash NOI benefited from termination income, rent from the three properties currently being re-tenanted, and unusually low property cost leakage relative to the 2%–3% range we anticipate for 2026. After normalizing for these items, second-quarter run-rate cash NOI on the current portfolio would approximate $15.7 million before the incremental benefit from the recently executed re-tenanting leases, or approximately $700,000 lower than Q1 actuals. Our adjusted cash G&A was $2.4 million, consistent with the prior quarter. As we continue to grow our asset base, we have meaningful opportunity to create operating leverage by building the business the right way, through disciplined processes, better data and technology, and a platform that can scale with limited incremental G&A. Beginning last fall, we began investing in select technology partnerships, enterprise licenses, data analytics, and workflow applications to improve the efficiencies and operations of our business. These investments are building blocks in our effort to create an AI-native net lease REIT. Importantly, these tools and process changes are not a substitute for real estate judgment. They complement the deep real estate experience built over decades as private developers—what we often refer to as our developer DNA. Our objective is to build scalability, improve decision making, enhance risk management, and drive efficiency with an emphasis on data analytics. Turning to the balance sheet. Our revolver balance decreased modestly to $114 million, and our cash interest expense declined $86,000 sequentially to $3.8 million. Net debt to annualized adjusted EBITDAre improved by three-tenths of a turn to 5.3x, while LTV fell to 32.6%, and our fixed charge coverage ratio remained strong at 3.5x. Including the remaining $50 million of available convertible preferred equity capacity, adjusted net debt to annualized adjusted EBITDAre was 4.4x. We also announced a quarterly dividend of $0.215 per share, which represents a 63.2% AFFO payout ratio. This is our lowest payout ratio since becoming a public company. It provides more free cash flow to fund higher growth. Turning to guidance. We are maintaining our fully funded net investment target of $100 million and raising our AFFO per share guidance range to $1.29 to $1.33. At the midpoint, this represents 5% year-over-year growth, and at the high end approximately 7% growth. The increase in AFFO per share guidance is primarily driven by our strong first-quarter operating results and continued portfolio performance to date. We remain disciplined in capital allocation; our fully funded investment target provides meaningful visibility into our ability to grow while maintaining a conservatively levered balance sheet and dividend policy. As we said before, our smaller size is a structural advantage. With only $100 million of net investment, we can generate elevated AFFO per share growth while remaining disciplined in our capital allocation criteria. Our cash flow per share growth is built on a frontage-focused portfolio that is intentionally diversified across tenants and industries, yet concentrated in the attributes that matter most as real estate investors: targeting top 100 MSAs, fungible boxes, and replaceable rents. When combined with our discount to NAV, our growth profile is not yet reflected in our forward FFO per share. To help frame that disconnect, we included pages 24 and 25 in our investor presentation, which compare FrontView REIT, Inc.’s growth, diversification, and valuation relative to peers. FrontView REIT, Inc.’s growth profile is already among the most competitive in the net lease sector, while our AFFO multiple relative to growth remains among the lowest. In our view, that gap does not reflect the quality of the real estate we own, the multiple avenues that drive FrontView REIT, Inc.’s growth, or the long-term value creation embedded in the portfolio. With that, I will turn the call over to the Operator to open it up for Q&A. Operator? Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Anthony Paolone with JPMorgan Chase. Please go ahead. Anthony Paolone: Oh, great. Thanks. Good morning, everybody. My first question is, you brought up the idea of looking at development deals. Could you maybe expand on that a little bit and give us a sense as to what order of magnitude you are looking at right now, who your partners might be, how you might structure these sorts of things? Just a little bit more detail would be great. Stephen Preston: Yeah, sure. Good morning, Anthony, and thank you. Good question. I will start with, as a management team, we have been historically involved in significant retail development activities. We are going to look to develop when risk is mitigated, and certainly that will mean that we have a signed lease, that we have entitlements in place—that means your site plan is in place. We have costs in place through a general contracting contract. We have, of course, zoning, and then we are going to have building permits in tow as well. We are going to start small. We think that it is going to be small capital allocations—maybe $1 million to $3 million of equity for any one transaction. Ultimately it is very important that we make sure we have sufficient spreads—that is certainly why you are doing development in the first place—built into the project. And so we expect that we will be doing our own development and that we will be developing with sophisticated partners as well, and expecting somewhere between 100 to 200 basis points of spread built into the projects. I think it is also important to note that development is certainly not new to FrontView REIT, Inc. as well. We have already completed several developments in our portfolio. We have completed a Miller’s Ale House to a Raising Cane’s, a Burger King to a Chipotle, we did a Sleep Number to a Seven Brew. Of course, the Twin Peaks that we have been talking about to two separately box-suited tenants, Jaggers and a Panda Express. And then ultimately we created a Bank of America in our Walmart Rochester outparcel from scratch under vacant land. So we are very suitable and ready to embark upon a development program. And these activities too, I think it is important to note, have brought about $10 million of value increase over and above our purchase price across those assets. So this can be a good engine for us and very accretive, and again we are going to take it slow in the beginning. Pierre Revol: I would just add to that, Anthony. The legacy of the company as a developer goes back even in the NADG days. They were partners with Kimco in a lot of projects as well. There is a lot of understanding on how these partnerships work. And then both Stephen and the team here have these relationships with these developers and have done it for a very long time. That is why it makes sense if you find the right partnership and the right deal with the right real estate qualities that we are pursuing. Anthony Paolone: Okay. Thank you for all that color there. And then just my second question is on the leasing side. You seem to be off to a good start there. Can you maybe give us a little bit of a look ahead and anything you are picking up in terms of potential known move-outs, or how things are going as you look out into 2027? Stephen Preston: Yeah. I mean, I think that is maybe kind of a credit watch list or call it a bad debt question. Everything feels pretty good right now as we look forward. We have the watch list. I think it is pretty minimal. Again, coming from last quarter as well, we have no material changes or additions to that watch list. It seems very healthy. We are watching a GoHealth, a Sleep Number, a couple of small urgent cares, and a couple of gas stations. But otherwise it feels pretty good. We have worked through the pharmacy throughout the portfolio, and that exposure is roughly about 2% or less. And then our total Sleep Number exposure is roughly 70 basis points across all three. To extrapolate a little bit on that, we expect bad debt to be in that 50 basis points range. Right now very little is known, so mostly it is about the unknown at this point. Pierre Revol: And then in terms of lease expirations, we have 10 expirations coming up. There is nothing really in there that we expect to be problematic. We have a couple of vacancies. We have four properties. We are working through those. I think that we talked about Smokey Bones last quarter. We are working to sign a lease on that one. And we have a Walgreens as well that we are working to sign a lease. Those would be potential pickups as we look forward. But we feel very comfortable around the expiration schedule. Stephen Preston: Yeah, actually, that will be a good one. The Smokey Bones is an asset that we decided to take our time on, and that is looking like it is going to become two tenants as well. So again, the virtues of the real estate we buy and the demand that tenants have for this real estate. And then that one other Walgreens that closed—we have hopefully a good tenant that is going to backfill that; we are very close to finalizing that. Everyone will be very happy to hear and learn about it. So again, very excited about our ability to continue to re-tenant and create very strong recapture rates relative to where we were prior. Anthony Paolone: Great. Thank you. Operator: Next question comes from Eric Borden with BMO Capital Markets. Please go ahead. Eric Borden: Good morning. Thanks for taking my question. Just following up on the recapture rates and the lease expiration schedule, just curious if you could help quantify the mark-to-market or recapture rate that you are hoping to achieve on the 10 lease expirations this year and then the 33 in the following year. Thank you. Stephen Preston: Yeah, sure. Of course. Just to expound upon the expirations, I will start with the theme: it is accurate. We have quality real estate. It is desirable. It is fungible, and our portfolio is exceptionally diversified. We view these lease expirations as opportunities for us, and we are not looking to quickly sell these off before expiration. For some context, Eric, since 2016, we have had 51 tenants renew—45 have renewed to the same tenant and six renewing to a new tenant—and we are about at 106% rental rate recapture. Our overall renewal rate is about 90%. So the comment about 2026 and coming up on 2027: the tenants that are renewing or are about to expire are in the top quartile in Placer, so they are performing well. In 2026, we are already through half of the expirations, and we have increased rent income. We only have about nine left, so we expect 2026 to, again, just like historicals, be a very positive year. And then we expect 2027 to follow that same suit, and we are already in discussions with a number of those tenants. Again, very real estate-focused and tenant-driven based on that quality of real estate. Pierre Revol: And I would also add, Eric, to point you to page 12 of our investor presentation. There are several stats here around the Placer scores and the populations, but the one I would call out is a median rent per box over the next five years of all the expirations of $156,000. So if you go to our website, you look at our boxes, you sort of know what is there. That is very good basis. So most people will renew as expected, but on the off chance of the 10% that may not renew or choose not to renew, maybe in 2027, we will be able to resolve that and get higher rents. Eric Borden: Thank you. Appreciate all the detail. My follow-up question is on the disposition spread over acquisitions that you achieved in the quarter—it was approximately 60 basis points. Just curious, how repeatable is that spread as you look to complete your net investment goals this year? Thank you. Stephen Preston: I would say very repeatable, and we will just use historical data to hit that home. So far, in 2025 and into 2026, we have sold off about $86 million of property at about a 6.97% cap rate on average. That is obviously considerably below where we are trading at—close to an 8% or in the upper 7s. Those are the assets that we have sold off that are not our best assets—certainly not our Chipotles, not our Raising Cane’s, not our Walmart, not our Lowe’s. These are assets that we sold off to optimize the portfolio. To give everyone a little bit of flavor on the types of assets that were sold off: Twin Peaks that filed for bankruptcy; Red Lobster; we sold off Ruby Tuesday’s that was previously in bankruptcy; Cafe Rio, which has been closing some stores; we sold a dark Bojangles; and a Denny’s franchisee. If you go through that list—again, these are not the best assets that we have in the portfolio, and they were sold off to optimize. We certainly expect to continue with cap rates in that realm. If we were to add in a couple of the hot assets, then you would see that drop materially. Operator: Your next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead. Ronald Kamdem: Great. Maybe just staying on capital recycling—could you talk a little bit more about the acquisition pipeline and cap rates, how those have been trending, and then on the disposition side, clearly there is always pruning to be done, but are you mostly through, or how should we think about what is left to be filled? Thanks. Stephen Preston: Yeah, let me just start with dispositions. I think the optimization is fairly close to complete. I think it is always prudent to be managing the portfolio, so we expect that we are going to continue to have dispositions, and we probably expect somewhere in the $40 million to $50 million range this year in the aggregate, down about half from prior. With respect to cap rates, we were about 7.5% for the quarter. The market is pretty stable. We expect—we are sort of forecasting—cap rates in Q2 somewhere in that 7.3% range, maybe similar in Q3. In the market, there is increased institutional interest just generally in net lease. There is an abundant amount of capital that is really setting the tone for the market. We play in a different market. Leverage for the smaller buyers is a little bit easier to obtain from some of the smaller banks. Cap rates in the shopping center retail area have come in pretty significantly, not quite the same for our space. We still feel very good with that stable market. I think also the 7.3% versus some of the historical cap rates we have seen— we are going to be focusing a little bit more on what we call “good hot states.” We have got Texas where there is increased population growth, Florida, Georgia, Arizona, etc. Cap rates can be a little bit tighter there. They are generally more landlord-friendly states. To hit on your pipeline question, we have a very strong, deep pipeline. At this point, Q2 is expected and in tow. We have Q3 right now effectively set and in tow. We are seeing a lot of great opportunities. We are buying the same stuff that you see in our portfolio: great real estate with frontage, low rents, typically from motivated or circumstantial sellers. Credit is solid. These are large operations that are long-term operating businesses. Our market, Ron, is attractive, and it is open to us. Just to give a couple of tenants that are in our pipeline: Hawaiian Bros would be a new tenant; Burlington—new tenant; Bob’s Furniture—new tenant; Tropical Smoothie; Spec’s—new tenant; we are looking at a PNC; a pair of veterinarian clinics—new tenants; a Giant Eagle grocery store—new tenant. So we are expanding and buying these great tenants in great markets with great real estate and great credit. The market is there for us, and we certainly have the ability, if we wanted to, to increase the acquisition cadence. We established that availability when we first went public with about $100 million in a quarter. Right now we have the $100 million with our capital in tow, and we are set for this year. But we could certainly expand that, Ron, if we needed to. Ronald Kamdem: Great. Really helpful. And then for my follow-up—on the guidance raise, could you just go through the pieces? Is it bad debt? Is it higher rents? Just quickly the guidance raise components. Thanks. Pierre Revol: The guidance range is primarily driven by the portfolio doing really well. If you think about what we printed in the first quarter at $0.34, at the midpoint of the range, you are effectively doing $0.32–$0.33 in the remaining three quarters. We are not seeing any issues in terms of the portfolio leasing. We do not have any dispositions that are required—these are just portfolio optimizations, nothing distressed. We are seeing good things in the portfolio. We feel comfortable with the range. With most of our bad debt just being unidentified reserves on the things that we are watching, we thought it was a good time to continue to move it forward. Ronald Kamdem: Helpful. Thank you. Operator: Your next question is from Yana Golan with Bank of America. Please go ahead. Yana Golan: Hello? Just following up on the guidance range. Like you said, it kind of implies $0.32–$0.33 per quarter AFFO. So I guess sequentially, how should we think about the cadence for the balance of the year? And then what factors are expected to drive the implied moderation? Pierre Revol: Sure. In my prepared remarks, I walked you through the NOI components in terms of what was in place in the first quarter that will drop a bit into the second quarter. The other income that we called out, and those three tenants that expired and are being re-tenanted—those re-tenantings will not really impact 2026, but will flow into 2027. All in, that drops the effective NOI from Q1 going to Q2 by $700,000. So when you think about the cadence in terms of AFFO per share, you would expect that sort of drop into Q2 from the $0.34, but then as we have these assets coming in and being deployed, and the rent escalators, AFFO should increase from there to get within that roughly $1.31 midpoint. Stephen Preston: Midpoint. Yana Golan: Thank you. Yana Golan: And just sticking to cadence, given where the current share price is and the maintenance of the net investment guidance, how should we be thinking about the timing of deployment of the remaining $50 million of the preferred capital? Pierre Revol: It might be helpful to just go over that. The preferred equity capital we put in place last year on November 12 was $75 million at 6.75% with a convertible feature at $17 a share, which we are over. We have until November 12 to call it, and our idea was to hit our target of $100 million of acquisitions and fund it with the $75 million of equity capital this year. For two years after that final draw—so as late as November 2028—we cannot convert it. There might be a question of whether or not they would convert it, which is possible, but I would doubt that they would, considering that the yield they are getting is 6.75% versus our dividend yield which is much lower than that. But we are fully funded. I expect that we will match fund our acquisitions with the equity and some debt on a 25% LTV ratio as I talked about before. Our second quarter and our third quarter, as Stephen mentioned, are pretty well built, and we will just time the deployment of that preferred equity to fund those deals. Thank you. Operator: Your next question comes from John with B. Riley Securities. Please go ahead. John: Good morning. Maybe thinking about investment yields—I know you talked a little bit about where you want to see development spreads; I am assuming relative to your cost of capital—but how could that impact or maybe uplift the historical cap rates you have seen on your more traditional investments? Stephen Preston: When we are investing in developments, we are going to be expecting to receive a preferred return at the beginning on the capital. What we will be able to do on the development side with the spreads is end up acquiring assets that we would not otherwise be able to acquire due to that spread. For example, if we were wanting to acquire a Chick-fil-A today at a 5% cap rate—as much as we would like to have a few Chick-fil-As in the portfolio—that does not necessarily make sense. But from a development standpoint, it is going to give us access to tenants that we could not otherwise be able to acquire because you add your spread of roughly 150 to 200 basis points, and then now you are putting a Chick-fil-A on the books in the high 6s or low 7s. That is a really good, accretive way to create value for the portfolio. The stable cash flow would be there; we could then turn around and sell that in the open market and create that widened spread. John: That makes sense. And then as I am thinking about the rent roll-ups on the leasing activity, how much of that was tied to replacing tenants that had credit issues? I am assuming the Twin Peaks was kind of repositioning within that number. And was any of it just purely lease expirations where you felt you needed a better rent with a new tenant and therefore did not keep the old tenant in place? Stephen Preston: I think it is a little bit of both. It is credit, it is lease expirations, and it is also being proactive and getting ahead of where we think we may have something that could be a problem. Like our Miller’s Ale House to Raising Cane’s, for example—that was a paying, operating tenant. We understood that sales volumes were not performing well. We proactively reached out and worked through a buyout, and then replaced that tenant with a Raising Cane’s ground lease, which was a huge uplift. So throughout the portfolio, it is a combination of everything, driven by strong underlying real estate value and rents that are low throughout the portfolio. Pierre Revol: I would just highlight on the three we talked about. The Twin Peaks was actually expiring in the first quarter, so we knew that that was an expiring lease. We knew that they were doing so-so, so we solved it before it expired, which is where we can add value. We knew it was coming, we monitored it, and we got a 92% rent increase. The other one is CVS. We knew that the CVS in Chicago was not certain to stay open or renew. They decided not to renew, and we put in Path USA, a child care, which will get an 18% rent increase once that tenant goes in. It is about knowing what is coming and whether or not they are going to stay open or close. If you do not think they are going to renew, get ahead of it and figure out who is the best tenant to replace it. Broadly in net lease, a lot of times people talk about recapture and growth, but they miss the people that do not renew. For us, the ones that do not renew, we are actually finding opportunities to grow there, which ultimately leads to less earnings going away because you have leases that will come on later. It goes to the fact that we have good real estate and good locations where you can find new tenants to replace these boxes, which will help us in 2027 and beyond. Stephen Preston: It is a lot of proactive portfolio management. It is our decades of experience in the real estate space. It is our constant discussions with tenants that allow us to get ahead of these renewals and probabilities. And it is the relationships that we have with real estate directors and tenant rep brokers so we can get a very good understanding of how a tenant is performing, and then we make the appropriate decisions as well. John: Appreciate that color. Thank you. Operator: Next question comes from Daniel Guglielmo with Capital One Securities. Please go ahead. Daniel Guglielmo: Hi, everyone. Thanks for taking my questions. We have talked a few times about development, but I do know over the past couple of years, really since rates went up, it has been hard to get development investments to pencil. What has changed over the past few months around the underwriting math that makes it more attractive? Stephen Preston: You are 100% spot on. Development absolutely does depend on the market and the cycle of cap rates for acquisitions. As you can buy finished product at a higher cap rate, your development spreads begin to narrow, and conversely they widen when cap rates come in or start to fall. The timing needs to be right, and we have all seen—certainly in the retail space—cap rates come in. It is an opportunity for us to create wider returns and accretive values in the development space without taking on very much additional risk. Again, we are going to start small, and we are going to watch it as that cycle of cap rates evolves. That is absolutely important, and it is effectively why it did not work for the last several years. Daniel Guglielmo: Okay, great. That is very helpful. And then on the transaction market, recently what has been driving owners to sell the properties that you are acquiring? It would just be a helpful refresher because you focus on niche property types with less competition. Pierre Revol: The market is filled with individuals and unsophisticated sellers—that is just the nature of the market that we play in—with very little institutional competition. We do not compete on big portfolios. We do not really compete on large assets or vastly marketed deals, which is an advantage for us because we are buying assets that are sub-$10 million. We do not have to deploy large sums of money. We are up against unsophisticated individuals—1031 buyers—that make decisions for a variety of reasons. It could be they just want to sell something, they need capital for something else, they are refinancing their house, they are moving to Miami, there is a death in the family. These are a lot of the reasons why we continually see liquidity and turnover in the marketplace, and why we can, as a buyer, buy better than the other smaller groups because we do not need finance contingencies, we can close quickly, and we are sophisticated. That is why we tend to see elevated or wider spreads relative to the marketplace when we are acquiring an asset. Daniel Guglielmo: Great. Thank you. Operator: Your next question comes from Matthew Erdner with Jones Trading. Please go ahead. Matthew Erdner: Hey, thanks for taking the question. You talked a little bit about the dispositions and that part being somewhat pruned out by now. As you look to refine that a little further, are there any geographic concentrations—Illinois kind of sticks out to me—or certain sectors that you are looking to move out of? Stephen Preston: It is interesting—Illinois does get a bit of a bad rap, but some of the suburbs in Illinois are some of the strongest suburbs in the country, and they are safe and vibrant. All that being said, we have brought Illinois in, and we want to bring Texas up. We want Texas to be our number one state at some point. From an industry perspective, we are always going to continue to keep diversification—that is a prime focus—while focusing on real estate quality and our rents. We like certain medical, getting a little bit of financial, automotive—again keeping diversity. We are adding a couple of vet clinics this quarter. Fitness—we like fitness. QSR/fast casual, and certainly some retail concepts. Fitness is generally sitting in a pretty good place right now—coming back from post-COVID levels and exceeding them. There are new concepts like yoga and HIIT moving into the LA Fitnesses of the world, and they are performing well. Where we are being careful—this is a bit of a new add for us—not that we have any high exposure to this at all: we are careful with gas as you see that model unfold, and pharmacy we have always been continuing to bring down, and that is right around 2% of ABR. Car wash we are sensitive to, even though ours perform well. And certainly with restaurants, we have continued to reduce older, tired concepts—concepts that were popular in the 1990s and early 2000s that just are not cutting it today. We want to stay away from that. With respect to restaurants, we like what we do own. It is not that we do not like restaurants; we have reduced exposure to tired concepts. If you are getting a restaurant—a QSR with a drive-thru—that has a versatile, fungible box that can work for 10 different types of uses at low rents, we are going to continue to be happy owning those as well. Pierre Revol: I would just add, Matt, on the disposition component: we do look at whether it is a tertiary market. We do target top 100 MSAs; we want to bring that higher. Some tenants might be really good tenants, but they are not good tenants for FrontView REIT, Inc. They are good tenants that people will buy because of their credit or national brand, but if they are in a tertiary market with a lot of land, with nothing around it, with not a lot of population, it is not really for us. You might see some of that. Those assets are still really sought after by a lot of different buyers. That could be a component. The nice part is we can choose to do these; we do not have to do these. It is completely improving the real estate quality of the portfolio as well. Matthew Erdner: Got it. That is very helpful. I appreciate all the comments. Thanks. Operator: There are no further questions at this time. I will now hand the call back to Stephen for closing remarks. Stephen Preston: Yes. Thank you, everyone, for your time today, and we appreciate your interest in FrontView REIT, Inc. and our differentiated approach to net lease. We look forward to seeing you at the BMO conference next week and, of course, NAREIT in June in New York. Please do not forget to check out our properties on our website. Be safe and be healthy. Thank you all. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Greetings. And welcome to the Global Net Lease, Inc. Q1 2026 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordyn Schoenfeld, Vice President of Corporate Strategy. Thank you. You may begin. Jordyn Schoenfeld: Thank you. Good morning, everyone, and thank you for joining us for Global Net Lease, Inc.’s first quarter 2026 earnings call. Joining me today on the call is Michael Weil, Global Net Lease, Inc.’s Chief Executive Officer, and Chris Masterson, Global Net Lease, Inc.’s Chief Financial Officer. The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statement section at the end of our first quarter 2026 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. As stated in our SEC filings, Global Net Lease, Inc. disclaims any intent or obligation to update or revise these forward-looking statements except as required by law. Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. Descriptions of those non-GAAP financial measures that we use, such as AFFO and Adjusted EBITDA, and reconciliations of these to our results as reported in accordance with GAAP are detailed in our earnings release and supplemental materials. I will now turn the call over to our Chief Executive Officer, Michael Weil. Michael Weil: Thanks, Jordyn. Good morning, and thank you all for joining us today. Before we review our first quarter 2026 results, I would like to discuss our planned strategic acquisition of Motive Industrial, which we announced earlier this week. This transaction is a direct reflection of the strategy we outlined on our last earnings call and the tangible progress we have already made towards implementing it. Following a transformational year for Global Net Lease, Inc. in 2025, when we took deliberate actions to significantly reduce leverage, strengthen our credit profile, and improve the overall quality of our portfolio, we are now positioned to focus on the disciplined recycling of capital into high-quality industrial and retail assets. This includes pursuing selective and opportunistic asset sales, particularly those that reduce our office exposure, while redeploying proceeds accretively into single-tenant industrial and retail investments. The Motive transaction would do just that, as we believe the closing of the transaction will advance the durability and quality of our earnings profile by adding a high-quality portfolio of industrial net lease assets across the United States, supported by long-duration leases and creditworthy tenants that align well with our investment criteria. The transaction is expected to be immediately accretive with approximately 4% accretion to AFFO per share, including meaningful cost synergies through the elimination of duplicative G&A. Importantly, the transaction is structured as an all-stock acquisition with a fixed exchange ratio of 1.975 to lock in the 4% accretion, making it leverage neutral and requiring no new external capital. We believe this structure will preserve the balance sheet strength we have established while allowing us to maintain meaningful flexibility to pursue future strategic growth opportunities. Motive’s long-duration leases have a weighted average lease term of 15 years, include 2.4% annual rent escalations, and are supported by a well-recognized tenant base of leading global brands, with approximately 45% of annual base rent derived from investment grade or implied investment grade tenants. On a pro forma basis, the acquisition is expected to extend our weighted average lease term from 5.9 to 6.7 years, increase our industrial exposure from 47% to 50%, and reduce our office concentration from 26% to 24%, which will collectively strengthen our portfolio mix and expand our geographic reach across key U.S. industrial markets and enhance the overall stability of our combined platform. We are very excited about this transaction, which we expect to close in the third quarter of this year. In addition to the Motive transaction, we are actively engaged in other transaction activity consistent with our corporate strategy. Reflecting the mission-critical nature of our office portfolio, we are under contract to sell a 33 thousand square-foot office building leased to the General Services Administration for $13 million at a 7.2% cash cap rate, with closing expected in 2026. Beyond this transaction, we currently have additional office properties in our portfolio that we believe may present a similar disposition opportunity going forward as we continue to focus on lowering our office exposure. At the same time, we are under contract to acquire a 100 thousand square-foot single-tenant industrial asset occupied by a Fortune 50 investment grade tenant for $14 million at an 8.2% cash cap rate, which would further demonstrate our ability to prudently execute our accretive recycling strategy into higher-quality assets that we believe will generate more compelling risk-adjusted returns. The asset features a 2031 lease maturity, and we believe our longstanding relationship with the tenant will be advantageous as we are already in simultaneous discussions regarding an early long-term lease extension. We are actively negotiating the sale of additional office assets and look forward to providing updates as transactions advance. Our pipeline of redeployment opportunities continues to grow, and we believe we are well positioned to execute on a leverage-neutral basis in a way that drives earnings growth while preserving the balance sheet quality we have established. Our acquisition approach remains disciplined and highly selective, focused on high-quality, income-generating assets that align with our long-term strategy. In addition to our capital recycling strategy, we continue to evaluate the most effective uses of our disposition proceeds, including opportunistic share repurchases. Since the beginning of our share repurchase program through 05/01/2026, we have repurchased 19.7 million shares at a weighted average price of $8.05, totaling $158.2 million. We have been deliberate and opportunistic in how we have executed this program, and we remain disciplined in balancing these repurchases with our continued focus on leverage reduction and the redeployment of capital into higher-quality assets. Turning to our portfolio, at the end of 2026 Q1, we owned 809 properties totaling 40 million rentable square feet. Our portfolio was 97% occupied, an increase from 95% in 2025, with a weighted average remaining lease term of 5.9 years. Specifically, our office occupancy increased to 99% from 95% in 2025, primarily driven by the disposition of a $45 million vacant office property, which also eliminates over $1 million of annualized negative NOI drag. Our office portfolio continues to perform well, supported by 100% rent collection and the highest proportion of investment grade tenants within our portfolio. Global Net Lease, Inc.’s portfolio features a stable tenant base and high quality of earnings, with an industry-leading 64% of tenants carrying an investment grade or implied investment grade rating, up from 60% in 2025. Our average annual contractual rental increase is 1.5%, excluding the impact of 20.1% of the portfolio with CPI-linked leases that have historically experienced significantly higher rental increases. On the leasing front, we delivered strong results across the portfolio during the first quarter, reflecting the quality of our asset management capabilities and tenant relationships. We executed leases on more than 141 thousand square feet and achieved renewal spreads of approximately 5.1% above expiring rents. Notable activity included several renewals with nationally recognized retail tenants such as Dollar General and Tractor Supply, as well as the renewal of a 58 thousand square-foot FedEx distribution facility at an approximate 9% renewal spread. We continue to engage with tenants well in advance of lease expirations to drive occupancy retention and rental growth, while maintaining a long-term focus on portfolio stability. As we continue advancing our approach to asset management, we have meaningfully enhanced our data and technology capabilities, improving how we engage with tenants and evaluate opportunities and ultimately the outcomes we deliver across the portfolio. We have been leveraging artificial intelligence to enhance our decision making on both the leasing and transaction front. Specifically, we are now able to rapidly analyze foot traffic patterns and performance analytics for our tenants, intelligence that directly informs our renewal negotiations and strengthens our underwriting when evaluating prospective transactions. This data-driven approach allows us to engage tenants from a more informed position, and we believe it is an increasingly meaningful contributor to our ability to drive favorable lease economics across the portfolio and secure advantageous terms on transactions. Perhaps most importantly, we believe it will also give us the ability to seamlessly absorb the Motive portfolio and its approximately $535 million of new assets without any increase in headcount. Our continued efforts to limit exposure to high-risk geographies, asset types, tenants, and industries reflect our intentional diversification strategy and disciplined credit underwriting. No single tenant accounts for more than 6% of total straight-line rent, and our top 10 tenants collectively contribute only 29% of total straight-line rent, with 80% being investment grade. We carefully monitor all tenants in our portfolio and their business operations on a regular basis. I encourage everyone to review the details of each segment of our portfolio in our 2026 investor presentation on our website. I will now turn the call over to Chris to walk through the financial results and balance sheet matters in more detail. Chris? Chris Masterson: Thanks, Mike. Please note that, as always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release, which is posted on our website. For 2026 Q1, we recorded revenue of $109.3 million and a net loss attributable to common stockholders of $16 million. AFFO was $43.9 million, or $0.21 per share. Following the successful repositioning of our portfolio over the past several quarters, including the $1.8 billion multi-tenant retail portfolio sale, we have reduced annualized G&A expense by 25% year-over-year to $49 million from $65 million in 2025, driven by operational efficiencies. Additionally, capital expenditures declined to $1.6 million from $9.8 million in 2025, supporting improved cash flow through a more streamlined portfolio. Looking at our balance sheet, the gross outstanding debt balance was $2.6 billion at the end of 2026 Q1, a reduction of $1.3 billion from the end of 2025. Our debt is comprised of $1 billion of senior notes, $290 million on the multicurrency revolving credit facility, and $1.3 billion of outstanding gross mortgage debt. As of the end of 2026 Q1, 99% of our debt is tied to fixed rates or debt that is swapped to fixed rates. Our weighted average interest rate stood at 4.1%, down from 4.2% in 2025, and our interest coverage ratio was 3.0x. At the end of 2026 Q1, our net debt to Adjusted EBITDA ratio was 7.2x, based on net debt of $2.4 billion, compared to 6.7x at the end of 2025. While the ratio this quarter was higher than the end of 2025 due to timing of disposition, we are confident that we will remain within our stated net debt to Adjusted EBITDA 2026 guidance range of 6.5x to 6.9x. As of 03/31/2026, we had liquidity of approximately $911 million and $1.5 billion of capacity on our revolving credit facility, compared to $499 million and $1.4 billion, respectively, as of the end of 2025. Additionally, we had approximately 212 million shares of common stock outstanding, and approximately 214 million shares outstanding on a weighted average basis for 2026 Q1. Since launching our share repurchase program in 2025 and through 05/01/2026, we have repurchased 19.7 million shares for a total of $158.2 million. This includes approximately 4.2 million shares repurchased in 2026 for $38.4 million at a weighted average price of $9.07. Since inception, total repurchases under this program have been executed at a weighted average price of $8.05, a meaningful discount to the current share price, which has appreciated approximately 18% since those purchases were made. We believe this program has been a highly accretive use of capital and has generated tangible value for our shareholders. Turning to our outlook for 2026, we are confident in our performance and reaffirm our full-year AFFO per share guidance of $0.80 to $0.84. We also reaffirm our stated net debt to Adjusted EBITDA range of 6.5x to 6.9x. This guidance excludes the anticipated benefit from the Motive transaction, which we plan to address and update upon closing, although we believe it is worth emphasizing that the acquisition is structured to be leverage neutral within our 2026 net debt to Adjusted EBITDA guidance range of 6.5x to 6.9x. I will now turn the call back to Mike for some closing remarks. Michael Weil: Thanks, Chris. As we begin this next phase of Global Net Lease, Inc.’s evolution, we do so from a position of strength, focused on strategically reducing our office exposure while redeploying capital into higher-quality, higher-yielding assets. The foundation we built in 2025—a stronger balance sheet, an improved credit profile, and a more focused portfolio—gives us flexibility and confidence to execute this strategy on our own terms, remaining patient and selective as we identify the right opportunities. We will not rush to deploy capital for the sake of it, pursuing only those opportunities that we believe genuinely enhance the quality and earnings of our portfolio. We expect this capital recycling activity to be a meaningful contributor to earnings growth over the course of 2026 and beyond. The Motive transaction is a tangible demonstration of that approach. We identified a high-quality portfolio of industrial net lease assets that we believe will enhance the earnings power and long-term durability of our platform, and we structured a transaction that is expected to be immediately accretive, leverage neutral, and requires no external capital. We look forward to building on the strong foundation Motive has established as part of the combined Global Net Lease, Inc. platform. Before taking your questions, I would like to note that, subsequent to the first quarter, two members of our board, Sue Parati and Governor Rendell, announced their intention to retire following the 2026 annual meeting of stockholders. We thank Sue and the Governor for their years of dedicated service and meaningful contributions to Global Net Lease, Inc., and remain confident that our board's composition is well calibrated to provide effective oversight and support efficient decision making. We will now open the call for questions. Operator, please open the line for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. A moment please while we poll for your questions. Our first question comes from the line of Mitch Germain with Citizens. Please proceed with your question. Mitch Germain: Good morning. Thanks for taking my question, and congrats on the Motive deal. Starting with Motive, Mike, 40 assets, I think about 20% or so of them reside outside of the industrial sector, so I am curious, are there any potential candidates for sale across that portfolio? Michael Weil: First of all, great question. Thank you. Yes, there are. Our primary focus is on retaining the industrial assets. Motive does have a few very high-quality assets that are outside of what we would consider industrial, and we will, at the right time and working with Motive, look to dispose of those assets very quickly after closing. It will not be many; one of them is on the larger side. It will have some meaningful impact, and I think that it will also have overall value as we evaluate the acquisition as well. Mitch Germain: Got you. So lower cap rate versus what you are buying it at. Okay. And then can you talk a little bit about dispositions that either were completed or planned to be completed? It seems like activity is somewhat across each sector. We saw a change in number of assets across industrial, retail, and office. So maybe just talk about what some of the characteristics were. I think you mentioned a vacant office, a GSA-leased office. Maybe some of the characteristics of some of the other properties that were sold would be helpful. Michael Weil: As we talked about last quarter, we were going to be switching to more of a strategic disposition strategy. Where we had opportunity to dispose of some assets that maybe were not just in the office portfolio, we did so at very aggressive cap rates, and that is an ongoing part of our strategy. We are intentionally looking at growth, and adding the high-quality portfolio of Motive is a big statement of that. But we will continue to execute opportunistically. As an 800-plus property portfolio, it is not uncommon for people to call us when they see an asset that we own that they have an interest in. We always take the call, we always negotiate the deal, and then we decide if we have an opportunity to redeploy those proceeds in a more accretive way. But we are very thoughtful in not wanting to sell what is significant and core to the overall portfolio. I can give you an example. We sold a bank branch in the quarter at a 6.2% cap rate. The buyer wanted to own it, and at that cap rate, we were a happy seller. Those are the type of opportunistic dispositions, in addition to what we are going to continue to do evaluating the opportunities to reduce office. If I can just add one thing to that, because we have been talking for a good part of 2025 about an asset that we had under contract to sell. It was an office property on the West Coast. We completed the sale in the quarter, and we sold it vacant, but we sold it for just about what we paid for it when we initially owned the property, and in addition to that, it does remove about $1 million of NOI carry. So we are really looking at everything in a very deep analytical way. And not only do we value getting the proceeds from the disposition, but removing that drag to NOI, of course, is extremely valuable. Mitch Germain: Gotcha. Last one for me. When you are considering some of these office dispositions in particular, about half of your portfolio resides outside the U.S. I am curious what sort of demand you are seeing across Europe for office. Obviously, we are seeing improving fundamentals here in the U.S. Lenders are a bit more prone to lend in that sector today than they were previously. Are you seeing similar trends emerging across Europe, and does that give you an opportunity to maybe start culling some of those assets as well? Michael Weil: As you probably know, we are a little more than 25% Europe and UK, and about half of the NOI comes from office. What we have been seeing in the office market overseas is a lot of redevelopment into mixed-use residential as well if a tenant is not renewing; there is a lot of redevelopment going on. The market is very strong. We are very active, and I think as we move through 2026, you will hear more updates from us on certain assets that will be positive to the portfolio. Mitch Germain: Thank you. Michael Weil: Thanks, Mitch. Operator: Our next question comes from the line of Upal Dhananjay Rana with KeyBanc Capital Markets. Upal Dhananjay Rana: Good morning. Michael Weil: Good morning. Upal Dhananjay Rana: Mike, on the Motive transaction, maybe you could walk us through the cap rate there relative to the blended cost of capital that you will be using and then the resulting investment spreads, and also, you mentioned selling a few of those assets already once you are closed. But any other opportunities within that portfolio that could potentially drive the yield higher? Michael Weil: I am not able at this time to talk cap rate specifics. That will come out as we get further along. We are working really closely with Motive, who has just been a great partner in this transaction. They will be putting out their proxy, and it will have all those details in it, as you will understand. What I would say is that there are a lot of opportunities, some of which were already in the works on the Motive side that will transfer to us to continue—both from an origination pipeline standpoint, a lease renewal standpoint, and also some work that they were doing on dispositions. I think that they were operating their portfolio at a very high level, maximizing the performance of their portfolio, etc. So it is going to be very exciting for us to integrate that into our portfolio and continue the work that they have been doing. We have talked about the roughly $6 million of G&A savings. I think that, when we close on that, we will probably be able to squeeze more out of that. I do not know the exact number yet; we are continuing to evaluate that. But there is just a lot of upside, as we have disclosed in our press release, and the portfolio itself is performing at a very stable level, so there are not a lot of things that we would have to do to achieve these stated goals. I am looking forward to closing as early in the year as we can. We are targeting third quarter. If we can do it early in the third quarter, the earlier, the better, so that we can start to see the benefits to the portfolio. Then we will disclose our plans for the few assets that we are evaluating for disposition. I also want to say, in case we have any Motive investors on the line listening to the call today, we are very excited to have them join the Global Net Lease, Inc. investor community. They have been great shareholders for Motive, and we look forward to welcoming them into the Global Net Lease, Inc. family, and it is just a great opportunity for all of us. Upal Dhananjay Rana: Great. Thank you for that. And then maybe could you talk about what you are seeing in the market for future acquisitions? You talked about it a bit in your prepared remarks already, but maybe you could walk us through your strategy on selecting which properties and portfolios to acquire and how you are thinking about your leverage and industry exposure when you make that consideration? Michael Weil: Thank you. First of all, I think us announcing roughly a $550 million acquisition in the first quarter probably was not expected by the market, and it really gets us excited about what we can do in 2026. It was a very opportunistic situation, and it really penciled out well, and it is something that is going to pay dividends for a long time in the Global Net Lease, Inc. portfolio. I cannot tell you that there will be other large portfolio acquisitions in 2026. Obviously, we take things as they come, and we look to how we can best use our capital and how we can grow earnings, etc. What we are looking at as we are developing a review of the market and a potential pipeline is we are really focusing on the industrial side of the business. We are also seeing some retail-type acquisition potential, not as much as we have seen in the past. I think the markets are a little bit in flux, and we are looking at everything not from just dollars spent acquiring properties, but meaningful opportunity for accretion in the portfolio from an earnings standpoint. As far as your question about debt, we continue to think that that is one of the most important things that we will continue to work on. Chris reaffirmed our 2026 guidance of 6.5x to 6.9x. We are very excited that the Motive transaction is leverage neutral in how we were able to structure it, so the additional opportunity to grow the EBITDA side of the formula is one of the things that I am very excited about. Nothing has changed from what we have communicated to the market, and we will continue to drive that important metric further down. Upal Dhananjay Rana: Okay. Great. Thank you so much. Michael Weil: Thank you. Operator: Thank you. Our next question comes from the line of Jay Kornridge with Cantor Fitzgerald. Please proceed with your question. Jay Kornridge: Thanks so much. Thinking bigger picture about the Motive merger, I wonder what that could signal for your strategy going forward. You recently completed the robust disposition program, and I am wondering if this merger signals maybe a return to growth for the company beyond just recycling out of office assets. Michael Weil: My short answer is yes, it does. I said on our last earnings call that that was an important goal of ours. The disposition program was extremely successful. It achieved a lot of our important goals, primarily lowering net debt to EBITDA in a meaningful way and in a relatively quick way. The fact that we have the opportunity with the Motive portfolio to move forward in this leverage neutral way but still have a positive increase to earnings, I think, does give you some insight into how we are thinking about things. Again, it is not just about dollars out the door and how much you can buy in a year; it is about what is the impact of those acquisitions long term on the portfolio and on earnings. We are very excited about the fact that the WALT of the Motive portfolio at 15 years extends the WALT of Global Net Lease, Inc. by almost one full year, taking us to just under seven years. The 2.5% annual escalator that their portfolio brings to us is also meaningful, and as that 15-year WALT continues and we see the NOI in that portfolio growing at that 2.5%, it is very meaningful. One other thing that we are really focused on is the G&A reduction and how we can better operate this larger portfolio. We decreased G&A expense by 25% year-over-year. We continue to focus on that. That 25% represents a $16 million annual savings, and that is very important. You want to grow earnings, and you want to reduce expenses. That is the formula for ultimate success, and we look at both sides of that equation. Jay Kornridge: Thanks, appreciate all that commentary. You highlighted an office asset sale and capital recycling into an industrial asset at a 100-basis-point cap rate premium. Do you feel this type of accretive capital redeployment out of office is repeatable as you lower office exposure, and do you have any timeline goals for where you want to get office exposure overall down to? Michael Weil: I do not know that we can consistently every time hit that 100-basis-point type spread. That is certainly the goal, and we feel that we have very high-quality office assets, net lease. About 80% of our portfolio is investment grade, as you know. As we look to lower our exposure to office, we certainly think that we should be able to sell them at a fair value. We talked this quarter about the GSA asset at a 7.2% cap rate. I think that, as we look at the rest of the portfolio opportunity, we see it in that range. I have always talked about our office being worth in a 7% to 8% cap rate range in our minds. We never wanted to just package it all up and sell at any price because it is performing very well. As we look to reduce our exposure, it is important to us that we find fair value for this portfolio. Because it continues to perform, we will take a disciplined and strategic approach to how we reduce our exposure. We have not said anything specific about target allocation. As we finished this quarter, we are about 24%. We will continue to drive it down, but what we are most excited about is that with the Motive acquisition we are going to be 75% retail and industrial, which is important. Over 50% of that is on the industrial side. We will be a predominantly net lease industrial portfolio, with long-duration leases and really high-quality tenants. Jay Kornridge: Great. Thanks for that. That is it for me. Michael Weil: Thank you, Jay. Operator: Thank you. May be necessary to pick up your handset before pressing the star key. Our next question comes from the line of Craig Gerald Kucera with Lucid Capital Markets. Please proceed with your question. Craig Gerald Kucera: Good morning. A lot of the Motive portfolio tenants are owned by PE firms with manufacturing backgrounds. Does the acquisition potentially open up any new relationships for you for future growth, or are you already pretty familiar with most of them? Michael Weil: It always enhances relationships—some of which we already have, some of which we are happy to get to know and develop further. It is one of the things that Aaron Halfacre and I continue to talk about—making those introductions—and there may be ongoing benefit from those relationships for sure. Craig Gerald Kucera: Got it. Changing gears, given the stock price, it seems that selling assets and buying back stock still makes sense. I think you are about halfway through that $300 million authorization. Should we consider that as a consistent portion of your business model for the remainder of the year as far as acquiring, call it, $30 million to $40 million a quarter? Michael Weil: You are right that we are about halfway through that. We have bought back about $158 million since we announced. The average buyback price was $8.05. It is another tool in the toolbox that we will continue to evaluate. As we look at stock buyback, reducing the net debt to EBITDA, and acquisitions, those are all three very important things to us and tools that I think we have shown we can use effectively. We will continue to evaluate them. We have not given any forward statements on how we will, and at what level we will, use the buyback, but it is something that we are very happy to have in place and something that we do find good use for. Craig Gerald Kucera: Got it. Looking to your lease expirations during the rest of the year, are there any known large move-outs during the remainder of 2026? Michael Weil: Craig, we have—if I am remembering correctly, and Mori will correct me if I am wrong; he is in my office with me—about 6% lease rollover in 2026. 4.4. I was high. 4.4% in 2026. So we do not have any material rollovers in 2026. We continue to engage with tenants. We have not given any specifics on move-outs. We continue to think that there are opportunities to either renew the existing tenants or re-tenant, and if we do not feel that that is an opportunity, we will be marketing an asset well in advance of expiration. We feel that we have a very tight handle on the portfolio. We had occupancy overall increase in the quarter. We continue to see that as a positive trend. A net lease company is typically in that 98% to 100% occupancy realm, and I am happy to say that is where we are now, and we expect to continue to stay there. We always look to push that up as high as we can, but the portfolio continues to be well tenanted, and the tenants operate out of these properties no matter what the sector. So we feel very confident about the remainder of 2026. Craig Gerald Kucera: Okay. That is helpful. Thank you. Michael Weil: Thanks. Operator: Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to management for any closing remarks. Michael Weil: Thank you all for joining us today. I think you heard a lot of exciting news about Global Net Lease, Inc. We thought we were well positioned for 2026 before the announcement of Motive. We are even more excited to integrate that high-quality portfolio into ours and continue with this strategy for growth. We look forward to talking to any of you after today's call if you have questions, or we will be seeing you at conferences. Thanks for your time, and we will talk soon. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good morning, everyone, and welcome to Blue Owl Technology Finance Corp.'s First Quarter 2026 Earnings Call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Michael Mosticchio, Head of BDC Investor Relations. Please go ahead. Michael Mosticchio: Thank you, Operator, and welcome to Blue Owl Technology Finance Corp.'s First Quarter 2026 Earnings Conference Call. Joining us on the call today are Craig Packer, Chief Executive Officer; Erik Bissonnette, President; and Jonathan Lamm, Chief Financial Officer. I would like to remind listeners that remarks made during today's call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in Blue Owl Technology Finance Corp.'s filings with the SEC. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we will refer to non-GAAP measures on this call, which are reconciled to GAAP figures in our earnings presentation, which is available on the Events and Presentations section of our website. Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information. Yesterday, Blue Owl Technology Finance Corp. issued its financial results for the first quarter ended 03/31/2026, reporting adjusted net investment income per share of $0.29 and net asset value per share of $16.49. During the call today, we will be referencing materials including the earnings press release, earnings presentation, and 10-Q, which are available on the News and Events section of Blue Owl Technology Finance Corp.'s website. I will now turn the call over to Craig. Craig Packer: Thanks, Mike. Good morning, everyone, and thank you all for joining us today. Software has obviously been a major focus for investors and as a meaningful lender in the space, Blue Owl Technology Finance Corp. has been part of that conversation. Before getting into our views on software, I wanted to step back and provide some broader context on Blue Owl Technology Finance Corp. Credit performance remains very strong. Non-accruals are among the lowest in the space, and we are one of the only BDCs to have generated net gains since inception. At the same time, the current level of market concern around software has created one of the most attractive investing environments that we have seen in a while, with spreads significantly wider and capital a lot less available. We also think the market's discussion around software has evolved meaningfully over the last quarter. Early on, much of the debate was centered around whether software businesses had a reason to exist in an AI-enabled world. Today, we believe that discussion is becoming more balanced and nuanced as the market increasingly distinguishes between businesses with durable moats and those that may be more exposed to change. We think that evolution of the discourse is constructive and, importantly, that the Blue Owl Technology Finance Corp. portfolio is positioned well in the parts of the software market where durability matters most. Erik will speak in more detail in a moment about what we are seeing, but at a high level, while we remain appropriately cautious on AI, given how transformative the technology is, we are not seeing material signs of stress in the portfolio today. That view is also supported by our underlying credit metrics, including no new non-accruals this quarter and a non-accrual rate of just 10 basis points of the total portfolio at fair value. As a reminder, we lend to companies that are leaders in their markets and have durable business models. We remain in close dialogue with both sponsors and portfolio companies and in many cases are seeing borrowers adapt thoughtfully and invest to strengthen their competitive positions as AI continues to develop. As a lender, even if there is pressure over time on software profitability or terminal values in certain parts of the market, we believe the structures of our investments—with relatively short durations, conservative LTVs, and contractual maturities—position us well. With that said, our results in the first quarter were impacted by the broader volatility across technology and software assets. As spreads widened meaningfully across technology credit names, valuations came under pressure across the space more broadly, including within our own portfolio. Importantly, this was market-driven pressure rather than a reflection of credit stress. Over 80% of the write-down during the quarter was attributable to mark-to-market movements, and it did not reflect a weakness in the underlying quality of our assets. Since quarter-end, technology broadly syndicated loan prices have rebounded by roughly 70 basis points in April, which we think is an encouraging sign that the conversation is becoming more balanced and constructive. I would also highlight that our earnings this quarter were impacted by many of the same headwinds affecting the broader BDC sector. Lower base rates and tighter spreads weighed on adjusted net investment income, and elevated repayments kept leverage more moderate than we would have otherwise expected as we continue to ramp the portfolio. As we look ahead, we are confident in the fundamentals that underpin the Blue Owl Technology Finance Corp. portfolio. We are long-term investors and we have constructed the portfolio with that perspective in mind. While there are questions around the impact to software from AI, we believe that over time, the high-quality technology businesses we finance will display resilience, given the stability we have seen today and that we anticipate over time. Today, Blue Owl Technology Finance Corp. has ample dry powder and the ability to increase leverage towards our target range, and volatile periods like this have historically created attractive opportunities for disciplined capital deployment. That said, our underwriting bar will remain high and we expect to stay selective in the opportunities we pursue. With that, I will turn it over to Erik. Erik Bissonnette: Thanks, Craig, and good morning, everyone. Our strategy remains centered on lending to innovative, market-leading technology companies. Today, approximately 70% of the portfolio is in software, with a balance in other technology areas such as life sciences, hardware, and other tech-enabled services. We detailed our AI framework on last quarter's earnings call, and a full transcript of that discussion is available on our website. Today, we will focus on the portfolio to provide insight into borrower-level performance as the technology landscape continues to advance. We believe our portfolio remains positioned in the most durable segments of the software market, specifically within mission-critical products, embedded workflows, and trusted data. With a weighted average EBITDA of nearly $300 million, these scaled businesses possess the inherent resilience necessary to navigate industry shifts while continuing to invest in their platforms. The portfolio's construction further reinforces this durability, as our holdings remain predominantly senior secured. While the market selloff caused weighted average LTVs to rise modestly to 40% from 34% last quarter, these levels remain conservative and provide a significant equity cushion beneath our debt investments. We continue to see solid weighted average revenue and EBITDA growth across our software borrowers, and importantly, we have seen minimal signs of material disruption attributable to AI across the broader portfolio. Regarding core credit metrics, there were no new non-accruals this quarter, which remained significantly below the industry average at just 10 basis points of the total portfolio at fair value. Three- to five-rated names were steady at 8.5% at fair value, as our internal ratings were broadly stable during the quarter. Amendments remained similarly light with no pickup in material amendment activity, and portfolio company revolver utilization remained consistent with historical levels at just under 10%. PIK income also remained moderate this quarter at 13% of total investment income, down about half from prior peak levels, with approximately 7.6% of that coming from PIK interest and 5.4% from PIK dividends. As a reminder, PIK dividend income reflects our dedicated allocation to preferred equity positions, which are designed to generate current income and often come with attractive premium return potential. Over 98% of our PIK was structured at origination and notably we have not realized a single loss since inception on any PIK loan that was structured this way at origination. We view structured PIK as a valuable return enhancer that allows high-quality borrowers to prioritize growth reinvestment. These portfolio indicators are also consistent with our direct market observations. Our 40-person dedicated technology investment team maintains a constant dialogue with portfolio companies, sponsors, and industry experts as they adapt to the changing landscape and deploy additional resources. It is notable that sophisticated software operators continue to invest heavily in AI enablement. A prime example is the strategic partnership announced earlier this month between Thoma Bravo and Google Cloud, which aims to accelerate AI transformations across enterprise software companies. We view this as a significant external signal that AI serves as a catalyst for product enhancement and value creation rather than simply a source of disruption. It was an active quarter for both new investments and repayments. We had $1.1 billion of repayments during the quarter, including several meaningful ones, which we think reinforces the strategic value that scaled software assets can continue to command even in a more challenging market environment. For example, Intelerad, a medical imaging software business, was an over $400 million investment across the Blue Owl platform, including $163 million in Blue Owl Technology Finance Corp., and was acquired by GE Healthcare for $2.3 billion, resulting in a full repayment of our position at par. Mindbody, a 2019 vintage investment, is a software and payments provider to gyms, salons, and spas. It was a $105 million investment in Blue Owl Technology Finance Corp. and an over $200 million investment across the Blue Owl platform, and was fully repaid across our credit facilities and preferred equity in connection with its merger with a global leader in AI-enabled fitness tech. Relativity, a leading provider of e-discovery document review software, was a $137 million investment in Blue Owl Technology Finance Corp. and an over $340 million platform investment, where we were fully repaid through a broadly syndicated loan refinancing ahead of its recently announced plan to go public. Our equity sleeve provides another avenue for the portfolio to capture differentiated upside, as proven by the partial sale of our SpaceX equity in early March. We sold 50% of our position, generating approximately $133 million of proceeds and a realized gain of $117 million, which reflected roughly a 10x return on our original investment. We viewed this as an attractive opportunity to partially monetize a strong performer while retaining the remaining 50% of the position to participate in potential future upside. We view this as a prime example of how our strategy can selectively capture additional value while keeping the portfolio primarily credit-oriented. On the origination side, we entered the quarter with a strong pipeline, which converted into $1.7 billion of new commitments and $1.3 billion funded. Most of that activity reflected deals worked on in Q4 prior to the most recent widening of spreads. However, the strength of repayments offset a significant portion of originations and resulted in net leverage increasing modestly to 0.85x at quarter end, just below the low end of our target range. While software remains a primary focus, our underwriting threshold for new investments has never been higher. As we evaluate opportunities against a rapidly evolving AI landscape, we are increasingly selective, continuing to pass on legacy models that may have been investable years ago but now lack the core defensive attributes required to withstand technological disruption, which has always been our core focus. Looking ahead, we anticipate that software deal activity will remain tempered as the market recalibrates to current dynamics. Historically, these periods have yielded attractive entry points for disciplined lenders with the capacity to increase leverage towards our target range, and we are well positioned to capitalize on these opportunities as the market matures. At the same time, slower software deal flow may create an opportunity to revisit adjacent technology areas that have always been within scope for us, including digital infrastructure and life sciences. We believe we can generate attractive, less-correlated returns over time. In digital infrastructure, we continue to see opportunities that help power AI enablement, such as GPUs and data center financings. Blue Owl also has a dedicated life sciences credit and royalties platform called LSI Financing with specialized expertise and flexible financing solutions across the capital structure. That team focuses on term loans and royalty-based structures for later-stage companies funding innovation, commercialization, and drug development. LSI Financing currently includes 11 debt and royalty investments. Blue Owl Technology Finance Corp. entered the strategy in November 2024, and this exposure has since delivered a net IRR of over 14% for the fund. Collectively, these strategies represent approximately 3% of the current portfolio, so there is ample room to increase our allocation from here as opportunities emerge. Overall, we are confident in the quality of the portfolio and how the platform is positioned today. While AI-related uncertainty has clearly shaped market sentiment, the portfolio continues to perform, and we believe Blue Owl Technology Finance Corp. is well equipped to capitalize on opportunities as the market continues to adjust. I will now turn the call over to Jonathan to discuss our financial results in more detail. Jonathan Lamm: Thank you, Erik. In the first quarter, Blue Owl Technology Finance Corp. reported adjusted net investment income of $0.29 per share. While we continue to make progress in ramping the portfolio, our results this quarter reflected several headwinds that have been affecting the market, including the full impact of the three rate cuts between September and December, spread compression from 2025 as newer originations came on at tighter spreads, and lighter nonrecurring income, which came in approximately $0.01 below historical averages. We would also note that our GAAP results included $0.08 per share capital gains incentive fee reversals driven by mark-to-market impacts on equity investments following the market selloff. Earlier this week, our Board declared a first-quarter regular dividend of $0.35 per share, consistent with our last quarterly distribution, which will be paid on or before 07/15/2026 to shareholders of record as of 06/30/2026. We also continue to pay a quarterly special dividend of $0.05 per share through September 2026, supported by spillover income generated prior to listing, bringing total distributions for the quarter to $0.40 per share. At our current rate of deployment and leverage, along with the widening spread environment, we remain confident in the long-term support for our base dividend. However, given the current market backdrop, it may take somewhat longer for earnings to cover the base dividend than we previously expected. Importantly, we continue to have meaningful support from spillover income of $0.50 per share as well as gains from our equity book as we continue to ramp the portfolio. Moving to the balance sheet, NAV per share was $16.49 at quarter end, down from $17.33 in the prior quarter, primarily reflecting the impact of mark-to-market adjustments, partially offset by realized gains as well as $0.05 per share of accretion from share repurchases during the quarter. We bought back approximately $50 million of stock, bringing total repurchases over the past two quarters to $115 million. These repurchases reflect our conviction in the quality of the portfolio while still preserving ample capacity to deploy into what we see as an increasingly more attractive market environment for technology names. Our Board also authorized a new $300 million share repurchase program in February, replacing the prior $200 million authorization, leaving approximately $250 million remaining following our first-quarter activity. We ended the quarter with net leverage at 0.85x, reflecting $284 million of net funded investment activity. While leverage increased modestly during the quarter, it remains just below the low end of our target range of 0.90x to 1.25x, which we believe leaves us well positioned to continue growing the portfolio as opportunities become more attractive. Turning to our capital structure, we continue to be active in further strengthening our balance sheet. In January, we issued a $400 million unsecured bond, which we subsequently swapped to a floating-rate coupon. This transaction demonstrated continued access to the investment-grade unsecured market while maintaining alignment with our predominantly floating-rate asset base. We ended the quarter with over $2.3 billion of total cash and available capacity across our credit facilities. This provides ample liquidity to meet upcoming obligations, including our June 2026 note maturity, and support continued portfolio growth as we move toward our target leverage range while maintaining balance sheet flexibility. Additionally, at this time, approximately 80% of Blue Owl Technology Finance Corp.'s stock float has now been released, with the second-to-last lockup release scheduled for May 20 and the final lockup release on June 12. We believe these additional releases should continue to ease technical pressures, support trading liquidity, and further diversify our shareholder base over time. I will now hand it back to Craig to provide final thoughts for today's call. Craig Packer: Thanks, Jonathan. As we wrap up today's call, I want to step back and reflect on what we believe this environment means for Blue Owl Technology Finance Corp. Periods like this tend to create more dispersion across technology, and that is especially true when the market is trying to separate durable businesses from those that may be more exposed to change. In our view, this is exactly the type of environment where domain expertise, disciplined underwriting, and long-term perspective matter most. Recent volatility in the broadly syndicated loan market, along with slower retail capital inflows into private credit, has made the supply-demand balance for new deals look more favorable than it has been in years. We believe that backdrop may create a more differentiated opportunity set for lenders with the experience and underwriting depth to distinguish between businesses that can adapt and strengthen through this cycle and those that may not. Importantly, we do not need a significant rebound in LBO volumes to improve returns from here. Even in a more moderate deal environment, we see meaningful opportunity to enhance portfolio spread through activity within our existing portfolio, including refinancing or re-underwriting names we know well and continue to like. That is where we believe Blue Owl Technology Finance Corp. has unique positioning in the market. Our portfolio remains concentrated in businesses we believe are durable and mostly have considerable backing from large private equity sponsors. Our balance sheet still has meaningful room to grow, and with leverage below our target range, we have the dry powder, team, and platform to move thoughtfully as opportunities emerge. Importantly, Blue Owl Technology Finance Corp.'s path from here is also somewhat different from that of many other BDCs. Because we are still ramping toward our target leverage range, we have a clear opportunity to grow earnings through prudent deployment over time. At the same time, we are not dependent on one narrow part of the market. Although software remains our core focus, we have the flexibility to target adjacent technology areas such as digital infrastructure and life sciences, where Blue Owl has dedicated investment teams and where we believe we can generate attractive, less-correlated returns over time. Looking ahead, we believe Blue Owl Technology Finance Corp. is exceptionally well positioned to expand spread and improve returns by investing in this environment. We will remain cautious and highly selective, but we believe that discipline, combined with the quality of the portfolio and our long-term credit track record, should serve shareholders well. Blue Owl Technology Finance Corp. has generated a strong track record since inception in 2018 with a net realized gain of 29 basis points annually, which we believe speaks to the strength of our underwriting across cycles. Operator, please open the line for questions. Operator: Thank you. The floor is now open for questions. Today's first question is coming from Finianos O'Shea of Wells Fargo. Please go ahead. Finianos O'Shea: Hey, everyone. Good morning. Craig or Erik, big picture on software, performing well still, but the theme more and more—decided theme—is lenders in private credit and in the liquid market want to pare down exposure, have less appetite for it, maybe from a portfolio construction or a risk perspective. Maybe it is temporary, but to the extent that that continues, is that a concern for future credit quality if new money dries up from the broader credit domain? Craig Packer: Hey, Fin, I will start and Erik can chime in. To start, I would say that AI is a significant issue, and all lenders and equity holders are trying to make sense of the impact in AI and software. It is moving quickly. As time elapses, we will all be able to better understand just how significant this is. So this is a moment of peak uncertainty and time will help that. Your characterization is fair. I think most lenders that have significant software will be looking to reduce exposure, including us, but within reasonable bounds. We will still, at Blue Owl Technology Finance Corp., be a significant player in software. Our bar is going to be very high for new investments and also very high as we have opportunities to refinance. We are going to go through our same process in making investment decisions in new software deals like we do in every other investment and take into account our outlook and our confidence in getting repaid. We are certainly going to want to make sure that if we are staying invested in software names, we are getting appropriately compensated, and spreads have widened materially in the software sector given that uncertainty. Companies are doing well. We believe good, durable software businesses will continue to do well in an AI world, and they are working very closely with the sponsors to ensure that. If the companies are performing well, even in a world where lenders are looking to pull back, I would expect those companies to continue to have access to financing. The financing will be more expensive, but it had tightened quite considerably in the last 18 months, and to a certain extent, it is reverting back to more historical levels. Again, it is all about credit performance and confidence in getting repaid. I feel confident that if the company's outlooks are reasonable and lenders feel protected, then there will be plenty of capital there. It is just maybe more expensive. The private equity firms—again, if the businesses are performing well—will equally have capital to support those businesses. The general picture I am painting is one where credits will be refinanceable even if some lenders want to reduce exposure. There will be other lenders that can increase, companies can pay down debt, they can delever, and sponsors can commit more capital. If the companies are doing well, they will be refinanceable. Finianos O'Shea: Appreciate that. Follow-up more on the portfolio picture today. The marks this quarter look pretty broad, spread-related, but then the sharp, more acute marks look to us either tied to liquid—there is a BSL quote kind of thing—or junior, like preferred equity-type exposure. Correct me if I am wrong there. Is that a pure loan-to-value thing just taking down enterprise value, or is there any slowing in performance across that book? Jonathan Lamm: Thanks, Fin. About a third of the marks associated with our markdowns were in that book, and they were really all multiple-driven—nothing of materiality from a fundamental perspective. The vast majority on the debt side was spread-related. The book you are referring to has been an incredible driver of net realized gains for us since inception of close to 30 basis points annualized, so we are giving back a little bit here just on mark movements. Craig Packer: Eighty percent of the move in our debt marks was spread-driven. Blue Owl Technology Finance Corp., over the arc of time, has had one of the best credit performances in the industry, and we have had net NAV growth. It is very logical and expected after a quarter that went through a real rerating of valuation in the software space that investors would expect that to be reflected in our marks. You bucketed it properly: the public loans moved meaningfully—very observable—and that is reflected in the portion of our book that is BSL-related. The more junior investments, which have performed well, go through a valuation process and those were also marked down appropriately. The book behaved the way investors should expect given the environment that we just went through, but we are coming from a position of strength and gave back a little bit this quarter. Operator: Thank you. The next question is coming from Brian Mckenna of Citizens. Please go ahead. Brian Mckenna: Great, thanks. It feels like the tide might be shifting a bit in the public software market. The IGV is up 20% from the lows, and some subsectors are up quite a bit more. Erik, if this recovery in public software valuations continues, does that start to drive a recovery in transaction activity? And are sponsors you are talking to starting to look at some take-private opportunities? Erik Bissonnette: Yes. We have seen a marked change in sentiment as reflected in public stocks. We are going through public earnings right now. I will not mention specific names, but broadly speaking, the prints we have seen have been very strong. Publicly focused companies are performing extremely well, which is consistent with what we are seeing across our portfolios and in conversations with sponsors. They see opportunities similar to 2022, when you had a large number of go-private transactions coming off the peak ZIRP-related multiples in 2020 and 2021. We think there is going to be a meaningful pickup in activity. It is muted right now with a bit of a pause, but sentiment is shifting. The nuance around the conversation has changed dramatically the past two months. There are signals like the Thoma Bravo–Google announcement, and others. There is a lot of narrative shift around the reality of a combination or a partner at the application tier, which I think will give more balance to the conversation and unlock some deal activity in the latter half of the year. Brian Mckenna: Thanks. And a quick follow-up: not all the focus has to be on downside. When do you think the conversation starts to shift to some of the upside scenarios or positive tailwinds from layering on AI? Erik Bissonnette: I think it is going to take a few quarters. One of the great strengths of the software revenue model is multiyear contracts committed in advance. As businesses embed AI into their solutions, it will take time to roll through the financials and show up in new KPIs. We are seeing strong increases in R&D and revenue starting to roll through as these solutions take hold. People will want to see a couple of prints from large companies. Sentiment is already improving versus eight weeks ago, and I think it will continue to improve as we see the stability and durability of these assets and continued growth. Operator: Once again, ladies and gentlemen, our next question is coming from Kenneth Lee of RBC Capital Markets. Please go ahead. Kenneth Lee: Hey, good afternoon, and thanks for taking my question. In terms of opportunities outside of software—you mentioned digital infrastructure and life sciences—what sorts of deals are you seeing in those pipelines, and is there a wide enough funnel to continue to ramp up the portfolio within similar time frames? Craig Packer: Sure. I will start. The answer is yes, there is enough. Software is the biggest part of the book and will be for the foreseeable future because it has performed extremely well, and we expect it to continue to do so. That said, as I touched on earlier, we will look to reduce software exposure at the margin and really focus on the best names that we have the most confidence in. We have already been active in these adjacent sectors with dedicated capabilities. On life sciences, these are commercially successful drugs in the market—drug royalties or loans to companies with very predictable revenue streams. It takes technical knowledge of the underlying drugs and market demand to invest in, and we have a team with that expertise. We are seeing terrific opportunities that fit the remit of the technology fund but are not software. It is scalable and the deals are sizable. Often there is not a private equity firm involved—these are public or private companies—and it is an area we would like to scale up. Erik, do you want to touch on digital infrastructure? Erik Bissonnette: On the digital infrastructure side, we have done a few transactions in the GPU financing space, which I think is misunderstood. We are not financing GPUs to residual value. These tend to be JVs or SPVs with investment-grade counterparty credit risk, amortizing structures, premium rates of return, and very tight documentation—often with a corporate guarantee as well. You have seen a few of those start to come to the public markets recently, so there is broader acceptance of structures we have been pioneering over the past year. We have quite a few of those in the hopper right now. Demand for compute continues to be exceptionally high, well in excess of supply, so there will be interesting opportunities. On the data center side, there are opportunities we see through the broader Blue Owl platform. We have an IPI data center business that is actively involved in development with hyperscaler offtakes. There should be some activity we can review and analyze over the course of this year. I think we will increase the percentage of this exposure, but there are natural limiters—oftentimes they fall into non-qualifying buckets. It will not be disproportionately high, but it should be really attractive on a go-forward basis. Kenneth Lee: Very helpful color. One follow-up on the dividend: can you share additional thoughts around dividend coverage? Is the Board going to evaluate this based on deal activity and ramping progress, given time frames might be a little longer to reach your targeted leverage ranges? Jonathan Lamm: Yes. We are constantly evaluating dividends, and the Board is always focused on it. The drivers here are deployment, leverage, and spreads. There is also some churn associated with the structured capital book. Deployment and churn have been impacted by market events and perceptions over the course of this year, so it will take longer for those to play out. We have not changed our view of the ultimate outcome—just the timing. Post this quarter, we are still paying out roughly $0.11 more than what we earned, but we still have $0.50 of spillover income, so there is plenty of runway in the context of short-term slippage with respect to reaching the dividend. Erik Bissonnette: The only thing I would add is that as we go through any amendments or potential extensions of existing positions, we will do comprehensive and thoughtful re-underwriting. Given our AI reviews and internal evaluations, we think there are a lot of companies we financed over the past few years that are exceptionally well positioned to grow and compound in an AI future that we did at tight spreads. As those come up for renewal, we will re-underwrite them, but you will likely see meaningful mark-to-market spread adjustments on some of our better-performing assets. That is a third leg of the stool I would add. Operator: Thank you. Our next question is coming from Arren Cyganovich of Truist Securities. Please go ahead. Arren Cyganovich: I was wondering how the overall platform is dealing with the high level of redemption requests in the evergreen funds that are not directly associated with Blue Owl Technology Finance Corp., and whether that is impacting your ability to put as much capital to work as you need, or if there is enough institutional flow coming in to offset that. Craig Packer: It has not had any impact on our ability to deploy capital. The individual funds have capital. At Blue Owl Technology Finance Corp., we would like to find attractive investment opportunities. At OBDC, we reduced leverage. We also have non-BDC institutional capital. The non-traded funds that have outflows have ample liquidity to cover those outflows, so there is no ripple effect. It is only part of our business and very predictable given tender limits. We are one of the largest players in direct lending, with deep sponsor relationships and as much available capital as any direct lender. We are excited about this environment to deploy into good deals with good sponsors and good companies at attractive returns, just like we have for the last ten years. Operator: Thank you. Our next question is coming from Sean-Paul Adams of B. Riley Securities. Please go ahead. Sean-Paul Adams: Hey guys, good morning. On the equity co-investment part of the portfolio, it looks like there was a large shift on the marks for some of those equity positions and that drove some of the mark-to-market changes on the portfolio. Do you have any line of sight on near-term liquidity events at these names? And at what point would you point to this being a mark-to-market-driven event versus a realized loss scenario? Erik Bissonnette: The vast majority of the changes in the equity book were mark-to-market. You saw the IGV trade off pretty dramatically throughout the quarter, and that rolled through our marks directly for many of our equity positions. Most of those equity positions are senior preferred, so even if they are marked below par, there is a very real possibility for us to get our basis back and see some recoupment, regardless of where they exit. In terms of the forward, we discussed SpaceX and monetizing part of that position. There are another three to four behind that which we think are extremely attractive. One I would emphasize is Revolut—it is about a $75 million cost-basis investment, a challenger bank based in the UK. We had marked that up over the prior few quarters. There have been reports in the press around another tender offer and a potential IPO coming in 2028. We also have investments in Stripe and other really attractive assets that we could monetize. We feel we are in a good position to continue to generate some of those upside returns. Operator: Thank you. At this time, I would like to turn the floor back over to management for any additional or closing comments. Craig Packer: I thought I would just end with an observation. Obviously, Blue Owl Technology Finance Corp. has a lot of software exposure, and the stock has been impacted by that. A couple of statistics: the average debt spread in Blue Owl Technology Finance Corp. is about 530 basis points over; the average loan is marked at $0.97 on the dollar; the non-accruals in the fund are 10 basis points. The stock currently yields about 12.7% at today's prices—it is probably higher than that given today's trading activity as of this morning. The stock trades at 67% of NAV; earlier this year it traded closer to 80% of NAV. If the stock got back to 80% of NAV over the next one to two years and you factor in that recovery and the dividend levels, that would be a total return of 19% to 25% over a one- to two-year period. There are obviously a lot of assumptions embedded in that—time frame, what might happen to NAV, dividends, and so on—but I want to put a spotlight on where it is trading, what the yield is, and juxtapose that with the quality of the portfolio, which continues to be extremely strong. We have been talking on this call about recovery in the equity markets and the equity of software businesses, and here is another area of the markets that, if the market is starting to have a more balanced view on software, can offer equity-like returns. If folks have questions about the fund, we would be pleased to take them—just reach out, and we are available. Thank you, and have a great day. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Operator: Good day, and welcome to the Alto Ingredients First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Jody Burfening, Alliance Advisors. Please go ahead. Jody Burfening: Thank you, Nick, and thank you all for joining us today for Alto Ingredients First Quarter 2026 Results Conference Call. With me today are President and CEO, Bryon McGregor; and CFO, Rob Olander. Alto Ingredients issued a press release after the market closed today, providing details of the company's financial results for the first quarter of 2026. The company also prepared a presentation for today's call that is available on its website at altoingredients.com. A webcast and webcast replay will be available on the Alto Ingredients website. Please note that the information on this call speaks only as of today, May 6, 2026. You are advised that time-sensitive information may no longer be accurate at the time of any replay. Please refer to the company's safe harbor statement in the slide deck posted to the company's website, which states that some of the comments and presentation constitute forward-looking statements and considerations that involve risks and uncertainties. The actual results of Alto Ingredients could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, events, risks and other factors previously and from time to time disclosed in Alto Ingredients' filings with the SEC. Except as required by applicable law, the company assumes no obligation to update any forward-looking statements. In management's prepared remarks, non-GAAP measures will be referenced. Management uses these non-GAAP measures to monitor the financial performance of operations and believes these measures will assist investors in assessing the company's performance for the periods reported. The company defines adjusted EBITDA as unaudited consolidated net income or loss before interest expense, interest income, provision or benefit for income taxes, asset impairments, unrealized derivative gains and losses, acquisition-related expense, excess insurance proceeds and depreciation and amortization expense. To support the company's review of non-GAAP information, a reconciling table has been included in today's release. On today's call, Bryon will review the company's first quarter performance. Rob will review the financial results, and then Bryon will wrap up and open the call for Q&A. It's now my pleasure to introduce Bryon McGregor. Bryon, please do go ahead. Bryon McGregor: Thanks, Jody. Thanks, everyone, for joining us today. I'll begin with a high-level review of our first quarter results and operational activities. After that, I'll turn the call over to Rob for a detailed review of our financial results for the quarter and then wrap up and open the call to Q&A. The first quarter is typically a seasonally weak period for both Alto and the industry resulting from the buildup of ethanol inventories and lower demand. In contrast, we are reporting strong first quarter results relative to our historical performance in this period. We delivered -- profitability on an adjusted EBITDA and net income basis through the contribution of stronger export sales, higher crush margins and incremental earnings from 45Z tax credits. Even without the contribution of tax credits, we were profitable. Our strategic realignment, our efforts to improve our operational model and our success in capturing premiums over fuel ethanol have enhanced our earning power. We remain focused on maximizing value from our diversified portfolio of assets and on pursuing multiple revenue opportunities in response to market demand. To that end, we have robust plans to improve utilization, reliability and efficiencies and to support higher-value revenue streams during 2026. Let me share with you some highlights of the operational activities we tackled during the first quarter and update you on the capital projects we have planned for 2026. First, as discussed on last quarter's call, an extended period of very cold weather in the first half of the quarter disrupted River Logistics and caused us to curtail production at our Pekin campus. We took the opportunity to accelerate a portion of our planned wet mill biennial outage work that was scheduled for the second quarter. This will allow us to recapture lost production when crush margins are typically stronger and keep us on track with our goal to increase total 2026 alcohol volumes and prioritize product mix that delivers a premium to domestic renewable fuel. Secondly, we had a planned outage at our Columbia facility during a seasonally slow quarter for CO2 sales. Combined with the outage we took last December, we addressed deferred process-related activities intended to improve production performance and plant reliability for the remainder of the year. This work will help ensure the plant is running at optimal rates to reliably support our CO2 offtake, customers' growing demand in the coming summer months. It will also allow us to qualify more gallons for 45Z credits. We're still planning a normal outage at ICP during the second quarter, consistent with 2025. In terms of capital projects at our Pekin campus, we started the repairs on the original dock and the construction of the second alcohol load out, and are on track to complete both projects by the end of 2026. As a reminder, we are building the second alcohol dock to create redundancy and improve logistical capabilities. We also kicked off a project to increase throughput and storage capacity at our Columbia liquid CO2 processing facility by adding a third storage tank. This project will position us to further capitalize on favorable market conditions, specifically the growing demand in the Pacific Northwest and limited supply of premium CO2. At our Pekin dry mill, our most efficient plant, we are moving the planned outage to June from the third quarter. During this downtime, we are going to implement a debottlenecking project to increase annual production capacity by about 8% or 5 million gallons. We expect to fully realize these improved rates starting in the fourth quarter, which will provide incremental margin and allow us to qualify for more 45Z credits. Finally, in addition to the CapEx projects we planned for 2026, we are continuing to assess large-scale CO2 utilization and sequestration opportunities at our Pekin campus. These projects would position us to lower our carbon intensity score and monetize additional incremental earnings from 45Z credits and generate more liquid CO2 revenue. Before I turn the call over to Rob, we're closely monitoring macro conditions, including unrest in the Middle East, which can indirectly affect us through energy and commodity volatility and freight and export logistics, and we're actively managing these exposures. We're also encouraged by continued progress on E15. In California, AB 30 has provided a pathway for a year-round E15 sales, and we're watching the state implementation process closely. Nationally, momentum for year-round E15 legislation continues to build in Congress. We view expanded access to E15 as an important demand side complement to the production incentives in 45Z, helping ensure the market can absorb additional low-carbon gallons over time. Without demand growth, incentives alone can contribute to unintended consequences, including overproduction and pressure on industry margins. With that, I'll now turn the call over to Rob for a more detailed review of our Q1 financial results. Rob? Robert Olander: Thank you, Bryon. I'll start with a review of the income statement for the first quarter of 2026 compared to the first quarter of 2025. Consolidated net sales were $225 million, $2 million lower than in the prior year. This reflects a 4% reduction in volumes sold or 3.7 million gallons, partially offset by a 4% increase in the average sales price per gallon from $1.93 to $2 on a consolidated basis. The primary drivers impacting revenues were the net overall reduction in volumes sold, which was mainly related to the production curtailment at our Pekin campus, an improved product mix of higher renewable fuel export sales, reflecting both an increase in volumes sold and a significantly higher premium compared to domestic renewable fuel sales than last year contributed $6.7 million. High-quality alcohol volumes sold decreased by 1.3 million gallons, reflecting continued weak alcohol consumption and increased competition. In addition, the premium versus domestic fuel grade values were lower than last year. As a result, revenues declined by $1.4 million. Co-product protein feed and fuel prices improved, supported by strong gains in corn oil used in renewable biofuels, which added an additional net $2.2 million in revenues. Coupled with a 4% lower cost of corn, our consolidated return on essential ingredients improved to 53.4% from 48.2% a year ago. Gross profit was $9.2 million compared to a gross loss of $1.8 million reported for Q1 2025 for an $11 million positive swing to profitability. In addition to the revenue variances I just covered, the change in gross profit also encompassed the following factors: A seasonally strong market crush margin of $0.17 per gallon for Q1 2026 compared to $0.02 per gallon for the same period last year accounted for approximately $5.2 million of benefit. An increase in net unrealized gain on derivatives contributed $6.4 million as a result of our high-quality alcohol hedges associated with future shipments improved in relation to the rise in the market price of ethanol as we locked in the premium on our contracted fixed price, high-quality alcohol commitments. And we incurred $500,000 less in production labor costs to the staffing reduction that we completed during the first quarter of 2025. These positive trends were partially offset by the following negative variances. Natural gas and electricity costs collectively increased $5.3 million due to higher prices related to volatile weather conditions and rising demand. Repair and maintenance expenses were $2.4 million higher this quarter compared to last year. This was driven by the acceleration of work at the wet mill originally planned for the second quarter, as Bryon mentioned, as well as increased costs from the planned outage at Columbia. The increased repair and maintenance costs at Columbia were the primary contributors to the $1.1 million gross loss in our Western Production segment for the first quarter of 2026. SG&A expenses decreased by $500,000 to $6.7 million, also reflecting our decision to right-size staffing levels last year. With respect to 45Z transferable tax credits, as mentioned on the fourth quarter call, for 2026, we expect to qualify approximately 90 million gallons of combined production at the Columbia and Pekin dry mill facilities on an annual basis at $0.20 per gallon, resulting in approximately $15 million in net proceeds after all monetization costs. We recorded $3.9 million in 45Z credit earnings for the first quarter of 2026. The sale of all of our 2025 45Z tax credits is currently underway at values consistent with our previously recorded estimates, and we expect to close on that transaction this month. We are working diligently to qualify additional gallons and further reduce our carbon intensity scores to capture more of the 45Z benefit, and we will provide updates as these efforts materialize. As a result of an improvement in gross profit, lower SG&A expenses and recognition of 45Z tax credits, we reported net income attributable to common stockholders of $4 million or $0.05 per share for Q1 2026, an increase of $16 million compared to a net loss of $12 million or $0.16 per share for the first quarter of 2025. Adjusted EBITDA increased $9.1 million to $4.7 million compared to a negative adjusted EBITDA of $4.4 million for last year's first quarter. As a reminder, the $6.4 million increase of unrealized derivative gains is excluded from the calculation of adjusted EBITDA. Turning to our balance sheet. As of March 31, 2026, our cash balance was $20 million. During the first quarter, we generated $4 million in cash flow from operating activities. As mentioned on last quarter's call, we plan to spend about $25 million in capital expenditures during 2026 on both maintenance and optimization projects with strong projected returns. With the major projects earmarked for the next three quarters, capital expenditures for the first quarter were only $1 million. We paid $16.6 million in principal on our term debt in the first quarter as planned and ended the quarter with $38.4 million outstanding on the term loan. With a lower debt balance, interest expense decreased by $531,000. This reflects our focus on minimizing idle cash and maximizing excess borrowing capacity in order to reduce our interest expense burden. We ended the quarter with total borrowing availability of $94 million, consisting of $29 million under our operating line of credit and $65 million under our term loan facility. With that, I will now turn the call back to Bryon. Bryon McGregor: Thanks, Rob. In summary, our first quarter results show that Alto's operating model is working, improving margins through higher-value revenue opportunities while maintaining a disciplined cost structure. With multiple product streams, we have the flexibility to respond quickly as markets shift, and we're continuing to strengthen our ability to perform through commodity cycles. Looking ahead, our priorities are straightforward: improve utilization and reliability, execute our 2026 optimization and capital projects on time and on budget and keep advancing our commercial strategy, which includes expanding the value we capture from 45Z credits and optimally monetizing the value of our biogenic CO2 production across our facilities to lower our carbon footprint. With our focus on these priorities, we remain committed to further enhancing shareholder value in both the short and long term. Operator, we're ready to begin Q&A. Operator: [Operator Instructions] The first question will come from Eric Stine with Craig-Hallum. Eric Stine: So one thing that caught my attention, you talked about that at Pekin, you're looking at -- I'm not sure exactly how you termed it, but you're looking at continuing to look at large-scale CO2 utilization and sequestration. I know that there was a moratorium on sequestration in Illinois that's been in place for some time. So maybe can you just, I don't know, delve into that a little bit. What has kind of changed the thinking -- or it sounds like it's a little more optimistic on that front. Any details there would be very helpful. Bryon McGregor: Sure. So the -- there's a couple of things that proved challenging under our prior plans, which was, first, the moratorium on pipelines. And then secondly, the legislation that was approved, which precluded the injection through the aquifer for sequestration, which impacted solely Alto for that matter. But out of that opportunity or out of that -- those challenges, we found opportunities to -- along with the Big Beautiful Bill changes to rethink and pursue utilization as well as sequestration. So now they are both opportunities to be able to take advantage of 45Q in the long run. And then on top of that, with 45Z, there are opportunities now if we can monetize that value of CO2 quickly, particularly for the dry mill in Pekin. There's an opportunity to actually capture significant benefit that was otherwise not available when we were first developing that project. So -- we've been in discussions with numerous parties to be able to bring this to fruition. My guess is that it may end up looking a lot like a combination of the two, some utilization and some sequestration, but time will tell. And we're working diligently on that and aggressively on that to try and come to a clear plan and solution this year. Bob, anything else you want to add? Robert Olander: No, it was good, Bryon. Eric Stine: Yes. I mean -- okay. So it does sound like though there have been some changes. I mean I get the utilization piece. I mean it's been a big success at Columbia. And if you can replicate that to any extent, I mean, that's a great thing. But in terms of the sequestration piece, I know you're talking about that things have kind of opened up a little bit. I mean, is -- that the pipeline moratorium or your ability to sequester -- have things changed in that regard? Or you're kind of thinking outside the box in ways to access that opportunity? Bryon McGregor: I guess what I'd say is that it's -- we're no longer feeling like we have to bring the whole solution to the table ourselves, where we had to commit to a singular pipeline that was dedicated solely for our use. But that there are other opportunities that are starting to avail themselves to us and discussions around where we may not have to make the kind of capital spend that we otherwise needed to spend previously under that prior project. That being said, it's still a viable option, and we have a good relationship with Vault and there are opportunities… to continue. Think of it as more opportunities rather than less. Eric Stine: Okay. Got it. No, it's good to hear. I mean that hasn't really been on your plate for a while. It's been some time. So a good development there. Maybe could we just talk about -- I mean, the overall market environment, obviously, Q1 better than is typical. And I know that -- I know there are a lot more factors than simply just the basic crush. But by my estimation, it's as strong as it has been at this time of year in almost a decade. So just curious what kind of confidence that gives you for Q2? And is there the potential that this kind of lasts a little bit given that you've had some potentially structural changes in the market based on where gasoline prices are right now? Bryon McGregor: Yes. I mean I think it's a great point, Eric, in that margins continue to remain strong. They're actually slightly better than where they were same time last year. So that all bodes well. I think we're doing what we can to continue to monetize that value and capture that value. As we mentioned, there are going to be some scheduled outages, but that we remain optimistic around the future. That said, there are -- historically, it's usually been more the norm than the exception that when you have strong spring margins, it ends up translating into a significant increase in production and then fundamental economics kick in and in an oversupplied market, margins start to give away in the second half. But I think the thing that changes that at least to date has been exports and the optimism, albeit cautious optimism around E15. And so demand has continued to remain strong and inventories remain on the whole balance. So we'll see. I think a good thing to do is keep an eye on inventories. And then it will be interesting to see what the impact of the Middle East challenges and how they impact export logistics, commitments, people having to reroute and find other alternatives to -- for their fuel needs that may actually bode well for not only adoption of E15, but as well adoption of ethanol in the export markets. But if -- there is a bit of wait-and-see efforts going on as much as possible. So it's a bit of a -- it's funny enough, it's probably as cloudy as it ever has been in looking forward, but I think that there are a lot of positives to be thinking about and that provide, I think, a counter to what would otherwise be the norm. Eric Stine: Yes. I mean so many moving parts. I mean, such as gasoline prices are good, except for the fact that they potentially dampened gasoline demand, but then you've got jet fuel at extremely high prices. So I don't know, cautiously optimistic, I guess, is the best way to put it. Bryon McGregor: Yes. I mean I think the interesting thing is we haven't seen a whole lot of change in demand right now for fuel. So it appears that we as consumers have not changed our behavior, at least with regards to fuel, but have changed our consumption behavior elsewhere to adapt. And I think that also we're seeing a good increase in demand for renewable diesel, which has, in turn, also resulted in improvements in corn oil values. So that's generally positive. So yes, I mean, time will tell, but fingers crossed, and God willing, and creek don't rise, we should have a good year generally, I think. Operator: The next question will come from Sameer Joshi with H.C. Wainwright. Sameer Joshi: Congrats on a solid quarter. So just in terms of priorities, your debt servicing was around $10.8 million last year, $2.2 million this quarter. Is the focus on reducing the debt? Or is the focus on actually increasing this -- or rather reducing CI scores by spending on these various projects that you talked about. If you've done some analysis on what makes more sense. Bryon McGregor: Yes... Sorry about this, Sameer. Let me start by saying I don't think it's a binary question or a binary answer, and I'll let Rob go ahead and riff. Robert Olander: Yes. I was going to say the same thing one's dependent upon the other. I mean we have a repayment mechanism, which has worked out well for Alto that when we do well, then there's a cash flow sweep that pays down the debt. And so we like paying it down. We commented on the interest expense savings, but we're also managing our liquidity and our availability to go after the projects that we view provide the strongest returns. And to that effect, as mentioned before, we do have a capital expenditure budget of $25 million for 2026. So there are several projects in our sites that we're excited to go after. Sameer Joshi: Understood. Actually, that was sort of a second question on the $25 million CapEx. On Slide 6, you have a nice table. Thanks for providing that. That gives a nice snapshot of what the impact of your CS coal reduction would be on potential benefits from 45Z. If you are able to do all the -- or execute on all the projects that you have planned for 2026, will we be at $0.30, $0.40? Like do you have a idea of what you're targeting there? Bryon McGregor: I think generally, we do have an idea, but we're not prepared to share that yet because some of the efforts certainly require more than just our efforts. We'll try and control everything all that we can, but there is significant dependence on third parties, including farmers and then the relationships that we have there. But I think we remain very optimistic about our ability to capture more of that 45Z and are keenly focused on it. So... Robert Olander: Yes, I'll just add to that. Our near-term focus is to capture more 45Z benefits is to optimize our production. And that kind of speaks to the maintenance activities we did at our Columbia facility in Q1 to improve the reliability moving forward. And our expectation is that we will be able to increase our production output moving forward, particularly compared to 2025. And then later this year, we are going to debottleneck the dry mill starting in the second quarter, hoping to complete that by the end of the third quarter, where we expand our production by about 5 million gallons on an annual run rate basis. And so in that mechanism in the near term, at least for 2026 is how we're hoping to capture more of the value from the 45Z credits. And then as Bryon commented, it will take a collaboration and a little more work and effort longer term working with other parties to move us down the CI score. And like Bryon said, a good opportunity is on potentially low carbon intensity corn and signing up farmers who are employing, I guess, carbon smart practices such as reduced [till or no till], low nitrogen fertilizers or the use of cover crops. But that's going to take time to develop. And fortunately, this program is currently available through the end of 2029, and we hope it gets extended further. Sameer Joshi: Yes. No, understood. And then just a industry question sort of the benefit or impact of E15. Of course, it would create excess demand, but that would also drive some of the mothballed refineries or ethanol plants to be reactivated. And would that flood the market? What do you see from where you sit right now, any adverse impact from the benefits that emanate from E15? Bryon McGregor: I guess my general thought is first is if you can capture E15, you're already seeing anything that be or most of the projects that otherwise have been mothballed or idle are -- there's some effort to resume that production, and there are certainly lots of rumors and a lot of work that we're seeing behind the scenes, including ourselves, right? We're talking about -- debottlenecking at our dry mill to expand capacity. So I think that's already in the works for the most part, Sameer. I think that E15 will only help balance out what is otherwise a demand or a production push and incentivize production to also incentivize demand. And I think that complement that with a good export program will help provide significant balance going forward. And certainly, the number of gallons that would come from year-round E15 adoption, including California is I've seen numbers on the order of 1 billion gallons. So I don't think there's that much latent capacity currently in the market. So I think that all bodes positive and gives really consumers an opportunity to have more options at the pump, which they haven't been able to have for a very long time. Sameer Joshi: Understood. For the 2Q, of course, the LCFS scores are in the right -- moving in the right direction. The RINs are moving in the right direction. Good luck with the second quarter and second half of the year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bryon McGregor for any closing remarks. Bryon McGregor: Thanks, Nick. Thanks, everyone, for joining us again today. We look forward to speaking to you soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the BlackRock TCP Capital Corp. Q1 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. I will now hand the conference over to Alex Doll, Executive Director. Alex, please go ahead. Alex Doll: Thank you, operator. Before we begin, I will note that this conference call may contain forward-looking statements based on management's estimates and assumptions at the time such statements are made, which are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. For more information, please refer to the risk factors discussed in our most recently filed report on Form 10-Q and the Form 8-K filed with the SEC today, along with the associated press release. Any forward-looking statements made on this call are as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the first quarter ended 03/31/2026 and posted a supplemental earnings presentation on our website at tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. Now I will turn the call over to our Chairman, CEO, and Co-CIO, Philip Tseng. Philip Tseng: Thank you, Alex. Thank you to our investors and analysts for joining us today. I will start with an overview of our first-quarter 2026 performance. Then Jason Mehring, our President, will cover portfolio and investment activity, and Erik Cuellar, our CFO, will walk through our financial results. I will come back with closing remarks before we open the call for questions. We are also joined today by Dan Worrell, our Co-CIO, who will be available to answer questions. In the first quarter, we executed against our strategic priorities, which are improving credit quality, further repositioning our investment portfolio, and strengthening our balance sheet. We are deploying capital selectively into high-quality opportunities, leveraging the origination power of the PFS platform, while reducing average position sizes, increasing the portion of the portfolio in first-lien loans, and reducing leverage. While there is work to do, we are taking steps to drive value for our shareholders. One of the most important metrics for us is nonaccruals, and during this quarter, these declined to 2.8% of the portfolio at fair value and 7.6% at cost, down from 4% and 9.7%, respectively, last quarter. This improvement reflects the completion of the restructurings of ALPINE 4840 and Suited Connector, and the sale of Fishbowl. Importantly, net leverage declined to 1.29x at quarter end, down from 1.41x last quarter, bringing it closer to our target range of 0.9x to 1.2x. The reduction in leverage was driven primarily by exits, partial paydowns, and proactive balance sheet management. Full exits and partial paydowns during the quarter totaled $135.3 million and included sizable payoffs of our investments in Team Services, James Purse, kart.com, and Eddie Bauer, with average position size of more than $28 million. Further, Team Services, our largest repayment during the period, was a second-lien position. In addition to generating attractive returns, these repayments helped to reduce leverage, enhance diversification by lowering portfolio concentration, and supported our continued focus on increasing the percentage of the portfolio allocated to senior positions in the capital structure. Since quarter end, we received more than $50 million of additional paydowns, including approximately $13 million from AutoAlert, which was previously restructured and recently sold to a strategic buyer. While we still have equity in the combined company, we view this repayment as a positive outcome that meaningfully reduces our exposure while preserving potential upside. At the end of the quarter, our portfolio had a fair market value of $1.4 billion invested across 139 companies in more than 20 industry sectors, with an average position size of $10 million. 91.8% of the portfolio was invested in senior secured loans, and 8.2% was in equity investments, and 94.4% of our debt investments were floating rate. Adjusted net investment income for the quarter was $0.21 per share, compared to $0.25 last quarter, primarily reflecting a smaller portfolio as paydowns outpaced investments, lower investment income, and higher expenses. Annualized net investment income ROE was 11.8%. PIK interest income for the quarter was 8.5% of total investment income, down from 10.9% last quarter, and nearly 80% of PIK was from positions that contemplated PIK when the loans were underwritten. NAV declined 4.9% to $6.72 per share at quarter end, from $7.[inaudible] last quarter, reflecting $35 million of net portfolio markdowns during the quarter. Job and Talent, a staffing company, was the largest contributor to the markdowns at approximately $11 million, or 32% of the total markdowns during the quarter. Weaker operating performance during the quarter combined with lower industry-wide valuation multiples put pressure on the company's enterprise value. Our current exposure includes both a first-lien term loan and preferred equity. The preferred equity drove a meaningful portion of this quarter's mark-to-market movement, given its greater sensitivity to changes in enterprise value. Separately, software-related investments also accounted for approximately $11 million, or 32% of total markdowns in the period. These reductions were driven primarily by valuation multiple compression, revised growth expectations, and AI-related disruption risk in certain subsectors. The balance of the NAV decline was attributable to unrealized loss across the portfolio related to wider market spreads and lower market multiples, in addition to borrower-specific factors. These markdowns were more spread out and hence limited in size per borrower, the largest of which was $2.8 million. Now I want to provide some perspective on our software portfolio. As we mentioned on our last call, we do not view software as monolithic because some segments are fundamentally more resilient than others. We have considered the potential for AI disruption in our underwriting of potential software investments for some time now, and as a result, we have pursued businesses where we believe AI is more likely to enhance a company's offering rather than displace it. As of March 31, software represented 30.5% of the portfolio at fair value and was spread across 47 companies, with 95% in debt positions and the remaining 5% in equity. These companies had an LTV of approximately 26% at origination, providing a considerable equity cushion. While public software companies have seen valuation reprice, we have not seen a corresponding decline in the operating performance of our private portfolio companies. That said, we will continue to closely monitor our software investments. Now I will turn the call over to Jason to discuss our portfolio, as well as our recent investment activity. Jason A. Mehring: Thanks, Phil, and welcome, everyone. I will begin with some additional details on our portfolio composition. As Phil mentioned, we made continued progress in diversifying our portfolio and reducing the average position size of our investments. At the end of the first quarter, our five largest investments accounted for 24.9% of our portfolio. Investment income was broadly distributed, with more than 70% of our portfolio companies each contributing less than 1% of the total. New investments this quarter had an effective yield of approximately 8.3% versus 11.2% on those we exited, reflecting lower base rates and the impact of spread compression relative to when the repaid deals were booked. As a result, our average portfolio yield declined from 11.1% last quarter to 10.9% at March 31. During the first quarter, we invested approximately $22.5 million across six new and two existing portfolio companies. Each of the new investments leveraged sourcing and underwriting capabilities across the broader BlackRock PFS platform. Originations were intentionally modest this quarter, as we prioritized paydowns and exits to strengthen our balance sheet and reduce leverage while being highly selective on new commitments. All new investments were in senior secured loans and reflect our continued focus on building a diverse portfolio that mitigates industry and individual concentration risk, while also being mindful of our goal to reduce leverage. Turning to capital allocation, on 05/07/2026, our Board of Directors declared a second-quarter dividend of $0.17 per share, payable on June 30 to stockholders of record on June 16. We repurchased 0.505 million shares of BlackRock TCP Capital Corp. stock during the quarter at a weighted average share price of $4.51 and an additional 0.156 million shares subsequent to quarter end at a weighted average share price of $3.78. On 04/29/2026, our Board of Directors reapproved our stock repurchase plan to acquire up to $50 million in the aggregate of our common stock. Now I will turn the call over to Erik to discuss our financial results and capital and liquidity positioning. Erik L. Cuellar: Thank you, Jason. I will begin with a review of our financial results for 2026. As detailed in our earnings press release, adjusted net investment income excludes the amortization of the accounting discount resulting from our merger with BCIC and is calculated in accordance with GAAP. A full reconciliation of adjusted net investment income to GAAP net investment income, as well as other non-GAAP financial metrics, is included in our earnings press release and 10-Q. Total investment income for the first quarter was $42.6 million, or $0.51 per share. This included recurring cash interest of $0.39, nonrecurring income of $0.03, recurring discount and fee amortization of $0.03, PIK income of $0.04, and dividend income of $0.02 per share. Operating expenses for the first quarter were $0.29 per share, including $0.19 per share of interest and other debt expenses. Net investment income was $0.22 per share, and adjusted net investment income was $0.21 per share. As of 03/31/2026, our cumulative total return did not exceed the total return hurdle, and therefore, no incentive compensation was accrued for the first quarter. Net realized losses for the quarter were $32.7 million, or $0.39 per share, driven primarily by our sale of Fishbowl and restructuring of ALPINE 4840, which together accounted for approximately $30 million. Net unrealized losses were $2 million, or $0.02 per share. This included $30.1 million in reversals of previously unrealized losses on Fishbowl and ALPINE 4840, which moved from unrealized to realized losses, as well as $32.1 million in net unrealized losses during the quarter, primarily due to the markdown on Job and Talent, along with smaller markdowns on positions in other legacy investments. The net decrease in net assets for the quarter was $16.3 million, or $0.19 per share. Now I will discuss our balance sheet and liquidity, which remains solid, reflecting our progress in reducing leverage during the quarter. During the first quarter, we repaid all $325 million of our 2026 notes. As a result, we have no material debt maturities due in the near term. Total liquidity at the end of the first quarter was $358.6 million, including $164.1 million in available borrowings under our revolvers and $93.3 million in cash. The combined weighted average interest rate on debt outstanding was 5.77% as of 03/31/2026. Unfunded loan commitments represented 8.7% of our $1.4 billion investment portfolio, or $121 million, including $53.3 million in revolver commitments. Net regulatory leverage was 1.29x at quarter end, down from 1.41x in 2025, resulting in a total debt-to-equity leverage ratio of 1.65x. Subsequent to quarter end, our net regulatory leverage ratio improved to 1.23x as a result of paydowns. We expect to reduce leverage further over time as we exit additional investments as part of our portfolio repositioning. We are well positioned to fund new investments with a diverse leverage program, which includes three low-cost credit facilities, an unsecured note issuance, and an SBA program. Now I will turn the call back to Phil for his closing remarks. Philip Tseng: Thanks, Erik. Over the past year, and again in the first quarter, we continued to reposition our portfolio by reducing nonaccruals and deploying capital into new investments that align with our investment strategy. This repositioning is driving greater diversification, with an emphasis on senior secured first-lien loans with more granular position sizes and reduced concentration across individual credits and sectors. We have also strengthened our balance sheet and reduced leverage, which improves our flexibility as we look ahead. While we have made meaningful progress, we recognize there is more work to do, and we remain focused on disciplined execution. As part of BlackRock's PFS platform, BlackRock TCP Capital Corp. benefits from expanded sourcing and origination, broader investment expertise and resources, and the ability to participate in larger transactions that many others do not see or do not have the capabilities to pursue. We believe this positions BlackRock TCP Capital Corp. for long-term success as the credit market continues to evolve. We appreciate your continued support. We will now open the call for questions. I will turn the call back to the operator. Operator: Thank you. We will now open the call for questions. We will now begin the question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, please press 1 again. We ask that you pick up your handset when asking a question to allow optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Robert James Dodd from Raymond James. Your line is now open. Robert James Dodd: Without going through line by line of various portfolio items, I just want to ask you a more general, conceptual question on one of my questions. The pace at which restructuring is occurring, you know, the work going on dealing with troubled assets, etc. Obviously, you are doing it as fast as you can, but how would you rank that in terms of how quick or hard or easy you thought it was going to be, say, six months ago, in terms of dealing with these assets? Philip Tseng: Hey, Robert. Thank you for the question. I would say that we always expect restructuring and workouts to not take a linear pattern. As you know, each deal has its own idiosyncratic issues, whether that is company, product, competitive landscape, liquidity management, and so on. Sometimes they are great businesses with weaker balance sheets; their restructurings really benefit the company. So I would say that we did not really go in with any specific expectation. However, we are doing everything we can to actively manage through these restructurings, monetizations, and paydowns. As you saw in the results, we have made meaningful progress in the quarter, having exited ALPINE 4840 and Suited Connector with respect to restructuring processes, and then also exiting Fishbowl and AutoAlert in terms of sales of those assets—not exiting the entire position because we did roll some of the equity—but we are doing what we can in terms of managing those processes. Robert James Dodd: Fair enough. Appreciate that. Another one—this is a question about a specific position. Job and Talent was marked down this quarter; you said the round numbers are a third of the total markdowns. That is not actually my question. That business is positioned as an AI-enabled job and talent search business, so maybe AI enabling is not the fix-all in one context. On the other hand, what were the drivers, if you can give any information? You said there was some softness in the business and obviously pressure on enterprise values. It is an AI-enabled business, so any context you can give us on the interaction between how that business is valued while being AI-enabled versus how AI is or is not helping or impacting that business? I am just trying to get a feel, because you do have a lot of other software businesses where the fear is AI, but then you have a business that is AI and it did not seem to help. Jason A. Mehring: Hey, Robert. It is Jason. What I would say is, first and foremost, Job and Talent is a staffing and recruitment business. Those businesses typically have a tech-enabled element to them and have an ability to leverage AI and other emerging technologies and approaches to benefit their business. In this quarter, the cause of the drop in enterprise value is really more due to market valuation multiples, as opposed to something tied specifically to the business being challenged because of AI or otherwise. I would say the relative performance of the business was more of a modest contributor, as opposed to broader tech multiples. Robert James Dodd: Got it. Thank you. And then on software, you said you had a 26% LTV at origination in your software book. Maybe you do not want to put an exact number on it, but I presume that 26 has moved fairly significantly if we put in valuations today. Can you use any relative scale? Has that 26 doubled, or—just kind of ballpark—how much have values moved on the assets that you have in the book? Philip Tseng: The purpose of including that metric was to indicate how much cushion we underwrote to in those deals, being cognizant of software and AI as a risk. You are right, the market multiples have come down meaningfully, and so the cushion has come down as well. We do not have a number to disclose in terms of exactly how much, and it depends on the credit itself and what end market and what software functionality they are offering. I would say that the cushion certainly has decreased, but we feel like at 26% LTV, we are still in reasonably good shape. Operator: Thank you for your questions. There are no further questions at this time. I will now turn the call back to Philip Tseng, Chairman, CEO, and Co-CIO, for closing remarks. Philip Tseng: Thank you, operator, and thank you all for joining our call today. I would also like to thank our team for their continued hard work and dedication to BlackRock TCP Capital Corp. As always, please reach out with any questions. Erik L. Cuellar: Thank you all. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Valvoline's Second Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I will now hand the conference over to Elizabeth Clevinger, Investor Relations at Valvoline. Please go ahead. Elizabeth Clevinger: Thank you. Good morning, and welcome to Valvoline's Second Quarter Fiscal 2026 Conference Call and Webcast. This morning, raveling released results for the second quarter ended March 31, 2026. This presentation should be viewed in conjunction with that earnings release. A copy of which is available on our Investor Relations website at investors.valvoline.com. Please note that these results are preliminary until we file our Form 10-Q with the Securities and Exchange Commission. On this morning's call is Lori Flees, our President and CEO; and Kevin Willis, our CFO. As shown in the accompanying presentation, any of our remarks today that are not statements of historical facts are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline assumes no obligation to update any forward-looking statements unless required by law. In this presentation and in our remarks, we will be discussing our results on an adjusted non-GAAP basis, unless otherwise noted. A reconciliation of our GAAP to adjusted non-GAAP results and a discussion of management's use of non-GAAP and key business measures is included in the presentation appendix. With that, I'll turn it over to Lori. Lori Flees: Thanks, Elizabeth, and thank you all for joining us this morning. We delivered strong second quarter results that reflect consistent execution across our business. Our results included robust top line growth EBITDA margin expansion and improved cash flow generation. On the top line, performance was strong across the system. Systemwide store sales increased nearly 20% and net sales grew 25%. System-wide same-store sales outperformed our expectations and grew 8.2% and 14% on a 2-year stack. Ticket drove about 2/3 of the comp with net price, premiumization and NOCR service penetration all contributing. Transactions also grew across the network. Moving to profit. We improved SG&A leverage in the quarter, resulting in our EBITDA growing faster than sales. Kevin will cover those details. We remain confident in our proven business model, resilient customer demand and execution track record. Preventive maintenance is a nondiscretionary purchase and Valvoline makes it quick easy and trusted for every guest. We have not seen any signs of trade down or deferrals, and we expect to see this continued resilience. Despite the increases in crude oil prices, we did not see a material increase on product costs during the second quarter. As we enter the third quarter, however, we have started to see costs increase, and we anticipate this will continue depending on the length of the Middle East conflict. We're working closely with our suppliers to ensure we mitigate any supply constraints and both company and some franchisees have taken pricing actions, which we expect will mitigate the cost increases on a dollar basis. We continue to make steady progress integrating Breeze Auto Care into our platform. The financial contributions from Breeze were better than expected for the quarter. Driven largely by improved execution related to store level expenses and early delivery of G&A synergies specific to payroll and procurement. We continue to approach integration deliberately. Prioritizing operational stability and capturing learnings to support long-term value creation. Turning to network growth. We added 31 new stores for the quarter with 20 coming from franchise and 11 on the company side. We did have 2 closures and 4 transfers from franchise to company in the quarter. We finished the quarter with a total store count of 2,409. The timing of the new store additions continues to weigh towards the back half of the year, especially on the franchise side. Overall, our development pipeline for both company and franchise remains healthy, and we expect to deliver new store growth within our full year guidance. Q2 was another strong quarter for Valvoline. We're executing our playbook to deliver meaningful growth at both the top and the bottom line. Our business model continues to demonstrate resiliency and scalability. We're pleased with the momentum of the business, and we're updating our guidance for the full year to reflect that. Before I wrap up, I want to take a moment to recognize a couple of achievements that reflect the values of our company and the strength of our team and our franchise partners. We are very proud to have been named one of America's most trustworthy companies by Newsweek. We strive to provide a quick, easy and trusted service to our guests, and this recognition speaks directly to the trust our customers place in us every day. I'm also pleased to share that 97% of all Valvoline Instant Oil Change locations were named a CARFAX top-rated service center for 2025. Across our network, our service center teams deliver a V-class service every day with care, consistency and pride. It's rewarding to see that dedication being recognized by the customers we serve. With that, I'll turn the call over to Kevin to provide more details on our financial performance and updated guidance. John Willis: Thanks, Lori, and good morning, everyone. A summary of our financial results is included on Slides 5 and 6. Let's take a look at the highlights. We delivered strong top line growth with net sales of $504 million, a 25% increase over the prior year with a balanced contribution from the core business and the inclusion of Breeze Auto Care for the full quarter. The gross margin rate of 37.1% and decreased 20 basis points year-over-year with leverage and product costs, offset by an increase in other service delivery costs, including the impact of new store depreciation. Excluding the impact of depreciation, the gross margin rate would have improved by 40 basis points. Also, as Lori indicated, Breeze performed better than expected in the quarter. SG&A as a percent of sales decreased 70 basis points year-over-year to 18% with the substantial planned investments largely behind us, we will continue to focus on cost efficiencies and operating leverage while still supporting the business. As a result, EBITDA increased 28% and to $134 million with margin expanding 60 basis points to 26.5%. And EPS increased 21% to $0.41 per share which includes $0.06 per share of impact from interest expense. Year-to-date, operating cash flows improved to $160 million and free cash flow was $45 million, an increase of approximately $57 million over last year. We're making good progress on leverage reduction. Net debt to adjusted EBITDA was down 20 basis points sequentially to 3.1x. We remain focused on getting to our target leverage as quickly as possible so we can resume our share repurchase program. We had a strong quarter and are delivering on our commitments for sales and profit growth, EBITDA margin expansion and improved free cash flow. Now let's look at our expectations for the remainder of the year. We enter the back half of the year with strong momentum. On Slide 7, you'll see our updated guidance, which includes raising same-store sales, EBITDA and EPS outlook for the full year. To provide more color on the outlook, we are seeing increased costs in the third quarter, and we expect that to continue. The severity and duration of those will be impacted by the length of the Middle East conflict. As Lori mentioned, both company and some franchisees have taken pricing actions already, which should mitigate the impact. I'll also remind you that product cost changes in either direction are passed through to the franchisees based on moves in the base oil index. Also, the Breeze Auto Care contribution was stronger than we expected. While integration remains in its early stages, we're encouraged by the initial performance. The updated outlook reflects the momentum and execution we've seen in the first half of the year, which has continued into April and confidence in our ability to deliver on our financial commitments. I'll now turn it back over to Lori to wrap up. Lori Flees: Thanks, Kevin. We delivered another strong quarter. I have to thank our team members and our franchise partners for the work that they're doing to deliver these results. Our performance for the first half of the year gives us confidence in our strategy and our team's ability to execute. Therefore, while we're mindful of an ever-changing macro environment, we're updating our full year guidance. The fundamentals of our business model are strong, and we have confidence in the resiliency of customer demand. As a result, we expect to continue to deliver strong profitable growth. I'll turn it back over to Elizabeth now to begin the Q&A. Operator: [Operator Instructions] Your first question is from David Bellinger with Mizuho. David Bellinger: Very nice results here. Maybe we could start on the top line, same-store sales super strong, above 8%. Can you tell us where the outperformance came in the quarter, whether a company or franchise or geographical? And then as you went through the quarter, did you see any pockets of the country or any indications of demand softening, maybe where spending on gas makes up a higher proportion of discretionary spend. I mean have you seen anything like that as you move through the quarter and so far into early May? Lori Flees: Thanks, David. Yes, we had really strong same-store sales growth at 8.2%. And as I mentioned, it did exceed our expectations. About 2/3 of that came from ticket with actually all things contributing healthy amounts on the ticket side, net pricing was good, premiumization and then OCR penetration all positive. There were some pricing moves that happened in the quarter for our franchisees and that was not expected, some of that tied to the forward-looking cost increases on lubricants. So some of that would have been higher than what we would have expected. And then on the transaction side, which made up the remainder really good growth across the network. So when we look across all the metrics, all geographies there's always puts and takes, but some of that is given where lapping is happening. So for example, California, transaction growth was really strong because we were lapping some California wildfires. Some of the other systems had more new stores contributing to the transaction growth. Some of those things we know, just the outperformance sort of happened across the board, with really the only notable thing being some of the pricing changes on the franchisee, which were modest overall. So really good on that. In terms of demand, we continue to look for trade down and deferrals, and we do not see it the customer demand for preventive maintenance is very resilient. So we're not seeing that happen. If you look at history, going back to COVID, gas prices can have an impact on miles driven, but it takes a long time to change consumers' day-to-day behavior. And so we don't see any impacts of that, and we don't expect them. Now if the Middle East conflict were incredibly protracted, then we may see a little bit. But even in COVID, where miles driven was down considerably there's a habitual nature of preventative maintenance, particularly around key driving patterns. So we're not expecting to have any significant impact. David Bellinger: Very thorough. And then just a follow-up on the oil pricing and the impact on your cost of goods. Is there a way to quantify the expected impact you're looking for in Q3 and Q4? And understanding there's a bit of a lag until your price increases catch up to that. How should we think about the offsets and particularly gross margin rate? Is that something you could hold as you move pricing throughout the system and onto the consumer at some point? John Willis: Sure. I'll address that. So first, as Lori indicated, we didn't see any cost pressure in Q2. As we've moved into Q3, base oil indexes have moved and we're starting to the impact of that in product cost. As a reminder, we tend to have about a month or so worth of inventory on hand. So we'll take a little bit of time for that to flow through on a complete basis, but we do expect it to flow through. And we also expect some of the cost increases to continue. To mitigate that, we have implemented price increases to cover those cost increases on a dollar basis. Most of our franchise partners have done the same or in the process of doing the same. So we feel like we will fully cover any cost impacts. In terms of overall margin recovery, we would expect that the margin rate to be modestly impacted based upon the cost that's rolling through. But to put it in perspective, for us, first of all, we passed through on pretty much a dollar-for-dollar basis, increased cost to our franchise partners for the product that we sell them. So that's more than half of the volume that we would purchase in a year. Second part is you look at lubricant or overall product as a percent of COGS, it's 20%, 25% and the lubricant is by far the largest piece of that. Rule of thumb for us is if base oil goes up $1 a gallon, we need to raise price $0.50 to $0.60 per oil change to cover that. So it's not a huge impact given that we and the franchise partners are north of $100 per ticket today. And so again, it's not a huge impact, but it is something that we have to be proactive about and we are being proactive with it to make sure that we do maintain dollar profit. The last piece of that will be waste oil we do get paid for waste oil. Typically, we see waste oil move more or less in line with crude. There can be a lag. We didn't see any movement in waste oil we have seen very modest movement in waste oil that we sell so far in Q3, but that is a partial offset to any kind of cost increase that we see around base oil. Operator: Your next question is from Simeon Gutman with Morgan Stanley. Simeon Gutman: I wanted to ask about Breeze for a second. Can you talk about milestones, integration, anything good or anything less than good. Lori Flees: Thanks, Simeon. Yes, our integration efforts are progressing well. We're pleased with the performance of Breeze as both Kevin and I talked about in our prepared remarks, we delivered some of the SG&A synergies earlier than planned. So as we brought and integrated our corporate support teams, we were expecting to have a good fit between the teams, and we had some open roles, which we were able to not fill with outside hires and instead use the Breeze talent. So those were some of the things that we had hoped but hadn't exactly planned for. And then the team has worked really hard across all the procurement contracts to look for opportunities. Those are things that when we did the planning, we did not have the detail and the team has worked really quickly to deliver some procurement savings earlier than what we would have expected. So all of those are really great. Our focus -- we're still only 4, 5 months into this process, which we know will be a multiyear integration effort. And our focus really is on operational stability of the stores, making sure that we retain the talent in the stores, particularly as the FTC required some divestitures in and around the stores we maintained. So that's been a big focus of our team, making sure that we get out and talk about our plans for the business and for the people in that business, so they get excited about staying on with Valvoline. And then we've completely integrated and aligned all the support teams and the management team members making sure that our financial reporting line cadence that we have eyes on and more detailed understanding of their business. So I think it's -- the integration effort is going very well, and the business is performing very well. The Breeze team did a nice job managing store operating expenses in this quarter and delivered well against their plan. Simeon Gutman: And a follow-up on the demand and maybe the macro. It looks like your spread versus at least one of the public peers that we can track, widen. Can you talk about market share in the quarter? And then if demand slows because of price of oil, that's just deferral, right? I mean that's a business that just has to come back unless miles driven takes a step down. But I would assume you're looking at this backdrop is more temporal than structural. Lori Flees: Yes. When you look at market share, Simeon, to your first question, we definitely grew share across our business. Even when you take the impact of Breeze out of the numbers, which obviously was a share capture we still had really strong growth across our system, not just in same-store sales, but also the new store contribution. So 25% growth overall with a healthy mix coming from the business that we had, not including Breeze just shows you the power of our proposition and our real estate placement and execution. So feel really good about that. In terms of deferral, you're exactly right. Miles driven and more timing interval as I always like to remind people, when you're going to take a long car drive, people want peace of mind. And given the complexity of the vehicles today, they want somebody with eyes on, hands on their vehicle just to do safety checks. And in our proposition of quick easy trusted it's also thorough. We do a comprehensive safety check. And oftentimes, people will go ahead and get their oil changed at the same time even if they're not exactly due because they're timing it with a road trip with their family or a significant drive for other reasons. So when we look at drive interval, there's very little deferral on drive interval and our miles driven is fairly consistent across the network. Again, it takes a protracted duration of high gas prices to start to impact miles driven. People can't change their daily habits and routines that quickly or it's done very much on the margin. You also have trade down activities of people choosing not to fly instead to drive that all bodes well for our business. Operator: Your next question is from Mark Jordan with Goldman Sachs. Mark Jordan: Congrats on great quarter. Just wondering if you can talk a little bit about same-store sales trends, how they progressed throughout the quarter. And maybe what kind of momentum we're seeing thus far during 3Q? Because I think if we take the updated guidance and couple that with the fact that 2/3 of the comp in the 2Q were driven by ticket kind of implies things slow down a little bit in 3Q. So just any commentary you can provide there? Lori Flees: Sure. I'll cover Q2 and then I'll ask Kevin talk about how Q3 has started. The comps overall, there were some puts and takes by month in the quarter. We talked about January in our last earnings call, we ended that month fairly light because there was weather in the last week that pushed demand into February. We talked about the fact that we expected to get that volume back. I think we did February was very strong given the January push, but it was also strong because last year in February is when we had weather, which pushed volume to March. So we had kind of a double whammy really driving volume in February. And our teams across franchise and company did a great job responding and ensuring that we have labor in the stores to deliver on that demand. And then March, we saw good growth, but it was more modest, given the comp from last year's Feb push to March, we expected a lower comp on the transaction side for March, and we saw that, but still really good growth across the quarter when you take out some of those puts and takes. John Willis: And Mark, looking at Q3, we're still early, but we do have a full month end plus a week in May. And we're seeing no change in behavior. We're seeing no change in how the business is performing. April was a good month to start the quarter. Net sales and same-store sales growth were both solid. Consumer behavior remains very consistent with what we've been seeing. NOCR is performing pretty much as it has been as well. So we're not seeing any trade down or deferral on really anything in our customer base. As we think about the full year we're really pleased with how the first half landed. Company and franchise performed really well. Breeze is performing ahead of expectations as well. So we've got good momentum going into the remainder of the year. We did raise the guide as indicated, same-store sales growth profit metrics. That reflects the strong first half we had. But just to be transparent, we're still being a bit measured as we consider the uncertainties that exist in the back half. with the Middle East conflict and nobody knows what the duration of that is going to be or the overall impact. And so we do continue to be measured. That said, we remain incredibly focused on delivering on the financial commitments that we discussed at the December investor update. And thus far, I think we're doing a good job of that. As we think about the rest of the year, we do typically see operating leverage across our store base in the second half of the year. We'd expect to see that this year as well. More specifically, we should see some labor leverage for the full year, but that's going to be a bit muted for two reasons. Number one, we had some big wins last year, and that's hard to comp. Also Breeze is a negative impact to margin, albeit less than we expected so far, and we expect that to continue. So that's really a lot of what we're thinking about when we think about the overall guide and the second half of the year. Mark Jordan: Okay. Perfect. And then just last one, if I could. The competitive landscape, it's changed a little bit here, I think, in recent months with one of your larger competitors announcing the sale. I guess with that, do you expect any changes to the competitive environment either intensity or maybe impacts to your white space projections? Lori Flees: Yes. No, I think our industry is still incredibly fragmented, and we haven't seen nor do we expect at least in the near term to see any material changes in the competitive environment? Obviously, with -- there's a lot of distraction in our category. But I do think that we compete against the players that exist today. And we performed very well. So when you look at our stores proximate to the next largest players, we've been competing against these brands for a long time. We continue to add stores in markets where we compete against these brands. We deliver -- we're delivering very good returns still maintaining mid-teens or higher returns on invested capital in the stores that we build and our franchisees are still building. So it's unclear how new ownership and some of the turmoil is going to impact or change, but we're confident in the strength of our business model. Our customer proposition, our marketing execution and just our overall store execution across the network. Operator: Your next question is from Chris O'Cull with Stifel. Christopher O'Cull: Congrats on the great report. Lori, could you elaborate a bit more on the risk of lubricant shortages? Lori Flees: Yes, I'll do a little bit at a high level and Kevin, you can add on to it. the lubricants that we use in our business are blended from a number of different base oils. Our supplier who develops that is always looking on its formulation to meet the OEM specs. And so this is something that they're always looking at in terms of managing supply and demand across the base of products that they produce. When you look at the Middle East conflict, it's really base oil trees. That tend to be -- are potentially being impacted, and we're working very proactively as our supplier is to make sure that we mitigate any risk. But that -- that is something that will depend on how long the conflict continues. But at least as it relates to the guidance that we've updated, we believe we've been very measured to outline more of the bottom end would have that taken into account to the extent we see any risk. John Willis: Yes. I think Lori said it really well, but we've got very adequate supply today and for the foreseeable future. And it really will be about the duration of the conflict. But again, in very close contact with our supplier on this, and they get it and are doing everything they can to ensure that we remain and continue to remain supplied. Christopher O'Cull: Okay. And then Kevin, I had a question on the guidance. The comp range was raised meaningfully, but the full year revenue range wasn't changed. I was hoping maybe you could just elaborate on what else changed in the underlying assumptions. And then I wanted to clarify, the EBITDA range was also increased on the same revenue range. Is that because Breeze margin is better than initially expected? John Willis: So, Breeze is performing better than initially expected, and we would expect that to continue based on how they're executing. So that does certainly play some part in it. As we look at the overall revenue range, I would say at this point, we were comfortable with the range, which is why we didn't change it. I would say that we are trending above the midpoint. I think another point worth making here is depending on how much price movement we need to do there could be a need to change that range down the road. But we're comfortable with where it is right now and feel like there's room in there based on our current forecast of the business. Operator: Your next question is from Steve Shemesh with RBC Capital Markets. Steven Shemesh: Nice results. Just a follow-up on cost inflation and pricing and kind of where that pricing has gone into the market company operated versus franchise. And then just thinking about have you priced to where you think inflation is going to go or based on what you've seen in the market today? And could we see additional pricing throughout the year? Lori Flees: Yes, great question. So as we mentioned, we started to see our cost forecast for lubricants go up for the third quarter. And therefore, on a company basis, we did take some pricing actions within this third quarter to mitigate. We are trying to stay measured with that to make sure that we cover the cost increases, but we're also putting those into the market in an appropriate way, much like we do our pricing all the time. So we've been running in test and some of this pricing, we feel very comfortable and confident in the customer elasticity benefit or a net benefit that we would receive. So we feel very good about the company side. Our franchisees, not all of them, have taken pricing actions. Some took some pricing action already in the second quarter. Some are still reviewing. Some have decided or are in the middle of deciding what they will do in the month of May. So we're really in a transition phase as we're looking at cost increase wanting to make sure that we are appropriately pricing to pass that through to the consumer where we can't mitigate it otherwise. Steven Shemesh: Understood. And then just a follow-up. I mean, presumably, as price goes into the market, your list price contribution to same-store sales should increase as well. So I guess just as we think about the contribution of traffic versus ticket for the back half of the year, should it be a little bit more weighted towards ticket? Or do you expect it to be balanced with what we saw in the first half? John Willis: Yes. It most likely will be a bit more weighted towards ticket. I think the other piece of the equation, though, is especially in the non-Breeze part of the business. We do tend to have a pretty high transaction level in the second half of the year compared to the first half of the year just due to the seasonality of the business. So we would expect the transactions will also remain a meaningful contributor in the back half of the year. But I think the way the math will work is we will see incremental improvement to the comp more on the ticket side. Operator: Your next question is from Scott Stember with Roth Capital. Scott Stember: Well, and congrats on the very strong results. I'm not sure if you mentioned this in the call already, but could you talk about whether there is any meaningful difference in same-store performance versus franchisees versus company-owned stores? Lori Flees: Yes, I did mention this, but I'll go ahead and cover it again. Overall, same-store sales across the network of 8.2% was really strong. The franchise stores did outperform company relative to the average. That was higher driven primarily by transaction growth. There were puts and takes on the ticket, but ticket was largely the same. So the majority was coming from transaction growth. And there are a number of different factors I mentioned. One is new store contribution. We had a couple of our franchise system, fairly larger ones that had more new builds and they're coming into their cost than they would have had a year ago. Another system is lapping weather with the wildfires in California. And so there are different puts and takes that drive some of that transaction growth that we know and can point to. But overall, when you step back and you look at company store performance and franchise store performance, averaging out to 8.2%, it's meaningful, and the comp was strong on both. So we're really pleased with where Q2 landed. Scott Stember: Got it. And could you talk about how fleet did in the quarter? Any meaningful improvements over what we've been seeing over the last few quarters? John Willis: Fleet continues to perform very consistently across the board, and we would expect that to continue. Just as a reminder, fleet continues to make up less than 10% of our system-wide sales, but growing at a very rapid rate. We have a lot of room to run in the fleet business, both on the company and the franchise side. We have resources devoted to those customers to not only serve them, but also to continue to build that business. Again, both for us and our franchise partners. And we're very bullish on not only where that is, but where we expect it to go. Lori Flees: Yes. When we look at fleet growth -- when we look at fleet growth, just to chime in there a little bit, there was a little bit slightly higher fleet contribution on the franchise side, the same store sales and company, it was small but meaningful on its base. I think the other thing that's happened that we're really pleased about is our last large franchise system has just decided to move their fleet business to be managed in our managed sales group, which we do on behalf of all of the other large franchisees, but this was the last one, which will allow us to really go after meaningful business across the nation when you look at key regions. So we're really excited about the opportunity to grow fleet. There will likely be meaningful fleet growth. On the franchise side, just because we've started to focus on that on behalf of our franchisees more recently. Operator: Your next question is from Peter Keith with Piper Sandler. Peter Keith: Good morning, everyone. Great results. With the guidance range I'm curious if you've touched the back half of the year, the guidance seems to imply a bit of a step down in the comp trend despite the continued momentum, certainly can understand being conservative, but maybe just help us understand the guidance raise is it mostly flowing through what's happened in the first half? And has there been any changes to the second half? John Willis: Again, we are being measured in the second half in terms of the overall guide. You're right, the second half guide remains largely unchanged. We started off strong in Q3. We feel very, very good about where we are, the momentum of the business and how it's performing. But again, we did want to be measured based on the things that we don't know and that we can't control. And as we get through Q3, we'll take a fresh look at it again. And if we need to adjust, we will. But you are correct. The second half is largely unchanged from where we started. Peter Keith: Okay. That's very helpful. And then for Lori, I'm always curious around the efficiencies you're getting from moving your tech architecture to the cloud. And you've talked in the past around improved marketing analytics. Is there anything you could update us on that front where you've made some recent progress. Lori Flees: Yes. We continue to look at our net pricing and the efficiency of our discounting activity. And I would say that we've made a lot of progress in that as we continue to grow ticket, we're managing the discount levels very effectively. We've been able to pilot some different offers in a very targeted way to figure out if there are things we want to do more broadly. Probably nothing too early to share the impact. Some of the things that we have are in our plan. Some of them would be upsides to the plan, which obviously, we're always working to deliver. We're very early in the shift of some of our budget from local media spend and national media spend, that's driving our cost per impression down or increasing the number of impressions for the spend that we're using. And we're seeing increased organic traffic to our brand assets, which obviously lowers our customer acquisition cost. So overall, probably too early to share some of the metrics, but we're seeing some very promising results of the investments that we've made both to move our marketing data and assets into the cloud, but also in the early stages, very early stages of the shift to more of the national media spend. Operator: Your next question is from Steven Zaccone with Citi. Steven Zaccone: Congrats on the strong results. Most of my questions are answered, so I wanted to follow up on a couple of model things. First on -- let's talk about gross margin for the second half of the year. So you talked about 2Q being up 40 bps ex the depreciation. How should we think about the second half because you still have Breeze being dilutive? And then it sounds like labor efficiencies will kind of be a bad guide. So just can you talk about second half gross margin expectations? John Willis: Yes, Steve, we would expect gross margin in the second half to improve as it normally does, given that we do tend to have higher volume in the second half with the summer drive season and just general seasonality in the business on an overall basis for, call it, the non-Breeze part of the business and we fully expect that to continue. On the labor piece of the equation, we were really, really strong on labor leverage in the second half last year. And so we don't expect a lot of improvement on the labor side, but we would expect some nominal improvement there, partially offset by Breeze. Because just as a reminder, they do have lower volume stores. And so their labor as a percent of sales does run higher than ours. It's one of the advantages that we'll gain as we build momentum in that system. But on an overall basis, we'd expect to get a bit of leverage from most store expenses, again, just through the throughput that we'll see in the second half. And while you didn't ask the question, I will also say we would expect to see continued SG&A leverage in the second half, again, as that is a stronger part of the year for us. Steven Zaccone: Okay. When you say improved, do you mean sequentially gross margin rate, not necessarily year-on-year? John Willis: That's right. And part of that is due to the fact -- just to clarify, remember, we do have Breeze included in the equation, and that is a bit of a margin headwind much less in Q2 than we expected, and we would expect it to be less for the full year than where we thought it was going to be, but it will be directionally a small headwind to margin in the second half as well. Lori Flees: And part of that is because when you look at the volume in our stores, and the way that it ramps during drive season for much of the country, it's less so in states like California, though there is some. And when you look at their volume per store, just the amount of leverage that we'll get because it will take time to drive that demand curve on the Breeze sites. Steven Zaccone: Okay. Understood. And then the other follow-up I had is I may have this wrong, but the original thinking for Breeze dilution was about 100 basis points to EBITDA, that one was that right? And two, what should we be thinking about as the dilution from Breeze on an EBITDA basis? John Willis: Yes, that was right. We expected about 100 basis points of overall EBITDA margin dilution. We didn't really talk about the gross profit piece of that. But it was much less in Q2 than 100 basis points. That said, we did have synergy capture that was earlier than expected. So on an overall basis, it will be less than 100 basis points for the full year. Not really prepared to disclose exactly what we think it's going to be, but it will be less than 100 basis points. Operator: Your next question is from David Lantz with Wells Fargo. David Lantz: On your expectations for second half SG&A leverage, Curious if you can parse out how we should think through some of the moving pieces within advertising, payroll and G&A? John Willis: Sure. Advertising as a percent of sales will be fairly consistent sales will be higher, advertising will be higher in the second half as it normally is. But on a percent of sales basis, it doesn't change very much typically. May move around a little bit on a month-to-month basis, but for a quarter or the full year, it's pretty consistent. As far as the rest of SG&A, goes. As we think about the full year, we'll talk about Q2 first. We had about 60, 70 basis points of leverage. And I think most of the big tech investments are behind us. We've lapped that, and we're seeing that come to fruition. But one of the things we're really pleased with is that the improvement is really coming across a broad range of categories. which is how it should happen. So we're not seeing outsized impact from any one area like labor or what have you, kind of all the big areas are improving a bit. And we would expect that to continue. There's -- there will be a natural amount of that again in the second half because it's busier for us. We'll see more sales and the labor and other costs to support those sales really won't change very much. And so we should naturally see leverage higher leverage in the back half. That said, we are also very focused on making the business more efficient every day. we're looking at ways to do more with less to employ technology in new and better ways and to generate as many ideas as possible to continue to create and build SG&A leverage going forward. David Lantz: Got it. That's helpful. And then could you also talk about the cadence of new unit openings in the second half and provide an update around new unit economics as well? Lori Flees: Sure. I'll talk about the new unit profile of openings and Kevin can talk about capital. Obviously, we added 31 stores to our network, 29 netting out the 2 closures. The new units continue to wait to the back half. It's typical given the geographies that we serve and the weather patterns of when construction and conversion can happen. We actually had 14 openings in April, 9 of which were franchise. So again, we continue to feel really good about the health of our pipeline, both on the company and the franchise side. That includes both ground-up builds and independent Quick Lube acquisitions. So overall, you can expect to see a weighting of unit openings in the back half, particularly on the franchise side. John Willis: As we think about unit economics, we and our franchise partners have been very focused on reducing the amount of capital that it takes to build a ground-up store as well as the capital required to convert an acquired store to Valvoline Instant Oil Change. And the team has been pretty successful with that, bringing that cost down, call it, 10%, 15% with line of sight to do another 10% to 15% over the course of time. It will take some time for that build cost to roll through as -- especially with ground ups because there is a certain amount of time it takes to open one of those from start to finish. That said, as we look at unit economics, it really hasn't changed. From an IRR perspective, we see mid- to high teens. That's why we continue to invest in the units. It's why our franchise partners have increased their investment in the units and made commitments around that with new development agreements. So we really see no change there, and we will continue to invest in new units for the foreseeable future. Operator: Your next question is from Bret Jordan with Jefferies. Bret Jordan: In the non-oil change revenue mix, did you see anything of note there, whether customers either push back on some of the higher ticket stuff like a differential flush as the quarter progressed? And I guess if you could talk about sort of strengths or weaknesses in that category. John Willis: NOCR was a good contributor in the quarter. And as we look at the trending of NOCR -- I think we've said this in the past. NOCR tends to run around 25% of ticket, give or take. As we looked at that in Q1 versus Q2, April versus Q2 and Q1, et cetera, it remains very consistent, both across the company and the franchise partners. So there's been no change there thus far. Bret Jordan: Okay. And then I guess when you think about past oil volatility, as you take prices up, and obviously, they might come down if we resolve the Middle East, can you capture margin as you hold price for a bit against the lower input cost? Or does it ratchet down pretty quickly with competition? John Willis: Lori can correct me if I'm wrong, but I don't think we've ever lowered list price on our oil changes. And that's just -- that's an industry standard, I would say. So there is potential opportunity for some margin recapture going forward as a result of that if we do see declines in the cost of lubricants. Operator: Your next question is from Thomas Wendler with Stephens. Tom Wendler: Great quarter. Most of my questions have been answered, maybe 1 more quick one for me. With the Breeze acquisition, I think there was an expectation from any rollout of additional services there at the Breeze locations. Can you give us an update there? Lori Flees: Yes. We're in the process of looking at the menu and understanding what equipment would be required to expand the menu of offering between an oil changers location and a Valvoline Instant Oil Change is fairly consistent. Obviously, the lubricant offering has some differences that we're working through. And then they don't offer tire rotations. And so we're working through what equipment that would be required in training as we look at that opportunity and the oil changers, there are pretty small other changes here and there still an opportunity for upside, which is factored into our overall growth expectation for Breeze. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Radian Group Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first today, Bob Lally, VP of Finance. Please go ahead. Robert Lally: Thank you, and welcome to Radian's First Quarter 2026 Conference Call. Our press release, which contains Radian's financial results for the quarter, was issued yesterday evening and is posted to the Investors section of our website at radian.com. This press release includes certain non-GAAP measures that may be discussed during today's call, including adjusted pretax operating income, adjusted diluted net operating income per share and adjusted net operating return on equity. A complete description of all our non-GAAP measures may be found in press release Exhibit F and reconciliations of these measures to the most comparable GAAP measures may be found in press release Exhibit G. These exhibits are on the Investors section of our website. Today, you will hear from Rick Thornberry, Radian's Chief Executive Officer; and Dan Kobell, Senior Executive Vice President and Interim Chief Financial Officer. Before we begin, I would like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For more information regarding these risks and uncertainties as well as certain additional risks that Radian states, you should refer to the risk factors included in our 2025 Form 10-K as well as subsequent reports filed with the SEC. These are also available on our website. Now I'd like to turn the call over to Rick. Richard Thornberry: Thank you for joining us today. This quarter marks an important and defining moment for Radian. Our first is a global multiline specialty insurer. We believe this is the beginning of a new and exciting journey. I'm happy to report we are off to a strong start. In the first quarter, our Mortgage Insurance business continued to deliver strong operating performance. We resumed our opportunistic share repurchases, reflecting our continued commitment to disciplined capital management. And importantly, in early February, we successfully completed the closing of the Inigo acquisition, a highly strategic and complementary specialty insurance business, thereby bringing together 2 world-class teams focused on building Radian into the future as a more diversified insurance enterprise. . With the addition of Inigo, we now operate across 2 complementary noncorrelated insurance businesses, each with its own earnings and distinct risk and return dynamics. We believe this structure expands our growth opportunities and enhances our ability to deploy capital to an attractive risk-adjusted returns. Our financial performance this quarter reflects the first in which the earnings from both our Mortgage Insurance business and our newly acquired Specialty Insurance business, Inigo, are combined. It's important to note that the Inigo's financial results represent only the 2 months since the early February closing rather than the full quarter. The performance of our Mortgage Insurance business from an earnings and capital generation perspective was consistent with the fundamentals that we have discussed in the past. Our high-quality Mortgage Insurance portfolio continues to demonstrate strong credit performance with significant embedded value. We continue to leverage our proprietary data and analytics and disciplined underwriting processes to add new business with attractive economic value, and we remain focused on improving the efficiency and effectiveness of our operational processes to enhance service and reduce costs, all of which we believe supports the important financial and strategic foundation that our Mortgage Insurance business provides today and into the future. In terms of Inigo's results, as mentioned earlier, with the closing completed in early February, only 2 months of Inigo's results are included in this quarter. Even with only a partial quarter of ownership, Inigo contributed meaningfully to our results, reinforcing the benefits of operating with 2 distinct and complementary insurance segments. We are pleased that Inigo's performance this quarter is consistent with our expectations and reinforces the strategic and financial merits of the combination. Coincidentally, today marks ond year since Richard Watson and I, together with leaders from both organizations, first met. From that first discussion, the alignment from a strategic and financial perspective as well as the risk management approach and the cultural fit was clear. After our comprehensive due diligence confirmed that Inigo was the ideal strategic partner to help shape Radian's future, we moved quickly and decisively to complete the transaction in a timely and efficient manner. The execution of this deal underscores our ability to identify and capitalize on compelling opportunities to further strengthen our offering in a rapidly evolving market. As a reminder, Inigo is a specialty insurance carrier that has a strong track record of profitable underwriting growth through the Lloyd's market across global specialty insurance and reinsurance products. As I've noted previously, the Inigo team operates as a stand-alone business within Radian retaining their strategic focus and culture. In today's dynamic and ever-changing market, Inigo differentiates itself through a strong culture and disciplined underwriting, leveraging data and analytics to drive prudent risk selection, a strong track record of profitability and value-driven growth. We believe the combination of Inigo's strategic approach with a highly experienced team, along with the ability to dynamically allocate capital to the highest value product lines positions our Specialty Insurance business to perform well through market cycles. I am personally excited to bring these 2 companies together this quarter for what I believe represents the beginning of a new and exciting chapter for Radian. The strategic logic is straightforward. Mortgage Insurance provides a strong foundation that we expect will continue to generate consistent earnings, strong cash and capital generation and significant embedded economic value. Specialty Insurance adds access to a large and growing global market with different cycles and drivers that we expect will enhance diversification and resilience at the enterprise level. Together, these businesses create a more balanced and diversified earnings and capital profile, which we believe positions us to grow value more consistently through market cycles. This strategy is anchored in capabilities we have already proven, including underwriting discipline, data and analytics, customer engagement and capital management and extends those strengths across a broader set of growth opportunities. From a Radian Group perspective, our role is to manage capital thoughtfully across both businesses, supporting growth where returns are compelling while maintaining discipline across the enterprise. From a capital perspective, our priorities remain unchanged. We expect to continue to maintain strong financial and liquidity positions, support organic growth in both businesses, deploy capital to achieve attractive risk-adjusted returns and return excess capital to stockholders thoughtfully and strategically. As I noted, consistent with our disciplined capital management framework, we resumed our opportunistic share repurchases during the first quarter. Importantly, doing so demonstrates the strength of our balance sheet and continued capital generation even after completing a $1.7 billion acquisition of Inigo earlier this first quarter. The resumption of share repurchases reflect our conviction in the combined companies earnings power, capital flexibility and long-term value creation. Before turning the call over to Dan, I want to emphasize one final point. This quarter is not about declaring victory. It's about establishing momentum. We believe the combination of a proven mortgage insurance foundation and a disciplined specialty insurance carrier and 2 highly experienced and talented teams positions Radian for a more resilient, more flexible and more valuable future. We are excited about the road ahead, confident in our strategy and focus on execution. With that, I will turn the call over to Dan to walk through the financial results in more detail. Daniel Kobell: Thank you, Rick. I'd like to begin by highlighting an important change in the way we manage and report our insurance businesses. Following the Inigo acquisition and the continued growth and diversification of Radian Group, we refined our segment reporting to better reflect the way we organize our business and assess performance. Going forward, our operations will be reported across 2 distinct insurance segments: Mortgage and Specialty. We believe this enhanced transparency will provide a clear view of the underlying performance and key drivers for each business. In addition, we will report a corporate category that includes items not attributable to either of the 2 segments, such as holding company investment income, interest expense and certain corporate costs. These corporate expenses were previously reflected in our Mortgage segment and all periods have been restated to reflect the new reporting framework. With that context in mind, I'm pleased to provide additional details about our first quarter results which include 2 months of performance for Inigo. On a GAAP basis, we generated net income from continuing operations of $129 million or $0.93 per share, with a return on equity of 10.8%. While the GAAP results include the impact of certain onetime costs related to the Inigo transaction as well as noncash amortization and purchase accounting adjustments, our adjusted operating results clearly reflect the immediate financial benefits of the acquisition. Adjusted net operating earnings per share grew to $1.27, a 22% increase from a year ago. Adjusted net operating return on equity grew to 14.7% this quarter, an increase of over 130 basis points from a year ago. We grew book value per share 10% year-over-year to $35.67. We also returned dividends to our stockholders over the past year that accounted for an additional 3% of book value. On a consolidated basis, our total revenues grew 58% year-over-year to $466 million, reflecting continued growth in Mortgage segment revenue as well as the contribution from our new Specialty segment. Our net premiums earned are now diversified across our 2 insurance segments with our Specialty segment accounting for 41% of first quarter net earned premiums. Our total investment portfolio of $7.1 billion consists of well diversified and highly rated securities. At an enterprise level, we generated $70 million of net investment income this quarter, an increase of 14% from a year ago, driven by higher investment balances. Our investment portfolio has continued to be an important contributor to our earnings and the addition of Inigo's investment portfolio reinforces the strength. Turning now to the key drivers of our segment results, beginning with our Mortgage segment. Our large, high-quality Mortgage insurance in-force portfolio grew 3% year-over-year to $282 billion. New insurance written was $13.5 billion in the quarter, an increase of 42% year-over-year. Persistency remained strong in the quarter at 81.3%. As of the end of the first quarter, approximately half of our insurance in-force portfolio had a mortgage rate of 5.5% or lower. Given current mortgage interest rates, these policies are less likely to cancel due to refinancing in the near term. Both our in-force and net premium yields were unchanged this quarter as we continue to generate consistent premiums from our valuable Mortgage insurance portfolio. Our mortgage provision for losses and related credit trends continue to be positive with strong cure activity. We reported approximately 13,600 new defaults in the quarter, a decline of 4% from the prior quarter. Cures increased this quarter to approximately 13,700, exceeding the number of new defaults and reducing our portfolio default rate to 2.51%. Following the quarter, favorable trends continued into April, where cures again exceeded new defaults and our default rate declined further. Our cure trends have been consistently positive, meaningfully exceeding our initial default to claim expectations for these loans. Favorable development from prior period defaults was $36 million for our Mortgage segment, similar to recent quarters. Mortgage segment operating expenses were $41 million, a decline of 6% year-over-year. Our mortgage segment expense ratio was 20%, down from 21% a year ago. Now turning to our Specialty segment, which reflects only 2 months of performance for Inigo. Net premiums earned in our Specialty segment were $164 million, which are diversified across a range of attractive lines of business spanning both insurance and reinsurance. Within our Specialty segment, we specifically target business lines with attractive margin and where we can leverage proprietary data and advanced analytics to gain an underwriting advantage. Total loss provision within the Specialty segment was $86 million, which included $13 million of favorable net development for prior period reserves. While the current environment is more competitive, particularly in property insurance and reinsurance lines, underwriting profitability remains strong with a low level of natural catastrophe losses in the quarter. Our Specialty segment reported a net expense ratio of 33% and a net combined ratio of 85%. As Rick noted, these results are consistent with our expectations. Inigo has demonstrated a commitment to prudent underwriting and achieve consistent profitability during a period of significant growth. While we expect variability in our Specialty segment combined ratio over time, we intend to continue to prioritize profitability over volume and remain committed to disciplined, profitable growth. Additional details regarding our segments are available in press release Exhibit E. Moving to our capital, available liquidity and related strategic actions. Radian Guaranty's financial position remains strong. In the first quarter, Radian Guaranty paid a $140 million dividend to Radian Group. Our PMIERs cushion was unchanged at $1.6 billion, significantly above the required PMIERs capital level. During the first quarter, our holding company received $46 million of capital from our entities that are currently held for sale. These returns of capital provided immediate liquidity to Radian Group and reduced the carrying value of these entities to $61 million as of quarter end. Since the announcement of the planned divestitures in September of last year, we have returned $108 million of capital to our holding company from the entities held for sale, representing over 60% of their carrying value as of the end of the third quarter of last year. With regard to the divestitures themselves, we continue to make steady progress and expect this process to be completed by the end of the third quarter of this year. In the first quarter, we repurchased $50 million of our common stock or 1.5 million shares. In April, we purchased an additional $65 million of our shares, bringing total repurchase so far this year to $115 million or 3.3 million shares. We were pleased to resume opportunistic share repurchases and continue to believe that share repurchase provides an efficient and accretive way to return excess capital to stockholders, particularly as the shares trade significantly below our view of their intrinsic value. During the first quarter, Radian Group also paid a quarterly dividend to stockholders totaling $35 million. As we noted last quarter, we drew $200 million on our revolving credit facility before the Inigo closing. During the quarter, we repaid $50 million, leaving $150 million outstanding at quarter end. We continue to expect to repay this borrowing in full during 2026. Our holding company liquidity at quarter end was $391 million. We expect dividends of at least $600 million from Radian Guaranty to Radian Group during 2026, including the $140 million dividend paid in the first quarter. Finally, our holding company leverage ratio was 20.2% at quarter end and we expect it to be below 20% by year-end 2026. I will now turn the call back over to Rick. Richard Thornberry: Thank you, Dan. Before we take your questions, I would like to invite you to attend our first Investor Day as a global [ multiline ] insurer on June 4 in New York City. We look forward to providing more detail on our strategy, capital management framework and the opportunity created by operating across 2 complementary insurance businesses. I also want to thank our incredible team for their dedication and commitment as we execute this exciting and transformational plan. Operator, we would be happy to take questions. . Operator: [Operator Instructions] And our first question comes from Bose George of KBW. Unknown Analyst: This is Graham, on for Bose. Congratulations on closing Inigo, first of all. But in Exhibit E, you show roughly $40 million of pretax income from Inigo. And then the January breakout, is another $14 million. Is that a good run rate, like roughly $55 million? Or is there some seasonality or additional expenses that we need to think about? . Daniel Kobell: Yes. Thanks, Graham, for the question. So as you noted, we did provide some additional guidance. The quarterly results really just reflects the 2 months, February and March since the acquisition. So we provided the month of January in our press release as well for Inigo, just to give you a more complete quarter to help establish a baseline for some of the key items on the Specialty segment P&L. As I noted earlier, we don't provide guidance on items like combined ratio, premium growth. Those are subject to outside factors, competitive pricing environment as well as loss experience, which is difficult to predict. There is some seasonality, as you alluded to in the business, both in terms of premiums and losses tend to see those recognized in line with where you'd expect the risk to take place during the year. But they'll generally move together. So on a net basis, not as much of an impact on the bottom line. I'll just reiterate that as far as fourth quarter results, we're pleased with what we saw. It was in line with our expectations for the quarter. No surprises on either the top line or the bottom line. We're already seeing the financial benefits of the transaction play through in terms of the increase in earnings, 22% increase in operating earnings year-over-year. 130 basis points increase in return on equity. As far as full year guidance, again, I can't provide anything more for you, but I will say our Investor Day that we're going to have in about 4 weeks is a great opportunity to hear more from the Inigo team as far as their business and what they expect to see over the balance of 2026 and beyond. Richard Thornberry: Yes. And I would just reemphasize what you said, Dan, which is consistent with our expectations and from a quarterly performance point of view, so we look forward to continue to report as we go. And by the way, thank you for the congratulations. We appreciate that. . Daniel Kobell: Thanks, [indiscernible]. Operator: And our next question comes from Mihir Bhatia of Bank of America. Mihir, your line is open. Please check your mute. Mihir Bhatia: I wanted to start with the capital allocation outlook. Just how are you planning to balance share buybacks with debt paydown? And just remind us, any change to your [ debt to capital ] targets. I heard you on the 20%, but just longer term, any change, where do you want to get that debt to capital ratio down to just given your adding specialty and potentially some volatility there? Daniel Kobell: Yes. So Mihir, thanks for the question. I'll start with the last point that you mentioned. As far as the debt-to-capital ratio, no change in our expectation there. We've noted we expect to repay the short-term draw on our credit facility during 2026, and that would take us back to the high teens from a leverage ratio perspective and certainly comfortable operating in that position. As far as capital management more broadly, I think I'll just start by talking about our holding company liquidity. So I noted last quarter, following the transaction closing, we had approximately [ $350 ] million of liquidity from that point forward to the end of the first quarter, we paid down [ $50 ] million of the credit facility. We repurchased $50 million of shares and paid a $35 million dividend. And net of all that activity our holding company liquidity still grew by approximately $40 million through the end of the quarter. We ended at $391 million. So we were able to execute on all of those capital management priorities as far as programmatic capital return with the dividend, opportunistic capital return on share repurchase, reducing our leverage and then bolstering our holding company liquidity during the quarter. As we look forward for the balance of the year, I'd expect us to continue to execute on those priorities. As noted in the past, we have -- we expect approximately $600 million of dividends up from Radian Guaranty during 2026. When you kind of factor in all the items that we've spoken to as far as the credit facility, the shareholder dividend and then bolstering liquidity, I'd give you a range of between $200 million to $250 million that we would expect on a full year basis would be excess capital that would become potentially available for opportunistic repurchase. And just a reminder, that is a full year number. So we've done -- through the first 4 months of the year, we've done $115 million, so effectively used half of that capacity. So that hopefully gives you a good sense of kind of what to expect for the balance of the year. Richard Thornberry: Yes. I would just -- I would add I was just going to add to the comments here just for a second. Just we've got a track record over the last 8.5 years that I think kind of speaks for itself, where we returned about $2.3 billion through share repurchases and over $3 billion, including dividends. So as Dan walked through in his remarks, following the closing of Inigo, we start to generate excess capital, which we've given kind of guidance as to that capital flowing back up to Radian Group. And I think we saw an opportunity and given the financial strength of our business, the transparency of that capital flow from our MI business up the group and just the combination of the Specialty Insurance business during the quarter, we just -- our confidence in our ability to start to reenter the market from an opportunistic share repurchase just became an opportunity given where we saw the shares trading relative to how we view intrinsic value. So I think just kind of going forward, we feel very strongly about the value of our company and the intrinsic value. And I think it's important to note that what we saw just in the first -- we just saw the first 2 months -- 2 months of the quarter for Inigo, and you can kind of see the strategic transformation starting to take shape in the combination of the 2 businesses from a financial profile point of view. So that all combined gives us kind of confidence as we go into the remainder of the year. And I think Dan walked through the numbers perfectly. So thank you. Mihir Bhatia: Just on this topic, sorry. The one thing that I didn't hear you addressed was the $450 million, I think you have a Senior Note due next March. Just any comments on thoughts on that one? Daniel Kobell: Yes. So we have -- we do have a maturity, as you noted, coming up in March of 2027. Current expectation would be that we would refinance that. Again, we're comfortable with the leverage ratio where we are and kind of the high teens when you factor in the expected paydown of the credit facility. So that is our current expectation of how we would handle that maturity either later this year or early next year kind of refinance there. Mihir Bhatia: Okay. And then just on the MI business, the claims severity has been increasing quite a bit. Just any comments on just the [ driver ] and where you expect that to settle out? Daniel Kobell: Yes. So on claim severity, we have seen that trend higher over the last several years and several quarters. I think what you see there is a couple of factors. One, you see more new loans that are kind of working their way into the default inventory and working their way to claim and those newer loans just have higher loan balances, higher risk in force on a per policy basis. You also see a little bit of a change in mix of -- in terms of the claims that are being paid and the mitigation benefits based on home price appreciation. Some of that has started to fluctuate and kind of decline a little bit over time, still very favorable to what we would expect. Typical severity pre-Covid was kind of 100% or above, and we're kind of in the 80% range. So still see that favorable to our expectations. Just a little bit of a fluctuation for those 2 factors that I mentioned. Mihir Bhatia: Yes. And then just my last question, and I'll jump back in queue. Just -- obviously on the Specialty Insurance side. So I think a lot of us are still learning it, but we've heard a lot about softening of the pricing environment. Can you just talk about what -- where you're seeing the most pressure and how you're adjusting underwriting risk returns and where you're doing, maybe just allocating capital there? Richard Thornberry: Yes. Thank you for the question. I think a key point of this business is all about managing kind of through the cycle, both softening markets and hardening markets. So I think we've certainly seen -- and we expect it through our M&A due diligence kind of the markets to soften. And as we come into 2026, that expectation has been consistent -- or at least the softening market has been consistent with our expectation. So I think as we go through and as we did our due diligence, we spent a great deal of time with the team kind of walking through their approach and process for that and really were impressed by not only their track records kind of going through multiple cycles, but just their whole philosophy and discipline about how they think about growth [indiscernible] creation and profitability. So cycle management is a fundamental skill in this business and financial discipline is critically important. So we -- I think it's important to note, too, that as you hear general comments about softening of market, there are still opportunities that can be identified, but it's also important to remember that pricing is coming off fairly high levels after the last 5 years. And so we see rate adequacy is still very good in many areas even with the pullback in pricing. But our focus is on managing the cycle well by remaining disciplined, by remaining agile and flexible, continuing to look for relative value and leveraging the data and analytics that we have, not to mention our strong customer relationship. So I think with our priority being profitability, as opposed to any particular revenue growth target, we see the team working with that discipline. And I think there are similarities to how we think and talk about our MI business, where we leverage data and analytics, strong underwriting with a focus on profitability and economic value to really identify the opportunities to allocate capital to and construct our portfolio accordingly. The interesting thing and the nice thing about the Specialty business is that there is product diversification across the business, which gives you a greater opportunity and a broader lens to kind of identify those opportunities and allocate capital where we see the highest risk-adjusted return. So given the experience of the team and working with them closely over the past several months, we're very confident in the team's ability to find value in this market and really to kind of navigate through the market cycle. So I think again, going back to the earlier comment, the trends we've seen and the performance we've seen have been consistent with our expectations and kind of consistent with what we've learned and seen by working with the team over the last 12 months. Operator: I'm showing no further questions at this time. I'd like to turn it back to Rick Thornberry for closing remarks. Richard Thornberry: Well, we thank you for your interest in Radian, and appreciate the questions. Most importantly, we look forward to hosting many of you at our upcoming Investor Day next month on June 4 and look forward to seeing as many of you as can join us for that event. And other than that, we appreciate the support, and look forward to talking to you in the future. Take care. . Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and welcome to the Star Group Fiscal 2026 Second Quarter Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Witty, the Investor Relations Adviser. Please go ahead. Chris Witty: Thank you, and good morning. With me on the call today are Jeff Woosnam, President and Chief Executive Officer; and Rich Ambury, Chief Financial Officer. I would now like to provide a brief safe harbor statement. This conference call may include forward-looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements. All statements other than statements of historical facts included in this conference call are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call, the company's annual report on Form 10-K for the fiscal year ended September 30, 2025, and the company's other filings with the SEC. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this conference call. I'd now like to turn the call over to Jeff Woosnam. Jeff? Jeffrey Woosnam: Thanks, Chris, and good morning, everyone. Thank you for joining us to discuss our second quarter and fiscal year-to-date results. The second quarter was, in many ways, a continuation of conditions experienced in the first. Temperatures across our operating footprint were 6.4% colder than last year and 2.8% colder than normal resulting in slightly higher volumes of products sold. However, the severe weather, including several very large snow events at times impacted our field productivity, thereby raising operating expenses. That said, we were still able to post adjusted EBITDA of $139 million, which represents a year-over-year improvement of $10.5 million. At the same time, we kept net customer attrition to 0.6% both of which are meaningful accomplishments for the company. Lastly, we closed on one small heating oil acquisition during the quarter and have several other opportunities under various stages of review. I've often talked on this call about the hard work and dedication of our loyal employees. Never has there been a more appropriate time to reflect on their value to our organization. With the added demand brought on by periods of near record low temperatures combined with significant snowfall, our team worked tirelessly, often through very difficult conditions to provide our customers with the level of service and responsiveness they have come to expect. I simply could not be more proud and appreciative of their efforts. We are also working to contain the impact from recent increases in wholesale product costs through the use of effective inventory controls, supply chain initiatives and active margin management. While higher prices can create certain challenges for us, the immediate impact of this current escalation has been somewhat muted by the fact that we are coming out of the heating season. Although there is still much work to be done, I'm very pleased with how Star has performed as we crossed the midpoint of the year. We believe we are well positioned for the remainder of fiscal 2026 and look forward to the opportunities that summer brings to further invest in our people and business development initiatives. With that, I'll turn the call over to Rich to provide additional comments on the quarter's results. Rich? Richard Ambury: Thanks, Jeff, and good morning, everyone. In analyzing our results for the 3- and 6-month periods of fiscal 2026, please keep in mind that service costs and operating expenses were impacted by extreme weather conditions, including at times temperatures that were 25% colder than expected for a 3-week period and in some areas, experienced over 60 inches of snow, which obviously negatively affected our overall operational efficiency. For the second quarter, our home heating oil and propane volume rose by 600,000 gallons or [ 0.004% ] to 144.5 million gallons as the additional volume provided from acquisitions and colder weather more than offset the impact of net customer attrition and other factors. Temperatures for the fiscal 2026 second quarter were 6.4% colder than last year and 2.8% colder than normal. Our product gross profit increased by $19 million or 7% to $277 million due to a slight increase in home heating oil and propane volumes sold and higher home heating oil and propane per gallon margins. Colder weather conditions and numerous snowstorms increases the demand for service which led to higher service-related expenses, including greater labor and other costs, which increased our service loss by $3.4 million. Delivery, branch and G&A expenses increased by $5.4 million year-over-year. Delivery-related expenses rose by $4 million, largely due to the extreme weather conditions while insurance expense increased by $4 million as well as claims rose due to the severe weather. During the second quarter of fiscal 2026, the company did not recognize any benefit or expense under its weather hedge versus a $3.1 million expense recorded for the 3 months ending March 31, 2025. We have previously expensed a cap of about $5 million in the first quarter of fiscal 2026 due to the cold weather. We posted net income of $108 million in the second quarter of fiscal 2026 or $22 million more than the prior year period reflecting a $10.5 million increase in adjusted EBITDA and the impact of a noncash favorable change in the fair value of derivative instruments of $21 million more than offsetting higher income tax expense of about $10 million and certain other factors. Adjusted EBITDA rose by $10.5 million to $139 million as an increase in home heating oil and propane per gallon margins more than offset higher operating expenses I just discussed. Now turning to the results for the first half of fiscal 2026. Our home heating oil and propane volume increased by 12 million gallons or 5.3% to 238 million gallons, again, reflecting colder temperatures and the additional volume provided from acquisitions, again, more than offsetting net customer attrition and other factors. Temperatures in Star's geographic areas of operations fiscal year-to-date were 11% colder than the prior year comparable period and 4.1% colder than normal. Our product gross profit increased by $48 million or 12% to $457 million due to an increase in the volume of home heating oil and propane sold and higher home heating oil and propane per gallon margins. As previously mentioned, colder weather conditions and numerous snow storms in the second quarter of fiscal 2026 increased the demand for service, which led to higher service-related expenses while installation gross profit increased by $1.5 million, the service gross loss rose by $6.1 million, again due to higher expenses and an increased demand for service as well as an increase in propane tank sets. Delivery, branch and G&A expenses rose by a little over $16 million year-over-year, of which $1.9 million was attributable to our weather hedging program. As I previously mentioned, in fiscal 2026, we recorded an expense of $5 million under our weather hedge compared to $3.1 million recorded in fiscal 2025, again, reflecting weather conditions in both periods. Recent acquisitions accounted for an increase of $3 million to delivery, branch and G&A expenses while costs associated with the base business rose by $11.3 million, reflecting a 2.7% increase in volume and the impact of the severe weather conditions on operating expenses, including insurance claims. We posted net income of $144 million for the first 6 months of fiscal 2026 or $25 million in the prior year period as an increase in adjusted EBITDA of $27 million and the impact of a favorable change in the fair value of derivatives of $10 million, more than offset higher income tax expense of $11 million and other factors. Adjusted EBITDA rose by $27 million to $207 million due to an increase in home heating oil and propane volumes sold in the base business and increase in adjusted EBITDA from acquisitions and higher home heating oil and propane per gallon margins, which more than offset higher operating expenses. Note that for fiscal 2027, we have put in place a $12.5 million weather hedge. And now I'll turn the call back over to Jeff. Jeffrey Woosnam: Thanks, Rich. At this time, we're pleased to address any questions you may have. Operator, please open the phone lines for questions. Operator: [Operator Instructions] At this point, there appear to be no callers in the queue, so I'll hand it back to Mr. Woosnam for any closing remarks. Jeffrey Woosnam: Okay. Thank you for taking the time to join us today and your ongoing interest in Star Group. We look forward to sharing our 2026 fiscal third quarter results in August. Have a great summer. Operator: The conference has now concluded. Thank you for attending today's presentation. You may all disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation First Quarter 2026 Earnings Conference Call. My name is Rob, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. [Operator Instructions] I will now turn the call over to your host for today, Mr. Jorge Casado, Senior Vice President of Investor Relations. Please proceed. Jorge Casado: Hello, everyone, and thank you for joining us. With us today are Gary Smalley, CEO and President; and Ryan Soroka, Executive Vice President and CFO. Before we discuss our results, I will remind everyone that during today's call, we will be making forward-looking statements, which are based on management's current assessment of existing trends and information. There is an inherent risk that our actual results could differ materially. You can find disclosures about risk factors that could contribute to such differences in our Form 10-Q, which we are filing today and in our Form 10-K, which was filed on February 26, 2026. The company assumes no obligation to update forward-looking statements, whether due to new information, future events or otherwise, other than as required by law. In addition, during today's call, management will be referring to certain non-GAAP financial measures. You can find information and a reconciliation of these non-GAAP financial measures in the earnings release that we issued today and in the Form 10-Q being filed today, both of which can be found in the Investors section of our website. Thank you. And with that, I will turn the call over to Gary Smalley. Gary Smalley: Thanks, Jorge. Hello, everyone, and thank you for joining us. Before we discuss our first quarter results, we wanted to share with you tragic news regarding the recent incident that affected the Tutor Perini family. A few weeks ago, during Super Typhoon Sinlaku, our offshore cargo vessel the Mariana capsized at sea with a 6-member crew that included 2 of our employees near the island of Saipan in the Northwestern Pacific Ocean. It's an unimaginable loss for all of us at Tutor Perini, and we extend our deepest thoughts, prayers and heartfelt condolences to the crew's families, loved ones and the entire affected community. We have been in close contact with the families to provide them with updates and to offer our support. We remain committed to the families, and we'll continue to work with them to provide whatever support we can. I would like to express our sincerest appreciation to the U.S. Coast Guard, the U.S. Air Force, U.S. Navy as well as search teams from the Japan Coast Guard and the Royal New Zealand Air Force for their professionalism and tireless efforts during an intensive nearly 2-week search and rescue mission. One of the bodies of the crew was found, but the other 5 were not. Before proceeding, I will now pause for a moment of silence to honor and remember the crew members and pray for their families and friends. Thank you. Turning to our usual agenda. We delivered strong first quarter results highlighted by record operating cash flow of $147 million, by far the highest first quarter result ever, which was driven by collections on new and ongoing projects. Our revenue grew 11% year-over-year to $1.4 billion, the highest revenue of any first quarter since 2009, driven by contributions from various larger, higher-margin projects that are in the early stages with significant scope of work remaining. Ryan will get into more of the details of our financial results shortly. Our backlog remains very strong at $19.8 billion at the end of the first quarter, and we continue to expect that it will fuel much higher revenue and earnings, increased profitability and continued strong cash flow this year and beyond. The Civil segment produced its highest ever first quarter operating income, which was up 10% year-over-year and delivered a 12.6% operating margin, solid results for our first quarter, which is typically a slower quarter for us due to seasonality. The Building segment's operating income was up an impressive 56% year-over-year with an operating margin of 3.5%. And the Specialty Contractors segment continues to deliver solid execution on its current projects and improved operating results as evidenced by the fact that they were marginally profitable for the quarter with further improvement still expected as the year unfolds. In fact, we see higher margins ahead for all 3 segments as many newer large projects continue to ramp up. In the first quarter, we booked nearly $700 million of new awards and contract adjustments. The largest additions to backlog included the following, which are all in California: $186 million of additional funding for the Eagle Mountain Casino Phase 2 expansion project; $97 million of additional funding for a healthcare project that entered the construction phase; and approximately $66 million for 2 mass-transit projects. Our strong backlog, which includes the 9 mega projects we won over the last 1 to 3 years, provides us with excellent visibility for our future revenue and earnings over the next several years. Recently, one of our major projects, Brooklyn Jail in New York, reached a key milestone. The project held its topping out ceremony marking the completion of the structure steel frame with the placement of the final and highest structural beam. Workers and dignitaries watch that the final beam adorned with the traditional evergreen tree in American flag rose 15 stories to its destination atop the building that when completed, will be a 1 million square foot facility and have 1,040 beds. This project and all of our other major projects are all running very smoothly with solid business execution and strong financial performance. As I have discussed previously, customer demand remains strong, and we continue to have numerous significant project bidding opportunities, particularly in the Northeast, the Midwest, the West Coast and the Indo-Pacific region. We believe we are all well positioned to continue winning our share of new projects later this year and over the next several years. We will continue to be very selective when we bid future projects, which will continue to enhance and help maximize shareholder value. Our focus remains on bidding projects with favorable contractual terms, limited competition and higher margins. In addition to vibrant demand across the markets we serve, some of our existing projects are expected to spawn significant incremental work, which bolsters our confidence that our backlog will remain elevated. For example, we anticipate adding approximately $1 billion of additional backlog in the second half of the year for the finished trade scope of work for Phase 1 of our Midtown Bus Terminal Replacement project in New York. Also, some of our Building segment projects that are currently in the preconstruction phase are anticipated to advance to the construction phase later this year and the next year. The largest of these is a multibillion-dollar healthcare project in California expected to begin construction in late 2027, for which we currently only have a nominal amount of backlog. Let's talk about some of the significant bidding opportunities we expect to pursue over the next 12 to 18 months. They include the multibillion-dollar Penn Station transformation project in New York, for which the U.S. Department of Transportation has recently announced a substantial amount of committed funding and for which the selected development team is expected to be chosen later this month. The $1.4 billion I-535 Blatnik Bridge project in Minnesota, for which the selected contractor is expected to be announced next month; a multibillion-dollar additional segment of the California high-speed rail project bidding later this year; the $1 billion I-69 ORX Section 2 project connecting Indiana and Kentucky, also bidding later this year. The Sepulveda Transit Corridor program in Southern California believed to be valued at approximately $12 billion and expected to be awarded under multiple contracts with the initial contract expected to be bid next year. The $3.8 billion Southeast Gateway line also in Southern California and bidding next year, and the $3 billion Newark Liberty International Airport Terminal B project in New Jersey, very similar to the award-winning Terminal A project that we recently completed at the same airport. This enormous number of significant opportunities I just mentioned doesn't even include numerous projects we are pursuing in the Indo-Pacific region, which collectively total more than $4 billion and include military infrastructure improvements at Naval Base Guam, airport and harbor projects on the island of Yap and wharf and harbor improvement projects in the Republic of Palau. We also continue to have several large healthcare project opportunities on the West Coast and hospitality and gaming opportunities mostly in the Southwest. As a reminder, the majority of these opportunities start bidding and are expected to be awarded in the middle or second half of 2026 or to continue bidding through next year. Due to this timing and the significantly higher revenue we expect to recognize this year for work already in backlog, we continue to anticipate a modest sequential backlog reduction in the near term, followed by resumed backlog growth as we capture our share of major new projects. We are confident in our ability to drive continued backlog growth over the medium to longer term even as we focus on profitability, free cash flow, earnings growth, quality and safety as our primary performance indicators. As you recall, last November, our Board of Directors authorized our first ever quarterly cash dividend of $0.06 per share, as well as a share repurchase program totaling $200 million. Today, the Board declared another $0.06 quarterly dividend, which will be paid on June 4. And earlier this year, in the first quarter, we completed the first repurchase under our share repurchase program, buying back approximately 278,000 shares on the open market for $20 million at an average price of approximately $72 per share. We expect to make additional opportunistic share buybacks moving forward under this authorization to return excess capital to shareholders. Next, let's turn to our outlook and guidance. First, I am pleased with the excellent start to the year as we delivered results in line with our expectations. We continue to benefit from favorable macroeconomic tailwinds that are driving strong sustained market demand across all segments, which is a great sign for future awards, growth and value creation. Our business is resilient, and we remain confident in our outlook for consistent revenue and earnings growth over the next several years. Based on our outlook and assessment of the current market, we continue to anticipate double-digit revenue growth and strong earnings in 2026 with even higher earnings expected in 2027, by which time many of the newer large projects in our backlog should be in the construction phase. Accordingly, we are affirming our 2026 adjusted EPS guidance in the range of $4.90 to $5.30 per share. Our guidance continues to factor in a significant amount of contingency for unknown or unexpected outcomes and developments in 2026, including the possibility of a lower-than-anticipated success rate for future project pursuits, the potential for project delays, slower ramp-ups for our newer projects and any unexpected settlements and/or adverse legal decisions associated with the resolution of disputes. We also continue to expect strong operating cash generation in 2026 and beyond due to increasing project execution activities on our newer mega projects and the anticipated resolution of remaining legacy disputes. Before I turn the call over to Ryan, I'd like to comment on one of those remaining legacy disputes. Last month, we received an unfavorable legal ruling and were assessed damages of approximately $175 million related to a dispute with our customer regarding the W/Element Hotel in Philadelphia, a building segment project that we completed in 2021, and that opened to the public the same year. We strongly disagree with the ruling and firmly believe it does not reflect the merits of the case. It's respectful to the legal process and since it is ongoing litigation, we will not comment specifically about what we believe to be significant legal flaws in the court's decision. We do intend to appeal and we'll continue to vigorously pursue all appropriate legal remedies to defend ourselves against the damages awarded to the customer and to collect amounts contractually due to us. The appeal process is likely to take 2 years, perhaps even longer, so this recent development represents another step along the path of an ongoing lengthy legal dispute. As a result of the ruling and after a close review of our claims against the owner and certain subcontractors, we recognized an immaterial charge to earnings in the first quarter. Thank you. And with that, I will turn the call over to Ryan to discuss the details of our financial results. Ryan Soroka: Thanks, Gary. Good day, everyone. I will begin by discussing our results for the first quarter, after which I'll provide some commentary on our balance sheet and our 2026 guidance assumptions. All comparative references will be against the first quarter of last year, unless otherwise stated. As Gary mentioned, we generated a record $147 million of operating cash for the quarter, up 542% year-over-year and well ahead of any first quarter cash flow result ever. I'm pleased to see our cash flow momentum from last year's record year continuing this year. Our cash flow this quarter was largely driven by collections from newer and ongoing projects, reflecting a significant increase in project execution and improved working capital management with only an immaterial amount attributable to the resolution of disputes. We anticipate that we will continue to generate solid cash flow in 2026 and beyond, with most of our cash to be derived from organic operations, that is, from the new and existing projects and enhanced from time to time by cash collected following dispute resolutions. Revenue for the first quarter of 2026 was $1.4 billion, up 11%, with the growth primarily due to increased project execution activities on certain large, newer and higher-margin Civil and Building segment projects, especially in the Northeast. This included, among others, the Midtown Bus Terminal Phase 1 project, the Manhattan Tunnel project, the Manhattan Jail and the Newark AirTrain replacement. Civil segment revenue was $698 million, up 14% due to increased project execution activities on some of the projects I just mentioned, which have substantial scope of work remaining. It was the Civil segment's highest revenue of any first quarter ever, reflecting the solid sustained demand that Gary noted. Building segment revenue was $473 million, up slightly compared to the first quarter last year, with the segment's revenue growth expected to increase substantially later this year. All our major Building segment projects, including the Brooklyn and Manhattan Jail projects in New York and a large healthcare campus project in California are running smoothly and also have substantial scope of work remaining. Specialty segment revenue was $219 million, up a solid 24%, with the segment's growth continuing to be primarily driven by increased activities on various electrical and mechanical projects in New York and Texas. The Specialty segment's strong revenue growth began in the second half of 2025, and we expect the growth to continue this year and next year as those projects and other newer mega projects advance. Our operating income for the quarter was $59 million, down 9% compared to last year. Our operating income was driven by improved contributions from each of our 3 segments, but those contributions were offset by a $23 million increase in share-based compensation expense in the first quarter of 2026 compared to the first quarter of 2025, primarily due to our stock price being substantially higher in 2026 as compared to the same period last year, which affects the fair value of liability-classified awards. As a reminder, our share-based compensation expense is expected to decrease in 2026 and to decline much more significantly next year as some of these liability classified awards vested at the end of last year and most of the remaining awards will vest by the end of 2026. We are no longer awarding liability classified awards, which should meaningfully reduce earnings volatility starting next year. Civil segment operating income was $88 million, up 10% and the highest first quarter result ever for the segment, with a corresponding segment operating margin of 12.6%, a very solid result for a first quarter given typical seasonality. The increase in operating income was primarily due to contributions associated with the increased project execution activities on various higher-margin projects that are ramping up, partially offset by an unfavorable adjustment of $16 million in the first quarter of 2026 on a mass-transit project in California due to changes in estimates resulting from ongoing negotiations of change orders, which we expect will generate significant cash once they are ultimately approved. We anticipate continued Civil segment margins in the range of 12% to 15%. Building segment operating income was $16 million, up a strong 56% with the increase driven by contributions from certain newer higher-margin projects in New York and California with substantial scope of work remaining. The segment's operating margin was 3.5% compared to 2.3% last year, with the improvement primarily driven by contributions related to the increased higher-margin project execution activities I mentioned. We anticipate Building segment margins in the range of 3% to 6%, fueled by continued contributions from certain higher-margin projects. Specialty Contractors segment operating income was approximately $600,000 for the quarter compared to a loss from construction operations of $7 million for the first quarter of last year. The improvement compared to last year was primarily due to contributions related to increased project execution activities on the electrical and mechanical projects I mentioned earlier. Many of these projects are in the early stages and are expected to ramp up substantially over the next several years. The Specialty segment had a handful of small immaterial unfavorable project adjustments this quarter related to legacy disputes that adversely affected its results for the quarter, though the segment was still profitable and its results reflected a significant improvement year-over-year. Corporate G&A expense for the first quarter of 2026 was $45 million compared to $18 million last year, with the increase mostly due to the substantially higher share-based compensation expense that I mentioned. Income tax expense for the quarter was $17 million with a corresponding effective tax rate of 30.1% for the period compared to $13 million last year with a corresponding effective tax rate of 23.2% in that period. The higher effective tax rate this year is attributable to the significant increase in share-based compensation expense, which is almost entirely nondeductible. Net income attributable to Tutor Perini for the first quarter of 2026 was $26 million or $0.48 of GAAP earnings per share compared to $28 million or $0.53 of GAAP earnings per share in the first quarter of last year. Excluding the impact of share-based compensation expense, net of the associated tax benefit, adjusted net income attributable to Tutor Perini for the first quarter of 2026 was $55 million or $1.03 of adjusted earnings per share compared to $34 million or $0.65 of adjusted earnings per share in the same quarter last year. As you can see, our adjusted EPS was up a strong 58% year-over-year, reflecting the high margin contribution and outstanding performance we are seeing from our projects and backlog. Now I'll address the balance sheet. Our record cash generation enabled us to continue paying down our total debt, which stood at $399 million at the end of the first quarter. We ended the quarter with cash and cash equivalents exceeding total debt by $404 million, a very strong net cash position and $533 million better than we were just 1 year ago when we were in a net debt position. Our cash available for general corporate purposes was $321 million at the end of the first quarter of 2026, up 18% compared to $271 million at the end of 2025. Our balance sheet is stronger than it's ever been, and our solid net cash position provides us with excellent capital allocation flexibility. We anticipate refinancing our existing senior notes by around midyear to secure a more favorable interest rate and extend our debt maturities, which should result in substantially reduced interest expense going forward. Lastly, all assumptions I provided last quarter pertaining to our 2026 guidance remain unchanged. Thank you. And with that, I will turn the call back over to Gary. Gary Smalley: Thank you, Ryan. To recap, we have kicked off 2026 with excellent first quarter results marked by record operating cash flow of $147 million, solid revenue growth, adjusted EPS of $1.03, which was up 58% year-over-year and continued strong backlog of approximately $20 billion. This backlog underpins the confidence we have in our ability to deliver double-digit revenue and earnings growth and continued strong annual cash flow in 2026 and beyond as our newer projects progress through design and into construction. Our business continues to perform well, and we expect our solid project execution to continue. The long-term outlook for Tutor Perini remains very bright given today's backlog of long-duration, higher-margin projects with improved contractual terms, operational improvements we have made in our Specialty Contractors segment, persistent favorable macroeconomic tailwinds and strong public and private customer funding that is fueling vibrant market demand and numerous major bidding opportunities. And importantly, we also believe that we are getting closer to the time when all of our segments will be firing on all cylinders, which will allow us to demonstrate more fully our growth and earnings potential. Thank you. And with that, I will turn the call over to the operator for your questions. Operator: [Operator Instructions] Our first question is from Michael Dudas with Vertical Research Partners. Michael Dudas: I share my prayers for the family and those families as well. First, Gary, on -- so you talked about several large projects that will be coming up for bid second half of this year, 2027. But maybe you can assess that relative to what projects may be rolling off in some of those regions. And it seems like there's so much business that can be done in the Northeast, especially in New York area, certainly in California. I mean, again, all over, but how you balance like where the opportunities are, your capacity and maybe even to think a little bit more on Guam because you mentioned some pretty large numbers and some opportunities in the Pacific, which certainly should have a pretty good tail given all the money that's been spent over there. Gary Smalley: Yes. Great, Mike. First of all, some of these opportunities are already in the hopper, so to speak. They've been submitted. We're waiting on the results. So we should know something as we talk about in some cases, later this month, sometime in some cases, next month. So capacity, look, you should feel -- just rest assured, we're not going to pursue something we can't handle. We do have some work that's winding down in California, and we'll use some of those resources to staff this other work. But all the work we're pursuing, we have people ready and raring to go, and we will execute the work soundly. Yes. So I don't think that should be a concern. If I would look at what's out there and what we would expect to book, provided we get anywhere close to our fair share, I would say that it's going to be by far a net add. There are just so many opportunities, as you noted. The opportunities that we have as we sit here today and we compare that to the last time we talked, there's more out there. Some of it's moved closer to fruition. In other cases, there are new opportunities that we're pursuing. So the pipeline is rich, and we think we're well positioned for a fair amount of these opportunities. And then if we get to a point, and we would love for this to happen as we get to a point where we can't handle any more, then we'll sit on the sidelines. But we're not there yet. We don't think we will be there at this point. And we look forward to when we get together another quarter or 2 to report on increased backlog as these opportunities come home. Michael Dudas: I appreciate that. And my follow-up, Gary, would be, as you assess the margin performance, which again, for Q1 seemed quite solid across the board, but the cadence of it as we move through 2026, is it just a function of ramping up the volume and capacity? And are there some other areas where between the low and high end of those ranges where what could help you achieve those versus maybe pushing them out to, say, 2027? Gary Smalley: It's exactly what you said. It's about volume. The first quarter is always a slower quarter for us. It's difficult to estimate what the first quarter is going to be. It's harder than the others because you don't know the extent of -- we didn't know we're going to have all the rain that we had in Southern California, for example. And we didn't know that New York out your way, Mike, I had a trip that I canceled because of the weather being so bad and airport being closed and things of that nature. So you just don't know. But as we progress during -- through the year, the volume goes up, also our margins are expected to go up. These larger projects that we've been booking, they're ramping up right now. They're only going to get stronger as the year progresses. And some of that is the weather, but the other factor is that they're just early in their development. And so they're going to start blowing and going. Some already have and others will gain more momentum as we continue. So I would expect '26 to gain strength each quarter and '27 will just be a follow-on to that. Operator: Our next question is from Judah Aronovitz with UBS. Judah Aronovitz: On for Steve Fisher. The first question, I noticed that you changed the language around 2027 EPS expectations to significantly higher than the upper end of the 2026 guide from just higher. Is that right? And if so, I guess, what makes you more confident now relative to 3 months ago? Can you talk about your confidence level in achieving this level of earnings in '27? And specifically, is the work already in backlog? Or is there still more work to book? Gary Smalley: Yes. If we didn't book any more work, '27 is going to be a blowout year as is '26. But there's going to be more work to book, so it will be even better. So what gives us a little bit more optimism or confidence, Judah, as time has gone by. We see how things have developed. We see how the new work is progressing. We see how settlement discussions are progressing. So all those things together make us as confident as we can be. And look, we didn't -- we affirm guidance. We didn't raise guidance, and that's always something at least as we go forward that you should expect is maybe a raise or at least consideration for it. We did consider it this time because we do feel a lot better about how things are shaping up. But we also want to be conservative in our approach. So yes, we do feel more confident, and it's just the way all the details are coming together right now. We're very pleased with where we are with respect to the execution of all this new work and also very optimistic about building on this great backlog we already have. Judah Aronovitz: Okay. That makes sense. Good to hear. And then my follow-up, relative to inflation, what are you seeing in the business now? And how comfortable are you with your contingencies in areas where you don't have the ability to reindex to inflation? Gary Smalley: Yes. Good question because you even indicated that in some cases, you implied that we do have the ability to reindex with inflation, and that is the case. But in those instances where we're still being impacted by inflation as everyone else is, look, we're covered. We're very conservative in how we address contingency, but also we have this buyout that we talked about before on calls where early on we look at firming up commitments with respect to subcontractors and also vendors to make sure that we pass that risk on to them if there's any change in pricing. So we're good with respect to inflation. Operator: Our next question is from Liam Burke with B. Riley Securities. Liam Burke: Gary, your balance sheet is much stronger. Your cash position is great. You're returning cash to shareholders. Does your strong liquidity position allow you to undertake larger projects without having to consider a joint venture partner? Gary Smalley: You know what, it absolutely does. And that's what our preference is, of course, because we have great joint venture partners, and we appreciate what they bring to the table. But at the same time, if we can do the work on our own and not have to share 20% or 25% or 30% margin in cash with them, that's the ideal position that we'd like to be in. And certainly, when you're a stronger company as we are now compared to a year ago and the year before that, then that does offer us opportunities to do more things on our own. Liam Burke: Great. And in terms of you're talking about bidding activity and potential projects expanding, is that increasing the competitive field or are things pretty much the same? Part of it is that data center activity has pulled some of the competitors off the projects that you're bidding on? Gary Smalley: Yes. I would say that if there is a change, it's -- from last quarter, there's probably not much of a change, to be honest with you. But look, the trend has been to be less competitive and whether it's data centers or just the volume of work, such as what we've talked about. So certainly, there's not going to be more competition, at least in the short term, medium term or even as far as we can see looking out because of all the -- just the magnitude of work and so few of us that can do the complex work that we pursue. So I would say that the competition is probably a little less and would likely be -- continue to be less than what it is currently. But certainly, we don't see new competitors coming into the market right now. Operator: Our next question is from Min Cho with Texas Capital Securities. Min Cho: My first question has to do with Black Construction. So I know that's a higher-margin business for you. Can you talk about your annual run rate of revenue there and kind of what you have in backlog? And how big do you feel like that business can get? And if you can just talk about any of the bottlenecks to driving more growth from Black Construction? Gary Smalley: In the past, what we've really steered away from talking too much about specific business units and what type of -- what they bring to the overall consolidated Tutor Perini. Just, I guess -- but to try to address your question in some way, we're looking at Black. I won't talk about revenue, but I'll talk about backlog. It exceeds $1 billion. And if you look at the run rate, some of their work is 2, 3 years in duration. Other projects are a bit longer, maybe 4 or 5 years. And we're looking to build that. We've got the capabilities there. It's an extraordinary business for us, just very talented workforce. So look for that, it probably won't double, but it could grow significantly from that beginning point. Min Cho: Great. And then also your recent Army Corps MATOC award to support the energy resilience and conservation investment program. How much of that $2 billion is within TPC's addressable business? And if you can just talk a little bit about the types of construction projects that are expected there? Gary Smalley: Yes. All of it is within what we do and what we do well. And the type of work for that's available under that MATOC is it varies. It can be building work, it can be civil work. It can be specialty work as well, specialty contractors work. Our workforce at Black and Guam and the surrounding areas, again, I mentioned before, it was very talented, but we're very diversified. We can do whatever work is that's out there. We also have PMSI as one of our business units. And likewise, they are very equipped in whatever part of the world that they operate to do all types of building work or all types of construction work. Their emphasis is generally more on the building side. But really between the 2 of those entities, we can do just about anything. Min Cho: Excellent. And if I can just squeeze in one more question. Can you just talk a little bit about Tutor's position currently on pursuing some of the mission-critical and high-tech projects like the data centers or semiconductor campuses? Gary Smalley: Yes. So this is something that we're looking at very closely. We do -- we are actually doing some data center work with -- on the specialty side. And we are looking to -- we're exploring ways to expand that currently. So we want to make sure that we don't give up the core market because we know one day that -- and who knows how long down the road that will be, whether it's 5 years or 10 years down the road that the data center work at some point in time probably won't be there, at least not as strong as it is now. So we want to make sure that we're still well positioned to do the work that is our standard bread and butter. But at the same time, the data center work is very exciting for us. We see it as an opportunity that -- where we can expand margins and increase revenue as well. So we're looking at it very closely. And I think not too far down the road, certainly before the year is up, you'll hear more from us as far as maybe new strategy to explore some of that market or at least explore -- we're already doing. And we'll talk more publicly about it at some point, too. We just -- we're not quite there, but we're getting closer. Operator: Our last question is from Adam Thalhimer with Thompson, Davis. Adam Thalhimer: I like Min's question. Can I just keep going on that? Are you thinking that you might look at data center work for other segments or just within the specialties? Gary Smalley: Yes. Right now, it's a little too early to get out in front of any more than what I said, Adam. But Specialty is probably where we see the most, we'll say, current type opportunities. And -- but we're looking at other areas as well. And it's something that we're talking about as management. We'll talk more about it with the Board as we learn a little bit more. But certainly, there's a lot of excitement internally as we look at opportunities that could be out there for Tutor Perini. Adam Thalhimer: Okay. Great. The buyback, I was curious, good to see you do $20 million in Q1. How would you like to pace that from here? Gary Smalley: Well, it's certainly something that would we buy back at $72 on an average price, right, I think that's right. And so... Adam Thalhimer: Nicely done. Gary Smalley: Yes. And we -- there's some -- it wasn't without some debate internally because we're a stock that has grown quite well over the last year or so. And some of us felt a strong conviction to even buy with our own money, such as myself. And I've done that a couple of times in the last several months. So for me, it was pretty easy on the buyback. Now that we're 90-ish or something like that, it's not as compelling for us. But at the same time, we know that we've got a lot of upward trajectory that's to come. And so I think there will be -- we're going to be opportunistic, and I think there will be opportunities in front of us. But we're not really planning it to say, okay, we're going to do X million dollars every quarter or 6 months. We'll just see where the opportunities are and weigh that with the cash needs and how quickly we're building our cash balances and then go from there. So I know it's not a specific answer for you, but we're very aware that we've got a lot of room left with the buyback. We are very bullish on where the -- what the opportunities are right now with -- very bullish on what the share price could continue to do. So either on a personal basis or a company basis, I think there will be more coming. But again, we just don't know exactly when. Adam Thalhimer: Great. Ryan, the refinancing you said is coming in the next few months. Can you give us a sense for the target structure and potential interest rate savings? Ryan Soroka: Yes, sure. I think at this point, we're looking to refinance the notes 1:1. Maybe they can change a little. We're looking at the interest savings of somewhere between 400 or 500 basis points as we look at the marketplace. Again, a little -- there's still a little bit of volatility out there related to some of the geopolitical issues going on. So that remains to be seen. But I think at the same time, what we also intend to do is take a look at our credit facility, right, and looking to upsize that and extend those maturities. So ultimately, the goal is to refinance the notes with significant interest savings and then extend the maturity and have some -- extend the maturity on the credit facility with a significant extension in maturity as well. Gary Smalley: Our goal is to get somewhere with a 6 handle compared to the horrible rate that we have right now on the bonds. Adam Thalhimer: Yes, that would be great. And then last one for me. You gave the margin outlook for the other segments, Ryan, but I didn't hear it for Specialty. I was curious what the range is there that you're working towards? And also, what percent of their work now is for other TPC segments? Ryan Soroka: Sure. For 2026, we're probably looking in the, call it, 1%, 2% to 3% range. Ultimately, we expect that specialty to get up into the 5% to 8% range. I mean, look, we still have a little bit of overhang with some legacy disputes. That's why I'm kind of tempering 2026 in that 1% to 3% range. And at this point, Specialty's backlog, about 2/3 of it is with -- is on, call it, other Tutor Perini subsidiary projects. Operator: There are no further questions at this time. I would like to turn the floor back over to Gary Smalley for closing comments. Gary Smalley: Thank you, everyone, for your participation today. We look forward to continuing to deliver excellent results and to speaking with you again next quarter. Thanks again. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and welcome to Energy Recovery's First Quarter 2026 Earnings Call. During today's call, Energy Recovery may make projections and other forward-looking statements under the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. These statements may discuss our business, economic and market outlook, growth expectations, new products and their performance, cost structure and business strategy. Forward-looking statements are based on information currently available to the company and on management's beliefs, assumptions, estimates and projections. Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. We refer you to documents the company files from time to time with the SEC, specifically the company's annual Form 10-K and quarterly Form 10-Q. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. All statements made during this call are made only as of today, May 6, 2026, and the company expressly disclaims any intent or obligation to update any forward-looking statements made during this call to reflect subsequent events or circumstances, unless otherwise required by law. Our hosts for today's call are David Moon, President and Chief Executive Officer of Energy Recovery; and Aidan Ryan, Interim Chief Financial Officer. I would now like to turn the call over to Mr. Moon. David Moon: Thank you, operator, and good day, everyone. Earlier today, we released a letter to shareholders on the Investor Relations section of our website that reviews business and financial performance during the quarter. Prior to opening the line for questions and answers, I'd like to highlight a few important takeaways from that letter. First is our new product, the PX Q650. We launched the product in March, have already received our first commercial order and are working with multiple large customers to design it into large desalination plants. It's off to a strong start, and we're excited about the commercial momentum that we've achieved in such a short time. Second, two leadership updates. I've informed the Board of my intention to retire and a search for my successor is underway. Until that person is named, I'm fully engaged in my role. Behind me is a strong bench of talent here at ERI that will ensure a smooth transition. We're also announcing that Mike Mancini has resigned as CFO. Aiden Ryan, who joined in 2024, will take over as interim CFO and ensure business as usual from a finance and shareholder standpoint. Third is the war in Iran. As we talked about in our letter, we have meaningful exposure to the Middle East, and we know the conflict will impact us. As such, our original financial guidance for 2026 is no longer reliable, and we're temporarily withdrawing guidance until we have better visibility on the evolving conflict. We've seen these situations in the past. And while timing is a key factor, we know the demand is there, and we are building inventory to serve customers when they are ready. Our strategic direction will not change during this uncertain time. We remain focused on product innovation, cost discipline, manufacturing transformation and the growth of our wastewater business. With that, we will now move to the question-and-answer portion of our conference call. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Ryan Connors with Northcoast. Ryan Connors: David, congratulations on the retirement decision. And Aidan, congratulations on the elevation. Actually, a quick question on that. Will the search lean internal or external? Or is that just sort of everything is on the table in terms of your replacement, David? David Moon: Ryan, everything is on the table. Ryan Connors: Okay. And then in terms of just unpacking the Middle East situation a little bit. I think we got two different types of issues, right? One is a short-term delay, a project gets pushed out six, nine months. I think everyone -- that's totally -- that's not a big deal even from a modeling standpoint. But there's this sort of concern that the nature of this conflict and some of the images that were out there that people are seeing and potential investors in the region are seeing could kind of just sort of deflate confidence in the region for a little longer period and kind of just take away some of the growth economically and tourism and whatnot that underpins some of the project activity. I mean, I know you don't have a crystal ball either, but what's -- I'd love to get your take on that issue and whether the delays are likely to be the first sort or more of the second sort, which would be a little more concerning. David Moon: Yes. So, I think, Ryan, obviously, it's still early days. But what we're hearing both internally and as we talk externally to others that are in the industry is that the project delays will be just that. There are likely to be some delays as we move from '26 into '27. But the fundamentals that are driving desalination and wastewater, but primarily desalination in the Middle East is water scarcity and water security, right? And so, populations continue to grow. Those aren't going away. And so, while we may see some projects delayed, we still feel good about the long-term fundamentals of desalinization. Ryan Connors: Yes. Yes. I have to just keep track of it, I guess, as it plays out. David Moon: And Ryan, we're not hearing anything that would tell us otherwise at this point. Ryan Connors: Sure. One of my questions, David, you answered to some extent, which is I was going to ask how you're managing inventory and production schedules given that kind of uncertainty. But you did mention just there at the end of your prepared remarks that you're building inventory to be ready to serve customers. So, I guess that was -- my question is twofold there. One is what gives you confidence to be building that inventory when things could push further right or not on a certain project? And b, given the good news on the 650 gaining traction, how do you know which inventory to build? Because might -- if some of these things are delayed a year or so, might you actually have the opportunity to try to spec in some of the 650s in place of what was supposed to go in? Or is that just not feasible? David Moon: Yes. I think the answer to that is yes, but we already know projects that are on the board over the next 12, sort of 24 months that are Q400 spec and frankly, are so far along in the design phase, it's unlikely that those projects will change product. And so, we've got a pretty good -- given where we're at today, we've got a pretty good crystal ball of sort of the Q650 transition time. And so that's sort of number one. Number two is that we saw the Q300 Q400 transition sort of take sort of two-plus years to play out to get it to where the Q400 is our primary product today. And so, we think it's going to take even with sort of this early momentum around the 650, we think it's going to take a couple of years the 650 to become our primary product. And that's probably 2028 before we see that. So, we feel pretty good about how many Q400s we need to be building over the next couple of years and how many 650s that we should be building as well. Ryan Connors: Yes. Okay. And then my last one, and then I'll pass it on is just obviously, the delays are focused on the Middle East and the conflict. But the conflict itself has led energy prices higher. Obviously, desal is very energy intensive no matter where on the globe people are doing it. Now the PX device is going to lower that energy footprint, but still versus a few months ago, any project is going to look a little more expensive. So is there any sign that there's any kinds of delays outside of the Middle East, just given the higher energy cost spike? David Moon: Yes, it's a really good question. So, the answer is no, not to this point. We have seen a few delays in some wastewater projects because of the cost -- input cost of materials. And so -- but there have been small projects and pretty small scale. So, nothing really at this point that would say desal projects in general globally are being impacted even given sort of the high energy price at this point are being impacted by the war. TBD, right, if it continues. But so far, the answer is no. Operator: Our next question comes from the line of Ryan Pfingst with B. Riley Securities. Ryan Pfingst: Maybe just a follow-up to the last one on the flip side with the Middle East uncertainty, are there other geographic regions where you're particularly enthusiastic about project development on the mega project side? David Moon: Yes. I think if you think about sort of the next two years, we're excited about China and some of the desal activity that looks to be ramping up there. And I would say South America, which would be the sort of second area where we see some activity that's starting to pick up there. So I'd say those are the sort of the two dual areas. The third, I would say, is the wildcard would be Texas. There's been a lot of talk about desal projects for the last couple of years. Should some of those projects really start to prove out and start to happen, that could be some really nice business for us. And so I would say those are sort of the three areas that we're watching pretty closely. Ryan Pfingst: Got it. And then has there been any change or update to how you're thinking about your manufacturing footprint expansion globally, just given the recent geopolitical events? David Moon: No. I think the strategic reasons for us looking in the Middle East are still the same regardless of conflicts, right? So first and foremost, it's our biggest base of business and looks like it will be over the next five to 10 years. And so that's sort of reason number one, right? Reason number two is we've got customers there that are really, really pulling us for local content as it relates to building PXs on the ground. And so we're really -- and so that -- and that's not going away in the near term. And then I think the third thing is that the sort of the icing on the cake would be the low-cost benefits that we get by moving a manufacturing facility to the Middle East. And so look, we continue to be full speed ahead in our planning. It's still our target by Q1 to be able to start manufacturing Q400s, assembly Q400s overseas. And so we continue to push down that path. Ryan Pfingst: Appreciate that. And then maybe just one more on wastewater. The prior 2026 outlook was $10 million to $15 million in revenue. Is that still how you're thinking about wastewater revenue for this year? Or should we consider that on hold as well? Aidan Ryan: So, we are pausing -- Ryan, this is Aidan. We are pausing our guidance on both desalination and wastewater. So we're not going to comment specifically, but there's a lot of good things going on in wastewater. We also have some challenges, like David mentioned, and we look to update that when we update our overall guidance, hopefully here in Q2 or Q3. Operator: Our next question comes from the line of Larry Solow with CJS Securities. Unknown Analyst: It's Pete Lucas on for Larry. You covered a lot in your previous answers. I guess just one for me. Given the short-term uncertainty, how do you think about cost cutting as a lever to pull to maintain free cash flow? And how should we think about that as an option for you? Aidan Ryan: Yes. Some of those things are definitely part of the existing plans, as we highlighted in the shareholder letter, our focus is on maintaining cost discipline. So we've talked about reducing manufacturing costs domestically with lean and Kaizen programs. David just talked about the manufacturing footprint strategy. That is part of our plans to reduce cost, and we're always focused on that. David Moon: Yes. I would say the other thing, Pete, is that we did we did a major reduction in force last year. We did a reduction in force to start at the beginning of this year. And so as we think about further cost cutting in SG&A other than the belt tightening and continuing to sort of turn around the edges, there's not a lot of big onetime opportunities left. I think we've done a pretty good job of reducing there where we have the opportunity. I think where we see opportunities going forward is really productivity gains at the factory and sort of continuing to get smarter where we work in our SG&A to the extent that there are opportunities. But sort of no big time opportunities left. Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back over to CEO, David Moon, for closing remarks. David Moon: Thank you, operator. So, I just want -- just to repeat what I had said in my opening remarks, our strategic direction will not change during this uncertain time. We will remain focused on product innovation. I think we've proven that with the Q650. We've got more products on the drawing board as we move forward, cost discipline, our manufacturing transformation efforts, both here and overseas and then the growth of our wastewater business are all things that we'll remain focused on as we move throughout the year. Thank you, operator. Operator: Thank you. And this concludes today's conference, and you may disconnect your line at this time. We thank you for your participation.
Operator: Ladies and gentlemen, greetings, and welcome to the Root, Inc. Q1 '26 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Matt LaMalva, Head of IR and Corporate Development. Please go ahead. Matthew LaMalva: Good afternoon and thank you for joining us. Root is hosting this call to discuss its first quarter 2026 earnings results. Participating on today's call is Alex Timm, Co-Founder and Chief Executive Officer; and Megan Binkley, Chief Financial Officer. Earlier today, Root issued a shareholder letter announcing its financial results. We'll focus today on how we're executing against our model and the progress we're delivering across the business. While today's discussion will reflect the shareholder letter for more complete information about our financial performance, we also encourage you to read our first quarter 2026 Form 10-Q, which was filed with the Securities and Exchange Commission today. Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we are not obligated to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our most recent 10-K, 10-Q and shareholder letter. A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures while talking about Root's performance. You can find reconciliations of these historical measures to the nearest comparable GAAP measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com. I will now turn the call over to Alex. Alexander Timm: Thanks, Matt. Good afternoon, and thank you, everyone, for joining us. We kicked off 2026 with the most profitable quarter in the company's history, generating an annualized ROE of 47%. The team has worked hard to deliver these fantastic results, and we're all grateful for their hard work. These results reflect a structurally stronger model driven by improvements in pricing, underwriting and capital allocation. On growth, we grew policies in force over 9% in the quarter year-over-year with gross premiums written of $389 million. Recall that last year's growth temporarily increased on news of impending tariffs, making year-over-year comparisons difficult. As a reminder, we continue to be focused on our 5-part growth strategy: one, create the lowest prices for customers; two, launch our product in every state; three, expand into the independent agency channel; four, scale our embedded insurance products; and five, leverage our AI expertise to grow our automated marketing machine. Some highlights from the quarter. On distribution, we're continuing to build a platform that is both diversified and scalable, which is very important to our long-term growth trajectory. Our overall partnerships grew new writings 30% year-over-year. On independent agents, we now partner with more than 15,000 agents across 5,000 agencies nationwide. In the first quarter, we launched our partnership with Freeway Insurance, the largest personal lines insurance distributor in the country. We're very excited by the prospects of continuing to scale in this channel, bringing products that are easier for agents and more affordable for customers to an over $100 billion market. As our models have continued to learn in this space, we were able to materially improve our pricing for this segment of our business in the first quarter as well. We also continue to scale our embedded insurance offering with Carvana now surpassing 200,000 policies sold. This channel allows us to present nearly frictionless insurance at the point of need, creating a great experience for customers. In addition, this allows for the potential to create new pricing models distinct to each partner, leveraging their unique data, including connected vehicle data, which is critical to our long-term AV strategy. In direct, we saw a difficult growth environment that intensified throughout the quarter. These cycles are common in our industry, and we are well positioned to manage them prudently, only deploying your capital when we see meaningful opportunities to exceed our hurdle rate. When conditions are attractive, we invest aggressively. When they are not, we remain disciplined and patient. This creates some fluctuations in our quarterly growth. But over the long term, we believe it creates much better outcomes for our shareholders. We believe a key source of value is our ability and willingness to act differently from the crowd and maintain our long-term orientation. Regardless of the cycle, we always invest in our technology and customer experiences that makes Root special. And right now, we are living in one of the most exciting times in technology that we've seen in our lifetimes. Since our inception, our founding principles lie at the heart of AI. We were born out of the forces of mathematical invention. And now the advancements of this technology have perfectly situated our strategy for acceleration. We are actively working to build a completely automated insurance company that will be the first of its kind. This allows us to create a closed loop tying customer acquisition, onboarding, pricing, underwriting and claims, together in one technical system. We believe this structural advantage will create meaningful operating leverage and most importantly, allow us to price and manage risk at a fidelity never before seen. Insurance is fundamentally a prediction problem and AI is fundamentally an advancement in predictive sciences. And we've built moats around this advantage. This future belongs to a technology company and requires loads of claims data, insurance licensing and a complete insurance technology stack built entirely in-house. We have invested tremendously in these hard-won assets, and this puts Root in the ideal position for this future. We're very, very excited by this future and what we can achieve. We are well on our way to fulfilling our mission. I'll now pass the call over to Megan to talk about financial performance. Megan Binkley: Thanks, Alex. We delivered record net income of $36 million in the quarter, up $18 million year-over-year. Operating income was $41 million and adjusted EBITDA was $57 million, increasing $17 million and $25 million year-over-year, respectively. We grew policies in force 9% on a year-over-year basis. We continue to diversify our business, growing our partnership and independent agent new writings by more than 30% year-over-year. Related to premiums, Q1 gross premiums written were $389 million, a moderation of 5% year-over-year. As Alex reiterated, this was largely driven by early 2025 tariff-related demand. Q1 gross premiums earned were $370 million, growth of 8% year-over-year. These results reflect continued improvement in our unit economics, driven by pricing, underwriting and acquisition efficiency. Our record profitability reflects how we manage the business, including focusing on high-return growth and market expansion opportunities, maintaining flexibility across underwriting cycles and continuing to invest in product and technology innovation. On capital, I'm pleased to announce that we refinanced our $200 million debt facility with the Huntington National Bank on May 4, lowering our annual run rate interest expense by roughly $5 million. The new facility enhances our financial flexibility, allowing us to allocate capital more dynamically. Consistent with our strategy, we are investing in our technology, organic growth, partnerships and shareholder returns. As part of this approach, our Board of Directors authorized a $75 million share repurchase program, reflecting both the strength of our capital position and our confidence in the intrinsic value of the business. Overall, the financial profile of the business continues to strengthen, and we are energized by the progress we've made. We remain focused on the long-term opportunities in front of us, supported by massive growth prospects across our 5 levers and advancements in our data science, technology and distribution capabilities. We will continue to stay nimble and believe we are well positioned to continue strengthening profitability while maintaining flexibility to invest in growth. With that, to begin the Q&A session, I'll turn it back over to Matt and Alex to answer a few questions we've received through social media and our Investor Relations e-mail. Matthew LaMalva: Thanks, Megan. As we continue to engage more directly with our shareholders, we wanted to address a few of the most common themes we've seen this quarter. Alex, the first question is, what is Root's approach to the growth versus profitability trade-off? Alexander Timm: Yes, that's a great question, and it's actually unique at Root because we don't see those 2 things as trade-offs actually. We think the best way to grow our company through cycles is to continue to invest growth dollars provided that we continue to exceed our cost of capital. And by doing that, we're basically, we're essentially directly solving for increasing the intrinsic value of the shares and of the company. We don't have calendar period targets because if you try to optimize for growth in a calendar period at a certain profit constraint or anything like that, you actually run the risk of making decisions and actually destroy intrinsic value that are not good for the company. And we didn't invent it. This is, we learned this in college and finance classes and things like that, that we should just optimize to continue to build the largest discounted cash flow, future cash flow of the company. And so what you see from us is when we have high returns and high opportunities in the market, we invest aggressively, we grow aggressively. That might, by the way, in that calendar period, reduce short-term earnings. And then you see when times, when there's not as many opportunities in the market, we're totally fine being patient with the capital, and you'll see us be very, very profitable. And we think that, that's just absolutely the best, most disciplined patient way to manage our shareholders' capital. And really, so there's really not an implicit trade-off in our business decisions between growth and profit. Matthew LaMalva: Great. The second question is, which part of Roof Advantage compounds the fastest over time, data, pricing models or distribution? Alexander Timm: Well, the interesting thing is data, pricing models and distribution all actually have this nice mutually symbiotic relationship with one another. As you get more data, you get better at pricing; as you get better at pricing, your distribution grows; as your distribution goes, you then get more data. And that flywheel is something we started a while ago, and we've actually built a lot of technology to continue that flywheel going very, very fast. I think the part that probably compounds the fastest and that maybe is the hardest to understand from the outside, is just how fast and to what magnitude our pricing can improve as our data science continues to advance because those algorithms are incredibly powerful and our ability to consistently retrain and understand the signal and deploy modern quantitative capabilities, that's really, really important. So I believe that, that compounds really materially over time. Matthew LaMalva: Next question is, how did Root become the profitable insurtech? Alexander Timm: Focus. We picked one of the hardest and largest though, lines of business in the country. And then we picked one of the hardest problems, which is getting really, really good at pricing and underwriting it. Now why do we do that? Well, price, one, if you want to be serious about disruption in personal lines insurance, you got to be serious about auto insurance because it's the #1 product most consumers actually purchase. It's, again, the largest line of business in the country. And then two, the biggest thing that matters is price, and that is fundamentally a data science game. And it's not an easy problem to solve. And, but we stuck with it. And by sticking with it, we got very good at it. And that focus has allowed us to drive material earnings now because, again, now we've become experts at what I think is probably one of the most important problems right now for consumers in insurance. Matthew LaMalva: Great. And finally, which part of the company is most misunderstood by investors? Alexander Timm: Well, that's a great question. We get it sometimes. I'd say it's always very difficult to understand the platforms that we are building and the systems that we are building truly in like what I would say is like the guts of the company, whether that's pricing or claims. And so these aren't, it's much easier to understand some consumer-facing features. It's easier to understand marketing. It's very difficult to see and understand and appreciate the value of a 10x platform in insurance, whether that's our data science platform, our telematics platform or our claims platform or most importantly, the fact they're all a single platform and integrated inside one company. That is incredibly difficult to sort of see clearly from the outside. But from the inside, that is our most valuable asset. Matthew LaMalva: Thanks, Alex. Operator, we'll now open the line for questions. Operator: [Operator Instructions] Our first question comes from Tommy McJoynt with KBW. Thomas Mcjoynt-Griffith: The first question here is about what you guys are doing on the rate side and how you think about that competitively. I think last quarter, you had talked about the expectation that with rate, your average premium per policy might decrease a little bit in the first quarter, but then normalize after that for the rest of the year. Is that still the case? And can you just give us an update on how you view your rate adequacy across your book? Alexander Timm: Yes. Thanks, Tommy. First, I want to just remind everybody, we do not price to try to hit growth targets. We do not price to try to hit a calendar period loss ratio or combined ratio target. We price to optimize the lifetime value of the customer. And in doing that, that's how we always sort of optimize our net present value. In the quarter, we did improve pricing. We actually improved the LTV of our customers by roughly 15%. A lot of that was through some of the independent agency channel updates that we had as well as with returning customers. What I think you, and have seen in our numbers is that as we've improved segmentation, there has been a bit of a mix shift to some lower premium segments that we've identified that are really good risks. And you can see that because although these average premiums decreased, our loss ratio was still rock solid, which is really proof of the power of the model. As we look forward, I think you might see from some of those improvements in segmentation that we shipped this quarter, you might see some mild decreases in average premiums continue as we continue to unlock more affordable insurance for a lot of our customers, but it shouldn't be anything massive or material. Thomas Mcjoynt-Griffith: Got it. And then switching over to your appetite for direct channel. It seems that the sales and marketing expense in the first quarter was a bit less than we expected, and it sounded like some of your commentary pointed to expectations for the challenging growth environment to persist for the remainder of the year. Do you have an expectation for how much you'd expect to spend on the direct marketing channel in the coming quarters as we think about modeling? Alexander Timm: Yes. I mean, first, we grew PIF 9% in the quarter, and our partnerships channel grew 30% year-over-year. And so that was actually despite what was a very difficult macro backdrop and challenging growth environment. And we are, we saw that environment actually intensify throughout the quarter. And so we were fine being patient and not deploying as much capital as we would have otherwise knowing that the returns probably weren't there. And so that's what also why you saw us be very profitable in the quarter, one of the reasons you saw us be very profitable in the quarter. And we think that's really disciplined. We aren't expecting the macro environment to totally change quickly here. And so I think you can probably expect more of what you saw in Q1 for now. But long term, we've seen these cycles happen before. We know how to manage the cycles. And we think our technology can also respond very, very quickly if that cycle changes. And so you should expect if the competitive environment does change for us to change very aggressively and quickly into a growth position as well as we're continuing to appoint new independent agents. We're continuing to add partners to our platform. We're continuing to refine pricing, and we're continuing to expand nationwide. So there's also some really nice long-term growth opportunities that we're pursuing regardless of the macro backdrop. Megan Binkley: Yes. And Tommy, if I could just layer on in terms of expectations on spend. Just to reiterate what Alex mentioned, as it relates in particular to the direct channel, our focus is going to remain on meeting our return thresholds and really leveraging our direct marketing machine to make quick and distinct decisions as the environment evolves. I mean I think that, that's a really significant differentiator for us. So we'll continue to invest in direct marketing as long as we're meeting our return hurdles across our distribution channels. A couple of other things to note. We continue to be very excited by our partnership and independent agent channels. You can expect that we'll continue to spend through the other insurance or other insurance expense line item as we continue to expand our partnerships and independent agent footprint. And then also, we are continuing to invest in many of the direct R&D channels. You saw that from us in 2025. And we'll continue to invest in many of these mid- to upper funnel channels that we're not in today. Operator: Our next question comes from Andrew Andersen with Jefferies LLC. Andrew Andersen: Given commentary for a challenging growth environment and recognizing the 1Q comp was more challenging, just how should we think about PIF growth trending relative to guidance you had given last quarter of full year PIF acceleration? Alexander Timm: Yes. We're, if the environment stays currently where it is, our expectations are probably something similar to what you saw in Q1. Again, we're really well positioned to pivot and to push direct growth if we see that as prudent in that quarter. And we have those other growth engines that are outside of direct, whether it's independent agents, partnerships or continuing to expand nationally. Andrew Andersen: Got it. And if PIF growth sees some moderation here while, or premium growth sees some moderation while PIF does continue to expand, how do you think about the OpEx leverage, specifically on G&A and tech spend, so not looking at the marketing and other expense line item. Megan Binkley: Yes, Andrew, good question. As we think about OpEx leverage for the rest of the year outside of our acquisition investments, we expect that, that will remain relatively stable as a percentage of gross earned premium. So that's been around 10% to 11% of gross earned premium. Most of our fixed expense run through that tech and dev and G&A line item. And we expect that as a percentage of premium that that's going to remain stable throughout the rest of the year. Operator: Our next question comes from Andrew Kligerman with TD Securities. Andrew Kligerman: My first question is around the gross accident period loss ratio and the gross loss ratio with gross accident being 58.8%, gross loss ratio at 54.5%. So that's about 4.3 points of favorable development. And I'm curious as to where you're seeing that from, what accident years? Any color you could share would be great on that. Megan Binkley: Andrew, I can add some color to that. So firstly, I'll just say our reserves have been very stable over the past few years. On a quarter-over-quarter basis over the last few years, we continue to have confidence in our loss reserve estimates. The book overall is relatively short tailed. And it is important to highlight that we do perform a full month, a full reserve analysis on a monthly basis. So, you're not seeing a lag when we're reporting reserves on a quarterly basis. It's all as of the current period. But to more specifically answer your question, the prior period development that we saw in Q1 around 2.5 points of that was related to the accident year 2025, and that was really spread across most of our major coverages, so bodily injury, collision, comp and PD. We also had an additional about 1.5 points of prior period favorable development that was related to additional subrogation opportunities that we actually identified through model enhancements in the quarter. And so that, from a combination of 2025 accident periods flowing through in Q1 of 2026 as well as a small amount of additional subrogation opportunities, that's going to really bridge your gross accident period and your gross loss ratio in the quarter. But overall, I think our volatility has been minimal overall. Andrew Kligerman: That's really terrific. And as I think about it, too, even if I were to use the accident period loss ratio of 58.8%, Root targets, I think, 60% to 65% and you're looking toward a combined ratio in order to just kind of build a book, you're willing to go in that 60% to 65% zone. I would even think you might even go a little bit higher and hit a combined of about 99% or 100%. It's been really good. So is this a sign that maybe Root would want to lean in a little more? I know the prior question, you answered that PIF growth would remain the same. But given these metrics that we're seeing, why wouldn't you just lean in a little bit more? Alexander Timm: Yes, I think that's a great question. When we make decisions based on whether it's pricing or deploying our capital, we're always looking at the value of a customer and optimizing that value. And so, and making sure that we're not deploying capital at a rate that is lower than our cost of capital. And so we really study incrementality. And that's why, and by the way, we've instrumented this directly into our system. And so we are very good at predicting lifetime value of customers, retention of customers, how they will behave throughout their lifetime. And we're very good then at optimizing how we actually achieve our target returns. So we don't set our loss ratio targets based on trying to hit a calendar period combined ratio or loss ratio because you can leave a lot of money on the table or make the wrong business decisions that way for investors in the long term. And so what we do is we stay very committed to our framework and our philosophy of making sure that we're constantly looking to optimize basically the net present value of the business. And that's how we operate. And so sometimes that leads to some periods like you saw in Q1, where we are very, very profitable and some periods where we grow very, very fast. And although that might fluctuate quarter-to-quarter, what we believe is continuing to manage the business according to that really principled economic approach and foundation and fundamentals, you end up building a much stronger business long term. And this is enforced culturally here. This is embedded directly into our system. So, it's automated. These beliefs are automated at this point to a large degree in how we operate. And so that's really important for us. And so you won't see us say, well, we could hit a higher combined ratio, let's go lower rates. We just don't think that way. Megan Binkley: Yes. And Andrew, if I could layer on too, and you've seen this from us historically as well, but there is a bit of seasonality favorability in the Q1 loss ratio. So Q1 typically is our lowest loss ratio from a seasonality perspective, and this quarter was certainly no exception to that trend. When we think about our loss ratio targets between 60% and 65%, we do expect that our accident period loss ratios will remain within that target as we persist throughout the rest of the year, even with modest seasonal and macro pressures. So, as a reminder, Q4 loss ratios tend to have the highest level of seasonality impacts, and that's largely driven by animal collisions. And so, we would expect that Q4 is typically at the top end of that 60% to 65% range, whereas in Q2 and Q3, the seasonal patterns are typically more in that 60% to 62% range. Andrew Kligerman: Safer time for the animals, another good quarter for Root. Thank You. Operator: Our next question comes from Elyse Greenspan with Wells Fargo. Elyse Greenspan: I guess one question, just following up on, I guess this goes back to loss ratios a little bit, right? We're starting to think about higher gas prices and then there potentially could also be supply chain impact, right, from what's going on in Iran. So, I was just wondering, as you guys think about these factors, what are you thinking could potentially happen to frequency and severity from here? And are you assuming any impacts when you say you'll stay in kind of the 60% to 65% range this year and the low end, right, in the second and third quarters? Alexander Timm: Yes. So that's a great question, Elyse. Right now, we have not seen, we have seen mileage slightly down, not massively down. However, we have not seen frequency drop tremendously. So a lot of those miles are discretionary miles that consumers are driving that are generally low-frequency miles in the first place. And so we certainly haven't seen that sort of impact the numbers immediately. And it's the same thing with inflation. We think that we are in a reasonable low single-digit type trend environment right now. And we're watching that every day. We're always measuring it. We have a lot of cutting-edge claims models that look at that actually on a daily basis to try to predict exactly what we think is happening in the market so that we are very well positioned if trend does change to quickly take, to quickly detect it and then quickly take rate through a lot of our automated actuarial systems. And so we're always looking at that data. So right now, our expectation and when we talk about our loss ratio expectations, they do include our expectation of the macro as well. Elyse Greenspan: And then I know you guys highlighted, right, that the direct environment, right, competition there got more difficult, during the quarter. As we just think about, it seems like in the market today, right, most players at target margins and a lot less rate taking, if anything, right, negative rates across the personal auto industry. As you guys, with that backdrop, I guess, would your assumption be, I guess, that competition on the direct side just continues to intensify from here when we think about the rest of 2026? Alexander Timm: It's certainly a macro prediction. So take it for what it's worth. But we're not predicting that the soft market or that a lot of the irrationality of massively increasing marketing budgets with limited incremental growth that, that necessarily goes away at our competitors overnight. And so we're always monitoring it. You never know when it's going to change. But right now, our base case is that it stays roughly where it is or maybe gets a little bit hotter as those margins stay where they are until, and maybe rates come down a little bit as well. And that's what we're prepared for. But again, we're not guessing because we're measuring it every day. And thanks to our technology, we can actually just react to it every day. And so it's, we don't really guess a lot. We just measure it. Elyse Greenspan: And then you guys put in place, right, a $75 million repurchase program. is the expectation that you guys will start buying back your shares? Or is this just to give you flexibility at some point if you decide you want to? Megan Binkley: Thanks, Elyse. It's a great question. And before I answer that question, I think I'd be remiss not to just highlight that we're incredibly pleased with the new debt structure with Huntington. Huntington has been a long-standing banking partner for us, and we're really thrilled to continue the partnership with them in this manner. The refinancing of that debt is beneficial in a couple of ways. One, we're unlocking significant interest expense savings for the company. And then two, the new facility gives us the optionality as it relates to deploying capital or deploying excess capital. So you hear Alex and I say it consistently, our objective here is really to maximize the long-term value of the company. And we believe we can do that through disciplined and dynamic capital allocation based on relative returns. So one thing I just want to reiterate is that we are continuing to invest in organic growth and continuing to invest in our technology and our product innovation in the business. These are really non-negotiables for us, and we're going to continue investing here. As it relates to the $75 million share repurchase authorization, a couple of things to really keep in mind. One, it comes down to the flexibility that we now have with our new debt facility. Secondly, we have a really strong excess capital position. And then third, we've got confidence in the long-term opportunities in the business. And we now have the flexibility to repurchase our stock when we believe that it's trading at a discount relative to our intrinsic value. We believe this is a great and indirect way to return capital to shareholders. So in terms of the mechanisms that we'll use, like many of our investments, we'll be opportunistic in our approach to share repurchases. Again, I just want to reiterate that we're going to continue to invest in the business at the same time that we plan to deploy capital for share repurchases. We've got confidence that we can do both, and we've got the flexibility now under our new capital stack. Operator: Our next question comes from Brian Meredith with UBS. Unknown Analyst: This is actually Leandro on behalf of Brian. My question is related to the investment space. If I remember correctly, last quarter, you said that we would eventually see the net income lower in '26 full year, but this quarter was actually pretty strong at $36 million. So my question is, is there any implied acceleration in investment base going forward related to new channels, technology and R&D? Megan Binkley: Yes. Great question. Just to start off, I mean, and you mentioned this in your question. But given the record net income that we posted in Q1, as we sit here today, we do expect to deliver more net income in 2026 than we did in 2025. And that really just comes down to the strength of our model and our agility and opportunity to move quickly as it relates to direct marketing investment. So with the intensity that we've seen in the competitive environment, you did see us scale back on direct marketing expense in March, which we believe is the right decision for the business long term. So we're going to continue to be opportunistic in terms of how much investment we deploy throughout the remainder of the year. So really, the way I'd think about acquisition expense is it's really variable and based on the returns that we see in the direct. But we are going to continue to invest in R&D, direct marketing. And we're really excited to continue growing our partnership and independent agent channels. So you will expect to see other insurance expense increase throughout the back half of the year. And then earlier, I mentioned some of the seasonality trends on loss ratio. So again, keep in mind, Q1 is our strongest loss ratio quarter from a seasonality perspective. We do expect that loss ratios will increase mildly throughout the rest of the year but still remain within our long-term target of 60% to 65%. So all that to say, if the environment persists, we definitely expect that 2026 net income will be stronger than what you saw in 2025. Unknown Analyst: That's helpful. And my follow-up question is actually related to the sales and marketing expense line. So this quarter was lower year-over-year and also quarter-over-quarter. I think you've kind of responded that, but how should we think about sales and marketing going forward, I guess, more back-end loaded? Megan Binkley: Yes. So as we think about sales and marketing, it really comes down to the competitive environment. And as I mentioned, we're going to remain very opportunistic in that channel. We're only going to spend to the extent that we're hitting our return targets. So if the environment is irrational, then you're going to see us be patient and not lean in spend in a given quarter. Operator: Does that answer your question, Brian? Unknown Analyst: Yes. Thank You. Operator: Ladies and gentlemen, that was the last question for today. The conference call of Root, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to the ACV Q1 2026 Earnings Conference Call Webcast. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Tim Fox, Vice President, Investor Relations. Tim, please go ahead. Timothy Fox: Good afternoon, and thank you for joining ACV's conference call to discuss our first quarter 2026 financial results. With me on the call today are George Chamoun, Chief Executive Officer; and Bill Zerella, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of the risks and uncertainties related to our business can be found in our SEC filings and in today's press release, both of which can be found on our Investor Relations website. During this call, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our Investor Relations website. With that, let me turn the call over to George. George Chamoun: Thanks, Tim. Good afternoon, everyone, and thank you for joining us. We are very pleased with our first quarter performance and execution while facing a challenging market environment. We delivered record revenue with adjusted EBITDA exceeding the high end of guidance. In addition to strong financial results, we made significant progress in our 3 key objectives. First, we continue to gain market share and expand our dealer partner network to a new record. The combination of expanding our field capacity and penetration of our no reserve offering contributed to our growth. Second, we had another strong quarter of performance in ACV Transport and ACV Capital, along with growing adoption of our value-added dealer solutions. Third, we're gaining traction with our emerging growth initiatives, including the initial launch of VIPER and expanding our TAM into commercial wholesale. While there are cross currents in the broader macro environment, ACV remains focused on delivering double-digit revenue growth and increased adjusted EBITDA while continuing to invest in our exciting growth objectives. We're confident that executing on this profitable growth strategy will create significant long-term shareholder value. With that, let's turn to a recap of our results on Slide 4. The dealer wholesale market was impacted by severe weather during the quarter, resulting in a mid-single-digit decline in dealer wholesale volumes. Despite these headwinds, Q1 revenue was $204 million and grew 12% year-over-year. Even with weather impacts, our market share gains accelerated throughout the quarter, selling 213,000 vehicles, exceeding a difficult comparison in Q1 2025. Next, on Slide 5. Today's discussion will focus on the pillars of our strategy to maximize long-term shareholder value, delivering innovation that is driving growth and scale. I will begin with growth. On Slide 7, I will highlight our growth initiatives in dealer wholesale. As we discussed last quarter, we continue to drive strong growth within more established regions, where network effects are driving significant market share. In order to broaden our regional growth performance, we are investing in additional field capacity to accelerate the number and frequency of dealer visits. We are pleased to see early returns on this investment, which resulted in another record number of buyers and sellers transacting on our marketplace. We also continue to enhance our marketplace experience to drive growth and deliver value to our dealer and commercial partners. We are leveraging machine learning that combines inspection data and dynamic market data to provide real-time pricing. Our platform powers ACV guarantees to sellers and delivers no reserve auctions to buyers. This offering remains the fastest-growing channel in our marketplace that benefits sellers, buyers and ACV. We're removing seller market risk, accelerating bidder engagement and increasing buyer satisfaction while delivering 100% conversion rate. We're confident our guarantee offering will continue to be a key driver of market share gains. Turning to Slide 8. Let's review our marketplace service offerings. The transport team had strong execution in Q1 with 18% revenue growth and over 120,000 transports delivered. By leveraging AI to optimize transport pricing, we continue to drive growth and operating efficiency. Despite the sharp increase in diesel fuel during the quarter, transport revenue margin remained in line with our midterm target in the low 20s. Lastly, on transport, our off-platform service continues to gain traction from our dealer partners, creating additional growth opportunities. ACV Capital also delivered strong revenue performance with 30% year-over-year growth in Q1. Last quarter, we highlighted ACV Capital's expanded go-to-market strategy while also driving process enhancements to manage portfolio risk. Our Q1 results demonstrate continued strong execution by the ACV Capital team. On Slide 9, we highlight how we're further differentiating ACV and creating additional growth opportunities with our suite of AI-driven next-gen products. ClearCar and ACV MAX are adding value to our dealer partners, while also contributing to our wholesale market share gains. We are enabling our dealer partners to more intelligently optimize inventory, automate vehicle selling and buying and strengthen their ability to source more vehicles from consumers. The VIPER early access program is gaining momentum and receiving very positive feedback from major dealer groups across the country. Within minutes of driving through VIPER, our industry-leading inspection data and vehicle pricing capabilities enables dealers to unlock consumer vehicle acquisition at scale in the service lanes and seamlessly identify service upsell opportunities. We are on track to grow VIPER's footprint in the coming quarters, offering a VIPER bundle with wholesale to create a powerful new lever to drive unit growth and expand our network. In addition to leveraging AI across our product suite, we have experienced strong adoption of AI tools across a range of operating groups, including our product and development teams, where we are gaining meaningful velocity and efficiency. As such, we have even more confidence in delivering our differentiated product road map to support our growth objectives. Next, on Slide 10. I'll wrap up the growth section with our commercial wholesale strategy. As a reminder, commercial wholesale is a large adjacent market, made up of 4 segments with both upstream and downstream opportunities. Our team has made significant progress on the next phase of our software build, and we believe this new digital model and end-to-end experience will transform commercial vehicle remarketing. Our differentiated offering is attracting some of the largest commercial consignors, and we have recently engaged with over a dozen accounts across major captives, banks, fleet companies and auto finance providers. Our strategy is familiar. First land commercial accounts and then expand over time, earning wallet share as we prove our results. Commercial TAM provides another exciting growth lever for ACV, and we are confident that we can deliver wholesale volumes that support our midterm financial targets. With that, I will hand over to Bill and take you through our financial results and how we're driving growth at scale. William Zerella: Thanks, George, and thank you for joining us today. ACV's first quarter results reinforce our commitment to deliver profitable growth while investing to drive dealer wholesale market share gains and to support key growth initiatives. Before we jump into the details, I'd like to highlight that as we scale our growth initiatives, our financial model will evolve based on revenue mix, which we believe will allow us to deliver improved unit economics over time than previously anticipated. On Slide 12, let's begin with a brief recap of our first quarter results. Revenue of $204 million was at the high end of guidance and grew 12% year-over-year compared to very strong results in Q1 '25. Adjusted EBITDA of $17 million exceeded the high end of guidance and grew 23% year-on-year, reflecting strong unit economics and expense discipline. Finally, non-GAAP net income of $7 million was at the high end of our guidance range. Next, on Slide 13, let's review additional revenue details. Auction insurance revenue was 57% of total revenue and grew 9% year-over-year against a tough comparison of 28% growth in Q1 '25. This performance reflects 3% unit growth in the context of a 5% decline in the dealer wholesale market while also facing a tough comparison of 19% unit growth in Q1 '25. Auction insurance ARPU of $542 grew 6% year-over-year and 3% quarter-over-quarter. Marketplace services revenue was 39% of total revenue and grew 19% year-over-year, reflecting continued strong performance for ACV Transport and ACV Capital. Lastly, our SaaS and data services products comprised 4% of total revenue with growth declining modestly year-over-year as high single-digit ACV MAX revenue growth was offset by modest declines in our legacy stand-alone inspection services. Next, I'll review Q1 costs on Slide 14. Non-GAAP cost of revenue as a percentage of revenue increased approximately 300 basis points year-over-year. The increase was primarily driven by a higher mix of no reserve sales in our marketplace, which more than doubled year-over-year. While no reserve sales typically have modestly higher costs than stand-alone auction sales, they drive strong blended conversion rates, improved marketplace liquidity and importantly, are accretive to adjusted EBITDA. In fact, adjusted EBITDA per unit increased 20% year-over-year in Q1. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue decreased approximately 300 basis points year-over-year, reflecting operating leverage in our model while continuing to invest in key growth initiatives. Moving to Slide 15, I'll frame our investment strategy as we drive profitable growth. In 2026, we expect OpEx growth of approximately 8%, which is a decline from 12% in 2025. As a reminder, our 2026 OpEx includes approximately $11 million in additional go-to-market spending to support regional growth objectives. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 100 basis points year-over-year. Next, I will highlight our strong capital structure on Slide 16. We ended Q1 with $341 million in cash and cash equivalents and $200 million of debt. Note that our cash balance includes $230 million of marketplace float. In the figure on the right, we highlight our solid operating cash flow, which reflects adjusted EBITDA growth and margin expansion. We're also pleased to announce today that ACV's Board of Directors has authorized a share repurchase program of up to $100 million. In the coming days, the company plans to enter into an accelerated share repurchase program to repurchase an aggregate of $50 million of our common stock. Turning to guidance on Slide 17. We are reaffirming our 2026 revenue and adjusted EBITDA guidance despite the uncertain macroeconomic backdrop and our updated view that the dealer wholesale market will decline in the mid-single digits this year. Now for the details. Second quarter revenue is expected to be $213 million to $217 million, growth of 10% to 12%. Adjusted EBITDA is expected to be $18 million to $20 million, reflecting an 8% to 9% margin. We continue to expect 2026 revenue of $845 million to $855 million, growth of 11% to 13%. Note that full-year revenue guidance assumes that our go-to-market investments are expected to drive modestly higher growth in the second half of the year. We continue to expect 2026 adjusted EBITDA to be $73 million to $77 million, growth of approximately 28% year-over-year. We're expecting 2026 cost of revenue as a percentage of revenue to be modestly higher than in 2025. Lastly, we are expecting non-GAAP OpEx, excluding cost of revenue, to grow approximately 8% year-over-year. With that, let me turn it back to George. George Chamoun: Thanks, Bill. Before we take your questions, I will summarize. We are pleased with our Q1 execution while navigating through challenging market conditions. We continue addressing these market challenges by enhancing our technology and operating models. Ultimately, making us even more resilient. We are attracting new dealer and commercial partners to our marketplace and expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product road map powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving strong adjusted EBITDA growth and delivering on our midterm targets that we believe will drive significant shareholder value. We are committed to achieving these results while building a world-class team to deliver on our goals. With that, I'll turn the call over to the operator to begin the Q&A. Operator: [Operator Instructions]. Our first question is coming from Bob Labick from CJS Securities. Bob Labick: I just want to -- part of your growth strategy you've talked about is filling out your territory managers and DCIs and started, I guess, kind of Q4 of last year reignited. Maybe talk a little bit about your progress in finding and hiring good candidates because we noticed that both operations and technology and SG&A grew less than sales in the quarter. I was kind of expecting those lines depending on where those hires fall to pick up a little bit. How is that progress going? What are you learning and what's out there? George Chamoun: Yes, certainly. I'll start, and then I'll Bill sort of chime in. We're making great progress. We've hired really some exceptional teammates. I joined several of the new territory manager classes. We bring them here at headquarters. I'm really, really happy with the talent. The talent comes across not only I would say, Auction background, but really knowing dealer systems, either former GMs, used car managers, just really, really strong talent. I've been really happy with the talent that we've brought in thus far. That's one on the sales for the territory manager side. In addition, from an inspector side, we've really stepped up our game where you have to go through several tests to become an ACV inspector. We really go through the gating process. So not only are we getting great talent that's going to help us not only inspect cars, but also hit our other goals as it relates to making sure arbitration and everything else is in line. We've really done a great job of hiring and training so far. Phil, do you want to chime in? Phil Schneider: Yes. All I would add, Bob, is you're also seeing the benefit of some operating efficiencies as well, which flows through our operations costs. But we are continuing to add to George's point, VCIs. We're also making sure that we have the right inspectors in the right territories to ensure that we're -- we have the best quality out there as well in terms of our conditional reports. I think we're making good progress. We're pretty happy with how things are moving ahead. Bob Labick: Then just obviously, you talked about overall market being down 5% or whatever mid-single digits in the first quarter and a similar outlook for the year. How does this impact kind of go-to-market strategy and your growth at finding new rooftops versus growing share at existing dealers? It's obviously kind of a tough market. Does that impact how you go about driving growth? Or talk about that a little bit? George Chamoun: Yes. Certainly, Bob. I mean, one data point is we had the most dealer visits between our territory managers and VCIs of a number of different rooftops last month than we've ever had as a company. That goes to your point of if there are less cars available at certain rooftops we need to go find another dealership down the road to do business. One, not only did we have record-breaking sellers and buyers, but we also had a record number of new visits. Really getting out there, getting the ACV name out there. That would be like step one. I would call that blocking and tackling. Two is really what you hear us doing on this innovation of ACV AI and bringing out our products from ClearCar to VIPER, you'll start to hear more and more in the media about how we're making incredible progress. What that does is dealers are going to know ACV in a whole another way, because if we help them go buy anywhere between 10 and 100 cars a month from their service drive and from their local consumers, then we're not just a competitor to the local auction. We're really an incredible partner to that dealership. We're both growing -- moving forward from, I would say, blocking and tackling and just showing up more and more, giving ourselves the opportunity as we grow our footprint of talented people across the country, but also this differentiated way, leading with ACV AI. Operator: Next question is coming from Rajat Gupta from JPMorgan. Rajat Gupta: I had a question on just the first quarter growth rate. It looks like industry conversion trends were pretty strong in March, also a little better than seasonal given strong expectations around tax season. In the past, when we've had these brief periods of very strong conversion, you tend to demonstrate higher share gains. I'm curious, it felt like numbers came in, in line with what you had guided. I'm curious, was there something that was coming in the way of those typical share gains that you would see in strong conversion periods? I have a quick follow-up. George Chamoun: Yes, Rajat, as we mentioned on the call, it definitely didn't help that the Northeast, where we have our largest markets had the most significant weather impact. That didn't help. Now other parts of the country, like, for example, Texas and the Carolinas grew 15% year-over-year and Southern California grew 24% year-over-year. We had different results across the country depending upon where weather was impacted. I would give that as a little bit of color of difference in our team in the Northeast still did a fantastic job, but they were just impacted the most. So I would say different things -- different results across the country based on factors outside of our control. That would be number one. I would say with that, Rajat, you're really starting to see that there's all this other great execution going on. You're starting to see the opportunity for us to differentiate, like I mentioned with Bob's question, so I'm feeling really good that we really weathered a quarter there where weather was pretty impacted and still not only hit our numbers, but obviously exceeded our -- some of the expectations. William Zerella: Yes. I would add, Rajat, because you were asking about the month of March. Actually, our conversion rate in the month of March was 1,000 bps above what it was for Q4 -- for the entire quarter of Q4. We did see a significant improvement in conversion rates. If you do some of the simple math in terms of our growth in March vis-a-vis what the market did, we basically got back to, call it, 10% or so. It's not an exact science, obviously, but a roughly 10% share gain when you do that same math, right? We did see some acceleration going into March ending the quarter. Rajat Gupta: The fact that you reiterated your full-year outlook despite just lowering the industry outlook number, so where are you seeing that additional traction? Is it something to do with some of these commercial engagements that you're having? Is it just maybe how like March and like the exit rate is turning out here on conversion? Just curious if you could unpack that. George Chamoun: Yes. Certainly, Rajat. Yes, we're feeling very comfortable with keeping our objectives for the year, even though, to your point, the market itself is likely several hundred bps probably worse than we were expecting from an overall market perspective, but why do I feel comfortable? One, us growing the footprint in the field, that's working Two, this differentiated offering on ACV AI broadly with VIPER and ClearCar and with others, it's working. Three, our commercial focus and the fact that we've got literally over a dozen different major commercial accounts who've raised their hand and said, hey, we'd like to work with ACV, whether it be upstream, pure digital or downstream at one of our greenfields, we feel good about that. We feel good about this year, even though the market conditions are likely going to be a little bit worse than we originally projected. Operator: Next question is coming from Andrew Boone from Citizens. Andrew Boone: I'd love to hear a little bit more about what you guys are doing in terms of the VIPER rollout. How are those conversations with dealers going? Then what should our expectations be for 2026? George Chamoun: Yes, certainly. Where we're at is, I would say, the hardware, the software and the AI capabilities all just came together. Over the last few months, both at ACV and the majority of our initial rollouts, the dealers are ecstatic. You'll see one of these on a podcast next week with a large dealer group where they're just going to go out there and articulate how incredible this is helping them in their service drive. You'll hear a live episode of it next week. This up-and-coming opportunity right now is think, okay, hardware works, software works, the AI works. We can see a scratch, we can see a dent. We can see whether or not the tire tread depth are. We can see whether or not there's an oil leak. We can see whether or not the undercarriage has an issue. Our AI can see what it needs to see. The next step is to really -- we've got to go out and scale this. This year won't be the scale year. This year, we're only rolling out about 150 of these between now and the end of the year. I think, Andrew, it's very simple. This year, we don't want to get over our skis too fast. We want to make sure we can deliver them, install them, support them. We really want to go into early next year scaling the production of VIPER and really proving out the whole thing. We're feeling really good about it. The other part of this, while we're proving out the hardware scale and production is these integrations going on. We've got integrations going with these companies that are the back end of dealerships. within the service drive, names you probably have heard of companies like Tekion and others who are the back-end service drive sort of software platforms. We're doing those integrations right now so that the data from VIPER seamlessly goes right into the back-end systems of dealerships. This year will be really about going out there, getting this ready to really scale for next year. The most important thing, if I'm thinking as an investor, is the product works. The feedback we're getting is incredible. Andrew Boone: Then one of the key trends that we're just hearing across all companies that are talking to us this quarter is just AI efficiency. Can you talk about that both with inspectors and whether there's a step function change in terms of what they can do in the field? Then also internally within corporate, what are you guys seeing there in terms of increased efficiency just given the gains in technology? George Chamoun: Yes, certainly. I'll start and then one of my colleagues wants to chime in at something more specific. Specifically on our inspectors, we're looking at the time to inspect both pre and post having VIPER live, it's sort of 2 different worlds. Pre-VIPER is just really getting the time down, I would say, meaningful. We've got certain inspections right now for certain types of cars, like I would say, a nicer cleaner car. We're now, we believe, under 10 minutes for a cleaner vehicle. I would say the worst vehicles are also now under 15 minutes, whereas all cars -- all vehicles were taking us, I would say, 30 minutes on average prior. We've got 2 different price buckets of cars now that are about half the time as it used to be. Then kind of the belly, the middle area, we still got a bit more work to do to become more efficient on our time with the cars that have more issues. We're making good progress there and leveraging AI, getting our TV more efficient. Then once VIPER rolls out, I think our inspectors are only going to spend 10 to 15 minutes a car, any car. Like it's just going to be massively efficient. It's going to be so much easier. They're basically going to just check to make sure there's no frame damage, a few other things, launch the car. Next year, we could see breakthrough, really unbelievable breakthroughs on having efficiency, but we've got some work to do to make that happen. Internally, from a tech perspective, other efficiencies, as you mentioned, the amount of production I'm seeing from our engineering and product team, leveraging platforms like Quad and others, it's just incredible. I mean we've pulled in -- most of my product and tech teams are pulling in the Q4 priorities that were put out for this year into Q3. Not all of them yet, and I say that because for the ones listening, I can't wait for all of my product and tech teams to pull in their Q4 into Q3. We're going to keep seeing that happen. We're going to start to see -- and I feel like this is just getting started. The amount of code, the amount of development on a per person basis, it's just supercharged over here. With the development of these tools this year, obviously, it's been a breakthrough, not just for ACV, but a lot of tech companies, but I couldn't be prouder of what the team is doing. William Zerella: I would also just add that we just signed a major enterprise agreement with one of the largest providers of LLM. That approach will not just extend to engineering, but other operational activities. We're kind of in the early days. We're just getting started. Frankly, we think there's a huge opportunity, which a lot of companies obviously are kind of seeing the same opportunities as we are. Operator: Next question is coming from Naved Khan from B. Riley Securities. Naved Khan: Just a couple of questions from me. One is, I think you lowered your outlook for the industry to negative 5% for the full-year. You're reiterating the guidance, your own guidance. I'm just wondering what kind of unit growth are you embedding in that? Are you still thinking about high single-digit unit volume growth? Maybe as a part of that, we've heard some commentary from others about off-lease volume coming back and such. Even with all of these kind of factors, how do you kind of still think about the negative 5%? The second question I had is around pricing. Do you have any -- are you contemplating any price increase? Or have you already rolled out one? What are you seeing out there with respect to similar moves from competitors? George Chamoun: Yes, I'll start and then Bill can chime in. When you think about the outlook for the year, it's just better to be prudent with all the macro conditions. I think many of you have heard from the dealer -- franchise dealerships out there where they are with retail as well as with some of the OEMs. Keep in mind that the trade-in at the dealership creates the majority of the wholesale. To your point, as off-lease comes back, could that benefit and could that mitigate some of the dealer wholesale challenges? It could. I don't want to bank on that yet. I hope it does. Our thought right now is just to assume the year stays kind of the way it is right now, where we've kind of got these broader macro challenges and just make that assumption. I hope you're right that off-lease and some of these other things could contribute because to your point, with those cars coming in, the dealer might wholesale more cars. That's really a good point, and I hope you're right. We're just not going to plan for it. Then as it relates to price increases, as you know, we do some minor price increase every year. We just to make sure we're taking care of inflation and other costs. We've always kind of got that part of what we do. Bill, any more you want to share? Go ahead. William Zerella: Yes. What I would just say is that -- so what you saw in Q1 was our ARPU grew 6% year-on-year. That's a reasonable expectation for the full-year, up in a similar fashion on a percentage basis. That's the ARPU side. You also asked a question about unit growth. Obviously, we don't guide us to unit growth. All we've said is that what we expect and what we baked into our guidance is an assumption that over time, we will improve our share gains, and unit growth versus whatever the market is doing. That's what's baked into our numbers. Hopefully, that gives you some sense in terms of how to model it. Operator: The next question is coming from John Healy from Northcoast Research. John Healy: George, I just wanted to ask about the opportunity set with the commercial consignors. I think you mentioned the 12 a couple of times in the call. What's the line of sight to activity with those folks yet? Is that something that we could see before the end of the year? Or is this much more like a '27 story for you guys? Obviously, that's a lot of interest. What would be an acceptable batting average, do you think for capturing maybe some of that business in terms of maybe rooftops or just hats with those folks? George Chamoun: Yes, certainly. Maybe I'll just try to give you a little bit more color. If I separate the upstream versus downstream activity, the upstream being the pure digital where you don't need land, the fact that we've already gone live with one of the top 4 national rental car companies, and we're going live with our second rental car company either later this quarter or early Q3 shows that of the 4 large rental companies, the fact that we're working with 2 out of the 4, that's a little bit more color on -- we're definitely starting here. We're starting to make progress. We've got 2 of the larger fleet companies who have done, I would say, small tests with us. The small tests have gone extremely well, where they've been able to get results that were just as good or better than any of the physical auctions they work with. We're going -- I would say, from test to, I would say, certain regional deployments with them. These are companies who will give us business. I was sincere when I kind of gave the land and expand earlier on the call. First is the land, get the contract done, which is what we're doing with a few of these guys where we just got the contract done. They'll start to give us some regional business. Keep show beyond the test that gave us that we can do more, which we will. And then we'll start to show that in certain regions across the country, we've got the best remarketing platform. Then downstream, we've got 2 auto finance repo type customers, one that should go live in like the next probably 30 to 60 days. They'll start giving us whatever it is, let's say, 20 to 50 cars a week or something, show this thing works, prove that we could not only ground the vehicles, do the light recon, that might mean, for example, put in a battery. When I say light recon, I'm being sincere, very light recon. It allows us to go out there, show it works and then let's start scaling it. Hopefully, I mean, that's a lot of detail to give you. I would say this year is go out there, get these guys with contracts, show it works, at least in one region and then go out there as we get in there and start to take additional regions across the country. John Healy: Then, Bill, just one follow-up. I think one of the comments you made was that March was like a 10% growth rate. I just wanted to make sure I was hearing that sound bite right because I'm sure folks will focus very much on kind of that exit March data point. I just want to make sure we understood it. William Zerella: Yes, sure. What I was implying was growth versus market. Again, we're in the context of Q1, the market was declining. When we looked at the math in terms of our actual -- our absolute unit growth in March versus what we understood the market did, can we get closer to "share gains" that would be in the 10% range, give or take. It's never an exact science, of course, but that's -- so I don't want to imply that our growth was actually 10%. It's really -- as you know, there's a lot of context given to what our growth rate is vis-a-vis whatever the market is doing. That hopefully gives you more context. Operator: Next question is coming from John Babcock from Barclays. John Babcock: Just a quick follow-up on the commercial side of things. You talked about traction with the rental car companies and also on the fleet side of things. Are you making traction with captive FinCos and banks as well? Or it's really too early to say on that front? George Chamoun: We have a few of -- so fleet, yes, I mentioned, fleet would be like corporate cars. We're actually making some progress. On the off-lease cars, we do have a couple of OEMs that we're in significant conversation with where they're discussing giving us a window of selling some of their cars. I don't have those signed. That's why I didn't broadcast it. Usually, when I talk about things, it's signed and ready to deploy. I don't want to jinx us. Then we have another major, like, I'll call it, OEM type where we're now integrated into their flow, but we're not yet auctioning cars. We're getting there. We're starting to show up and hopefully, more broadly on the captive side, we'll start to win some business throughout the year. On banks and repos, yes, I mentioned that earlier, not only are we doing business with somewhere probably around 30-ish percent of all the banks today. I think is what team told me probably a larger than 30% at one of the locations from our acquisition. We really, in a way, have some of those relationships. Now it's about scaling that. We inherited some of these relationships, and we now need to bring into, let's say, Houston or Chicago or the next location. Yes, we know that category, and now it's about scaling it. John Babcock: Then next question on the share repurchase side of things. It's not a small amount of repurchases. I was wondering if you could talk about the decision to do shareholder return at this point as opposed to investing back in the business and trying to maybe push harder on the growth side. William Zerella: Sure. We felt this was a reasonable size for a buyback, and that it's a good ROI for our shareholders based on our views of kind of our future opportunities. We talked a lot about a bunch of those today and previously. We just thought it was appropriate based on the amount of liquidity we had. We have $340 million of cash and marketable securities on the balance sheet. We're leaning in pretty hard, obviously, with a $50 million ASR. We think it's a good use of capital. Again, we're going to be -- we're still expecting to generate free cash flow this year and expect that to grow over time. We think it's the right time and place to actually launch on a buyback. Operator: Next question today is coming from Jeff Lick from Stephens. Jeffrey Lick: I was wondering if you can expand on John's questions on commercial. Just curious where you're at now in terms of the stand-alone sites or the greenfield sites. I think you had 10 and you opened a greenfield and maybe there was another. Then also just curious if you could talk about with the wins with the commercial consignors, maybe elaborate which ones are true digital versus where you're actually using the real estate? George Chamoun: Yes. I think I gave that detail a few minutes ago. I'll just repeat it. I separated a few minutes ago on the upstream versus downstream. When I mentioned we're working with one and now we believe the second rental car company, I was talking about upstream that was without land. I also mentioned about a couple of the fleet companies we were working with that didn't require land. Some of that color that the listeners heard me saying a few minutes ago, that was upstream to double down on that. I also talked about a few minutes ago that at our downstream locations, we're working with about 30% of the commercial containers today at one of our existing locations. Then to your point, it's about bringing them now to our new locations. We've got one open, one about to open. That's what I just said a few minutes ago, just to repeat it, and we're making great progress. Jeffrey Lick: Yes, but you didn't say, as you know, sometimes all companies, you can do digital and sometimes they require real estate. That's why I was just curious then on the clarification on how many real estate sites you have, physical sites now? George Chamoun: Yes, more to come on this. Jeffrey Lick: Then just a follow-up on the guarantee, Bill, any color on the penetration of the guarantee you said it doubled. I was just curious the mechanics behind why is the non-reserve -- the guaranteed sale have higher costs? George Chamoun: Yes, I'll start and Bill can chime in. When you look at the way it works, the business models, we charge a small fee for a customer that goes into the no reserve. Then there's a fee. Then we also -- there's no the discount on the buy side ever because it sells no reserve in auction. There's higher ARPU on a no reserve. There's higher cost. It changes the revenue margin percent, but it was really fascinating. Bill, maybe you can lean in a little bit about our EBITDA profile. We didn't really talk about that at all, just what's going on overall in our EBITDA profile. William Zerella: Yes. First, on the call, I mentioned that our EBITDA per unit actually in Q1 was up 20%. The way this works through our model financially is slightly lower revenue margins, but that's offset by OpEx leverage. Considering the fact that 70% of our OpEx is really fixed. We get full leverage of our inspection costs due to the fact that it's 100% conversion rate. In fact, when we look at our adjusted EBITDA per unit in our midterm model, that target is $230 of EBITDA. That's at 1.5 million units of volume. A significant jump from where we are right now. However, if we just look at 2 regions that we have in the country, we've either already achieved or exceeded that target, and that's without future OpEx leverage. We're feeling pretty good about the ability as we continue to grow our volume and further populate a lot of these territories with more scale that we'll be able to drive really strong EBITDA margins on a per unit basis. Yes, per unit basis. It all gets down to the final unit economics, right? The geography on the P&L might change a little bit, but it's all about profitability. We're feeling really good about the opportunity to continue to ramp that. Operator: Next question is coming from Glenn Shell from Raymond James. Glenn Shell: Congrats on the great quarter. You said VIPER are enabling a huge breakthrough next year. That sounds great. Is the VCI investment cycle to support VIPER deployment or just more general growth? What should we expect for the future pace of VCI investment as VIPER reach scale? George Chamoun: Yes, great question. Yes, our VCIs are being trained for multiple different ways of helping us scale the business. It was a really great question. Something I wouldn't have thought to lean in at. One is inspecting vehicles for wholesale. That's obviously their current primary task. Two, I believe I mentioned it on the last call that when there is an arbitration, we used to send the car to like a local facility or to verify and it would actually cost us money every single time we did that. Now our inspectors are being trained to go out and reinspect the car case for arbitration. That's actually helping us get higher customer satisfaction because we're getting to the cars faster, not waiting on a third party. Two, it's helping us really learn a lot and really make sure we got our arbitration under control. That's two. Three, we use our inspectors for auditing ACV capital. That's another function. Then to your point on VIPER, our last 2 installs for VIPER were done with our ACV inspectors, really proud of that. Nobody for our R&D team had to fly out there from Buffalo. That was a milestone. I know it's simple to other investors who scaled hardware companies, but the box arrived and the box arrived in a way where our local inspectors were able to assemble it, put it and assemble it and have the whole thing running within a few hours. literally, here's the Internet, get the whole thing going. I was just so proud of our inspection team. Think about we've got an amazing team of colleagues across the country. What we tell them is you're going to be trained in more than one thing. A lot of them were former mechanics. They're very skilled. They're handy. And we're really fortunate to have these great teammates to help us on whatever task they're doing for us that day. William Zerella: Yes I would add in terms of scaling that workforce, so what we indicated previously was that we were going to add 100 inspectors to the team this year. We're a little more than halfway there in terms of adding folks. But that was more of a onetime upscaling of our team in the field. Don't look at this as kind of a need that we have going forward. That's $11 million that plus the adding some territory managers as well and other resources on the go-to-market side. That's what's baked into our guidance this year. Hopefully, that helps you model it. I think in terms of going forward, obviously, we'll get into next year and the years beyond in terms of what happens to that workforce and scaling as we get closer to 2027. Glenn Shell: Specifically on VIPERS, how many VIPERS are deployed so far? How many are you installing per month at this point to get to that huge breakthrough next year? Then how big is the backlog of dealers who are asking for this? George Chamoun: We have about 18 live. We have somewhere around 75 that are waiting for them or more. Then we're going to build whatever that is, another 60, 70 more. We do have a little bit of a backlog we are prioritizing. The way we're doing that is the dealers are raising their hand. We're trying to give each of the large dealer groups a few of them. Think like major dealer group might get 2 or 3 this year, not the 5 or 10 they're asking for. That's the way to like spread the love. Really transparent to those dealers that next year is the scale year and next year, we'll be building several of these a month, but I'm not ready to tell you just yet. So great question. Operator: Next question is coming from Gary Prestopino from Barrington Research. Gary Prestopino: George, I'm interested, you mentioned something about that you're doing integrations with VIPER into the dealer DMS system. What does the dealer specifically do with that data? I mean, I assume at VIPER at the point of sale, the service technician whomever can see the value of the car and kind of make a pitch to the owner of the car at that point, hey, you can get a good value for this and trade it in and buy something or maybe I'm wrong with that. Is the dealer taking that data and maybe using it for future leads with their current clients? George Chamoun: Yes, Gary, great question. Yes, as you know, there's companies like myKaarma, like Takion, CDK as a service arm and others. These companies, some of them are both a DMS and a service platform. I hate to get into the weeds here. Some, for example, myKaarma are more focused on the service side, not a broader DMS. Whatever the dealer is using to power their service department, to answer your question specifically, car goes through VIPER, we get this incredible data profile, every angle of the vehicle, tire treads and under carriage. There's other IP we're working on going into next year that I'm not yet talking about. But -- so you get this whole profile. You also get the rest of ACV AI, which is predicting the price and condition of that car. You also get the defects we normally see with that vehicle. If it's a Nissan Maxima with 120,000 miles, we know what's typically going to happen next within the next 10,000 miles. Think not only what is that vehicle, but what are the predictions. As you know, having been around the space is step 1 was we accomplished that objective. Step 2, it needs to be put into the dealer system so they can really just make this a scalable process. That's what we're working on next. Proof one happen. Now we need to get in so it can scale. Then to your point, it's the day of service. High Miss. Consumer, Mr. Consumer, did you know that 2 of your tires are bolved, it's going to cost you $800? By the way, it might be time to buy a new car. Whatever they want to do with that information, it's not only the day of, but what we see is consumers sell their car anywhere at our best-performing dealerships, we're seeing 5 to some are 7 -- 1 of them is 9 out of 100 ROs, repair orders. That's incredible because as you know, there's over 250 million cars a year going through franchise dealerships. You just do that simple math of 5 out of 100 repair orders to lead to a consumer selling their car, it's massive. It's why you're hearing dealers push us. It's why you're hearing us take that demand going, we got to get going over here because dealers have a hard time scaling this. It takes too many people to do this. By leveraging this hardware, leveraging our AI, it gets put into the dealership. Then it gets put into the CRM, it's created as a lead. Some dealerships are then putting it with what's called their BDC and they're using a sales team. And some have actually hired very specific AI-driven bots that do the follow-up for them. We're about to launch that with one of the major dealer groups. Each dealership deployment will be different based on the other vendors involved. Either way, our role at ACV sounds very familiar. What's the condition, what's the price. We're going to be the one, we're the ACV, we're the actual cash value. Gary Prestopino: It sounds like totally disruptive technology and a disruptive product in the market. Operator: We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. George Chamoun: Great. Thank you, operator. Everybody, thank you for joining us this evening. We look forward to seeing you on the conference circuit this quarter. Again, thanks for your interest in ACV. Have a great evening. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Excuse me, everyone, we now have Sean Reilly and Jay Johnson in conference. [Operator Instructions] In the course of this discussion, Lamar may make forward-looking statements regarding the company, including statements about its future financial performance, strategic goals, plans and objectives, including with respect to the amount and timing of any distribution to stockholders and the impacts and effects of general economic conditions, including inflationary pressures on the company's business financial condition and results of operations. All forward-looking statements involve risks, uncertainties and contingencies, many of which are beyond Lamar's control and which may cause actual results to differ materially from anticipated results. Lamar has identified important factors that could cause actual results to differ materially from those discussed in this call in the company's first quarter 2026 earnings release and its most recent annual report on Form 10-K. Lamar refers you to those documents. Lamar's first quarter 2026 earnings release, which contains information required by Regulation G regarding certain non-GAAP financial measures, was furnished to the SEC on a Form 8-K this morning and is available on the Investors section of Lamar's website, www.lamar.com. I would now like to turn the conference over to Sean Reilly. Mr. Reilly, you may begin. Sean Reilly: Thank you, Katie. Good morning all, and welcome to Lamar's Q1 2026 Earnings Call. The year is shaping up quite well for us. Our first quarter results exceeded our internal expectations on both the top and bottom lines with strength from both local and particularly national customers. And our forward bookings are very promising. We are pacing to the top end, if not above, the guidance that we previously provided for full year AFFO per share. If that trend continues, we will need to revisit that guidance on the August call. I am particularly encouraged by the momentum on the national side, which, as you know, was bumpy through 2023 and 2024 before beginning to recover last year. For the first quarter, national revenue increased 5.8% versus the first quarter of 2025, with programmatic growing by nearly 25% to approximately $11 million for the quarter. Ex programmatic, national was up 4.1%. Pacings for the balance of 2026 are even stronger than that. We are seeing increased spend from some long-time national customers as well as activity from new accounts and categories. What it tells me is that in an increasingly algorithm-driven world, out-of-home's ability to reach customers at scale with memorable messages at affordable prices is resonating with both big brands and local advertisers. Back to Q1. Consolidated revenue increased 3.9% on an acquisition-adjusted basis with growth across all divisions, billboards, airports, transit and logos and across all of our regions. Our pacing suggests that revenue growth will accelerate into Q2. For the quarter just completed, EBITDA grew by 5.2% on an acquisition-adjusted basis, on a margin that improved by approximately 130 basis points versus the year earlier quarter. Categories of strength in Q1 included services, restaurants, gaming, political and insurance, while education and telecom were a tad weaker. In addition to national growth mentioned earlier, local grew 3%. Digital again led the way with revenues increasing 5% on a same board basis and accounting for more than 30% of our revenue in the quarter. Rates on our analog bulletins and posters meanwhile, showed a healthy growth of 3%. On the M&A front, we are off to an active start. So far in 2026, we have completed 19 acquisitions for a total cash purchase price of $80 million, and we have a solid pipeline working and potential for more accretive billboard deals. Meanwhile, we have ramped up our efforts to secure easements beneath our best-performing locations, and we are optimistic about what we will be able to accomplish there in 2026. That's a great use of our capital, by the way. All in all, I could not be more pleased with how 2026 has begun. With that, I will turn it over to Jay to walk you through some additional numbers. Jay? Jay Johnson: Thanks, Sean. Good morning, everyone, and thank you for joining us. We had a solid first quarter and are extremely pleased with our results, which exceeded our own estimates across revenue, adjusted EBITDA and AFFO. The airport business led the way with acquisition-adjusted revenue increasing 15.5% in Q1 versus last year, followed by logos, which was up 6.3% in the quarter. Our billboard regions all experienced low to mid-single-digit top line growth, driven by the Midwest and Atlantic, which were up 5.7% and 4.8%, respectively. In addition, the positive momentum continued in April with revenue increasing 4.8% outpacing our original budget. April's strong performance brings acquisition-adjusted revenue to 4.1% through the first 4 months of the year, and we are excited about our booking pace for the balance of the second quarter. Acquisition-adjusted consolidated expenses increased 3% in the quarter, which was better than expected and should be in the 3% range for the full year. Adjusted EBITDA was $226.3 million compared to $210.2 million in 2025, an increase of 7.7% in the quarter, improving 5.2% on an acquisition-adjusted basis. This was the strongest growth we've seen in almost 2 years. Adjusted EBITDA margin expanded 130 basis points over a year ago to 42.9%. Adjusted funds from operations totaled $177.5 million in the first quarter compared to $164.3 million last year, an increase of 8%. Diluted AFFO per share grew 7.5% to $1.72 per share versus $1.60 in the first quarter of 2025. Local and regional sales accounted for approximately 82% of billboard revenue in Q1, growing for the 20th consecutive quarter. In fact, it has been 5 years since the portfolio last experienced a year-over-year decline in local and regional sales, which was due to COVID. On the capital expenditure front, total spend for the quarter was $33.1 million, including $9.3 million of maintenance CapEx. And for the full year, we anticipate total CapEx of approximately $186 million with maintenance CapEx comprising $64 million. As for our balance sheet, we have a well-laddered debt maturity schedule with no maturities until the AR securitization in October 2027 and no senior notes maturity until February 2028. We will likely extend the securitization later this year, assuming market conditions remain favorable. The company currently has approximately $3.5 billion in total consolidated debt, and our weighted average interest rate is 4.5%, with a weighted average debt maturity of 4.3 years. As defined under our credit facility, we ended the quarter with total leverage of 3x net debt-to-EBITDA, which remains amongst the lowest level ever for the company. Our secured debt leverage was 0.7x at quarter end, and we're in compliance with both our total debt incurrence and secured debt maintenance tests against covenants of 7x and 4.5x, respectively. For the full year, we expect total leverage to hover around 3 turns with secured leverage coming in comfortably below 1x net debt-to-EBITDA. In addition, our LTM interest coverage through March 31 was 7x adjusted EBITDA to cash interest, further demonstrating the strength of the company's balance sheet. As Sean mentioned, M&A has been active thus far in 2026. We continue to benefit from an investment capacity well over $1 billion with the ability to deploy this capital while remaining at or below the high end of our target leverage range of 3.5 to 4x net debt-to-EBITDA. Our liquidity and access to capital, both remain strong. As of March 31, we had just over $700 million in total liquidity, comprised of $39.3 million of cash on hand and $662.2 million available under our revolver. The company's AR securitization had $242.1 million outstanding at quarter end. Subsequent to quarter end, the company repaid $40 million on the revolving credit facility, and we currently have $40 million outstanding. Also, the AR securitization is now fully drawn at $250 million. In this morning's release, we affirmed our full year AFFO guidance of $8.50 to $8.70 per share. Cash interest in our guidance totals $154 million and assumes no change in short-term floating interest rates for the balance of the year. As I touched on earlier, maintenance CapEx is budgeted for $64 million in 2026 and cash taxes are projected to come in around $11.5 million, which is slightly higher than our original expectations. And finally, our dividend. We paid a cash dividend of $1.60 per share in the first quarter. Management's recommendation at the upcoming Board meeting will be to declare a cash dividend of $1.60 per share for the second quarter as well. This recommendation is subject to Board approval, and we will communicate the Board's decision following the Board of Directors meeting later this month. For the full year, we still expect to distribute a regular dividend of at least $6.40 per share. On an annualized basis, the second quarter proposed dividend represents a yield of 4.5% at yesterday's closing stock price. Given the outperformance in Q1 and expectations for Q2, it is likely management will request that the Board approve increasing the dividend in the back half of the year. However, and as a reminder, the company's dividend is based on taxable income, subject to Board approval, and our dividend policy remains to distribute 100% of our taxable income. Again, we are pleased with the strong start to the beginning of the year as well as the momentum that has continued into the second quarter, and we look forward to executing on our strategy throughout 2026. I'll now turn the call back over to Sean. Sean Reilly: Thank you, Jay. And as Jay mentioned, the strongest region in Q1 was our Midwest region with pro forma revenue growth up 5.7%. The region showing relative weakness was our Gulf Coast region with revenues up 1%. I would note that looking forward, all regions are pacing well at up mid-single digits. Also of note, and as mentioned by Jay, our airports division was particularly strong, up 15.5%, and our logos division came in up 6.3%. Also as mentioned, same-board digital was up 5% and digital constituted almost 31% of our billboard billing in Q1. We ended Q1 with 5,657 digital spaces, an increase of 104 over the year-end 2025. As we have said on many of our recent calls, our pro forma revenue growth was mostly driven by rate on our static units and overall same board yield on our digital units. It also bears repeating that national/programmatic sales growth was a solid 5.8%. This was aided by programmatic's strong showing of 25% quarter-over-quarter growth. As of May 1, we were 75% booked to our total revenue goal for the year. That's the strongest laid down bookings that we've seen since COVID. I've already mentioned categories of relative strength and weakness. To that, I would add that all of our top 10 verticals are healthy and happy. There are ebbs and flows, of course, but collectively, our top 10, which generates 75% of our revenues in Q1 were up 5.4%. Finally, political this year is pacing well ahead of where it was in 2024 and should continue to be a nice tailwind. With that, Katie, I'll open it up to questions. Operator: [Operator Instructions] Our first question will come from Cameron McVeigh with Morgan Stanley. Cameron McVeigh: Curious if you could give us just a -- you've mentioned, but a high-level broader view on your view of the macro and any notable verticals that are driving the strength in the national ad market. And I know you said you expect revenue to accelerate into the second quarter. But just curious at this point, if you'd expect that strength to continue over the course of the year from what you can tell and how that cadence might look? Sean Reilly: Sure. Last question first. Q2, 3, 4 are all looking very good, Cameron, and pacing, I would call, roughly the same pro forma revenue growth. And regarding the first part of the question, it's really across the board. That's why I mentioned that if you look at all of our top 10 verticals, they're all doing well. There are going to be ebbs and flows through the course of the year and across the years. But that top 10, as I mentioned, was up 5.4%. So yes, we're seeing health across the board. Cameron McVeigh: That's great. And just one follow-up. Sean, I'm curious how you're thinking about the upcoming tailwinds, including the World Cup and the midterms and if your views have changed or evolved around the sizing of those? Sean Reilly: So I think the World Cup is -- that basically is in our book, and it's done and it's contracted for. And I'd say, in general, that's helping our national. And it's coming in, give or take, where we expected. I think the surprise, Cameron, is how strong political is. We were, I think, understandably a little bit conservative on our guide to that when we opened up -- began the year because it's a midterm year, not a presidential year, but we are pacing well ahead of 2024, the presidential year. And assuming that continues, that will be the first time that's ever happened. Operator: Our next question will come from Daniel Osley with Wells Fargo. Daniel Osley: Beyond revenue coming in ahead of your expectations, were there any other contributors to the margin strength that you saw in Q1? And then maybe as a follow-up, how should we think about your margin expansion for the full year compared to '25, especially given your commentary around easements. Sean Reilly: Yes. Good question. So there are a couple of factors in there. Obviously, revenue growth helps. Recall that we lost that Vancouver franchise last year. That was essentially a no-margin business. So that is now out of our portfolio, and that has contributed somewhat. We layer -- when we layer in acquisitions, and we did quite a few of them last year, those may come in at a margin contribution of approximately 65%. So that also obviously is helping. Now we're going to lap some of that activity as we go into the back half. But I would anticipate, and I would be disappointed if we don't have at least a full point -- percentage point of margin expansion for the full year. Last year, it was 46.7%. And I'm looking for something in the 47.7% range for the full year this year. Operator: [Operator Instructions] Our next question will come from Alexey Philippov with JPMorgan. Alexey Philippov: Can you discuss monthly dynamics through the quarter? You talked about massive 6% revenue growth in December with demand cooling off in January, February. And did you witness acceleration in March or the overall beat this quarter is largely explained by that strong momentum at the beginning of the quarter? And how much of the beat was national versus local? Sean Reilly: So on the second part of the question, I would say national was the surprise that led to the beat. Clearly, we had some large buys from some large customers that were not contracted for when we last spoke, but now are on the books and contributed nicely. And also political came in better and continues to come in better than we anticipated at the beginning of the year. And in general, to the tone of the question, we're seeing the book build nicely as we look at our pacings for the rest of the year. I would anticipate that by the time we get to the August call, as I mentioned in my prepared remarks, we'll be looking at hopefully revising that guidance upward as we go through the year. Alexey Philippov: Yes. Can I ask one more? Sean Reilly: Sure. Alexey Philippov: Yes. Last year, you talked about the deep pipeline of private targets across various size ranges and the Verde UPREIT transaction was clearly well received. So with the stock where it is today, we would expect you to be very interested to do such deals. Are you seeing seller interest in the UPREIT structure today? Sean Reilly: Good question. Yes, we are. We've had several inbound inquiries, and we're hopeful that we'll -- we can get a couple of UPREIT deals done this year. And it's a very, very attractive structure for sellers. It's very tax efficient. And of course, they get to hitch their wagon to Lamar, diversify their exposure to out-of-home, and we've been a good bet so far. Alexey Philippov: Great. And can you remind what's embedded in the full year guidance for AFFO with respect to acquisitions that you have completed in the first quarter already? Sean Reilly: When we guide to AFFO -- I'll pump that over to Jay for a second. But when we guide to AFFO per share, we don't anticipate layering in acquisitions. Jay Johnson: Yes. And so if you think about acquisitions from a top line pro forma growth, it's probably adding 20 to 25 basis points this year from an actual versus pro forma. Operator: This concludes our Q&A session. I'll now turn the call back over to Sean Reilly for any final or closing remarks. Sean Reilly: Well, thank you all for your interest in Lamar and for joining us on the call. And we look forward to another good call in August. Operator: Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Greetings. Welcome to the Hudson Technologies First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Jen Belodeau of IMS Investor Relations. You may begin. Jennifer Belodeau: Thank you, John. Good evening, and welcome to our conference call to discuss Hudson Technologies financial results for the first quarter of 2026. On the call today are Ken Gaglione, Hudson's President and Chief Executive Officer; and Brian Bertaux, Hudson's CFO. I'll now take a moment to read the safe harbor statement. During the course of this conference call, we will make certain forward-looking statements. All statements that address expectations, opinions or predictions about the future are forward-looking statements. Although they reflect our current expectations and are based on our view of the industry and of our business as we see them today, they are not guarantees of future performance. Please understand that these statements involve a number of risks and assumptions. And since those elements can change and in certain cases, are not within our control, we would ask that you consider and interpret them in that light. We urge you to review Hudson's most recent Form 10-K and other subsequent SEC filings for a discussion of the principal risks and uncertainties that affect our business and our performance and of the factors that could cause our actual results to differ materially. With that out of the way, I'll turn the call over to Ken Gaglione. Please go ahead, Ken. Kenneth Gaglione: Good evening, and thank you for joining us to discuss Hudson's first quarter results. The first quarter is typically slow for our industry. But for Hudson, it was about executing on the operational and organizational progress we need to create the foundation for healthy, diversified growth in the years ahead. We made solid progress heightened by strengthening our management team, making critical additions to our Board of Directors, launching our ERP system and the signing of a license agreement for the reclamation and resale of our next-generation refrigerants. Overall, we posted strong top line results to start the year, driven by a commitment to excellence demonstrated by our employees at all levels of the company. The leadership team is deeply grateful and thank all of our employees for their efforts during the first quarter, especially the introduction of the new ERP system. So we kicked off the 2026 selling season with revenue growth of 9% to $60.2 million, driven by strong sales volume and firming HFC prices, partially driven by unseasonably warm temperatures in the South West region, some uncertainty in global supply lines driving demand and overdelivery by our sales team. I'd like to point out that the first quarter revenue growth was stronger than we had expected and guided in our fourth quarter communications earlier this year. Our concern then was that the new ERP system launch and implementation challenges that we were facing, which are not uncommon occurrence with a transition of this magnitude, would negatively impact results. With our visibility at the time, we expected first quarter revenue growth to be constrained to the low- to mid-single digits. But thanks to our people, the initial headwinds had less of an impact than we anticipated. And that, combined with strong execution and those warmer temperatures contributed to revenue outperforming our expectations. The ERP system is now integrated and functional. And while we do expect to continue optimizing it for most of this year, we do not expect any major disruptions. The effort is already beginning to deliver the benefits of improved and faster management decision-making based on a single source of readily available data. We experienced gross margin pressure in the first quarter of '26 related to year-over-year sales mix. While traditional HFC pricing was higher in the first quarter slightly above $6 a pound, the first quarter of 2025 included a larger concentration of higher-priced and higher-margin HFO refrigerants. As you might remember, during that period last year, we started the season with an industry-wide shortage of 454B, which is an HFO refrigerant and popular replacement for R-410A in new equipment. The shortage resulted in Hudson seeing heightened demand for 454B as contractors needed to top off new systems as they came online and from inventory building to alleviate concerns over availability later in the season. Refrigerant producers effectively addressed this shortfall as the year progressed, and we view last year's increased aftermarket demand for HFOs as an outlier. We also restructured the management team in the first quarter of '26 to better serve our long-term business objectives. This included the promotion of Rob Stoody to Senior Vice President of Operations. Rob is an industry veteran who not only leads our initiatives to integrate both our supply chain and plant operation, but also maintains his legacy role managing our relationship with the DLA. He is supported by a dedicated team of professionals focused on enabling our ERP system and preparing for new growth aligned with our strategic plan. We are well positioned today to meet demand for all types of refrigerants. And under Rob's guidance, we will further streamline and expand our capabilities and capacity to separate and reclaim more complex next-generation blends in the future. We also made changes to our sales and marketing organization in the first quarter. Kirk Reimer, who was formerly Hudson's Vice President of Sales, now assumes expanded responsibilities for core marketing and the execution of certain strategic growth initiatives as Vice President of Sales & Marketing. Kirk has played a key role building our national sales team and go-to-market strategies and now has a renewed emphasis on building our core marketing organization and supporting focused growth in the services component of our business. We added significant marketing talent to Kirk's organization in the first quarter, and we will continue developing our marketing and service personnel in the months ahead. The HVAC industry, as you might know, requires a wide variety of products and services to keep cooling systems operating, and we want to ensure that the market recognizes our unique capabilities in meeting customers' needs whenever, wherever and however they need us. Additionally, we enhanced our Board composition with the replacement of 2 outgoing directors with 2 new independent directors, Alan Sheriff and Jeff Feeler. Coming into this year, it was a priority of mine to build on the strong competencies of our Board by adding new directors with diverse professional experiences and distinct perspectives in areas where we will need as the company continues to grow. Alan and Jeff bring the additional operations, M&A and capital markets expertise needed to advise and bring new perspective to the company's identification and assessment of new opportunities. Long-standing Board member, Mr. Rich Parrillo, was appointed Lead Independent Director, assuming responsibility from outgoing Director, Mr. Vincent Abbatecola, who retired from the Board this period. The company would like to thank Vinny for his more than 30 years of dedicated service to the Board and to Hudson Technologies success. Together with our current members of the Board, these new members and other changes fortify the Hudson Board by expanding our financial and operational depth of expertise and variety of perspective. As we've discussed on previous calls, our capabilities place us in 2 important points in the refrigerant supply chain as a provider to wholesalers who supply contractors working in the residential and light commercial space and as a direct supplier to customers with 24/7 cooling needs such as supermarkets and industrial facilities. This provides some resilience to our earnings. And with our new team in place, I believe we are very well positioned to expand our leadership position in refrigerant recovery and reclamation while we explore new opportunities as our industry and customers adapt to an always-changing refrigeration market. A couple of other notes here of importance. Regarding the status of our rescinded DLA contract, Hudson continues to support DLA while it updates its award procedure in response to a competitor's challenge earlier this year. We cannot predict the outcome, but we remain confident in our successful track record servicing the DLA and expect a favorable outcome when the analysis is complete. In this time of uncertain political change, I'd like to take a moment to speak to certain regulatory forces and their potential impact on the company. The strong regulatory tailwind provided to reclaimed refrigerant providers like Hudson by enactment of the AIM Act in 2020 remains a cornerstone of EPA's plans to step down HFC use another 30% in 2029. Recovered and reclaimed refrigerants are expected to fill the void between reduced supply of virgin refrigerants and actual market demand from legacy HVAC systems for HFCs, we do not expect this AIM Act-driven supply-demand imbalance to change materially. But we have seen our efforts in some states like California and New York and some other climate alliance states to legislate accelerated reduction in the use of high GWP refrigerants in favor of reclaim refrigerant for some segments, while other efforts by other parties have sought to slow or alter the phasedown schedule over primarily economic or logistic concerns. The outcome of these competing efforts is unclear. However, Hudson is well positioned through our supply of legacy HFC refrigerants and new capabilities to support their replacement products to continue our growth regardless of the outcome. Also, given the current macroeconomic environment with rapidly changing and unclear domestic policies, higher consumer prices and damaged global trading alliances, the potential impact on refrigerant supply is difficult to estimate and always a concern to the business. We will continue to monitor it. So in closing, we used the first quarter to execute important organizational and operational imperatives outlined previously and in accordance with our strategic plan. Our performance in the first quarter reinforces my belief that we are uniquely positioned with the right people, products and services needed to continue our core growth, improve our leadership position in value-added refrigerant life cycle management solutions. We are focusing on driving organic growth through our ability to provide refrigerants through our extensive national footprint and building our recovery and reclamation capabilities today while exploring real opportunities to further innovate with the goal of diversifying our revenue stream and reducing seasonality in the future. Our first quarter results reflect trends that should provide a solid platform for the 2026 selling season. Now I'll turn the call over to Brian Bertaux again to review our first quarter 2026 financial results. Go ahead, Brian. Brian Bertaux: Thank you, Ken. I'll review our Q1 '26 financial results with a comparison to Q1 '25. We recorded revenue of $60.2 million, a 9% increase compared to the $55.3 million posted last year. As Ken mentioned, revenue came in higher than we anticipated, driven by strong sales volume and organizational execution as well as warm weather in the Western U.S. Gross profit was $11.8 million in the quarter and gross margin was 20% compared to gross profit of $12.1 million and gross margin of 22% last year. The Q1 '26 gross margin declined slightly, primarily due to the mix of refrigerants sold as compared to last year. The Q1 '25 sales mix included a broader range of higher-priced and higher-margin HFO refrigerants as contractors topped off newly installed equipment as the systems first entered the marketplace. We expect gross margin to improve as we continue through the selling season. Hudson recorded SG&A expenses of $9.5 million compared to $8.2 million in Q1 '25. The increased SG&A spend was primarily related to the post-implementation enhancement of our ERP system and continued focus on strategic initiatives. Operating income was $1.5 million compared to $3.1 million in Q1 '25. This variance was mostly attributed to the higher SG&A expense. Income before income taxes was $1.6 million compared to $3.7 million in Q1 '25. Income tax expense was $1.3 million compared to $900,000 in Q1 '25. The increased income tax expense for the quarter relates to approximately $900,000 or $0.02 per share and income tax expenses related to a nonoperating item as well as executive stock compensation. We recorded net income of $300,000 or $0.01 per diluted share compared to net income of $2.8 million or $0.06 per diluted share in Q1 '25. The company's unlevered balance sheet remains strong at March 31, 2026, with $19 million of cash, and we are positioned well from a working capital perspective as we enter the selling season. During the first quarter, we purchased $2.5 million of common stock as part of our opportunistic buyback program. Now I'll turn the call back to Ken for his closing remarks. Kenneth Gaglione: Thank you, Brian. So as we continue through the 2026 selling season, we're focused not only on driving success this year, but on positioning Hudson to capitalize on opportunities to deliver strong long-term growth and profitability. Our additions to the management team and the Board demonstrate our commitment to intensifying our strategic initiatives while driving operational excellence. Again, Hudson is uniquely advantaged with the combined strength of our extensive customer base, industry partnerships, national footprint, proprietary technology and decades of expertise in this industry. Our focus now is to leverage these advantages to enhance our capabilities and open up new opportunities [Technical Difficulty] Operator: Please continue to hold. We'll have our speakers reconnected once again shortly. Kenneth Gaglione: I'm sorry, we've had technical difficulties tonight, but we're going to open the line up now, operator, for Q&A. Operator: [Operator Instructions] The first question comes from Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: I want to start with gross margin. I get the year-over-year compare. But when I look back, it's the lowest Q1 since before COVID. So I guess surprised given HFC pricing was up year-over-year and quarter-over-quarter. Just curious what's going on in the gross margin side? Kenneth Gaglione: I would just tell you, it is a tough comp against last year's first quarter. And remember that our Q1 and Q4 are our lowest margin quarters, and we are still sticking with our overall guidance of, say, mid-25s for margin overall. So it's just a low point for the year or just call it out a season, and we expect to pick up margin into Q2 and Q3. Ryan Sigdahl: Yes. I was looking at Q1 to try and be seasonally comparable when I went back. I think previously, you had said flat to up slightly for the year. Now mid-20% maybe saying the same thing, but gross margin was 25% last year. I guess, is it still 25% or better? Brian Bertaux: Yes, correct. Ryan Sigdahl: ERP transition, are you willing to quantify how much of an incremental cost that was? And then if any of that is lingering still in Q2 or the rest of the year? Brian Bertaux: We don't want to go into great detail on it, but let's just say it was a strong contributor, probably half of the increase year-over-year. And yes, as Ken noted, we'll continue to invest in optimizing the ERP system throughout the rest of the year. So we'd expect the same level of SG&A activity. Kenneth Gaglione: Ryan, do you have any follow-up? Ryan Sigdahl: I do, but if they're not there. Kenneth Gaglione: Did you not hear us? Ryan Sigdahl: All right. You're back. Kenneth Gaglione: Yes. Did you hear the answer to the question, Ryan? Ryan Sigdahl: I think I caught most of it. Well, maybe just for my last question, just on the early season weather, which you called out, but we certainly had a nice stint of warm weather well earlier in the Northeast, et cetera. But just can you talk through kind of the activity that's been happening from a preseason standpoint and what kind of the narrative it is from the industry as we head into the summer selling? Kenneth Gaglione: Yes. Thanks, Ryan. So you're correct, right? There was a heat dome that hit the Southwest early -- much earlier than anticipated that drove folks to look to increase inventory and maybe there was some lingering questions about what happened last year to make sure that they had product available. Right now, it looks like that's become -- start -- it's normalized or regressed back to where we would normally expect it. So no more large excursions on the outlook. Operator: Our next question comes from Jason Tilchen with Canaccord Genuity. Jason Tilchen: I guess to start, as it relates to the Q2 guide, can you sort of unpack some of the trends at the beginning of April and what's contemplated in terms of volume compared to pricing? And then also on the gross margin, you mentioned that improvement expected throughout the year. Anything else in terms of some of the key puts and takes and the cadence maybe Q2 versus the second half? Kenneth Gaglione: Well, we gave our revenue guidance, and it's kind of the same story as Q1, where we'll expect better volume year-over-year in Q2. But with that 454B shortage last year, all refrigerants, HFOs and HFCs had a lift in Q2 and Q3, and then pricing came back down as the situation just normalized. So therefore, we're expecting higher volume, but less from a pricing that we'd expect pricing to be lower than last year because of that event with the HFO shortages. Jason Tilchen: Last quarter, you talked about some of the opportunities that you're exploring to diversify into some adjacent areas on the services side. Just wondering if you could maybe provide an update on those efforts. What are some of the gating factors to keep in mind as you're looking to make those moves and what's excited you about those opportunities thus far? Kenneth Gaglione: Yes, certainly. So I did indicate that we're looking to diversify revenue and improve quality perhaps and reduce the seasonality of the business. We have identified several interesting opportunities. Not really in a position to go into any great detail right now, but there are significant activities in this industry that we are looking to take advantage of. Jason Tilchen: One last follow-up. In the prepared remarks, you mentioned some uncertainty in the global supply chain being a tailwind to demand in the quarter. I'm wondering if you could just expand on that a little bit? And also has that persisted into Q2? How much of that is sort of baked into the guidance you provided? Kenneth Gaglione: Sure. So what happens is the refrigerant producers rely on certain materials coming through the Gulf and other places certain feedstocks to produce refrigerants. And the intel that we get from refrigerant producers is that those costs are increasing, and we're starting to see lift to prices as a result and increases being passed through the channel by the producers as a result of this uncertainty and some other factors, but mostly the uncertainty around supply through the Gulf of raw materials, certain raw materials. There's just generally, I would say, in the market, overall uncertainty about where prices are going and consumer confidence and inflation are all not going in the right direction is the things that we're hearing. That tends to favor -- in our industry, that tends to favor repair over replace and repairing equipment over replacing equipment tends to favor legacy HFC source and supply, and that's where we're well positioned, as I indicated in the comments, to take advantage of that one way or the other. So it's an uncertain time, and we're just trying to reflect that uncertainty. Operator: [Operator Instructions] The next question comes from Josh Nichols with B. Riley. Matthew Maus: This is Matthew on for Josh. So in the release, you guys used the word firming, which is a step-up from balanced regarding the pricing momentum. I was just wondering if you can put some more color around where R-410A sits today and whether you're seeing the type of seasonal price appreciation that kicked in last May or not. Kenneth Gaglione: Right. So we are -- I just indicated that we are starting to see firming in 410A pricing. As we get closer to the season, we sort of expect that to continue. We're guiding conservative here on where we think it's going to land. So generally, I think it's going to be a little bit consistent with last year's performance. Matthew Maus: Separately -- do you see any early traction on the Solstice licensing deal for R-448A? Are you seeing any reclamation volumes start to come through there? Kenneth Gaglione: Right. So we have a licensing agreement for R-448A and R-449A. 449 is actually a Chemours product. It's been cross-licensed. So the answer to your question is that those products are forward-looking and they primarily are for the supermarket segments that have converted earlier to those materials. So we're just getting underway with that. We haven't seen a lot of traction with it. We wouldn't expect to see a lot of traction with it just now, but we do have materials in-house. We do have the capability, and we have gotten interest from parties in California and other areas where those products are dominant. So it's looking very positive, but nothing to report just yet. Matthew Maus: Last question for me. Just with cash coming down to about $19 million in 1Q. I'm just wondering how you're thinking about the pace of more buybacks versus preserving cash for M&A or what that capital allocation strategy is there? Kenneth Gaglione: Well, we are unlevered and with a cash position, and we'd expect this to be the low point for the year. So we expect to be generating cash flow. And again, we'll continue to apply our capital allocation strategy with opportunistic share repurchases and always looking at strategic opportunities. Operator: We have reached the end of the question-and-answer session, and I will now turn the call to Ken for closing remarks. Kenneth Gaglione: All right. Thank you, operator. I'd like to apologize for the technical difficulties we've had tonight on the line. We do not understand that, but we will figure it out. I'd also like to thank our employees for their commitment to our success this quarter and to thank all of you for your interest and support of Hudson Technologies mission and commitment to sustainable practices around refrigerant life cycle management. We look forward to speaking with you again in August to discuss our second quarter results. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.