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Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Curbline Properties Corp. First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Stephanie Ruys de Perez, Vice President of Capital Markets. Please go ahead. Stephanie Ruys de Perez: Thank you. Good morning, and welcome to Curbline Properties First Quarter 2026 Earnings Conference Call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at curbline.com, which are intended to support our prepared remarks during today's call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements. Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent reports on Form 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same-property net operating income. Descriptions and reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes. David Lukes: Good morning, and welcome to Curbline Properties first quarter conference call. We had an incredibly productive and active start to the year as investment opportunities have remained elevated, leasing demand has remained strong, and we've tapped new markets, increasing our liquidity and access to capital. This activity is falling directly to the bottom line, leading to an increase in our OFFO guidance range. This is, of course, a result of dedication and hard work from our team, and I'd like to thank everyone at Curbline for their contributions that have positioned the company for outperformance. We continue to lead this unique capital-efficient sector with a clear first-mover advantage as the only public company exclusively focused on acquiring top-tier convenience retail assets across the United States. I'll start with an overview of investment activity and shift to operational highlights before handing it off to Conor to walk through quarterly results, the 2026 guidance increase and the balance sheet in greater detail. Beginning with investments. In the third quarter of 2025, we began to see an acceleration in acquisition opportunities that were consistent with the existing portfolio and our convenience thesis. This elevated level of activity has continued putting us in a position to raise our 2026 investment target to $850 million from $750 million. We believe the increase is primarily attributable to 4 factors, each of which are unique to Curbline. First, the convenience business is a fragmented but liquid local business with over 90% of transaction activity between private buyers and sellers. We recognized this when we started buying properties before the pandemic and have structured our investment, leasing and property management teams to be in the markets where we want to own properties. This has allowed the team to build personal relationships with the owners of the highest quality real estate and the brokers that dominate each individual market. For the marketed deals we acquired post spin-off, we've worked with 29 different brokerage companies, which highlights not only the fragmented structure of the market, but also the importance of the national network of relationships that Curbline has built. Second, Curbline now has been publicly listed for roughly 18 months, has a proven track record of closing on convenience properties, and we believe owns the largest high-quality portfolio of convenience properties in the U.S., totaling over 5 million square feet. This reputation and scale, along with our access to capital and investment-grade rating is leading to more inbound calls from the aforementioned private owners and brokers that we received before we went public. This brand awareness assisted by local and regional market events has made Curbline the first call and the trusted buyer for high-quality convenience properties and is providing greater visibility and transparency on our deal flow. Specifically, of the $1.2 billion of assets acquired since our spin-off, 22% have been off-market, highlighting the growing importance of inbound calls from sellers. Third, the convenience property type is very different than the grocery and power center business in terms of operations and management. As a result, we've taken the strong accounting, legal and IT infrastructure from our predecessor and layered down the findings from our over $1 billion of acquisitions to refine our investment approach and focus only on actionable deals that we think have a path to success and meet our return hurdles. With a finite number of hours in the day for our deal teams, this has allowed us to increase efficiency and productivity by avoiding deals with unworkable issues that simply aren't worth our time. And fourth, according to the Federal Reserve, over 50% of nonresidential real estate in the country is privately held by individuals over 65 years old. It is becoming clear to us that these owners are seeking liquidity today more than ever, which is adding another potential multiyear tailwind to our deal flow. We are continuing to tailor our team and our network to tap into this growing opportunity set and believe it will lead to a steady pipeline of future deal flow. The net result of these 4 factors is an increase in opportunities that meet our criteria of primary corridors, strong demographics, high traffic counts and creditworthy tenants and importantly, are additive to our future growth rates. And it highlights the unique and significant addressable investment convenience market that provides an opportunity to scale the business. Moving to operations. We've signed over 145,000 square feet of new leases and renewals this quarter. Trailing 12-month spreads remain consistent with our 5-year averages as the shortage of space in affluent markets where we operate continues to lead to attractive leasing economics. We invest in simple, flexible buildings that are at the nexus of consumer behavior. These straightforward rows of shops can support a wide variety of uses, and this flexibility drives tenant demand from an extremely wide pool of tenants. The result of our portfolio is a highly diversified tenant base with only 8 tenants contributing more than 1% of base rent and only 1 tenant more than 2%. All 62 of our new and renewal leases this quarter were with different tenants and 71% were national credit operators. Both of these data points highlight the incredibly deep market for leasing to a wide variety of credit users. In terms of same-property growth, we generated almost 5% growth in the quarter, and our capital expenditures were just 6.3% of quarterly NOI, placing us among the most capital-efficient operators in the entire public REIT sector, an important hallmark of the convenience asset class. In summary, I could not be more optimistic about the opportunity ahead for Curbline as we exclusively focus on scaling the fragmented convenience real estate sector in an effort to deliver compelling relative and absolute growth for stakeholders. And with that, I'll turn it over to Conor. Conor Fennerty: Thanks, David. I'll start with first quarter earnings and operating metrics before shifting to the company's revised 2026 guidance and then conclude with the balance sheet. First quarter results were ahead of budget, largely due to higher NOI, driven in part by higher-than-forecast occupancy and resulting recoveries, along with lower G&A expenses. NOI was up 3% sequentially and over 50% year-over-year, driven by acquisitions, along with organic growth. Outside of the quarterly operational outperformance, there were no other material variances for the quarter, highlighting the simplicity of the Curbline income statement and business plan. You will note that in the first quarter, we recorded a gross up of $1.8 million of noncash G&A expense, which was offset by $1.8 million of noncash other income. This gross up, which is a product of the shared services agreement, and that's the 0 net income, will continue as long as the agreement is in place and is excluded from any G&A figures or targets. In terms of operating metrics, the lease rate was up 30 basis points year-over-year to 96.3%, with occupancy up 60 basis points. Leasing volume in the first quarter accelerated from the fourth quarter, driven by an uptick in renewals, though quarterly volumes and figures remain volatile given the lack of available space in the portfolio and the company's denominator. As David noted, we remain encouraged by the amount of activity and depth of demand for space. Same-property NOI was up 4.8% for the first quarter, driven by a 3.5% base rent growth and lower uncollectible revenue year-over-year. Importantly, this growth was generated by limited capital expenditures with first quarter CapEx as a percentage of NOI of 6.3% and trailing 12-month CapEx of 7.3% of NOI. Moving to our outlook for 2026. We are increasing OFFO guidance to a range between $1.20 and $1.23 per share, which at the midpoint represents 14% growth. We believe that this level of growth will be the highest certainly in the retail space and amongst the highest in the entire REIT sector. Underpinning the midpoint of the range is: One, roughly $850 million of full year investments; two, a 3.25% return on cash with interest income declining over the course of the year as cash is invested; three, CapEx as a percentage of NOI of less than 10%; and four, G&A of roughly $32 million, which includes fees paid to SITE centers as part of the shared services agreement. Those fees totaled $1.1 million in the first quarter. In terms of same-property NOI, we continue to forecast growth of 3% at the midpoint in 2026, which follows 3.3% in 2025 and 5.8% in 2024. As I have noted previously, the same property pool is growing but small, and it includes assets owned for at least 12 months as of December 31, 2025, resulting in a large non-same-property pool which we expect to grow at a similar rate to the same property pool over the course of the year. That said, in the second quarter, the timing of 2025 CapEx spending and a difficult uncollectible revenue comparison will act as an almost 300 basis point headwind to same-property NOI growth. As a result, we expect a meaningful deceleration in same-property growth in the second quarter before accelerating into year-end with second half base rent growth expected to average over 4%. For moving pieces between the first and the second quarter, interest expense is set to increase to about $8.5 million as a result of the funding of the private placement offering in late January. Additionally, noncash revenue is expected to decline sequentially by about $500,000 due to the write-off of below-market leases in the first quarter. And lastly, G&A is expected to remain roughly flat quarter-over-quarter. Finally, included in the first quarter share count are just under 1 million shares related to the unsettled forward offerings completed to date. We expect dilution from the forward offerings to be an approximately $0.01 per share headwind to 2026 OFFO, which is included in our revised guidance. Additional details on 2026 guidance and the moving pieces that I just outlined can be found on Page 11 of the earnings slides. Ending on the balance sheet, Curbline was spun off with a unique capital structure aligned with the company's business plan. In the first quarter, Curbline closed on the remaining of the previously announced $200 million private placement offering. Additionally, in the first quarter and the second quarter to date, the company sold 11.8 million shares on a forward basis with $296 million of expected gross proceeds, which we expect to settle in 2026, including cash on hand at quarter end of $306 million, along with total unsettled equity proceeds of $371 million, Curbline has over $700 million of immediate liquidity available to fund the remaining investments included in guidance after taking into account retained cash flow. Curbline now proven access to a variety of capital sources is a key differentiator from the largely private buyer universe acquiring convenience properties. The net result of the capital markets activities since formation is at the company ended the quarter with a leverage ratio of approximately 20%, providing substantial dry powder and liquidity to continue to acquire assets and scale, resulting in significant earnings and cash flow growth well in excess the average. And with that, I'll turn it back to David. David Lukes: Thank you, Conor. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Ronald Kamdem of [ Curbline Properties ]. Unknown Analyst: Just 2 quick ones. Just starting with the acquisition guidance raise to $850 million. Maybe just a little bit more color. Is this still sort of pretty granular? Is there any sort of larger deals in that pipeline? And what are you anticipating in terms of the cap rates and IRR [ specs ]? David Lukes: Yes, the pipeline at this point is exclusively individual properties. There's no portfolios of note. And I would say that generally, the deeper we get into these markets and the more deal makers we have in regions where we're looking to buy properties, the vast majority of the inventory remains to me individual properties. Conor Fennerty: On cap rate returns, no real change there from last quarter to the prior quarter, Ron, we're in the low 6s, which is an unlevered IRR in the 7% to 9% depending on the property. Unknown Analyst: Okay. Got it. That's helpful. And then just on the same-store NOI guidance. I appreciate the color on the decel in 2Q and then the next on to the end of the year. But as you sort of step back, maybe can you just give us some thoughts on just what you think the long-term sort of same-store growth for the portfolio is? Is that 3% plus number the right sort of way to go about it as the portfolio sort of scales? Conor Fennerty: Ron, again, it's Conor. We -- when we announced the spin-off put out a target of an average growth of 3% for 2024 to 2026. As I mentioned in my prepared remarks, we did 5.8% in 2024, we did 3.3% in 2025. So we're, I'd say, running a little bit ahead of that average number of 3%. And I feel like -- I think we've said this publicly, this is a 2.5% to 4% business in periods of time where there is a supply-demand imbalance, which we happen to be in right now, we're probably in the high end of that range, but that feels like a pretty good bogey for this portfolio over time. Operator: Your next question comes from the line of Craig Mailman from Citi. Craig Mailman: It doesn't seem to have impacted consumer spending so far, but just with things with Iran, as they continue to drag out you guys -- the portfolio is a little bit restaurant heavy here just given the nature of it. Just kind of curious what you guys have seen on foot traffic? And if there's been any changes so far? And just your thoughts if this drags out and oil does start to be sort of a drag on consumer spending going forward. Like how should we think about the cushion you guys have in coverages on some of these leases and maybe the appetite of some of these franchises to continue to grow if there's a little bit of pause in the economy? David Lukes: Craig, it's David. I would say 2 comments on that. One is that foot traffic through geolocation data is very useful for us to figure out the desirability of a property. We use it a lot in acquisitions. We use it a lot to understand what types of tenants we can put in properties and how we can generate leads to make sure that our leasing stays relevant. It's not a great proxy that we use to find out tenant profitability because basket size is difficult to find. Specifically, the majority of our tenants don't hold inventory. They're service-oriented. And so I think we're real estate first, and we're more tenant second. By being real estate first, what that means is we like to own rows of small shops that are simple and ubiquitous, and therefore, the shape and the size of those units can be used by a wide variety of users. I do think that over time, we will always have an exposure to QSRs, the small format QSR business fits into a pretty small, simple rectangular building. That building can be used by lots of other types of tenants. And so avoiding the purpose-built sit-down restaurants is a key differentiator, I think, for this type of real estate. So I think when you're kind of talking about a general slowdown in the economy, I wouldn't really see us as being able to forecast whether that is happening or not, I think we're very squarely in the running Aaron's type of consumer behavior. So if you look at the types of tenants we're putting in our properties and we're buying into, they tend to be those tenants that drive a lot of traffic from running Aaron's. And I think that they're not luxury oriented and they're not destination trips. So I would say that the insulation for us is probably more to do with consumer behavior and a little bit less so on the economy. Craig Mailman: Okay. That's helpful. And then just switching gears, maybe cap rates and IRRs and you guys have really ramped the volume here of deals you're doing, and I'm assuming that some competitors are trying to come into the space, and you guys are the first mover. Just kind of curious with the inbounds that you're getting, the 22% off market, what's the prospect of continuing to be able to kind of keep cap rates in that low 6 or maybe even get better deals as you guys can solve solutions for people looking for maybe some either surety of close or deadlines on close or tax issues as they're kind of selling some of these assets. Could you just talk about the difference in returns that you're getting on these off-market where you're getting the inbounds versus a fully marketed deal? And where the market is trending just given how much capital you guys have put out the door lately and some of the attention that might be coming into these assets? David Lukes: Sure. Sure. Well, I mean, I'd say, first of all, there's definitely growing interest in the sector. I think most of that is simply because the financial returns are so heavily focused in cash flow. It's such a low CapEx business. I think that's desirable from a lot of institutions who can generate more of their IRR from cash flow and less on future appreciation. And so there has been growth in interest. We've heard a lot about institutions becoming intrigued by the property type. I think there's 2 things to note on that, though. One is that the market is so fragmented. It is actually quite difficult to put out large pools of capital in a short period of time. You really have to build relationships over a long period of time and be willing to close on a very large number of small transactions. So the granular nature makes it very difficult for someone to push a button and get into the sector. Secondly, if a competitor did want to get into the sector at scale, I think that they would most likely have to team up with a local operator. And when you add fees and carried interest on to that, it almost puts a floor on the going-in cap rate that an institution will be willing to pay to generate the same IRR that they require. And so I do think that has helped put a little bit of a floor on cap rates. I'd just remind you that the going-in cap rate for this asset class can be low 5s to high 6s. It's just that we're doing enough volume that we're blending to around 6 . It feels fairly sticky. And part of the reason I feel sticky is that the market rent spread is still generating an unlevered IRR between 7% and 9%. And I don't really see that moving in the near term. Operator: The next question comes from the line of Floris Van Dijkum of Ladenburg Thalmann. Floris Gerbrand Van Dijkum: Nice -- another nice quarter here. You guys are really proving your concepts. I wanted to question -- some people have referred to your business almost as a net lease business. You have 98% recovery ratio. Maybe talk a little bit about the management value add? And what are you bringing besides acquisitions, what are you bringing to the table? David Lukes: Floris, It does have some characteristics that are similar to that lease, but I think the largest difference is that we're buying real estate first. And we're buying a real estate first because when we get a vacancy, we are more likely to release it at a higher spread, and therefore, it is growth. And the growth aspect of this business is very different than that lease. We enjoy a shorter WALT, we enjoy a mark-to-market that we can actually capture. And so I think the management value add is not so much in repositioning or redevelopment as much as it is making sure that the tenants are paying a rent that keeps up with market, and we're always aware of what another tenant will be willing to pay for that same nonpurpose-built simple building format. And I would say our leasing team is very, very aware that the number of deals we're doing is so wide with a wide variety of users. I mean it's pretty shocking that every single lease signed during the quarter was with a different tenant, and that's unusual for a destination type property where it tends to be concentrated on a handful or a dozen national operators. This is a very, very wide pool of leasing. So I think the management value add has everything to do with trying to figure out who can pay the most rent and who's willing to pay that rent to be along the kerb line of a very high-traffic intersection. Floris Gerbrand Van Dijkum: Maybe a follow-up question, if I may. Maybe talk a little bit about the difference between your GAAP cap rates and your cash GAAP rates. How much of a difference is there? And is that meaningful? Because presumably, the assets you're buying have quite a bit of below-market rents in place. Conor Fennerty: Floris, it's Conor. You are spot on. So our average differential between GAAP and cash, I think since we went public is about 35 basis points. That's a pretty wide range, similar to our cap rates where there's -- somewhere it's 0, and there's others where it's 100-plus basis points. So Again, average is kind of like that low 30s on the GAAP versus cash. All the numbers that we've referenced have always been cash. We don't quote or budget GAAP cap rates. Operator: Your next question comes from the line of Thomas Todd of KeyBanc. Todd Thomas: David, I just wanted to ask your comments about the ownership held by population that's 65-plus. You indicated you feel that's an important consideration as you think about the years ahead and the company's investment opportunity set. Do you see potential to transact using OP equity a little bit more as you look ahead? And then Also, what do you do to sort of better tapped into the segment of owners? Is the strategy generally consistent with your acquisition strategy currently? Or is there anything that you can do to more quickly or sort of more efficiently tap into that seller cohort? David Lukes: Yes, it's a really interesting subject because I think over time, when we've looked at the profile of the sellers, it was so heavily tilted towards life events or life planning. And when you look at the ownership of this asset class across the country, and remember, we're a very, very small component of the overall addressable market. So it is an important aspect of what we need to understand is who are the sellers and why are they selling? Well, if they're live events, and if you think about the volume of assets owned across the country of a certain generation, I think we're getting growing confidence that the pipeline of available deals that fit our buy box is growing and will likely grow quite a bit in the next 10 to 15 years as that, that generation starts to move real estate out of their estates either before or after a life event. So to your point, we have definitely started to shift our deal teams to not only be building relationships with brokers, but also estate planning attorneys, wealth management offices, private banks because accessing the data and trying to find out who owns the best real estate in every one of these markets is really important because the likelihood that there's going to be a transaction in the next 10 years is pretty high. Todd Thomas: Okay. That's helpful. And then I just wanted to follow up. Obviously, you increased the -- your acquisition guidance, but just curious, last quarter, you said you had visibility on around half of the pipeline that you were discussing. And I'm wondering how much visibility you have today on that increased pipeline? And are you seeing any changes at all in the market in terms of the pace or sort of motivation around seller activity just given some of the turbulence in the credit markets. Does that -- has that caused any sort of broader fallout at all that might put Curb in a little bit of a better position? Or is that not having an impact at all? Conor Fennerty: Todd, it's Conor. I'll start with the second part of your question, and David can cover things differently. I would say, in short, no. I mean it seems like this market generally is less correlated to the CMBS market, the IG market, whatever it might be. And that probably is a function of the fact that those markets aren't used to finance these assets. To David's point, it generally is private wealth or brokerage houses that are funding these and/or there is no mortgage. So the short answer on the second part of your question is, no, we haven't seen a material impact or change in deal flow because of geopolitical events or macro shocks. To the first question on the pipeline. So at this point, we have closed, we have under contract or have been awarded about 90% of that $850 million bogey. So we've got really good visibility on closings for, call it, the next 2 quarters. And then I would say there's a chance we exceed that figure for the full year. The only thing I'd flag though is that pipeline has some risk to it until we're through due diligence on all the assets. So to David's point, it doesn't include any portfolios of size. So that risk is mitigated by the number of properties, but we've got some more to get those closed. And again, we're optimistic based off what we're seeing that we can hopefully find more over the course of the year, but that's a TBD, and we need to work through the existing pipeline first. Todd Thomas: Okay. Got it. That's helpful. Conor, you said closed under contract or awarded about 90% of the $850 million. Is that right? Conor Fennerty: Yes. So call it $750 million of the $850 million. Operator: Your next question comes from the line of Alexander Goldfarb of Piper Sandler. Alexander Goldfarb: So actually, maybe just following up on that question, and maybe I missed it in the release, you guys were clearly very active on the ATM and cash with over, call it, roughly $600 million on hand. So Conor, as we think about the pacing of acquisitions for the balance of the year, is -- are you saying -- is 2Q going to be a real heavy quarter? I mean it doesn't seem like it's so far, we're already 1/3 of the way in. But I just want to understand the cadence just given the amount of cash that you have on hand versus clearly, what's a burgeoning acquisition environment. Conor Fennerty: Yes. So as I mentioned in my prepared remarks, Alex, we have enough cash and unsettled equity on hand to fund the entirety of the remaining $850 million, so call it the $700 million outstanding as of April 1. You're right to -- it's hard to assume those closings will be concentrated in the second and third quarter. There are obviously some that will spill in the fourth quarter, but we are expecting a pretty active middle of the year in terms of closing time line. So we don't expect the forward activity outstanding for a point past the end of the year, I would say. Alexander Goldfarb: Okay. And then the next question goes back to something that we discussed or talked to you guys about, I don't know, a few quarters ago. Your acquisition pool regionally is expensive. It's a lot of markets that may not be traditionally the prime REIT markets. But as you get into these different geographies, are you finding that there are either more opportunities within existing markets where you already are? Or are you finding that there are more opportunities in markets that you hadn't considered. I'm just trying to understand as you build these local relationships, whether it's leading you deeper into existing or whether it's leading to a broadening of markets that you originally never conceived of? David Lukes: Alex, it's David. Well, I guess -- first of all, when I read your note this morning and you mentioned nooks and crannies. I think that was a very good way of putting it. It feels like markets where we've developed a lot of firsthand knowledge through buying and owning and operating, we're finding more intersections through our research that fit our buy box. And so we're really targeting some of those nooks and crannies within existing markets where the traffic count and the wealth and kind of the Aaron's running and the geolocation data is all telling us that we should be going deeper into a specific submarket. And you've seen that on our acquisition pipeline, where we continue to invest in markets where we already are in. On the other hand, there is a growing knowledge base that we're getting on other markets where it may not be a large MSA, but it has a pocket with a lot of concentrated traffic in wealth and a limited amount of supply, and that's a pretty encouraging algebra to good IRR. So when you see us go into some of these smaller markets, it's simply because there's a lack of supply and there's a kind of an extreme concentration of traffic into a couple of intersections. So whereas, I guess, in summary, it started with going deeper into existing markets and it's moving a little bit into being open-minded to finding other markets that have great properties to buy. Operator: Your next question comes from the line of Mike Mueller with JPMorgan. Michael Mueller: Kind of a quick follow-up on the prior question. So as it relates to some of these newer markets, are you seeing any kind of geographical biases when it comes to pricing or underwriting? Or is it really just based on whether it's a convenience center or not? I guess, are the cap rates that you're seeing in like Wisconsin and Minneapolis very different for a comparable product than you'd see in Georgia or Florida? David Lukes: I think that the historical spread between submarkets still exist in this property type as well. I would say the irony is that I'm not sure that really flows through to the IRR as much as it has to do with -- there are simply more private buyers with more investable capital in areas like Florida and California. And so the competition is a little bit less in some of the other states. I think the trick for us is finding those pockets where we can generate a similar or better IRR, and we probably have a little bit less competition. Operator: Your next question comes from the line of Paulina Rojas of Green Street. Paulina Rojas Schmidt: The Whitestone transaction was an interesting data point for the sector and the portfolio shares some characteristics with your portfolio, mainly that is largely an anchored, but it also has a lot of meaningful differences. Do you see any relevant read-through from that deal for Curbline? Anything that you would flag as pertinent to your portfolio? Conor Fennerty: Yes, Paulina, it's a good question. I want to be careful about not opining on transaction. I would just say there are probably more differences than similarities in our view. And I think average asset size, some of the things you pointed out, market mix, whether or not there's a shadow anchor are pretty big differences versus what we're targeting. I would also just say to David's commentary, we are seeing plenty of real compelling individual transactions or one-off transactions in the markets we want to operate, and so we're focused focusing there. But I would just say at the risk of opining directly on transaction, there are more differences than there are similarities. Paulina Rojas Schmidt: Okay. And then markets have been volatile and at various points, we have been a risk of attitude given the geopolitical concerns and what that could mean for inflation rate growth, et cetera. So as you think about that backdrop and what it means, where do you think Curbline sits in terms of vulnerability relative to other service center peers? And I mean that not just operationally, but in the context of your heavy growth-focused strategy. David Lukes: What was the last part? Sorry, Paulina. Paulina Rojas Schmidt: I said that I mean it, not just from operations, what that could mean for the operations of the business, same property NOI and such, but also from a capital markets perspective and the fact that you're in a very heavy growth focused cycle [indiscernible] cycle. Conor Fennerty: Paulina, it's Conor. I guess a couple of things. I would say our balance sheet and our relative balance sheet to us affords us a lot of cushion for whatever might happen in the macro environment or geopolitical environment to the genesis of your question, whether that's duration, whether that's leverage, whatever it might be. We also, I think, in putting the macro side, if you're in a growth vehicle, feel like you need to be prudently financing your business. And so avoiding a situation where you're trying to match fund or scramble to put financing in place, I think, is one of the ways to mitigate the risk that you're alluding to. From an operational perspective, I think this comes back to, I think, maybe Craig's question on consumer spending. Our service and restaurant-based tenants aren't destination type tenants. They're not sit-down restaurants, they are white tablecloth. I don't know if I would argue the're necessity or all necessity-based, but there is a margin of safety in terms of where they sit and kind of consumer behavior, as David mentioned, as opposed to consumer spending that I think also makes our cash flow stream a little durable. The last thing I would just say from a tenant or diversification perspective, we do focus on credits. We're 70-plus percent national and a decent chunk of those are public or IG rated, which, again, with no tenant or only 8 tenants greater than 1%, also helps partially mitigate. So I don't know if I were directly answering your question, but it feels like we're trying to do a lot of little things in addition to having a business plan that helps mitigate against potential risk. But again, I'm not sure if that's directly answering your question. David Lukes: And Paulina, it's David. You certainly tell us if we're answering directly. But I guess what piqued my interest is when you said risk off environment. To me, risk is very much correlated to the size of the bet that one makes and the concentration of where you're willing to concentrate capital. And this business is so granular. We're buying buildings that have a handful of small tenants. And so I think that the diversification aspect not only of the tenant roster, but also regionally and then lastly, by just the sheer amount of capital going into each deal is so small. It feels like a risk mitigator that probably is less correlated to kind of the red light, green light of the overall capital markets because these transactions are happening in local markets with local buyers, whether we're involved or not. And I feel like that diversification is a pretty big differentiator. Paulina Rojas Schmidt: Sorry for not being clear, but somehow you got it. And maybe a last one, it's a clarification. I'm not sure I understand. You flagged a headwind for same property NOI related to the timing of bad debt and CapEx spending. Could you help me understand the mechanics of the CapEx component specifically. How does its timing translating to NOI headwind, whether it's really a space that was taken offline or something else? Conor Fennerty: No. So just over the course of the year, we have capital projects which are recoverable by tenants or a piece can be recovered by tenants. Generally, that's pretty spread out over the course of the year. It happened to be quite concentrated in 2025 and just the second quarter. And given our small denominator, Paulina, it happens to be just a big headwind for this 1 quarter. So similar to lifestyle centers, power centers, grocery, there are capital projects which are recoverable. And for us, again, we just had a concentration in the second quarter. Operator: There are no further questions at this time. And with that, I will now turn the call back to David Lukes for closing remarks. Please go ahead. David Lukes: Thank you all very much for joining our call, and we look forward to speaking to you in the next quarter. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stride Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Eliza Henson, Manager of Investor Relations. Eliza, please go ahead. Eliza Henson: Thank you, and good afternoon. Welcome to Stride's Third Quarter Earnings Call for Fiscal Year 2026. With me on today's call are James Rhyu, Chief Executive Officer; and Donna Blackman, Chief Financial Officer. As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on the Stride Investor Relations website. Please be advised that today's discussion of our financial results may include certain non-GAAP financial measures. A reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on our Investor Relations website. In addition to historical information, this call will also involve forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to several important factors as described in the company's earnings release and latest SEC filings, including our most recent annual report on Form 10-K and subsequent filings. These statements are made on the basis of our views and assumptions regarding future events and business performance at the time we make them, and the company assumes no obligation to update any forward-looking statements. Following our prepared remarks, we will answer questions you may have. Now I'll turn the call over to James. James Rhyu: Thanks, Eliza, and good afternoon, everyone. I'd like to start off with an update on the platform issues we experienced earlier this year. As I mentioned last quarter, we continue to execute on the road map for stability and improvements. As we close out this school year and preparations have already begun for the coming fall, we are heads down making sure our customers get the best experience possible. So I'm comfortable with our progress and believe we are on the right track as we prepare for the fall season. And as we have discussed previously, the demand for our products and services, as indicated by application volumes continues to be strong relative to historic levels. And while our focus is on finishing this year executing against our road map, we believe the demand environment sets us up well for the future. And although we experienced a marginally higher level of attrition since I gave an update on our last call, this was not unexpected. We continue to monitor, but we are confident it won't harm our long-term prospects. I believe the macro environment for school alternatives like ours continues to be a long-term trend that will serve as a tailwind to our business. Our job right now is to maintain focus and execute through the rest of this year and into the fall, so that the students and their families can continue to choose the options, including our programs that they deserve. Thank you, and I will now turn the call over to Donna. Donna Blackman: Thank you, James, and good afternoon. As James mentioned, we are seeing strong demand for the fall as measured by application volume, and we remain confident in the long-term growth in the business. This quarter's results reflect continued demand and solid execution across the business, and I'll start by reviewing those results. Total enrollments grew 1.8% to 244,500 and total revenue for the quarter was $629.9 million, up 2.7% compared to last year. Revenue in our career learning, middle and high school programs grew nearly 16% to $259.5 million, driven by strong enrollment growth of 11.6%. General Education revenue was $357.5 million, down 3.6% compared to last year, driven by an enrollment decline of 5%, which was more than offset by the growth in our Career Learning business. As we think about next quarter, it's important to remember that we anticipate enrollment decline as most of our programs no longer accept enrollments during the fourth quarter. We are focused on converting these leads into new enrollments for the upcoming school year, and we expect a sequential decline next quarter like we typically do every year from Q3 to Q4. Total revenue per enrollment across both Career Learning and General Education was $2,485, up 2.9% from $2,415 last year. As a reminder, revenue per enrollment can vary between General Ed and career due to program and state mix as well as timing. So we encourage investors to focus on total revenue per enrollment, which, as I've said previously, we believe is the most representative measure of underlying performance. Given this quarter's results, we expect total revenue per enrollment for the full year to be up roughly 2% from last year. We've received a lot of questions about next year's enrollment expectations, and I want to reiterate that it is still very early in the enrollment season. We should have a better picture of the enrollment landscape during the fourth quarter call as well as more color on the funding environment as states finalize their budgets in the coming months. Turning back to the results from the third quarter. Gross margins at 36.8% for the quarter was down 380 basis points. We expect to finish the year with gross margins in the range of 37% to 37.4%. Now let me provide a bit more color on gross margins. The year-over-year decline is primarily driven by continued investments in the business, including those related to our platform rollout as we support the transition. We would expect a portion of these costs to moderate as we move into FY 2027. Selling, general and administrative expenses totaled $102.5 million, down $16 million or 13.5% from last year. We expect to finish the year with SG&A down 6% to 8% compared to last year. Stock-based compensation for the quarter was $9.6 million. We now expect to finish the year with stock-based compensation in the range of $40 million to $42 million. Adjusted operating income was $140.4 million, down 1%. Adjusted EBITDA was $171.3 million, up 1.8%. And adjusted earnings per share for the quarter was $2.30, down $0.03 from last year. As in years past, we expect fourth quarter profitability to be less than the third quarter as we ramp up marketing and other spend for the upcoming school year. Now moving to our balance sheet. Capital expenditures for the quarter were $18.5 million, up from $15.8 million last year. Free cash flow, defined as cash from operations less CapEx, was $202.4 million, up from $37.3 million last year. For the year, we expect free cash flow to be flattish to last year. We finished the quarter with cash, cash equivalents and marketable securities of $856 million. Turning to our guidance. For the full year, we are narrowing our revenue, AOI and CapEx guidance ranges and affirming our effective tax rate guidance. For the balance of the year, we expect revenue in the range of $2.490 billion to $2.520 billion, narrowed from $2.480 billion to $2.555 billion last quarter. Adjusted operating income between $490 million and $500 million narrowed from $485 million and $505 million last quarter. Capital expenditures between $75 million and $80 million, narrowed from $70 million and $80 million last quarter and an effective tax rate between 24% and 25%, unchanged from last quarter. As you'll note, the range of revenue implies fourth quarter revenue below the fourth quarter of last year, driven by marginally higher attrition rates and tough comparisons associated with the timing of funding true-ups. We do not, however, believe this is indicative of any change in underlying demand trends. We continue to see positive trends in demand and customer experience, and we remain optimistic about the coming school year. We believe that our investments in the business are setting us up for long-term success and the ability to meet the demand of families seeking alternative education options. Thank you for your time today. Now I'll turn the call back over to the operator for Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Jeff Silber with BMO Capital Markets. Jeffrey Silber: I appreciate the timing in terms of trying to gauge enrollment for next year. But I was wondering if you can comment on the contract renewal pipeline or new business. I'm just wondering how that's going, if you're seeing any pushback from some of the issues that you incurred last summer. James Rhyu: Yes. Jim, I think sort of 2 separate questions, and I think they have sort of similar-ish answers, but one may be more positive than the other. I think with our existing clients, we -- first of all, we're very thankful that our existing clients remain, I think, really positive on our programs. They understand the value that together, we're able to deliver and the value that we can bring to those programs. So we still think that we have very good relationships with our partners. I mean, clearly, we have partners that aren't happy about things that have happened over this past year. But in general, they're working collaboratively with us, and I think they're pretty understanding. On the new business development side of it, interestingly, we have seen no negative impact in terms of doors that are opening for us, conversations we've been able to have. And in fact, our pipeline of new business activity is, I would say, probably as strong or stronger than it's been in the 5 years that I've been the CEO, certainly. So I think the issues that we've experienced on the platform side, and I've gone out and talked to a bunch of these customers myself personally sort of to gauge the sentiment out there. Almost none of them focus on the issues that we've had. I think they're all focused on the success that we can deliver for families across this country and the belief that the options and the choices that we can provide for them are of paramount importance. And so we're getting nothing but really positive feedback. We proactively discuss the issues we've had this past year. And I think to it either, they're all pretty understanding. They've -- many of them have been through some issues themselves, almost all of them experienced really difficult issues regarding the platforms that they monitored and executed on during COVID. So sort of reasonably fresh experience of somewhat negative platform issues. And so pretty positive conversations along those lines. And again, I think just the pipeline of activity that we have is as strong as we've seen in 5 years. Jeffrey Silber: Okay. That's great to hear. I know, again, you're not commenting on the funding environment for next year. But I know there's been some changes in certain states. Pennsylvania has been one that's been in the press. Do you see other states changing how they're funding virtual schools? Is that a trend we might see continue? James Rhyu: I think it's a little bit hard to sort of call a trend. Pennsylvania, as you indicated, they've had legislation on the books. I believe it may be for almost 20 straight years to cut virtual funding. They're one of the states in the country that have the longest-standing virtual programs. They have some of the highest penetrations in the state. They have a very, very robust marketplace of providers in that state. I think, as you know, the politics have played into it for many, many years and particularly in that state, there's been legislation on the books. We've been pretty successful for 20 years, getting that legislation sort of beating back a little bit. And at some point, that's not going to happen, and this was the year. I think our business remains, I think, pretty robust in Pennsylvania. I think the market in Pennsylvania remains robust. I think that, if anything, these types of situations present opportunities for stronger players like us. And so we'll obviously look at ways that we can take advantage of any situation like this in the marketplace. So I actually think that something like this, in particular in Pennsylvania presents an opportunity. More broadly across the country, I don't see -- I don't think we see any different trend than the activity we've seen in the past 10 or 15 years. I mean there's always legislation that's getting proposed, both for and against virtual programs. I don't see a materially different trend now than there was in any time in at least the past 10 or 15 years. Operator: Your next question comes from the line of Alex Paris with Barrington Research. Alexander Paris: My first question relates to enrollment and the enrollment windows. It was my understanding that some of the enrollment windows at some of the programs might have closed earlier this year than last year and previous years in general, given the challenges of last fall. And then obviously, we expect windows to be closed for the full fourth quarter. Is that an accurate statement? Did windows close earlier in the third quarter than last year? And what impact, if any, can you quantify on enrollment in the third quarter? James Rhyu: Yes. I think -- so the short answer is yes. And I think more -- maybe more profoundly, not just the windows, I'll say, closed earlier, I think, which we've indicated previously, we are very proactively not maybe taking advantage of even as much as we theoretically could windows that are open because we generally this year have taken the stance of trying to backfill as opposed to grow. And so that's sort of what you've seen. And so when you have programs that you can backfill and you do, but you don't grow them and then you have other programs where windows are closing earlier, you're going to have a dynamic where it puts downward pressure on enrollment. I think we've been very clear and consistent with that all year. And so yes, I think you're exactly correct. And through the fourth quarter, that's going to continue to be so to the extent that really we don't have windows open through the balance of this year. And so it's only a story of attrition. But again, I think that was pretty transparent from previous calls that we've discussed, and it does not change our perspective of the overall demand environment, which continues to be strong and bodes well for the fall. So yes, you're going to have this dynamic, which we've explained around this year enrollment trends, which is going to run counter the past few years in terms of in-year enrollment growth. But I don't think that's a commentary on the overall demand, which we see continue to be very strong. Alexander Paris: Well, it looked like you backfilled well in the third quarter with enrollment coming in where it did a little bit. I mean we expected a sequential decline. We got a little sequential decline, but it was still up 1.8% year-over-year. Part of that's due to windows being closed earlier, part of it's due to the fact that you're not pushing hard, you want to get it right. Is there any way to quantify how many students you left on the table, so to speak, in the third quarter because of early windows being closed? James Rhyu: I think it'd be difficult to quantify sort of -- I think it's difficult to quantify because conversion rates and things like that are a little bit variable. But it's clearly in the thousands. I think it's -- if you sort of just looked at prior year's trends and assuming that demand was similar and see how much we grew in the prior year, we left on the table probably a similar amount that we could have grown this year. Alexander Paris: Okay. I got you. So sequentially, it grew from Q2 to Q3 last year. This year, it did part of that is due to the closed windows. James Rhyu: Yes, exactly. Alexander Paris: Yes. Okay. And then given the demand continues to be so strong as measured by application volumes, does that mean that these students get added to waitlists? And does that bode well for the fall term? James Rhyu: Yes. In some cases, yes, they get added to a waitlist. In some cases, we've actually started opening up enrollment for the fall. So they're sort of in, I'll say, like a provisional state maybe because it's technically not open. But basically, we're accepting applications now. And so we have some like, I'll say, provisional state enrollments as well. And so I think, yes, it does give us a little bit of a head start on the pipeline for next year. There are those a not insignificant number of families who unfortunately are, I don't say, desperate for a solution immediately. And when we're not able to provide that immediate solution for them, then in those cases, they often do look elsewhere. So there is some number of the pipeline that we can't translate into next year enrollment because they're looking for an immediate solution and where we can't provide that, we certainly understand that they're going to look somewhere else. Alexander Paris: All right. And then last question on the topic. Enrollment at some programs, their window was closed early. Can we say similarly that the enrollment window for the fall has opened up earlier this year than last year? James Rhyu: I don't think materially. Yes. I mean I do think we try to get a little bit of a head start, but I don't think we're materially different than last year. We try to open the windows early every year, I guess, maybe for the fall is what I'm saying. I do think that probably there is a little bit of a dynamic where in prior years, where there -- we open enrollments for the fall, there are some small number of families who when they realize, oh, we're calling in for the fall, but you actually have a spot now, I'll take the spot now. So that sometimes will happen. Alexander Paris: Got you. And then anything to read -- this is my last question on enrollment. Anything to read into the fact that general education enrollment was down 5% and career learning enrollment was up 12%, just round numbers. I know it doesn't really matter economically. Care to comment any color on that? James Rhyu: Yes. No, I don't think there's anything really to read into that. It's just -- like you said, it's -- we sort of look at the whole pie and we break them up into those buckets. But I don't think there's not a specific trend, I guess, really that maybe to answer your question is that we see that's positive or negative based on those numbers. Operator: [Operator Instructions] Your next question comes from the line of Stephen Sheldon with William Blair. Matthew Filek: James and Donna, you have Matt Filek on for Stephen Sheldon. Given you seem to be making good progress on mitigating the platform issues, how are you thinking about marketing spend from here? Is that something you plan to push the pedal on? Just curious how we should think about SG&A spend over the next year or so? James Rhyu: Yes. I think we're on a trajectory for essentially business as usual from here on in. I think we're executing well against our road map, as I mentioned earlier, I think that we expect a very robust and successful fall. There's -- I don't see anything that is going to hold us back right now for ramping up. And I think we're going to be in the market pretty aggressively. I will say, which I think actually is -- again, is a net positive for us that -- and I won't call it a trend yet, but I guess I see certain data points. And again, I'm not saying yet it's a trend, but there are certainly some data points that appear as though the customer use of AI might be actually improving conversion because the ability for people to have better research essentially into different programs, I think, ultimately benefits us. And so therefore, I think that there are some data points that we see where conversion could ultimately improve and therefore, our cost of acquisition actually goes down. And so I think that there are some things that I think look generally positive in sort of the funnel mechanics, if you will, of our business heading into the fall. Matthew Filek: Got it. That's helpful color. And then can you just provide a little more detail on the Adult Learning segment and what it might take to get that segment to return to growth? I know in the past, you've been a little more positive on MedCerts with Tech Elevator and Galvanize, the laggards there. But just an update on what's going on within that segment and the path to get things back to growth eventually would be helpful. James Rhyu: Yes. I think I mentioned this before. First of all, these businesses to us are -- I mean, if they disappear tomorrow, I don't think our shareholders would notice from this impact of our numbers, and they're just immaterial and not meaningful enough to really have a long-term impact for shareholders. I think the underlying businesses, as we've described before, the boot camps are in just secular decline. I think it's going to continue to be the case. I think it's very difficult for the secular environment for the boot camp side, the Tech Elevator, Galvanize side of the businesses to really recover meaningfully. And at least my industry checks across the folks in the industry that I know that run these kinds of businesses, I think, would all sort of echo this similar sentiment, at least privately for sure. I think the MedCerts business is and continues to be an attractive market segment for us. We have not executed well across that market segment. We've had some leadership changes in the past year or so that we're hoping that will help reignite our positioning there. I continue to believe that we're going to make investments in that. I think it benefits our K-12 programs. And I think it -- the market opportunity still exists. So it's not meaningful. The investments won't change the needle on anything in our financials. But I do think there continues to be opportunity there. We're going to continue to look for ways to take advantage of the opportunity. But I think clearly, our execution has not yet been where we expect it to be. Operator: That concludes our question-and-answer session. Ladies and gentlemen, this concludes the Stride Third Quarter Fiscal Year 2026 Earnings Call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, and welcome to the Mondelez International First Quarter 2026 Earnings Question-and-Answer Session. [Operator Instructions] On today's call are Dirk Van de Put, Chairman and CEO; Luca Zaramella, COO and CFO; and Shep Dunlap, SVP of Investor Relations. Earlier this afternoon, the company posted a press release and prepared remarks, both of which are available on its website. During this call, the company will make forward-looking statements about performance. These statements are based on how the company sees things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in the company's 10-K, 10-Q and 8-K filings for more details on forward-looking statements. As the company discusses results today, unless noted as reported, it will be referencing non-GAAP financial measures, which adjust for certain items included in the company's GAAP results. In addition, the company provides year-over-year growth on a constant currency basis unless otherwise noted. You can find the comparable GAAP measures and GAAP to non-GAAP reconciliations within the company's earnings release and at the back of the slide presentation. Operator: We will now move to our first question. We'll take our first question from Andrew Lazar with Barclays. Andrew Lazar: Dirk, I was hoping you could walk us through a bit more around the key drivers and climate in emerging markets as well as where you're seeing improvement in some of the key developed markets. I think in the prepared remarks, you mentioned returning to volume share growth in European chocolate while in U.S. biscuit, I think there was a positive inflection in March. And both of these are areas where there's been more pressure and in large part, why some flexibility was built into guidance to start the year for fiscal '26? Dirk Van de Put: Andrew, yes, let me maybe start with the developed markets. We're pleased with our improving performance in the developed markets. It's in line, maybe even slightly better than our expectations. If I first look at Europe, consumer confidence there is stable, but it's fragile as you would expect from the Middle East conflict. Snacking value growth is holding up quite well, and the penetration of biscuits and chocolate categories, for instance, is holding up also. So we had a good start of the year. The retailer negotiations are generally complete, and they are in line with our planning. We had a very robust Easter season, which share improvements in several of our markets. Our Biscoff partnership continues to do really well. So happy with the European performance. Linked to that, chocolate in Australia and New Zealand had very strong growth, again, driven by strong Easter. Biscoff there is onto an incredible start, and we have some very strong share gains. The U.S., the consumer confidence there remains quite low. We expect it to further deteriorate as the Middle East conflict continues. Purchasing power is up, but the consumer remains very concerned about affordability, economic outlook and job security. Our main category, biscuits, the value is flattish. And where there is growth that's usually in the value club channels and in better-for-you and premium. We feel that we had a good first quarter with slightly positive net revenue growth in North America, driven by that momentum in the growth channels that I was saying. We gained some share in crackers led by strong performance of Ritz. And also our candy business is doing quite well as well as our North American ventures, particularly, Perfect Bar and Hu, they continue to grow well. Oreo was a little bit less, but we had a limited time offer this year that didn't perform as well as last year's, but we have strong plans in place to improve Oreo in the year to go. I think we will continue to see a gradual improvement of our North American business because we are increasing our brand reinvestments. We're trying to sharpen our PPA and hit the right price points as well as in Europe, of course. We have the growth channels and the new occasions, and we've got some strong good innovations that are in flight. So on developed markets, I would say, a good performance. Then emerging markets, we are very pleased with our performance in emerging markets. It remains very strong. It's about 40% of our business, as you know, we grew 6.3% in Q1. If I first go to the consumers, of our 4 key markets, the only place where the consumer is softer is in China, although it improved versus the last quarter, the confidence. And we remain positive that, that consumer confidence in China will continue to improve. We see a very positive confidence in India. And also Mexico and Brazil, we feel the consumer is in a good place. Of course, everywhere the consumer is quite cautious as it relates to the conflict and what that could mean for inflation and their energy cost. Snacking categories remain quite resilient across all those emerging markets, also in other geographies except on top of the top 4. Value growth is holding up really well, and particularly, biscuits and chocolates are doing quite well. So if I look at the results of our business, this will -- they were all driven by strong Easter. So overall, a 6.3% growth. Volume mix in emerging markets was up 0.5%. If I take Argentina out, it's almost 1% volume growth. China was mid-single digit. We had a strong Chinese New Year. Evirth, the acquisition there in cakes and pastries, high single-digit growth, and we continue to increase our distribution. India, we had a strong double-digit growth in Q1 in chocolate and in biscuits. There, we launched Biscoff in biscuits and our line is already sold out. So a very strong launch there, too. And then, of course, there was the GST change in India that is helping consumption in quite a way. Brazil, we have high single digit in Q1, a very strong execution across biscuits, chocolate and gum and candy. Mexico was flat in Q1. But overall, we feel good about our gum biscuits, chocolate and meals business, but we had some softness in our candy and powdered beverages there. We continue to see emerging markets as a sustainable growth engine, and we are quite optimistic for the long term. Our categories are still underpenetrated. We are reinvesting quite strongly this year. We have a long runway on distribution. We continue to build our global brands, and we can start doing some RGM in these markets. So we feel very good about the start in the emerging markets. That would be it, Andrew. Operator: We'll move on now to Peter Galbo with Bank of America. Peter Galbo: Dirk, there was a -- in the prepared remarks, you talked a lot about reinvestment. Obviously, a strong start to the year here, but there was a decision kind of made to reaffirm the guidance. Obviously, you mentioned some of the parameters around consumer confidence globally. But maybe you can just expand a little bit on, given the strong start to Q1, the decision to only reaffirm EPS, a little bit more around the reinvestment. And then I believe there's a line in the slides about strong earnings growth for 2027. Off the back of that, I know it's probably too early, but if there's any parameters you can put around that as well. Luca Zaramella: Thank you, Peter. I'll take the question, given it is on EPS and overall broader outlook, I presume. So look, we feel quite good about the start of the year. I think you saw the emerging market numbers. They are performing well. I would add maybe a little bit of color saying that the growth is really broad-based across categories and across geographies. Clearly encouraged by developed markets where having addressed some chocolate price gaps in Europe and having fine-tuned the promo strategy in the U.S. is yielding good results. And importantly, I think we have some new product launches that are performing well above all, we mentioned Biscoff. So look, I think it's fair to say we are ahead of expectation in Q1. But on the remainder of the year, while we continue to be cautiously optimistic, we need also to address some headwinds that we didn't have in our original forecast, particularly as they stem out of the Middle East crisis. The team is managing that situation quite well, finding alternative routes to produce our brands and to deliver our brands, but that is coming at an extra cost. And clearly, the oil cost albeit we are covered for the year is having a little bit of an impact on the profitability. So look, we were ahead. We are ahead. We are optimistic about the remainder of the year. We have the Middle East situation in terms of extra costs under control. But at this point in time, to be able to swallow it, we had to confirm guidance on the bottom line. Clearly, we are confident. But as I said also, quite a few times given there is quite a bit of momentum, particularly in emerging markets and in some brands, both in Europe and in the U.S., if EPS upside materializes, we would like -- most likely to invest it back in the business and really continue momentum ahead of clearly what we committed to, which is a strong 2027 EPS growth. Hopefully, that makes sense. Peter Galbo: Yes. And Luca, maybe just as a follow-up. You said you're through most of the European negotiations at this point kind of in line with expectations. Just -- maybe you can give us a little bit more color like where are you still left to go? Are there certain geographies that are wrapping up still just as we think about kind of goalposts getting through 2Q and wrapping up negotiations in Europe? Luca Zaramella: No, we are almost entirely done. We are talking about a couple of small customers here and there, but nothing really material. Importantly, we executed well in Easter, and we have promotions lined up for the remainder of the year. So we feel quite good that relationship with retailers in Europe is in good terms and in good territory in terms of the remainder of the year. Operator: We'll move on to Megan Clapp with Morgan Stanley. Megan Christine Alexander: Maybe we could pick up there on Europe. And Luca or Dirk, maybe you could just talk a little bit about what you're seeing in the competitive environment today? Clearly, it's been a big focus. You talked about when we were sitting here 2 months ago, some questions as to how the competitive environment could evolve given the volatility in cocoa. So just maybe you could give us an update on what you're seeing in the competitive environment and how you're kind of thinking about the rest of the year? Dirk Van de Put: Yes, yes. Thank you, Megan. So like I said, overall, so far, things are going well in Europe. There were some questions as we entered the year, how the customer negotiations would go. I think at this stage, yes, cocoa has improved, but most of the industry is still covered for the year. And we will still have to see what the main crop is going to bring us in cocoa. So at this stage, customer negotiations have gone, as we said quite well. We had a very strong Easter campaign, which includes the U.K., we have that success with Biscoff I was talking about. We have Toblerone, [indiscernible] is doing well. So overall, I would say our business in the chocolate category is off to a good start in Europe. And that, I think, has sort of calm down the situation a little bit. We don't see any movements in price happening at the moment. I believe that everybody understands that we have to wait and see what's going to happen here to cocoa in the second half of the year. And that at this stage, since the chocolate market is doing quite well, that everybody is quite pleased with what's going on. For our business itself, like I said, very strong Easter. Our share trends are improving. Our base business -- if I take Easter out turned from a share loss into slightly positive over the last month, our volume trends are improving sequentially. That was originally driven -- the volume trends were influenced by, of course, elasticities, which still continued in this year. We also did a lot of downsizing, and we had a plant outage last year. So we're starting to lap that. And we are focused on execution for the rest of the year, but we feel good about '26 and particularly about '27. We will continue to do strong activations. We are significantly stepping up investment in working media and our brands. We're doing PPA. We have reset a number of price points, which were off in certain markets, and we're starting to see a positive effect from that. And we continue to make sure that we do strong activations to draw consumers in the category. So overall, I would say we feel good about where the chocolate market is, where the reaction of the clients and the competition has been, and we expect that the year will continue quite strongly. Megan Christine Alexander: Great. That's really helpful. And then maybe just a related follow-up. You said we kind of have to wait and see what's going to happen for cocoa in the second half of the year. Prices obviously fell pretty quickly at the beginning of the year, but seem to have kind of stabilized in a range. So as you look at kind of the cocoa market and the dynamics, what's your kind of assessment of cocoa as we sit here today? Luca Zaramella: Yes. I think the -- nothing has really fundamentally changed. The mid-crop was quite positive. We are encouraged by what we see as it relates to next year crop as well. I think you know that supply, particularly out of Latin America and other places that are not the Ivory Coast of Ghana, the supply is quite positive. So I feel that from a fundamental standpoint, nothing has really changed. There is an effect that has happened over the last few months, I would say, since cocoa hit one of the lowest levels in 2, 3 years. And it is the fact that the industry overall has gone a little bit longer. In fact, if we look at the average coverage of the industry at this point in time, it exceeds around about 10 months, which is the highest we have seen in a while. And so to say that what you saw in terms of price increases in the cocoa market compared to the lowest levels that we saw earlier this year, it has been due to the fact that the industry has been going longer. So fundamentally, nothing has changed. We believe 2,500, which is the level we see at this moment is a much better representation of what supply and demand would say. And look, I think most likely, we will be headed for another year of surplus in terms of supply and demand, you saw the grinding numbers. They were a little bit better than anticipated, but still negative. And particularly in Europe, demand of cocoa is quite subdued. So I feel overall 2,500 is a fair representation and potentially there might be a little bit of a lower level lying ahead. Operator: We'll move next to David Palmer with Evercore ISI. David Palmer: Great. Just wanted to follow up on Europe. More on the consumer and what you're seeing by market out there, organic sales down only 0.5% or so. And you talked in your prepared remarks about how volume would improve -- volume trends would improve through the year. And some of that makes sense given the comparisons, but it sounds pretty constructive. Are you seeing -- what are you seeing from a price elasticity standpoint out there? You talked about a fragile consumer, but at the same time, it doesn't seem like you're seeing much slippage so far. So anything you're really watching out there from a market perspective, where maybe you're seeing a little bit more trade down here or there? Anything you're watching? And I have a quick follow-up. Dirk Van de Put: Yes. At this stage, I would say we don't see anything in the consumer that would be something that preoccupies us in their sales or in their buying patterns. But we know from the fact that the Middle East conflict will affect energy prices, which are very sensitive in Europe, that's one -- the one thing to watch. I think the aftereffects of the Middle Eastern conflict, if it continues, is going to show in many areas like fertilizers, packaging, oil prices and so on. And the consumer will start to feel that probably with increased inflation. So they're aware of that. They've seen these sort of situations. So that's what I meant when I said it's very fragile in the sense that they are vigilant. But so far, I would say from a category's perspective, there's nothing there that we feel is starting to show that there's a slowdown or something like that. No, like I said, we feel pretty good about how particularly chocolate has been behaving in the first quarter of the year. David Palmer: And then gross margins were better than what we had thought. We were thinking there might be something like $350 million in inventory phasing drag to the quarter, and gross margins were down only 270 basis points. So I don't know if we were thinking about that inventory phasing right, correctly in the quarter, but how should we be thinking about gross margins going forward? Luca Zaramella: So yes, the headwind for the quarter is around about $350 million, a little bit more than that. So we got it right and we guided you to the right number. I mean, as we said, excluding downsizing, volume mix was slightly positive. So there was leverage into the P&L. We had some upside in specific countries that are quite profitable. China in the quarter, for instance, grew 5%, and that's a quite profitable business. And so there was a little bit of additional leverage coming into the P&L. The supply chain folks are doing quite an amazing job between procurement and manufacturing. We are delivering year-on-year benefits to the P&L. So whether it was the usual high-performance supply chains of Latin America and EMEA, we added quite a bit of upside even in places like North America this quarter. So all in all, I think between the volume mix, us pricing in line with expectations, costs coming a little bit better due to productivity. I mean all of that resulted in the upside. Now that upside would have resulted in a benefit to the year, quite frankly. But at this point in time, as I said, there is a little bit of cost headwind coming out of the Middle East situation. We are well covered for oil and packaging costs for the remainder of the year. And quite frankly, also into 2027, but some regulated market do not allow us to do anything in terms of protecting ourselves, and that's the cost headwind that will materialize in the remainder of the year, for which we have to account and that's where we decided to guide for clear EPS in line with what we said the last time. We have also unlocked additional investments in a couple of places. As we look around, we see that there are things that work extremely well that are gaining momentum, and we still believe there is upside in there. So that's where we decided to invest more in A&C and other things. Operator: We'll now move on to Michael Lavery with Piper Sandler. Michael Lavery: Could you just maybe elaborate a little bit on your innovation strategy? And it seems like now with COVID in the rearview and the supply disruptions that kind of changed some of the thinking of that for a few years, it's a focus again. Can you maybe point to where you've got a particular focus or maybe key consumer insights that are considerations and just how you're thinking about that? Dirk Van de Put: Yes, yes. So yes, after COVID, where there was a lot of in-home consumption and then the beginning of the higher inflationary period where the consumer was still sitting on a lot of savings. We are now into a situation, as we all know where the consumer is a lot more anxious about how and where they are spending their money. Their basket is not going up. So we believe that the way to approach that is, in the first place, you need to hit the right price points on your core range. And that has become quite important, be it with chocolate in Europe or with biscuits in the U.S. you need to make sure that you are where the consumer really can afford you. So that's a big focus that we have at the moment. Then in-store activations, big activations around teams that consumers really are interested in are also very important. And then the third one is to present them with innovations that stand out and that are really breaking through the normal mold. So we've been doing this for a while, but I would say we're seeing some of the traction coming from that. So we've been focused on doing a lot of bigger and fewer bets, particularly improvement platforms. So if you think about innovation in the company, there is what I would call the base renovation of our products, like improving the normal mass of chocolate or the biscuits, launching new flavors, doing PPA, getting the seasonals right. But on top of that, we are trying to come with some new news in the different categories. And at this stage, we feel that we have a number of launches that are starting to do really well for us. So if I go through the big subjects that we have there, of course, there's first -- the well-being acceleration that we're seeing, and that's really on two fronts for us. First of all, there is the whole protein fiber, which we are working on. So we got Perfect Bar, really doing well with the protein range. Builders bar in the Clif range doing quite well. We are now also having a Builders bar with low sugar and a Perfect Bar with 20 grams of protein. So that's an important part of our innovation. At the same time, we are launching a number of products within our global brands like Oreo that go into sort of added benefits like gluten-free or zero added sugar, which is -- gluten-free is doing well in the U.S. Zero added sugar is doing well in China and has been launched in U.S. So that's I would call the well-being acceleration. Then there is, of course, cakes and pastries, where we've done a number of acquisitions but we are also launching products under our brands in cakes and pastries. So in Europe, the Milka Croissant is really off to a very strong start, and we're expanding that geographically. We've taken 7Days, the acquisition we did in Europe, and we launched it in Brazil. And then we've launched cakes under Oreo in China and in the U.S. and that is doing -- both are doing quite well for us. The third big area where we are trying to innovate is in premium and indulgent chocolate. Our 2 go-tos -- or we have 3 axes there. One is Toblerone. We are really developing Toblerone into our premium brand around the world. We are upgrading with unique innovations and very hard to get innovations under the main range, but also the Pralines are really starting to take off for us, the Toblerone Pralines. Then second big act there is in premium under our normal brands, we're launching this range called Cadbury & More, which is an indulgent range under Cadbury in the U.K. and in Australia. And then we've got that also under Milka called Milka MAX in Europe, which has been in the market for a while and is doing quite well. And then in the U.S., we have a vegan brand, Hu. Also a premium chocolate brand, and that is starting to show some real traction for us and growing quite fast at this stage. So those are the 3 initiatives in premium chocolate for us. And then I would say the last one that we really are very happy with is the whole partnership that we have with Biscoff. I've explained this a few times, this will be really quite big for them and for us in the coming years. We're off to a very strong start. As you know, we launched Biscoff biscuits in certain emerging markets. And we launched also our chocolate range, which has Biscoff cream or Biscoff crumbs into our chocolate. And so that collaboration will keep on expanding over the years, and I expect that we will come up with a few more in the coming years. So those are the sort of the four areas that I would highlight as our main innovation focus at the moment. We're also doing a lot in munching and on the go. So we launched Ritz Drizzled, and Ritz Bits is doing quite well also. So we think that's also an interesting innovation axis for us. Those would be the ones I mentioned, but we're very pleased with how these innovations are behaving at the moment. Operator: We'll now move on to Robert Moskow with TD Cowen. Robert Moskow: Dirk, I was hoping you could reconcile for me your comment about the consumer in the U.S. I think you said you expect consumer spending to weaken or confidence to weaken because of the impact of the Middle East war. But I think you also said that you expect your own North American business to continue to improve during the year. I think consensus has North America flat for the year. Do you think North America can get back to like a normal kind of low single-digit growth this year? Dirk Van de Put: Yes. Let me talk a little bit about the consumer and then let Luca talk a little bit about our business within that consumer context. So I think consumption in the U.S. for a number of reasons will remain subdued in general. I think the consumer is quite concerned about their financial situation. Most food categories and snacking categories remain soft in general, I would say. We can look at the basket -- the shopping basket, which has not increased in dollar value for 3 years now. But at the same time, the items in that basket have gone quite up in price. And so consumers need to take more conscious decisions. We see shift where higher income consumers, yes, buy premium products as the K-shaped economy. But then we also see lower income consumers really focused on lower unit prices and being very selective when and what exactly they buy. We see the channel shifts that we talked about from food and mass to value, club and online. For instance, Walmart, the value channel and Costco saw biscuits grow over 4% versus the total U.S. biscuit market, which was only 0.3% up. So I would say, yes, the consumer, to my opinion, will remain quite anxious. I think as the conflict continues and they see the effect of oil prices, and they will start to see in some of the other things they buy, I believe that, that is not going to help with the overall consumer confidence. But that doesn't mean that our business is not going to continue to improve, but I'll let Luca talk about that. Luca Zaramella: Yes. So look, I think the comments of Dirk, they are mostly related, I would say, to category dynamics and some of the snacking categories. And quite frankly, we haven't projected for the remainder of the year a better category number. Having said that, you're going to see a volume and revenue inflection as we go into the second part of the year in the U.S. There are already quite a few things that are working well. We are very pleased with the share of savory. We are gaining quite a bit of share, remarkably through Ritz. And some of the platforms that Dirk was referring to, namely Bits and Drizzled. But not only that, it is a really Fresh stack and some propositions in Ritz that are delivering quite nice share growth. We are extremely pleased with the performance of Sour Patch Kids. It is a brand that most likely for the year is going to grow double digit, and we have still plenty of opportunities and Chews has been an amazing innovation that is incremental. And importantly, the sales team is executing very well in channels that are growing fast, namely Club, but also, I would say, value. And so you are going to see a sequential improvement of the U.S. market specifically, particularly as we continue to execute well in the areas I've talked about. It is certainly a share gain plan because -- at this point in time, we don't see really the category improving much. I would also say that the ventures are delivering material growth. Besides the examples Dirk gave you, we are very pleased with Tate's, which is gaining share. And then as we said, the bars, including Clif, are really delivering share growth. And for instance, [ Ritz ] bar continues to grow close to double digits. So there are quite a few things that we feel are working well. We are investing in those. And I guess you're going to see volume and revenue turning around positively for the remainder of the year in the North American business. I omitted to talk about Canada, which in the big scheme of things, maybe is not the biggest, but they had a terrific Q1 as well. So hopeful that Canada will continue growing as well. Operator: We'll move next to John Baumgartner with Mizuho Securities. John Baumgartner: Wondering if you could elaborate a little bit on the supply chain program in North America biscuits that was touched on at CAGNY. I'm curious, over the past 10, 15 years, you've already consolidated manufacturing. You had the big modernization at the time of the spin-off from Kraft. What -- I guess, what does this new modernization entail resulting growth opportunities, route to market changes from here? How do we think about the opportunities there? Luca Zaramella: Yes. No, thank you for the question. I would start by saying that around about 60% of the network we have in the U.S. is really state-of-the-art. So the overwhelming majority of the network is in good shape. It is a competitive advantage. I think you know most likely the amount of profit we generate in the U.S. and the cash that we generate in the U.S. And I believe the competitive advantage we have besides DSD is really part of the network. So we feel quite good about that. Having said that, some plants in the U.S. still run on high waste, still run on the level of productivity that is below expectations. And so we will have to bring this network up to speed. We have come to terms that some of the plants will have to deal with much simpler lines as opposed to having complex state-of-the-art lines. And so we will play to the strength of the plant. And importantly, we have proven lines of business that are at the moment manufactured through co-manufacturers, and we want to bring those in-house. So those are proven volume platform things that really work well from a consumer standpoint. And reality is by bringing them in-house, we will save quite a bit of money. We will invest in some packaging capabilities. One of the things that we are realizing is that consumers are shifting through channels to different pack sizes. So if you want to compete in clubs, you need to have specific format types, if you want to have an appeal to certain consumers, you need to invest in what we call multipacks, which are mixed packs of our cookies and crackers. And some of these, we don't have in-house at the moment, and the supply chain is fairly inefficient and quite rigid. And so we will invest in flexibility, bringing in-house some of these propositions. Finally, one of the things that we're going to touch is the DSD network, which, at this point in time, relies upon, I would say, 4, 5 distribution centers, but 55 branches that allow us to reach the point of sale that we service, in general, I would say, 2, 3 times a week at least. And by automating those centers and by creating automation and AI fulfillment centers, we'll be able to achieve the point of sales in a much faster way and importantly, to reduce our stock and reduce cost in those branches. So that's really the idea. Dirk Van de Put: I think we can leave it at this for the time being. Thank you again for connecting. I hope we explained that the quarter was pretty good. We're looking forward to the rest of the year. And -- if you have any other questions, our IR team is available to help you out. Thank you. Luca Zaramella: Thank you, everyone. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Clearwater Paper First Quarter 2026 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Cheri Ellison, Investor Relations. Cheri? Cheri Ellison: Thank you, Ben. Good afternoon, and thank you for joining Clearwater Paper's First Quarter 2026 Earnings Conference Call. Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Sherri Baker, Senior Vice President and Chief Financial Officer. Financial results for the first quarter of 2026 were released shortly after today's market close, along with the filing of our 10-Q. You will find a presentation of supplemental information, including a slide providing the company's current outlook posted on the Investor Relations page of our website at clearwaterpaper.com. Additionally, we will be providing certain non-GAAP financial information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release and in the supplemental information provided on our website. Please note Slide 2 of our supplemental information covering forward-looking statements. Rather than reading this slide, we incorporate it by reference into our prepared remarks. With that, let me turn the call over to Arsen. Arsen Kitch: Good afternoon, and thank you for joining us today. I'll begin my comments with a brief overview of the first quarter. I will also provide some perspectives on industry conditions and outline the actions that we're taking to navigate the current business environment. I'll then turn the call over to Sherri to walk through the financial results in more detail and discuss our outlook. Let's start with the highlights from our first quarter as well as a few updates from April. Our shipment volumes were up 5%, which was more than offset by lower market pricing, resulting in net sales being down 5% compared to the prior year. We increased share in a highly competitive market environment with continued growth in foodservice. Adjusted EBITDA for the quarter was $2 million, slightly above our guidance of breakeven. This included approximately $15 million in weather-related impacts at our mills earlier in the quarter. Our team effectively navigated difficult operating conditions with a weather event in the Southeast. We minimized costs, protected our assets and were able to service customers with minimal disruptions. This quarter, we launched Velora, a new lightweight folding carton paperboard brand that is engineered to compete with imported FBB. We restructured our Cypress Bend, Arkansas facility, resulting in a reduction of approximately 20% of roles at the mill. We're planning to run the mill at reduced operating run rates until industry conditions improve. This action will drive an expected cost reduction of approximately $8 million to $12 million on an annualized basis. Our Lewiston, Idaho union ratified a new 4-year labor agreement. This agreement combines competitive wages and benefits for our employees with significant additional flexibility in how we can operate the mill. Finally, we received $17.5 million in additional representation and warranty insurance proceeds during the first quarter for a total of over $40 million. We continue to pursue claims against $50 million of the remaining policy limit. Let me now provide some perspectives on industry conditions and the impact on our business. SBS shipments were nearly flat in the first quarter of 2026 versus the first quarter of 2025, outpacing CRB and CUK, which declined by around 3%. SBS shipments are forecasted to grow by 4% in 2026. We believe that at least part of the strength can be attributed to lower imports and substitution effects as SBS is now the low-cost paperboard substrate on a per square foot basis. SBS is highly versatile with diversified end-use applications ranging from high-end folding cartons used in pharmaceuticals and cosmetics to food service items for at-home or QSR consumption. From a supply perspective, we started the year with industry capacity substantially exceeding demand by more than 10%. With recent changes in industry capacity, including our restructuring of the Cypress Bend mill, we now believe that the excess industry supply has been reduced by approximately 50%. RISI is forecasting additional net capacity reductions by the end of this year, resulting in industry operating rates of around 90%. As we've stated previously, margins should start improving to historical cross-cycle averages with industry rates exceeding 90%. Bleached imports were down by 12% in 2025 versus 2024, driven by higher tariffs and a weaker dollar. European producers are facing additional cost pressures this year with higher energy, chemical and transportation costs driven by the conflict in the Middle East. RISI is forecasting total bleached imports to decrease by an additional 12% in 2026 versus 2025. In terms of our business, we're experiencing solid demand with stability in folding carton and strength in foodservice, particularly in cup and plate. Backlogs across our paper machines are strong, and we are sold out on extruded products such as cup and polycoated folding carton. With our mill restructuring, we have customer demand to run full across our 3 mill network for the remainder of the year. While we're seeing some positive signs of both demand and supply, current industry operating rates are driving margins that don't produce the necessary cash flow or returns to reinvest in our capital-intensive assets in the long run. In fact, we believe that today's margin levels are resulting in negative operating cash flow after the CapEx that's required to maintain these assets. This is simply not a sustainable position for us to be in. Against this backdrop, we remain focused on controlling what we can control while anticipating a recovery in industry conditions. First, we're continuing to drive costs out of our business and focusing on operating our assets efficiently. Second, we're protecting share with our strategic customers by delivering the right combination of quality, service and cost. And third, we're looking for ways to recover the increased costs that we've experienced, including the most recent impacts from the Middle East conflict. Let me provide a bit more context on our actions at Cypress Bend. We reduced roles at the mill by about 20% and improved the mill's cost structure by an expected $8 million to $12 million per year. We're prepared to run and reduce production rates until SBS industry conditions improve or we invest in other capabilities such as CUK. Cypress Bend remains a well-invested and cost-competitive mill that provides us with the optionality to grow in the long run. It also provides our customers with North America's largest independent paperboard mill network with capabilities to produce a full range of SBS products. In total, we are now focused on producing and profitably selling approximately 1.2 million tons of SBS across all 3 of our mills versus our stated capacity of around 1.4 million tons. In addition to the industry oversupply that we're facing, we're also experiencing significant cost pressures on certain chemical wood and diesel costs because of the conflict in the Middle East. Altogether, we're projecting $3 million to $5 million of quarterly headwinds from these cost increases until the conflict is resolved and global supply chains have returned to normal. With these additional cost headwinds and due to our sold-out position in our cup business, we have revised our previously announced price increase on cup and other extruded products to $60 per ton effective in May. This increase impacts approximately 70,000 tons of our extruded business not tied to the RISI price index. The rest of our cup and extruded business, which is approximately 150,000 tons, will move within a couple of quarters of any change to the RISI price index. We see momentum in our cup business, while we continue to face a highly competitive environment in our non-extruded grades such as folding and plate. We announced a $50 per ton increase on these grades in March, but we found implementation to be challenging given our industry's current oversupply position. We believe that our margins on these grades aren't sustainable in the long run, and we'll continue to look for ways to recover the cost pressure that we faced over the last couple of years. Before I turn the call over to Sherri, I'd like to briefly update you on our strategic initiatives to further build and diversify our product portfolio. We have successfully launched a new lightweight paperboard product line called Velora. We believe that Velora will compete effectively with FBB and support a wide range of general use packaging applications. While we believe that this type of product has a place in the market, it is not a replacement for a high-quality SBS offering. We continue to evaluate our CUK investment decision as we navigate current industry conditions. The engineering work is complete with an estimated investment of approximately $60 million and an execution time line of roughly 12 to 18 months. As a reminder, this project would take place at our Cypress Bend, Arkansas mill, and we would target 100,000 to 150,000 tons of CUK volume with this conversion while maintaining our ability to produce SBS. In addition to our focus on lightweight SBS in CUK, we are evaluating opportunities to add CRB to our product portfolio. We believe that offering a full range of paperboard substrates positions us to better meet the needs of our independent converter customers and expand our share of their overall paperboard spend. With that, I'll turn the call over to Sherri to discuss our first quarter financial results in more detail and provide an outlook for the second quarter. Sherri Baker: Thank you, Arsen. Turning to our first quarter financial performance. For the quarter, we reported a net loss from continuing operations of $13 million or $1.29 per diluted share. Our results include $17.5 million of insurance proceeds. Net sales were $360 million, down approximately 5% compared to the first quarter of 2025. Higher shipment volumes were more than offset by lower SBS market pricing. Adjusted EBITDA was $2 million, slightly above our guidance, which contemplated breakeven performance. As Arsen mentioned earlier, the weather event at our Augusta and Cypress Bend mills impacted EBITDA by approximately $15 million in the quarter. SG&A as a percentage of sales remained below our target range of 6% to 7%, reflecting continued cost discipline. We believe that this is best-in-class in our industry. The conflict in the Middle East is putting pressure on chemical, wood and transportation costs. As Arsen mentioned, we believe that these additional costs will be in the $3 million to $5 million range per quarter. Oil-derived chemicals have experienced increased price volatility and transportation costs have been impacted by higher fuel prices. We are working to mitigate these impacts through targeted pricing actions and operational productivity, but these dynamics remain a near-term headwind to margins. We will continue to monitor developments closely and provide financial updates as appropriate. Let me also provide an update on the insurance recovery related to the Augusta acquisition. As a reminder, we obtained representation and warranty insurance with a $105 million limit through multiple insurers. We identified certain matters that were not consistent with representations made to us at the time of the transaction and notified the insurers of these breaches. In the fourth quarter, we received an initial settlement payment of $23 million, including approximately $6 million related to direct operating costs occurred in 2025. In the first quarter, we received a second settlement payment of more than $17 million, of which approximately $6 million relates to direct operating costs incurred in Q1 of fiscal 2026. As of March 31, approximately $50 million of the policy limit remains. We are actively pursuing the recovery of the remaining claim amount with our insurers, and we'll provide updates in future quarters. Turning now to our outlook. For the second quarter, we expect adjusted EBITDA in the range of breakeven to negative $10 million. This is being driven by our planned major maintenance outage at our Lewiston facility, which will have a direct cost of $22 million to $24 million. In addition, we expect $5 million to $7 million of higher input costs, including the impact from the Middle East conflict. Partly offsetting those headwinds will be benefits of our cost reduction initiatives and seasonal uptick in shipment volumes. Our full year assumptions remain as follows: revenue of $1.4 billion to $1.5 billion, flat to modest shipment growth, approximately $70 million carryover impact from 2025 market-driven price decreases, excluding the effect of recent pricing actions or future RISI price index movements. productivity gains, including carryover from 2025, offsetting 2% to 3% of input cost inflation. Major maintenance outage costs of $45 million to $50 million, consistent with 2025. Please note that the Cypress Bend outage has been moved from Q2 to Q4 of this year. Approximately $6 million of benefit related to the Cypress Bend restructuring, capital expenditures of $65 million to $75 million, targeted working capital improvement of $20 million to $30 million and SG&A maintained towards the lower end of our target range of 6% to 7% of sales. Importantly, we believe that we have a path to breakeven or better free cash flow for the year. This includes impacts from the cost actions that we are taking, insurance recoveries, a tax refund that we are expecting and reductions in net working capital. As Arsen mentioned earlier, we are focused on controlling the controllables even as we work through a challenging industry environment. Let me wrap up with a few comments on our balance sheet. We have ample liquidity available to us and are managing to keep our overall debt levels relatively flat. Our 2020 notes go current in the second half of 2027, while our ABL goes current later this year. It is our intent to extend or refinance both instruments before they go current. We are in active discussions with our banking partners, and we'll provide an update in the coming quarters. With that, I'll turn the call back to Arsen for closing remarks. Arsen Kitch: Thank you, Sherri. I'm proud that our team has continued to maintain its focus on running safely and effectively while reducing costs across the business. We are a lean and agile company, which is an advantage regardless of what part of the industry cycle that we're in. We have taken important steps to improve our performance, including restructuring the Cypress Bend mill, implementing pricing actions and advancing our product portfolio diversification. In closing, I'd like to summarize our key priorities for the balance of this year. First, we will continue to focus on operating efficiently and reducing costs. Second, we will protect share with our strategic customers. Third, we're taking actions to be cash flow neutral this year. And finally, we're planning to refinance or extend maturities on our existing debt. I remain confident that this cycle will turn. Over time, we believe we will return to cross-cycle EBITDA margins of 13% to 14% and generate more than $100 million of annual free cash flow. Most importantly, we will continue to make decisions that drive long-term shareholder value while supporting our customers, employees and the communities in which we operate. Thank you for joining us today. We'll now open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Sean Steuart with TD Cowen. Sean Steuart: Arsen, I want to start with the Cypress Bend restructuring. So you're cutting roll production 20% but the indication was you don't expect any overall impact on shipment volumes, which I suppose implies you'll be adding volume at the other mills. I guess the question is, should we consider this to the extent of Clearwater's supply response to a difficult market environment? And if that's the case, I guess your assessment of the overall industry cost curve, you referenced what RISI is forecasting for capacity cuts through the remainder of the year, your impression of how steep that cost curve is and how quickly the supply response could arrive? Arsen Kitch: Yes. Thanks, Sean. There's a couple of questions in there, so let me try to tackle them all. So at Cypress Bend, we've reduced our roles at the mill by 20%, so headcount and other and open roles in addition to other costs. So that should drive $8 million to $12 million of annual savings at the mill. We intend to run the mill at reduced operating rates until industry conditions improve. We are -- given that strategy, we have about 1.2 million tons of volume that we're comfortable with. And at this point, we have about 1.2 million tons of annual production that we're comfortable with after taking this action. So we're now going to be focused on ensuring that we produce that 1.2 million tons and we sell it profitably to our customer base. So given that change, we believe that we're fully utilized for balance of the year. In terms of broader industry changes, if you look at the first half, the actions that have taken place have reduced production or capacity by 280,000 to 300,000 tons. And if you recall, we stated that this industry is oversupplied by 500,000 to 600,000 tons. So we think that's about 50% of that oversupplied. The industry is forecasted to grow by 4%, which should add a couple of hundred thousand tons of demand and imports are forecasted to come down by 12%, which is probably going to be another 50,000 tons or so. So if you pull all those things together, RISI is forecasting a 90-plus percent utilization or industry operating rate by balance of the year, which should put us on a path back to a recovery. Sean Steuart: Okay. Okay. I think I get that piece of it. Second question is for Sherri. On the free cash flow bridge commentary, I think I understand the insurance piece of it. But you mentioned the tax refund coming. Can you give us perspective on how much that will be and specific quarterly timing there? Sherri Baker: Yes. So the overall for the full year would be $27 million to $28 million, of which we received $4 million in the first quarter. So you've got roughly $23 million remaining for the balance of the year. Sean Steuart: Okay. And one last question, Sherri. The debt rating downgrade from Moody's, does that have any real bearing on your interest -- your borrowing costs effectively right now? Or is it more subject to future credit facility negotiations, that type of thing? Sherri Baker: It would be the latter. It would be more applicable to any future refinancings. Operator: Your next question comes from the line of Matthew McKellar with RBC. Matthew McKellar: First for me, I think you mentioned $3 million to $5 million per quarter of input cost pressure until the conflict is resolved. Is that essentially a comparison of where costs are today versus where they were in February? And does that embed any potential recovery against higher costs that I think you mentioned, whether that be through price or other mechanisms? And if you could speak to what those might be, that would also be helpful. Arsen Kitch: Yes. No, good question. So first, yes, it is a sequential comparison. So it's versus where we were at, call it, a month or 2 ago before the conflict started. There's really 3 buckets of cost. Number one is chemicals. Number two is transportation, diesel. And the third one, maybe a little surprising was wood. We think approximately 20% of wood costs actually have to deal with transportation to get the wood out of the forest. So we are seeing some cost pressure on wood as well related to higher diesel costs. So yes, $3 million to $5 million sequential. In terms of recovery, listen, we're focused on cost reductions. So the Cypress Bend restructure should deliver about $2 million a quarter of cost reduction sequentially. As I mentioned on the call, we're also -- we're in the process of implementing a $60 price increase on our extruded products and our extruded products are polycoated. So they use more chemicals than non-extruded products for the polycoating. So there we're facing some unique cost pressures on those grades. And we're also sold out on those grades. So I think between the cost reduction in Cypress Bend and the price increase, we are attempting to recover at least some of that cost increase. Matthew McKellar: Great. That's helpful. Then just a quick one on Velora. Could you just help us maybe understand how that fits into the product portfolio? Are you seeing that uptake from customers who had been on FBB so far? And where would your expectations be in terms of what share of your folding carton and foodservice volumes that product would eventually represent? Arsen Kitch: Good question as well. So we -- I view Velora, like as you'd imagine, it's another tool in our toolkit to work with our folding carton customers. They're obviously -- they're participating in bids and specs with their customers. So we want to put another tool in their toolkit. It is a grade that includes mechanical pulp. It is a lightweight grade. It is not a replacement for SBS, but it's meant to compete with FBB. So if our customers' customer is looking at a lightweight FBB product, we have a solution for them. It is not incremental growth. It will take up some of our existing SBS capacity, and we haven't sized it yet in terms of number of tons. We don't expect it to be a large number in the near term. We'll monitor it and see what the uptake is and then we'll figure out what -- how much capacity to allocate to it in the long run. Operator: Your next question comes from the line of Mike Roxland with Truist Securities. Michael Roxland: First question, what has the customer response been to the $60 per ton price increase on the extruded products thus far? Arsen Kitch: I think we're still working through it with our customers. I'm not prepared to comment on feedback yet. I think the important point that I raised during the call is we're facing unique cost pressure on those grades because they're polycoated. And the second piece, we are sold out. So our backlogs on those products are well beyond what we normally see with our customers. So we think between those 2 variables, I think we have a very strong case to implement this price increase. Michael Roxland: Got it. Were the backlog just as strong a couple of months ago? I mean if I heard you correctly, and I apologize if I didn't, I mean with another price increase, I think, targeting March which you now pushed out, maybe it's one of the same and if not, so my apologies. But were backlogs the same a couple of months ago, if we're talking about the same price increase? And if not, why do you think the conditions warrant? I mean I understand the wars, you have increasing costs, but why would customers be willing to do it if they're also stretched themself with that? Arsen Kitch: Yes. So I think our original price increase back in March was $50 on folding and $60 on cup. This is a revision. We are at $60 across extruded -- all extruded products, which includes some polycoated folding carton as well as polycoated cup. And yes, our backlogs on those grades have grown, and we're actually -- we're pressured on how to satisfy customer demand at this point. So they've grown since then and costs have also grown. So that's -- so it's a bit of a revision from what we talked about back in March. Michael Roxland: Okay. Got it. In terms of CUK, it sounds like you mentioned the engineering work is now complete. It requires investment $60 million with the time line of 12 to 18 months. I mean, can you give a sense as to whether you're willing to -- like what would get you over the hump to pull the trigger and move forward with producing CUK at Cypress Bend? And secondly, what optionality you have also with CRB? And where would you be looking to do that as well? Arsen Kitch: Yes. Good questions, Mike. So on CUK, I think, frankly, it just has to do with the balance sheet and cash flows at this point, right? It's a $60 million investment, when we're working very hard at this point in the cycle to remain cash flow neutral. So it's a matter of allocating the capital and the cash, which at this point, would have to borrow. So that's the CUK decision. I think -- we think it's a good project. We think we have a place in that part of the market. It's just figuring out the right time to make the call. On CRB, as you know, Mike, SBS mills would have a difficult time converting to CRB given the differences in the back end of the mill. So it's a matter of either looking at M&A in the long run or looking at some additional partnerships or supply agreements or something along those lines to get some CRB into our portfolio. So that's -- the CRB one around M&A, I think that's a longer-term thinking because, frankly, right now, we're focused on ensuring that we have a strong balance sheet to get through this part of the industry cycle. Michael Roxland: Got it. I appreciate that, Arsen. One, just a quick follow-up. So even with respect to CUK, $60 million is probably unlikely given that you don't want to stretch -- you would not -- I would assume that you would not want to stretch your balance sheet any further given the fact that there is still risk in SBS and a lot of uncertainty with respect to how this excess capacity is going to be absorbed, right? So I mean in other words, the conversion to CUK is probably unlikely in the near term as well because you don't want to stretch yourselves further. Arsen Kitch: I think we're going to keep reviewing it. We think it's a good project. I think $60 million right now is a bit of a stretch. So we're going to look really hard to see how we can get CUK into our portfolio. At this point, we have an engineer a project. Frankly, we're pushing the team to figure out what other paths we have to create CUK to make CUK in our facilities maybe spending less than $60 million. Michael Roxland: Got it. And one final question, I'll turn it over. Just -- I know you're pretty constructive on maybe the conditions getting better by the end of the year, you're citing RISI. If market conditions remain challenging and let's say the biggest player refuses to do anything further with respect to cutting capacity, what else can be done or what can you do from a portfolio perspective? Arsen Kitch: Listen, Mike, I'm not going to try to speculate what we would or wouldn't do. I think right now, we focused on a few actions. So we talked about price. We talked about cost reductions. We did the Cypress Bend restructure. I think in the long run, we'll continue to assess our cost structure and our assets to make sure that we're in a good spot. But I think we're optimistic that we're seeing enough green shoots for a recovery in our corner of the market and our industry here as we progress through the year. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to the Seagate Technology Fiscal Third Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President of Investor Relations. Please go ahead. Shanye Hudson: Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chair and Chief Executive Officer; and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and detailed supplemental information for our March quarter results on the Investors section of our website. During today's call, we'll refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form 8-K. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q as well as the supplemental information all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call up for questions. [Operator Instructions] With that, I'll hand the call over to you, Dave. William Mosley: Thanks, Shanye, and hello, everyone. Seagate delivered a very strong March quarter. underscoring both the durability of demand and the leverage in our model. We grew revenue 44% year-over-year, achieved record gross margins, more than doubled non-GAAP operating income and generated one of our highest ever levels of free cash flow at close to $1 billion. Momentum continues to build for our Mozaic HAMR-based platforms with 2 of the world's largest CSPs now qualified on our 4+ terabyte per disk product. For both of these customers, qualification timelines were in line with PMR products, underscoring the maturity of the platform, and our team's outstanding execution as we work to meet customers' accelerated demand requirements. Our strong Q4 guidance issued today demonstrates our growing conviction in the business and future opportunities. As we look ahead, we see Seagate now entering a period of structural growth. Our belief is rooted in 3 pillars. First is the sustainability of rising storage demand. AI-enhanced applications are accelerating data creation, expanding retention and increasing reliance on historical data sets for advanced reasoning, extending beyond cloud data centers to the enterprise edge, these trends require storage solutions that deliver cost and energy efficiency at scale, making high capacity hard drives essential to modern data center architectures. Second is our strategic technology roadmap. Anchored by the Mozaic platform and HAMR innovation, we are delivering critical technology breakthroughs at the right time to support our customers' rising demand now and into the future. Third is our proven strategy focused on converting demand into profitable growth and value creation. Our build-to-order model enhances demand visibility and supports pricing and supply discipline. Our HAMR-based product roadmap enables margin expansion as we scale. And our capital allocation framework enables us to leverage our earnings growth and cash flow generation into strengthening our balance sheet and enhancing shareholder returns over the long term. The combination of these pillars, robust market demand, a proven technology roadmap and disciplined operational execution is already driving performance ahead of the financial targets outlined at our analyst event a year ago. The progress we have made gives us confidence to significantly increase our annual revenue growth target from the low to mid-teens, to a minimum of 20% over the next few years. This confidence is reinforced by the strength of the current demand environment shaped by ongoing momentum from cloud investments. The March quarter marked our tenth consecutive period of revenue growth from cloud customers, who have committed hundreds of billions of dollars in infrastructure CapEx investment to support their own long-term growth in AI transformations. Using Remaining Performance Obligations, or RPO, as a proxy for future revenue potential, the top 3 global CSPs alone have nearly doubled their RPO to staggering $1.1 trillion, a clear indicator of sustained growth ahead. Assurance of reliable supply is our customers' highest priority, particularly for nearline products, which accounted for close to 90% of total Exabyte shipments in the March quarter. We have Exabyte scale supply agreements in place with nearly all major cloud and hyperscale customers, with nearline capacity almost fully allocated through calendar 2027. At the same time, we are finalizing build-to-order contracts with these customers through the end of fiscal 2027, which defines specific configuration and pricing. Our value-based pricing approach enables customers to plan with confidence, while contributing to sustained profit growth for Seagate. And we are actively engaged in strategic planning discussions now reaching into calendar 2028 and beyond. Today, AI sits at the center of nearly all customer demand conversations. We are in the midst of an inference inflection where compute infrastructure is shifting from periodic training to becoming engines that continually generate mass capacity data. Leading AI chatbots now handle billions of user prompts daily, each consuming and producing multimodal outputs that fuel an unprecedented surge in data creation. Agentic AI pushes this even further, transforming sporadic engagements into autonomous workflows that continuously ingest inputs, generate reasoning and store durable outputs that are dramatically increasing data intensity and long-term storage requirements. AI is amplifying demand across existing applications such as video, where large cloud providers are integrating AI into platforms to boost user engagement and revenue opportunities, driving new video creation and the need to store it. We believe demand will further accelerate as AI applications move beyond the data center into the physical world, powering manufacturing systems, autonomous vehicles and robotics. These physical AI deployments generate massive data streams from sensors, cameras and telemetry with a single autonomous vehicle producing up to 4 terabytes per hour. A portion of this data is reused for simulation, validation and retraining with retention requirements stretching 5 to 10 years to meet compliance standards. These inference-based applications are creating a growing need for both cloud and local storage. We have started to see interest from sovereign and neo cloud data centers for our enterprise nearline drives and system solutions. To manage these intensifying workloads, cloud and edge data centers deploy storage tiers that work in concert to optimize performance, cost, energy efficiency and data durability. Hard drives are critical to these modern data center architectures, delivering scalable capacity along with energy and cost efficiencies that form the foundation of the mass data storage tier. Seagate's proven product portfolio makes us well positioned to address this broadening opportunity set. Our technology strategy prioritizes aerial density innovation over increasing unit volumes to address rising demand. Leveraging our technology strengths, we provide the most capital and manufacturing efficient path to scale, while delivering improved cost and power efficiency per terabyte for our customers. This approach supports our goal to supply data center exabyte growth in the mid-20% range. Our Mozaic 4+ platform is a prime example. As our second-generation HAMR-based product, Mozaic 4, can deliver up to 44 terabytes per drive, over 30% more capacity compared to the first-generation Mozaic drives, which we achieved with the same number of disks and heads with minimal change to the bill of materials. Mozaic 4 also incorporates our internally designed laser and integrated photonic circuitry into the recording head. This innovation enables high-volume, extreme precision manufacturing that enhances our ability to increase drive capacity and cost efficiency. We began revenue shipments from Mozaic 4 in late March, and based on current ramp plans, we expect Mozaic 4 to represent a majority of our HAMR exabyte shipments exiting calendar 2026. We have shipped millions of HAMR-based drives, highlighting our ability to engineer with atomic-level precision and then integrate that innovation into high-volume exabyte scale. We work closely with customers to ensure our technology roadmap aligns with their future storage capacity and performance needs. Customer feedback consistently indicates that tiered storage architectures and software solutions meet their performance needs over the next few years. Capacity scaling remains their top priority, and we are executing the plan. Our Mozaic 5 product development is progressing well to plan to deliver capacities at 50 terabytes with qualification shipments targeted for late calendar 2027. These drives leverage our advanced photonics expertise, internally designed laser and mature 10-disk platform to extend the aerial density capabilities. This approach offers customers a predictable path for addressing their future exabyte growth needs as well as upgrade the storage capacity of their installed base, while using the same power budget and lower space and the momentum we've seen in qualifying Mozaic products continues to validate this approach. Today, the vast majority of HAMR supply is allocated to cloud and hyperscale customers. However, as production scales. We expect to leverage 4 and 5 terabyte per disk capabilities to produce cost-efficient, lower capacity products for enterprise data centers and edge IoT applications. This unified platform approach will simplify our product portfolio and enable manufacturing, supply chain and cost efficiencies to deliver strong economics for Seagate over the long term. In summary, Seagate is entering a period of structural growth, powered by durable demand, increasing adoption of our Mozaic-based products and continued execution against the strategy designed to drive margin expansion, cash flow and long-term value creation. I want to thank our global team for delivering another strong quarter and recognize our suppliers, customers and shareholders for their ongoing support. With that, I'll turn it over to Gianluca. Gianluca Romano: Thank you, Dave. Seagate posted very strong results for the March quarter, exceeding our expectation for revenue, operating margin and earnings per share, while setting new profitability record that reflects sustained data center demand. Additionally, we further strengthened our balance sheet by retiring $641 million in gross debt and achieved free cash flow margin of 31%. Revenue for the March quarter was $3.1 billion, up 10% sequentially and up 44% year-over-year. We achieved non-GAAP gross margin of 47%, up 180 basis points sequentially, and we expanded non-GAAP operating margin by 560 basis points sequentially to 37.5%. Our result in non-GAAP EPS was $4.10, up 32% quarter-over-quarter and 115% year-over-year. We shipped 199 exabytes in the quarter, up 39% year-over-year. The data center market accounted for 88% of exabyte shipments and 80% of revenue, with strong demand contribution from both global cloud and enterprise customers. We shipped 175 exabytes into the data center market, up 6% sequentially and 47% year-on-year. Data center revenue increased even faster over the same period, up 12% sequentially and 55% year-on-year, totaling $2.5 billion. Cloud makes up the vast majority of data center revenue and capacity shipments. We are focused on renting Mozaic to address growing cloud customer demand. In the March quarter, we shipped Mozaic drives for revenue to 75% of the leading global cloud customers, and we remain on track to complete qualification with the remaining 2 customers in the current quarter. In the enterprise OEM data center market, we saw a notable sequential revenue increase, reflecting growing deployment of AI application, along with renewed demand for hybrid and tier storage architectures. This proven strategy widely adopted by cloud and hyperscale customers, provide scalable and efficient infrastructure solutions across all market conditions. Our edge IoT market made up the remaining 20% of revenue at $612 million, up 2% sequentially. In the client and consumer markets, high supply and higher NAND cost offset the typical seasonal demand slowdown in the March quarter. Moving on to the rest of the income statement. Non-GAAP gross profit increased to $1.5 billion, up 23% quarter-over-quarter and 87% compared with the prior year period, growing roughly twice the rate of revenue. Non-GAAP gross margin expanded to 47% in the March quarter from 42.2% in the prior period. This improvement reflects continued execution of our long-term pricing strategy, along with improving product mix. Together, this drove a mid-single-digit increase in year-over-year data center revenue per terabyte. We expect this trend to continue, supported by a strong demand environment. Non-GAAP operating expenses were in line with our expectations at $296 million or 9.5% of revenue. The combination of higher revenue and expense discipline enabled us to achieve our long-term target earlier than originally planned. As we effectively execute our strategy around advancing areal density, supply discipline and pricing, we delivered a 30% sequential improvement in non-GAAP operating profit to $1.2 billion or 37.5% of revenue. Other income and expense were $62 million, reflecting lower interest expense on the reduced outstanding debt balance. We expect other income expense to remain relatively flat in the June quarter. Non-GAAP net income grew to $934 million, with corresponding non-GAAP EPS of $4.10 per share based on tax expenses of $171 million and a diluted share count of approximately 228 million shares, including the net impact of our 2028 convertible notes. Turning now to cash flow and the balance sheet. We invested $151 million in capital expenditures for the March quarter or roughly 4% of revenue year-to-date. We expect capital expenditure for fiscal year 2026 to be inside our target range of 4% to 6% of revenue, with investments aimed at the ongoing transition and ramp of HAMR-based products. Free cash flow generation expanded significantly to $953 million, up 57% from the prior quarter, representing our highest level in over a decade. We expect free cash flow generation to improve further through the remaining quarter in calendar '26, supported by sustained demand trends, operational efficiencies and capital discipline. Cash and cash equivalents increased to $1.1 billion at the end of March quarter with ample liquidity of $2.4 billion, including our undrawn revolving credit facility. During the last quarter, we recorded approximately $191 million to shareholders through dividend and share repurchases. We also retired $641 million in debt including over $600 million of exchangeable senior note due 2028 using cash on hand. Our resulting gross debt balance was approximately $3.9 billion, exiting the March quarter. Year-to-date fiscal 2026, we have reduced gross debt by approximately $1.1 billion. Net leverage ratio improved to 0.7x based on our adjusted EBITDA of $1.2 billion for the March quarter, up 28% quarter-over-quarter and more than doubled year-on-year. We expect the net leverage ratio to continue declining as profitability and cash generation increase, while we plan to further reduce debt. I'm pleased to share that Fitch recently upgraded Seagate credit to investment grade, recognizing our strengthening balance sheet and profitability expansion. Turning now to the June quarter outlook. Despite rising geopolitical tensions, including the ongoing conflict in the Middle East, we do not currently expect material impacts to the business. Our teams acted quickly to mitigate supply and logistics disruption, and we will continue to monitor this dynamic situation. Underlying demand fundamentals have not changed. AI is reshaping data into a strategic asset, accelerating our customers need for storage capacity at scale. We see strengthening exabyte demand and continue to execute our Mozaic product qualification alongside our pricing strategy. With that as a context, we expect June quarter revenue to be in a range of $3.45 billion, plus or minus $100 million, which represents a 41% year-over-year improvement at the midpoint. Non-GAAP operating expenses are expected to be approximately $295 million. Based on the midpoint of our revenue guidance, non-GAAP operating margin is expected to be in the lower 40% range. Non-GAAP EPS is expected to be $5 plus or minus $0.20, based on a tax rate of about 16% and non-GAAP diluted share count of 231 million shares, including estimated dilution from our 2028 convertible notes of approximately 3 million shares. Our financial performance and guidance demonstrate our focus on profitable revenue growth, alongside a product strategy designed to capture the significant opportunities ahead. Combined with the visibility gain through our customer agreements, we are confident in delivering quarterly revenue growth and margin expansion through fiscal 2027, positioning Seagate to enhance value for both customers and shareholders over the long term. Operator, let's open the call up for questions. Operator: [Operator Instructions] Our first question today is from Erik Woodring with Morgan Stanley. Erik Woodring: Congrats on the results and guide. Dave, I was wondering if you could go a bit more into the detail on specific tailwinds to HDDs from Agentic AI? And I guess, meaning like the broad tailwinds to HDD storage demand for multimodal models and physical AI is pretty clear, but it's less clear exactly what parts of the Agentic workflows are ripe for HDD. So I guess my question is specifically how does Agentic AI benefit HDD demand? And does that have any impact on how you think about that mid-20% nearline exabyte CAGR you provided at Investor Day a year ago? William Mosley: Thanks, Erik. Yes, we are picking up confidence because of some of these new applications. I think it's important to realize that some of the applications, while important, are fairly small data applications, some drive enormous data sets. And so when I think about Agentic AI, I think about frequently asked questions, you're -- rather than just periodically querying something you're doing as part of workflow. And when you do that, you may actually reference enormous data sets to draw your conclusion and you may actually create new data that needs to be propagated out in the world to the extent that that's unstructured data, video data, that's where it's actually hitting the storage tiers fairly hard. So not entirely related to mass capacity storage, but we're starting to see a lot of this pick up. Operator: The next question is from Asiya Merchant with Citigroup. Asiya Merchant: Great set of numbers here. Congratulations. If you could just talk a little bit about cost reductions, pretty impressive year. You guys are on the second-generation Mozaic now. How should we think about these cost reductions? And if you could just update where you think you would be for HAMR? I think you said majority of them exiting, I think, fiscal '26, if I heard that correct. But if you could just update us on where you are with the HAMR targets and the blended cost reductions we should expect as you ramp into the second generation? William Mosley: Yes. Thanks. That's one of the reasons we try to change as little as we can, platform to platform. It just -- it derisks the product transition, but it also allows ourselves and our suppliers to leverage all the installed base as well. So we're trying not to change as many parts as we possibly can. Obviously, there are technology changes. Most of those are under our control and that Heads and Media. But right now, because of the momentum that we're seeing with the HAMR roadmap, we're seeing that we can get more aerial density for fairly small changes inside of our portfolio. Most of it affects the laser and the photonic circuitry and the material set on the Media like we talked about. So all of this is not netting out to much of our bill of materials change and therefore, we're getting a lot of the cost leverage. Gianluca, do you want to expand on that? Gianluca Romano: Yes. I'll say, if you look at our last several quarters, the cost reduction was coming from mainly 2 items. One is for sure the mix going to higher capacity drives. And second was the full utilization of our manufacturing. When I look into the future, of course, now we are full. So that part maybe will not be so important in terms of cost reduction, but our mix change continued to be very fast. We are going faster than what we were thinking on the transition to HAMR. And now that we have second generation HAMR now, we have a very good increase in terabytes per unit. And of course, this is the driver, not adding more below material to the hard disk, which is the main driver for the future cost reduction. Shanye Hudson: And I think, Asiya, your second question was around where we stand in terms of HAMR. Dave had mentioned on the call that we would expect towards the end of this calendar year for Mozaic 4 to cross over with Mozaic 3 and then we remain on track for overall HAMR exabyte crossover at that time as well. Operator: The next question is from Samik Chatterjee with JPMorgan. Samik Chatterjee: Maybe on the pricing side, pretty strong price increase, both on a year-over-year and quarter-over-quarter basis here. I know you sort of expect these pricing trends to continue. But just trying to think through why shouldn't we see pricing maybe accelerate a bit as more new contracts come into play as you go through sort of end of 2026 into 2027, why shouldn't sort of -- how should we think about pricing? And why should it sort of accelerate more as more new contracts come into the P&L from here on? William Mosley: Yes, thanks. The first way I think about it is what is the true demand and I think the demand is rising to your point, further out in time as we roll out of one LTA and into the next, then the market demand dictates what the economics. We talked about this a little bit in the prepared remarks about when we set exact capacity configurations, what products are qualified with what customers and therefore, what price. As we've been rolling forward, though, we have the ability to -- just a few more drives out of manufacturing or whatever. So we can always test what that demand is and the demand keeps going up. And so we're seeing what the market price, if you will, is. Our goal still is to try to lock in with our customers and give them predictability so that they have a great economics plan to build their data centers out and we know what we're going to get paid for, for what we start in our factories. Gianluca Romano: Yes. We have now finalized our build-to-order for our fiscal '27. So we see how the pricing is trending, how, say, there are no changes to our pricing strategy. We are continuing to execute the strategy that allowed us to increase profitability for the last 12 consecutive quarters. And based on those orders that we have now finalized in terms of mix, in terms of pricing, in terms of volume. We said that for the next 4 quarters or for the entire fiscal '27, we are confident in saying that we have a good opportunity to increase our profit and our revenue sequentially through the fiscal '27. Operator: The next question is from C.J. Muse with Cantor Fitzgerald. Christopher Muse: I guess another question on Agentic AI. And particularly as you think about the need for large-scale data lakes and overall demand for persistent memory, is this changing perhaps your product structure roadmap. I know you announced a partnership with NVIDIA. Curious how this is augmenting kind of your product roadmap? And also does this change kind of your thinking around supporting demand via only aerial density improvements? William Mosley: Yes. It's an interesting question, C.J. I think architectures still are largely driven the same way they were a couple of years ago, which is -- and we said this before, our customers want more capacity per spindle and that's our highest priority. And so we're still racing on aerial density exactly to your point. There are a lot of conversations about performance tiers. Can we get a little bit more performance out of the drive. And so for example, we've talked about this in the past. We had stacked actuator designs in the past. We've shipped millions of those drives in the tens of exabytes range for performance tiers, and we can certainly pull those designs back down off the shelf. But I would still say, while those discussions are happening, the biggest driver for us is get more capacity per drive. Gianluca Romano: Yes. On Agentic AI, you need historical data for agents to reason, and you need to store that data for compliance. So we see those huge benefit to our business. Operator: The next question is from Wamsi Mohan with Bank of America. Wamsi Mohan: So you generated almost $1 billion in free cash flow, so over 30% plus free cash flow margin in the quarter. And given your view that you're entering a new era of structural growth, how should we think about how you're going to deploy this cash beyond sort of the next 12 months where I think you said you're going toward higher that. And a quick clarification around pricing. When you say you have pricing locked in for fiscal '27 how much of the capacity for fiscal '27 has pricing been locked in? And how much is sort of floating at the moment? Gianluca Romano: Yes. We said the vast majority of our nearline capacity is allocated during the next 4 quarters. So of course, it's not 100%, but it's a very high percentage. On capital allocation, in the last few quarters, we have focused a lot on reducing our debt, especially our convertible because somehow that would have created even more dilution. We still have about $400 million of the convertible which is open, but we will probably address this quarter or next. So a little bit of a reduction in debt and then I would say the majority will probably go to share buybacks. Now we are active already today in the market, and we will probably do more in the next few quarters. William Mosley: Yes, Wamsi, I would say that last year, we were focused very much on working capital and just getting the supply chain back healthy again from what we went through. Now to Gianluca's point, we have to take care of some of the debt that we have. And I think the next place that we go to exactly to your point, is back to where we were before, which is returning value to shareholders. Wamsi Mohan: The next question is from Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: Dave or Gianluca, on the mid-20% exabyte growth, are you just increasing capacity per unit or are you actually increasing the units of Head capacity? William Mosley: Yes. I would say capacity per unit is where our focus is. If you think about it, and a lot of people get this wrong in -- when thinking about hard drives, it's a very complex supply chain with many different suppliers coming in. And then there's our critical components that we control, but they have very long lead times, not just for the capital to build more, but also for the product itself when it's inside the machines. And so therefore, it really needs to be well orchestrated in our supply chain. It's not like just plugging in a few more machines to get more capacity out. Our people are very much focused on increasing the aerial density, the amount that comes out of the entire fleet, that's the way we believe gets the most exabytes into the world. And if we took those people off and had them make more parts to your point, we would probably net-net fewer exabytes over the next few years. So we're very focused on with the technology innovation that we see coming in front of us continuing to drive those efficiencies. The customers benefit from those with energy efficiency and efficiency and scale as well. So this is in concert with our customers. This is the way we're driving and trying to be as aggressive as we can. Gianluca Romano: I'll say the move to the second generation HAMR now is giving us the opportunity to continue to grow and to achieve a target CAGR that we discussed about a year ago. And then after the second generation, we will have the third generation that Dave was mentioning in the prepared remarks, that is not too far in time from now. It's basically at the end of next calendar year, we will be already in call with a 50 terabyte drive. So that is our strategy and all based on technology transition and automating units. Operator: The next question is from Mark Newman with Bernstein. Mark Newman: Congrats on the great quarter. Just wanted to double-click on pricing. It seems like on my math, your pricing per exabyte seemed to accelerate a bit something like mid-single digits Q-on-Q. And I wanted to understand, is that more from -- is that more because you had a higher portion of new contracts signed this quarter versus previous quarters? Or was it just that the magnitude of the price increase on new contracts has gone up. I guess the reason for this question is we're just trying to get a sense of if this magnitude of price increase is going to continue every quarter going forward. Or was this because you had a number of new signed and so perhaps it was a bit higher than normal. I really appreciate any kind of clarity you can give on the pricing dynamic? Gianluca Romano: Yes. We are not changing our pricing strategy. So as I said before, we have executed this strategy for a long time. And we are continuing to do the same. Every quarter is different, depends on how many new contracts we have in the quarter. Depend a lot from the mix also, how we move customers from one product to the next. But in general, say, there are no changes in how we address our pricing strategy. So we have done that for many quarters. And as I said before, we have the same trend for the next 4 quarters for the entire fiscal '27 and possibly even for longer. Operator: The next question is from Jim Schneider with Goldman Sachs. James Schneider: I was wondering if you could just maybe frame for us a little bit with a little more precision as we look out, say, towards the end of fiscal '27. Given your pricing visibility, would you characterize your price per exabyte growth year-over-year in those -- for those longer-dated orders as sort of up low, mid or high single digits year-over-year? Gianluca Romano: Yes, we probably don't guide so far in time. So as I said before, every quarter, we'll be a little bit better and we expect revenue improvement. We expect profitability improvement. A big part of the profitability improvement is coming from pricing, but is also coming from the change in mix and the reduction costs that the 40 terabyte HAMR drive will give us. William Mosley: Yes, Jim, that's the way I look at it is there's new products coming, higher capacity products and then we said this in the prepared remarks as well, the ability to address some of the lower price bands, if you will, with better products, fewer components in them with -- that's what aerial density provides us, and that's the way we think about it. So fundamentally, it will still come down to demand as we play out through '27. To the extent that we can get up the ramp faster than we think on yields and get the scrap down and be able to address other people through completing the customer qualification. That product is very -- that allows us to get into those other markets very aggressively. And I think that's where we're focused. And then whatever the ultimate demand is, we don't know, but we think it's pretty high relative to our supply as well. So we'll continue to negotiate with customers to give them predictability and they'll determine what the price is. Operator: The next question is from Amit Daryanani with Evercore. Amit Daryanani: I just have a question just on gross margins. And if I think about the Analyst Day, you folks talked about 50% incremental gross margin, seems like a while back that happened. You posted doing 70% plus pretty consistently. I'd love understand, is this outperformance kind of driven by pricing or mix or shift to HAMR. And then importantly, is 70% incremental sort of the right framework to have as we go through the fiscal '27 model? William Mosley: Yes. I think -- I'll let Gianluca talk quantitatively here, but I think that the strong demand is something that we -- even we weren't focusing on a year ago to your point. And we've executed really well against that, maybe even better than I thought we would. We're pushing aerial density really aggressively and the team has done a great job. Gianluca Romano: Yes. No, we have executed better than what we were planning a year ago from different drivers. Now I say pricing was a little bit better. This was a mix transition, a little bit faster. So now we can leverage more on the 40 terabyte drive. So I'll say, yes, I'm looking at what we have done in the last few quarters, and I don't see a reason why we should not do the same in the future. But of course, every quarter is different. So let's see what we can achieve. Amit Daryanani: Congratulations on the nice trend. Operator: The next question is from Aaron Rakers with Wells Fargo. Aaron Rakers: Maybe I'll stick with the P&L kind of similar to Amit. When we think about the model you framed out at the Analyst Day, I'm curious, as we look into fiscal '27 and given variable comp dynamics, how do we think about operating expenses? I think your prior target was to kind of maintain roughly 10% OpEx to revenue. Clearly, we're now breaking through that. So I'm curious of how should we think about the OpEx trajectory going forward? William Mosley: I would say, think about it as relatively flat. Obviously, if we see the need to go invest more for the technology to drive the technology even further we can. But right now, I think our team is doing very well, and we have a fairly big OpEx portfolio that we can readjust priorities inside of. So I think the way I think about it is relatively flat. Gianluca Romano: Yes. Just to be sure, flat on a dollar basis, not as a percentage of revenue, as we discussed also in prior quarters, and as Dave said, this is a good level for us. And if we need to do something, we will do it. But right now, we don't see the need. Operator: Next question is from Timothy Arcuri with UBS. Timothy Arcuri: I just wanted to clarify exactly what the message is on units. I know you and your peers stopped giving us units a few quarters back, but there was a big Head supplier that did report last night. Again, it heads up 40% year-over-year, and they specifically indicated that its demand from the U.S. HDD guys. So I know maybe some element of it is that you want to prioritize internal Head capacity for HAMR. But how does that fit with the idea that you're not growing units? Or are you, in fact, beginning to grow units because of some of these new demand drivers stacks? William Mosley: So first order, Tim, no, we're still not growing units. I mean, inside of the mix, there may be more heads inside of the drive, right? So the average number of heads per drive, which we don't talk about very much, may be increasing. It's not 20 heads, which isn't the highest capacity drive that we have yet. And there's still quite a bit of the low capacity drives that are serving customers that are very important to us. So as we look across that blend, probably more Heads and Media going into the average drive is the way to think about it. The total number of units is not really increasing. And I don't think it will, unless we see a resurgence at the edge. And so -- and that may be over a long period of time. Gianluca Romano: Yes. As you know, Tim, HAMR cycle time is a bit longer than PMR. So we use a little bit of PMR heads just to keep the units as they are today. Otherwise, the units will actually go down. Operator: The next question is from Karl Ackerman with BNP Paribas. Karl Ackerman: You spoke about how the Mozaic 4 platform will command 70% of your HAMR shipments by the end of fiscal '27. But how quickly might HAMR exceed half of your total exabyte shipments? I ask because it seems to support favorable capital intensity. And as yields improve on HAMR, it seems easier and more economical for you to replace lower capacity data center edge hard drives with HAMR has in Media. Gianluca Romano: Maybe let me clarify those percentages. Now what we said is we will achieve 70% of exabyte, nearline exabyte built on HAMR drive by the end of calendar '27, actually by fiscal '27, sorry. And by the end of this calendar '26, we said the majority of HAMR exabyte, so inside the HAMR exabyte will be 40 terabyte drives product versus the 30 terabyte in for that we were building before. So those are the percentages. William Mosley: But still a quite aggressive ramp on Mozaic 4+. To your point, I think the other way to think about it is our wafer fab is relatively full. And so therefore, everything spoken for, we're making sure we do that blend just right. We're not leaning too hard into the Mozaic 4 because some of the other product families are still doing quite well and needed for various customers. Operator: The next question is from Vijay Rakesh with Mizuho. Vijay Rakesh: Just a quick question on the margins. Obviously, very solid margin pickup in the quarter and the guide. Just wondering if there's a way to look at it on what's the impact from HAMR mix versus utilization or price? And how does this change with the Mozaic 5, I guess? William Mosley: Yes. I think as we continue to go up the curve and we can hold the line on new piece parts in the bill of materials, like we talked about before, leverage as much technology that already exists. I think that's where we get the best cost leverage. And again, the technology in the Heads and Media was fundamentally enables all of this. So we're -- that's why we're investing very heavily. We get more exabyte output as well, and that will help drive margins. I think when you think about a 3-terabyte per platter, a 4-terabyte per platter or 5-terabyte per platter drive, that value into the data center is enormous. I mean, its space efficiency, efficiency on all the parts around it for -- on a per terabyte basis and then obviously, power and things like that. So the customers lean very hard into those things, and that's why we -- that's giving us great visibility. And as we drive that without adding too much incremental cost, I think that's why our margins are expanding. Operator: The next question is from Steven Fox with Fox Advisors. Steven Fox: Congrats on the great quarter. I was just curious if this latest inflection point has anything to do with what seems like a rising cost differential between HDDs per gigabyte and NAND? And if it doesn't, right now, could it in the future sort of help for a future inflection? William Mosley: Thanks for your question, Steve. I say this all the time, NAND is a great technology. It has many niches that hard drives are not in. So it's -- and we need those niches to continue to grow because they serve data markets, either on the ingest side or on the consumption side as well. But in the storage tiers that we largely talk about inside the data center, I don't see the architectures changing very much. If anything, because of the economics of what's going on right now, people are coming back to hard drives and saying, what more can you do? And I think that was referenced to some of the earlier questions on the performance side, is there something else that hard drives can do inside of their tier to make sure they're improving their performance. Again, we get driven very hard to just get more exabytes out. And I think the architects understand this really well. And I see these architectures pretty sticky for a long, long time into the future. Operator: Next question is from Ananda Baruah with Loop Capital. Ananda Baruah: Dave, I wanted to ask you, just going back to your remark a little while ago about using HAMR to go down to lower capacity points. Is Mozaic 4, is that sort of the model that gets you to go down to 20 terabyte HAMR? And if so, like at what point of the Mozaic 4 ramp do you think that you guys might have an opportunity to do that? William Mosley: Yes, we had originally talked about it, Ananda, in that context, Mozaic 4 20 terabyte, if you will, would be 5 disk. I think the demand for Mozaic 4 at the high end is so high right now that as we look forward, I don't think you'll see very many of those, but we'll see how the market plays out over the next 3, 4 quarters. Mozaic 5 obviously changes the economics again. And at some point, we're going to be able to readdress those markets in a very cost-efficient way. Gianluca Romano: Yes, I would say now in theory it is a great strategy. The problem we have is demand is so strong in the public cloud that we don't have enough volume to also implement this lower capacity base -- strategy based on the 4 terabyte per disk. So again, possibly, we will address a little bit later out in time. Ananda Baruah: Yes. So the economics are so attractive at the higher end that it's not worth doing yet. Got it. Operator: The next question is from Tom O'Malley with Barclays. Thomas O'Malley: Reach in DPR, there's been a lot before here on the pricing and the contract side. But just if you look at the NAND industry and potentially DRAM as well, you're hearing more about potential prepayments over the course of the contract life. Are you guys seeing that in the market? And would you ever consider this as new contracts come up over the coming years and demand continues to grow just given your production footprint? Would that be something you would consider in the future? Gianluca Romano: Thank you, Tom. I would say right now, our free cash flow is very strong. So we are not looking at prepayment in particular. I think we are mainly focused on predictability of the shipments and on optimizing our pricing strategy. Now I don't exclude that in the future, we will maybe implement prepayments. But so far, we have not focused on that part. William Mosley: Yes, Tom, we've really been going for demand predictability. And the customers have to drive through important architectural transitions themselves. We have to drive through the product transitions. We have to make sure all that's synced up. And so that predictability is top of mind for us, not necessarily any other economics. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. William Mosley: Thank you, Gary, and thanks to everyone who joined us on the webcast today. We're excited about the strong March quarter and the accelerating momentum building for our Mozaic technology platforms as we enter this period of structural growth. We'll keep executing with discipline to expand margins, drive cash flow and build long-term value creation. Thank you for your continued support. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Caesars Entertainment Inc. 2026 First Quarter 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 speaker today, Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations. Please go ahead. Brian Agnew: Well, thank you, Daniel, and good afternoon to everyone on the call. Welcome to our conference call to discuss our first quarter 2026 earnings. This afternoon, we issued a press release announcing our financial results for the period ended March 31, 2026. A copy of the press release and our investor presentation are available in the Investor Relations section of our website at investor.caesars.com. As usual, joining me on the call today are Tom Reeg, our CEO; and Anthony Carano, our President and Chief Operating Officer; Bret Yunker, our Chief Financial Officer; Eric Hession, President Caesars Sports & Online; and Charise Crumbley, Investor Relations. Before I turn the call over to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements under safe harbor federal securities laws, and these statements may or may not come true. Also, during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. Please visit our press release is located on our Investor Relations website. for a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure. And finally, Caesars Entertainment as a matter of policy does not comment on market rumors or speculation. We will not be answering any questions during Q&A today on this topic. Over to Anthony. Anthony Carano: Thank you, Brian, and good afternoon to everyone on the call. Caesars delivered solid results for the first quarter of 2026 as consolidated net revenues of $2.9 billion increased $77 million or 3% year-over-year. Adjusted EBITDAR of $887 million improved by $3 million over the prior year. Highlights for the quarter include continued sequential improvements in operating trends in Las Vegas, revenue and EBITDAR growth in the regional segment after excluding the impact of the Super Bowl in New Orleans last year and record Q1 revenues and EBITDA in our Digital segment. Starting in Las Vegas. The company delivered adjusted EBITDAR of $426 million versus $433 million last year. on flat revenues. We experienced a significant sequential improvement in the hospitality vertical in Q1 with occupancy of 95.3% in the quarter and year-over-year ADR growth of 1%. This marks a dramatic improvement versus the second half of 2025. Occupancy and rate trends benefited from a strong group and convention lineup with group occupied room during the quarter. While leisure trends were still down on a year-over-year basis versus the second half of 2025. We remain focused on elevating our product offerings in Los Vac. Our newly renovated villas at Caesars Palace guest room product and casino floor remodels continue to generate excellent feedback from our guests. Looking ahead, I'm excited for the opening of the Omnia day club at Talison May 15. The full remodel of the Augustus Tower at Ceasars Palace for completion by early 2027 and the opening of Category 10 by Luke Combs later this year. For the remainder of 2026, we continue to forecast sequential improvement in Las Vegas operating trends driven by group and convention mix and stabilizing leisure trends. Moving to our regional segment. The company reported net revenues of $1.4 billion, a 3% increase year-over-year and adjusted EBITDAR of $435 million, down $5 million from the prior year. The regional segment delivered improved EBITDAR results versus last year after excluding the benefit of the Super Bowl New Orleans last year. Our targeted marketing reinvestment strategy within our regional segment continues to deliver positive results, driving increases in rate play in Q1. On March 3, we closed on the acquisition of Caesars Windsor. Results of Ceasars Windsor are now included in our regional segment. Additionally, on April 9, we opened our newest managed property, Harris Oklahoma, which expands Ceasars Rewards to a new market. As we look ahead to 2026 in our regional segment, we expect to benefit from a group mix in Arena, the inclusion of Caesars Windsor, the completion of our $200 million Taco Master Plan renovation this month, hosting of select property events around the World Cup and continued return on investment on recent strategic marketing reinvestment. With the completion of our Tahoe Master Plan scheduled in June 2026, we will have successfully completed all major large planned regional CapEx projects since the completion of the merger back in 2020. in total, we have invested over $3 billion in CapEx into our regional portfolio over the last 5 years. Our regional portfolio is positioned to benefit from these investments moving forward. I want to thank all of our team members for their hard work this quarter. Their dedication to exceptional guest service continues to be the driving force behind our company's achievements. With that, I will now turn the call over to Eric for some insights into the first quarter performance of our Digital segment. Eric Hession: Thanks, Anthony. Caesars Digital delivered record first quarter net revenue and adjusted EBITDA of $374 million and $69 million, respectively. Flow-through during the quarter was strong at just over 66% and EBITDA margins expanded 566 basis points to 18.4%. Our results were driven by the following underlying KPIs during the quarter. On the sports side, net revenue was up 9%. Total volume declined 3% with mobile sports volume declining 1% with the declines more than offset by hold, which increased 100 basis points to 8.3%. In addition, parlay mix, average like per parlay and cash out mix all increased versus the prior year period. In iCasino, we delivered 18% net revenue growth driven by strength in volume and average monthly active users. We continue to elevate our product offering during the quarter to include new in-house games, improved bonusing capability and incented cross-play with brick-and-mortar through our remote exclusive product launches and customer events. Overall, in Q1, our total monthly unique players increased approximately 2% to 512,000 and average revenue per monthly player was up 15% to $219. From a tech perspective, we continue to convert new jurisdictions to our universal wallet and proprietary player account management system, which is now live in 27 jurisdictions and should be live in all jurisdictions by the end of April this year. As we look ahead, I'm pleased with the significant progress on the technology side of the business is driving net revenue growth in both sports and iCasino. The continuous progress we're making is showing up in our consolidated digital top line results. The revenue growth, combined with our efficient customer acquisition spend and our focus on operational excellence drive solid flow-through to EBITDA. We continue to see a business capable of achieving 20% top line revenue growth with 50% flow-through to EBITDA, which keeps us on track to achieve our long-term financial goals. I'll now pass the call over to Brett for some comments on the balance sheet. Bret Yunker: Thanks, Eric. As Anthony mentioned, on March 3, we acquired the operations of Caesars Windsor for USD 54 million and entered into a 20-year operating agreement with the Ontario Lottery and Gaming Corporation. We are excited to add Caesars Windsor to our regional portfolio. Our first quarter consolidated results demonstrated the stability of our Las Vegas and regional segments and the continued growth in digital. We expect to deliver strong free cash flow in 2026 during the balance of the year as a result of continued operating momentum, lower cash interest expense and lower CapEx. Over to Todd. Thomas Reeg: Thanks, Brett, and thanks, everybody, for joining. Happy with the start to the year, strong quarter for us. Vegas is obviously in a much healthier spot than it was kind of middle of last year. Starting the summer, still a tale of a very, very strong market when big events and groups are in town and softness when that isn't the case. I'd tell you, the ConAg week here was spectacular across the market have talked to our peers that saw the same. That's really a spectacular event and those types of groups, the entire city gets to participate. So we love those weeks, and we want to find more of them, we're working with the LVCVA to find more prospects that look like that. As we look into second quarter, when I told -- when we met on our last earnings call, I told you I'd expect second quarter to be up slightly year-over-year. I'd tell you, April was a little softer than we anticipated, largely because we didn't hold like we did last year. So I'd say we'll still likely be just short of last year, but again, much healthier than it's been. And then we cycle into comps versus last summer as everybody remembers that was a tough summer in Vegas. Vegas is the FIT business continues to improve. Our bookings feel good. It just feels like a healthier market than it did say, 10 months ago for us. So we feel good there. Regionals, if you recall, last year, we had the Super Bowl in New Orleans. That was a little over $10 million of incremental EBITDA that obviously didn't repeat with Super Bowl, not in one of our regional markets. But absent that, Regionals had a growing quarter, are off to a very strong start in April. So we feel good about regionals, the rest of the year. As Anthony said, our Tahoe redevelopment will be complete by the beginning of the third quarter. It's less disruptive than it was last year right now. We have the largest group of bowlers. Recall, that's a 3-year cycle with this year being the largest. So group business sets up well in region. We feel very good about Regional. Eric talked about digital highlights, pleased with that quarter. I know others have pointed to prediction markets as an impact on customer acquisition costs. Recall that the bulk of our customer acquisition comes from our Caesars Rewards database. That's a particular advantage now. We're not swimming in those same pools that where production markets are making acquisition costs higher. So you can see in our numbers, we had a very strong quarter, and we're off to a good start in second quarter as well. Also remember that we have some significant partnership expenses that roll off in '26. The bulk of those benefits will flow to us in the third and fourth quarter of this year and then into the first quarter of '27. So digital looks very strong. We're still on the path that we laid out a long time ago toward $500 million or more of EBITDA. With the completion of our capital cycle, we're in a free cash flow harvesting stage now. You've seen our capital expenditures come down we have been balanced between buying back stock and paying down debt. You'll see in the first quarter, we didn't buy back stock. First quarter for us is a heavy cash outflow quarter with our bonus payments, interest payments and then in this year's quarter, we spent the $50 million plus to buy out the Windsor contract. So you should expect, as we move forward through the year through our having free cash flow quarters, second through fourth then we'd be back to a balance between debt paydown and stock repurchase. And with that, I'll open up the floor to questions. Operator: [Operator Instructions] Our first question comes from Dan Politzer with JPMorgan. Daniel Politzer: First, I wanted to talk about Las Vegas a bit. Tom, you said the market feels a bolter than maybe 10 months ago. Can you maybe talk about what specifically you're seeing? Is there signs of stabilization in that leisure category, mid weekend, high and low end just kind of parse out the market a bit in more detail? Thomas Reeg: Yes, I'd say leisure market has continued to get healthier from the kind of the lows of last summer. We'd expect to see typical -- back to typical Vegas seasonality as we get into the hot months. But that leisure customer does feel a little bit firmer than it did kind of each quarter since third quarter of last year. As I said, it's a tale of weekends, weeks when the market has significant group events, significant sporting events, significant attractions, those are exceedingly strong, and we still do have weeks that are software weeks in April that were soft, where we just didn't have a great calendar in the market. But group business this year should be another record for us on top of last year's record. We're excited in May, the State Farm Conference comes back. for us, that will be a nice lift for us. And we feel better each quarter about how Vegas is performing. And I think the quarters of there's a downdraft that we're trying to catch up to our in the rearview mirror. I think it should be pretty stable going forward. And in terms of high end versus low end, I think it's -- as I've said before, I think Center Strip in general, has held up the best. Either end of the strip has held up less well. High-end has held up better than low end but Center Strip has kind of trumped high end versus low and we don't have a big bifurcation between, say, Caesars Palace and Heras in terms of performance, it's all fairly uniform for us. Daniel Politzer: Got it. And then more of a kind of high level one. Certainly you said you're going to be back in the market on share repurchases in the coming quarters. As you guys think high level philosophically about the value of the equity, can you just remind me or remind us of how you think about the proposition there? What do you think public equity investors are missing or overlooking as it comes to the stock valuation as you think about going back into the open market? Thomas Reeg: I mean we're looking at the returns we can get through buying our stock. There's obviously a free cash flow yield associated with that. Paying down debt, we are still more levered than we would -- then would be our preference. So there's continuing an active desire to delever. And then we have returns on growth capital projects. And as free cash flow comes in, we design which is the most attractive use of that cash flow. And as has been the case in the last year or so, the answer has typically been some mix of share repurchase and debt repayment, and that's what we'd expect going forward. Operator: Our next question comes from [ Brent Montour ] with Barclays. Unknown Analyst: Hello, everybody. Maybe starting with regional, Tom, I was wondering if you could give us some comments on that customer and how they're sort of faring in this environment with slightly higher gas prices. Obviously, we have stimulus that started coming in better. But the March data industry-wide did seem to slow and now there are some calendar issues just Sort of how do those sort of puts and takes sort of net out for you guys and what you're seeing on the ground? Thomas Reeg: I would say the consumer in general, but particularly the regional consumer has been remarkably resilient through the noise that we've seen in the last couple of months. Regional business in general feels firm, we feel very good about what we're seeing there and what we see going forward. We do have some idiosyncratic stuff in Northern Nevada, in particular. That's a tailwind for us. But across the board, regionals feel pretty good for us. Unknown Analyst: Okay. Great. And then maybe for Eric, you said, Eric, that the digital is still capable of doing 20% top line. You guys reported in top line, the low teens in the first quarter. but you gain share and sort of beat the industry on the iGaming side. So how do you get back to that 20% overall net revenue in the current environment? Eric Hession: Yes. I think the first quarter, our sports volumes being down 1% lower than we would expect for the long term. I think it's just annualizing some of the effects from last year with the Super Bowl being in New Orleans, and the teams may be being not as exciting for people for the Super Bowl caused some of that. And then in addition, the high hold increases offset some of the handle growth. But I think if you have mid-single-digit handle growth and then the iCasino side continuing to grow like it is, that's how we can get to that 20% range. As you saw, we grew much faster than the 50% from a flow-through perspective. So some months and quarters will have a flow-through that's going to be higher like we did this quarter. And we don't need to get that 20% revenue growth to get the bottom line growth that we're targeting. Operator: Our next question comes from Lizzie Dove with Goldman Sachs. Elizabeth Dove: Just going back to Vegas for a second. There was a lot of talk last year about bringing value back to Vegas, and we've seen one of your peers bring out these all-inclusive packages and whatnot to kind of stimulate that leisure consumer. I'm curious where you are in that kind of process of any kind of pricing changes or how you think about that in terms of bringing back the leisure consumer more in the remainder of the year? Anthony Carano: Yes. The team is doing a great job here in Vegas looking at all of our properties and welcoming guests at every price point, we've got the all you can eat drink at a number of our properties on the east side. We've taken a look at price up and down all of our properties. And I think we're in a pretty good spot to attract every guest to Las Vegas. Thomas Reeg: And Lizzie, keep in mind, I know that narrative has been out there quite a while. We were over 95% occupancy this quarter. So we feel very good about where we are in terms of price value. . Elizabeth Dove: Got it. Got it. And then just on the regional side, you're kind of lapping some one timers in 2Q and you've got some of these renovations you mentioned, Matahu and whatnot kind of coming online. Any way to think about that, at least sizing some of these impacts from these renovations that you've been doing and how much that can benefit the remainder of the year? Thomas Reeg: Yes, I'd rather not get that granular on a per property basis, but I would say I'd expect regional to be a healthy grower through the year and second quarter is off to a good start. Operator: Our next question comes from Barry Jonas with Truist. Barry Jonas: I just wanted to dig into that all-inclusive package a little bit more. You recently started out at some of your lower-end properties, I guess what are your expectations there? Should we think of it as sort of a breakeven proposition, but hopefully, you'll get upside from gaming? Just curious to dig in on that a little more. Thomas Reeg: Yes. We're not pricing anything to break even, Barry. We're looking to be profitable in everything that we do. We know what each room in the portfolio, all 20,000 of them, we would expect when you're filled, how much that generates in revenue regardless of what they paid to get in the door. So you should think of this as when you're in your software periods where there's not significant group lift that this is a way to bring in people profitably, you shouldn't view them as a loss leader or even a breakeven proposition for us. Barry Jonas: Great. That's helpful. And then just for a follow-up. Curious if there's been any progress made in looking for some sort of solution to the VICI lease coverage issues you've talked about in the past? Thomas Reeg: Yes. I appreciate the question. As I said last quarter, I don't want to be providing a blow-by-blow every 90 days about talks that may or may not be happening between us and VICI. Everybody is well aware of where that lease sits. And when the 2 of us have something to report, I'll come back to you. I'm not going to -- I'm not going to keep updating every quarter, but I understand and appreciate the question. Barry. Operator: Our next question comes from David Katz with Jefferies. David Katz: Sorry, just got myself unmuted. You've talked about this a little bit, but I wanted to just go out in a slightly different angle. Within the regional gaming, it's obvious the opportunities you have, where you deployed some capital. there have been a handful of properties that have seen some competition. How have you evolved and deployed your strategies to compete specifically in those markets where there's been some head-on competition? Anthony Carano: Yes. We start with service, David, providing the best service in the industry. We've got Caesars Rewards, which we think is our largest acquisition and retention tool. And then as we've spoken to over the past few quarters, we've tweaked our marketing reinvestment, especially at competitive properties to become more competitive. We've ramped that down quarter-by-quarter over the past 4 quarters and to get more efficient. But the teams have done a fantastic job in our competitive markets. retaining our customers, delivering excellent service and giving them reasons to come visit a Caesars property versus one of the new competitors. David Katz: Understood. I know the mantra is sort of ramping down capital. But are there any singles and doubles type projects that may be out there in the regions to think about in the future? And how might we reflect those? Thomas Reeg: Yes, David, we're over $3 billion of capital in the last 5 years into the regional markets, the bulk of that into the properties that generate 80%-plus of our regional EBITDA. So if there's a thought that there's deferred capital out there in our portfolio that doesn't reflect what you see on the ground and what you see in the investments that we've made in the last 5 years. There is no big group of projects around the corner. This is normal capital cycle stuff as you come off a large capital expenditure program that's as broad-based as ours was. It's natural that you then spend some time harvesting that cash flow and then deciding what your next wave would be, but that's a couple of years away at a minimum at this point. Operator: Our next question comes from John DeCree with CBRE Capital Advisors. John DeCree: I wanted to ask a question about Caesars Rewards, I think earlier in the call, you mentioned it's one of your primary customer acquisition channels for your online business. I think it was relative to sports, but I assume the same for iCasino. Tom or Eric, can you tell us kind of where you are in terms of the penetration of that database as we think about kind of the growth targets going forward? Is there a lot more customer activation head? Is it more about just getting greater monetization from customers in the database, if you could elaborate, that would be helpful. Thomas Reeg: Yes, I would say that we continue to get better, but there's still a gigantic opportunity in converting customers in our database that are primarily brick and mortar with us. and play digitally elsewhere and bringing them into the fold. When we first launched our app on the sports side and frankly, on the iCasino side before Caesars Palace online, the experience lagged our peers. That's no longer the case. So it's going to those customers to get another look. And what we find is brick-and-mortar customer that shows up in digital for us increases their brick-and-mortar spend with us. I don't think that's because they gamble more. I think it's because we're consolidating wallet share. That's true of across the Caesars Rewards database. The more places we touch you, whether that's physical and digital, whether that's multiple properties within a marketer that's multiple properties across market, the more times we touch you, the more valuable you become as a customer for us. So that's a system-wide focus and effort. You'll see us in Vegas starting to talk to customers about the Caesars campus and all the things that you can do, you'll check into our property, and we'll be giving you information that shows all the places you can use your Caesars Rewards outside of the building that you're staying in. So we're leaning into that. We're doing more in digital, and it continues to get better, but that's an enormous opportunity for our digital business as we move forward and certainly as new states come online. John DeCree: That's helpful. My follow-up would be right down the same path. You've talked about paying down debt, buying back stock, but at least once a year I ask you about M&A. You obviously -- I think Windsor was a unique situation, but are there markets where you would expand your reach, Canada, U.S. regionals where it would make sense to grow our rewards database. Is there still enough synergy? Have you contemplated or think about M&A at this point at all in terms of expanding the network? Thomas Reeg: Yes. And John, as you know, we're always willing to look. I would say that purchasing an asset or a portfolio of assets in the near term for us is unlikely given the yield that we can find in our own stock, which there's far more certainty in that number than what you'd model in an acquisition. So unlikely we'd be a significant buyer going forward. But as you know, that can change depending on the opportunity that's in front of you. Operator: Our next question comes from Steve Wieczynski with Stifel. . Steven Wieczynski: So Tom, as you think about the rest of the year in Vegas, obviously, comps are going to get easier in the back half and your comments that the FIT bookings look solid or I mean, obviously, you're pretty encouraging at this point. But I guess the question is around with the FIT business still probably booking more close in at this point, how do you weigh those solid bookings now versus, let's say, let's say, gas fuel prices stay relatively elevated for an extended period of time and what that can mean in terms of driving traffic or even while its spend is folks or Vegas. I guess maybe help us think about the sensitivity that you've seen there in the past? Thomas Reeg: So I would say correlation between gas prices and spend in our portfolio is not particularly high. Where our average customer, it typically is at a level of income and worth that, that doesn't become a significant factor in their decision. Obviously, as you can certainly get to a level or extended a period of time where that may change. But really, as long as real estate values in the employment picture are solid, our business has typically performed pretty well, and I'd expect that to continue to be the case. Steven Wieczynski: Okay. Got you. And then sticking with Vegas, Tom, you talked about the 95% occupancy rate in Vegas this past quarter. Is there any way to help us think about how much of that 95% was incentivized, meaning did you guys have to promote more or do any more discounting in order to get that level of occupancy? Thomas Reeg: No, there was no meaningful shift in casino rooms. The shift you would have seen was more group business first quarter this year than last year, which crowded out some OTA business. Operator: Our next question comes from Stephen Grambling with Morgan Stanley. Stephen Grambling: One more on Vegas. Just given all the talk about attracting more big conventions like ConAg, it seemed like there was a window coming out of the pandemic where seemed like Vegas was taking share from other markets given The Sphere, Allegiant expanded convention centers. So what are you hearing from meeting planners or the convention community on what the competitive environment for that business looks like? And what really moves the needle to get some of these to come to Vegas? Thomas Reeg: Yes, there is a lot that goes into that. I'd tell you, for the types of conferences that we're talking about, it's super, super competitive. And that's been the case for -- regardless of the pandemic before or after we're talking about very lucrative conferences. There's no more -- everybody is kind of on the same footing as they were prior. There's really no jurisdiction anymore that's not recovered and competitive the way they were in the past. So we, as a market, provide a very compelling, particularly in the group side. This is what gets lost in that value discussion. On the group side, we provide a very compelling value trade. This is a very easy city to get around for your group. There's an unusually broad spectrum of attractions in the market, entertainment, restaurants, shopping, golf that all feed into that. And then there's political elements that come in, in some of these things. There's just a lot of different levers, and it's unique for each group. But for us, what we want and what we want the market to focus on is those events like ConAg that lift all boats and are not necessarily the highest profile, you're not going to be in a magazine because you got a great trade show or a conference versus some of the more high-profile stuff we've done. But those -- the meat and potatoes of that group business is really what drives the whole city. And I'm sure I know you talk to everyone in town, ConAg Week, there was not an unhappy operator in this time. And the more weeks we can fill like that during the year. These are -- this is elephant hunting as a market that you're going after. But if you can find even another 1 or 2 or 3, it moves the needle for everybody. And so that's what we're hoping we can deliver as time goes by. Stephen Grambling: Got it. And so just to clarify, it sounds it's less about really changing anything, CapEx or pricing, something like that, it's about telling the story? Thomas Reeg: That's right. . Stephen Grambling: And then maybe 1 unrelated follow-up on digital regarding the higher customer acquisition costs. It seems like we entered a window where there's not as many new states and handling ups have been slower in OSB. So with that in mind, should we be thinking about the higher customer acquisition cost impact is really more about replacing churn on the existing base? Or are you still finding opportunities to acquire customers? Thomas Reeg: We find opportunities to acquire customers, the chief opportunity for us, as we talked about is our database. But as you know, we've been 1/3 to 1/2 of the promo intensity of our peers. And our share has been fairly sticky. It's been growing in eye Casino. What that tells me is we have lower acquisition cost and lower churn than our peers, and that's been a significant benefit to us, particularly recently, as you've seen others start to talk about customer acquisition costs, ours have been pretty steady. Operator: Our next question comes from Shaun Kelley with Bank of America. Shaun Kelley: Maybe to start while we were talking digital for a minute, going back to Eric. Just curious on a little bit more color around the iGaming trends you're seeing. Obviously, it's an important growth driver for you. The NGR side sounds super encouraging. Just digging in a little bit more, when we looked at some of the market-wide handle growth and then even kind of net of hold a little bit on the GGR side, feel like we saw that slow a bit in Q1. I think a lot of it might have had to do with just slower OSB trends in cross-sell, but just wondering if you could unpack a little bit about what you saw in the market? And specifically, are you seeing some competition pick up in states like Michigan as well? Eric Hession: Yes. I would say there hasn't been a huge change, Shaun, in any direction either way. Our handle was up 20% year-over-year. It might be down a little bit from the prior years, but also we're talking about a much larger scale. So as that happens, you're going to see the percentages decline to some degree, particularly because we haven't had any new states open in any -- in recent times here. But in terms of additional competition, there have been a few new entrants just as companies have exited the market and others have taken their place. But I again would say that everything has generally been pretty consistent, we've been keeping our reinvestment levels relatively constant. And to Tom's point, our acquisition costs for the casino side have been kind of flat to down a little bit. And so we're kind of happy with how things are going. Shaun Kelley: Super. And then high level, Tom, earlier on, you made an interesting comment about you're not seeing as much if I caught it right, you're not seeing as much bifurcation between maybe high and low properties in the portfolio as maybe sort of location on the strip. And just sort of wondering if you could kind of expand on that as it relates to -- as we start to see some changes out there, maybe the opening of hard rock towards the latter end of next year, how do you expect that to play? Will that shift any of the center of gravity, 1 way or the other? Just how do you expect it to impact the Caesars portfolio? Thomas Reeg: Yes. So Shaun, I expect that to be a mixed bag for us. Given what they're building and the level of investment that's going in there, I think it's pretty clear that they're going to target the highest end of the market. And so while you've seen our regional CapEx cycle kind of move into a harvest phase, we've shifted capital toward Vegas and we shift our Vegas capital towards Caesars Palace and Paris, which are 2 that get high-end business. Mirage coming offline for us was we can see things like the High Roller, The Zip Line, the shows on the east side of the Strip have struggled a bit without those 3,000 rooms online. So that will be a benefit to us when you have almost 4,000 rooms with the Guitar tower feeding, obviously, we're the closest neighbor on most sides of the what Hard Rock is doing. So I think we'll have a benefit there. But we're anticipating that the high end will get even more competitive. The entertainment space, we'll get more competitive, I'd expect the cost of the biggest acts will go up. So we'd expect them to be impactful. But I'd also say, given the location and what they're building we're a little more optimistic that you'll get some of the -- what you and I saw back in the day where a new property opens and expands the market visitation goes up. It's not just cutting up the pet pie a little smaller. I think they can grow the pie a bit. So we're excited about what they're building and the fact that we're immediately adjacent to it, both on the East side and at Caesars Palace. Operator: Our next question comes from Jordan Bender with Citizens. Jordan Bender: Maybe to follow up on the last question. Tom, you kind of just talked about maybe how hard rock is going to impact like you and the market, but specifically like around kind of the playbook into next year, like should we anticipate that you guys to adjust pricing or change kind of the promotional strategy in the months kind of leading into that opening? Thomas Reeg: Yes. We'll have a full strategy to combat their opening. But Vegas is a totally different animal than regional. Vegas is a 95% cash business versus -- and you're generating profit from every vertical, whereas regionals are gaming centric and a lot of your nongaming is comp-based business. So keeping your properties full is paramount. So we'll have a strategy to combat that opening, but realize this is a 2% in capacity in terms of rooms. So this is not a huge -- it's not a seismic event from an occupancy perspective. So it's really just keeping your best customers in your system and minimizing the loss of your most profitable custom. Brian Agnew: And continuing to elevate the product as Anthony talked about, full remodel of the Augustus Tower and all the new capital investments that are going into Caesars and Palace ahead of the hard rock opening, that's really the key strategy going forward as we prepare for their open. Jordan Bender: Great. And then switching to more broadly. I think you have 2 union contracts coming up in the next several months. Anything to call out there in terms of either getting those done or extended and any impact maybe we should expect aside from that? Thomas Reeg: Nothing to talk about at this point. New Jersey comes up this summer, Vegas is not till '28. Operator: Our next question comes from Chad Beynon with Macquarie. Chad Beynon: Eric, I wanted to ask about the Alberta launch. Anything that you can share around that. I know it's a smaller population, but some good cities in there with big hockey fans that have probably been come into the market? How heavy are you guys thinking about leaning in there? And anything on a database that you already have ahead of the iGaming launch in July? Eric Hession: Yes. I would agree with kind of everything you said. It's a good opportunity. They actually have a fairly high average wealth per person it is on the smaller side in terms of the size of the province. But that said, it's both sports and casino. So we're very optimistic that it will be a great market. We're I would say, in terms of our performance in Ontario, it's kind of kind of middle down the road. And so here, when we launch our app is significantly improved from when it was when we launched Ontario. And so we'll be putting a much more comprehensive launch plan together that will really go after the sports as well as the casino market and we'll launch with the Horse and Caesars Palace brand. So it will be a much more significant plan. In terms of having a database already seeded in the market, it's not all that significant. There's just not a huge amount of travel between the different the United States and Canada from that province. And then in addition, there are some restrictions in terms of how the data can be transferred because it is out of the country or in the country, depending on which way you're looking. Chad Beynon: Got you. And then, Tom or Anthony, going back to the regional markets, revenues have been stable for several quarters, but margins have declined in the first quarter year-over-year. Obviously, the Super Bowl was a major headwind, so maybe you would have been closer to growing margins. But are we at the point where all things considered that we know right now that margins could start to improve if revenues are growing in this low single-digit range that we saw in the first quarter? Thomas Reeg: Yes. Operator: Our next question comes from Trey Bowers with Wells Fargo. . Raymond Bowers: Just getting back to the kind of use of cash, is there a leverage ratio that you guys target that once you achieve that kind of all the cash flows will be used towards buyback? Or not all, but the significant portion of it. Thomas Reeg: I would say it's always going to be a decision as the cash flow comes in. There's not a magic number where all of a sudden, it's going to be all share buyback. But we want our leverage to be sub-5x on a lease-adjusted basis. Raymond Bowers: Okay. And then just on the iGaming side of things. It looked like we were pretty close in Virginia. Any thoughts around just which states out there you guys feel pretty good about that might be coming into the system in the next couple of years? Thomas Reeg: Very hard to handicap, Trey. It's I wish it were the case that it were kind of incremental, like a football drive where you get to mid-field 1 year and then field go arrange the next year and then it's done the year after that, it's more like a car accident that happens in your vicinity. This stuff comes together very quickly as states get under stress budget-wise and look to are looking for revenue. The Virginia situation went from wasn't really on our radar as a possibility to a week later seemed high probability and then ended up not happening. Illinois, prior to their per wager tax a couple of days earlier, we were told they're going to legalize iGaming on Saturday night, and it was not even on the radar at the time as a real possibility. So it's very difficult to predict. What's easy to predict is state budgets are tight and getting tighter and states are going to be looking for avenues to raise revenue. And historically, gaming has been a place to do that. And if you look over the last couple of years, that's really only catalyzed in a way that was a headwind for us. It was tax increases or per bat taxes. And the reality is those don't raise enough versus what they're trying -- the holes they're trying to plug what really moves the needle is legalizing OSB or iGaming. So I think if you're looking over kind of an intermediate time frame. I'm highly confident there'll be more jurisdictions available to us. I just hesitate to predict which ones those would be. Operator: And our final question comes from Daniel Guglielmo with Capital One Securities. Daniel Guglielmo: I know it's a smaller piece of the business, but the other lines to entertain... was there anything to call out there this quarter or -- throughout the year? . Thomas Reeg: Sorry, Dan. It sounds like someone is hitting you with a fire hose in the middle of the question. We missed most of it. Daniel Guglielmo: Sorry, I took my headphones out. So I know it's a smaller piece of the business, but the other lines, so entertainment and retail performed well versus last year. Was there anything to call out there this quarter? Or is that an area where you can continue to improve on throughout the year? Thomas Reeg: The only thing I could think of is our show our entertainment calendar in Vegas is more robust than it was last year, and that will continue throughout '26. We've got more shows both in the Coliseum and in Planet Hollywood. Daniel Guglielmo: Okay. Great. And then just as a follow-up, table game drop was down in both segments. Is that just a different mix of customers coming to the casinos? Or is it more tactical on your part with maybe less offerings, higher minimums? Any color there would be helpful. Thomas Reeg: It's typically timing based in Vegas. In regionals, it's going to be heavily skewed by Super Bowl. There was a ton of high-end business in New Orleans last first quarter, which didn't repeat since the game wasn't there. There's nothing particularly -- there's nothing in our strategy or in consumer behavior other than timing of trips that would explain that. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Tom Reeg, CEO, for closing remarks. Thomas Reeg: All right. Thanks, everybody. We'll talk to you after next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon. My name is Kevin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Rogers Corporation First Quarter 2026 Earnings Conference Call. I will now turn the call over to your host, Mr. Steve Haymore, Senior Director of Investor Relations. Mr. Haymore, you may begin. Stephen Haymore: Good afternoon, and welcome to the Rogers Corporation First Quarter 2026 Earnings Conference Call. The slides for today's call can be found in the Investors section of our website, along with the news release that was issued earlier today. Please turn to Slide 2. Before we begin, I would like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties that exist in Rogers' operations and environment. These uncertainties include economic conditions, market demands and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement made today. Please turn to Slide 3. The discussions during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. generally accepted accounting principles. A reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today's call. With me today are Ali El-Haj, Interim President and CEO; and Laura Russell, Senior Vice President and CFO. I will now turn the call over to Ali. Ali El-Haj: Thanks, Steve, and thank you, everyone, for joining us today. I will begin on Slide 4. In the first quarter, we delivered solid results with all financial metrics meeting or exceeding the midpoint of our guidance for the third consecutive quarter. Q1 sales were $201 million, a 5% increase year-over-year from foreign currency benefits and a higher industrial demand in the U.S. If not for adverse weather conditions and multiple supplier disruptions, which impacted operations at some of our U.S. plants, Q1 sales would have approached the high end of guidance. We achieved a significant year-over-year improvement in profitability. Adjusted EPS more than doubled to $0.75 per share and adjusted EBITDA margins expanded 580 basis points to 16%. For the second quarter, we are forecasting sales to increase 6% at the midpoint of our guidance. We expect Q2 growth in automotive, industrial and electronics end markets. Adjusted EBITDA margins are projected to increase year-over-year by nearly 600 basis points. The improved Q1 results and stronger Q2 outlook demonstrate the progress we are making on our commercial and profitability initiatives. We are maintaining an intense focus on improving Rogers' multiyear growth outlook. The past quarter, we secured important design wins and continued to gain customer traction through our R&D pipeline. Turning to Slide 5. Beginning this quarter, we streamlined our reporting into 4 primary end markets. At 37% of sales, the industrial market remains our largest segment and now includes renewable energy and mass transit markets. Q1 industrial sales increased at a double-digit rate compared to the first quarter of 2025. Growth was driven by increased demand aligned with improved manufacturing PMI activity in the U.S. and Europe as well as additional market share wins with Rogers' traditional customers. The automotive market segment, which represented 24% of revenue in Q1, includes EV, HEV, ADAS and all other ICE vehicle applications. Sales declined year-over-year at a high single-digit rate due to lower global light vehicle production and weakness in the U.S. EV market. However, we are seeing positive design win momentum in automotive, which we expect to translate to robust sales growth in the coming quarters. The electronic and communications market segment includes sales in consumer electronics, semiconductors, wired and wireless infrastructure. Accounting for 18% of sales in the first quarter, this segment increased at a double-digit rate, driven by higher smartphone and wireless infrastructure sales. The improved smartphone sales resulted from higher volume, a favorable mix of higher-end devices and an increased share with existing customers. Lastly, aerospace and defense sales comprised 15% of revenues and improved slightly from last year. The growth was led by commercial aerospace sales in our AMS business. We expect aerospace and defense to remain a growth area for Rogers. Next, on Slide 6, I will outline our progress toward 2026 priorities. Our objective to grow the top line in 2026 and in the coming years remain our highest priority. We secured several design wins during Q1 in support of that goal. First, in the AES business, our high-frequency circuit material were designed into a new automotive radar application with a leading Asian OEM. Sales are planned to begin in the second quarter. In the AMS business, we were awarded several design wins for EV battery applications with leading OEMs in the United States and Asia. These solutions will be used across different platforms. We are further encouraged by the progress we continue to make across products in our R&D pipeline. We continue to test and validate our microchannel cooler technology for data centers with multiple customers. Feedback from our customers has been encouraging, and we believe our technology possesses unique capabilities for cooling high-power chips in data centers and AI applications. Development of high-frequency circuit material for data centers is also ongoing. Recent internal testing showed promising results, and we expect customer sampling and testing to begin within the next 2 quarters. While these projects move forward, we are also actively advancing other high potential opportunities. We continue to make progress with our 2026 profitability improvement initiatives. Across most of our manufacturing operations, we have seen measurable improvement in cost structure and overall operating performance resulting from the focused efforts of our dedicated team. The restructuring initiatives at our German facility remain underway with $13 million of annualized savings still expected by Q4 of this year. We also continue to efficiently manage operating expenses with strong control measures in place. Our capital allocation priorities support both organic and inorganic growth. Accordingly, we have increased our focus on evaluating potential M&A, and we continue to assess opportunities that align with our strategic and financial objectives. Our organic growth will largely be supported with existing capacity, but we are prepared to allocate capital for CapEx to support opportunities in our R&D pipeline as needed. I will now turn it over to Laura to discuss our Q1 financial performance and Q2 outlook. Laura Russell: Thank you, Ali. Starting on Slide 7, I'll summarize our first quarter results. Sales, gross margin, adjusted EPS and adjusted EBITDA all met or exceeded the midpoint of our guidance for the first quarter. First quarter sales increased 5% or $10 million, inclusive of foreign currency benefits of $7.9 million. As Ali mentioned, there were weather and supply disruptions specific to several of our U.S. manufacturing locations, which tempered our Q1 sales. AES Q1 revenues increased by 3.4% versus Q1 of '25. By end market, sales increased in the Electronics and Communications segment and the Industrial segment. EMS sales improved by 7% year-over-year. By end market, sales increased in the Industrial, Electronics and Communications and A&D segments. This was partially offset by lower automotive sales. Adjusted earnings per share were $0.75 in Q1 and increased 178% from the prior year period, resulting from higher gross margin and significant improvements in operating expenses. Foreign currency fluctuations had only a small effect on adjusted EPS as our global operations act as a natural hedge. Turning to Slide 8. Q1 adjusted EBITDA was $32 million and increased 580 basis points year-over-year to 16% of sales. The improvement in adjusted EBITDA was primarily a result of higher sales and improved product mix. Reductions in manufacturing costs, start-up and general and administrative expenses also contributed to the higher adjusted EBITDA. We continue to ramp our new factory capacity, which resulted in a $1.4 million headwind to EBITDA versus the prior year. However, new factory performance costs decreased versus Q4 of '25. Continuing to Slide 9, I'll discuss cash utilization for the quarter. Cash at the end of Q1 was $196 million and changed only slightly from the end of the fourth quarter. Cash provided by operations was $5.8 million compared to $46.9 million in Q4 of '25. Inventory reductions were a key driver of the much higher operating cash flow in the prior quarter, and this was not expected to repeat in Q1 of '26. Consistent with typical patterns, accounts receivable increased in Q1 following a large reduction in Q4 of '25. Higher accounts payable partially offset the Q1 increase in AR. Capital expenditures in Q1 were $4.7 million. Our expectation for full year '26 capital expenditures of $30 million to $40 million is unchanged. We did not repurchase shares in the first quarter, and we'll continue to balance returning capital to shareholders with other capital needs. Next, on Slide 10, I'll review our guidance for the second quarter. On a year-over-year basis, we again anticipate improvement in Q2 sales, margin and profitability. We are guiding Q2 revenues to be between $210 million and $220 million. The midpoint of the range is a 6% increase in sales year-over-year. The guidance includes our expectation for higher automotive sales from the start of new program wins and continuation of existing programs. In addition, smartphone sales should increase from normal seasonal factors with some growth in industrial end markets continuing. We're guiding gross margin in the range of 32.5% to 33.5%. The midpoint of the range is 140 basis points higher than the prior year due to higher volumes and cost structure improvements. We expect Q2 adjusted operating expenses to remain approximately flat to the first quarter. Adjusted EPS is forecast to range from $0.90 to $1.10. The $1 midpoint compares to adjusted EPS of $0.34 in Q2 of 2025. Adjusted EBITDA is anticipated to range from $35 million to $41 million. This equates to a 17.7% EBITDA margin at the midpoint of the range, which would be a 590 basis points improvement versus the second quarter of 2025. Excluded from adjusted EPS are restructuring costs related to the Curamik actions in Germany. In Q1, we recognized $4.4 million of associated restructuring charges, bringing total restructuring for this program to date to $9.8 million total. This is relative to our total estimated range of $12 million to $13 million. The remaining restructuring costs associated with this action will largely be incurred from Q2 to Q3 of '26. The program is still anticipated to deliver $13 million of annual run rate savings. Lastly, we project our non-GAAP full year tax rate to be approximately 30%. I will now turn the call back over to Ali. Ali El-Haj: Thanks, Laura. In summary, we had another quarter of solid execution and delivered improved Q1 results. Our second quarter outlook also reflects solid year-over-year improvements and highlights the momentum behind our commercial and profitability initiatives. We remain focused on execution and driving greater value creation. That concludes our prepared remarks. I will now turn the call back to the operator for questions. Operator: [Operator Instructions] Our first question today is coming from Craig Ellis from B. Riley Securities. Craig Ellis: Congratulations on the real strong execution, team. Ali, I wanted to start just following up by one of the points you made about calendar '26's focus areas, and you indicated that growth is the highest priority. Can you talk a little bit more about the design wins that were achieved in EV and ADAS and when those wins would convert to revenue? And as the second part of that question, go into a little more detail in terms of what you're seeing with the data center opportunity? How material are the engagements that you have now? And how significant are the things that sound like they're more in the development or pipeline stage? Ali El-Haj: Okay. As mentioned, regarding the design wins, as we've indicated in the prepared remarks, we had several in the AMS side, mostly related to EV batteries and other applications. And on the AES side, we have, as I mentioned, one for radar applications with an Asian OEM. Both of these or actually, the majority of these wins will be in production between Q2 and Q4 of this year. So we will start seeing revenue out of these wins in Q2, Q3 and Q4 this year. As it relates to the data center, the opportunities are there, as we've been indicating for now the past 2 quarters. For 2026, however, revenue will not be significant. It will be mostly sampling or prototype type revenue. So it's not as significant as we would like it to be. I've always been indicating that this is probably a Q3, Q4 of 2027 and depending really on how fast our customer will accelerate their development and their qualification and the readiness for the product. But we see opportunities, as I indicated for data centers in all of our product areas, but mainly the highest volume or dollar impact will be out of our microchannels with the Curamik activities and the high-speed digital product lines. Craig Ellis: That's really helpful. And then I'll ask the follow-up question to you, Laura. Loved the trajectory of gross margin as we start the year. Can you talk a little bit about what's driving the sequential strength? Is it all really volume? Or are there some things happening on the COGS management side that are coming in a little bit better than we might have expected 3 months ago? Laura Russell: Sure. No problem, Craig. I'll take that. And with regards to the margin, what I would have to say is really a function of all of the above what you mentioned. We've spoke in the past in prior calls about our initiatives and our objectives in managing our operations to ensure that we are doing what we can to minimize yield loss and optimize on our input costs and really be effective in what we're running through our factories. Those initiatives continue and are in flight, and they have some favorable impact, which you see in our EBITDA bridge and some of the transitions that we call out on a quarter-over-quarter basis. Now with that said, the other thing that's favorable there that we're also discussing is some of the structural changes that we undertook that are in the margins. That's all to say. There's some other puts and takes that go the other way in terms of some transitions in terms of the segments and where we're realizing some of the revenue growth and gains. So there's always some puts and takes across the margin. In general, I would agree with you, Craig, we're making the right progress. We're keen to continue to make additional inroads and incremental improvements, which are some of the key initiatives that will assist us as we continue to focus on growing the business and the top line. Operator: Next question is coming from Daniel Moore from CJS Securities. Dan Moore: I want to start with industrial. It gets a little less attention, that's still a significant portion of your business. It sounds like gradual improvement. Can you maybe just talk about particular end markets within that bucket where things are improving or becoming -- are there any that are becoming more challenging in the current environment? Ali El-Haj: No, I think really, overall, the whole industrial segment for the business is really growing. Where we see maybe more impact is the semi. So semiconductor industry, as you know, it is growing. So we realized some increase in our revenue in that area. The rest of the economy and that just the manufacturing index here, PMI in the United States and Europe is higher. So we're tracking with that. In addition to some recapturing some market share with some of our existing customers. So kind of if you separate all the growth come from these 3 areas. One is general economy; one, semiconductor growth, and the third element is recapturing some market share with our existing customers for existing applications or newer applications. Dan Moore: Helpful. And maybe as a follow-up, just piggybacking on Craig's question on the data center opportunity. You talked in detail on the last call about the sort of specific applications. Maybe just take the opportunity to talk again about whether you would be replacing any existing thermal management technologies or completely complementary? And when might you be in a position to talk a little bit more about TAM and kind of what revenue might look like 2, 3, 5 years from now? Ali El-Haj: Yes, I'll take it backwards. So with regard to revenue and discussing revenue and potential, probably later this year, as we get -- we have a pretty good idea of the target and the potential. But some of this, as you know, is customer-specific. So we need to be extremely cautious here of what we communicate. With regard to the opportunity itself, it's really a mix. One is we look at the technology that we're providing for a specific solution of difficult issues that exist today. So more of a complementary but really solving serious issues that remains with the current systems today. So we would be -- it's a combination. We'll be taking some market share of the existing applications as well as solving some difficult issues with existing technologies regarding the thermal management today. So we believe the technology that we're introducing here is more specific, more efficient and will be more cost effective to the end user. Dan Moore: I know I'm out of questions, but last, if I could sneak it in, Laura. Can you quantify the revenue that slipped from Q1 due to weather and supply disruptions? And how much of that is in your guide for Q2? Laura Russell: Yes, no problem. So Dan, yes, we did have some disruptions, which we alluded to in our prepared remarks. I would indicate that had we not encountered those disruptions, we probably have been trending more towards the high end of the guidance range that we had set. Operator: Our next question is coming from David Silver from Freedom Capital Markets. David Silver: I did just want to level set 1 or 2 things, and then I have a couple of business questions. But I just want to make sure I'm not missing anything regarding your cost saving targets. So as of December 31, I believe you said you had achieved the run rate of $32 million. And in your remarks here, you've discussed the opportunity in Germany to capture an incremental $13 million by year-end. Is that how I should think about the total efforts that you've created? Or might there be another program or 2 that maybe I'm missing? Laura Russell: David, it's Laura. Let me take that for you. So you're right insofar as what you said about $25 million in '25. However, what I would tell you is that was the savings we realized in calendar '25. But when you annualize that, there's an additional $7 million still to be realized through the P&L. Then when you add to that, the savings that we'll realize, which will be an incremental $13 million on an annualized basis once we're through the restructuring of Curamik facility in Germany, that will bring us to a cumulative savings total of $45 million. So that just will give you the information that allows you to fully triangulate the savings and where we are today and fully realizing them through the financials. David Silver: That was the issue, the $25 million versus $32 million, and you read my mind very well there. Ali, I would just say the first quarter results reflect terrific work on the controllable factors. Your sales growth, I think, was modest, excluding the currency benefit, I guess, the currency tailwind. You've cited maybe auto as a softer spot right here, but due to improve. I mean, overall, what are you hearing from your major OEM customers? Are they cautious because of the geopolitical environment? Or what might be holding them back from moving more like this is kind of a more meaningful recovery, I guess, in broad-based demand for your key end markets? Ali El-Haj: Okay, specifically referring to the automotive industry. Obviously, it's not just geopolitical issues. We've got regulations issues and regulatory changes, especially in the U.S., as you know. So that's really impacted the EV market, especially in North America, specifically the United States. and to a similar extent in Europe. However, Europe is recovering, and we see growth in that market in Europe. It started towards the fourth quarter of 2025, and it continues. So we see a pickup there. China first quarter was very soft. And again, some of the incentives for the EV market in China was taken away or pulled back, and we think some of that will be reinstated. So that market will turn positive even in China within the next quarter to 2 quarters. So we think EV market is coming back. It's not an issue. We are not severely impacted by the EV market. We're trying to address the whole automotive market and just not just for EV, but whether it's hybrid, whether it's EV, whether it's ICE type applications, we're in. So we're targeting that market very heavily. We're engaged with a lot of the OEMs directly and indirectly as we speak. So we anticipate really continued growth. As I said, we had several design wins in the fourth quarter of last year, first quarter of this year, and we anticipate that will continue into the balance of 2026. With regard to the other industries, whether it's electronics and portable electronics specifically, we see growth in there for us. The mix of the high end, especially in the first quarter of this year, the mix of -- or the sale of the higher-end mobile phones and cell phones, what that did for us, it provided us higher revenue. We have higher content on those devices than just the standard lower-cost version phones. So that did help our growth, and we expect that also to continue. So we're capturing more market share, more applications within that market segment. And the mix is helping us also significantly. So we see growth really in all of our areas, and we're targeting every segment of our business for growth for the balance of this year. David Silver: And maybe just to follow up on your targeting of growth for the balance of the year, maybe going at it from a slightly different angle. But maybe for Laura, but you did highlight the capital expenditure budget, maybe the midpoint at $35 million. I don't think of your company as kind of a capital-intensive one normally. But within that proposed, call it, $35 million plus or minus budget, is there growth or targeted growth investments included in there? And maybe if you wouldn't mind just what areas of your company are you directing kind of some discretionary or growth-oriented CapEx towards? Laura Russell: Okay. So let me start there, David, and then if needs be Ali can add some additional color. So what I would say in terms of capital intensity, actually at the midpoint at $35 million, the intensity has declined versus where it was in prior year. So in '25, we were at 4%. I think in '24, we were at 7%. And what that's indicative of is as you talked about the capital intensity, we're largely through the investments in our facilities to expand capacity that we've made in the last 3 to 5 years, those investment decisions. So now what we're investing in is, number one, maintaining those facilities and automating as appropriate to improve our operational effectiveness. And then secondly, looking at the other auxiliary systems and processes that we have and how we can make them more effective and efficient in the business. So that's where we're currently largely investing. But the one thing that I did want to call out is that we also talk repeatedly to you all about the potential and the opportunity for the business. And we continue to evaluate that month-to-month, quarter-to-quarter, and we'll make the appropriate decisions as we keep that based on potential return on any potential investments. Operator: [Operator Instructions] Our next question is a follow-up from Daniel Moore from CJS Securities. Dan Moore: Yes. I apologize. I missed a minute or 2 of the call. But on the defense side of aerospace and defense, has your outlook or growth expectations changed at all since the start of the war in Iran, maybe not necessarily for this year, but looking out further just in terms of maybe a restock, et cetera? Ali El-Haj: No, it has not changed. I think we expect to continue to grow. I think the Q1, we were heavily impacted by actually the commercial aerospace industry, not the defense that was softer. And again, that's just really timing of projects, Dan, as you know, these are projects-driven type activities. Because of the restocking issue that's expected, we expect growth in Q2, Q3 and going forward. That's our expectations right now. Operator: Our next question is a follow-up from Craig Ellis from B. Riley Securities. Craig Ellis: I wanted to use Laura's comments on capacity and the investment that has been made so that you do have sufficient capacity and just use that as a jumping off point with something that I see broadly in a lot of the end markets where Rogers materials wind up, and that is we're seeing increasingly tight supply conditions. And in other sectors, we've seen customer order patterns change either with longer-term pipelining and visibility or other things. And so the question to you, Ali, is as we've seemingly gotten into more of a capacity-constrained environment, across the broader supply chain. How do you feel about your capacity? And are you seeing any changes in your customers' order behavior? Ali El-Haj: No, we don't really have an issue or constraint on capacity. I think what we see in our business is shifting, let's say, geographical demand and needs, where if you remember, we discussed the local-for-local strategy that Rogers has in place. So we've seen this is now playing more of a role in the business today and going forward than our capacity overall. So Rogers capacity overall is sufficient for what we forecast for the next probably 6 to 8 quarters without any concerns with the exception of the additional new R&D projects, new business that we discussed earlier. But for current business demand, we think we have sufficient capacity However, shift within regions or between regions, something we're looking at. So we may have to rebalance that available capacity in different regions. So it would be more of a rebalancing rather than investing more. Craig Ellis: And the follow-up to that and the next question is one as a follow-up. Does that present an opportunity for you to do things with pricing in an environment that just seems to be structurally tighter that can benefit what you bring home on the top line and gross margin? And then the next question is related to the tighter segment summary that you presented with auto and industrial, aerospace and defense, et cetera. What catalyzed the more consolidated look at end markets? And what does it do internally for you in terms of how you're running the business? Ali El-Haj: I don't think it's going to change the way we run the business. I think the business will continue -- the path we started a few quarters ago, I think we're going to continue running the business in the same way. The only thing that I've mentioned is, again, rebalancing this capacity and the availability of production lines where to serve the local geographical needs or serve the OEMs within those geographical areas. So this is something we're going to continue to work on going forward. With regard to pricing, my comments in the past, this is market-driven. We're going to continue to evaluate and study the market and understand the pricing -- the market tolerance for pricing and those conditions and we'll act accordingly. But we try to mitigate any cost increases internally first before we try to go in and ask our customers for price increases. So we try to do that internally first, mitigate that with our efficiencies, our cost reduction activities first, then last resort will be going back to increasing pricing on customers or for certain customers. Operator: Thank you. We reached the end of our question-and-answer session. And ladies and gentlemen, 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: Welcome to Visa's Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin. Jennifer Como: Thank you. Good afternoon, everyone, and welcome to Visa's Fiscal Second Quarter 2026 Earnings Call. Joining us today are Ryan McInerney, Visa's Chief Executive Officer; and Chris Suh, Visa's Chief Financial Officer. This call is being webcast on the Investor Relations section of our website at investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our IR website. Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results, outcomes, or timing could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent annual report on Form 10-K, and any subsequent reports on Forms 10-Q and 8-K, which you can find on the SEC's website and the Investor Relations section of our website. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. Our comments today regarding our financial results will reflect revenue on a GAAP basis and all other results on a non-GAAP nominal basis unless otherwise noted. The related GAAP measures and reconciliation are available in today's earnings release and related materials available on our IR website. And with that, let me turn the call over to Ryan. Ryan McInerney: Thanks, Jennifer. In our fiscal second quarter, net revenue was up 17% year-over-year to $11.2 billion and EPS was up 20%. This represented the strongest net revenue growth since 2022. And when you exclude the post-pandemic recovery and the Visa Europe acquisition, it was the strongest since 2013. Payments volume grew 9% year-over-year in constant dollars to $3.7 trillion and processed transactions grew 9% year-over-year to $66 billion. Our business has incredible momentum. Visa has become the leading hyperscaler of payments globally, and our strategy and Visa as a Service stack will help us drive future growth in 4 important ways. One, we are winning in consumer payments, commercial payments and money movement. Our investments and innovations are paying off in a meaningful way and will continue to drive growth. Two, AI and agentic commerce will expand our addressable market, and our efforts will accelerate Visa's long-term growth. Three, stablecoins and blockchain are significant opportunities, and we have established Visa's role as a key interoperability layer between this powerful infrastructure and real-world solutions for users. And four, value-added services is an even bigger opportunity and has demonstrated its value as a key driver of our growth, now representing 30% of our net revenue, growing at 25% plus in constant dollars. These services have durable competitive advantages as the vast majority are linked to transactions, cards and accounts, and they are only strengthened with AI, reinforcing their importance as a growth lever for years to come. We have deep conviction in our ability to grow revenue well into the future, not just for the next 3 to 5 years, but beyond. I'll go through each of these 4 drivers in more detail. As I mentioned, our investments in consumer, commercial and money movement are delivering meaningful results. We are winning with fintechs, wallets and apps. They are building on our stack, and tapping into our innovation and our vast acceptance footprint, to help hyperscale their growth and ours, capturing both carded and non-carded payments. A few recent examples. Just last week in the U.K., we partnered with TikTok to launch a debit card specifically designed for content creators. The Creator Card enables faster access to income from TikTok LIVE, brand partnerships and platform payouts so that creators can spend, plan and reinvest in their business quickly. In Japan, a country with nearly 50% of spending in cash, we are collaborating with mobile payments app, PayPay and their 40 million monthly transacting users and millions of acceptance locations to deploy new domestic and international solutions. With Visa, PayPay plans to grow Japanese merchant acceptance, utilize our Visa Flex Credential to integrate multiple payment methods into a single Visa credential and expand internationally. Shifting to commercial and money movement solutions, where revenue grew 24% in constant dollars as we continue to reinforce the value of our offering with expanded reach and tailored solutions. Visa Direct, the largest money movement network globally, now has more than 18 billion endpoints. This vast network is helping us win new business and power more transactions. In Q2, we had 3.7 billion transactions, up 23% year-over-year. In the U.S., X will soon begin early public access for X Money, enabling push and pull payments for their millions of users with Visa Direct, and payments anywhere Visa is accepted using a Visa Flex Credential. In Mainland China, UnionPay International will connect Visa Direct with UnionPay's Moneyexpress, enabling real-time cross-border remittances and payouts to reach more than 95% of their debit cardholders through a single integration. Moving to commercial, where this quarter, we drove 11% payments volume growth in constant dollars with strength in our travel, fleet and premium business reward portfolios. Commercial cross-border volume now represents the highest percentage of both commercial volume and total cross-border volume in Visa's history. In Travel, we expanded our agreement with fintech issuer processor, Highnote, to enable their 8 OTA platforms with our flexible interchange product for virtual cards called Visa Commercial Choice for Travel, which also includes specific automation, controls and reconciliation across the travel value chain. In Fleet, we signed a new agreement with Westpac that expands our partnership and demonstrates the potential for Pismo for commercial card modernization. We also secured their commercial card portfolios, including credit and debit for small business. Another example of deepening relationships with our clients is with Scotiabank. Across 11 countries in Latin America and the Caribbean, we have created a new strategic agreement, consolidating our relationship and expanding into new areas of issuance focused on affluent and small businesses. So our momentum in consumer, commercial and money movement is clearly strong and will strengthen with agentic commerce and stablecoins. I'll start with agentic commerce. We believe AI and agentic commerce will expand our addressable market in 4 important ways. First, like eCommerce and mobile commerce before it, agentic commerce will accelerate the digitization of commerce around the world. And just like the acceleration from eCommerce and mobile commerce, Visa will benefit. Second, agents will create significantly more transactions. Agents will intelligently split purchases across multiple transactions, optimizing price, timing and value to the buyer. And importantly, in some use cases, we expect agents will pay for their own data and resource consumption transaction by transaction and event by event, which creates an entirely new category of commerce with micro transactions. Third, we will see accelerated digitization of B2B payments, where there is still enormous friction that AI agents can help remove. They will be able to automate payment initiation directly from invoices and contracts and manage approvals autonomously. In this context, virtual cards and tokenization will become a preferred way to pay and be paid. And lastly, just like the advent of eCommerce and mobile commerce, agentic commerce will increase economic growth generally. Third parties estimate we are looking at a boost of 80 to 150 basis points of incremental GDP growth from AI and when GDP grows, spending grows and digital payments transactions grow. Visa is extraordinarily well positioned to win in agentic for 3 important reasons. Our network, security and trust. Our network has enormous scale, more than 175 million seller locations, 5 billion credentials in 200 countries and territories with nearly 14,500 financial institution clients who have opted in to using this network. Payment security is only going to become more difficult and more valued. With our scale comes over 300 billion transactions annually, equating to an average of about 900 million transactions per day, and all of the data that comes with it. Visa has proven it knows how to manage transaction risk, identity risk and fraud, all enabled by this transaction data. And trust. Visa has well-established trust grounded in our standards and brand. We've set the standards that enable trusted payments in the digital and emerging agentic ecosystem. And a big part of our network, security and trust are Visa tokens. Visa is a proven leader in tokenization, which is foundational in eCommerce and is set to become an essential element of trusted transactions in an agentic world. People overwhelmingly choose to pay with cards face-to-face and online, and they will prefer their agents to pay with cards. And merchants want this, too. We recently launched Intelligent Commerce Connect, which acts as a network protocol and token vault agnostic on-ramp to agentic commerce for agent builders, merchants and enablers. Now while it's early, we are seeing growth in agentic shopping and the emergence of early agentic commerce, real transactions with Visa agentic tokens. And AI continues to evolve. With the AI landscape, we are seeing that Claude code and other agentic coding assistants will allow anyone to become a developer. It's that easy to work in simple command-style tools like the command line interface, or CLI. These agentic coding assistants are a great example of how we see AI and agentic commerce increasing economic growth as they enable anyone to bring their new business ideas to life. We see a world where we will all design, build and launch digital products and experiences ourselves, engage with digital platforms and buy digital services using the CLI, or a slick consumer-friendly version of one as our interface. The CLI itself is becoming a commerce platform, and we believe that the preference and value of cards will be equally strong for all sizes of transactions, including micro transactions. A key to making this happen is enabling safe, simple and easy payments that are widely accepted by all API endpoints. We recently launched Visa CLI as a proof of concept, which shows how easy it is for a developer, soon all of us, to use their Visa credential to pay for digital services like an image, a website builder or more via the CLI. The early feedback we have been receiving from developers is very positive. And as we move forward, we plan to enable CLI commerce at scale, which means scaling the availability of command line tools and card acceptance by promulgating standards, products, rules and pricing. Over time, we have continued to adapt our technology and commercial model to win when new payments use cases emerge. Transit, vending, parking, subscriptions, app purchases and Visa Direct are all great examples of where we've made purposeful investments to enhance our commercial and technical model to deliver new smaller ticket payments use cases. Agentic Commerce will be another great example. In all of these use cases, Visa cards are providing significant value. They're easy to use, broadly accepted, integrated into the transaction flow, offer privacy, unlike most stablecoins, offer a way to manage liquidity in aggregate rather than funding millions of real-time micro transactions, offer an issuer KYC user, security protections if something goes wrong, and in many cases, cards offer rewards and benefits. We see no other payment method on earth that delivers all of these features. Buyers know this, sellers know this and soon so will agents. We expect more transactions, more value-added services and therefore, more revenue in the years ahead from agentic. Let's shift to stablecoins and on-chain payments. Our strategy and innovations have positioned Visa as a hyperscaling bridge layer between stablecoin and real-world solutions and applications for users. I'll call out 3 important examples. On-ramps and off-ramps, settlement and money movement and blockchain infrastructure. In many countries around the world, especially in emerging markets, consumers and businesses are increasingly using stablecoins as a store of value, essentially on-chain, primarily U.S. dollar-denominated accounts. In these countries, stablecoins are not generally accepted as a means of payment. We are providing on-ramps and off-ramps with stablecoin-linked Visa cards. So consumers in these countries are increasingly using stablecoin-linked Visa cards to spend their stablecoins online and at their local grocery store, petrol station and restaurants where Visa is accepted. Businesses are using stablecoin-linked Visa cards to buy digital advertisements and supplies for their businesses. And we now have over 160 stablecoin card programs globally with key partners such as Rain, Reap and Bridge, and the payment volume continues to grow at a very strong rate, up nearly 200% year-over-year in Q2. Now to my second example, a pragmatic real-world B2B use case, Visa's own settlement capabilities. Last year, Visa settled almost $13 trillion among in between our nearly 14,500 financial institution partners. Nearly all of this was settled in fiat currencies on Monday through Friday. We have been enabling our clients to settle with us using stablecoins. So an issuer who's working in stablecoins can pay us in stablecoins 7 days a week, and an acquirer or merchant who wants to get paid can get paid in stablecoins. This provides immense liquidity and efficiency benefits. We have just added 5 additional blockchains for settlement, [ Arc, Base, Canton, Polygon and Tempo ], bringing the total to 9. We currently have a $7 billion annual run rate of stablecoin settlement volume, and it's growing fast, up more than 50% since last quarter. Now to the third example, becoming a key player in blockchain infrastructure. We are actively participating and innovating to ensure Visa plays an important role in emerging payments-focused blockchains. We are design partners for Layer 1 blockchains and have become a validator on Tempo and a super validator on Canton network. Our role as a design partner with Tempo allowed us to play a critical role developing and launching the machine payments protocol card specification that is enabling Visa CLI payments. Running a validator node moves Visa from a blockchain participant to an infrastructure leader. And in the case of Canton, where we are a super validator, Visa also helps govern the network that validates the transaction. Ultimately, we will help operate the infrastructure that can make private regulated blockchain transactions possible. Additionally, we are increasingly providing value-added services to crypto-native partners and traditional financial institution partners to help them expand their stablecoin offerings to better serve their users, which is a good transition to the fourth driver of Visa's growth, value-added services. As I said at the outset, value-added services is a bigger opportunity than ever for Visa. Value-added services revenue grew 27% in the second quarter in constant dollars, and we are just getting started. VAS is inextricably linked to our network business and with that comes significant distribution globally. We have transaction data at scale, and we will enhance that data with AI. We have the brand assets and sponsorships to provide unique opportunities for our clients and Visa to grow, and we are winning because our VAS portfolio of solutions brings powerful capabilities, the trust that Visa stands for, and our commitment to continuous innovation. The vast majority of our value-added services revenue is linked to transactions, cards and accounts. So as we grow consumer and commercial payments, we are also fueling VAS growth. For example, eCommerce transactions are the fastest-growing part of consumer and commercial payments, and many of them utilize our value-added services to help increase authorization rates and reduce fraud. Also, affluent cards are the fastest-growing area of consumer payments and more and more of them have a deep set of card benefits and loyalty services linked to them. Across Visa, AI is making what we do even better, especially for our value-added services. Our new Visa Large Transaction Model is beginning to act as the foundational model for a variety of AI-powered fraud and risk services at Visa. Early results have shown that it can power up to a 5x increase in fraud value capture. Our team has been integrating new AI-enabled features across our suite of VAS solutions, including the recent release of 6 dispute resolution capabilities. In fact, across all of our services, client adoption has been the fastest among AI embedded services such as Smarter Stand-In Processing and Visa Provisioning Intelligence. In addition, our brand and sponsorship relationships are highly valued. In our fiscal year 2026, Olympic and Paralympic Winter game sponsorships tracked ahead of plan with more than 100 projects across more than 70 clients and nearly 40 markets. And with FIFA, we have already seen increased activation of cards, spend and engagement from our clients. Our acquired capabilities represent important growth opportunities as well. In Q2, Pismo signed our first clients in France, the Philippines, Paraguay and Romania, reaching 15 new countries since the acquisition. And we're thrilled to announce that Wells Fargo has entered into an agreement to migrate to Pismo's core account ledger as part of its core banking modernization over the coming years, reflecting the strength of the partnership between Wells Fargo and Visa. We recently announced the acquisition of Prisma, a credit, debit and prepaid issuer processor and Newpay, a real-time payment services, bill pay and an ATM network. We believe the combined technology platforms will accelerate the deployment of advanced technologies such as tokenization, biometric authentication, intelligent risk tools and agentic commerce solutions, and help us to grow both our carded and non-carded business in Argentina. Our value-added services are highly differentiated and even more so in an AI world. Before I close, I wanted to say that we are watching the impacts from the conflict in the Middle East closely. Chris will go into more detail about the impact on our business in a moment. Our primary concern is, and has been, the safety of our team and clients. You can see from our second quarter performance that there is momentum in our business, tailwinds behind us, and enormous opportunities ahead of us. We are pushing every day to build the future of payments faster and better than ever before and to make our stack the most capable and valuable way for our partners to connect to the world's payments ecosystem. Our track record, strategy, innovation and Visa as a Service stack will help us drive growth well into the future. Now over to Chris to discuss our financial performance. Christopher Suh: Thanks, Ryan, and good afternoon, everyone. We delivered an outstanding second quarter with strong revenue and profit growth, driven by effective execution of our strategy and the resilience of our diversified business model. Drivers remain strong and relatively consistent with Q1. In constant dollars, global payments volume was up 9% year-over-year. Cross-border volume, excluding intra-Europe, was up 11%, and total processed transactions grew 9%. Fiscal second quarter net revenue was up 17% year-over-year with the out-performance largely driven by higher-than-expected volatility, stronger-than-expected value-added services revenue and lower-than-expected incentives. Second quarter net revenue was up 16% in constant dollars. EPS was up 20% year-over-year in both nominal and constant dollars, better than expected, primarily due to stronger-than-expected net revenue growth. Now let's go into the details. U.S. payments volume grew 8% year-over-year, up almost 1.5 points from Q1, reflecting resilience in consumer spending. E-commerce spend outpaced face-to-face spend. Both U.S. credit and debit demonstrated broad-based spend improvement, and we believe both were helped in part by higher tax refunds. Debit grew 7%, up almost 1 point from Q1 and credit grew 10%, up more than 2 points from Q1, with strong travel spend in both consumer and commercial. Growth across consumer spend band saw incremental improvement from Q1 with the highest spend band continuing to grow the fastest. Across our volume, both discretionary and nondiscretionary spend remains strong. We do not see signs of the lower spend consumer weakening in our volumes. Second quarter total international payments volume was up 10% year-over-year in constant dollars, generally consistent to the growth we've seen over the past several quarters. Latin America and Europe payments volume growth was relatively consistent with Q1 in constant dollars. Canada had a more than 1 point improvement from Q1, primarily due to processing days. In Asia Pacific, we saw macro improvements in Mainland China. And in other Asia Pacific countries, we saw strong client performance. In CEMEA, we saw a step down of about 2.5 points in payments volume growth in constant dollars from Q1, primarily due to the conflict in the Middle East. Keep in mind that CEMEA generally represents about 6% of our total payments volume. Pulling it together, globally, our total payments volume growth remains strong, up almost 1 point from Q1 in constant dollars. Now to cross-border volume, which I'll speak to in constant dollars and excluding intra-Europe transactions. Q2 total cross-border volume was up 11% year-over-year, consistent with Q1. Cross-border eCommerce volume was up 13%, 1 point above Q1. While crypto continued to be a slight drag, the improvement was primarily driven by U.S. inbound volume. Travel-related cross-border volume was up 10%, generally consistent with Q1, led by continued strength in commercial and improved U.S. inbound volume that generally offset the impact in the Middle East that was most pronounced in March. With that as a backdrop, I'll move to discuss the financial results. Starting with the revenue components. Service revenue grew 13% year-over-year, versus the 8% growth in Q1 constant dollars payments volume, primarily due to pricing and card benefits. Data processing revenue grew 18% versus the 9% growth in processed transactions, primarily due to pricing, strong value-added services performance and higher cross-border transaction mix. International transaction revenue was up 10%, below the 11% increase in constant dollar cross-border volume growth, excluding intra-Europe. Even with the favorable FX, we had offsetting impacts from volatility, mix and hedging. While volatility was better than we expected for the quarter, it was still below last year's levels. Other revenue grew 41%, primarily driven by growth in advisory and other value-added services, especially marketing services revenue as well as pricing. Client incentives grew 14%, lower than our expectations, driven primarily by deal timing and performance adjustments. Now to our 3 growth engines. Consumer payments revenue was driven by strong payments volume, cross-border volume and process transaction growth. Commercial and money movement solutions revenue grew 24% year-over-year in constant dollars. CMS revenue was better than expected, driven primarily from performance adjustments and deal timing in addition to pricing. Commercial payments volume grew 11% in constant dollars, up more than 1 point from Q1 and faster than Visa's overall payments volume growth, primarily due to strong client performance driven by both new wins and continued cross-border strength. Visa Direct transactions grew 23% year-over-year, consistent with Q1, driven by continued strength in domestic and cross-border. Value-added services revenue grew 27% year-over-year in constant dollars to $3.3 billion, driven by underlying business drivers, which included process transactions, number and mix of credentials and client consulting and marketing engagements and pricing. Value-added services revenue growth was better than expected, primarily due to greater demand for network products for issuers and acquirers and marketing services. Marketing services leverage our brand assets, expand and deepen our relationship with our clients, help them increase engagement with their customers and drive increased spend, all while growing revenue at attractive levels of profitability. As Ryan mentioned, the Olympics and FIFA are exciting opportunities this year, and we also see further expansion opportunities for sponsorships beyond sports. One example was with the music tour sponsorship in Asia Pacific for a popular K-pop group. We completed activations for multiple clients in the region and drove increased payments volume growth and card issuance, which drove revenue for our clients and Visa, in addition to driving direct VAS revenue. For one client, they saw a nearly 30% increase in year-over-year spend as a result of this campaign and another client saw a 50,000 increase in card count in just 6 weeks. Operating expenses grew 17%, consistent with our expectations, driven primarily by personnel and marketing. Non-operating expense was $45 million, above our expectations, primarily due to lower cash balances and higher debt levels and interest rates than forecasted. Our tax rate for the quarter was 16.4%, consistent with our expectations. EPS was $3.31, up 20% year-over-year, better than expected, with an approximately 0.5 point benefit from exchange rates. For our non-GAAP results, Prisma and Newpay increased net revenue and operating expense growth by approximately 0.5 point each and had a minimal impact on EPS growth. In Q2, we bought back $7.9 billion in stock, the highest quarterly buyback in Visa's history, and a tangible sign of our capital allocation strategy at work, and our belief in the long-term value of our company. We also distributed $1.3 billion in dividends to our shareholders. We funded the litigation escrow account by $125 million, which has the same effect on EPS as a stock buyback. At the end of March, we had $13 billion remaining in our buyback authorization. And in April, the Board of Directors authorized a new $20 billion multiyear share repurchase program, putting our total buyback capacity at approximately $33 billion. Now let's look at drivers through April 21 with volume growth in constant dollars. U.S. payments volume was up 9%, with credit up 10%, and debit up 8% year-over-year. For constant dollar cross-border volume, excluding transactions within Europe, total volume grew 9% year-over-year with eCommerce up 14% and travel up 5%. The step down in travel from March was driven by both the impact from the Middle East conflict and Ramadan timing. When you normalize for Ramadan timing, the total April cross-border volume growth was in line with February levels. Processed transactions grew 8% year-over-year. Now let me move to our guidance, which is on an adjusted growth basis, defined as non-GAAP results in constant dollars and excluding acquisition impacts. You can review these disclosures in our earnings presentation for more details. The key message is we are increasing our total net revenue and EPS guide for the full year. For net revenue growth, we now expect low double-digit to low teens. This incorporates the strong year-to-date performance and our current assumptions on drivers, incentives, volatility and expected higher value-added services revenue growth, which incorporates the increased enthusiasm from our clients for the upcoming FIFA World Cup. Let me walk through those assumptions. First, the drivers. We are assuming the broader consumer spend stability continues from a macro perspective. The Middle East conflict has introduced some near-term uncertainty, in particular to cross-border travel spend in the CEMEA region. As we have seen, our spend is incredibly diverse. And as we look to the rest of the year, we are expecting improvements in the U.S. and Latin America inbound travel due to FIFA, and we have the lapping impact of low U.S. inbound growth from last year. Furthermore, cross-border eCommerce continues to grow very well, so we're assuming our drivers overall remain resilient and strong. On pricing, there are no material changes in our pricing assumptions. And as we said before, our new pricing goes into effect in the back half of the year. On incentives, we have no material changes. You may recall that Q3, 2025 represented the low point for incentive growth last year. And as we will be lapping that, we still expect a step-up in the incentive growth rate from Q2 to Q3. On volatility, it was higher than expected in Q2 and thus far into Q3. We are, therefore, bringing our assumptions back up to where we originally guided in October, with Q3 and Q4 more in line with where we exited in Q4 of 2025. On the expense side, largely due to the increased client demand for FIFA-related marketing services, we also expect low double-digit to low teens operating expense growth. We are investing further in marketing-related solutions that will generate incremental revenue around our activations in a high-yielding and profitable way. For example, after we set our budget for the year, we partnered with one client in Latin America with nearly 20 million cards to design FIFA campaigns, tying exclusive tournament experiences to everyday spend. And in just over 3 months since the launch of the campaign, the client reported a 10% lift in active cards, driving payments volume growth and Visa generated $10 million in VAS revenue for delivering these campaigns. And with the first match less than 45 days away, the FIFA campaigns should continue to deliver value to our clients, their customers and to Visa. Our expectation for nonoperating expense is now approximately $150 million as a result of the first half and our increased debt levels and interest rate estimates. We have no change to the range for our tax rate between 18% and 18.5%, although we do believe it will be closer to the low end of that range. This implies adjusted EPS growth in the low teens, also revised up from our prior outlook. For non-GAAP nominal expectations, our acquisitions add approximately 1 point to net revenue growth, approximately 1.5 points to operating expense growth and approximately 0.5 point to EPS growth. Moving to Q3 financial expectations, which again are on an adjusted basis. We expect Q3 net revenue growth in the low double digits. Consistent with the directional comments provided at the start of the year, this low double-digit growth should be the lowest growth quarter of the year. When compared to Q2 growth rates, there are a few dynamics at play. First, higher incentive growth as a result of deal timing and lapping of the low point of incentive growth in Q3, 2025. Second, lower volatility levels with a tough comparable versus the highest volatility quarter that we saw last year. And third, the second half weighted pricing going into effect, which will somewhat offset the first two factors. For those of you connecting the dots to the full year guide, this implies an approximately 1 point step-up in net revenue growth from Q3 to Q4, primarily driven by less of a drag from volatility and stronger marketing services-related revenue. We expect Q3 operating expense growth in the low teens, a slight step-up from Q2, primarily due to FIFA-related marketing. Non-operating expense is expected to be about $55 million. And our tax rate in the third quarter is expected to be around 18.5%. As a result, we expect third quarter EPS growth to be in the mid- to high single digits. For our non-GAAP nominal Q3 financials, Prisma and Newpay will add approximately 1.5 points to net revenue, and approximately 2 points to operating expense growth, and an approximately 0.5 point to EPS growth. As always, if the environment changes and there are events that impact our business, we will remain flexible and thoughtful on balancing short- and long-term considerations. To echo Ryan, we firmly believe in the future growth of Visa. We have a proven track record of delivering strong net revenue growth, driven by higher growth in both commercial and money movement solutions and value-added services, underpinned by consistent consumer payments growth, all with industry-leading margins. The opportunity across our entire business is significant, and we are executing against our strategy to capture it as is evident in the financial results that we're delivering. And now Jennifer, I'll hand it back to you. Jennifer Como: Thanks, Chris. And with that, we're ready to take questions. As a reminder, please limit yourselves to only one question. Operator: [Operator Instructions] Our first question comes from Tien-Tsin Huang from JPMorgan. Tien-Tsin Huang: Really strong revenue momentum here, sorry. Just thinking about Ryan and Chris, what you guys went through -- through a lot of notes. I think was the largest revenue upside that we've seen in 3 or 4 years, so just trying to disaggregate it. What were the biggest factors that drove the upside in the quarter? And how does that change your second half outlook exactly? I don't want you to rehash everything you talked about there, Chris, but just trying to maybe rank the top 2 or 3 things. Christopher Suh: Sure. Sure, Tien-Tsin. Yes, Q2, we had a very strong quarter. We're very pleased to see that, both net revenue and non-GAAP EPS coming in better than we expected. In terms of differences, I think that was your question versus what we had expected. The things that I would call out, again, are volatility. It was very low, if you recall, at the start of January when we set the guide and then it rose higher throughout the course of the quarter. It was still a drag year-over-year, but it was better than we anticipated. Secondly is our VAS business. We had strong growth again across all our portfolios. It was better than we expected, primarily due to greater demand for our network products, as well as marketing services. And then incentives grew at 14%, which was below our expectations for the quarter, primarily deal timing performance adjusted -- performance adjustments rather. In terms of our Q3 guide, primarily the difference, as I said, largely our assumptions around incentives, remain the same. The volatility was higher in the course of Q2, and we're anticipating that pulling through into Q3, and we're continuing to see strength across the breadth of the business. And so we're anticipating another strong quarter in Q3. Operator: Next, we'll go to Craig Maurer from FT Partners. Craig Maurer: I wanted to ask about the agentic commerce discussion earlier in the call. We've seen American Express step out there and take on the risk of a fraudulent agent transaction with -- and so I'm curious about are you -- how can you achieve something similar with a 4-party network versus a 3-party network, when it seems that issuers are going to have to buy in to whatever rule-making you decide on? Or are they going to be left to decide how they're going to deal with that risk? So any discussion there would be helpful. Ryan McInerney: Sure, Craig. And I appreciate the question. If I just start at the highest level, just as a reminder, this is all very early. And I think as the agentic commerce use cases and threat vectors start to mature, we'll adapt and evolve our capabilities and our rules, which you noted, as we have historically. You saw this with the evolution of eCommerce, you saw it with the evolution of mobile commerce. If a Visa cardholder experiences fraud, they're going to be protected. That's been part of the promise for Visa cardholders for a very, very long time. I would add to that, in agentic commerce, we're going to have more transactions that are initiated from authenticated tokens, which is good. Will further reduce fraud, will further protect the ecosystem. And the other benefit of agentic commerce is issuers and merchants are going to have more data on transactions. They're going to have data on user intent. They're going to have more data to include in the dispute processes and all of those types of things. So we're working very hard on it. And again, as all of this starts to mature and evolve, we'll evolve our rules with full buy-in from the entire ecosystem. Operator: Next, we'll go to Matt O'Neill from Bank of America. Matthew O'Neill: I'd love to follow up on some of these discussions as well around stablecoin and agentic. Specifically, could you just maybe take a step back and give us the high-level unit economic top-of-the house view? Are these transactions kind of accretive, dilutive? Or are you agnostic, but obviously very excited about the types of growth rates we're seeing in volume and a small but increasingly important base? Ryan McInerney: Yes. Thanks for the question. Again, I would orient here and go back to what I described in my prepared remarks, which is that we've positioned ourselves as a hyperscaling bridge layer sitting between this very powerful infrastructure, stablecoins and blockchain and on-chain payments in general, and real-world solutions, and real-world applications for users. So we're taking kind of the Visa as a Service stack, and we're engaging at all the different levels in the stablecoin stack and ultimately delivering these bridge solutions that have very similar economics to the products that we have today. So if you're an average Visa employee in Argentina and you're holding $1,000 in stablecoins in your wallet. And then like I said in my prepared remarks, you go use your Visa debit card issued on top of those stablecoins to go to the restaurant, to go buy petrol for your car, to go buy groceries for your families. The economics of those products look just like our normal products. So by investing in building this hyperscaling bridge layer, we're providing real-world utility for buyers and sellers, and we're doing that in the context of similar economics to what we deliver today. Operator: Next, we'll go to James Faucette from Morgan Stanley. James Faucette: I wanted to follow up on the agentic topic and specifically in the area of agent-to-agent transactions. I realize that a lot of these are very small and micro transactions. But wondering if you can talk about some of the capabilities of Visa and the Visa networks that you can deliver in those kinds of environments, and whether that be beyond just the transaction but providing trust, et cetera. And how we should think about the potential for that to be accretive or additive to the volumes that you do? Ryan McInerney: Yes. Thanks. we're very excited about all of it, and we feel extremely good about our position. I, kind of, emphasize one of the words you mentioned to go back to what I said in my prepared remarks, which is you look at our network, you look at our security and you look at the trust that our users, both buyers and sellers have in Visa. And all 3 of those are going to position us in a very strong way. There's a lot of talk around AI in general. And the limiting factors, if you will, or people talk about compute and they talk about power and they talk about data centers. I think the limiting factor for agentic commerce is trust. I think when we all think about ourselves as buyers and we all think about ourselves having agents go out and transact on our behalf, we are going to fall back on payment methods that we, as users, trust. And kind of go back to the way I was describing Visa cards in my prepared remarks, they're easy to use, they're broadly accepted. They're integrated into the transaction flow. They offer privacy. They offer sellers a way to manage liquidity in aggregate rather than funding millions and millions and millions of real-time micro transactions using stablecoins or something like that. They offer billions of issuer KYC users that are ready to go with these credentials, and they offer security protections if something goes wrong. And then you add to it that, in many cases, we all have cards that offer rewards and benefits. So when you think about yourself as a user, when you think about kind of who you're going to trust your agent to make payments on your behalf, whether those are macro transactions, average transactions or micro transactions, we feel really good about our ability to win those transactions for our users using all of those capabilities. Operator: Next, we'll go to Tim Chiodo from UBS. Timothy Chiodo: I want to talk about 2 programs, both that have something in common. They are allowing for reduced total cost of acceptance to merchants and also providing more data, or requiring the merchant to provide more data to Visa. And those are, of course, the commercial Enhanced Data program, or CEDP, and then the more recent introduction of the Digital Commerce Authentication Program or DCAP. So for CEDP and DCAP, they both have that reduced cost element and they also have the more data element. I was hoping you could expand upon the importance of these 2 programs for the payments ecosystem and what that data may mean to Visa? Ryan McInerney: Yes. Thanks for the question, and thanks for being so studied on our program. It's great to hear. And I think I bridged my answer for your question to the answer I was -- part of the answer I was saying earlier, which is a lot of the ways that we can add value as a network, as digital commerce continues to evolve, to both our merchant partners, our acquirer partners and our issuer partners is by creating enhanced data payloads so that our partners can use that data to, as I was saying earlier, run more efficient dispute processes, to run better risk programs, to make better authorization decisions, to help reduce fraud. And these two programs that you mentioned, CEDP and DCAP, both have those elements in common. We're able to use, kind of, our position in the ecosystem, whether it's in the case of CEDP, a commercial product platform that we've built, or in the case of DCAP, the tokenization platform that's been deployed, to deliver these types of data payloads, create incentive -- create incentives for players across the ecosystem to add that data to the transaction payloads and then create opportunities for people to use that data. I think that's what both those programs have in common. Operator: Next, we'll go to Bryan Bergin from TD Cowen. Bryan Bergin: I wanted to dig in on VAS and really the underlying strength that you noted here in the network assets and the marketing services offerings. It really seems like a switch kind of flipped here over the last 4 quarters just to carry the overall robust level of growth. So just key on what has worked so well there, and how you're thinking about the sustainability of those key contributors? Ryan McInerney: Yes. Thanks for the question. Let me broaden it to the widest aperture and then specifically hit your question on VAS. I think if you just take a step back, we laid out a very clear strategy to you all at our Investor Day a couple of years ago. We have worked very hard to create investments in the company, to invest ahead of those opportunities. Whether that's product solutions, sales force, go-to-market, new ways of running the company in order to drive the performance that we are looking at. And I think overall, what you're seeing is us executing that strategy along the lines that we all described to you. If I look specifically at VAS in that context, if you go back again, several years, we built out the VAS business units. We built leadership in the company. We built leadership teams. We built product road maps, and we've been deploying those products aggressively. We've been shipping new, especially AI-driven products in the issuing solutions space. We outperformed in the quarter in our AI-driven stand-in processing platform. We outperformed in our Visa supplier payment services platform. Those are two of the service -- issuing solution platforms. In the acceptance side of the business, our Visa account updater platform outperformed. That's one that allows merchants to automatically upstore credentials when you might have had fraud on your account and it was reissued or something like that. Look at our Risk and Security Solutions area, we saw outsized performance in VCAS, our Visa Consumer Authentication Service, or also in our VAA and VRM platforms, Visa Advanced Authorization and Visa Risk Manager. These are all products that we've been deploying in market, largely AI-driven products, and they've been driving broad-based out-performance across the value-added services portfolio. So a long way of saying, I think that's right. I think you're seeing the strategy working. We're executing the strategy, and you're seeing the results. Operator: Next, we'll go to Harshita Rawat from Bernstein. Harshita Rawat: I have a question on payments nationalism. We've seen this growing desire for countries to control their payments infrastructure, or at least have it locally. There have been some renewed discussions in Europe. I know this is not something new to you. You've worked through this in the past. But maybe share your updated perspective on payments nationalism outside the U.S. and how you're engaging with the government? Ryan McInerney: Thanks. As you would know, and read, and alluded to, we're spending real time on it, but we've been spending real time on it for a while. Nationalism and sovereignty concerns are not new for Visa, whether it's in Europe, to your point, or more broadly around the world. And if you just think about it, payments are an inherently local thing. Like they're critical to work the way that they need to work in every country we do business around the world. And national sovereignty considerations are a long-standing feature of the payments landscape. We've been dealing with these issues for decades. We -- in all of our key markets, we operate with local teams, local infrastructure, local partners to navigate the regulatory, political and market-specific requirements of any given country or market. And that's as true in Europe today as it has been, and it's as true in other markets as it has been. If I just, I guess, comment specifically about a couple of things in Europe. First, we are deeply committed to Europe. We have a long-standing presence there across 38 countries. We've got, I, think it's, 29 offices. More than 6,000 employees in Europe. The business itself is very strong and growing. We've been adding cards and winning business. We added nearly 30 million cards in the last year or so. And we told you all that we were going to bring on another 30 million cards because of wins that we've already closed over the coming year. So we're winning. And I think that's because buyers and sellers in Europe really value the Visa network, the Visa brand, the Visa trust. There's been a long-running set of initiatives in Europe, some of which have gotten more traction than others. For those that have gotten traction, there is a pretty wide base of domestic digital payment wallets in Europe that I think have had good uptake, especially in the account-to-account, but more so in the person-to-person space. And then you've got the long-running story of, I think, what was first PEPSI and then EPI and now Wero, and then you add the digital euro to that as well. Our expectation is that there's going to be more competition in Europe, not less, just like we see around the world. We're going to continue to, kind of, deliver what we do and do the best job we can. And as a result of that, hopefully continue to win more than our fair share. Operator: Next, we'll go to Darrin Peller from Wolfe Research. Darrin Peller: Chris, one for you is just if we can dissect how much of the VAS strength is driven by the World Cup versus sustainable drivers? And then, Ryan, when I think about VAS again, you talked a lot about the -- all the different services you're providing. Have you seen a step function in demand for your fraud protecting services? We've heard about a lot more fraud instances given AI and bots and others being used. I'm just curious if you're seeing that directly impact you guys in terms of demand for the products? Ryan McInerney: Yes. Why don't I go first and then Chris, you can fill in. And the short answer is yes. We've really -- we've seen more demand across the board for our fraud products. And I think that's a signal of two things. One is the environment that we're living in. When I go talk to CEOs of clients around the world, whether they're issuers, acquirers or merchants, fraud is a top 3, top 4 concern for them. And that just wasn't the case several years ago. And fraud broadly defined, whether that's cyber or more traditional payments fraud, enumeration attacks and everything in between. And it costs them on the bottom line. It ultimately creates bad user experiences, and there's a high demand for services. And then second, they view us as their most trusted provider for these types of services. And we've been able to put products and services out in market that are performing at much higher levels than the market has seen. One example, I think I mentioned in my prepared remarks is our own Visa LLM that we've built based on billions of our own transactions, our own foundational model for payments, that we're now using to fuel a lot of these models and solutions. And it's having 2, 3, 4, in some cases, 5x improvements in value capture. So yes, we're seeing a lot of step-up in demand for those products and services. Christopher Suh: Darrin, I'll just add on, just to dimensionalize that a bit. As Ryan talked about, we're seeing very broad-based strength across all the portfolios. And while we do anticipate seeing accelerated marketing services growth this year with the Olympics and with FIFA, that doesn't take away from the growth that we're seeing across all the portfolios. In Q2 specifically, I talked about network products being one of the drivers of the out-performance. And so we are continuing to see strength. And specifically with regard to marketing services and the durability of that, obviously, when there's a big event, we tend to see strong growth. But it's also a business that we see -- we're quite optimistic about. As you know, it deepens our client engagements and in turn, helps their clients grow their Visa business with us. And so there's a good flywheel at work, and we think clients are definitely interested in engaging with us in it. And so that's a business that we'll continue to see -- be strong as well. Operator: Next, we'll go to Andrew Bauch from BMO Capital Markets. Andrew Bauch: I wanted to hit on the VAS, kind of, margin dynamics. You emphasized marketing and other value-added services growing at attractive profitability. And as we think about VAS as it becomes a larger share of revenue and scale, how should we think about incremental margins relative to Visa's historical network margins over time? Christopher Suh: Yes. Yes. Let me try to parse that apart a little bit. I mean the first thing I'd point to is obviously looking at the facts, meaning looking backward at history. Now we've grown our value-added services business to be 30% plus or minus of our business. And we've done so while preserving the overall margins of Visa, and it's grown across a number of portfolios. Now as you point out, though, I think embedded in your question, there are different margin profiles within those different business portfolios, and we're continuing to see strong growth across all of it. The important thing on the marketing services that we're seeing this year is the point that I made to the last question, which is there is definitely a profitable business. It's incremental revenue and incremental profits to Visa, but there's also this flywheel where as our clients continue to grow faster, they continue to drive volumes and drive spend back to Visa, and that's good for both of us, frankly. And so that's a flywheel that we've seen and proven to work. And so when we look at the totality of the business, we continue to be really disciplined about our expenses across the entire breadth of our business, and we continue to be really enthused about the opportunity in VAS. Operator: Next, we'll go to Bryan Keane from Citi. Bryan Keane: Congrats on the awesome results. Looking at the cross-border growth chart, Chris, can you help us quantify the impact of Ramadan in the Middle East? I guess it looked like March, it spiked higher, which I guess is a surprise given what's going on in the Middle East. And then the month of April year-to-date results, it comes back a little. And I'm just trying to figure out when we net this all out, some of these onetime impacts with maybe a lingering impact in the Middle East, what should we put together for our models for cross-border in third quarter? Christopher Suh: Sure. Yes. Let me talk to that. Our cross-border business has been and remains strong and healthy. Even with the latest data that you referenced, the April data, where cross-border had ticked down 1 point to 9. If you normalize for Ramadan timing, it's impacted -- that April data is impacted by Ramadan timing and the Middle East conflict. And if you normalize for Ramadan timing, it will be back to February levels. Why is this? As we've spoken to many times, our cross-border business is very resilient. It's well distributed. And while there is some impact in the Middle East as we saw in Q2, and we do expect to see in Q3, we've seen that there's offsetting factors, strength in other regions, other parts of the business. For example, we're expecting an increase in inbound volumes in the U.S. and Latin America given the enthusiasm for the upcoming World Cup. We're lapping a low period of U.S. inbound a year ago and commercial volumes continue to be stronger. And also, I should point out, cross-border eCommerce has been stronger than travel and is a bigger share of cross-border volumes today. So all considered, whether it's cross-border or frankly, across our entire business and payments volumes, we continue to expect our drivers to be healthy and strong, and that's what's embedded in our expectations for the rest of the year. Operator: Next, we'll go to Jason Kupferberg from Wells Fargo. Jason Kupferberg: So I wanted to tie together some things we already talked about on the call, particularly related to VAS and obviously, the CMS business performing really well. Also, we think back to the Investor Day last year, the medium-term outlook we were talking about was 16% to 18% growth combined for VAS and CMS. Clearly, you're well ahead of that now. You're in the mid-20s range. Olympics and FIFA may be helping a little bit this year. But just should we be recalibrating our multiyear view on how fast these businesses can collectively grow? Christopher Suh: Yes. So we don't -- first, I'll just start with the caveat that we don't guide to growth pillars. We are seeing terrific performance momentum, execution across both those growth pillars. We talked about VAS extensively. I won't sort of rehash all of that. I will talk about CMS a little bit since that's new. The 24% revenue growth this quarter is higher than we've seen in recent quarters. I did note in my prepared comments that some of that out-performance this quarter was related to adjustments and deal timing as well as pricing. And so while the underlying fundamentals remain very healthy. We don't anticipate some of those onetime items to reoccur. But that doesn't take away from the strength of the business across both VAS and CMS as well as, frankly, the strength in our consumer payments business. So we're really enthused about the overall -- the strength of the business across the broad portfolio, and we'll continue to focus on executing against our longer-term growth aspirations. Operator: And for our final question, we'll go to the line of Sanjay Sakhrani from KBW. Sanjay Sakhrani: Ryan, congratulations on your Wells Fargo relationship signing at Pismo. That seems to be a meaningful add in the U.S. I'm just curious, one, how should we think about the monetization strategy? Is that like a VAS revenue addition? Or is it in other areas? And then secondly, do we see more of these large bank types as a target opportunity for Pismo? Ryan McInerney: Yes. Thanks for the question. On the answer to your question around the geography in the P&L, I think Pismo -- well, I'm going to leave that for Chris. So I'll let Chris take that in just a second. When we talked about buying Pismo, I shared our thesis for why we were buying Pismo. And it was two things. One is when we had been talking to the leaders of our large financial institution clients around the world, there was a common theme. They were all preparing to embark on a platform modernization strategy, often involving a migration to the cloud. And that -- we identified that as a structural shift, almost like a moment-in-time opportunity for the entire industry around the world. And then the second part of the thesis was there were a lot of issuers, especially fintech issuers that were trying to expand geographically, especially into emerging markets. And there wasn't an issuer processing stack that was cloud-native, modular and had the ability to scale geographies quickly. And those were our two thesis. And so far in our journey with Pismo, they're both playing out. And what I said at the time is we had scoured the earth to find the best cloud-native, modular API-driven stack that we could put to work against both those thesis. So to your question about Wells Fargo, this continues to be a need for large financial institutions around the world. We continue to believe that Pismo is the best platform out there, both for core bank or for issuer processing stacks as our issuers kind of make this migration. And we're very proud of the partnership I mentioned with Wells Fargo, but we're also hard at work working with other potential clients around the world and hopefully have more to share with you over time. Christopher Suh: And then in terms of where we report Pismo. Pismo Is considered VAS. We report it as VAS, and it shows up in revenue in the other revenue line. Jennifer Como: And with that, we'd like to thank you for joining us today. If you have additional questions, please feel free to call or e-mail our Investor Relations team. Thanks again, and have a great day. Operator: Thank you all for participating in Visa's Fiscal Second Quarter 2026 Earnings Conference Call. That concludes today's call. You may now disconnect, and please enjoy the rest of your day.
Richard Simonelli: Hello, everybody, and welcome to the CoStar earnings call for Q1 2026. Thank you all for joining us. Before I turn the call over to Andy Florance, CoStar Group's CEO and Founder; and Chris Lown, our CFO, I'd like to review a few of our safe harbor statements. First of all, certain portions of the discussion today may contain forward-looking statements. The company's outlook and expectations are based on current beliefs and assumptions. Forward-looking statements involve many risks, uncertainties, assumptions, estimates and other factors that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to, those stated in CoStar Group's press release issued today and in our filings with the SEC. All forward-looking statements are based on the information available to CoStar Group on the date of this call. CoStar Group assumes no obligation to update these statements, whether as a result of new information, future events or otherwise. Reconciliations to the most directly comparable GAAP measure of any non-GAAP financial measure discussed on this call are shown in detail in our press release issued today, along with the definitions for those terms. The press release is available on our website located at costargroup.com under Press Room. Please refer to today's press release on how to access the replay of this call. Remember, one question during the Q&A session, so make it a good one. And with that, I'd like to turn the call over to our Founder and CEO, Andy Florance. Andy? Andrew Florance: Thank you, Rich. Thank you for joining us today. I want to start with 3 things. First, this was an exceptional quarter. We delivered our 60th consecutive quarter of double-digit revenue growth. Our adjusted EBITDA doubled, and we're on track for the highest full year adjusted EBITDA in CoStar Group's history. Second, the Homes.com investment is delivering exactly what we said it would. Member agents are generating extraordinary returns on their subscriptions. Consumer engagement on Homes AI is multiples of conventional residential search, and Homes.com is the fastest-growing residential portal in the United States. I'll walk you through the evidence later in the call. Third, the activist distraction is behind us. With the noise gone, we have more focused energy than ever to spend on what matters, growing EBITDA. Let me take you through the numbers. First-quarter 2026 revenue grew 23% year-over-year. Q1 '26 adjusted EBITDA of $132 million doubled year-over-year and came in 26% above the midpoint of our guidance. After a record 2025 for annualized net new bookings, we started 2026 stronger still. Q1 net bookings of $67 million were up 20% year-over-year. We expect productivity to build over the year, particularly from the sales reps we hired throughout 2025. Our commercial business generated $472 million of revenue in Q1, up 15% year-over-year with adjusted EBITDA of $161 million. CoStar revenue was $330 million -- $331 million, let's get that extra million in there in Q1, with annualized net new bookings from our core CoStar product up 16% year-over-year. CoStar users grew 22% year-over-year to 317,000. Sales to brokers and tenants were especially strong with broker sales up 29% and tenant sales up 27% year-over-year. CoStar NPS was 69, and our quarterly renewal rate was 92%. CoStar rent benchmark launches this summer. Drawing on our proprietary lease database and public records, it will be the industry's only net effective rent benchmark product, giving landlords, occupiers, investors and brokers visibility into starting rents, effective rents, TI allowances, free rents and escalations across U.S. markets. CoStar new homes is in development with Phase 1 planned for Q2. The module tracks new residential construction from planning through delivery and serves homebuilders, mortgage bankers, retailers and retail center owners. It integrates builder feeds, drone imagery and other data sources to deliver insight into housing supply, demand and market trends. CoStar debt solutions, formerly CoStar lender, had a strong quarter with net new bookings up 26% year-over-year as the business crossed $100 million in revenue. Debt solutions now serves over 500 financial institutions across the full lender spectrum, including banks, private lenders, debt funds and regulators. Debt Solutions is on track to launch CRE debt benchmarking in the second half of '26 with CRE loan origination workflow following in Q1 of '27. The final product will be a full workflow solution to originate and underwrite a loan. Our first release will focus on seamless delivery of property details, peer properties and market information. We launched a client advisory committee with over a dozen institutions to shape the loan origination road map, deepen understanding of how AI is reshaping their workflows, and strengthen product-market fit. Across the platform, debt solutions is actively building these AI-enhanced workflows. CoStar U.K.'s growth accelerated in Q1 with revenue up 25% and net new bookings up 44% year-over-year. This growth was supported by the release of new land registry lease modules that gave clients authoritative effective rent data sourced from government records and the recollapse of one of our primary competitors there. CoStar Canada revenue grew 22% year-over-year. We released multifamily analytics coverage for Montreal in Q1. CoStar France launches in Q2. We will cross-sell into the 32,000 French CRE professionals who already subscribe to news and information from our Business Immo acquisition, accelerating adoption as we build the only pan-European CRE data and analytics platform. In CoStar Australia, we are rapidly building proprietary property data with our local research team now approaching 100 people. We expect to launch CoStar and LoopNet in Australia in Q3 and Q4. Real Estate Manager added AI lease abstraction capabilities to the Visual Lease platform this quarter, and we will extend these capabilities to CoStar Real Estate Manager later this year. Customers are eager to bring this best-in-class capability into the lease management and accounting workflows to save them a lot of time and hassle. We're also deploying multiple AI agents internally to accelerate customer onboarding, support enablement and the automation of repeatable professional services work. In Q1, STR launched profitability benchmarking, supporting more than 150 detailed data points across a hotel's P&L. Customer interest was immediate with 750 hotel subscribers submitting data to unlock the functionality. Building participation at scale is critical to future monetization, and this early engagement reinforces the long-term value of the investment. LoopNet generated $85 million of revenue in Q1, up 16% year-over-year. Paid listings rose 10% year-over-year in the U.S., 35% in Canada and 63% in the U.K. Last month, after more than a year of successful testing, we rolled out asset-based pricing across all U.S. markets. LoopNet advertising is now priced to match the size of the asset and the value LoopNet delivers to listers. Early results have been really outstanding. At the high end, the volume of silver listings sold at $300 or above per month grew 650% from February to March. At the low end, listings sold below $40 grew over 1,100%, opening up an entirely new category of inventory and bringing in smaller advertisers who could not justify the higher price points for one size fits all that we had before. We expect this to drive more listings, more traffic and more revenue. LoopNet's European revenue grew 17% year-over-year following last year's launch in France and Spain, we're seeing the network effects of being the first and only global commercial real estate marketplace. Average monthly unique visitors on LoopNet Europe more than doubled to over 900,000, up 102% year-over-year. Crucially, these users are not just searching their home countries, they're searching globally. We will extend this network effect as LoopNet launches in Australia, Germany and other markets. Our Australia CRE marketing platform, commercialrealestate.com.au grew 10% year-over-year on a pro forma basis, driven by higher depth revenue, improving depth penetration and higher average revenue per listing. That commercial unique visitor audience was up 129% year-over-year in Q1. Subscription revenue for Matterport was up 19% year-over-year. Enterprise momentum built through the quarter. New enterprise accounts in March were up 31% year-over-year, and direct sales were up 16%, supported by a healthy and expanding pipeline that continues to build into Q2. Matterport has become a critical point of differentiation across CoStar Group. It drives engagement, lift conversion, and generates valuable proprietary data. Integration is proceeding exceptionally well across Apartments.com, Homes.com, LoopNet, CoStar, Domain. Matterport is already a key component of Homes AI and will unlock huge future AI innovation all across CoStar Group. Matterport Exteriors with X-ray now in alpha lets users virtually remove a roof or floor of a virtual building to see the building's interior in the context of the yard, the neighborhood. That's a real estate marketer's dream. We've also released a number of new innovations with strong use cases in architectural engineering construction, facilities management and manufacturing. BizBuySell revenue was $8.8 million in Q1 with broker subscriptions reporting 2,300 -- with broker subscribers, I'm sorry, reporting 2,345 completed sales transactions of businesses representing $2 billion enterprise value, 59% of which involved commercial real estate. We're rapidly turning BizBuySell into a true end-to-end transaction platform with integrated financing, 3D tours and document sharing, now driving over 24,000 buyer profiles and 15% broker adoption. Residential revenue was $421 million in Q1, up 32% year-over-year. Adjusted EBITDA improved by $56 million, and we expect the Residential segment to reach profitability in Q2 2026. Apartments.com generated $312 million of revenue in Q1, up 10% year-over-year, the 15th consecutive quarter of double-digit revenue growth. Apartments.com delivered 220 million highly engaged renter visits, 370,000 tours and 300,000 applications submitted directly on our platform to apartment owners alongside 40 million Matterport tours. Our monthly renewal rate held at 99%. Apartments.com brand media impressions nearly tripled in Q1, up 189% year-over-year to 1.7 billion. The longer we invest in our brand on behalf of our clients, the more efficiently we deploy that investment. A clear example, our first-ever co-branded Super Bowl commercial with Homes.com aired on February 8, reaching 126 million viewers, the highest peak viewership in U.S. media history. Combined with our industry-leading SEO and SEM, these efforts continue to produce the most qualified audience of apartment seekers on the Internet. According to Google, overall rental search demand remains soft. Even so, comScore data shows Apartments.com network unique visitors up 3% year-over-year in March. Zillow unique visitors were down 5% year-over-year and Zillow's expanded rental network, Zillow plus Realtor plus Redfin, was down 3%. Zillow has now seen unique visitors decline year-over-year for 15 consecutive quarters. Let's make that 15 consecutive months, not 15 consecutive quarters. I was just sort of picking up the 15 consecutive quarters of double-digit growth we had. Our sales force conducted 185,000 quality meetings in Q1 for Apartments.com and achieved an outstanding NPS of 89. In Q1, Apartments.com introduced Smart Search, our natural language search feature and the first AI-powered voice search in multifamily. Smart Search lets renters search the way they speak, packing every detail and even multiple locations into a single query. Results are faster, more detailed and dramatically more efficient. The early metrics are really strong. Renters who use Smart Search spend 94% more time on site and view 63% more listings. Ahead of the June Apartmentalize trade show that NAA hosts, the big show of the year, we will launch Apartments AI, our pioneering conversational search experience built on the same technology powering Homes AI. Apartments AI will more deeply engage renters and continuing delivering best-in-class advertiser ROI through the industry's highest quality leads. We will also highlight Homes.com's expanded rental capabilities and the value-add to Apartments.com at that same Apartmentalize. Apartments.com leads the industry on price transparency. Any property can now display complete all-in monthly price with all the extras reoccurring one-time required fees with a prominent badge alerting renters. Six states already require this sort of transparency and the FTC just concluded its public comment period on similar rules. Matterport continues to be a true differentiator for consumers on Apartments.com. We now have approximately 250,000 3D tours in the platform, including over 1,500 Matterport 3D Exteriors that give prospective renters an immersive 360-degree view of the entire community. In Q1, renters spent 46% more time on listings featuring a Matterport and those listings generated 56x more tour requests per listing than listings without one. It's an amazing stat. Homes.com revenue grew 58% year-over-year to $26 million in Q1. We are on pace to hit our stated 2026 net investment target of $550 million in homes. And what that investment is buying is becoming clear in the data. Membership growth and monetization are both accelerating. We added over 4,300 members in Q1, up 205% from Q1 of '25. We now have 35,175-agent subscribers with 76% of them on annual contracts. Net new bookings were $11 million in Q1. March annual revenue run rate reached $106 million, up 92% year-over-year. Our trailing 12-month average ARPU is $287. We are now seeing clear quantifiable evidence that Homes.com business model is working and that our subscribers gaining an extraordinary return on their investment. We analyzed the first 11,400 Homes.com members and compare the commission earnings in the 12 months before joining Homes.com to the earnings in the 12 months after they became a Homes.com subscriber. The findings are striking. On average, a Homes.com subscriber earned $36,400 more in commissions in their first year as a member. Against an average annual subscription cost of just $3,400, that's an 11x return on their investment. In the same time period, our members saw commissions grow 16%, while the average non-member saw their commissions decline. The ROI is even stronger for the agents who need it most. Agents who have had earned $50,000 or less in the prior year earned $58,000 more after joining. Pre-membership earnings were $26,000 on average, and that jumped to $82,000 on average. There are hundreds of thousands of agents in this earnings cohort. Agents in the $50,000 to $100,000 bracket earned $41,000 in commissions after joining. Agents in the $100,000 to $150,000 bracket earned $38,000 more once they became Homes members. These numbers almost certainly understate the value. The benefit extends beyond our 12-month analysis window, and we exclude the significant rental marketing value members generate through Homes.com and our syndication to Apartments.com. Based on these results, we will raise subscription fees for new customers on May 1 and evaluate a measured potential renewal increases. For CoStar Group as a whole, this is the fastest organic revenue build we've ever achieved for a new product, and we hit these revenue levels faster than our U.S. competitors did at their start. Our NPS is 41, an excellent score after just 2 years and still improving. Homes.com subscribers paid to promote 260,000 active listings in Q1, representing 8.7% of the nearly 3 million homes for sale in the U.S. In 2025, the Homes.com network grew nearly 2.1 billion views and 108 million average monthly unique visitors. We achieved a healthy balance across SEM, SEO and direct traffic, allowing us to optimize SEM for quality leads, not just quantity. The result is better traffic and more engaged visitors. Organic traffic to Homes.com was up more than 100% year-over-year in every month of the quarter and March specifically up 119% year-over-year. Homes.com was featured across major cultural moments in 2026, including the Oscars, the Olympics, the Super Bowl, March Madness and many other, driving over 3 billion impressions in Q1. Our new March ad showcased Homes AI in action, and I have received more positive feedback on this campaign than any of our prior Homes.com campaigns. In March, average annual session duration hit an all-time high, up 26% year-over-year and bounce rate hit an all-time low, down 29%. Homes AI is the engine behind this engagement search. AI users run nearly 4x as many searches, favorite 7x as many properties and submit 7x as many leads. In April, time on site reached 18 minutes for AI users versus 4 minutes, 32 seconds for non-AI users. Put plainly, when consumers experience Homes AI, they spend roughly 4x longer than they do on conventional residential search. This is precisely the dynamic that precedes meaningful consumer share shift and is exactly the proof point we expected our AI investment to produce. In March '26, we significantly expanded our relationship with eXp Realty, the largest residential firm by transaction size in '25. The new partnership lets eXp's 3000 agents prominently display premarket coming soon listings on Homes.com. You may recall we partnered earlier with eXp Commercial in December '24 when they became a major subscriber to CoStar's information and analytics. We've been integrating Apartments.com with Homes.com since early 2025. Last year, Homes.com rentals drove over 10% of Apartments.com's traffic, making Homes.com, Apartments.com's largest syndication partners. This combination produced nearly 650,000 paid single-family home rental listings in '25. Paid single-family rental listings in Q1 2026 grew 33% year-over-year. According to comScore, Homes.com is now the fastest-growing rental site in the U.S. For Google Analytics, Homes.com rentals visits grew by 13 million versus Q1 of 2025, making Homes.com our most powerful platform for reaching the single-family rental market. Over 214,000 independent owners now use our rental tools, and we expect that number to raise materially as we extend the full Apartments.com feature set into Homes.com. We're continuing to improve the experience for renters who search on Homes.com. By the end of 2026, every tool available on Apartments.com will be available on Homes.com, letting independent owners rent their house, condo or townhouse across both platforms. At the end of August 2025, we began selling marketing on Homes.com to new homebuilders. In the 8 months -- first 8 months, we generated $3.3 million in annualized net new bookings with the run rate accelerating each quarter. Q1 alone delivered $1.5 million. We have signed data feed agreements with 663 homebuilders looking to reach the Homes.com audience. These feeds now cover roughly 75% of all production new home activity in the U.S. These feeds provide a better consumer experience to home searchers on Homes.com and are a foundational building block to power a valuable new homes information product within CoStar. So let me pause to speak briefly to the elephant in the room. The activist campaign over the last year did weigh heavily on Homes.com sales and potential partnerships. Real estate leaders were reading a steady drumbeat of negative coverage. Nonetheless, we made durable progress through it. With that distraction now behind us, we can now apply even more focused energy to accelerating Homes.com revenue and the revenue in every other business in the portfolio. Land.com revenue grew 8% year-over-year and net new bookings hit a record, up 126% year-over-year, boosted by replacing a regionally targeted site-specific ad with a county-targeted network ad format. Inventory tripled and ads sold quadrupled. Domain Australia delivered a strong Q1 with sustained elevated audience volume, strong uptake of premium products and disciplined cost control. Recent investments in product technology research and photography are now producing tangible outcomes and Q1 revenue was $68 million. The Australian market is highly cyclical and Q1 is always seasonally soft, which is reflected in overall sequential down revenue. Year-over-year, however, core Domain Residential revenue did grow 11%. We delivered EBITDA growth despite all the significant investments we're making. In addition to expected normal seasonality, we did also discontinue revenue from SPA ads on the Domain portals because it was not materially profitable and significantly distracted from the value of home sellers -- the value home sellers receive when marketing on those sites. CoStar Group's technology capabilities are already benefiting Australian customers. Domain site improvements are dramatically increasing traffic. Monthly unique audience averaged 8 million across the quarter with March hitting 8.4 million, the second highest month on record. Total users reached a high of 21.9 million, up 47% year-over-year and listings grew 28%. Domain launched Matterport in Australia this month, bundling immersive technology into premium listing packages and giving agents and vendors meaningful savings on traditional photography. The launch generated significant positive media coverage. Q1 was another strong quarter for OnTheMarket. We closed it with our 23rd consecutive month of positive net new bookings. Total time on site was up 16% and page views up 24% year-over-year, driving a 23% year-over-year increase in leads. OnTheMarket now has 17,500 estate agents and new home developer customers on site, the highest in its history. OnTheMarket has eclipsed Zoopla as the U.K.'s #2 portal by inventory and now has more new home listings than Rightmove. The growth was accelerated by signing the Connells Group, the U.K.'s largest estate agent with over 80 brands and more than 1,200 branch locations. Our OnTheMarket sales team is delivering real value for customers. NPS came in at a solid 46% for the period. In Q2, we'll continue building AI search functionality as we progress towards integrating OnTheMarket into the Homes.com software environment in 2027. In closing, I want to acknowledge our outstanding management team. The breadth and depth of expertise across this company is what makes everything you've heard today possible. There's a lot of it. I am very grateful for what they bring to this company. I also want to thank our Board of Directors, our leadership expertise and counsel for outstanding through what was at times a noisy year. We are well positioned to deliver against every objective we've set and to unlock large digital real estate opportunities ahead of us. To our shareholders, thank you for your continued support. The data this quarter across CRE across apartments, especially across Homes.com confirms one thing. The strategy is working. I've never been more confident in our plan to deliver double-digit revenue growth and significant earnings expansion through 2030 and beyond. At this point, I'll turn the call over to our CFO, Chris. Christian Lown: Thanks, Andy. In the first quarter of 2026, we delivered $132 million of adjusted EBITDA, doubling the adjusted EBITDA from the first quarter of 2025 and $17 million above the high end of our guidance range. The outperformance in adjusted EBITDA was primarily due to lower personnel costs from cost-saving efforts as we continue to find efficiencies from AI, personnel and other expense initiatives. 1Q '26 revenue was $897 million, which was 23% higher year-over-year and toward the high end of our guidance range. Organic revenue growth was 10% for the quarter. Commercial revenue in the first quarter was $472 million, an increase of 15% year-over-year and a 7% organic growth rate. Our commercial brands delivered revenue in line with the guidance we provided on our February earnings call. CoStar revenue grew 9% to $331 million, driven by strong double-digit international growth. The year-over-year increase was driven by both volume and price. LoopNet revenue was $85 million in the first quarter, a 16% increase year-over-year or an 11% organic growth rate. The year-over-year growth was attributable to an increase in paid listings from our continued focus on selling silver ads. Other commercial revenue was $56 million in the first quarter of 2026, up 81% compared to the first quarter of 2025. The year-over-year increase is primarily attributable to the inorganic contribution from Matterport, which has performed well since the acquisition with subscription revenue growth of 19%. Residential revenue in 1Q 2026 was $425 million, a 32% increase over last year's first quarter and at the high end of our guidance range. Organic growth for Residential in the first quarter was 13%, with double-digit growth contributions from Apartments, Homes and OnTheMarket. Increased volumes were the catalyst for organic growth in the first quarter. Commercial adjusted EBITDA was $161 million in the first quarter of 2026, a 34% margin and above the high end of our guidance range. Similarly, Residential adjusted EBITDA was also better than our guidance range, coming in at negative $29 million. CoStar posted positive net income and adjusted EPS of $0.23 per share for the first quarter of 2026, both considerably higher than our guidance. Our sales headcount at the end of March was 2,090. Homes.com reps make up our largest sales team, consisting of 570 individuals. Apartments.com is the next largest sales force with 520 reps with CoStar at 475 reps and 225 at the LoopNet team. For Homes.com reps, we are focused on driving productivity and efficiency in 2026. With our other brands, we will be adding reps throughout the remainder of the year, given the significant opportunity that still exists across all our brands, and we expect productivity to ramp as our new sales reps mature over the coming years. Our contract renewal rate has held consistently at 89% for the past 7 quarters. Customers who have been subscribers for at least 5 years have an impressive 95% renewal rate. Subscription revenue on annual contracts was 73% of total revenue for the first quarter of 2026 compared to 71% during the fourth quarter of 2025. As a reminder, Domain does not operate using annual subscriptions. Net new bookings for the first quarter were $67 million, a 20% increase from the first quarter of 2025. In 2025, we completed our first share repurchase program, buying back $500 million worth of stock or 7.1 million shares. We subsequently announced a $1.5 billion buyback program in January of this year. Throughout the first quarter, we repurchased 11.4 million shares for $505 million, the majority of which was purchased through an accelerated share repurchase plan. We expect to repurchase an additional $195 million worth of shares during the remaining 9 months of the year, bringing our total cash outlay for share buybacks in 2026 to $700 million. For the second quarter of 2026, we expect revenue to range from $922 million to $932 million. This range represents an 18% to 19% increase over the second quarter of 2025 or a 10% organic growth rate at the midpoint. Commercial revenue is expected to grow between 7% and 9% to a range of $479 million to $484 million. We expect Residential revenue of $443 million to $448 million, an increase of 32% to 34% year-over-year or 12% to 14% organically. Adjusted EBITDA is expected to range between $160 million and $180 million, representing a margin of 17% to 19% or roughly 700 basis points higher than Q2 2025. Commercial adjusted EBITDA is expected to be between $160 million and $170 million, a margin of 34% to 35%. Residential adjusted EBITDA is anticipated to be positive in Q2 2026, ranging between breakeven and $10 million. Our adjusted EPS guidance for Q2 2026 calls for a range of $0.27 to $0.30 per share on 409 million weighted average shares outstanding. For full year 2026, we are reaffirming our previous revenue guidance range of $3.78 billion to $3.82 billion, a 16% to 18% annual growth rate. Commercial revenue remains at a range of $1.955 billion to $1.975 billion, and the Residential revenue range remains at $1.825 billion to $1.845 billion. Based on the strength of the first quarter and the expectation of continued personnel expense efficiencies, we now expect adjusted EBITDA to range from $780 million to $820 million. This is an increase of $30 million at its midpoint and a full percentage point increase in margin. Our adjusted EPS range is also increasing for the full year. The accelerated share repurchase program in the first quarter retired more shares than we had forecast and the previously mentioned expense reduction initiatives are primarily driving our guidance increase to adjusted EPS. Our new adjusted EPS guidance range is $1.32 to $1.39, an increase of $0.09 at the midpoint. I will now turn the call back over to the operator for questions. Operator: [Operator Instructions] And our first question comes from Ryan Tomasello with KBW. Ryan Tomasello: Two-part question on bookings. First, was the $67 million of net new in line with generally what you were expecting for the quarter? And then second, there seems to be some variation in how we find investors are translating bookings into revenue growth expectations, given our bookings don't underpin 100% of the company's revenue base. So Chris, I was hoping you could walk us through how you think about the appropriate math there around the percentage of bookings-driven revenue and how that translates to the level of bookings needed to achieve your low to mid-teens revenue growth targets embedded in your financial framework. Christian Lown: Yes. Thanks, Ryan. So -- sorry. Thanks, Ryan. So a couple of comments there. First, as you heard from our comments, we reaffirmed our guidance range for revenue and increased our EBITDA guidance, so broadly in line with what we're looking for from a net new perspective and from a revenue development perspective. And your second question is a detailed question. So let me sort of think about it. Let me try to break it down this way. Today, around 15% of our revenue is non-subscription, then that increased as a result of the Domain and Matterport acquisition last year. We are currently, if you look at our guidance, currently expecting revenue to grow around $550 million at the midpoint of our range and around 40% of this increase is from acquisitions or non-subscription revenue growth. Therefore, the remaining growth is around $330-ish million, which is the revenue driven by net new. So that is what '26 represents. But I think then you're rolling forward to sort of '27 and '28. And I think a couple of building blocks there to think about. If you assume the non-subscription revenue growth is sort of in the low double digits, that results in subscription revenue needing to grow by around $1 billion in total between '27 and '28. I think what's important to note is during that period, we're expecting meaningful significant growth out of Homes.com meaningfully faster than our other brands with our other subscription businesses also growing in the low double-digit range along with the other group, which is consistent with our historic growth. Remember, timing has a big impact here, obviously, when these bookings happen and how that rolls into revenue. So I think those are sort of the building blocks. I also think most importantly is we are committed to delivering on the adjusted EBITDA targets we set out for 2028 and 2030. And this can occur in a number of ways. We can deliver it through our 15% revenue CAGR, which we're very committed to. We can overachieve our revenue targets and invest in additional growth opportunities, which would continue to promote additional longer-term growth. Or finally, we can rationalize costs if revenue growth is less than 15%. Importantly, and as Andy mentioned on his call, we are fully committed to our stated Homes.com net investment number. We're well on track to hit that number this year, and we gave you guidance through 2030, and we will hit those numbers. Our primary focus at CoStar today is to drive revenue, to drive EBITDA growth and margin expansion through 2030 and beyond. But I think that, Ryan, gives you the building blocks to start thinking about your question. Operator: Our next question comes from Pete Christiansen with Citi. Peter Christiansen: Really good script this quarter, guys. A lot to like, and I appreciate the transparency on a number of fronts. That said, I want to dig into bookings again a little bit here, and particularly apartments pricing. You showed some really good rooftop growth last quarter, and we know that you're winning back some share there and some of that share has been lower-priced opportunities. But also thinking about the competitive dynamic, how that's changed and maybe that's shifted the mix shift on tiering of ads there. Just wondering if you could give us a sense of what has been generally the pricing impact and maybe how that might be impacting overall bookings production? Andrew Florance: I would comment on one thing that I think I commented on last quarter. I would comment on one point that I think commented on last quarter. There -- we picked up a lot of rooftops from Rent.com. So as they -- as that whole thing went the way it went, there was an opportunity to do that. That became a primary focus for our sales force to go after those rooftops when they were in transition. And so they put a lot of effort into that. That's a once in a decade opportunity to try to do a share shift. And the nice thing is we weren't buying those from anyone. We were just winning them in the organic market. Now those advertisers had been with ApartmentGuide, Rent.com through a bankruptcy and through a degradation of a business over several different -- several years. So it tend to lean towards lower ARPU rooftops, often lower rental rates, smaller unit counts, that kind of stuff. That drove our -- that has driven for several quarters our rooftop revenue ARPU, whatever, down somewhat. I'm not seeing -- unless Chris has got a different view on it. I'm not seeing a major shift in levels or depth advertising. The thing that really struck me was these folks coming out of Rent.com were lower end -- very important customers. They just happen to have more budget properties. Operator: Our next question comes from George Tong with Goldman Sachs. Keen Fai Tong: Sticking with Apartments.com, the revenue growth moderated sequentially to 10% year-over-year. What would need to change to drive a reacceleration from here? Or do you think this is the right long-term run rate growth for the platform? Andrew Florance: I think the thing that reaccelerates revenue growth is our target continued growth in the sales force to -- we have -- as the revenue gets bigger and bigger, you need to have more salespeople to deal with the revenue opportunity. There's clearly plenty of open opportunity out there. We are still relatively early in penetrating the opportunity. I think Homes.com presents an important strategic opportunity that it can grow more traffic. It's already our biggest syndication partner into Apartments.com. It allows us to strengthen our single-family presence there and draw renters in from multiple angles and multiple perspectives. So I think that -- I think we can continue to improve on the current growth rate. And I think we still remain significantly competitively advantaged. Do you want to add anything to that, Chris? Christian Lown: No, that's great. Operator: Our next question comes from Alexei Gogolev with JPMorgan. Alexei Gogolev: Both you and Chris mentioned the sales productivity ramp. So with the headcount additions across the sales organization, what are you seeing in terms of ramp times or quota attainment, maybe some productivity by cohort? And how does that inform your hiring pace for the rest of the year? Andrew Florance: It would vary by brand. So I think we're seeing CoStar accelerating productivity per rep. And I thought it was interesting to see that the broker sales, tenant sales are up in CoStar. That's generally an indication of improving commercial real estate market conditions and more robust selling opportunities. On Apartments.com, as your revenues have grown and you need to keep growing the sales force to match, they're handling even a 99% monthly renewal rate, they're handling a larger absolute cancellation level. So you need to keep growing that sales force and actually grows productivity as you grow the sales force. On LoopNet, we definitely want to continue to grow that sales force. The asset-based pricing will increase productivity for sure. But you have a relatively large base of revenue compared to the size of the sales force. And then -- and again, ROI across all those sales forces is very solid. I would say with Homes.com, you are still dealing with a very risky sales force. I mean it's unprecedented to have that many salespeople with that little tenure given the fact that we really just launched that group a year or so ago. I am spending myself a bit of time -- more time now that I've got a little more free time on my hands with our sales force and feel like we're making some good headwind in improving sales force productivity -- headway improving sales force productivity. It feels good to be back in there working on sales force productivity, and I see a lot of opportunity to improve sales force productivity. With a group like the Homes.com group, we are going to be continuing to grow our sales force in the field because we're seeing higher productivity in the field salespeople than we do in the centralized sales force. We're also seeing high sales productivity with our new homes advertising salespeople at Homes.com. And then -- but I am also optimistic that we're going to see productivity improvements with our inside sales team with Homes.com. So the growth in that group is really field and new home sales where the numbers are pretty good. And then I am working on bringing up the core inside group, and I think we're having some success there. Christian Lown: Andy, the only thing I'd add is that it's important to realize that we really started on this journey to increase our sales force roughly about this time last year. And so there's been pretty significant increases in sales force across all of our brands and then they all came at different times. For instance, LoopNet recently added a lot of salespeople to get to the number I talked about. And so while we do an incredible job tracking the cohorts. We look at their evolution. We track them on a 6-month, 12-month, 18-month cohort basis. So we see the development that we want to see. But it is important to note that really, we started on this journey basically about a year ago and it accelerated through last year. And we feel good about that productivity and cohort development, but this does take time to get them up to full productivity. Andrew Florance: I believe the number for Apartments.com is at year 5, they're twice as productive as they were at the end of year 1. So that is something where they -- it's a -- it is like a multiyear scale up. And some people enter at a really high level. Some people scale up through a couple of years. Operator: Our next question comes from Stephen Sheldon with William Blair. Stephen Sheldon: Just wanted to follow up on the sales kind of capacity and productivity topic. I guess, high level, what has changed, if anything, in terms of where you'll deploy incremental sales resources over the rest of the year and into next? Are there certain areas of strength where either by segment or geography where you're maybe pushing the pedal more? Are there -- on the flip side, are there any areas where productivity maybe isn't progressing the way you'd expect where it could make sense to cut back and -- or potentially shift into other areas? So I guess from here, where -- what's changed in terms of your plans for incremental sales capacity investments? Andrew Florance: Sure. And I hope I gave you a good brain dump of all the things we're thinking about there. Again, I'm seeing -- and I'll run through a couple of different parts there. I'm seeing really good results with our new homes salespeople. The folks are going out and dealing with major homebuilders and giving them enhanced exposure on Homes.com. Those folks are very productive. We will grow that at a measured pace because you don't want to slam too many people into a segment at once. We are seeing -- we are going to invest in adding 50 more folks or so into our field sales for Homes.com because those field sales folks who can actually have one-on-one meetings, show up at open houses, show up at brokers' offices are more productive than the people in the inside sales work. We are going to do that in batches of 5 cities at a time. So we might hire up 8 people in Washington, Dallas, 3 other markets, stabilize it, have an RD in each market, do the next round. We would likely prioritize our marketing spend SEM investment around those markets where we're building that field sales team up. We've always felt that the field sales team through time would be the most productive for Homes.com. And then I'm actually enjoying working a little bit more with the inside sales team, making sure that they've got the right value propositions, improving their pitch. And we believe that we've got the right number, but we want to tighten the pitch the service and the pricing, frankly, I think the product is currently underpriced. When I look at the kind of benefit these folks are getting when they get the marketing benefit of Homes.com, we're not charging enough. And we need to be bolder about that pricing because we're delivering enormous value. On the Apartments.com group, I would like to see our field sales team continue to grow at a measurable pace. The field sales team with Apartments.com is consistently the most productive. And then with LoopNet.com, I'd like to see that field sales team keep growing at an incremental measured pace because again, their headcount is too close -- is not quite adequate as a ratio relative to their growing revenue base. And I think with Ben focusing on the asset-based pricing effectively now, I think that there's a lot of opportunity there. We are growing the Matterport sales team. That will -- and again, we're doing that in measured batches of probably 20 at a quarter, something like that. So we're not -- we're holding our productivity up. But it is nice to be back in the game and spending more time on sales than on other things. Christian Lown: Yes. And the Matterport comment was a great one because it's such a huge opportunity given the limited sales force we had when we acquired the company. So we've really put in place go-to-market TAM strategies, et cetera, and we're expecting great things out of Matterport sales force over the coming years. Operator: Our next question comes from Jeff Meuler with Baird. Jeffrey Meuler: Can you just help put the sequential trends in net bookings the last few quarters in context? This is the third straight quarter of sequential decline in the net bookings number. And if you started picking up the pace of hiring a year ago, I would think that productivity would be building over the last year. And I get it, Q2 '25 was a good quarter, but this quarter is still quite a bit below what it was in like Q1 of '23 before you launched Homes than when you had a much smaller sales force. So I know you're getting a million questions on sales productivity. I think we're struggling to understand it. Christian Lown: Yes. I'm not sure the angle. I understand, obviously, we started putting out the quarterly total bookings, and we thought it was important for people just to see the trends. Obviously, there's variability. As you said, last year, we had a very, very interesting situation right in the first quarter, it was deemed weak. The second quarter was great. So there's some variability, but I think we feel really good about the opportunity set, the underlying productivity we're seeing out of the sales force and should really start to -- the flywheel should really start in the second half of next year. And so I think we feel really good about the productivity. I think the hiring was a meaningful amount across our brands, and that creates a little bit of lag effect, but I think we feel good about the direction. Andrew Florance: And I think we have the same conversation every first quarter. It's like a groundhog day. So our first quarter tends to be a little lighter. Our second quarter is always tends to be our strongest. So when you talk about 3 quarters down, well, second quarter is our strongest. Remember, as I mentioned, that Apartmentalize. We enter -- that's a huge bookings opportunity for the Residential segment. And we enter that this year with incredibly strong product with Apartments AI, Homes being a major contributor. Our product teams have been pushing aggressively to make sure that we have a bunch of new rental features in Homes.com, and we'll enter that in a strong place. But you're still dealing with, again, you don't have very many folks with more than a year of experience at Homes.com. So it's still a relatively junior sales force. It won't be a junior sales force in 2, 3 quarters. It will start to move into post-rookie status. Operator: Our next question comes from Curtis Nagle with Bank of America. Curtis Nagle: Okay. Great. So just in the press release, you cited some pretty strong numbers in terms of engagement and number of agents coming on from Homes.com right now kind of near term, how is this translating into revenue momentum within the segment? Could you comment on that? Andrew Florance: Sure. So I would say the most important thing when you look at translating into revenue momentum is now that we have about a year or so with this -- and we -- I guess we had 10,000 users in the Q1, Q2 of '25. Now we're up to 35,000. We have a lot more information on how the product is impacting their earnings, and the results are phenomenal. So that gives me comfort that we can actually begin to bring the ARPU up pretty materially and that we'll have growing productivity with that group, and you've got good synergies with Apartments.com and their productivity. So all of that is why we have the confidence that we are building revenue momentum. Curtis Nagle: Okay. Not to belabor a point, but it's obviously top of mind. Would you be willing to provide bookings guidance for 2Q just at a minimum, so we don't continue to see such a mismatch between external expectations and investor expectations? Christian Lown: So bookings is a number we've never guided to. There's only, I think, 2 or 3 of you actually put out a bookings number. I think if you look at it back historically, you see variability in quarters. Last year, Q1 2025 was 18% of bookings for the full year. So you look at these different elements, but we provided booking numbers for Homes.com because we want to increase transparency. We want people to understand the investment, what's going on. But getting into guidance around bookings is not something we're going to do. Andrew Florance: And again, remember, bookings are up 20% quarter-over-quarter. Christian Lown: Year-over-year. Andrew Florance: Year-over-year. Operator: Our next question comes from Surinder Thind with Jefferies. Surinder Thind: Andy, can you maybe just talk about the decision or the pricing strategy in Homes.com at this point and the idea of raising pricing for new members on May 1. Just why not maybe wait a year? Obviously, the metrics are very supportive of that pricing action, but just maybe to build the user base further or help us understand the timing there. Andrew Florance: Well, I think we can do both. I think we can grow the user base and capture more of the value. So particularly in the folks who are earning under $250,000 a year, and agents earning under $250,000 a year, there are many, many of those agents. I'm looking at the close rates for the folks who are well trained, who have the upper half of Homes.com salespeople and the close rates are extremely high. It feels like they're north of 50%. And once you get to that higher close rate, you start to feel that you need to bring the price up. I just -- I think that there is room to recognize more value and at the same time, continue to keep the same growth and possibly accelerate the growth in the number of members. There are a couple of places in looking at the different cohorts of agents and profile of agents. There are a couple of areas limited that will probably bring the pricing down a touch. But in the biggest bulk of cohorts of agents, we're leaving too much on the table. We're providing a lot of value. And I think we can push price and keep headcount growing -- and keep member count growing. And we'll play with it in each of the cohorts to optimize it, but I feel pretty good about that right now. Operator: Our next question comes from Brett Huff with Stephens. Brett Huff: Thanks for the ROI stats on Homes.com. That's super helpful and something we've been focused on. My question is on Matterport. We've been feeling that, that's a really big underlying structural kind of piece of the business that's underappreciated. Can you talk a little bit about -- you gave us some great stats on lingering on the site and things like that. Can you -- and so it's clearly just a great enhancer to all of the products that you have. But can you talk balancing that and how you price it and distribute it just to improve the product generally? And then also talk a little bit about Matterport as a function or a module of data that's going to help you differentiate and remain sort of on the edge of proprietary data? Because I kind of heard both of those themes, and I'm wondering if there's a pricing -- given trying to maybe do both of those, how do you think about pricing and distribution of that? Andrew Florance: Okay. So in pricing and distribution, I mean there are a lot of elements there. So in pricing, first of all, if I go from the last question backwards, part of my thinking around bringing the price up a bit in the Homes.com is a core value proposition there is the Matterport's and the exterior 3Ds we build and then the floor plans we build. That delivers a lot of value. I believe there's -- and you've heard the conversion stats when people have a Matterport, they're getting 30x the views, they're getting 54 -- Apartments getting 54x the tours. So we -- there's a part of the Matterport pricing that's actually embedded in a monthly subscription fee or a monthly advertising fee for either Apartments or for Land or for LoopNet or for Homes.com. So you can recognize a little bit of pricing value there with Matterport. With Domain, it's a little bit different. There, we are using Matterport to get people to upgrade to higher depth level advertising. And so you're getting price appreciation, but you're actually giving them value. So effectively, you're selling a Matterport when you do that, and there's a lot of that going on, and we're getting a very favorable response to that in Australia. A big change with Matterport is when we acquired Matterport, they were very focused on the mass subscription of low-end accounts using the iPhone as the capture device. We actually feel that the professional user of Matterport, the real estate agent, the leasing company, the architectural engineering construction company is the biggest part of the market, and they want speed of capture, quality of capture. So we are refocusing folks towards a more aggressive price point on the Matterport Pro3 camera and then a higher SaaS subscription price for regular users. So we're pulling the hardware down and focusing more on the SaaS subscription side. And that's sort of a razor and razor blade strategy. We are working aggressively on the Matterport Pro4 camera. I know there's an engineering team meeting right now in Mountain View on reviewing the final specs on that. So there, it's -- you have more SaaS revenue, slightly higher price points, lower hardware revenue. And then the pricing is reflected in across the board in the subscription rates or advertising rates of LoopNet, Apartments, Homes and Land. In terms of competitive differentiation, very excited about that. I mean I described the X-ray function. It doesn't do it justice. The ability to do what our team is -- our brilliant team is doing, which is produce these Gaussian splats that make an exterior model that allows you to see the neighborhood, fly around the house. And then as you approach the house, the walls disappear and you move into the house or as you approach that, as you fly a synthetic drone, a virtual drone towards the house, the ability to take off the roof and look into the second floor, pull it up and look into the first floor. The ability to do the side-by-side comparisons in AEC, we have a very robust product road map right now that will continue to differentiate us. And we don't feel that there's anyone really keeping up with our innovation pace or development pace. And the earnings call sounded a little bit like a Matterport earnings call because it sort of came up in every other thing I said. But to the credit of the development team and the leadership team at Matterport, they're leaning into facilitating success in all of our products with that differentiating technology. It's good stuff. Operator: Thank you. I would now like to turn the call back over to Andy Florance for any closing remarks. Andrew Florance: Oh my gosh. Well, I'd like to thank everyone for joining us on this first quarter earnings call. I look forward to reporting our progress in the second quarter earnings call. Thank you very much for joining us. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rush Street Interactive First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, April 28, 2026. I will now turn the call over to Kyle Sauers, president and Chief Financial Officer. Please go ahead. Kyle Sauers: Thank you, operator, and good afternoon. By now, everyone should have access to our first quarter 2026 earnings release. It can be found under the heading Financials Quarterly Results in the Investors section of the RSI website at rushstreetinteractive.com. Some of our comments will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not statements of historical fact and are usually identified by the use of words such as will, expect, should or other similar phrases and are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We assume no responsibility for updating any forward-looking statements. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. We will be discussing adjusted EBITDA, which we define as net income or loss before interest, income taxes, depreciation and amortization, share-based compensation, adjustments for certain onetime or nonrecurring items and other adjustments that are either noncash or not related to our underlying business performance. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is available in our first quarter 2026 earnings release and our investor deck, which is available in the Investors section of the RSI website at rushstreetinteractive.com. For purposes of today's call, unless noted otherwise, when discussing profitability, EBITDA or other income statement measures other than revenue, we're referring to those items on a non-GAAP adjusted EBITDA basis. With me on the call today, we have Richard Schwartz, Chief Executive Officer. We will first provide some opening remarks and then open the call for questions. And with that, I'll turn the call over to Richard. Richard Schwartz: Thank you, Kyle, and good afternoon, everyone. For the first quarter, we generated record revenue of $370 million, up 41% year-over-year, and a record adjusted EBITDA of $60 million, up 81% year-over-year. Our continued momentum demonstrates the strength of our casino-first strategy, the effectiveness of our operational execution and the powerful momentum we're building across our business. We're scaling revenue off a much larger base at very strong growth rates while improving profitability at about double that pace. The casino-first approach continues to be a fundamental differentiator of our business model, a business model focused on online casino as our primary value driver, with sports betting and poker serving as important complementary products. This strategic choice delivers meaningful advantages in player economics. Our casino players engage more consistently, demonstrate higher lifetime values and exhibit superior retention characteristics. These structural advantages compound over time, creating a virtuous cycle that drives both growth in revenue and profitability. Our player base expanded dramatically during the quarter, extremely impressive results from our teams. Monthly active users in North America grew 46% year-over-year to 296,000, while Latin America MAUs increased 54% to 543,000. In our North American online casino markets, specifically, MAU growth reached 62%, eclipsing the 51% growth we just experienced last quarter. We've now seen an accelerating year-over-year player growth in these markets, each of the last 4 quarters demonstrating the powerful underlying strength of our business. We also achieved record first-time depositors this quarter, beating our previous record set in each of the last 2 quarters by a wide margin. The combination of record new player acquisition with improving marketing efficiency creates a powerful dynamic that will drive our business to new heights. We're filling the top of the funnel faster. We're doing it more efficiently than ever, and our retention remains strong. Customer acquisition and retention efficiency continues to be a key pillar of our success. Our brand awareness is increasing, which gives us a meaningful advantage in acquiring players at favorable rates. This isn't about any single initiative. It's the result of systematic improvements across customer acquisition strategy, product and user experience, loyalty programs, data analytics and customer service. This quarter, we estimate we grew market share sequentially by around 90 basis points in the North American online casino markets where we operate. Our established markets continue performing well, and we're seeing the benefits of our relentless focus on player experience and operational excellence. The consistency of these results across both mature and newer jurisdictions validates that our approach is working well. Latin America also delivered exceptional results. In Colombia, despite navigating a complex regulatory environment, we posted our fastest MAU growth in the past 4 quarters. The strategic approach we took throughout 2025, absorbing the tax burden through increased bonusing rather than passing cost to players, has proven to be an effective decision. Our commitment to our players and retaining their trust has positioned us well for 2026. As discussed in our prior earnings call, the Constitutional Court suspended the emergency decree of 19% VAT on GGR in late January. Furthermore, there was another positive development earlier this month, whereby the Constitutional Court determined the 19% VAT to be unconstitutional, and therefore ruled that no tax was to be imposed under that decree. In mid-March, a new emergency decree was implemented that imposed a temporary 16% tax on GGR. This new emergency decree and associated tax decree will also undergo a new and distinct review by the Constitutional Court during the coming months. The result of all this is that the original temporary 19% tax that was determined to be unconstitutional was not applied to us. Therefore, during the first 2.5 months of the first quarter, we had no additional taxes. Moving forward, we have assumed that we will have a new temporary 16% tax from mid-March through the end of the year when considering our raised guidance. Turning to Mexico. This market continues to ramp nicely and to be more meaningful for us, both from a revenue and profitability perspective. Along with increasing brand awareness, we're seeing strong player acquisition, excellent retention metrics and healthy growth and profitability. The competitive environment remains favorable, and we're gaining share by delivering the superior player experience that has made us successful in other markets. We have grown revenue by over 100% in each of the last 4 quarters and remain excited about the long-term opportunity and a substantial size of this growing market. Looking ahead, we are getting closer to launching Alberta. The regulator has set July 13 as the launch date. This represents a significant expansion opportunity for our business. As Kyle will also cover, our increased revenue and EBITDA guidance now includes the impact of the Alberta launch for the back half of the year. We expect to begin investing in marketing and brand building ahead of our launch in Alberta. This will occur in the second quarter, and Kyle will have more details. With each new market launch, we build on and improve what we've learned in prior launches. Here, we're taking a deliberate, measured approach to market entry, focusing on building a sustainable business with strong unit economics. This disciplined approach has served us well in other markets, and we're confident it will drive long-term value in Alberta as well. As we look to the remainder of 2026 and beyond, I'm incredibly excited about the opportunities ahead of us. We're operating from a position of strength with momentum across our business, a clear and focused strategic road map and the operational capabilities to continue executing at a high level. We're continuing to invest in product innovation, technology enhancements and geographic expansion while maintaining the financial discipline that has long characterized our approach. We believe that this balanced strategy positions us to continue to deliver sustainable growth and increasing profitability over the long term. Our first quarter performance and the momentum we're seeing across the business gives us increased confidence. We remain focused on delivering exceptional player experiences while creating long-term value for our shareholders. With that, I'll turn it back to Kyle to discuss the financial details. Kyle Sauers: Thanks, Richard. Let me walk through the details of our exceptional first quarter performance. Record first quarter revenue of $370.4 million represents 41% year-over-year growth, a significant acceleration from the growth rates we delivered in 2025 and our fastest growth rate in over 4 years. This performance was driven by strong execution across all aspects of our business, with growth accelerating throughout the quarter. Adjusted EBITDA reached a record $60.2 million, representing 81% year-over-year growth and over 16% margins. This profitability expansion demonstrates the operating leverage in our business model as we continue to scale. Gross margins came in at 35.7%, an 80 basis point improvement year-over-year. Our marketing efficiency continues to improve. Marketing expenses in the quarter were $46.2 million, an increase of 19% year-over-year and representing 12.5% of total revenue, which compares to 14.8% of revenue in the year ago quarter. Our disciplined marketing spend, combined with record player acquisition levels, demonstrates the competitive advantage we're building within player acquisition channels and our cost to acquire players, which, again, are the lowest they've been since we went public over 5 years ago. G&A for the first quarter was $25.8 million or 7.0% of revenue compared to 7.4% in the prior year period. As forecasted, we are increasing our investments in our people and technology in 2026. But nonetheless, we achieved leverage over the G&A line during the quarter. The foundation of our financial success is our exceptional user acquisition and retention performance. As Richard mentioned, our user growth this quarter was really impressive, hitting another new record for first-time depositors. In North America, our MAUs of 296,000 demonstrated growth of 46% year-over-year, and online casino markets in North America grew a notable 62% year-over-year. And in Latin America, MAUs of 543,000 grew 54% year-over-year, demonstrating the brand awareness and customer loyalty we're building in these markets. North America ARPMAU was $317 in the first quarter, down 14% year-over-year. Given the record volumes of new players we're adding to the platform, the trend of declining ARPMAU is both healthy and anticipated. New players initially generate lower ARPMAU than our established customer base, but they represent new high-quality player cohorts that we're acquiring at very attractive levels. The key is that we're acquiring these players efficiently and retaining them effectively, which positions us for strong long-term value creation. In Latin America, our ARPMAU for the first quarter was $54, up 51% year-over-year, largely driven by faster growth in Mexico, which has higher player values than our other Latin American markets and the removal of the VAT bonusing in Colombia which we incurred in 2025. This validates the strategic approach we took throughout 2025 and demonstrates the underlying strength of our Latin American business. Breaking down our performance by product and geography, we saw continued strength across all segments. In the first quarter, online casino revenue grew 39% and online sports betting revenue grew 47%. Regionally, revenue in North America grew 26% in the first quarter and revenue in Latin America grew 134%. Our balance sheet remains strong with $331 million in cash on hand as of March 31, and we still have 0 debt on our books. During the first quarter, we did not repurchase any shares under our $50 million share repurchase program. Based on the strength of our first quarter performance and our improved visibility into the remainder of the year, we are raising our full year 2026 guidance. We now expect revenue to be in the range of $1.49 billion to $1.54 billion, representing year-over-year growth of 31% to 36%. At the midpoint of $1.515 billion, this represents a $115 million increase from our initial 2026 guidance and 34% year-over-year growth. This is a meaningful increase from the guidance we offered in mid-February. So where is this coming from? In order of impact, as we mentioned earlier, we grew iCasino market share substantially in North American markets during the first quarter. This outsized growth had a positive impact on Q1, but also sets us up well for the remainder of the year. And our significant growth in North American iCasino users supports that confidence. Next, while we had a lot of confidence in our growth prospects for Latin America heading into the year, that entire market continues to outperform both in player growth and top line revenue. In the first quarter, we also benefited from better sports outcomes in both North America and Latin America. Lastly, we have included in our guidance the Alberta launch expected in July, which will add some modest revenue in the back half of the year. Turning to profitability guidance. We now expect adjusted EBITDA to be in the range of $230 million to $250 million, representing year-over-year growth of 50% to 63%. At the midpoint of $240 million, this represents a $20 million increase from our initial 2026 guidance and 56% year-over-year growth. This is a 9% increase in our EBITDA guide and reflects the benefits of all the reasons I mentioned for raising revenue guidance, plus the benefits of the new temporary tax in Colombia being a bit lower than the prior 19% temporary tax that was overturned, and partly offset by significant investments planned for Alberta and modestly higher marketing spend and G&A costs than expected earlier in the year. Even with these plans for increased spend, at the midpoint of our guidance, we do expect to get meaningful leverage over marketing spend and modest leverage over G&A as well. It's worth noting that our EBITDA guidance raise would have been closer to $30 million without the effect of our Alberta investment now being included in guidance. This will be a 14% increase over our previous guidance. Our first quarter results demonstrate the strength of our business model and our ability to execute. We're growing rapidly. We're growing profitably, and we're doing so in a way that positions us well for sustained success. The continued momentum we're seeing across player growth, marketing efficiency and profitability gives us confidence in our ability to deliver on our raised guidance and create long-term shareholder value. So with that, operator, we're ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Dan Politzer with JPMorgan. Dan, your line is now open. Please go ahead. Daniel Politzer: I wanted to touch first on the MAU and monthly active users in North America. I mean, it's been a pretty impressive acceleration over the last 5 quarters there, the 46% growth this quarter. Can you just talk about who these customers are that you're acquiring? Are they from different platforms? Is there a different demographic? Are they concentrated in 1 state versus another. It's just -- it's obviously pretty impressive growth. So just better understanding, I think, would be helpful. Kyle Sauers: Yes. Thanks, Dan. I'll take that one. We are very pleased with the progress there. And I'll point out that the growth in markets that have iCasino in North America are actually growing faster than the total numbers that you mentioned. So we've been really pleased with that. We're filling the top of the funnel faster than we ever have, 3 straight quarters of record first-time depositors. The players we're acquiring, look -- I mean, if you look at our average revenue per monthly active user, while that's come down a little bit in recent quarters, that's because we're diluting it so much with these new players. New players that may not be around for a full month, new players that are getting bonusing when they start out and take longer to build value over time. So I'd say the players look a lot like the ones that we've acquired before. Surely, there's some additional kind of casual player base that we're adding, but we're seeing only modest lowering of the expected long-term value in all these new players that we're bringing on. And it's coming from a bunch of different channels. Our marketing team just continues to optimize where we spend, what the messaging looks like and continuing to track a lot of players. I think one of the benefits for us, even though we're growing much faster than the industry is, there's a lot of players who still don't know who that BetRivers is in North America. So there's a lot of opportunity for us to go after players who maybe haven't played iCasino before, but also played with some of our competitors and give them a shot to play on one of the best platforms, if not the best platform that's out there. Daniel Politzer: Got it. That's helpful. And then just turning to Alberta, I think that you mentioned, I think it was implied, about a $10 million launch cost or EBITDA impact in the year. Can you talk about, I guess, what you're underwriting there in terms of market share? Is it predominantly going to be iGaming? And then just maybe talk about expectations for the competitive environment. Kyle Sauers: Sure. So we expect it to be competitive, just like Ontario has been competitive. It also has incumbent great market operators that all the new entrants like us will be dealing with. I don't think we want to put a market share bogey out there just yet. Ontario, which has been a great market for us, We've grown really nicely. We're taking share there, but we're still relatively small in the scope of the entire market. that's probably a good target for us early on. But I'll also say we've had a lot of lessons operating in Ontario, and we think we'll do really well launching in Alberta. Operator: Our next question comes from the line of Bernie McTernan with Needham. Bernard McTernan: Great. Maybe just to start, just piggybacking on the question on the strong MAU growth. What customer acquisitions channels are working in particular? Is anything performing better? I know you brought in a Chief Marketing Officer not too long ago. Just the fact that we continue to see nice growth here on a sustained basis, just want to see what's working. And then I have a follow-up. Kyle Sauers: Yes. Great. And yes, we did bring in our first CMO a couple of years ago now. We've added a lot of great talent to the team, supplemented the great people we already have there, both in North America and Latin America. So they're doing a fantastic job. I'll say we're trying a lot of different channels, trying a lot of different things. And clearly, it's working really well. The ones that are working exceptionally well, I'm not sure that I want to highlight that on a public call, though. Bernard McTernan: Fair enough. And then I wanted to ask on just the World Cup, just any -- I'm assuming that you will see the impact greater in the financials in LatAm over the U.S., but just -- any commentary on what's contemplated in the guide would be helpful. Kyle Sauers: Yes. So without being super specific on exactly what's in the guide, we have built in some upside from the World Cup and the extra games that will be played because it's largely incremental to the whole soccer calendar for the year. But I think we're -- so we're very excited about that. We're very excited about the player acquisition that comes along with it. So hopefully, that will turn into a bigger impact than what we've modeled and what we've guided to. So that could be exciting. I'll say -- I think one point of it. I referenced it'd be interesting. The [ Copa ] America in 2024 that summer, we saw our monthly active users in Colombia increase by an average of 170% year-over-year in June and July, which is the 2 months where that event happened. So that was a big driver of the future growth for us in Colombia. So we're hoping for a great World Cup, a lot of engagement from new players and existing players, but also sustained growth in our player base afterwards for both sports and for iCasino. Richard Schwartz: If I could just add that this is a unique World Cup and that is taking place in 3 countries, and all 3 of them are countries where we operate. And we're excited that it's less than 45 days away from the first match, which will open up on June 11 in Mexico City, a great market where we're operating in Mexico is going to play a host game. So I think there's a lot of excitement because of that. But also the time zones for all of our players in the Americas will be the same time zones that are awake, which is rare compared to how it's been about several World Cups even over in Europe or the Middle East, even. So I think this is a chance for us to really capture a large amount of interest from bettors in these markets because we know it expands the pie of recreational users who we can then cross-sell, as Kyle just said, to casino. Operator: Our next question comes from the line of Jordan Bender with Citizens. Jordan Bender: I want to touch on the comments around your [ macro ] in Colombia and the fastest you've seen in the last 4 quarters. You kind of talked about what you're doing and what's going right there. But can you maybe just kind of tell us or explain like what the exit rate is in the country kind of exiting the VAT tax? And do you think that you're gaining overall share just based off on the adjustments that you've made to the business model in recent quarters? Kyle Sauers: Yes, sure. So we talked about it in the prepared remarks, but we're very pleased with how the strategy we used last year to kind of combat that, the deposit tax on the players. And we had a lot of extra bonusing, which was a little painful in 2025, but it served us really well and because we treated customers the right way. So the business grew at a handle GGR player count base really nicely last year. And we're seeing more of that flow through to the net revenue line this year because there's less of that bonusing. We have increased our marketing spend in Latin America. So that's been certainly impactful on growing the player counts down there and having a faster growth. There's not -- in any of the Latin American countries, we don't have good reported data from the regulators. It would be really hard to imagine that we are not taking share in all 3 of those markets, given our performance. So we're pretty confident that, that's happening. Jordan Bender: Great. And then just sticking with Colombia, that's clearly been a standout market for you guys over the last couple of years. Are you seeing similar MAU growth, engagement monetization trends in Peru and Mexico at their point in their life cycles similar to kind of what you saw in Colombia in early days? Kyle Sauers: Yes. So I'll say it this way. So Mexico is ahead of Colombia in terms of where we were this quarter relative to the launch date and then comparing that to Colombia versus our original launch date down there. So we're ahead in Mexico from that perspective on this quarter and in aggregate since launch. Now Mexico is a larger market. So I think we've got a much bigger opportunity there potentially. And then in Peru, it's probably a little bit behind where Colombia was post launch. But all of them still growing really, really nicely and we're very excited about. Operator: Our next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital. Ryan Sigdahl: If I look at industry eye casino growth in the U.S., well, continues to be very durable and strong, if decelerating a bit. Your growth is accelerating. You're doing that despite disciplined spend. Many of your competitors are still there aggressively spending. I think I ask this every quarter, but I'm going to ask it again. I guess, how -- it feels like things are getting easier for you guys with accelerating growth when it feels like it's getting harder for everybody else? Kyle Sauers: Yes. So thanks for the comments. I wouldn't say it's getting easier, Ryan. I think our teams work really hard and really smartly. I do think we're doing a lot of things much better than we were a year ago or 2 years ago, but that doesn't mean that there's not a lot of things we can keep doing better. But it is -- I think we've said it all, and there's probably no new answers from your question last time. We're acquiring players faster. So more of them coming in to fill the top of the funnel. We're doing it at lower rates per player. And retention is still really, really good. We try to be really fair with bonusing and we're trying to continue to optimize that, make sure that players are getting a meaningful experience with their bonusing and promotions, but again, an area we can continue to optimize. And just the whole life cycle and journey for a player from the time they hear about us to the time they start playing on our industry-leading product, we try to make it as great of an experience for them as we can. And then obviously, we've got a great customer service team that takes care of the players because there's always going to be issues that you have to deal with. Richard Schwartz: Ryan, I would add a couple of things. One of our goals is to create a fun and fair experience for our players. And when you consistently see their feedback to us, whether it's to our customer service team or in their public comments on our apps in the app store, that they themselves without knowing that that's our strategy, when they repeat themselves that you guys are fun and fair and fast, things that they care about, that just reinforces that we're delivering the experience and meeting the expectations or hopefully exceeding them. I think a lot of this comes from an ideation process of having a lot of insights from the consumer, really understanding the audience, having the technology capabilities to deliver leading experiences that are new to the industry, not just here in the Americas but globally. And then delivering experiences that are differentiated for the player that they enjoy enough to sustain their play with us versus others. So I think it's just a consistency of leading having the confidence to build new experiences. Our team is tremendous at understanding how to translate insights into products that the user wants to play. And of course, making sure the service element is always there to remind those players that we're thoughtful living company that's really treating players fairly. Ryan Sigdahl: Well done, guys. For my follow-up question just on Colombia. Constitutional Court declared that there needs to be a refund mechanism for the VAT collected in 2025. Curious if you think you guys will be entitled to refunds, if you're able to quantify that? And if you're able to provide any kind of additional detail on that process? Kyle Sauers: Yes. So I think you're referring to payments that would have been made in 2026 related to the 19% emergency VAT that was declared right at the end of December. So there is -- the court did -- had suggested that, that money needs to go back to operators that have paid it. We did not pay any of that VAT into the system from the 2026 19% tax that was ultimately deemed to be unconstitutional, so not really relevant for us. Operator: Our next question comes from the line of Mike Hickey with StoneX. Michael Hickey: Richard, Kyle, congrats guys. Amazing quarter. Great start to the year. Just curious on Mexico. It seems like you're having a tremendous amount of success there. And the market, of course, looks like to be about nearly 10x Colombia. You're already a top 5 share position in the market, but I think your probably overall share is still pretty small given that. I think 1 operator has the majority of it. So just curious, the competitive dynamics that you're seeing in Mexico and your ability, you think, over time to take meaningful share in that market? And how big, obviously, the World Cup can be in sort of supercharging you to that point? Because it seems like on paper, given the success in Colombia, you could do 10x the business in Mexico. Richard Schwartz: Mike, I'll start and maybe Kyle will add in a little bit. We really like Mexico for the opportunity to really differentiate on the casino side. I think a lot of the players there, especially the largest market share, operators really historically focused on sports and has more in their DNA than they do casinos online. So we're very excited to be able to continue to invest in all the things that are necessary to show those casino players there. Don't forget, that country has a very large legacy retail casino marketplace that we'll be able to leverage those players to help deliver this experience online that is, I think, superior to what you typically would see. So from that standpoint, we are leaning in on our casino experience, naturally relying on the sportsbook to acquire customers during high-profile events such as [ Copa ] America that Kyle referenced in the past, but also more exciting for the upcoming World Cup that I mentioned will be opening up in on June 11 in Mexico City. So I think the competitive situation there really favors a casino-first operator like us, and we're continuing to try to make sure we do all the little things necessary to deliver the type of experience, not just from the casino experience, but all the little local localizations you need to constantly improve upon to ensure you're staying current with the latest state of the technology that you need to reduce friction for the players in that market. Kyle, did you have something to add on? Or you could... Kyle Sauers: I won't hear title. But I'd have to say something. No. I don't think I'll react to your [ 10x ] just yet, give us a little time, but I'll remind you that we started later than others did in Colombia. We came into a market that was already existing, and we've secured ourselves as the #2 operator in Colombia and growing really quickly. So we're certainly optimistic that Mexico can bring really good success over the coming years. Michael Hickey: Just a quick follow-up on at and I think you teased us before about maybe looking to open a new market in LatAm. Just curious, your appetite this year or next year to do that still? Richard Schwartz: Yes. We have mentioned in the past, we do continue to see a broad set of attractive growth opportunities across Latin America. We are actively progressing those efforts. I think we're -- given our strong performance in existing markets, which -- the 3 countries that we're operating cover a population of 220 million people, we still have the flexibility to be deliberate and pursue those opportunities with discipline, which is what we're doing. So we still have opportunities. We're continuing to advance those opportunities, but we're not ready to share anything at this point in time. Operator: Our next question comes from the line of Jed Kelly with Oppenheimer. Jed Kelly: Great. Just on North American ARPMAU. Is that entirely being driven by just the accelerating users you're seeing? Or is that the decline in ARPMAU is also being driven by the way you're bonusing? Kyle Sauers: I want to make sure I'm understanding the question. Mike -- or I'm sorry, Jed, you're asking if the decline in the value of the player is in North America is just because of bonusing of new players? Jed Kelly: No. Is it due because you're seeing just an accelerating of users, and those first-time users are causing the faster than -- is that -- or is it -- is there something else you're doing in the bonus? And I'm just wondering about the ARPMAU trends you can speak to. Kyle Sauers: No. It's largely a factor of new players coming in. We added 60% year-over-year in iCasino markets, which is where most of our focus is. Any one of those players might be coming in, in the last part of a month. That goes into that average calculation of the value they're providing. Most players have negative value early on in their life cycle because they're moving through the bonusing that we give them. So that's the largest factor there, a great problem to have. We're certainly not going to grow player counts 60% year-over-year forever. So as that slows down and the players that we're bringing in are maturing, retention improves with those players that stay around longer, we'd expect that number to move back up over time. Jed Kelly: Got it. And I think you said earlier that you're seeing pretty favorable CPAs. Is that being driven more by what your marketing team is doing, maybe around AI and certain investments? Or do you think some of your competitors might be focusing on other product launches coming up? Kyle Sauers: Yes. So it's a good question. I don't know that we've seen a big change in the competitive intensity for the marketing assets that we're going after. Obviously, any one competitor might ebb and flow with what they're doing. Could some of them be allocating marketing dollars someplace else, certainly towards new market launches and pulling away some place? I suppose that's possible. I don't think that's as much of it as it is. Our team is doing a great job. We continue to improve the player journey. So it's not just about getting people to show up to the app store. They got to download, they got to register, they got to go through KYC. It's got to be easy for them to get a deposit on the platform. So all of that, it seems so simple, but it's pretty complicated, and our team does a great job, and we're making it better and better. So there's a lot of different things involved. But I think probably the competitive intensity for marketing assets is not a big driver in all that. I think it's more about what we're doing. Operator: [Operator Instructions] Our next person to ask a question will come from the line of Zach Silverberg with Wells Fargo. Zachary Silverberg: Just one on Mexico. So there was an article that stated that a couple of your competitors had their gaming license blocked during the quarter. What are you seeing there post this event? And is it an opportunity to kind of take share from those operators? Richard Schwartz: Yes. Sure. Zach, yes, that 365 in [ Metanor ], the 2 of the operators that you're referencing, but they actually, I think, have their license closed earlier than this quarter. And so I think there are absence from the market, both were meaningful market share contenders. And so I think their exit from the markets certainly have helped us to acquire some customers from them that previously maybe weren't aware of our brand and they didn't know who we are. . Certainly, I think in both those cases, though, there are companies that are primarily, I think, stronger in sports. So what I said earlier about us being a casino-first operator still holds true. And we think competitively with an environment that we're continuing to kind of be able to grow our casino player volumes. And as we know, those players tend to generate a larger revenue per active user and ultimately, the type of player engaged, higher-level player engaged with the type of players that we like and are very strong at retaining. So we feel pretty strong about the market opportunity there, and it certainly has helped us to have those 2 operators out of the market. Zachary Silverberg: And just for my follow-up. [ Next ], in Colombia, excuse me, there's an election coming up in a few weeks. Is there anything you guys are looking out for there? And anything you guys are handicapping to the election in terms of the future outlook of the 16% consumption tax? Kyle Sauers: Yes. Thanks, Zach. Certainly, we're watching it very closely. There's the initial round here coming up in a few weeks, and then the final election will be in June. So we are watching it closely. We're not handicapping it necessarily. Certainly, there's an opportunity there. We talked earlier about the 16% tax, that it's -- there's a mandated constitutional review of the emergency decree that allow that tax to be put in place and then also a review of the tax itself. And then another opportunity for that to be relooked at would be the next administration that comes into office and how they view the emergency decree, assuming it doesn't get overruled, how they view that decree and the associated taxes. So potential opportunity for upside for us there. Operator: Our next question comes from the line of Joseph Stauff with Susquehanna. Joseph Stauff: Richard, I was wondering if you could comment on maybe the state of product parity for iCasino. I think it's fair to say for OSB, it everyone is sort of approaching some level of product parity versus each other. I'm wondering -- your observation, obviously, you've always been front-footed about product development. Have others caught up in terms of offering jackpots, offering bonus spins? What's your assessment of the industry today? Richard Schwartz: Well, it's a big question, Joe. I'll try to answer it efficiently with that. We continue to sort of lead away our opinion on creating innovative features. And while others are investing more resources the casino experience, largely, we've seen things that are very me too is what -- how I would describe it, where everyone kind of just copies each other. And if someone offers a free-to-play game as part of the promotion, when you first register every day, everyone does the same thing. People improve the lobby, everyone improves the lobby. Those are real simple things ultimately to improve upon, but they're still important and valuable, but I would say that it's sort of a mass mentality are sort of doing the same improvements in the same area. So I referenced the lobby, I referenced the free game, I referenced the jackpots. I think we were one of the first ones to have a site-wide jackpot across all of our products. Others are doing some jackpots that are site-wide, but our execution, I still think is more interesting for a player than the others are, and I won't get into the reasons why. But I think we have good insights into what values we're delivering and why we make the decisions that we do. I think what validating ultimately is the app scores in the store. We are the highest rated app in the store, a 4.9 out of the 5 being the highest level, which is rare to achieve from a casino app, largely because a large number of players are already going to -- you can't penalize them like a casino operator on the basis that they lose playing the -- after they may not feel like it was a experience that was positive for them, where it's not like a sportsbook app, primarily where the better makes, that's based on skill and ultimately doesn't really blame the operator if they get the outcome wrong, whereas in the casino world, it's a little bit different. So the fact that we have such a high score on the app, I think it's very validating to the quality of experience we offer. And as I've shared before, we've been building this technology since 2012, modernizing it along the way, constantly bringing new experience to players. So it's not just 1 or 2 things that we have built, but we've built dozens of features that are still unique to the industry. And it takes a long time to build it, and it's hard to build. Even if you know they're going to try to copy something, it's hard to get the copy to reflect the quality of experience that we have built. So we feel pretty strongly that we have those nice moats around our product experience in the casino space. And having said that, we're always pushing the limits and we're never going to be satisfied and we're constantly looking to improve. And we have lots of opportunities to get better, and that's what our team is focused on. Joseph Stauff: And do you think those higher app scores, is that a function of your retention engine and mechanics and capabilities? Or is it a variety of factors, including, say, product depth and so forth? Do you think the retention capabilities that you have really are, say, a difference maker versus, say, other iCasino products that are out there? Richard Schwartz: I think what's different about us or what's unique for us is from the very beginning from day 1 and when I started the business, the #1 goal was to retain customers. It was less about acquisition. It was more about how to deliver an experience that offers the same quality and quantity of high-quality games. But how can we create differentiation and experience that drives users to prefer to play with us over other apps they may be playing with? So ultimately, when you do little things right, you pay attention to the details and you get the customer service team doing a great job as our team does, combined with the innovative experience that's unique for the players. Ultimately, you encourage greater retention, which delivers the kind of results that we're seeing. So I think it's really just a matter of paying attention to details. They all matter. And as I said in the prepared remarks, every thing we do is systematic across all parts of the journey, and all the touch points where you interface with the customer matter. And if we are constantly improving each of one of those, paying attention to every detail along the way, you ultimately end up with experience to come together, and the players notice it. And we think that's a big part of why a large percentage of our players prefer to play with us, we believe, versus other apps for the also other accounts, but are probably playing at the same level that they play with us. Operator: [Operator Instructions] Our next question comes from the line of Chad Beynon with Macquarie. Chad Beynon: Wanted to ask about Virginia, given your current OSB license and the fact that Rush Street land-based gaming has a property there. From what we've heard, it sounds like there were a lot of constituents that were in favor. Obviously, it didn't get across the goal line. But wondering if you think the progress that was made there sets Virginia up for higher likelihood in '27? And if you guys would have interest if that opened from an iGaming standpoint? Richard Schwartz: Well, great. Thanks for asking that question because it definitely would be a very exciting market for us, and we are very interested in that opportunity. We remain focused on expanding online casino into a large number of states that have shown recent interest, but Virginia being a key example. We view Virginia as a real opportunity. It's encouraging the legislation progressed as far as it did this year, with versions passing both the Senate and the House. And so it's a market that we have -- we're working with -- collaborating with our peers. And it seems like a really exciting opportunity potentially for us in the next year. In addition, as we noted in our prepared remarks, we are advancing plans to bring our platform to Alberta. So we have plenty of exciting things happening in the next couple of months. But we are viewing Virginia in partnership with our -- the land-based property, Rivers Casino there was a great opportunity for us. Kyle Sauers: And maybe I would just add to that, Chad, just to think about the opportunity there, maybe not to put exact numbers around it, but not dissimilar in size from a Michigan. Unclear exactly how many licenses they'll be. But that's a market where we started off with mid-single-digit share, and we've grown it to high single-digit share over time. And we did that with a lot of brand awareness or any brand awareness when we launched and no access to a strong database of players. So we have some real advantages in Virginia that we haven't had in a lot of other markets. So it's very exciting for us as that moves along. Chad Beynon: Okay. Great. And then lastly -- and this is probably assumed based on your user growth that we've talked about throughout the call. But prediction markets. I guess, 1 of your -- 1 of the other digital operators said that CPAs had increased. They didn't grow users as much as you guys did. So is it safe to say that you're just not seeing any pressure -- or you're not seeing significant pressure from CPA standpoint or just from a user standpoint? And do you think that could potentially change as some of these production companies just develop their technology throughout the year? Kyle Sauers: Yes, I think it's fair to say that we haven't seen -- from a marketing asset, CPA, we haven't seen pressure from those entrants. I think a lot of that is that we're searching for different types of players, and we're searching for them in different places. So I don't think that's impacted our business. And certainly, you said it, but it's with our CPAs going down being the lowest they've been, that's probably a pretty good indication of that. Operator: Our last question comes from the line of David Katz with Jefferies. David Katz: I wanted to just finish off with a discussion on sort of flow-through and aspirational margins. Obviously, not in any kind of a time or guided way. The increase in guidance on the revenue side of $100 million and EBITDA around 20, just I think begs the question of where do you think an aspirational flow-through level could be? And do you have sort of margin targets out there in the future that you're able to talk about with us? Kyle Sauers: Yes. So on the longer-term margins, we still think that we can get to kind of low to mid-20%. And obviously, that means we're going to have some decent flow-through over the coming years. We need a couple more markets -- high casino markets in North America likely to get to that point and have them mature a little bit. On flow-through in general, we look at 2026, let's say, at the midpoint of our guide, flow-through is very solid at kind of mid-20%. A couple of things to keep in mind that because of the deposit tax and that associated bonusing going away in Colombia from last year, but with this new tax on revenue, which impacts our gross margins, we've got a bigger improvement in revenue than we do in operating margins in Colombia. So that impacts that metric a little bit. And then I think maybe you alluded to this, but adding Alberta to our guidance, both a little bit of revenue, but also all of the launch costs impacts that as well. We don't expect Alberta to be profitable in 2027. Having said all that, I'll also point out that we've -- we're always trying to consistently outperform our expectations. So we're going to continue to strive to do that. Operator: There are no further questions at this time. I will now turn the call back to Richard Schwartz for closing remarks. Richard Schwartz: Well, thank you for joining us today. We look forward to updating you on our progress when we share our second quarter results in the summer. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to the Werner Enterprises' First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Chris Neil, Senior Vice President of Pricing and Strategic Planning. Please go ahead, sir. Chris Neil: Good afternoon, everyone. Earlier today, we issued our earnings release with our first quarter results. The release and a supplemental presentation are available in the Investors section of our website at werner.com. Today's webcast is being recorded and will be available for replay later today. Please see the disclosure statement on Slide 2 of the presentation as well as the disclaimers in our earnings release related to forward-looking statements. Today's remarks contain forward-looking statements that may involve risks, uncertainties and other factors that could cause actual results to differ materially. The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation. On today's call with me are Derek Leathers, Chairman and CEO; and Chris Wikoff, Executive Vice President, CFO and Treasurer. I will now turn the call over to Derek. Derek Leathers: Thank you, Chris, and good afternoon, everyone. We appreciate you joining us today as we cover our first quarter results and the state of the market. In summary, market fundamentals are improving, and we are seeing a positive trajectory in our own numbers, which we'll get into shortly. Throughout this extended freight downturn, we have taken measured steps to position Werner for profitable long-term growth through our operational excellence and our commitment to safety and service. Executing on these priorities, we have actively managed our portfolio to make the business more resilient, differentiated and optimized across market conditions. We are leaning further into dedicated and other specialized solutions, including Expedited and Cross-Border Mexico as well as asset-light offerings in Logistics. More specifically, in January, we expanded our Dedicated offering through the acquisition of FirstFleet, adding scale, density and exposure to more resilient customer verticals, including grocery and food and beverage. At the same time, we also restructured our One-Way business to create a more balanced and higher producing network that is now set to deliver improved profitability. And in Logistics, Intermodal and Final Mile are seeing strong momentum. As a result, Werner is better positioned to capitalize on an improved market. So far, the recovery in rates has been largely supply-driven as capacity continues to exit at an accelerated pace due to regulatory enforcement. As the supply and demand dynamic tightens, we are seeing rate lift and early positive momentum in the bid season. We expect pricing gains to continue with more meaningful improvement in the third and fourth quarters. Taken together, these actions, including our FirstFleet acquisition, One-Way restructuring and yield improvements have strengthened our business and provides a line of sight to earnings growth this year. Turning to Slide 5 to discuss our first quarter highlights. Since acquiring FirstFleet, we have taken a thoughtful but active approach to integration, prioritizing continuity while moving with intent to enhance value. We are retaining the majority of FirstFleet's management team and all drivers while aligning around a shared culture of safety, service and innovation. FirstFleet customers have been receptive with a 98% renewal rate across 2/3 of the portfolio addressed to date. We have strong visibility into the remaining 1/3 and expect a similarly strong retention. Our integration of FirstFleet is progressing ahead of schedule. At 3 months end, we have already realized over $1 million in savings and have implemented actions representing over $5 million of our $6 million synergy target for the current year. We remain confident in capturing the full $18 million in cost synergies mid next year, which we expect will improve FirstFleet's operating margin by approximately 300 basis points. We are already seeing revenue synergies, including accelerated fleet start-ups, project opportunities and increased backhaul. While still early, these efforts are enhancing customer value and improving returns. Top line metrics show positive inflection with strong improvement in Dedicated revenue per truck per week and One-Way Trucking revenues per total mile. Contract renewals are progressing well. Customers are accepting higher rates and supporting adjustments where needed to dedicated driver pay. Our dedicated customer retention, including FirstFleet, has climbed to 95% closer to our historical trends. The result of our One-Way restructuring is showing early gains with first quarter miles per truck up 6% over prior year despite significant disruptions from winter storms and revenues per total mile increasing 3.6%, our strongest pricing inflection in over 3 years. Strong execution of these initiatives led to One-Way revenue per truck per week increasing 9.6%, reflecting the combined effect of our restructuring and pricing actions. Pricing in the quarter departed from seasonal trends as Q1 rates typically declined sequentially after peak season. However, rates were flat sequentially, a pattern we have not seen in the last 10 years. One-Way Truckload revenue per total mile benefited from a smaller, more targeted fleet, intentionality to replace less profitable freight, stronger spot rates and contractual rate increases secured through bid season. In Logistics, higher spot rates drove an increase in purchase transportation costs and pressured gross margins in truckload brokerage. The margin pressure is mostly transitory as contract rates are reset, and we saw improvement throughout the first quarter. We expect continued improvement in truckload brokerage margins as bid season progresses, along with widespread implementation of higher contract rates. And lastly, I want to highlight our team's relentless focus on safety and cost discipline. In Q1, our DOT preventable accident rate per million miles was down an impressive 45% year-over-year. Excluding FirstFleet, insurance and claims expense was at its lowest quarterly level in over a year. We also continue to lower our cost to serve through technology and disciplined execution. Total operating expenses, excluding gains, insurance, fuel and purchase transportation, were down by 5% year-over-year, and our Logistics division serves as another proof point of tech-enabled savings. Truckload brokerage operating expenses declined over 25% for the 2 years following the move to EDGE platform and with relatively stable volumes. Our asset business is now in focus. Building load assignment, equipment management and planning capabilities takes time but is ramping. We expect all aspects of asset execution to be functional later this year. Moving to Slide 6, our plan to position the business for long-term growth and generate earnings power remains focused on 3 overarching priorities: First, driving growth in core business, which includes growing our Dedicated fleet, increasing One-Way production and rates and expanding TTS and Logistics adjusted operating income margin. Despite Q1 typically being the most challenging in the year, progress continues on these fronts. Our Dedicated fleet is growing with end-of-period tractors up 46% year-over-year with the addition of FirstFleet. Within our organic portfolio, we've increased exposure to new verticals like technology and aftermarket auto parts. Our pipeline of opportunities coming out of Q1 is strong. On a year-over-year basis, Dedicated revenues per truck per week increased steadily, driven by the value customers place on the high service and reliability and scale as capacity tightens. In One-Way Truckload, we realized significant improvement in miles per truck. We are securing mid-single-digit increases in One-Way bids. Spot rates are higher, and we can be more selective with freight choices given a better supply-demand backdrop. And Truckload Logistics margins improved every month in the quarter as contract rates reset and exposure grew to higher spot market pricing. Second is driving operational excellence, which we are executing on by maintaining a resolute focus on safety and service, continue to advance our technology road map, embedding cost discipline throughout the organization and realizing efficiencies and synergies from acquisitions. We've taken out approximately $150 million of cost over 3 years and continue advancing our technology transformation. For some perspective on how our technology investments are beginning to translate into tangible results. We've centralized all loads into a single unified platform, achieving full network visibility, which is enhancing our ability to optimize, balance, improve yield and reduce cost to serve. This integrated foundation has been a key enabler of our One-Way restructuring efforts over the past 2 quarters and positions us for continued margin expansion. Building on that foundation, we are increasingly leveraging AI and automation to drive operational excellence across the network. This includes improving load planning and network design, increasing the speed and quality of tender acceptance and automating routine workflows that historically required manual intervention. We're also seeing benefits in area like maintenance, coordination and back-office execution where automation is reducing downtime, improving asset utilization and allowing our teams to focus on higher-value activities. From a customer and safety standpoint, we are deploying real-time technology to provide immediate visibility into events such as weather-related shutdowns. While these actions can temporarily impact productivity, they enhance safety outcomes and help mitigate longer-term risk and insurance costs. Importantly, our approach to AI is disciplined and ROI focused. We are not pursuing technology for its own sake. We are prioritizing use cases that solve core operational challenges, improve returns and scale across the enterprise, supported by a strong governance framework. While AI adoption has been more visible in asset-light brokerages, Werner stands out as a second wave winner among asset carriers given our significant technology transformation and a unified EDGE TMS platform. We're rolling out AI in phases, driving efficiency today and enabling growth over time. Later, Chris will provide further details on our final priority of driving capital efficiency. Cash flow for the quarter was up meaningfully year-over-year, and our capital allocation remains focused on fueling growth and shareholder value. Before Chris discusses our financial results in more detail, let's move to Slide 7 to provide our current market outlook. Capacity exits continue at an accelerated pace, driven by regulatory enforcement and carrier bankruptcies. Higher fuel prices is another more recent headwind for struggling carriers and long-haul truckload employment has fallen below pre-COVID levels. As a result, further capacity attrition is likely. Defying typical seasonality, spot rates remained elevated in Q1 and throughout April. We expect seasonal improvement throughout the year as capacity attrition continues. With rate lift currently more supply side driven, any demand improvement is likely to trigger even greater market momentum. While household balance sheets remain strong, the consumer continued to face a mix of puts and takes, including tax refunds, fuel prices and interest rates. Regardless, the consumer continues to remain selective yet resilient, which bodes well for our mix of retail being more concentrated in nondiscretionary items and discount and value retailers. Lean retail inventories position demand to play a larger role early in the recovery. While trade policy may impact restocking timing, nondiscretionary replenishment provides a buffer against near-term volatility. We expect used truck values to improve later in the year. Increased supply from enforcement is likely offset by OEM manufacturing constraints, aging fleets and higher-priced 2027 engines, supporting demand for high-quality used equipment. With respect to driver availability, we anticipate a tightening market for high-quality drivers. Werner is well positioned as a preferred employer. Our Dedicated division offers predictable roles with frequent home time that attracts top-tier drivers. With that, I'll turn it over to Chris to discuss our first quarter results in more detail. Christopher Wikoff: Thank you, Derek, and good afternoon, everyone. We'll continue on Slide 9. All performance comparisons here are year-over-year unless otherwise noted. First quarter revenues totaled $809 million, up 14%. Adjusted operating income was $11.9 million and adjusted operating margin was 1.5%. Adjusted EPS was $0.02. Adverse weather early in the quarter and rapidly increasing fuel prices in March negatively impacted EPS by approximately $0.05. Consolidated gains on sale of property and equipment totaled $3.8 million, up from $2.8 million in the prior year period. Turning to Slide 10. Truckload Transportation Services total revenue for the quarter was $594 million, up 18%. Revenues net of fuel surcharges increased to 16% year-over-year at $516 million. TTS adjusted operating income was $14.8 million. Adjusted operating margin net of fuel was 2.9%, an increase of 250 basis points. The year-over-year improvement was driven from lower insurance and claims expense for our legacy business, accretive results from the addition of FirstFleet, profitable improvement in One-Way Truckload and higher gains from the sale of used equipment. Our fleet metrics are on Slide 11. TTS average trucks totaled 8,454 for the quarter, a 14% increase. Note that FirstFleet trucks were in the average for 2/3 of the quarter as the transaction closed at the end of January. The TTS fleet ended the quarter at 9,040 trucks, up 1,940 or 27% sequentially. Truck additions from FirstFleet were partially offset by normal seasonal declines in Dedicated and fewer One-Way trucks, which we expected from our restructuring efforts. Our One-Way average fleet size declined 19%, while total miles were down 15% as miles per truck improved 6%. Within TTS and our Dedicated business for the first quarter, trucking revenue net of fuel was $372 million, up $93 million or 33%. Dedicated represented 73% of TTS trucking revenues, up from 64% a year ago. At quarter end, the Dedicated fleet was up 2,230 trucks from where we started the year, a 46% increase from year-end with the addition of FirstFleet. Dedicated average trucks increased 32% year-over-year and 28% sequentially, with FirstFleet contributing for only 2/3 of the quarter. We experienced normal seasonal sequential change in the Dedicated fleet. Dedicated represented 78% of the TTS trucks at quarter end. Dedicated revenue per truck per week rose 0.8% this quarter, though impacted by the addition of FirstFleet in the mix. On a stand-alone basis, Werner's legacy Dedicated fleet delivered a 1.8% increase, while FirstFleet growth and revenue per truck per week exceeded 4%, therefore, on a pro forma basis, with FirstFleet included in the prior year baseline, growth would have been approximately 200 basis points higher or near 3%, reflecting solid pricing momentum across the combined dedicated fleet. In our One-Way business for the first quarter, trucking revenue net of fuel was $136 million, a decrease of 12%. Average trucks declined 19% to 2,122 trucks. Sequentially, the fleet size contracted 11% and was down 264 trucks. Revenue per truck per week increased 9.6% due to higher rates and better production. Miles per truck increased 5.7% despite winter weather and revenues per total mile increased 3.6% and empty miles decreased 40 basis points year-over-year and 60 basis points sequentially. As a reminder, the strategic restructuring of our One-Way Truckload business was designed to enhance profitability by maximizing production and mitigating unprofitable freight. Our actions are complete, and One-Way operating margin improved in the quarter. We expect further benefit as we realize a full quarter of these changes in Q2. Logistics results are shown on Slide 12. In the first quarter, Logistics revenue was $196 million, representing 24% of total first quarter revenues. Revenues were flat year-over-year but declined 6% sequentially as we focused on yield management in a margin pressured environment where purchase transportation costs accelerated more rapidly than sell-side rate renewals with our customers. Truckload Logistics revenues, which represented 72% of total logistics revenues decreased 4% on 9% lower shipments, partially offset by 5% higher revenue per load. The revenue per load improvement was from disciplined pricing and load acceptance, but more than offset by higher purchase transportation costs, reducing gross margin by 90 basis points. Intermodal revenues accounting for roughly 17% of the Logistics segment rose by 18%, driven by a 22% increase in load volume, partially offset by a 3% decline in revenue per load. Final Mile revenues, which comprise the remaining 11% of the segment increased 8% year-over-year. Logistics adjusted operating margin was negative 0.4%, a 70 basis point decrease driven by lower volumes and gross margin pressure, which we expect to improve going forward as we adjust sell-side rates. Let's review our cash flow and liquidity on Slide 13. We ended the first quarter with $62 million in cash and cash equivalents. Operating cash flow was $89 million, up over 200% year-over-year and up over 40% sequentially. Similar to a low CapEx quarter to begin 2025, our first quarter CapEx was a modest $2 million. Net CapEx for the trailing 4 quarters is 5.6% of revenue. First quarter free cash flow was $87 million or 10.8% of total revenues. Total liquidity at quarter end was $513 million, including $62 million of cash on hand and $451 million of combined availability under our credit facilities. We ended the quarter with $932 million in debt, consisting of $54 million in assumed low-cost capital leases from the FirstFleet acquisition and $878 million on our credit facilities. Debt increased $180 million sequentially as a result of the acquisition and is up $292 million from a year earlier. Net debt increased $282 million year-over-year. Covenant defined pro forma net leverage at the end of the quarter was 2x, including pro forma synergies and trailing 12 months of FirstFleet results. We continue to have a strong balance sheet, access to low-cost capital and no near-term maturities in our credit facilities. Let's turn to Slide 14. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically investing in the business, returning capital to shareholders and maintaining appropriate leverage. With the acquisition of FirstFleet, our focus in 2026 will be on integrating the business, gaining momentum on realizing $18 million of targeted synergies and enhancing value. On Slide 15, let's review our guidance for the year, which includes FirstFleet. We are reaffirming our full year average truck fleet guidance range of up 23% to 28%. Availability of quality drivers has been an increasing challenge more recently as a symptom of an improving macro environment. The dedicated pipeline is strong, and we expect TTS truck growth as the year progresses. Our full year 2026 net CapEx guidance range remains between $185 million and $225 million. Dedicated revenue per truck per week increased 0.8% year-over-year and was closer to 3% on a pro forma basis. We are updating our full year guidance from a range of down 1% to up 2% to be flat to up 3%. We have been successful in securing low to mid-single-digit increases in contract renewals for both our legacy Dedicated fleet and the FirstFleet business. One-Way Truckload revenue per total mile guidance for the second quarter is up 1% to 4%, muted by the ongoing mix change following the restructuring completed late in the first quarter. Our effective tax rate in the first quarter was 24.9% before discrete items. We are maintaining our full year 2026 guidance range of between 25.5% and 26.5%. The average age of our truck and trailer fleet at the end of first quarter was 2.9 and 6.3 years, respectively. Regarding other modeling assumptions. We continue to expect the net interest expense this year will be between $40 million and $45 million. We anticipate stable used equipment demand and resale values through 2026, given OEM production constraints and the evolving regulatory backdrop, that will be an incentive towards high-quality used assets. Our anticipated gains on sale of used equipment and revenue-generating assets for the year remains in the range of $8 million to $18 million. With that, I'll turn it back to Derek. Derek Leathers: Thank you, Chris. We believe Werner is better positioned today than we have been in prior cycles. We have used this downturn to make the business more resilient, improve the quality of our portfolio and strengthen our ability to convert an improving market into stronger financial performance. We are encouraged by the progress we are making across the business, including Dedicated growth, FirstFleet integration, One-Way improvement, Logistics margin recovery, technology implementation and continued cost discipline. While there is still work ahead, we believe the foundation is in place for earnings improvement to build as the year progresses. With that, let's open it up for questions. Operator: [Operator Instructions] And today's first question will come from Chris Wetherbee with Wells Fargo. Christian Wetherbee: I guess maybe could we just start, Derek, just on sort of the take on the market broadly. I know you've given us some perspective here, but I know the business is evolving a little bit more dedicated, a little less One-Way. But as we think about sort of generally speaking, bid season, what do you think sort of the pricing environment is offering now as you look kind of across both pieces of the business? Derek Leathers: Yes, Chris. Obviously, the 2 parts of the business function a little differently. But if I just start at the macro, we're seeing ongoing largely supply-driven constraints that are continuing to gain momentum as we get deeper into the year. Coming into the early part of the quarter, clearly, it was a bit of a bit abnormal that spot rates held up as well as they did coming out of peak season. They've grown from there. I know there was a lot of noise about what was weather-related versus other. And I think the timing and duration has shown that it was well more than weather. Those capacity exits are only ramping at this point, both through enforcement as well as still some final fallout, if you will, from the freight recession we've lived in, in the last couple of years, all of which sets us up during bid season. On the One-Way side, we've talked about mid-single-digit rate increases early in the Q1 bid season. Clearly, momentum is growing from there. It's hard to be specific because every customer situation is different and how it fits into our new restructured network lands differently. But the expectation would be further strengthening from here as we look forward on One-Way. In Dedicated, that's the stable part of the business. It held up well during the downturn. It has lots of upside as the market continues to strengthen. I would start first with the strength of the pipeline of new opportunities, which leads to our ability to be very selective to bring the right opportunity in the right geography at the right price. On incumbent business, renewal rates are increasing rapidly, and those are coming with price relief. Those customers also now probably more so than before in a tight market, really covet the service levels and the confidence that comes with Dedicated capacity. So we're going to continue to push on the Dedicated side to get both the price relief we need as well as increased selectivity in what is otherwise a very robust pipeline. So as I look out, I think the builds from here and the bid season with the quarter of the business basically repriced in the first quarter, is still ongoing and Q2 is the largest pricing activity of the year. And a lot of that will obviously implement late Q2 and into Q3, but I'm optimistic from where we sit today. Christian Wetherbee: That's great. And then maybe just one quick follow-up on FirstFleet. Obviously, now you have it in beginning to roll through the numbers. Can you give us a sense of how the integration process has gone and your kind of thoughts around what we might see from a contribution perspective, whether it be on an earnings basis or a profit basis, margin basis as we think about the rest of 2026? Derek Leathers: Yes, I'll probably keep part of it somewhat general. But on the integration, I'll start with when and outlook at the scoreboard. We're excited about the fact that we're ahead of schedule on the integration. We're ahead of schedule on the synergies. We've implemented and realized $1 million of the $6 million in year synergies already. We've identified and actioned $5 million of the $6 million. Both of those numbers are ahead of schedule. We've confirmed and revalidated our $18 million assumption, and those are all just cost synergies. And so that's going well. Culturally, probably going better than that. The team is who we thought they are. The customer base is who we believe they to be in terms of both the potential for cross-selling as well as acceptance of Werner as part of the solution. So we're going to continue to stay close to it. I'm excited at this point with how it's gone thus far. And the renewal rate is probably one of the best scoreboard metrics to point to with 2/3 of the 2026 renewals already being in the books with a 98% retention rate. I think that speaks to the value that the customers also see with a broadened portfolio brought to bear as well as the longevity and the quality of FirstFleet and the underlying asset it represents. Operator: The next question will come from Ari Rosa with Citigroup. Ariel Rosa: Derek, I was hoping just to start, you could give us some thoughts on the ability of Dedicated to capture upside in the cycle inflection. I know you have long-term relationships with a lot of your customers. Does that mitigate to any extent the ability or the desire to kind of push rates when we see rates -- spot rates comping up double digits, but you mentioned some of the contract rate increases being a little bit more modest than that. Is that intentional? Or is that just a function of we're early in the bid cycle and we could see upside from here? Derek Leathers: No, I think a better way to think about it is, Ari, is that Dedicated, it is really a truer version of a partnership. It's us working with the customer collectively to move service-sensitive goods at scale with pretty high driver involvement. You put all that into the mix. And what it really means is that the way we achieve the upside in a tightening cycle just takes a little bit different form. As they continue to grow and the market is tighter than it was a year ago, we see Dedicated fleet additions across multiple fleets within Dedicated. Those fleet additions come at a higher contribution margin than the existing or incumbent trucks that are already in place. Fixed costs are largely already spoken for, and we're just simply able to add truck count. So that doesn't show up in rate per mile, but it certainly shows up in profitability. We're also able to increase backhaul and be able to fill more empty lanes, and that benefits both the customer and us. So everybody wins, but we are able to bring more money to the bottom line. And then selectivity at the front door. I talked about that a couple of times now, but extremely robust Dedicated pipeline right now. And so our ability to be selective and make sure we're looking for kind of overlapping synergies with existing fleet, strong driver domicile areas, places where we can share assets and do so in efficient and creative ways where the customer benefits, but so do we. All of that only happens with the long-standing relationships that come with Dedicated. And then with Firstfleet, in particular, it just created a significant amount more density across certain geographies in our network that allows everything to kind of have a bit of a multiplier effect. So we're excited about the upside. We've proven it in other up cycles that Dedicated wasn't the anchor that people believed it to be. We're going to have to go out and prove it again. And while I understand the concerns, we just simply view it as a different method by which we need to leverage the up cycle, but the outcomes have the ability to be similar. Ariel Rosa: I appreciate that, Derek. So just as a follow-up and kind of in line with that comment, is there a good way to think about what the upside could look like? Or maybe you could speak to how we should think about margin potential at mid-cycle? Derek Leathers: Yes, sure. I mean we've talked for some time that even at the depths of the freight recession, Dedicated still remained a high single-digit type margin profile. It won't be thought long before we're back into the double-digit range. And that's really where Dedicated needs to be based on the capital intensity, the service expectations, all of the work and design that goes into building these fleets. And mid-cycle, you can expect that, that's going to look obviously more like mid-double digits. But a lot of work to do to get there. And again, with the integration of FirstFleet, their margin profile was, call it, roughly half of ours, but the synergy targets that were identified closes a large portion of that gap, and that's before we start realizing revenue synergies and cross-selling opportunities. So there's a lot to do, but we know where the bodies are buried. We know what the work is that needs to be done, and we're actively executing on it right now. Operator: Your next question will come from Daniel Moore with Baird. Daniel Moore: Pretty solid quarter, particularly given weather and fuel. I just wanted to clarify, Chris, I think you said both weather and fuel were about a $0.05 impact. That's my first question. And then I was hoping to get a little bit more color just on the pace at which the book renews over the course of the year. Derek, you mentioned, I think, 25% in the first quarter. The second quarter was the heaviest quarter, but maybe if you could provide a little more context on that. And then just recognizing that in a normal world from April to June, we do see, and I think we're all hoping and expecting that we'll see some seasonality this year relative to last year, which was largely absent. What do you think that means for rates in 2Q and 3Q? That's kind of it. I appreciate it. Christopher Wikoff: Dan, this is Chris. A lot packed in there. Let me just first start with fuel and weather. You're correct, approximately $0.05 the majority of that being from weather, call it, $0.03 to $0.04. That's really based on productivity that we lost during that storm. When you think about winter storms that we had in the same period, but a year ago, we would call this year just at the initial impact being much greater. I think we mentioned on our last call that at one point in time, we had 50% of the fleet that was parked and off the road. That was pretty significant, not something that we've really seen before in our history. Now the duration of the storm was shorter. So we were able to get those trucks back on the road and moving more quickly maybe than we could prior year. So that was about $0.03 to $0.04 relative to weather and then call it $0.01 to $0.02 from the fuel impact. As you know, we can pass a very high degree of fuel volatility on to the customer through the fuel surcharge. So it's really more about timing and volatility that is within any given week given that we have those weekly Department of Energy resets. So some short-term pain, not necessarily expecting that in the second quarter, more of a cash flow impact. Obviously, the lag there to collect on that fuel surcharge. I would just note that as we grow in more of a Dedicated mix where those are round trip paid miles, just as that mix grows, there's less exposure to that fuel volatility. Chris Neil: And Dan, in terms of effective dates, from a One-Way perspective, I think Derek referenced about 1/4 of the One-Way business was repriced and effective, I should say, was effective in the first quarter. Most of that, though, is late in the quarter. We have just over 1/3 of that One-Way business then that comes in, in the second quarter. Another fourth in the third quarter and the remainder in the fourth quarter. In terms of Dedicated, that's a little bit more even throughout the quarter, at least our legacy fleet. From a first fleet perspective, they had a little bit more in the first half of the year. And as we said, we're working through that and have had really good results with retention so far. In terms of seasonality with spot rates, clearly, spot rates are elevated. They've been elevated. They did not act seasonally at all through the first quarter and have remained elevated here in April. And I think our expectation, at least our base case at this point would be that they act seasonally here now through the rest of the year. So we're not expecting a decline. You have road check week that's coming up here in a couple of weeks, which typically provides a bounce. And so our expectation would be that spot rates would continue to lead contract rates. There continue to be good opportunities to take -- to capitalize on those freight choices and those freight options while continuing to service our customers with commitments that we've made. Operator: The next question will come from Jordan Alliger with Goldman Sachs. Jordan Alliger: I just wanted to come back to the Dedicated for a second. I think you had mentioned that the pipeline is pretty strong. I wanted to see if we could go a little bit more there. I mean, are you seeing the issues with truckload capacity, driver concerns, et cetera, pushing up that pipeline or quicker closing of that pipeline? Like there seem to be an acceleration at this point in terms of those trends? Derek Leathers: Yes, Jordan, I'll take that. I mean it's a little bit of both, but I do want to point out that one thing we're not going to do is lose our discipline on what really is Dedicated. So you see a lot of capacity Dedicated fleet proposals hitting the market during times like this, where they're really just a continuous move over-the-road type fleet that's not actually dedicated closed loop, short-haul, return to home. And we're going to be very selective on that. If we were to entertain some of those opportunities, we'll largely run those in our One-Way network versus putting those into Dedicated. But that's certainly part of it. Quicker to close for sure, when you get into a tighter market, the ability to implement and for somebody to be willing to make a change to secure a portion of their supply chain in a high service, high capability kind of backdrop is something that they're a lot more open and excited to. And so we -- I think it's a little bit of both of those things. A lot of it is just we've been building this pipeline for some time. We've done some reorganization within the sales force. We've got some new leadership involved as well. And all of that is kind of coming to fruition. And so I think there's a flight to quality, which is part of it. I think our bigger density with the acquisition of FirstFleet and the larger overall scale of our presence out there in the market is certainly part of it. So it's a long list of things, but the encouraging part really is just the size and scale of the opportunities in front of us and our ability to make sure that we're picking where we can win, where we know we can serve, where we know both us and the customer are going to be excited about the outcome and the ability to improve the financial state along the way. Operator: The next question will come from Scott Group with Wolfe Research. Scott Group: So rev per mile was up 3.6% in Q1. Your guide 1% to 4% for the quarter. So for second quarter despite pricing accelerating. I'm just -- I want to understand that a little bit more. Is this just some of the mix changes with the restructuring? And so is the offset maybe lower rev per mile, but a lot higher miles? I don't know, maybe rev per truck is the right way to think about it, if you have any sort of thoughts or color. Derek Leathers: Yes, Scott, the short answer is you're spot on. That's exactly what it is. As part of the restructuring, as part of the redesign of the One-Way network, there's a pretty significant mix change going on. There's a lot of short-haul congested type loads that were taking place in the network that are not part of the mix anymore when you do a year-over-year comp. And so that's diluting, if you will, the impact of the actual underlying rate increases. There's no other story there that's really it in its totality. Mid-single digits is what we were seeing in Q1. That needle being pushed higher as we get into Q2. But we really had to do some digging and some analysis to understand the impact of mix, and that certainly plays a role in it. So I believe you're thinking about it the right way. Chris Neil: Scott, I would add on to that, that our length of haul did increase almost 6%. So that's reflective of the mix change that Derek mentioned. And then to your point, looking at both rates and miles from a revenue per truck basis in One-Way, a 9.6% increase year-over-year, fairly significant and reflective of the efforts there. Christopher Wikoff: And not to pile on, Scott. But I would just add also to that, that fundamentally, we have talked several times about the One-Way restructuring all being aimed towards profitability improvement. We did see even in a seasonally low quarter with winter storm distractions, we did see profitability improvement in One-Way as a result of these actions, which we didn't get the full quarter benefit from. Scott Group: Yes. So maybe to that point, we've got the full quarter coming of that benefit in Q2, pricing is going up, full quarter FirstFleet. I think like in a world where rates are improving, you typically see, I don't know, 2 to 3 points of margin improvement 1Q to 2Q. Could it be better than that? I mean, I guess, it feels like we should be on track for a sub-95 OR in Q2? And I don't know -- I know you don't like to give a lot of guidance, but do you think this sets us up to get back towards like a low 90s OR by the end of the year? Christopher Wikoff: So you're right in terms of we won't get too specific in guiding you on a quarterly basis, Scott. But you're correct on some of those tailwinds and those things that would contribute to second quarter relative to first quarter. So full quarter of first fleet accretion and benefit, full quarter of those one-way restructuring benefits, along with rate lift from yield management, renewals, higher spot exposure and the like. Derek Leathers: Yes. We just balance that with the reality, Scott, that we still have a conflict in Iran. We still have -- we're tweet away from a new tariff potentially. And so there's certainly some disruptions that are out there on the horizon that cause us to have some pause. But from a macro perspective, big picture, there's certainly some tail -- there's wind in the sail right now, and our job is to go out and execute against that. Operator: The next question will come from Jason Seidl with Cowen. Jason Seidl: A couple of quick things. One, I wanted to sort of touch base on the comment you made in the presentation on driver availability. What are your thoughts on when we might potentially see driver pay hikes this year? And do you think they'll be sort of within more normal seasonal trends or might be above seasonal trends sort of given the tightness in the marketplace? And then maybe you can provide some color on the brokerage side of the business. Obviously, Q1 provided a squeeze with the way spot rates were going. I wanted to know how we should think about margins on that segment going forward. Derek Leathers: Yes, Jason. So on the driver side, a couple of notes there. With 78% of our trucks in Dedicated, it's a great starting place to be when you think about a driver market that's clearly tightening. Those are the best jobs for drivers to get. They're getting them home nightly, weekly, multiple times a week, depending on the fleet. Pay in those jobs is directly built and reflective of the work involved. And so we have a really good feel on what it takes for a driver to stay in one of those fleets. And where there's a gap or where there's more tightness in a particular geography, it's a one-on-one conversation with the customer about essentially their drivers on their fleet. And so the ability to get rewarded from the customer in order to make sure all the trucks are seated, while never easy, is certainly a very understood fact, and it's something that we've worked through already on several accounts within Dedicated this year, and we'll continue to work with others as we go forward. You couple that with the fact that we have our own integrated school network, providing very high-quality drivers into the fleet on a weekly basis. It puts us in a better position from a relief valve perspective. And then a robust experience hire program here at Werner. We're seeing application counts go up as the tightening of this market takes place. One of the underlying realities is because it's supply-driven, it's tightening through both -- it's tightening through enforcement issues, but also financial outcomes. And so there's a lot of struggling fleets out there still that really couldn't quite get all the way through this dark period. And so those drivers are looking for safe havens in places where they know their [ checkle ] cash. As we go forward, we will be selective. We will look at it very carefully and make decisions where we believe that investment is the right move to make. But I'm pretty proud overall of where our driver pay stands today. We've got a really good, strong group of tenured drivers, both at Werner and FirstFleet. Combined, we have over 1,000 accident-free million-mile drivers going down the road on any given day and over 2,500 drivers between our 2 fleets that have over 10 years' experience at either FirstFleet or Werner. So there's a good stable middle to the fleet composition. But we'll stay close to it. I think we're in a better position than most. And as the market continues to evolve, I will be all for a tighter driver market going forward. If that's the case, it really sets us up to provide even more upside opportunity through the cycle. Jason Seidl: Makes sense. On the broker side? Christopher Wikoff: I think... Derek Leathers: The brokerage side, yes, I mean, that's a story that I think has been well told already by many. But clearly, Q1 is an inflection quarter. There's buy-side pressure out there as this enforcement continues to take hold. And although we don't broker loads to the types of carriers that are faced with a lot of this enforcement action, it's still an open marketplace. And so everybody has got more choices and more options. Pricing has driven up. And so we saw some margin compression. I'm proud of the cost reduction work we've done, which helped mitigate a lot of that, what would have otherwise been kind of worse news. And we're going to continue to look for productivity gains and cost enhancements throughout our logistics business. But most importantly, we're going to be actively resetting those sell-side prices as we go forward. Our spot exposure will grow over the course of the year as will the resetting contract pricing that too will move up. And you saw that in Q1 with a 5% increase in revenue per load across logistics, and we'll continue to work that as we go forward. Operator: The next question will come from Ken Hoexter with Bank of America. Ken Hoexter: So you noted some pricing actions that you were taking. Derek, I just maybe just clarify a little bit in terms of -- are you -- I want to understand your answer to Ari's question before. Are you shifting how you lock in the dedicated contracts? Are you changing terms? I just want to understand how you're shifting that. And then my question is on -- given the software you were talking about, should we see empty miles shrink? Is that not a factor for dedicated versus over the road? Or what does it allow you to address in either the cost or efficiency gains on the network going forward? Derek Leathers: Sure, Ken. Yes, in Dedicated, despite the fact they're multiyear contracts, we have indexes and various functions by which price can be raised on a yearly basis. But outside of that, at any given time, just even with multiyear contracts, you've got large swaths of Dedicated coming up for renewal. And as we're renewing those fleets, we're having robust conversations with the customers about the state of the industry and what's happening out there with capacity. And we're able to reset those -- the price components at that time. As it relates to the other mechanism or lever to pull, which I talked about, which was incremental trucks being added into those fleets, it's not that they're necessarily priced at a different rate. They just have a different cost because a lot of the original fixed cost of setting that fleet up is already in place. So they have incremental margin contribution. And to your empty miles question, clearly, there's a backhaul opportunity in front of us. that was much more challenged a year ago, not just in rate on every one of the backhauls you haul, it will now be at a higher price number, but also the frequency by which you can fill backhaul lanes in a market that's more tight, it allows you to eliminate empty miles and really with the revenue share program benefit both the customer and our bottom line. So it's kind of a good news item all the way across, and there's no signs on the horizon to point back to some of the prior questions we received that normal seasonality isn't around the corner. And if so, the market only further tightens from here. Ken Hoexter: Yes. And does it allow you to address the other costs and efficiency? Like is it -- you talked about the synergy gains. How about the costs that you can take advantage of in your own network? Derek Leathers: Well, clearly, part of the synergy gains when we standalone or we give stand-alone first fleet numbers, those are what we think we can do there relative to the increased density, better ordering, better truck, trailer, tire purchasing, fuel, et cetera. But there are synergies on our side, too. I mean -- and those are more just really reaping the same benefit of that additional density and frankly, larger purchasing power across the entire fleet. So yes, there's opportunities to continue to mitigate costs, but it's still an inflationary backdrop overall. I mean the macro is still inflationary. And what we have to do is continue to work as we go forward to mitigate as much as that as possible by finding and extracting more OpEx savings through our tech journey increasing productivity as we now have all of the freight into one visible network. And we're able to, for the first time, really start contemplating asset sharing and things in ways that we couldn't do previously. Now that's early innings. We've got some work to do, but that is a major part of the 2026 road map. Operator: The next question will come from Richa Harnain with Deutsche Bank. Richa Talwar: So Derek, I wanted to get your perspective on where you think we are in terms of overall capacity attrition and due to better enforcement that's occurring, you mentioned also just the prolonged freight recession pushing capacity out. Maybe diesel prices, too, have talked to you all about that. You're making it difficult for the smaller carrier to compete. Do you think we're still in the early innings of capacity cleanup? Or do you think there's a lot more to come? And how do you get comfortable that these capacity declines are stickier as rates continue to improve, maybe we see more capacity creep? And then Derek, you also mentioned a lot of work needs to be done to get back to that double-digit margin range for Dedicated. Is it really just rate repair that's the lion's share of that? Or is there more you and the team need to do or maybe the market needs to give you that's better demand to get you back to that sort of level? Derek Leathers: Thank you, Richa. Really good questions. On the -- I guess I'll start maybe in reverse order. On the Dedicated front, I don't know that it's particularly difficult. It's just a process that takes some time. Again, we're not far off from those type of numbers as we sit today. We're getting increases in Dedicated. We're seeing the ability to have higher selectivity in new fleets entering the market. So all of those things are really setting up well for us to be able to kind of grind it out, if you will. It's not going to be an aha moment. It's going to be more everyday execution, everyday focus, making sure that we keep the truck seated and that we exceed the customers' expectations. As it relates to the -- where we at on the capacity attrition, obviously, it's hard to have a perfect crystal ball, but I will say this, I see no slowdown in the enforcement actions. And if anything, there seems to be sort of a drumbeat of increased face and increased understanding of how widespread some of the coloring outside the lines really was. And so as we track a lot of things, one thing I would point you to is long-haul trucking employment data would show that it's now below pre-COVID levels for the first time and actually all the way back to 2017 type levels. That's an interesting stat just to keep an eye on and for us to kind of monitor. We know enforcement started with really kind of muscling it at the scales, at the officer level. And now it's taken a more tech-enabled approach to looking and scanning for things that look to be inappropriate. It's also gotten wider. And so as they expand enforcement to include schools, to include the actual licensing process as they expanded to now even this week, they've rolled out some more increased border enforcement relative to B1 cabotage issue. And again, that's early innings. So I think there's a lot more where that came from. And yet, we have a macro backdrop where the consumer is more resilient right now than maybe I would have expected at this point. There's some potential in the back half, we see some interest rate reductions. We've got residential housing still kind of on the sideline mostly. But at some point, it's got to pop if we see some interest rate reductions. So the demand side of the equation still looks to be in a good place. And our portfolio mix is more nondiscretionary than it's ever been with the acquisition of FirstFleet. So it is all kind of need to have and need to have now type stuff that we haul predominantly across the portfolio and often in the discount end of the spectrum. And so all that positioning, I think, looks pretty good. And if we see some normal seasonality and demand inflection, I think it just adds a little more fuel to the fire as we go forward. Operator: Your next question will come from Tom Wadewitz with UBS. Thomas Wadewitz: So I wanted to see if you could talk a little bit about inflation and how much of a kind of headwind that is to what seems like a setup for quite a bit of potential margin improvement. I think you probably had a couple of different sources of inflation has been a headwind to margin. It's not just a challenged rate environment the last couple of years. And so do you need some of that to ease in order to get the traction on the margin side? Or just how do you think about that as a factor in maybe the pacing of margin improvement you can get in TTS? And then I had one on the brokerage side for you as well. Derek Leathers: Yes, Tom, thanks for the question. I mean, look, when you look at the component costs or the components of the bulk of our cost, you're talking about trucks and trailers and tires. Our tech journey is certainly expensive. There's a lot of money that we're investing into the fleet to make sure it's refreshed in a good place. I will point out that while the fleet is a little bit older than maybe what some have been accustomed to, it's also a lot more Dedicated than it was back when we had a slightly younger fleet. So we like the current positioning, but none of the asset choices are really getting any less expensive. And so that's why we have to continue to work on the OpEx side of the equation to make sure we're focusing on productivity and gains through technology. A lot of the tech spend up until this point, we still have some decent amount of duplicative spend where we're both managing our old systems and our new system. That largely sunsets by the end of this year. And so that's exciting to think about as we go into 2027 with a clean tech stack with enhanced capabilities and now improved data structure so we can really lean into some of the benefits of AI and some of the data type work that comes along with that. So it's going to be -- again, it's -- it may not be sexy because it's a lot of very difficult execution moments to compile as we go through the remainder of the year. But the road map looks solid. We're staying the course, and I'm pretty excited about our ability to do things like what we've seen in logistics, but across the rest of the portfolio as we get the tech journey kind of further along than where it sits today. Christopher Wikoff: Tom, I would just add to that. Thomas Wadewitz: I was just going to say how does that net out. Like does the pace of inflation moderate in '26 versus what you've seen in the past couple of years? Or it's better to think it's kind of a similar pace of inflation? Christopher Wikoff: I don't think we're seeing inflation up and down the P&L as we were in the last couple of years, but that's not to say it doesn't exist. Derek mentioned some of those categories where there's still more elevated inflation, some of the equipment and parts, some in employee benefits, insurance premiums, although our increases have been, I think, modest relative to the rest of the industry. So inflation is there. That's something that we're mindful of, and we're in an environment where our customers are mindful of it as well. And we're seeing more shipper openness and acknowledgment, particularly on the Dedicated side, where there's some driver pay increases, there's other inflationary factors that need to catch up as those contracts renew. I would also mention, we talked a lot about cost savings over the last 3 years, $150 million of cost takeout over that time. During this downturn, that's been largely to combat inflationary pressures, but it's largely structural, sustainable. So we'll get some lift as we hold the line on that lower cost profile, but we see rate increases, we see demand lift and some higher contribution margin as we see top line growing. Thomas Wadewitz: Yes, that's great. Just one on brokerage. I know you've invested a lot in systems and just want to see if you could offer some thoughts on how that manifests for carrier selection and safety. It seems like a lot of focus on that given Montgomery, but it's like, well, you can buy cheap and have maybe a lower bar on filtering carriers or you can filter the carriers more and maybe you don't get as good purchase transportation. And I guess wondering kind of how you think about that and where maybe you think you are on the spectrum? Derek Leathers: Yes, Tom, I haven't been accused to being on the spectrum a few times. But as it relates to brokerage, we've invested heavily in qualification tools. And so when I think about our carrier selection, carrier qualification and the robustness of its ability to kind of weed out bad actors. It's a point of strength. It's always an ongoing battle. I think the level of fraud and some of the things going on out there was larger than any of us fully probably recognized. But to your point, there is a major decision coming down the pipe. And so we're not backing away from our commitment to further fortifying that selection process and further strengthening and making it even more rigid, if you will. And it shows up some like with -- if you look at our volumes, our volumes were fairly muted year-over-year, but a lot of that is because we are being very selective and trying to eliminate the really bad day and do the best we can to put our freight in the hands of folks that are qualified, competent and capable. And if they are all those 3 things, that does come at a price. And that's okay, and we need customers to recognize the quality of that product. Some do, some don't. And so you work with those that do and you kind of pass on those that don't. And I think that's going to be an ongoing trend as this year plays out and certainly one that could accelerate pending the court decision. Operator: And the last question for today's call will come from Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Maybe, Derek, just in terms -- we've heard about hair follicle testing for a while. I guess the rules are actually written, but still sitting somewhere not really, I guess, codified or put into action. So as we think about the additional regulatory levers, not necessarily enforcement of existing laws, I guess this one will be bringing out one and maybe putting into practice. I know yourselves and others do a lot of this already, but curious to think, I guess, first, if you think that this could be actually something we see come to pass under the current administration? And secondly, if so, what's relative timing and impact from your perspective? Derek Leathers: Yes, Brian, great question. We have been, in fact, as you mentioned, we hair follicle test every driver coming into the fleet. We are a strong proponent of hair follicle testing. It's a much more accurate, much more long-lived test and a much better way to make sure America's roadways are safer. I do believe this is an administration. It's been sitting, as you probably know, on HHS' desk for a long, long time. It's been vested off and some of the efforts to further that into law or further the implementation, I should say, of hair follicle testing is gaining some traction. There's also more on the sort of saliva or wet testing they talk about, which is also more accurate. I, for one, hope that we go to an industry standard of hair follicle testing because I think it does eliminate a great deal of bad actors from being behind the wheel of the truck. We know when we made that transition, hair follicle testing was 10x more likely to show a positive than urine analysis. Today, I can't give you current stats because everybody knows we hear follicle test. So nobody comes here or applies or tries to work here if they are a user because they know that they're going to be tested. And so it's hard for me to give you current stats. But historically, every fleet that's converted has seen a significant uptick in failures. That, coupled with some work the administration is already doing on kind of furthering the journey, if you will, once you're in the drug and alcohol clearinghouse to have to prove that you've been through the program and that you're clean before you retake the road will be yet another leg to the enforcement stool of many legs that we've talked about today. So I think enforcement is going to still be kind of the word of the year. And I think you're going to see more of enforcement of existing regulations and/or implementation of ones that have been delayed for way too long, and we are proponents of all of the above. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Derek Leathers for any closing remarks. Please go ahead. Derek Leathers: Thank you, Chuck, and thank you all for joining us today. Our first quarter results clearly validate the actions we've taken during this prolonged freight downturn to structurally improve Werner. The FirstFleet integration is ahead of schedule. Our One-Way network is finding its stride and our technology investments are driving real efficiency gains. We are now a leaner, more agile organization. As market fundamentals improve, our scale and diverse solutions give us a significant competitive advantage, positioning us to accelerate our earnings power. None of this progress is possible without our people. Thank you to our customers for their continued trust and an especially big thank you to our Dedicated drivers and associates, including our newest FirstFleet family members for their relentless dedication to safety and service. I want to thank you all again for your time today and for your continued interest in Werner. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to the Sensata Technologies Q1 2026 Earnings Call. [Operator Instructions]. Please also note, today's event is being recorded. I would now like to turn the conference call over to Mr. James Entwistle, Senior Director of Investor Relations. Please go ahead. James Entwistle: Thank you, operator, and good afternoon, everyone. I'm James Entwistle, Senior Director of Investor Relations for Sensata, and I'd like to welcome you to Sensata's First Quarter 2026 Earnings Conference Call. Joining me on today's call are Stephan Von Schuckmann, Sensata's Chief Executive Officer; and Andrew Lynch, Sensata's Chief Financial Officer. In addition to the financial results press release we issued earlier today, we will be referencing a slide presentation during today's conference call. A PDF of this presentation can be downloaded from Sensata's Investor Relations website. This conference call is being recorded, and we will post a replay on our Investor Relations website shortly after the conclusion of today's call. As we begin, I would like to reference Sensata's safe harbor statement on Slide 2. During this conference call, we will make forward-looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in our Forms 10-Q and 10-K as well as other filings with the SEC. We encourage you to review our GAAP financial statements in addition to today's presentation. Much of the information that we will discuss during today's earnings call will relate to non-GAAP financial measures. Our GAAP and non-GAAP financials, including reconciliations are included in our earnings release, in the appendices of our presentation materials and in our SEC filings. Stephan will begin the call today with comments on the overall business. Andrew will then cover our detailed results for the first quarter of 2026 and our financial outlook for the second quarter of 2026 Stephan will then return for closing remarks. After that, we will take your questions. Now I would like to turn the call over to Sensata's Chief Executive Officer, Stephan Von Schuckmann. Stephan Von Schuckmann: Thank you, James, and good afternoon, everyone. Let's begin on Slide 3. As I typically do at the start of our earnings calls, I'd like to begin today with an update on Sensata's transformation journey. When we talk about transformation at Sensata, what we mean is that we have embarked on a journey to unlock untapped potential across our organization. We are encouraged that the market has taken notice of the progress we're making. However, what I find even more exciting is the vast opportunity ahead of us. Tapping into that opportunity means maximizing value for our shareholders, sustainably over the short and long term. We'd like to think of this as a pursuit of excellence over multiple phases, and that we are still early in this journey. The initial phase which we completed last year was to define what exit looks like and systematically built into the foundation of our business. Our next phase is one of acceleration, expanding on the foundation by delivering incrementally better performance and increasing focus on strategic initiatives in pursuit of our aspiration to be best-in-class. And finally, transformation maturity means achieving and sustaining best-in-class performance and market leadership. Last year, as we embarked on the first phase of our journey, we define what extent looks like for us. And we deployed a key pillars framework designed to maximize value creation. As we built up a systematic around those pillars, we focused on consistency of execution, sequentially improving each quarter and creating value for our shareholders. When updated during February on our year-end call, I shared that this framework is now foundational to everything that we do and is deeply ingrained in our business. As we advance to the next phase of our journey, our priorities framework is, first, to retain the consistency of execution and margin resilience that we installed in the business over the past year. Second, to continuously compound value by delivering year-over-year growth and margin expansion, not only in aggregate but now also at segment level. And third, to fulfill our growth mandate by delivering on our near-term growth targets while also importantly, prior our future growth engine as we work on the strategic growth initiatives we laid out for each of our segments. In this phase of our transformation, these priorities are all equally important. Balancing strategy, growth and executing effectively is the standard to which we hold ourselves. Just as we did last year, each quarter, we will update you with proof points of our progress. Before we get to the first quarter proof points, allow me to set the stage but where we have made progress these last few months. Our new leadership team is gaining meaningful momentum in their respective areas. Nicolas, and our operations team are making progress on inventory reduction and supplier payment terms optimization, which is evident in our first quarter cash conversion. Similarly, with improved focus on factory performance, productivity is accelerating, which is demonstrated in our first quarter margin expansion. Marcus, Elis and Brian have hit the ground running in their respective roles, and I will share more color on this as I provide segment updates in just a few moments. Before we get to the segments, let's turn to Slide 4, and I will briefly cover our strong first quarter results, which clearly demonstrate the continued and consistent progress that we are making. We delivered revenue and adjusted operating income at the high end of our guidance range, and we exceeded our expectations on adjusted EPS and free cash flow. Free cash flow of $105 million was again a bright spot and this represented 83% conversion, outpacing the first quarter of 2025, which is particularly noteworthy as 2025 was a record year for Sensata. With our improved free cash flow, we progressed further on our deleveraging journey. The results of the quarter are indicative of the progress we are making on our transformation journey and demonstrate that our strategy is creating value for shareholders. This is evident by any in the quarterly results, but also in the sustained improvement in return on invested capital, which has continuously increased and now stands at 10.8%. Last year, I spoke a lot about margin resilience, which requires operating our business with an inherent understanding that headwinds will arise. To prepare for this, we continuously make structural improvements, which increase our underlying earnings power. Biogen resilience not only positions us to manage through headwinds, it also ensures we maximize the benefit from tailwinds. Our Q1 results are an example of margin resilience in action. Despite multiple headwinds, including precious metal and inflation of over 100%, our first quarter adjusted operating margins improved by 30 basis points year-over-year to [ 18.6p ]. The stand in sharp contrast to the first quarter of 2025 when our results decreased 40 basis points from the prior year. While I'm pleased with our consolidated results for the first quarter, I'm even more excited by the performance we are seeing in our segments with our reorganized business. Growth in our clear strategic focus and our Q1 results are indicative of the progress that we are making as we delivered organic growth in each of our segments. Let's turn to Slide 5, and I will take you through a few highlights for each of our segments. In our Automotive business, we again delivered market outgrowth, demonstrating our ability to grow regardless of powertrain mix. As you may recall, we returned to market outgrowth in the back half of 2025 after several challenging quarters. Our growth accelerated to 4% in the first quarter as we are gaining traction on multiple fronts. For example, in Europe, we are outgrowing production as our content per EV continues to improve. In the U.S., we're outgrowing production as our portfolio benefits from the resurgence of truck and SUV production. We're also securing future growth stacking electrification wins with innovative new products, such as our high-efficiency contactor, or HEC and our [ Folta ] contactor where we have secured meaningful new business wins in both Europe and the U.S. For example, in Europe, we secured a design win on an EV platform at a large German automotive OEM leveraging our heck to enable switching between 400 and 800-volt charging architectures. In China, our local contactor volume continues to ramp as we expand our business with key local OEMs, and we are now gaining traction with battery and battery systems manufacturers. Japan and Korea continue to be growth accelerators for us as we enjoy our highest content per vehicle in Korea, and we continue to grow our market share with leading OEMs in Japan. We're also seeing green shoots of our next wave of growth in automotive with our performance in India. We are significantly outgrowing production in this fast-growing market, and our revenue with a key OEM more than doubled year-over-year. Andrew will cover our detailed Q2 guidance and the full year outlook in these remarks. But as I speak about automotive, I want to take the opportunity to assure you that while we are thrilled with our first quarter results and excited about our second quarter outlook, we are also clearly aware of some of the end market demand risks that are posed by geopolitical events and the effect on oil prices. In the spirit of margin resilience, we have developed plans for a number of scenarios and we are prepared to act swiftly to preserve our margins in event that automotive end markets deteriorate. Our Aerospace, Defense and Commercial Equipment segment was a star performer in the quarter with double-digit organic growth. Our truck production remains soft, particularly in North America, we're seeing an increased demand for build slots in the back half of the year. Given the longer lead times for these vehicles, we're now entering replenishment cycle. We also observed an increase in demand from our diesel engine and power generation customers as they are benefiting from the demand for generator sets tied to data center construction. Aerospace and defense continues to experience steady mid-single-digit growth driven by both strong commercial backlog and increased military spending. In addition to ramping up to supply the market-driven growth, we are focused on securing our share of well-time near-term content growth opportunities in defense applications. We recently secured a circuit breaker win from a German manufacturer of armored ground transport vehicles for a defense application in Europe, and we have similar opportunities in Europe in our pipeline. We're also closely monitoring recently publicized developments around the U.S. government asking traditional automotive OEMs to support defense production. It's still too early to quantify any impact, but we will update you should opportunities materialize. Our industrials business continues to experience end market softness particularly in HVAC, for unit shipments in the North America market decreased in the first quarter. Nonetheless, we delivered modest organic growth primarily through share gain. We booked 2 additional HL leak detection wins in the first quarter, further expanding our market leadership position as this product line continues to be a growth accelerator in North America. We remain focused on expanding this product offering into Europe and Asia. In the near term, European heat pump demand has returned to growth, supported by innovated fossil fuel prices alongside policy incentives, energy security concerns and improving cost economics. We expect this combination to be a positive demand driver for us over time. Let's turn to Slide 6. As I'd like to elaborate on the data center opportunities in our industrial business. We have increased conviction around our right to win in data centers, building on our existing data center business. I'd like to provide more color on the opportunity and general time frame for growth acceleration. Inside the data center, electrical protection sockets and power distribution units and sensing sockets in quant distribution units create demand for our products. Outside the data center, there are meaningful opportunities for our Dynapower product in uninterrupted power supply or UPS systems and HVAC demand grows with recruiting needs for each data center. We are incumbent in data centers today with both low voltage AC electrical protection as well as with sensing and HVAC applications. With this incumbency, we are already benefiting from secular growth. As we look at the technological road map for data centers, we see a major inflection point in the data center ecosystem. The opportunity for Sensata is significant and our right to win is compelling. This inflection point is driven by the rapid evolution of GPU platforms and the associated changes in power and thermal management requirements. Allow me to elaborate. Today, most deployed data centers rely on low voltage AC electrical architectures where air cooling meets current thermo requirements. Industry road maps from leading GPU manufacturers point towards higher Baltic DC power systems, including 800-volt DC which drives substantially higher reg densities and accelerate the need for liquid cooling solutions. These transitions increased demand for high-voltage contactors and for pressure, temperature and flow sensors. These application areas are closely in line with our portfolio where our performance, reliability and application expertise supports a strong competitive position. In parallel with our EPC and distribution partnerships, we're engaging earlier in the design cycle with hyperscalers and ODMs to support upfront specifications. This approach strengthens downstream pull-through by enabling EPC's internal partners to deliver against predefined customer requirements. Since our last update, the strategy has resulted in our products being specked by 2 hyperscale and our new flow center product has advanced from development to customer validation. From a timing perspective, industry road maps indicate that adoption of liquid cooling is expected to accelerate beginning around mid-2027, particularly in high density, AI and high-performance computing deployments. And this system scale, leading GPU and infrastructure suppliers anticipate a subsequent shift towards higher voltage power architectures. While the revenue opportunity is medium term, the time to get spec-ed in is not, and that's exactly where our focus is. This is what -- as well, and it is the call to our automotive legacy. In parallel, our diner power business is actively bidding on several lot programs with an extensive opportunity pipeline for UPS projects. The highlights I just shared are just a peak into the growth engine that we are priming at Sensata. I have even more conviction in our growth prospects than I did just a quarter ago. With our new segmentation, Marcus, Alice and Brian each have clear growth mandates for their respective businesses. They, along with their strong teams, are bringing the end market focus that is required to deliver on a growth mandate. With that, I would like to extend my gratitude to teams -- for their collective commitment to our transformation and consistency of execution. Now let me turn the call over to Andrew to provide greater detail on the first quarter and our thoughts around the second quarter and full year. Andrew Lynch: Thank you, Stephan. Let's turn to Slide 8. For clarity, unless otherwise specified, amongst are referenced in millions of U.S. dollars and growth percentages are approximate. We delivered first quarter revenue, adjusted operating income and adjusted earnings per share at or above the high end of our expectations despite volatility in our end markets. As Stephan noted, this demonstrates a continuation of the momentum and consistency of execution that we achieved last year. We reported first quarter revenue of $935 million, an increase of $24 million or 3% from $911 million in the first quarter prior year. On an organic basis, Revenue grew 4% year-over-year as we had a $34 million inorganic revenue headwind from divestitures, which was partially offset by a $20 million revenue tailwind from FX. This was the final quarter of meaningful revenue impacts from the initiatives we began in 2024 to exit $200 million of annual revenues related to underperforming products. Adjusted operating income was $174 million and adjusted operating margin was 18.6%, compared with $167 million and a margin of 18.3% in the prior year quarter. This year-over-year improvement of 30 basis points was attributable to stronger revenues and improved productivity. Margin benefits from the divestiture of underperforming products approximately offset headwinds for tariffs on a year-over-year basis. Adjusted earnings per share was $0.86, an increase of $0.08 year-over-year, exceeding the high end of our first quarter guidance range by $0.01. We delivered $105 million of free cash flow in the quarter, which was an increase of $18 million or 21% year-over-year. Our free cash flow conversion rate was 83% of adjusted net income an increase of 9 percentage points compared to 74% in the prior year period. This was an encouraging start to the year in what is typically our most challenging quarter for free cash flow as we have timing-related headwinds attributable to interest and variable compensation payments the latter of which was a $20 million headwind year-over-year. Let's move to Slide 9 to unpack this further. Free cash flow of $105 million not only exceeded our expectations, it was a record first quarter result for Sensata. This outperformance was driven by the momentum we are gaining on working capital efficiency with our initiatives to reduce inventory and optimize supplier payment terms. We are thrilled to have such a strong start to the year particularly after the record full year results that we delivered last year. As we move to Slide 10, I will discuss capital deployment. We returned $43 million of capital to shareholders in the quarter. In addition to our quarterly dividend, we repurchased $25 million of shares to offset the impact of share-based compensation. Our net leverage ratio at the end of the first quarter was 2.65x trailing 12 months adjusted EBITDA compared to 3.06x for the prior year quarter. Deleveraging will continue to be our capital allocation priority. We have conviction in this approach, and we are pleased with the improvements we are delivering in return on invested capital, which improved by 70 basis points to 10.8% for the 12 months ended March 31, 2026, compared to 10.1% for the 12 months ended March 31, 2025. Earlier this month, we announced our second quarter dividend of $0.12 per share payable on May 27 to shareholders of record as of May 13. Now let's turn to Slide 11 to discuss our segments. All 3 of our segments delivered organic revenue growth and operating margin expansion in the first quarter. We see this as an encouraging proof point for the traction we are gaining from our reorganization. Our Automotive segment delivered $525 million of revenue in the quarter, a decrease of 1% year-over-year on a reported basis. On an organic basis, we delivered 1% growth year-over-year and 4% outgrowth against the market that decreased by 3%. our market outgrowth was driven by both content gains and production mix as our versatile portfolio of ICE, EV and powertrain agnostic products continues to perform in a market with uneven powertrain adoption rates. Automotive segment operating margin was 23.5% in the quarter, a year-over-year increase of 70 basis points from 22.8% driven by both productivity and portfolio optimization measures. Our Industrial segment delivered $184 million of revenue in the quarter, which was a year-over-year decrease of approximately 1% on a reported basis and a year-over-year increase of 1% on an organic basis. Organic growth was enabled by share gains despite ongoing softness in U.S. residential and construction markets. Industrial's operating margin was 27.1% in the first quarter, a year-over-year increase of 100 basis points from 26.1%, primarily due to productivity gains. Aerospace, Defense and Commercial Equipment segment delivered $226 million of revenue in the quarter, an increase of 15% year-over-year or approximately 17% on an organic basis. we had revenue growth across every market vertical, including aerospace, defense, on-road trucks and off-highway equipment. Segment operating margin was 28.1%, a year-over-year increase of 260 basis points from 25.5% as we gained operating leverage from strong volume growth. Adjusted corporate operating expenses were $63 million, an increase of $10 million year-over-year primarily due to higher variable compensation expense, which was supported by stronger underlying performance. Now let's turn to Slide 12 to discuss what we are seeing in our end markets. Global auto production decreased by approximately 3% in the first quarter. For the full year, third-party forecasters are expecting a production decrease of approximately 2%. Recent downward revisions to third-party forecasts are primarily attributable to China and the Middle East and we do not expect these revisions to have a meaningful impact on our business. In our industrial end markets, U.S. residential and construction markets remained soft in the first quarter, which was evident in the year-over-year decrease in U.S. residential HVAC shipments. We expect HVAC shipments to stabilize in the second quarter and returned to growth in the second half of 2026. In aerospace, defense and commercial equipment, commercial aircraft backlogs are strong, Defense spending is accelerating and on-highway trucks are starting to show signs of recovery. In the first quarter, although North American truck build rates did not improve, our order book increased. We are optimistic that this is a leading indicator for a replenishment cycle in the second half of 2026 as lead times generally result in our revenue growth preceding truck build rates. With that backdrop, let's move to Slide 13, and I will share our guidance for the second quarter of 2026 and some color on our outlook for the year. For the second quarter, we expect revenue of $950 million to $980 million, adjusted operating income of $182 million to $190 million. adjusted operating margin of 19.2% to 19.4%; adjusted net income of $131 million to $139 million and adjusted earnings per share of $0.89 to $0.95. Our second quarter guidance includes approximately $8 million in tariff costs and associated pass-through revenues. This is approximately $4 million lower than our prior run rate due to recent changes in U.S. tariff rates. Our tariff expectations are based on trade policies in effect as of April 27, 2026. Our second quarter guidance does not include any potential tariff refunds related to the recent EPA tariff ruling nor does it reflect any possible pass-through of such refunds. Due to geopolitical uncertainty and end market volatility, we are continuing our practice of providing guidance one quarter at a time. That said, we do want to share our view that current consensus estimates for adjusted operating margin expansion of approximately 30 basis points per quarter in the back half are consistent with our view, provided that end market demand holds up. Should end market demand deteriorate materially, we are prepared to take reasonable measures to defend the 19% annual margin floor that we committed to last year. Now I'd like to turn the call back to Stephan for closing remarks. Stephan Von Schuckmann: Thank you, Andrew. Before we move to Q&A, I would like to leave you with some closing thoughts. As we progress through 2026, we do not expect our path ahead to be free of challenges, it really is. Sensata's prepared. The operational principles we brought into the organization have proven effective over the last 5 quarters. Just as we did last year, we will operate our business in a manner to overcome challenges and perform line with the expectations we set and to deliver margin expansion for the year. And do so, the underlying earnings power in our business will continue to strengthen, and we are primed for accelerated earnings expansion as market cycles turn more favorable. We are proud of what we have accomplished so far, and I have conviction that our business is primed for excellence. We have an outstanding leadership team and a committed organization that is running behind them. We have achieved organization-wide operational discipline, our productivity engine is delivering. Our strategic initiatives are accelerating and our growth opportunities are robust. I will now turn the call back over to James. James Entwistle: Thank you, Stephan and Andrew. We will now begin Q&A. Operator, please introduce the first question. Operator: [Operator Instructions]. And our first question today comes from Wamsi Mohan from Bank of America. Unknown Analyst: This is Ryan Show on for Wamsi. Two questions for me. One, on auto content outgrowth of 4% in the quarter. Stephan, I know you gave some details earlier in the call, but can you share any further color about the region? And as our production declines 2% year-over-year, is that the right outgrowth to think about? Stephan Von Schuckmann: So thanks for the question. Let me start a bit broader. By starting with the IHS prediction or forecast which is roughly 91 million vehicles for the year of 2026. That's around 2% down from what we saw in 2025. I think it's important to mention there are 2 factors that need to be considered that can substantially influence these -- the IHS forecast. The first one geopolitical tensions and obviously, they're being related to the oil price. And the second factor that's important are test car subsidies in China. And as we know, these were in place in quarter 3, quarter 4 of 2025, which led to a strong demand. But since quarter 1 of 2026 subsidy policies have changed, and this has obviously resulted in a weak demand. Nevertheless, the automotive segment and the segment leads around Marcus and the team and also our China President, Jackie, they have a very clear and accountable growth mandate. And to get to your question around regions, they are winning meaningful business in each and every region. So in China with contactors, in Southeast Asia, for example, in Japan, we made good progress on winning new business, as we've mentioned in the call. And so we're in South Korea. We've been winning in all types of powertrain platforms from ICE to battery electric vehicles. And I think it's also important to mention that -- we've been winning in the regions, and we've been making good progress. But we've also been winning in automotive with new products. The 2 products that I mentioned in the call, the high efficiency contactor which was the fifth win for this new product with a German OEM and also the business mentioned around the full break contactor. And then there's additional opportunities in China with battery system manufacturers that I feel we're gaining good momentum and making good progress. So overall, I'd say we've got strong conviction that the team will outgrow the market in 2026. So I hope that fully answers your question around automotive. Unknown Analyst: Got it. Yes, very helpful. And last question for me. the 60 to 80 bps of operating margin expansion sequentially seems pretty high than prior quarters. Can you give us a bridge of the drivers that's leading this? Unknown Executive: Yes. So operating margins did not expand sequentially. They contract sequentially on typical Q4 to Q1 timing-related items, but we've seen less contraction than what we've typically seen in past years as we've gotten a head start on productivity compared to compared to what we've seen in past years. So a stronger start to the year and really encouraged by that and certainly a head start on our targets for the year. If your questions relating to Q2, step-up in margins from Q1 to Q2, it's again the same themes. It's that the head start on the year, stronger productivity earlier in the year gives us a stronger lift as we move into the second quarter and volume certainly helping. Operator: Our next question comes from Mark Delaney from Goldman Sachs. Mark Delaney: I had 1 to start also on the margin topic. The company mentioned that it expects margin improvement of about 30 bps year-over-year in the back half provided that market conditions don't meaningfully deteriorate. Given all the supply chain and geopolitical volatility that's occurred over the last 90 days and pressure on input costs. Can you speak more on the actions that Sensata is already taking to navigate this environment and the company and our extension to expand margins in the back half? Stephan Von Schuckmann: So let me start with that, Mark. And I think it's important to say that despite all challenges that we have, we have a clear playbook to respond, and we've been working through that pay book throughout 2025 and we use that same playbook for 2026. So what I'm saying is Sensata is prepared. What we do is we think in scenarios and that prepares us for current or existing but also future headwinds like material inflation, tariffs and everything else. Equally important to mention is that we are designed into mission-critical application, which obviously gives us a position of leverage. And that -- saying that society can -- defend its margins. And I think that pretty much differentiates us from us. I don't know, Andrew, if you want to add something to that, but. Unknown Executive: Yes. I think thematically, those are exactly the factors that give us leverage and confidence in our ability to execute. And then I would say it's the same margin cadence that we observed last year where we see sequential improvement each quarter. Q2 tends to normalize to where we exited the back half of the prior year, and then we see sequential improvement each quarter thereafter as our productivity engine kicks in. And certainly, there's headwinds and challenges associated with input costs, but that's no different than the headwinds or challenges we saw last year on tariffs and the playbook around offsetting those is exactly the same. Mark Delaney: That's helpful context. And then, Stephan, you spoke about a number of areas where you're seeing some progress in the data center market. And based on all these engagements that are underway, are you able to give more context of how much incremental revenue this market could add in 2027 and the types of margins investors can anticipate as that center revenue grows? Stephan Von Schuckmann: Allow me to answer that question a little bit broader. So look, I think you're probably all aware of that, but I still want to mention this. I lead -- to more data processing and demand for high-performance computing. And this will lead to a change in Rec architecture to high-voltage 800-volt with liquid cooling. And that obviously means that Sensata has sensing and electrical sensing and electrical protection portfolio to serve these do mining application. And this shift purposes the industry right into the center of Sensata's expertise, which is serving these mission-critical applications with automotive-grade reliability. We're meeting robust performance specification harsh environment really matters. So I really feel we have the right to win here, and we'll share more progress once we go through the individual earnings calls going forward. Andrew Lynch: And Mark, I would maybe just add to that. Although we're not at a point where we're providing a dollar revenue forecast or specific timing. The other side of that is that we're not seeing a significant need to invest to intersect this trend. So if you look at a typical automotive product portfolio and design cycle, we're often designing to a customer specification. And so that requires investing in the program ahead of revenue. With the data center pole, what we're expecting is to get spec-ed in with products that we have today and technologies that we have today. And so the growth is real, and we're excited about it. But the other side of that is that we're not finding ourselves having to invest significantly to pursue and win these applications. And so with that frame what's important to us is the demand is there and that the revenue will come, but less concern over the precise timing of when. Operator: Our next question comes from Christopher Glynn from Oppenheimer. Christopher Glynn: Just wanted to follow up on that in terms of the timing of you being able to speak with a lot more specificity about some of the data center opportunities in cooling and UPS. There is an element of the next-gen architecture is playing more tubes also an element of -- the timing of your posture to be more purposeful about what your going after. So I'm wondering how much of this is kind of catch-up versus maybe in the current gen data center architectures, it's just not as much opportunity. Andrew Lynch: Well, as we just -- as I explained, in Ecodata set concepts, the opportunities not as strong or somewhat limited in comparison to liquid cold data center concepts. And break that down into a product level and we can also maybe add a bit to timing. On the air core data center concept, it's about temperature sensors and circuit breakers, where we're gaining momentum. But as soon as we go to the high-voltage liquid called data center concepts around 800 volts that expands our product portfolio to pressure sensors, flow sensors, temperature sensors, circuit breakers and contactors. And that is basically the add-on opportunity if you compare the 2 concepts to each other. And what we're seeing out there in the market is, first of all, the concept being placed into the market and our task the last couple of months has been to get specked into these concepts. And our expectation is that these data centers or these new data centers that are based on high-voltage 800-volt architectures will be we'll start showing revenue growth for Sensata around mid-2027. So just over a year from now from a timing point of view. Christopher Glynn: Appreciate the deeper dev. And to what extent did the products get represented as an integrated solution or a co-package solution for you guys for independent design wins into the liquid cooling and other targeted applications? Andrew Lynch: Yes. It's more technology oriented. So the wins on the electrical protection products will tend to be grouped in the wins on the thermal management products. We'll tend to be driven by different decision makers and in different applications. But I would expect that those will scale at relatively the same rate because they're interconnected. Operator: Our next question comes from Joe Giordano from TD Cowen. Joseph Giordano: Want to start on China automotive. I'm just curious, just given like the improvements you've made on the ground in terms of getting your content with local large players and -- if I think about the comps over the last couple of years, right, like you had mix -- dramatic mix shift away from like incumbents multinational incumbents. So what's the like the opportunity set for you as you add first time ever content on these new customers, like what magnitude should you be outgrowing that market? It seems like it should be like very large just given where you're coming from and adding for the first time. Stephan Von Schuckmann: First of all, let me frame what the business opportunity looks like and then we can speak about growth numbers. So as you know, Joe, we were focused a lot on international OEMs in the past and basically pretty much strongly shifted away from international OEMs more to local OEMs. And we've won a lot of business with them, be it on the contactor side, but also about our classic applications and products that we've been offering in the market. But predominantly, it's been on electrification and on the contactor side. that's the one side of it. And actually, it was just in our factory in a couple of weeks ago, and we're busy wrapping up this contacted business, and it's quite a significant volume that will place us to be in a good third position within the market in China. The second thing is, and this is something that's starting to grow is that we're seeing opportunities with battery with factory systems. So we're seeing further opportunities. It's also related to contactors. And this is business slowly, but certainly emerging, and we're gaining traction with them. That's the next level of opportunity that we see. So yes, we have a strong base business with legacy products and incumbent, and that's pretty much stable, I would say, but we're very much growing on or strongly growing on the electrification side of the business where we've gained a lot of traction. And maybe one last word to that. there are not that many suppliers on contactors that can deliver at scale but can also deliver it on a high-quality level. And that's where Sensata comes in. We know how to deliver at scale, and we know how to deliver it on a high-quality level, and that has sort of allowed us to position ourselves within that market in China with growth... Andrew Lynch: Yes. And then, Joe, on the outgrowth question. So if you think about our bodies on a global basis first, you're typically looking at a price down framework of low single digits, kind of 1% to 2% a year depending on the year, which means that to deliver low single digits outgrowth requires underlying content growth more in the mid-single digits range. And so that's what we expect on a global basis. If you do that same math in China, the pricing pressure is higher price tends to be mid-single digits in price downs year-on-year. And so to outgrow that market requires underlying content growth in the high single-digit range. That's exactly what we saw last year, and we expect to continue to outgrow that market. But with where the pricing dynamic is right now, I wouldn't expect the net out growth to be materially different to what it is for our global business. The underlying content growth, I would expect to be stronger to your point. Joseph Giordano: Last quarter, you started talking about drones a little bit. Just curious, you saw the aerospace business grew significantly over market here. I'm just curious how much of that was attributable to some of those faster growing, newer areas for you? Andrew Lynch: Yes. I'd say the growth that we're seeing right now is primarily attributable to our core business. and just acceleration of defense demand and consistent with what we were seeing in our order book as we put out our guide earlier this year. the opportunity beyond that is probably more medium term, but we're seeing traction on that in terms of opportunity to bid on and that type of business. Stephan Von Schuckmann: I mean we've been active, Joe, as I mentioned in the call, we just had a recent doing with circuit breakers for German manufacturer of armed ground transportation vehicles, which is, I think, an important one with the product in that case in Germany or in Europe, which is not as strong as our defense business that we have in North America. And we see similar opportunities in the pipeline. So we're gaining traction there and starting to build our order book, which is -- looks promising. Operator: Our next question comes from Guy Hardwick from Barclays. Guy Drummond Hardwick: Question on the HVAC side. I think you said in your prepared remarks that your HVAC revenues are down, but obviously, the market expect was down double digits in Q1. And I think it's expected to be down double digits again in Q2. And then I think you said it should return to growth in the second half. And I think that's kind of consistent with the sell-side AHRI forecast. So just the question is, how much do you think you outperformed in Q1? And is that kind of -- I imagine it was a considerable margin. And is that something we could extrapolate through the sector Q2 or was implicit in Q2 guidance? And what about outperformance continue when the market kind of stabilizes in the second half? Stephan Von Schuckmann: Yes. So the HVAC business is about 25% or so of our overall industrial business. And so with 1/4 of our business down, the end market demand down double digits and the net organic growth of 1%. There was certainly some outgrowth there. That was primarily driven by the new content that we launched last year with our AI product. But moving forward, we expect to continue to outgrow the market with our new content and then participate in market growth as the market recovers. And so certainly, if we get recovery in the back half, that would be a growth accelerator for us. At the same time, as we communicated at the start of the year, we recognize and understand the risk in this market. And so we built an operating plan that was -- that does not rely on market growth for us to deliver on our margin expansion aspirations. So we'd be encouraged to see it. The channel has been soft for some time, and it looks like there will be a replenishment cycle in the back half, but we're not super dependent on it either. Guy Drummond Hardwick: And just my follow-up question is hopefully, incremental margins sort of were excellent in DC&E and margins moved up in industrial quite nicely even though revenues were flattish. So was there any positive mix effects in those 2 segments, which could have led to that those margins? Stephan Von Schuckmann: Yes. Well, so on aerospace, defense and commercial equipment, with the growth that we're seeing in Aero, which is our highest margin end market, there's meaningful variable contribution margin from that. And then just more broadly, when we see that level of growth, 15% year-on-year, the operating leverage that we get from that is sharper than what you get from low or mid-single digits growth. And so that was certainly a contributor as well. And then -- sorry, I may have missed the second part of your question there. Guy Drummond Hardwick: I think your answer is stretch ready is that were there any businesses, I mean you partly answered that, which had positive mix other than arrow. Stephan Von Schuckmann: Got it. No, the mix was generally consistent across most of the commercial equipment space. And so again, just the growth in this business and particularly at these high growth rates tends to come with a higher variable contribution margin, and we benefit from that. Operator: Our next question comes from Amit Daryani from Evercore ISI. Irvin Liu: This is Irvin Liu on for Amit. I had a financial question for Andrew. It's good to see free cash flow conversion higher than what we have seen historically for Q1 is at 83%. Though CapEx was lower than what we've seen historically. Can you just give us a sense on how CapEx should trend through the year, especially given the lower-than-expected CapEx in Q1? Andrew Lynch: Yes. We're still targeting CapEx in the 3% to 3.5% range. That's the general framework for where we think we need to operate our business. the demands have been lower, largely because of acceleration of factory automation that we worked on last year. and more flexible line concepts. And so as a result of that, we're seeing just a little bit softer need for capital in the short term, but we still expect it will normalize to that 3% to 3.5% range. And to the extent that we run lower, that will continue to benefit free cash flow. But we don't expect it to be structurally below 3%. Stephan Von Schuckmann: And let me add to that. We've been systematically working on optimizing our CapEx. And let me give you 2 examples where we've been doing that. So on optimization is around CapEx that used for machine and equipment, where we've started to expand our focus around purchasing machines and equipment out of Southeast Asia or even China, which is substantially cheaper than equipment brought from Europe or North America, and that has allowed us to optimize our CapEx on the one hand. And then everything that's required around CapEx to maintain our factories around the world. What we call called CapEx to keep the life side, we've been optimizing that as well. So those have been 2 opportunities where we've reduced CapEx, and that has helped us in the end to reduce it overall. And to be able to deploy it for other topics like small automation. Irvin Liu: Got it. If I can tack on another data center related question. It's great to see products specked by 2 hyperscalers. But can you give us a sense on what the total TAM or perhaps what per megawatt TAM could look like for you all across electrical and sensing products that you're selling into for data centers and center adjacent opportunities? Stephan Von Schuckmann: Look, I think that's a question we'll take with us for the next call. Operator: Our next question comes from Joseph Spak from UBS. Joseph Spak: Andrew, just a couple questions on tariffs. I guess 2 flavors. One is, I know in the past, you said you source 70% from Mexico, I think 80% of that was USMCA compliant. There was a change on Section 232 metal tariffs, wondering if there's any impact you there. And then EPA, I know you said the guidance doesn't include any repayments, but have you filed for any reimbursements? Or do you plan for any? And like, can you give us a sense as to how big that can be, if it is true. Andrew Lynch: Yes. So on the first part of the question, so we're not seeing any meaningful direct impact from the changes in metal tariffs. Obviously, we're monitoring the impact on end market demand, but it's not directly impacting us in any material way in terms of the metals or commodities that we source. And we expect that with the current tariff rates in place and with the cancellation of the EPA tariffs, that our run rate moving forward would be approximately $8 million per quarter, which is about 1/3 lower than the $12-ish million run rate that we had previously. On the question of refunds. So we're certainly following the government prescribed process and when we have more to share we'll share that. But at this time, we're not going to speculate on the size or magnitude of potential recovery. Joseph Spak: Okay. Can you -- can you remind us how much do you think you paid last year? Andrew Lynch: Yes. We paid a little over $40 million in tariffs last year and the vast majority of that was EPA more than 2/3. Joseph Spak: Perfect. I just wanted to back on the business head turn our attention back to CE because the market, you said it was down 1, you were up 16. And I know you sort of talked about some potential improvement and more order books being filled there. But I guess I just want to understand whether you're lining up with that future builds and like maybe there's some inventory being built or like there's something else going on that's really causing that strong outperformance that we saw this quarter. And I guess, as we see builds improve over the course of the year, would you then expect that outgrowth to come in a little bit? Or is there something sustainable what we saw this quarter? Andrew Lynch: Yes. So let me just start with -- so when we talk about that segment in aggregate, aerospace, defense and commercial equipment, about 1/4 of it is in the aerospace end market. and about 3/4 of it is in the commercial equipment end markets. So the growth rate that we shared, the 15% or 17% organic is for the total segment. And certainly, there was market growth in aerospace. On the commercial equipment side, yes, we believe the market in total down about 1%, and we saw outgrowth to that market, primarily driven by what we believe was an inventory replenishment ahead of an expected production acceleration in the back half. We do not expect that, that is indicative of what the go-forward growth or outgrowth would be if this end market actually recover as production normalizes in the back half. There's always an inventory build that happens as you get into a replenishment cycle, especially with the production having been significantly suppressed for the last 8 quarters. So I'd expect to continue to grow and to outgrow, but likely not at that same clip. Joseph Spak: Okay. Sorry. Just 1 quick clarification. Just I was just looking at the 16% commercial equipment in the back of your slide, I think, on '19, but you're saying that's not just truck, that's not just truck. Is that what you're looking at? Andrew Lynch: Yes, that's right. If you're looking at that end market at the back end of the slide then, yes, that is the growth that we experienced in the end market as well. Joseph Spak: Okay. So it was strong, but some of that was also construction and... Andrew Lynch: For example, we're seeing pull-through in diesel demand related to generator sets for data center. So there's more than just the truck replenishment cycle. Operator: Our next question comes from Konstandinos Tasoulis from Wells Fargo. Konstandinos Tasoulis: I want to ask about the 100% precious metal inflation you saw in the quarter. You're still able to get 30 basis points of margin expansion. Can you maybe frame the puts and takes of that impact, like what the headwind was and what the offsets were? Andrew Lynch: So lots of challenges we worked through in the first quarter. Let me just start with not only did we have a significant precious metal challenge. We also had about a 40 basis point headwind from from FX. We had about $20 million of lift on FX on the top line and effectively drop through on the bottom line. So we were really pleased with the margin expansion we were able to deliver year-on-year with those 2 challenges. And I think that points to just the continued improvement in underlying earnings power in the business, independent of these challenges. With respect to metals, so we have roughly $40 million of annual precious metals buy. And on those precious metals in the first quarter from a year-on-year perspective, rates are up approximately 100%. We have, through the first half of the year, about 80% hedge coverage on these metals which gives us some mitigation, but more importantly, it gives us time to execute the more permanent and structural mitigation that we're working through in our business. So with that, maybe I'll turn it over to Stephan and let him share a little color on how we're thinking about structurally mitigating this. Stephan Von Schuckmann: Thanks, Andrew, let me add to that. So basically, how we manage the impact, especially on metals inflation is very different when you look at the different types of businesses we have. So I think overall, in the commonality of businesses is that we're in strong negotiations with our supply base when it gets to pushing on metal inflation impacts towards Sensata Equally important, but that differs depending on the product that we have and which metals are designed into the individual products, what we're doing our VAV activities, the so-called design activities, too, I think it designed the metal content of the product. In our industrial business, that's quite a big task to design, for example, silver out of our products, which is deep content the product of silver, so that once the hedging period runs out, that we have limited impact or literally no impact with our products going forward related to metals. And then, of course, I think the last lever is to discuss any impact directly with our customers and speak about compensation, which we're in continuous discussions with them, and we see our openness for that as well. Konstandinos Tasoulis: Okay. And then let me just talk about winning business. I mean, I think with the drones. I think a lot of that is just customer access, right? It's like an emerging technology, you get customer access. You're in the designing phase with them, you can grow that business. How can you apply maybe some of those learnings to getting more business in the data center opportunity? Stephan Von Schuckmann: Okay, first of all, if I think you got a bit more depth on the drone business of the support APs. We see overall, we see a double-digit CAGR, which is I think there's a lot of opportunity there, especially around military drones. On the other hand, we're designing with different applications and products, is -- position sensing, all different types of products. We presented that in the last earnings call. Can you just repeat your question related to data centers? Konstandinos Tasoulis: Yes. So you guys were able to get in on those design-ins with the drones. That's quite spectacular. What, I guess, strategy can you use from getting on those business to getting on more data center business? Any learnings from that, that you can apply to any data center business? Stephan Von Schuckmann: Well, look, it's pretty similar in and like I say, if you take products that the existing products that we got designed in the drone business like temperature centers, precious sensors, worth coal actuators, high-efficiency motors. Those products were ultimately not designed for drone applications. But because of the fast design cycles of drones, we've managed to get designed into these applications. And eventually, we'll be delivering for these drones. On the data center, it's pretty similar. So we're in -- the products that we've carried over from our automotive business, be it from electrical protection be it sensing products, those are products that we've carried over and designed into data centers now, as mentioned, into hyperscaler concepts. So very similar in the style of business and how we manage our business -- existing products that we provide into those applications. Operator: Our next question comes from Luke Junk from Baird. Luke Junk: So maybe I'll just ask one, and it's a little bigger picture. Stephan, just would be great to get your perspective on market structure within the data center business, specifically. How do you think about the need to take share in data center with these reference designs and if you're doing so, do you think you're taking share from? And just market share is factor in this data center story? How important is it? Or are these more jump-ball dynamics, especially thinking about the 800-volt opportunity that you? Andrew Lynch: Well, thanks for the question. Maybe I'll start and let Stephan chime in here. I think the beauty with some of the new content opportunity that we've laid out in data center, particularly with the architecture change, is that it's not shared that we need to take or win. It's fundamentally new sockets. So today, you're dealing with AC power architecture, moving towards high-voltage DC and that creates a fundamentally different electrical protection design, moving from fuses and circuit breakers towards high-voltage contactors. And so it's not that we need to take share. It's that we need to have a product that meets the spec and then go and get specked in, and that's exactly what we're focused on. And that's part of the reason why we have so much conviction in our right to win in this space is that as Stephan mentioned on the call, as the architectures change, it's moving right into our wheelhouse in terms of our technology set, the products we offer, our ability to meet the spec and perform in robust high-performance applications. Stephan Von Schuckmann: I think they may add some technical aspects to that. So if you look at the data center concepts today, I think I mentioned it earlier, they're based on their airport. And the products that we deliver into those concepts today are basically temperature sensors and circuit breakers. And then these new concepts coming on, so it's not basically -- it's not taking market share from in the new -- they have a whole different product range because of the liquid cooling that they required because of the increased computing power. And that obviously gives us the opportunities, again, to take existing products like pressure sensors, flow sensors, temperature centers, existing circuit breakers and contactors and designing those into the data center concept together with hyperscalers and then giving us potential revenue, as I stated, from mid-2027 onwards. So not taking share from any 1 away, it's getting into those hyperscaler concept designs and placing our products in there, that is the task. Operator: Our next question comes from Shreyas Patil from Wolfe Research. Shreyas Patil: Just 1 question for me as well. Just wondering if you could provide some color on the segment outgrowth expectations. I guess if you're doing on the core point -- state double-digit organic in aero and commercial I guess, shouldn't organic growth in Q2 be above that 1% to 4% that you're guiding? Andrew Lynch: So look, I think, let me frame that generally. And I think it's important to mention with all the examples that we've given that Sensata has multiple growth factors. And I've mentioned many examples where we've won business and where we're in. And I think it's equally important that our segment leaders around Ellis, Marcus and Brian, they're very clear and accountable growth mandates as well. And as you can recall, we've returned some fiber back to growth, and that's not so long ago, and that's in the second half of and we've actually accelerated that growth in the quarter -- in quarter 1 of 2026. So of course, 1 question is is that growth momentum is enough, but we always need to see where we come from. And I think we've -- the team has done a fantastic job in accelerating that growth. And we're not even showing growth over all segments in all areas with all different types of products, be new products and so on. So I feel -- we've made good progress. Stephan Von Schuckmann: Yes. And just to maybe hone in on the outgrowth topics. So Third-party forecasters are projecting auto production down a couple percent again in the second quarter. And so if we were to deliver similar outgrowth, that would put out on an absolute basis, organic growth in the kind of 1% to 2% range for the quarter. And then if you look at the other 2 segments, we certainly don't expect that we're going to grow at 15% in aerospace, defense and commercial equipment, that likely moderates to sort of mid- to high single digits. And then industrial is not going to get back into a growth cycle until the back half of the year. So with that trend, I think that puts us squarely in the 1% to 4% revenue growth guide for the second quarter. Operator: And with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to James Entwistle for closing remarks. James Entwistle: Thanks, Jamie, and thanks to everyone who joined us on today's call. Before we conclude, I'd just like to announce some upcoming conferences that we'll be attending during the second quarter. We will be at the Oppenheimer Industrial Growth Conference on Tuesday, May 5, which is virtual. The TD Cowen Technology, Media and Telecom Conference on Wednesday, May 27 in New York City. And the Wells Fargo Industrials Conference on Wednesday, June 10 in Chicago. We look forward to connecting with many of you at those conferences in the coming months. Jamie, you may now conclude the call. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good afternoon, and welcome to the Edison First Quarter 2026 Financial Teleconference. My name is Michelle, and I will be your operator today. [Operator Instructions] Today's call is being recorded. I would now like to turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference. Sam Ramraj: Thank you, Michelle, and welcome, everyone. Our speakers today are President and Chief Executive Officer, Pedro Pizarro; and Executive Vice President and Chief Financial Officer, Maria Rigatti. Also on the call are other members of the management team. Materials supporting today's call are available at www.edisoninvestor.com. These include a Form 10-Q, prepared remarks from Pedro and Maria, and the teleconference presentation. Tomorrow, we will distribute our regular business update presentation. During this call, we will make forward-looking statements about the outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings. Please read these carefully. The presentation includes certain outlook assumptions as well as reconciliation of the non-GAAP measures to the nearest GAAP measure. During the question-and-answer session, please limit yourself to one question and one follow-up. I will now turn the call over to Pedro. Pedro Pizarro: Thanks a lot, Sam, and good afternoon, everyone. Let me start by acknowledging that last week, we announced Maria's retirement plans. So this is our last earnings call that we're partnering on together. I'll come back to this at the end of my remarks because if I start now, I may not make it to my comments. But before moving on, I'd like to welcome Susan Hardwick to our Board. She brings over 35 years of leadership experience in the electric and water utilities, including as CEO of American Water, with deep strength in operations, finance and regulatory oversight. We are pleased with our start to the year and the momentum across our business. Edison International's first quarter 2026 core earnings per share was $1.42. Our continued performance reflects disciplined execution, steady operational progress and a clear focus on the priorities that matter most to our customers, communities and capital providers. Importantly, we are reaffirming our 2026 core EPS guidance and other financial targets, including our 5% to 7% core EPS growth over the long term. Our targets are supported by strong visibility into the capital plan, SCE's regulatory outlook and a sustained focus on safety and risk management. Today, I will focus on 3 areas: first, our continued work to make communities safer and more resilient, including wildfire mitigation and rebuilding efforts; second, key legislative developments; and finally, our confidence in the financial outlook, which Maria will expand on in her remarks. Beginning with wildfire mitigation and grid reliability, safety and community protection continue to guide SCE decisions and investments. Over the past several years, the utility has made substantial progress, strengthening the grid, improving situational awareness and reducing wildfire risk across its service area. The planned physical hardening work on the distribution system in high fire risk areas is now about 93% complete, reflecting years of sustained investment in covered conductor and targeted undergrounding. SCE continues to evolve its Public Safety Power Shutoff, or PSPS, protocols, which include enhancing its analysis of on-the-ground conditions, enabled by its vast network of weather stations and overall system visibility. These measures plus the grid hardening work I mentioned earlier, are keeping SCE customers and communities safe. Importantly, in March, the Office of Energy & Infrastructure Safety approved SCE's annual safety certification after its independent assessment of the utility's WMP and SCE's continued progress implementing its plan. SCE's wildfire mitigation plan includes new and expanded tools to improve safety, reliability and efficiency across its network. Let me share some tangible examples. SCE is using AI models to improve grid inspections and identify maintenance needs with faster and more accurate diagnostics and enhance quality control. Since 2023, SCE has developed and deployed AI and machine learning models that are collectively capable of detecting nearly 100 unique object classes and dozens of defect conditions. SCE is also using LiDAR and satellite imagery to support precise proactive vegetation management to help prevent ignitions. The utility is also expanding its deployment of early fault detection tools that identify abnormal grid conditions, enabling earlier awareness and faster response to potential equipment issues or ignition risk. Capabilities like these are increasingly integrated into how SCE monitors conditions, anticipates risk and deploys resources in real time. Turning to the Wildfire Recovery Compensation Program, or WRCP, SCE continues to make progress. SCE has now extended over 1,500 offers totaling over $500 million to community members impacted by the Eaton fire, helping families and individuals move forward more quickly without the delays and uncertainty of traditional litigation. SCE remains committed to administering the program in a transparent way that is responsive to community needs with fast and fair payments. On the legislative front, earlier this month, the California Earthquake Authority released its study. It reinforces that addressing California's growing wildfire risk requires a whole-of-society approach and that the status quo is not working for customers, policyholders or wildfire-impacted communities, who ultimately bear the real and increasing costs of inaction. It presents options for policymaker consideration, including 3 nonexclusive pathways, a defined set of strategies, and more than 2 dozen specific policy choices for reforming California's wildfire, insurance and utility systems. We have provided a summary on Page 3. There is urgency for legislative action, and we remain actively engaged with policymakers and key stakeholders to help shape solutions that support safety, affordability and long-term resilience for California communities. Our team is also fully engaged on the various pieces of proposed legislation pertaining to utilities, with affordability a critical focus. A common goal across wildfire reform and affordability is to build the right whole-of-society approach, allocating wildfire risk equitably across the economy and attracting capital at a reasonable cost on customer bills. This will benefit both customers and capital providers. Operational excellence is a core Edison value as SCE aims to maintain its cost leadership position with the lowest system average rate among the large IOUs in the state. I have shared on prior earnings calls examples of operational excellence in practice, including SCE's use of AI in areas like grid inspections, vegetation management and wildfire situational awareness, including the award-winning AWARE grid monitoring platform. The team continues to explore new AI-enabled process improvements across the entire value chain. Let me share another recent example. All utilities have instances where electricity usage can occur at a location before it is fully linked to an active customer billing record. In the past, identifying those situations required periodic manual checks and often occurred after the fact. Through SCE's internal innovation program and in only a handful of development hours, frontline teams developed an initial proof of concept of an AI-driven approach that continuously monitors for these situations and brings them to the surface earlier with clearer and more actionable insights. Once implemented, we anticipate this approach could yield roughly $25 million in potential unbilled revenue savings over a 3- to 6-month period. It's a good illustration of how smarter systems and disciplined execution translate directly into stronger financial controls and support long-term affordability. Let me now turn briefly to the financial outlook. We remain confident in the company's financial position and long-term trajectory. Major SCE regulatory decisions like the 2025 GRC, cost of capital and legacy wildfire cost recoveries are successfully resolved, providing clear visibility to 2028 earnings. Combined with our operational progress and disciplined capital execution, this all supports our confidence in our long-term targets, including 5% to 7% core EPS growth with no new equity needs. Before I turn it over to Maria, we announced that she will retire on September 1 after transitioning the Edison International CFO role on July 3 to Aaron Moss, who is here in the room with us today. Maria will focus her final months on critical policy priorities, including the SB 254 process and supporting Aaron's transition. This is really bittersweet because Maria and I have partnered continuously for over 15 years across our Edison Mission Energy, SCE and EIX gigs. Our Board, our team and I are grateful for the outstanding leadership she has provided across multiple challenges that many of our investors will remember well, including the EME restructuring, helping our communities recover after tragic wildfires, a global pandemic, 4 SCE GRCs, and shepherding the investment and operational improvement opportunities created by the clean energy transition, historic load growth and the rapid ascendance of AI. Throughout it all, she has shown great financial skill, unflappable balance, a deep commitment to engaging with our investors, some might say a lot of patience dealing with me and a real passion for developing our people, including Aaron. Aaron, Maria and I worked closely together through the EME restructuring, and we kept on going as Aaron took on the EIX and SCE controller roles and most recently as SCE's Chief Financial Officer. He has been a key leader of SCE's operational excellence efforts over the past several years, and many of you know him well already from his extensive investor interactions. I'm excited about and confident in our new chapter together. So Aaron, welcome to this role. Maria, thank you for your partnership. Thank you for your friendship. And now it's time for your 39th and final earnings call remarks. So waiting for you to drop the mic here. Maria Rigatti: I appreciate that, Pedro, and would like to extend my thanks as well. Over the years, I've spent with Edison, I have had the privilege to work with dedicated people who are focused on delivering on the commitments we have made to our customers, communities and investors. I thank the team for their focus and innovation. I also want to thank all our investors for your engagement and feedback through the opportunities and challenges that Edison has managed. And I know that Pedro, Aaron and the entire team will continue to benefit from your support. Now let's move on to the quarter and the financial outlook. I'll cover first quarter 2026 results, our capital and rate base outlook, regulatory updates and our earnings guidance. EIX reported first quarter core EPS of $1.42. Page 4 provides the year-over-year quarterly variance analysis. Core earnings increased by $0.05, primarily due to the adoption of the GRC decision last year, partially offset by the absence of about $0.30 recorded in Q1 2025 related to the TKM cost recovery approval. Parent and other core loss was $0.01 lower, driven primarily by lower financing costs following the redemption of preferred stock. Overall, the quarter reflects benefits from solid execution and SCE having strong regulatory visibility with no major proceedings driving this year's results. Importantly, it also reflects the quality and durability of our earnings profile, while keeping our focus squarely on delivering safe, reliable and affordable service for customers. Our first quarter results reinforce our confidence in the underlying business and our ability to deliver consistent performance through the year. Building on first quarter performance, I'll turn to SCE's capital and rate base outlook shown on Pages 5 and 6, which is unchanged from last quarter. Our capital plan of $38 billion to $41 billion from 2026 through 2030 is driven by essential investments in the grid to meet customer needs and support California's clean energy objectives. We are executing this plan with an unwavering focus on affordability and cost discipline. I want to reinforce Pedro's earlier comments on execution and line of sight into our financial projections. With an approved GRC covering the bulk of SCE's capital plan through 2028, we have a high degree of confidence in our ability to execute and deliver on this plan in a way that meets customer needs and regulatory expectations. That confidence is further bolstered by long-term fundamentals as we ensure the grid is ready for the economy-wide electrification ahead. Customer demand for an increasingly reliable and resilient grid continues to grow, making the need for sustained grid investment clear. As shown on Page 6, we expect SCE rate base compound annual growth of approximately 7% from 2025 to 2030, reflecting both near-term visibility and the long-term case for grid investment. SCE is focused on executing the work authorized under its current GRC, which provides clarity for most of its operations through 2028. In addition to the approved GRC, SCE has 2 significant stand-alone applications underway. The first is the NextGen ERP program, which we've discussed in prior quarters. The second is SCE's AMI 2.0 application, which was filed in March and requests approximately $3.1 billion of capital investment through 2033. As we have previously disclosed, the capital associated with both programs is already incorporated in our capital plan. AMI 2.0 represents a comprehensive modernization effort with benefits across the system. It supports grid resilience and operational efficiency, enables more advanced customer services and provides the data foundation needed to support electrification, distributed energy resources and more dynamic system management. Looking ahead to the next GRC cycle, SCE will take the first step next month by filing its Risk Assessment and Mitigation Phase, or RAMP application. This filing informs the next GRC and outlines the risk mitigations that guide proposed investments across wildfire risk, transmission and distribution reliability, cybersecurity, climate adaptation and other safety-related measures. As in prior cycles, this process provides a clear safety and risk-driven framework for evaluating capital needs and supports consistent engagement with regulators and stakeholders on safety and risk priorities. I will highlight that following the resolution of several major proceedings last year, 2026 represents a cleaner regulatory slate, meaning fewer open proceedings and greater visibility into capital recovery, which further supports our confidence in the utility's ability to execute the long-term plan reflected in our capital and rate base outlook. I want to underscore an important differentiator in our financial strategy. We plan to deliver this growth without issuing new common equity for at least the next 5 years through 2030. This builds on our track record of cost-effectively managing our credit metrics, and having issued only about $400 million of common equity over the last 5 years. We will continue to finance the business efficiently and remain committed to our 15% to 17% FFO-to-debt framework. We expect to be within this range in the forecast window, and EIX has one of the strongest consolidated FFO-to-debt ratios projected by S&P. These data points demonstrate the strength of our balance sheet and cash flow profile. This diligence allows us to fund critical infrastructure investment, maintain financial flexibility and create value for both customers and shareholders. Moving to earnings guidance. We are affirming our 2026 core EPS range of $5.90 to $6.20. We are also affirming our previously provided core EPS targets for 2027, 2028 and 2030 as well as our long-term EPS growth rate. With a strong start to the year, we remain confident in our ability to deliver on these commitments for customers and capital providers. That confidence is grounded in disciplined execution. We continue to maintain a strong focus on capital prioritization, operating efficiency and cost management. Investments are evaluated through a risk-based framework with a clear line of sight to recovery. This rigor reinforces our ability to deliver on our long-term financial targets, while continuing to advance safety, reliability and resilience for the customers and communities we serve. That concludes my remarks. Back over to Sam. Sam Ramraj: Michelle, please open the call for questions. As a reminder, we request you to limit yourself to one question and one follow-up so everyone in line has the opportunity to ask questions. Operator: [Operator Instructions] Nick Campanella with Barclays. Nicholas Campanella: Congrats to Maria and Aaron here. Always a pleasure, both of you. So you brought up in your prepared remarks the wildfire legislation and the SB 254 study. And I guess a lot was thrown out there in terms of the recommendations. But ultimately, I guess, what is Edison kind of advocating for in the 3 paths? Where is the threshold in your mind for shareholder contribution just kind of keeping in mind what played out last year? And then I guess, as we move forward here, when do you expect the actual CEA report to go in front of the legislature, if there's any timing that you can kind of talk to? I know that's a few questions of one. Pedro Pizarro: Yes. That's pretty good, Nick. Appreciate it. All right. So first on what we think is important here. Look, broad strokes, right? We appreciate that the CEA report really touches on all of these. It's important that we, as the broad California economy, not just utilities, but the whole society, see broad risk reduction incentives and programs, right, to reduce the physical risk across our entire state. It's important that when -- in spite of everybody's best efforts, the catastrophe strikes that there'll be process for recovering quickly and having a fair process for that, one that's predictable, where there's good accountability, where there's transparent enforcement and tying that to conduct with the various parties involved. And you saw that the joint submissions that the utilities made talked about some examples from other jurisdictions on the mechanisms for how you think about addressing safety insurance components and the like. So broad strokes, you asked about shareholder piece here. We said before, we think it's really important that the state return to an investor-owned utility cost of service model, right? The model that we've had across the country where investors can know that there's a good opportunity to recover their capital investment, both return of and on that if the utility has been prudent and where further shareholder contributions would take place if utilities management had -- was not demonstrated to have been prudent. So to me, that's the base piece here. Now we also recognize that there could be a lot of different ins and outs and ideas that folks throw out. So we will continue to engage with all the stakeholders and evaluate any and all packages on their merits at the time. And then finally, you asked about timing. And I think the one solid piece of timing guidance I can give you is that the legislative session ends August 31 and that bills have to be in print by August 28, 72 hours prior. I know I've seen some chatter about, well, is it sooner? Is it later? This is complex legislation in a year that's full of complex topics. There's a discussion about wildfire, but it, in itself, really touches on affordability for the state broadly, right? Because as you saw in the CEA report, doing the right thing in terms of the wildfire framework will indeed help affordability for the state. And so I wouldn't expect that, that gets solved in the first week of the legislators being back, really can't predict when it happens. And if it takes the whole session, it takes a whole session. Most important is to make sure that we do our part to help them do the right thing for our economy. I think I covered all 3 parts, and then some. Operator: Our next question comes from Richard Sunderland with Truist Securities. Richard Sunderland: Congratulations as well to both Maria and Aaron. Picking up on the sort of legislative discussion from earlier, I realize, Pedro, it looked like you didn't want to speak to timing much, and I get that. But I guess just procedurally, this go around versus last year or a few years back, how do you think that will differ in terms of the engagement given we have the CEA report out? Do you see more of a public bent to all of this given the high-profile public nature of the report? I guess any other thoughts there would be helpful. Pedro Pizarro: Yes. Sure. I mean it's a good question. And I think part of the answer is the CEA process itself, right? We had -- prior to the legislative session reopening, you had, frankly, a group that was a very professional group at the CEA, go through a methodical process, engage a broad range of stakeholders. So a lot of different voices are appropriately represented in the options that the CEA laid out in their report. So I -- it is me speculating a little bit here, but I think it's probably fair to say that this gives the legislature a much more robust platform from which to enter their debate and one that already reflects stakeholder voices. Given that so many stakeholders contributed to the development of the CEA report, I would expect to see a broad group of folks also engage in the legislature, and that's a good thing. This can't be just about utilities. This can't be just about insurance. It can't just be about building codes and standards. You really need all of these things to come together to make the system work for the world's fifth largest economy. In terms of procedure, maybe the other thing I would offer is that, I'd say, typically, when you see these kind of complex topics, it's probably not surprising to expect some continued engagement from the governor's office, their leadership. You saw the governor say early on in his initial press release after SB 254 that the state would benefit from the continued engagement of, for example, Ann Patterson, now at Stanford, right? So good brains being applied to this. In the legislature, I would imagine and expect that the leaders of some of the relevant committees are being personally engaged. In the past, sometimes you've seen working groups get assembled, designated by leadership. I haven't heard that's going to happen, but I wouldn't be shocked if we saw something similar because you really need a core group of policymakers to be able to dive into the details as they craft potential legislation. So some thoughts. Maria, I don't know if you have anything to add there? Richard Sunderland: That's helpful context. And then I guess sticking with this theme, I think if I followed the script correctly, you've talked about some broader legislative engagement and mentioned affordability is a critical focus. Could you just expand on that a little bit more? Are you talking kind of outside of the wildfire reform efforts? And any other context for what you're, I guess, focused on and promoting there would be helpful. Pedro Pizarro: Yes. Look, just acknowledging, you've seen a number of bills introduced already that hit in some way on affordability for the [indiscernible]. And I think going into that, it's really important that Southern California Edison is proud of the affordability trajectory that it's been on. And I think we mentioned it briefly in my remarks, but the hard work that Steve and Aaron and the whole team have been doing over multiple years to manage costs, be as affordable as possible, that will continue. But that's an important fact that we go into all this. But I was just acknowledging that you've seen a number of bill introductions that hit on affordability. It's clearly a theme in the gubernatorial primary. And so I know that's on people's minds and the wildfire piece will be an important part of managing affordability for the state. Maria Rigatti: And maybe just, Rich, Pedro is right, the wildfire legislation itself is about affordability. It is inherently an affordability bill. The other affordability bills, they really do cover a wide range of things, everything ranging from looking at rates and rate structures and how to manage those down potentially to things that are just around the reporting and how the utilities would disclose the work that they do, how things are audited. So it really covers a pretty wide spectrum of things that fall into that affordability category. Pedro Pizarro: And Maria, I think it's fair to say you're also seeing affordability discussions around the insurance market. And I'm sure as folks think about risk reduction in physical space, you'll see affordability considerations there. So yes, it's an important theme for the state. And by the way, one thing that the CEA report pointed out is that wildfire, well, that's the main focus here in this discussion and then what you were asking about, it is one of a range of other natural impacts that California needs to deal with. And I thought there was a table in the CEA report that was instructive where you look at the -- what is needed in the state in terms of earthquake hardening, for example, probably has an extra 0 compared to the wildfire. So I think lawmakers will be thinking about affordability writ large, putting everything in that context. Operator: Our next caller is Gregg Orrill with UBS. Gregg Orrill: What's your anticipation? Or is it too early to know what the scale will be of the Wildfire Recovery Compensation Program? Pedro Pizarro: You mean the SCE's WRCP? Gregg Orrill: Yes. Pedro Pizarro: So yes, we don't know ultimately what the participation rate will be. What I can tell you is that I mentioned we've had around 1,500 offers that have been made already. There's over 3,100 claims that have been filed. But to put that in scale, we've also seen claims brought forth by something like 30,000 plaintiffs so far. We know that in the program itself, there are around 18,000 properties that qualify for the program in the zones that -- for eligibility. And any given property could have multiple claimants. And so that says to us that the 3,100-plus claims so far, the 1,500 or so offers so far are very early stage here, but we really can't forecast what that ultimate number might be. Operator: Our next caller is Anthony Crowdell with Mizuho. Anthony Crowdell: Congrats to Maria and Aaron. Just -- I think it's off of Gregg's question, and maybe you just answered it. Obviously, the claimants grew about 3x from the update you provided in February over $500 million now. At what point or clarity on maybe the pace of settlements give you enough visibility to provide a loss estimate? Pedro Pizarro: Yes. And we still -- sorry, Anthony, I know this is going to sound familiar from prior quarters, but it's really hard to estimate even when we will be able to provide an estimate. I think we will need to see not only a large enough volume of claims go through the program, but also, I'm not sure this is the right word, some stability or lack of volatility in terms of the types of claims that we're seeing where we could then somehow extrapolate that we have a really good beat on what the rest of the exposure might look like. You might remember, frankly, I think we all learned lessons together as we went through the exposures and the other heartbreaking instances, TKM and Woolsey, where we saw that there were new facts that came out and such a variety of different types of claims that I think we learned from that. It is very difficult to come up with the best estimate or even at this stage, a low end of the estimable range. So that was a long-winded way of saying not sure when we would be in a position to do that, Anthony. Anthony Crowdell: Great. And just a quick follow-up. I believe in the first quarter, you stated you filed the AMI 2.0 application. Just any timing of a decision there or expected time line of the CPUC decision? Pedro Pizarro: Let me turn it over to Aaron for that. Aaron D. Moss: Yes. So we just filed in March. We'll have -- that's a $3 billion, a little bit more than $3 billion capital program that we filed for, replacing the smart meters that we deployed nearly 20 years ago. About half of that capital is in our current capital forecast, about half of it extends beyond the 2030 time frame. So we're at the front stages of our process with the application just being filed. I believe, somebody could correct me, that intervenors would provide comments later in the summertime of July and then the decision follows along after that, Anthony. Operator: Our next caller is Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just to follow up on some of the SB 254 questions. There's still, I think, robust debate around if there will, in fact, be legislation passed this session or if you maybe see this pushed into 2027. So I guess, could you just provide some thoughts on kind of the course of action in the event that legislation has not passed this session or maybe isn't as comprehensive as you might have hoped? I guess, should we expect any changes to the strategic focus areas or the current plan on the back of that? Pedro Pizarro: Yes. Thanks, Carly. Look, let me be very clear, our singular focus today is on 2026. And as you heard in my prepared remarks, one of the real strengths or the strongest messages in the CEA report was the deep cost of inaction. And so that was a real call for action. It was a sense of urgency that the CEA communicated and that I think you're already starting to see reflected in maybe some of the early comments on the legislature. That said, we can't guarantee that we'd see action in 2026. We think that the table is very much set for that and that there is a need for the economy to see that. I would also add that frankly, as a resident of California, put aside my CEO of Edison hat, I worry about this from a broad state perspective, the world's fifth largest economy, we're going to see -- we don't see legislation this year. I think it's quite likely we would see, for example, credit rating impacts not only for utilities or for insurance companies, but you could see it in other sectors in the state, you could see it for the state's own financing authority. And so part of our job will be to make sure that we and others are telling -- providing the message, providing that fact-based to legislators and policymakers that this really requires action this year. And without action this year, I think we're going to see some real dire financial consequences across multiple sectors of the economy, not just the utility. If, in spite of all that, there isn't sufficient action in 2026, then we will plan for what we would do in future cycles. We would also need to take a look and see what happens with, for example, our cost of capital. And does that lead to then us having to think differently about our capital allocation. But we're not there today, and our, again, singular focus is on 2026. Carly Davenport: Got it. I appreciate the thought... Pedro Pizarro: Maria, do you want to add anything to that? Maria Rigatti: Yes. Carly, maybe I'll just underscore, Pedro is right that the process is progressing right now as it was intended to and as it was outlined under the legislation. We have a lot of visibility into our capital plan because we have knocked out a lot of the regulatory proceedings in 2025. So there's a lot of certainty as to the plan, how we execute the plan and what the plan costs. We have no need for new equity for the next 5 years. And as you know, we have a commitment to the dividend that we -- that the Board has been declaring and increased, in fact, by 5%, 6% in December. So we have a lot of the groundwork laid and a lot of the visibility laid. And when we look at the future, we have a lot of confidence in the scenarios and the conservatism that we've built in. I think as Pedro said, as we continue to think about the cost and benefits if the cost of capital goes up, our customers would pay more if the cost of capital goes up, and we would have to consider that in the future when we develop new capital plans. And that's why a predictable framework under legislation that supports reasonably priced capital is really most helpful to our customers. Carly Davenport: Got it. Okay. That's really helpful. And I guess just picking up maybe on that last piece in terms of what's in the best interest of your customers. There's obviously been a lot of focus on affordability, in particular, in kind of some of the rhetoric around the upcoming gubernatorial election and there's been some recent changes in kind of the polling there. So I guess maybe just if you could talk a little bit about how you're positioning some of the rate decreases that you've seen this year and Edison's overall strategy on affordability with policymakers in response to some of the noise on affordability related to the election. Pedro Pizarro: Yes. And Carly, I think your -- the last word you used there, you noise is appropriate because it is an election and there's a lot of stuff flying around. Obviously, we -- ultimately, we will work with and work well with whomever the people of the state elect. But we are very focused on making sure that we are clear in what the facts really are around the affordability trajectory. The fact that Southern California Edison has had up until the 2019 to '24 period had rate increases that on average were at or below inflation. We had a period there, 5 years, where we went beyond inflation for reasons we've explained, external impacts from weather and power market costs because of the wildfire, about 1/3 of it was kind of normal load growth sort of impacts. But importantly, the commitment we've been able to make that Steve and Aaron and the team are steering SCE to be delivering rate increases that are once again at or below inflation through 2030, that's an important message that needs to be out there, and we're making sure we're communicating. So we'll continue to engage with candidates and their campaigns, continue to educate our policymakers and our customers. And most importantly, we'll continue the hard -- the real work on operational excellence and continuous operational improvement. Operator: Our next caller is Aidan Kelly with JPMorgan. Aidan Kelly: Just one question on my end. I want to hone in on the Eaton fire process, if I could. It seems there's been some recent media headlines pushing back on the information flow in court proceedings. I guess just curious if you could share some thoughts on Edison's dissemination of information to the state. And do you kind of see this pushback as normal give-and-take or maybe like a touch higher than what you'd expect typically? Pedro Pizarro: Yes. Aidan, I think you're probably referring to an article that was posted by the LA Times over the weekend that made that argument. As you probably saw in the article, I actually sat down with the reporter and make sure that -- I tried my best to make sure that the reporter understood the facts here. I think the article had a slant to it that lacked appropriate balance. The core of that, that she was describing in the article, she was making the argument that because some of the information in the case is privileged that somehow that meant Edison is withholding information. And that is just simply not an appropriate take on the process. It starts with the commitment that I made on behalf of the company, and we continue to make as a company to be as transparent as possible with our public and with you, our investors. And we've continued to do that throughout the process. However, there is information in litigation that is privileged, not just on the Edison side, but there's privileged information on the plaintiff side. And that's one of the items that I emphasized, and I'm not sure it got quite captured us strongly in the article. There's a balancing act here. And both sides develop privileged information. It's important for their litigation strategies. It is litigation, right? And so it's appropriate to protect privileged information. By the way, not only did she focus on privilege in logs, but also the fact that there is some information that is protected by confidentiality orders in the case. And so I explained to her, and I think this piece may have made into the article a little bit. Some of that information may have nothing to do with the Eaton fire case itself. So for example, in sweeping up discovery, et cetera, that might include, if you're asking for -- hypothetical here, asking for information about the network or about meters on the network. Well, they might sweep up information around our network map topology that the federal government wants us to keep under wraps because to put it out there, would provide a road map for agents, terrorists and others who do not mean well, right? They mean harm to the system. Similarly, some of the information might include specific customer information that we need to protect, keep confidential. The other side, plaintiffs' attorneys can see some of that information under protective orders, but it's not released to the public. So those are the categories of information that I think she's referring to and was trying to support a thesis that somehow we're not being as transparent as possible. That is simply not true, and we will continue to stress what fact is and what fact is not here. Operator: Our next caller is Ryan Levine with Citi. Ryan Levine: Congrats to Maria and Aaron. In terms of the sizing of how much -- is there a way you could size how much cost-cutting initiatives AI could enable or unlock and how the AMI 2.0 and ERP systems could impact that opportunity? Pedro Pizarro: I'll turn it over to Steve and Aaron here. Steve, do you want to take it? Steven Powell: So I think it's still really early to get at a full sizing of what the potential with AI is. Pedro listed out in his opening remarks, a number of areas that we're leveraging AI. They span from things that we've already done in our customer operations. And so helping out our call center agents more quickly respond to customers and shorten the length of those calls. We're doing things like identifying trends around customer issues and frankly, flagging them before they happen, and we can get ahead with proactive communications to customers to deal with some of their challenges. There's a lot of emerging opportunity on the grid. It's developing tools that will automatically do designs of infrastructure. We're starting with the basics of like-for-like replacement to changes to how you dispatch your resources, changes to how you optimize your capital portfolio. So it spans kind of the entire business from procurement to grid to the customer side. It's still early days. We're getting -- we've got benefits that we capture and they roll into our forecast. But I think the total opportunity there is something that will continue to evolve, especially as the technology evolves so rapidly. Aaron D. Moss: Maybe I'd add to that on the question about the advanced metering initiative. The data that we'll be gathering through AMI will be critically useful for us. Take a look, Ryan, at our application we do go through and quantify a significant amount of value that will come to customers from that program. And in that, we look at what's the case for a like-for-like replacement, and what's the case for -- what is a more expensive but much more valuable to customers, sort of state-of-the-art or near state-of-the-art metering initiative and how we could use data there to inform demand flexibility to provide customer signals to enable things like allowing customers to avoid the cost of a meter upgrade to charge their electric vehicle by better managing their electric consumption within the panel and within the meter that we have there. So a lot of benefits that have been quantified in that with a benefit/cost ratio for the incremental costs above the obsolescence case well above 1. Pedro Pizarro: Exciting stuff. And also all of this is supportive of the 5% to 7% EPS growth rate. Ryan Levine: Great. And then one follow-up question to some of the prepared comments. How are you assessing wildfire risk going into the summer wildfire season compared to prior years given weather and all the company actions over the last few years? Steven Powell: Ryan, it's Steve. I'll follow up on that one as well. So when we go into every -- I'll say, each year as the weather evolves, we're really focused on our long-term mitigations and how they're significantly reducing risk across the whole system. So we've now deployed more than 7,100 miles of covered conductor, nearly 100 miles of undergrounding. And that really forms the basis for that risk reduction. We layer on top of it going into each season, looking to see where the parts of our system that may have increased risk relative to the rest of the system. We do additional inspections, both for equipment issues as well as for vegetation management so that we can take care of all of the risky stuff before we're into the peak fire season. And then each year, it's about how we continue to improve our PSPS program. And so whether it is changes to our thresholds and triggers, importantly, getting ahead to understand where might we -- where might some communities see PSPS that haven't seen it as much in the past, so we can go and educate and really engage the communities to understand what to be ready for and how they can be prepared. So it's that suite of mitigations that as we head into each fire season or at least the summer and peak season that we're fine-tuning to help make the risk lower and lower every single year. The weather, this year, we've had a fair amount of rain early in the season. It's been drier more recently. Trying to predict what the fire risk will look like in a given season is a challenging one. We certainly can project how dry it may get, but winds are notoriously difficult to be forecasting. And so that's why we come back to making sure that we are fully deploying all of our mitigations, keeping in line with the activities laid out in our wildfire mitigation plan. Pedro Pizarro: I mean, Steve, I think you covered it so well and the only thing I would add is while, of course, we track year-to-year conditions and get those questions from investors regularly, the reality is the work that SCE is doing isn't about this year or next year. It's about recognizing that the risk posed by extreme weather driven by climate change is going to increase over the next several decades. And so that's why there's so much good focus on long-term risk management here. Operator: Our next caller is Shar Perez with Wells Fargo. Constantine Lednev: It's actually Constantine here for Shar, but I appreciate the time today. And first of all, a big congrats to Maria and Aaron on the transition here from the entire team. And I couldn't agree more with Pedro's comments on the prepared remarks. So kind of a couple of just cleanup questions maybe around the edge. But without trying to find an estimate today for the Eaton liabilities, how do you feel about the pace of the claim submissions? And is there a way to frame maybe a time line where you can get to a point of visibility? Maria Rigatti: Yes. So Constantine, think about it this way. The statute of limitations is actually still running. So there will be a lot more time still. It's a 3-year statute of limitations on property damage. So it's not out until 2028 that it will close in January. So we will get a lot more information as time passes. I think the other piece, and Pedro touched on this earlier, but maybe to emphasize is that there's a very complex interdependency between claims, but also insurance and the level of insurance that a claimant might have, whether they're fully insured, underinsured or uninsured in their entirety. So I think until we can get more information around that, and that will take time, it will be difficult for us to generate an estimate. The other piece of it is as more claims come in and we get more data from them, that would add to sort of our knowledge base. But even as claims come in, people don't have to give us a lot of specificity as to what their damages are. So that's maybe a way to express or to share with you some of the complexities that we're facing, but really fundamentally, it gets back to Pedro's point that we have not been able to provide a time line for when we will get to that point. Constantine Lednev: That's abundantly clear. And maybe just touching on the election rhetoric that we kind of touched on with the utilities. Is there anything that you see that's actionable or practical? And does this suggested distributed solution kind of work for driving down costs? Or is that a potential cost shift? Pedro Pizarro: Could you repeat it's actionable in what specific way, Constantine? Constantine Lednev: Actionable or practical from anything that has been kind of out there in the media. Maria Rigatti: So Constantine, you're talking about sort of like this concept that we've heard from some folks around disaggregating and breaking up the utilities. I think Pedro has made this point a few times that integrated utilities actually have lower costs than not. So we question sort of the mathematical foundation for some of those comments. Pedro Pizarro: Well, I'll just be very pointed here. I think specifically, one of the candidates, Tom Steyer, has made the claims around -- a couple of claims that stood out 25% rate reduction by breaking up the competitive -- breaking up the monopoly utilities and also claim that the lowest rates in the country are in competitive markets. And the reality is that I don't see any sort of fact basis for the 25% reduction. And we -- the way we get rate reduction is the hard work that, again, Steve, Aaron, the whole team at SCE are doing that has led to the lowest system average rates among our investor-owned utility peers. But also when you take a look at a national level, actually, the lowest rates tend to be in vertically integrated utilities. And so -- and I think much to Mr. Steyer's chagrin, some of those still have quite a bit of coal generation in their systems. So we've been very pointed about taking on things that are not connected to fact like those and being outspoken about them. Operator: And that was our last question. I will now turn the call back over to Mr. Sam Ramraj for any closing remarks. Sam Ramraj: Thank you for joining us. This concludes the conference call. Have a good rest of the day. You may now disconnect. Operator: Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.
Operator: Thank you for standing by, and welcome to Magnachip Semiconductor's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mike Bishop with Investor Relations. Please go ahead, sir. Mike Bishop: Thank you, Jonathan. Hello, everyone, and thank you for joining us to discuss Magnachip's financial results for the first quarter ended March 31, 2026. The first quarter earnings release that was issued today after the close of market can be found on the company's Investor Relations website. The webcast replay of today's call will be archived on our website shortly afterwards. Joining me today are Camillo Martino, Magnachip's Chief Executive Officer; and Shin Young Park, our Chief Financial Officer. Camillo will discuss the company's recent operating performance and business overview, and Shin Young will review the financial results for the quarter and provide guidance for the second quarter of 2026. There will be a Q&A session following the prepared remarks. During the course of this conference call, we may make forward-looking statements about Magnachip's business outlook and expectations. Our forward-looking statements and all other statements that are not historical facts reflect our beliefs and predictions as of today, and therefore, are subject to inherent risks and uncertainties as described in the safe harbor statement found in our SEC filings. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as otherwise required by law, the company does not undertake any obligation to update these statements. During the call, we will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended as supplemental measures of Magnachip's operating performance that may be useful to investors. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our first quarter earnings release in the Investor Relations section of our website. And with that, I'll now turn the call over to Camillo Martino. Camillo? Camillo Martino: Thanks, Mike. Good afternoon, everyone, and thank you for joining us. I am very happy to be here today for my third earnings call with Magnachip. Let me reiterate a point that I've made consistently over the past several quarters. Specifically, MagnaChip has a strong technical foundation with a long history in power semiconductors and deep relationships with important customers. We are building on that foundation to execute a multiyear transformation to return the company to profitable growth. Although we are in the early stages of this transition, I believe that we are making good progress. Let me address the quarter directly. From a revenue standpoint, Q1 came in stronger than typical seasonality would suggest with both sequential and year-over-year growth. Allow me to provide some clarity on how to interpret that result. A portion of the strength was driven by actions we took in prior quarters, specifically our previously communicated onetime sales incentive program to reduce channel inventory. This action was necessary to improve the health of the sales channel, but it also creates some short-term variability in revenue. While the top line growth is encouraging, we are still operating in a challenging competitive environment. Consistent with our communications in prior quarters, we continue to face pricing pressure on legacy products, particularly in China. And as we have said before, product competitiveness is the key to winning. Where we have competitive products, we can win. Where we do not, it is difficult to win in this market. On gross margin, we saw sequential improvement. We feel good about our progress, and we are at the beginning of a multiyear journey to substantially improve gross margin. Let me now step back and reconnect this quarter to our broader strategy. As you may recall, last quarter, we articulated a new strategy comprising 6 foundational pillars for the company's longer-term recovery and profitable growth. We are actively executing on all of them. I will not go through each one of them in detail today, but I would like to reinforce a few key points. As we have consistently said, at the center of everything we are doing is improving product competitiveness by developing new generation products. These are all critical to our long-term success. We have focused our efforts on accelerating our R&D and launching new products. We launched 55 new generation products in 2025, and we are now aiming for another 55 new generation products in 2026 after launching only 4 new generation products in 2024 and 0 in 2023. We believe that the launch of many new generation products on a consistent basis will have a meaningful contribution to our financial recovery efforts. Some of these new generation products include those we mentioned in our recent press releases, including our newest 8th generation of products for the BatteryFET set as well as for MV MOSFETs. While it takes some time for our customers to qualify a new product and subsequently drive revenue, we believe that over time, these new products will return the company to revenue growth and improve margins. Consistent with our comments last quarter, we expect new generation products to comprise approximately 10% of our total revenue in the fourth quarter of 2026 up from only 2% for the full year 2025. In parallel, we expect to continue deepening our relationships with important industry leaders in our target market segments. This will be crucial to returning to growth. I would like to address our Power IC business as that is an area of opportunity and is also critical to our long-term success. It is a smaller portion of our business right now, and we expect it to remain so through 2026. At the same time, we do see significant opportunity for our Power IC business in the coming years. We continue to align our Power IC products as well as our future gate-driver IC products with our power discrete product road map, such as MOSFETs and IGBTs. The longer-term alignment of our discrete MOSFETs and our Power IC products will enable Magnachip to launch higher value-added integrated power modules in the future as well. We believe Magnachip's longer-term potential is substantial, and the accelerated launch of new generation products are building initial successes. So while we are confident in the direction, the financial improvement will be gradual. Let me turn over to Shin Young. Shin Young? Shin Young Park: Thank you, Camillo, and welcome, everyone, on the call. I'll start with key financial metrics for Q1. Total Q1 consolidated revenue from continuing operations, which includes Power Analog Solutions and Power IC was $46.2 million, around the midpoint of our guidance range of $44 million to $48 million. This was up 3.3% year-over-year and up 13.9% sequentially compared to $44.7 million in Q1 2025 and $40.6 million in Q4 2025. Revenue from Power Analog Solutions in Q1 was $41.6 million, up 4.5% year-over-year and up 13.1% sequentially. The sequential improvement was primarily driven by the $2.7 million of onetime sales incentive that was recognized as a reduction in revenue in Q4 2025 as part of our efforts to reduce elevated channel inventory. Revenue from power IC in Q1 was $4.6 million, down 6.2% year-over-year, but up 21.3% sequentially. In Q1, consolidated gross profit margin from continuing operations was 15.6%, above the midpoint of our guidance range of 14% to 16%. This compares to 20.9% in Q1 2025 and 9.3% in Q4 2025. Year-over-year decline was primarily attributable to an unfavorable product mix, driven mainly by ASP erosion, particularly in China. As a reminder, the $2.7 million of onetime sales incentive was recorded in Q4 2025. Excluding this item, Q4 gross profit margin would have been 15%. On that basis, gross profit margin improved by 60 basis points quarter-over-quarter, primarily due to higher utilization rates. Moving to operating expenses. SG&A was $7.7 million in Q1 compared to $9.2 million in Q1 2025 and $8.6 million in Q4 2025. As mentioned in our prior earnings call, we expect to see annual OpEx savings of approximately $2.5 million beginning in Q4 2025 from our cost reduction efforts, primarily related to the voluntary resignation program implemented in Q3 last year. Stock-based compensation charges, included inSG&A, were $0.6 million in Q1 compared to $0.8 million in Q1 2025 and $0.4 million in Q4 2025. R&D expenses were $6.7 million in Q1 compared to $5.4 million in Q1 2025 and $7.6 million in Q4 2025. The year-over-year increase reflects the acceleration of investment in new product development. As Camillo noted earlier, we are now aiming for 55 new generation products in 2026. Before turning to our non-GAAP results, please note that our GAAP financial results are available in our Form 8-K filing with our first quarter earnings release. Our non-GAAP results are as follows. Adjusted operating loss was $6.5 million in Q1 compared to a loss of $4.4 million in Q1 2025 and a loss of $11.9 million in Q4 2025. Adjusted EBITDA was negative $3.6 million in Q1 compared to negative $1.2 million in Q1 2025 and negative $8.9 million in Q4 2025. The quarter-over-quarter improvement in both adjusted operating loss and adjusted EBITDA was primarily driven by higher gross profit, along with lower operating expenses as discussed earlier. Q1 non-GAAP diluted loss per share was $0.11 compared to a loss per share of $0.08 in both Q1 2025 and Q4 2025. Weighted average non-GAAP diluted shares outstanding for the quarter were 36.4 million compared to 36.9 million in Q1 '25 and 36 million in Q4 2025. Moving to the balance sheet. We ended Q1 with cash of $94.6 million compared to $103.8 million at the end of Q4 2025. The decrease was primarily driven by $3.9 million in capital expenditures with the remaining change largely attributable to operating cash outflows. At the end of Q1, total borrowings were $42.3 million, including $15.9 million of equipment loan. Of this amount, $26.4 million associated with the term loan was reclassified to short term during the quarter due to its maturity in March 2027. While this is standard accounting treatment, our lender is aware of the maturity profile, and we expect to be able to extend the maturity date beyond March 2027 and we'll address it in the ordinary course of business, consistent with typical market practice in Korea. Now moving to our second quarter 2026 guidance. Consistent with Camillo's earlier comment, Q1 revenue came in stronger than typical seasonality due to the onetime sales incentive program. While actual results may vary, for Q2 2026, Magnachip currently expects consolidated revenue from continuing operations, which includes Power Analog Solutions and Power IC businesses to be in the range of $44.5 million to $48.5 million, roughly flat sequentially and a decrease of 2.3% year-over-year at the midpoint. This compares with $46.2 million in Q1 2026 and $47.6 million in Q2 2025. Consolidated gross profit margin from continuing operations to be in the range of 17% to 19%, up from 15.6% in Q1 2026, but down from 20.4% in Q2 2025. Finally, I would like to note that a planned upgrade to the electrical substation by a service provider in Gumi is expected in Q3 and will have an impact on our factory operations. To mitigate any potential customer disruptions, we plan to build some additional inventory in Q2 and into Q3. As a result, we would expect our factory utilization rate to be somewhat higher in Q2, followed by lower utilization in Q3. Since utilization is the main driver of gross margin, we expect our gross margin in Q2 will likely be higher as implied by our guidance. Gross margins are expected to decline in Q3 and decline further in Q4 as a result of the planned upgrade. Thank you. And now I'll turn the call over to Camillo for his final remarks. Camillo? Camillo Martino: Thank you, Shin Young. Allow me to reiterate that we are committed to executing on our turnaround strategy and in particular, the 6 foundational pillars that we articulated a quarter ago. While we proceed through this multiyear journey, we are pleased to see the initial signs of success. Ultimately, this new strategy should drive long-term shareholder value. I want to thank our employees for their continued hard work and dedication and our investors and partners for their patience and support as we return the company to growth. We will continue to be transparent, disciplined and focused on execution. I will now turn the call to the operator and open the call for questions. Operator: And our first question for today comes from the line of Suji Desilva from ROTH Capital. Sujeeva De Silva: Could you please start first with maybe the gross margins by segment and how they vary? And is one more manufacturing exposed than the other? Any color there would be helpful. Shin Young Park: You're asking for this quarter, Suji, right? Sujeeva De Silva: Yes, you had the gross margins in the press release by segment, and they were very different. I was just curious what the driver of one versus the other was and then, yes. Shin Young Park: So we have a discrete business, which we call the Power Analog Solutions and Power IC businesses. So we've been kind of broken them down into those 2 buckets and power IC, that's the IC and the custom chip. So that the gross margin has been hovering around like 40 percentage, and it used to be a little over, but depending on the product mix. So that business, I mean, relatively revenue size is relatively small compared to the total company's revenue, but the margin has been pretty -- I mean, a lot higher than the normal corporate gross margin. And the other Power Analog Solutions gross margin, that's kind of -- that's the product we are producing in our Gumi Fab, so there are multiple factors that go into the gross margin calculation, meaning utilization and fixed costs and all of those kind of put into that the Gumi Fab cost profile that we're going to dictate how the gross margin can kind of vary quarter-over-quarter of that product line. Camillo Martino: And as Shin Young mentioned, utilization is a key factor that's driving that. Sujeeva De Silva: Okay. And then can you talk about the products you're expecting in '26? And what kind of gross margin trend we can expect above the product you've already introduced in '25? Camillo Martino: Yes, sure. The products that we have mentioned -- that we mentioned today, The 55, that's the plan for this year, new generation products. they are across the board. They are medium voltage, low voltage, IGBT, for example, super junction. So we are -- a whole bunch of new products right across the board. We're excited about that. That will have an impact on gross margin. But as we communicated on the call, it does take time to have an impact this year. I think we said that in Q4, we expect that new generation products to contribute approximately 10% of the total revenue. But at the same time, you need to offset that with Shin Young's comments on the planned upgrade to the electrical substation because that will have an impact on Q4 margin as well in the other direction. So there's a few factors going into the second half. Sujeeva De Silva: Okay. Great. And lastly, can you update us on where the manufacturing is from filling back into the manufacturing services capacity you had before? Shin Young Park: Manufacturing services for the... Sujeeva De Silva: Before when you had a contract where you were providing manufacturing services at cost and now how you're filling that in now today? Shin Young Park: That's the foundry services that we provided to the buyer of our foundry business and the factory that we used to own them. So there are a certain margin on that one, although that's actually lower than our corporate margin in the past, you see that margin profile. So that foundry service actually ended in the beginning of the last year, so not in 2026 in 2025. So that's what we are dealing with the whole -- the idle capacity, approximately 20% of our Gumi factory is actually was dedicated for the foundry service and now that's kind of idle. So like you see that our gross margin has been suppressed because of that idle capacity. So the whole kind of CapEx that we announced that we spent not all of them, but we cut them half and we are spending it. That's to upgrade our equipment to support this new generation Power product rather than kind of convert that idle capacity for the Power product just simply. I mean that's because of the pace of our product development and also the revenue, it takes some time to do it. So -- and also the softness of the -- I mean, our legacy product environment. So we are kind of being prudent to spend the CapEx to support that. So it's really not over time, overnight kind of transition or the conversion from the foundry capacity to the Power capacity. But as we said previously, we're going to be very cautiously assess what's going to be the best for the company from the cash and also the profitability standpoint, how we're going to convert the capacity for the Power. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Mike Bishop for any further remarks. Thank you. Mike Bishop: Thank you, everyone, for participating on our call today. We appreciate your support of Magnachip. This concludes the call. Operator? Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good afternoon, and welcome to the NeoGenomics First Quarter 2026 Financial Results Call. Please be advised that today's conference is being recorded. I will now turn the call over to Priya Vedaraman, Senior Vice President of Finance. Priya Vedaraman: Thank you, Matthew, and good afternoon, everyone. Welcome to NeoGenomics First Quarter 2026 Financial Results Call. With me today to discuss the results are Tony Zook, Chief Executive Officer; Abhishek Jain, Chief Financial Officer; and Warren Stone, President and Chief Operating Officer. Additional members of the management team will be available for the Q&A portion of our call. This call is being simultaneously webcast. You will note that we will be advancing through a brief slide presentation to accompany today's call, and we have also made the presentation available on the Investors tab of our website at ir.neogenomics.com. During this call, we will make forward-looking statements regarding our future financial and business performance, planned future operations and related expectations with respect to timing and performance, future financial position, future revenue, growth potential and expected growth drivers, projected cost and capital expenditures, prospects and plans, estimated market size and position and objectives of management and financial guidance. We caution you that the actual events or results could differ materially from those expressed or implied by the forward-looking statements. The forward-looking statements made during the call speak only as of the original date of this call, and we undertake no obligation to update or revise any of these statements. Please refer to the information disclosed on the safe harbor statement slide in the deck posted on our website as well as the information under the heading Risk Factors in our most recent Forms 10-K, 10-Q, 8-K that we filed with the SEC to identify important risks and other factors that may cause our actual results to differ materially from the forward-looking statements. These documents can be found in the Investors section of our website or on the SEC's website. During this call, we also refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP, should not be considered measures of liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measures in a table available in the press release we issued this afternoon and in the slide deck available in the Investors section of our website. I will now turn the call over to Tony. Anthony Zook: Thank you, Priya, and welcome, everyone. For those of you who are relatively new to the NeoGenomics story, let me review our investment thesis. We're a pure-play oncology solutions company, leveraging our strong heritage in hematology with pathologists and community hospitals, where we enjoy a leading 25% share across diagnostics and therapy selection. We believe we're highly differentiated from large reference labs as well as specialty diagnostic companies in two regards: the depth and breadth of our portfolio and a relentless focus in the community setting. We believe in the power of our portfolio and see it as a point of competitive distinction and advantage. We reentered the MRD space with RaDaR ST, which we will discuss momentarily, allowing us to address a $20 billion market opportunity where we will continue to leverage our ambition to be a partner of choice among community practices. And importantly, we believe we're well poised to deliver consistent double-digit revenue growth. As mentioned, it's our desire to be a partner of choice in the community from diagnosis to recurrence monitoring. Our foundation and strength in hematology and diagnostic testing affords us a strong platform for growth. We have and will continue to be purposeful with our portfolio transformation as evidenced by our product launches, enabling our penetration into the $13 billion therapy selection market. And now with RaDaR ST, we've reentered the $20 billion MRD market, both of which are enjoying robust growth but are still relatively modest in penetration rates. This portfolio transformation is evident in our selling performance. The 5 NGS products we launched in 2023 that we have consistently tracked contributed 25% of our clinical revenue in Q1. So with that, let's highlight some of our key performance metrics for Q1. During the first quarter, we again delivered double-digit revenue growth, reflecting our ability to generate consistent and predictable sales. Total revenue for Q1 was $186.7 million, representing 11% growth year-over-year, exceeding our guidance. Adjusted EBITDA of $9 million increased 27% over the first quarter of 2025, and the adjusted EBITDA margin increased approximately 60 basis points year-over-year. Our clinical business continued its robust growth with revenue increasing 14% year-over-year to $171 million. Clinical performance was driven by effective execution of our commercial strategy, enabling volume growth and share gains in all segments of our business. In this quarter, we again saw an improvement in AUP, which reflected an 8% year-over-year growth and volumes growing 6% year-over-year. Turning to NGS. Revenue grew 26%, well ahead of the NGS market growth rate, driven by strong volume and AUP growth. Our NGS business now represents about 1/3 of our total Clinical revenue. Moving forward, we believe the addition of PanTracer liquid biopsy to the PanTracer Family, combined with ongoing investments in our field force size and capabilities will help us to sustain above-market growth for this part of our portfolio. The momentum with which we exited 2025 continued into the first quarter. As we have shared, we continue to see above-market growth with our non-NGS clinical business, which should continue to grow in the mid-single-digit range as we take share across all modalities. Importantly, and in line with our overall strategy, our NGS business is scaling at a rate that is 3 to 4x faster than our core clinical business. We're often asked, how do we win in the community setting and is the growth sustainable. I'm going to ask Warren to step you through our commercial strategy and give you some insight into our early launch experiences with the PanTracer Family and RaDaR ST. Warren Stone: Thank you, Tony, and good afternoon, everybody. Our primary focus is the community setting where approximately 80% of patients seek treatment so they are close to their support structure. Additionally, most patients live an hour or more from the nearest NCI designated cancer center. To start, we believe that community oncologists prioritize historic patient management and prioritize certainty over possibility. Guidelines drive their decision-making and ensure actionability. With large patient volumes and resource constraints that choose partners that reduce friction and support confidence treatment decisions. Secondly, our leadership in hematology, where we hold greater than a 25% market share provides trusted access and create strong foundation to expand adoption of our broader portfolio. Third, rapid test results directly impact patient outcomes. And our balanced lab network enables industry-leading turnaround times. The Pathline acquisition strengthened our Northeast presence and grew at 1.5x our national average, demonstrating the power of local scale to drive service and growth. Finally, our portfolio spans over 500 tests across diagnosis, therapy selection and MRD, positioning us as a true partner in patient management. We have developed over 330 interfaces, including the recently announced Epic Aura, which for published third-party research could drive a 20% to 30% increase in test adoption per site. This position is also supported by a broad commercial payer network of more than 300 contracts, also minimizing friction for both providers and patients. In summary, we simplify the complexity of oncology diagnostics so physicians can focus on delivering the best possible patient care. Turning now to RaDaR ST, our circulating tumor DNA assay with exceptional sensitivity for early detection of molecular residual disease. In late February, we announced the full clinical launch of RaDaR ST, which has detection as low as 1 ppm. The launch targets 2 approved indications, HPV-negative head and neck cancer and a subset of breast cancer. In addition, we have submitted to MolDX for reimbursement in 2 additional cancer indications, which, if granted, would more than double our market opportunity. Early insights from the RaDaR ST launch to date are very encouraging. Approximately 29% of customers who previously used RaDaR 1.0 have ordered RaDaR ST since launch. Additionally, 34% of RaDaR ST orders received include additional NEO tests. All test results to date have been delivered faster than our published turnaround time. RaDaR ST represents a very important advancement in MRD testing. And with its clinical launch, we now offer a comprehensive solid tumor solution, spanning diagnosis profiling, therapy selection and MRD. Looking ahead, we are focused on targeted R&D investments in whole genome sequencing, including our next-generation MRD assay and whole genome solution for heme. The strengthening of our pipeline increases durability and positions us effectively to address future market needs. Our next-generation MRD platform is progressing well, with data generation expected next year and a potential launch as early as 2028. In parallel, we're advancing our nonclinical portfolio to meet the evolving needs of the pharma. This includes expanding our MRD offering with an off-the-shelf single tube AML flow panel designed for broader applications across CLL, BALL and multiple myeloma as well as enhancing our IHC menu with 5 new CDx relevant markers. Turning to our PanTracer portfolio, our integrated solution for solid tumor therapy selection, designed to combine tissue and liquid testing to deliver confident actionable insights for real-time treatment decisions. PanTracer Liquid is a noninvasive blood-based test that analyzes circulating tumor DNA to identify key genomic alterations that inform treatment decisions in patients with advanced stage tumors. With MolDX reimbursement received, we expect revenue contributions to ramp throughout the year. The expansion of PanTracer Family and PanTracer Pro turns a very fragmented tumor physician -- sorry, tumor physician work into a coordinated and accelerated workflow from a single sample. It fully integrates the therapy selection workflow by combining comprehensive genomic profiling with immunohistochemistry and other auxiliary tests, allowing oncologists to manage the entire cancer diagnostic workflow from a single requisition and sample. This allows for faster test turnaround and a more timely clinical decision-making. Slide 13 illustrates a typical PanTracer workflow. After the test requisition is received, the pathology report is reviewed and an ovarian cancer diagnosis is confirmed. Onco then identifies the guideline relevant add-on tests. In this case, 5 medically necessary assays, including the recently launched PD-L1 22C3 FDA for ovarian carcinomas are included. The slides were prepared and the test is performed. The add-on results reported to the physician by day 4 and the NDA results reported on by day 8. As part of our go-to-market strategy, we have expanded our sales force to increase reach and frequency and accelerate penetration in therapy selection and MRD markets. The commercial expansion, coupled with the only MolDX-approved HPV-negative test currently available positions us to accelerate adoption. We plan to add roughly 25 sales resources by the third quarter of this year to support the launch and penetration of RaDaR ST in 2 new indications, which we have submitted to MolDX. In summary, we are very pleased with our performance, both financially and strategically in the first quarter, and we are excited for the business levers that are available for us to drive improved and accelerated financial performance in the future. With that, I'll hand over to Abhishek to further discuss our results for the quarter. Abhishek Jain: Thank you, Warren, and good afternoon, everyone. In my remarks today, I will discuss our first quarter financial results and revised 2026 guidance. We reported total revenue of $186.7 million, up 11% year-over-year, driven by clinical revenue of $171.2 million, which grew a strong 14%. This performance was driven by healthy underlying demand with volumes up 6% and AUP increasing 8% as compared to the same quarter last year. Same-store revenue, excluding was $167.9 million, representing 12% growth versus the prior year period, driven by a 3% increase in test volumes and a 9% increase in AUP. Importantly, both test volumes and AUP growth performed at the high end of our expectations despite the anticipated impact of strategically exiting high volume, low-value contract. Most encouraging is the ongoing mix shift towards the high-value testing driven by strong performance in our NGS business that was up 26% year-over-year and now represents approximately 1/3 of our Clinical revenue. Our targeted investments in the sales team are tangible results and supporting this continued momentum in our NGS. Further, this favorable mix shift towards high-value testing is also contributing meaningfully to drive AUP growth of 8% year-over-year. AUP increase was also supported by our RP initiatives, including managed care pricing gains and improved pull-through. Turning to our nonclinical business. We reported $15.5 million in revenue, a decline of 15% year-over-year, primarily driven by expected softness in pharma. Our ODS business delivered double-digit growth that helped partially offset the declines in pharma. We believe that we are near the bottom for this business and expect to see sequential growth in the back half of the year. Adjusted gross profit improved by $7 million or 9% over the prior year and adjusted gross margin was 46%, down 80 basis points as compared to last year. As expected, the decline in the gross margin in the first quarter was primarily driven by the dilutive impact of Pathline acquisition and the launch of PanTracer Liquid prior to MolDX approval. Together, these factors represented approximately 150 basis points of headwind in Q1 '26. In addition, we were impacted by higher freight costs and fuel surcharges due to the geopolitical situation. These headwinds were partially offset by the gross margin expansion primarily driven by AUP increase and lab efficiency. Looking ahead, we continue to expect gross margin expansion of approximately 100 basis points year-over-year in 2026, driven by our Lab of the Future initiatives, which includes strategic sourcing, digital pathology, lab automation and platform upgrade. We also expect margin progression to benefit from easier compares in the coming quarters. Total operating expenses in the quarter were $99 million, a decrease of $2 million or 2% from prior year. We plan to make targeted investments in our sales and R&D functions to drive clinical test volumes and higher AUP while continue to improve leverage in G&A, which we expect to continue to decline as a percentage of revenue. Adjusted EBITDA was $9 million, up 27% year-over-year and the adjusted EBITDA margin expanded 60 basis points. This margin expansion was driven by operating leverage in our G&A function that more than offset the headwinds from adjusted gross margin reduction. Cash used in operations was $8.1 million in the quarter, down from approximately $25.3 million in the same quarter last year. We ended the quarter with total cash of $146 million. Our growth continues to be free cash flow positive this year. Turning now to our 2026 guidance. Considering our strong first quarter revenue performance and earlier than assumed MolDX approval of PanTracer Liquid in March, we are increasing our full year revenue guidance to a range of $797 million to $803 million, up from $793 million to $801 million previously. The key assumptions underlying the midpoint of our revenue guidance are as follows: First, no change in RaDaR ST revenue assumption, which remains in the mid-single digit millions. Second, we expect PanTracer Liquid revenue to be mid-single-digit millions following MolDX approval in early March. Third, no change in revenue assumptions for our nonclinical business, which we expect to be down low to mid-single digits year-over-year in 2026. Regarding quarterly cadence, we now suggest modeling approximately 9% year-over-year growth in the second quarter, up from 8% to 9% range previously discussed, followed by 9% to 10% growth in the third quarter and above 10% in the fourth quarter of 2026. Turning to gross margin, no change in our guidance, and we expect approximately 100 basis points of gross margin expansion in 2026 driven by a combination of factors we discussed earlier. We are maintaining and reiterating our full year 2026 adjusted EBITDA guidance of $55 million to $57 million, representing year-over-year growth of approximately 27% to 31%. As discussed previously, adjusted EBITDA was impacted by higher freight costs and fuel surcharges due to geopolitical environment. We have taken actions to offset these pressures while remaining committed to our previously communicated adjusted EBITDA guidance. With that, let me turn the call over to Tony. Anthony Zook: Thanks, Abhishek. Reviewing the significant catalysts for the year, I'm very pleased with our progress to date. We launched RaDaR ST in head and neck in a subset of breast cancers and received MolDX reimbursement for PanTracer Liquid Biopsy, and we continue to drive NGS growth well ahead of market growth rates. Looking out to the remainder of the year, we anticipate MolDX reimbursement decisions for 2 additional R RaDaR ST indications, which, if granted, would double the population of patients eligible for this advanced MRD test. We're also advancing plans to expand our sales force by the third quarter to capture these additional opportunities that are emerging in advanced cancer testing. Taken together, I believe these catalysts form a solid foundation from which to drive future growth. I'll close by outlining how we're driving accelerated financial performance through disciplined execution across our key business leaders. The launch of RaDaR ST and MolDX approval for liquid biopsy have opened up large addressable markets, and we're focused on driving adoption alongside continued expansion into new indications and advancement of our next-generation MRD programs. Commercial initiatives across sales, pricing and payer coverage are improving access and monetization, while ongoing investments in automation, platform upgrades and lab optimization are enhancing efficiency and scalability. Together, these efforts position us well for sustained growth in 2026 and beyond. Thank you for your continued interest in NeoGenomics. And operator, this concludes our prepared remarks. So please open up the line for questions. Operator: [Operator Instructions] Your first question is coming from David Westenberg from Piper Sandler. David Westenberg: Congrats on all the growth. So I want to focus on the positive here. The NGS growth has been robust. You've been tracking in the mid-20s for a long time, but you are facing difficult comps. As we model the durability of the growth algorithm, can you talk about NGS predicated on -- or growth predicated on PanTracer Liquid versus tissue? How should we see that mix growth? Can that help you sustain kind of that 20% range? And then secondly, how do we think about the AUP over the next couple of years as this starts to ramp? And I'll ask one small follow-up. Anthony Zook: Okay, Dave. So thanks for the question. I'll kick us off and then Warren can fill in some color as well. First, on the sustainability of the NGS, I appreciate the question, right? I mean we are showing really good growth in NGS, as we said, 26% revenue growth, and that was driven by 16% volume growth. If you turn back the hands of time, we closed last year, I think 23% in the quarter of Q4, and we did 22% for the year. And at the time, we said we thought that we were able to be able to sustain that at a minimum, if not even beat it with the addition of PanTracer LBx. And so we look at where we sit right now, Dave, we feel very good. The early products that we mentioned before, they were up to 25% of our clinical revenue in the quarter. Early days of PanTracer are showing really good signs for us. Warren can go into a bit more detail on PanTracer LBx. But even PanTracer Pro, which was introduced in the mid of February, we're seeing it now almost cover 10% of PanTracer volume, which is exciting because it's captured 15% of new users. So we absolutely do think that it's sustainable. And with the addition of Liquid Biopsy to the Family, we think it can go even further. And with that, maybe I'll turn it over to Warren to a little bit more color on LBx, and then we'll get to the AUP. Warren Stone: You covered a lot of ground. I'd say this that the PanTracer Family for us, we really look at the category growth overall because the tissue and the liquid get used sort of concurrently or certainly as a reflex to TMP that might take place on tissue or as a stand-alone. So it is really, really versatile. And we are encouraged by the attractive growth that we're seeing from the category overall, including liquid. And if we look to you would have seen a graph in the presentation, which showed 16% volume growth and a 26% revenue growth. And that acceleration in revenue growth is coming because we're moving towards the larger PGP. That's driving the growth, and that's also helping the AUP. So to your question on the sustainability to stay above those sort of the 20% mark, it certainly penetrates the Liquid that penetrates the Family as a whole is going to be a key driver for us. Anthony Zook: Dave, on AUP, again, very, very strong performance there. We were up 8% year-over-year. And I would say that's indicative of the strategy, right? We've been very purposeful saying that we are going to drive growth with that NGS portfolio of ours. And so increasing it as a percentage of our business, which is now up to 1/3 of our business and we're growing it, that's going to have a big contributing factor to AUP. But I would say as well, about half of it is driven by the great work that the team does behind the scenes on the RCM initiatives. So like we talk about the 300 contracts. We look at those contracts all the time, every opportunity we have to increase price there, do direct price increases and all of those initiatives add up. And so we believe the AUP is also sustainable this year. And again, about half of that is driven by mix and the increased volume in NGS and about half is just good work behind the scenes. But maybe one final point just as kind of the icing on the cake with AUP. While NGS is the big driver there, David, and I know that's how you were focused the question. Good news is we're seeing AUP increased contributions across all of the modalities. And so it's not just NGS that's contributing, it's the portfolio. Operator: Your next question is coming from Tycho Peterson from Jefferies. Tycho Peterson: Maybe one for Abhishek, just on the guidance raise. In the past, you've gotten over your skis with raising guidance to cut later. I guess, why not bank to be and de-risk the remainder of the year? Or conversely, can you point to what's trending more positive with the April data points, the new launches, obviously, you've talked to. But maybe get us comfortable that guidance is still conservative and be here? Anthony Zook: Yes, sure. I'd be happy to. And again, I'll let Abhishek jump in on the details. Relative to the guidance, Tycho, you're right, we want to maintain the philosophy that we shared with you, right? And that is when we issue our guide, you asked us to only speak with a high degree of confidence, not just with the center point of that guide and making sure we can get to the upper end of that guide at a minimum. And we've taken those factors into consideration with this guide. What are the positives? What do we look towards? Well, again, 11% revenue, but it was driven by 14% clinical revenue growth. And so that is certainly a driver and the NGS is a driver for us to be certain. And so based on the middle of that guide, where do we see potential opportunity and where is there some risk, I would say the opportunity is certainly with the NGS portfolio with emphasis on PanTracer LBx, getting another quarter of opportunity to drive revenue, getting out in front with commercial payers. If we can plow that field well, we think there is probably upside opportunity associated with the guide relative to PanTracer LBx. We think that there is potential opportunity as well in our nonclinical business. It's way too early despite the footfall there, which is why we still want to be relatively conservative. But we're seeing early signs that, in fact, we're planning and hitting what we said, which would be kind of that low single-digit erosion on the nonclinical side. So there's some risk there, but we think that it's taken into account at this point. I guess the other area of opportunity for us could be even better uptake with RaDaR ST. But again, we're playing this one right down in the middle, Tycho, with single millions in the middle of the guide. And I guess the additional indications were to come on board sooner than we thought, that could represent some upside. And so we do see some potential risk, which would be on the nonclinical side. That's not a new story to you. But we see the rate of decline of that business beginning to slow and activity beginning to pick up. And so on balance, we would say there's probably more opportunity than downside against what we've shared with you today. Does that help? Tycho Peterson: That does. That does. Another question as you lap Pathline next quarter, I guess, how do we think about the volume growth as you lap that? You grew volumes 2.8% ex Pathline. Is that kind of the right run rate for the business? You're rolling off big lab contracts. So how do we think about just lapping Pathline? Anthony Zook: I think the most important element, and I'll ask Abhishek, you can get into the very specific question on the volumes. I've got to the point, Tycho, I probably look less at the actual volumes associated with just pure Pathline because I look at more the Northeast because that was the strategic purpose of having it. And what we have seen is our growth rate in the Northeast region was 1.5x faster than the other regions, and that's a first for us. And so we see the strategic benefit of serving those customers coming through. So our total value associated with Pathline in the Northeast region is absolutely increasing on plan, albeit the actual volumes might be down just a little bit because of the non-oncology. I'll let Abhishek take some of that. Abhishek Jain: Yes. Let me also kind of talk about the overall volume picture there, Tycho, right? Because we basically guided low single digit for the full year, we came in at about 6% growth for the first quarter. And as for the guidance, what we are saying that the second quarter is going to be flattish year-over-year growth standpoint. But what will start to happen from now onwards that we'll start to see a sequential growth in our volume in Q2 onwards. So that's a good part, right? But a lot of the work that the revenue growth is going to come from the AP in our remaining quarters for the year. We are basically trying to kind of absorb exiting this high volume, low-value contract as we kind of look into Q2 and Q3. Q3 '25 was a peak quarter for this procure, and that's the reason we have those headwinds in Q2 and Q3. But overall cases from the overall revenue growth standpoint, as Tony pointed out, on the clinical revenue, we are growing a strong 14% in the current quarter. And our guide basically still keeps us about 11% above growth for our Clinical business for the rest of the year. Tycho Peterson: Okay. last quick one, I'll let you said. Maybe just on the convert, you burned $14 million in cash. You have $146 million in cash and $342 million convert due January 2028. Can you maybe just quickly touch on plans for that and then I'll hop off. Abhishek Jain: Absolutely, Tycho. So we are actually discussing with many of the leading banks on the convert refinancing, and everybody has told me that this has been a good market, 2025 and what we have seen in 2026. We are hearing that there will not be any challenge in terms of refinancing the convert. We are trying to basically make sure that we are able to get the currency of our stock, which we believe is highly underappreciated, kind of come back to a level where we feel that this is the right time for us to kind of do the refinancing. But in any case, our plan is to get the refinancing done in the second half of the year. We do not want to leave this open failure late in the game. Operator: Your next question is coming from Puneet Souda from Leerink. Puneet Souda: So first one, I just wanted to see if there was any weather impact in the quarter and if you're expecting any -- as a result, expecting anything in 2Q for that? And also on the NGS side, how should we think about the ceiling? It's 1/3 of your business. It's growing rapidly in the community setting. Just trying to understand overall NGS, what's the ceiling there? And I assume that NGS is all of the solid tumors. Can you clarify the boundaries of NGS? What includes -- what is included in NGS and what is not? Anthony Zook: Sure. So Warren, you'll take a crack at the NGS one. And on the weather, just to be clear, when we issued the guide, as you rightly pointed out, for the first quarter, we had already indicated what we anticipated to be the weather impact, and it came in pretty much as we expected. And so we don't see any drag or any issues moving forward through Q2. And relative to the NGS question? Warren Stone: Yes. So I mean how we're defining NGS is simply it's NGS for our heme cancers and it's NGS for solid tumor, largely fitting within the therapy selection vertical. At the moment, even though MRD runs on an NGS background, we're probably going to carve that out. So the 26% growth that you see that excludes any MRD. In terms of the outlook, I mean, I'd said we'd be disappointed that in the midterm, this is not north of 40% is sort of how you need to think about that. This is definitely the growth engine of our business. You can see the trajectory since 2022. And the portfolio that we've added in 2023 and continue to add is going to continue to fuel that growth in the sort of 20% mark. Puneet Souda: Got it. And then just a follow-up on -- there's obviously a lot of discussions about repeat use of CGP liquid. There's trials, ad cons, other things are taking center stage. When you think about the setting you're serving, when do you think you can start to see some benefit from that just given sort of the timing it takes for your test to be recognized by the market you're serving? Warren Stone: Yes. So I think interesting enough, we've already seen some repeat testing on liquid biopsy already. So that's encouraging. And I think as the scale continues to grow in the second half of the year, as we outlined, we expect to see some repeat testing here as well, which is encouraging. And we also anticipate that as we put more and more patient programs in place to support RaDaR ST that we can obviously also layer some of those workflows and those applications into liquid biopsy as well. So this is certainly part of that growth assumption that you asked about earlier that will help to continue the momentum. Operator: Your next question is coming from Bill Bonello from Craig-Hallum. William Bonello: I wanted to ask a little bit about the PanTracer Pro program and just kind of how that works and what you're seeing on that front. So am I understanding this right that somebody checks that box and then based on what you see in sort of maybe an AI-driven algorithm along with the pathologists experience, you make a decision about follow-on tests that should be ordered or what complete set of tests should be ordered. And can you give us -- you showed a little illustration where you showed one example, but can you give us a sense of comparison and maybe value when physicians are ordering that option versus when they're just selecting a straight-up panel? Warren Stone: So I think you've outlined the workflow pretty well. But I think coming back to one of the things that we try and do is we try to take friction out of the system. We want to make that sort of ordering experience as easy as possible. And whether you choose to acquisition this through a vial interface a call or paper, it's exactly that. It's a one test, and that's it. And the requisition will arrive in our lab. And again, this is in the therapy selection vertical. So there's typically a diagnosis that's taken place already, that's the past report that gets read and this algorithm then determines based on guidelines and what's medically necessary, this is a key aspect, what additional add-on testing should be performed based on that specific diagnosis. So what add-on testing will vary based on the diagnosis. And the example I shared was ovarian and we add on 5 additional tests, including that new PD-L1 for ovarian carcinomas. So the system does that automatically. We then run -- we cut the slides appropriately because the number of slides that you cut will be dependent on the number of add-on tests. We will do the testing. We report out the results for the add-on testing as soon as that is available, and that's typically before NGS. And the reason why that's valuable is you can get the first indication around what therapies you may want to put somebody on. And then once the NGS is available, which is typically 3 or 4 days thereafter, we'll submit the NGS results to the physician as well so that they have a complete package and they can make a more holistic informed decision from a treatment perspective. So in the past, a physician could have done that themselves. They could have figured out using that ovarian situation. They could have figured out that I want PanTracer tissue and I want these 5 markers. They could have done that manually. But the reality is in the community setting, very few actually have -- they see so many different patients with different indications. They don't know that, that well. So they would typically send PanTracer in and then potentially send that spectrum acquisition at a later stage to do some add-on testing. So that just takes longer. It exhausts more sample. So this really has a lot of efficiencies. And it also does typically result in additional add-on testing, which has a revenue component attached to it. But I want to stress it's only what's driven by guidelines and what's medically necessary. Operator: Your next question is coming from Mason Carrico from Stephens. Mason Carrico: This is Ben on for Mason. Could you help us bridge Q1 reported AUP to the underlying core AUP after adjusting for that low-value contract? I believe some remaining volumes of that contract were expected to flow through in the first quarter here. Abhishek Jain: Yes. I will take that one question, Ben. So we basically grew our AUP by 8 percentage and year-over-year. Excluding Pathline, the number was 9%. And if you were to exclude the impact of the high-volume, low-value contract, then I would say that it did not impact the AUP change as much because the number of tests basically became a smaller number and there was a little bit of growth in the AUP that we have seen as we had moved away as we progress in 2025 from Q1 onwards. So the impact for the high-volume low-value test, about 1 point or so in the overall AUP growth. Our AUP growth was primarily driven by, as Puneet pointed out, because of the high mix of our high-value testing, which has been part of our strategy, the NGS growth as well as the impact of our RCM work that we have done. Mason Carrico: Got it. That makes sense. And then on the 2 additional RaDaR MolDX submissions, has anything changed there in your confidence or the expected timing of when you could get those decisions? Is prior to year-end the right way to think about those? Anthony Zook: It is, yes. And that's been a consistent assumption that we've shared with you. So yes, we submitted at the close of last year. We anticipate those to be available to us by the close of this year, which is why we're gearing up the sales force in anticipation of being able to address those in the second half of the year. Operator: Your next question is coming from Subbu Nambi from Guggenheim. Subhalaxmi Nambi: What percentage of liquid biopsy orders today are Medicare versus commercial? And what's the realistic time line for getting meaningful private payer rates? The reason I ask is the $3,289 fully loaded cost to deliver, how much would it -- is it accretive to gross margins from day 1? Or is there a scale threshold you need to hit first? And I have the same question for RaDaR ST as well, the impact on gross margin from day 1 to like when it ramps? Abhishek Jain: Yes, Subbu, let me take this question. For the liquid because we have not seen all the volumes since our soft launch, I would say, in the second half of the year last year, we are going to basically push on all cylinders to push the volume tissue to provide you that payer mix. So we basically have between the Medicare and the about 40% that you will basically get paid and then about 10 points of Medicare Advantage and the other 50 commercial payers. And to your point, what we believe that we will start to get paid on the 40% that I talked and Medicare. And on the commercial, this is a process, right? As you know, what we have seen how this process plays out, there will be a time which it will take some time as we start to get the coverage and the policy. My sense is that given the fact that we already have contracts with like 300 of these payers, that will definitely give us like a feet on the table and we'll be able to push through this one relatively faster, but this will take some time. Coming to the RaDaR, the mix is slightly different. I would say that Medicare is about 20% to 25% and then you have Medicare Advantage, which will be 10% to 15%, and the rest would be commercial and the Medicaid a little bit of tail there. So that's where this plays out. So the overall payment rate for RaDaR as in any other competitor that has seen this space, they are going to be starting to get paid on the Medicare and then we'll have to start to build the coverage for the commercial payers. Subhalaxmi Nambi: And Abhishek, just to put all the numbers together, the low contracts that you guys had the rationalized volumes, were they largely Pathline volumes or this has got nothing to do with Pathline volumes, these were other contracts? Abhishek Jain: No, not Pathline volumes because what I called out that our overall volumes in 2025, roughly 1.35 million, we basically said that this high volume, low-value contract was about 3% to 4% of the overall volumes. Pathline is much more smaller, right, from that standpoint. So I would -- so this was a different contract. Operator: Your next question is coming from Dan Brennan from TD Cowen. Daniel Brennan: Maybe first one, just on the guide. Could you just speak to a little bit for Q2 and for the year? Just I think for the year, you kind of spoke to it, but just NGS, ex NGS, kind of what are we expecting for Q2? And how does it look for the full year? Abhishek Jain: So what we are guiding for the full year is $800 million at the midpoint. And for Q2, the revenue growth is going to be 9% year-over- as compared to the 8% to 9% that we had guided the last time. We're basically adding more dollars in Q2 because of the MolDX approval for liquid that's the reason the guide goes up for the second quarter. For NGS, we have basically called out, excluding liquid, we are going to be in line with what we have in 2025, which is about 22%. So that's a part of the NGS. Now if I were to step back and what Tony was saying that this is a guide, this basic gives us a high degree of confidence to be able to kind of hit the midpoint of the guide. But at the same time, we believe that we should be able to come in better as compared to the mid-single-digit million from the liquid will be disappointed internally if we don't actually do better there. So there are some upside there as well as I would say on the NGS that we have been growing at 25%, 26% and our guidance basically 22%, 23%. If we are able to kind of see the similar kind of growth on the NGS, then that would be another upside. So again, my takeaway on this one is that from the guide midpoint standpoint, this is prudent, but it gives us the opportunity to be able to kind of come in ahead if what we are anticipating internally were to go on our way. Daniel Brennan: Got it. So 2Q NGS should be 22 just like it is for the full year. Abhishek Jain: I would yes. Daniel Brennan: Okay. Okay. You called out in the prepared remarks about Epic Aura and the upside that other players maybe have seen or I forget how you termed experience the volume uplift. But just remind us where you are, what are you seeing so far? What's baked in? And what would get you to see that kind of uplift like what needs to happen? Warren Stone: We launched -- we went live with our first customer earlier this month. So -- and the beauty of Epic Aura allows for a significantly faster implementation with customers. So we are targeting the Epic Aura implementations for therapy selection and MRD. And we've got a robust pipeline of accounts that we're looking to activate with Epic Aura in quarter 2 all the way through the year. So certainly hoping to expecting to see that uptick as the year progresses. And this is one of the key levers in terms of sustaining this high NGS growth rate that we've been talking about and also will help to drive demand for RaDaR ST as well because the simplified workflow that it will bring. Daniel Brennan: Got it. So some of the benefit is baked into the guide. It's not like there's potentially upside if you're successful with these account activations. Is that the right way to think about it? Warren Stone: I would say that if we're able to accelerate the implementations based on what we put in the guide, there's upside there as well. We also -- if the pull-through is as significant as what was articulated in the independent studies that we've done, I think there's upside there as well. We didn't assume that we would see that radical uplift, but there certainly are studies that point to that. Operator: Your next question is coming from Michael Ryskin from Bank of America. Michael Ryskin: A couple of quick ones. One is maybe as part of your answer to Dan just now, sort of your comments on growth expectations through the year, both in NGS and non-NGS. What's the implicit contribution from some of the sales force expansion? And just maybe wondering if you could comment on the sales force addition more broadly, is that playing a role in the second half? Is that more of a '27 benefit? Just how to think about that? Anthony Zook: Well, I think about the sales force as being actually quite productive for us, Michael. I think if you look at the size of our sales force and the size of our spend, we're probably relatively under-indexed versus many of our competitors. We got the sales and marketing ratio is probably somewhere around 13%. And if we look to just the oncology, the OSS team being in the 50s, that is a relatively low number, but yet they have proven to be quite productive, right? So the share gains that you have seen with the NGS portfolio is driven in large part by that increased penetration into the community oncology space. And so we do see the sales force as one of the levers for us to continue to drive growth. We also see it as an opportunity for us. You take a product like RaDaR ST and you see a relatively low market penetration rates, we think we can contribute there. And so we do see the sales force as an ever-increasing opportunity for us to continue to drive growth. And we will be selective in how we continue to expand and grow that side of the business because we think it is a large revenue driver opportunity for us. What we always have to balance, Michael, is not overly disrupting customer relationships that are established as well. So we tend to take kind of a very thoughtful process as to when we add them and how we add them, but they are clearly a growth driver for us. I don't think we'd be where we are today with the 26% growth had it not been for that investment that was made a year ago. Michael Ryskin: Okay. All right. And for my follow-up, I kind of want to make sure I'm doing the math right. We're kind of calculating like direct Pathline contribution. It continues to step down and kind of step down a little bit more this quarter. I heard what you called out on the call in terms of the benefit in the Northeast and the more broad uplift to the portfolio. But just anything specific to call out there? I mean, do we expect that to continue? Or is that the weather impact in the quarter? I'm just sort of taking the Pathline ASP, Pathline volumes, doing the math right? Anthony Zook: Well, listen, I'll start off and then Warren, Abishek can jump in. Again, it shouldn't be a surprise that there might have been a slight step down in the volumes associated with Pathline because we were exiting some of that non-oncology business. And so that certainly had an effect. And then, of course, we're doing a lot of work here on load balancing. We want to make sure that the tests go not necessarily -- they don't always have to go through Pathline. They can be ordered and can be run down through Fort Myers or AV. And so load balancing comes into play. And that's why, honestly, I don't put a lot of stock into what is directly attributed just to Pathline. It certainly delivered what we expected in its range of revenue, but the growth driver that we see in the Northeast, that is the catalyst. And so Warren can maybe add a little bit more comment on that. Warren Stone: The certain aspect that you didn't touch on is the Northeast was probably the area that was most affected by weather in the first quarter. So that's the third factor. So you've got weather. The non-oncology business that we have no interest in entertaining so we're stepping out of that business. And then the third dynamic is we're leveraging our lab network to provide the best possible turnaround time, but also drive scale where possible. So some of the testing that was historically done in the Ramsay lab, lab has moved to other parts of our network. Overall, we're very pleased with the development we're seeing so far that 1.5x market growth in the Northeast is really encouraging, particularly based on some of the trends we have seen historically. Operator: Our next question comes from Mike Matson from Needham. Michael Matson: So I thought I heard you guys say that in the -- within the NGS business, there is some price benefit. So obviously, I mean, I know that the NGS is growing as a part of the overall mix and driving price. But like is there some positive pricing mix happening within that NGS business and what's driving it? Abhishek Jain: No, absolutely. So on the NGS business, what we have called out that this business grew 26%, 16% of that was driven by volume and the other 10% came from the increase in the AUP. And as we were discussing that AUP increase has been on account of some of the initiatives that we have put in place. But at the same time, we are seeing the increase in the CGP panel in the NGS business as we move from the single gene test. So that is basically kind of moving towards the high-value testing, which is helping us drive the higher. Michael Matson: Okay. And then the $20 billion MRD market, when you get these additional 2 indications covered and you're at 4, and I think you said that would double the available market to you. So what portion of that $20 billion will you be covering? Warren Stone: Based on -- again, this is obviously somewhat subjective, but based on the analysis that we've done will be north of 45% of the market across those indications. Operator: That concludes our Q&A session. I'll now hand the conference back to Tony Zook for closing remarks. Please go ahead. Anthony Zook: Well, first off, I'd just like to thank everybody for joining us on the call. I'd also like to thank our roughly 2,400 teammates at Neo for their continued hard work and unwavering commitment to our mission. With meaningful additions to our therapy selection and MRD test offerings during the first quarter, I'm very excited for the year ahead as well as 2027 and beyond as these high-value tests represent a growing portion of our clinical business. I look forward to our next quarterly update in July when we report our second quarter results. Thank you again and have a great day. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Operator: Good afternoon, ladies and gentlemen, and welcome to the UCT Reports First Quarter 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Tuesday, April 28, 2026. I would now like to turn the conference over to Rhonda Bennetto, Investor Relations. Please go ahead. Rhonda Bennetto: Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me today are James Xiao, CEO; Sheri Savage, CFO; and Cheryl Knepfler, VP Marketing. James will begin with some prepared remarks about the industry and highlight some of the opportunities ahead for UCT. Sheri will follow with the financial review, and then we'll open up the call for questions. Today's call contains forward-looking statements that are subject to risks and uncertainties. For more information, please refer to the Risk Factors section in our SEC filings. All forward-looking statements are based on estimates, projections and assumptions as of today, and we assume no obligation to update them after this call. Discussion of our financial results will be presented on a non-GAAP basis. A reconciliation of GAAP to non-GAAP can be found in today's press release posted on our website. Also, beginning this quarter, our non-GAAP results now exclude the impact of unrealized gains and losses on foreign exchange and our revised reference to prior periods was included in our fourth quarter earnings press release back in February. And with that, I'd like to turn the call over to James. James, please go ahead. James Xiao: Thank you, Rhonda, and good afternoon, everyone. We appreciate you joining us for the Q1 2026 earnings call. In my prepared remarks, I will provide my thoughts on the near and longer-term market drivers and highlight where UCT has a clear competitive advantage to capitalize on a variety of opportunities during this multiyear up cycle. Following that, Sheri will provide a financial update, and then we will open up the call for questions. We started the year out strong and delivered revenue and earnings above the midpoint of our guided range for the first quarter, driven by solid execution across a broad set of products, services and customers. As you can see in our Q2 guidance, we're seeing momentum build across the semiconductor landscape, supported by growing industry-wide investments in AI-driven computing. I'd like to acknowledge our global teams for the sense of urgency, focus and operational excellence they continue to demonstrate every day. Their commitment to our customers and to driving the continuous improvement is elevating our performance today and positioning UCT to compete and win in the next phase of AI-driven growth. The rapid expansion of AI infrastructure is fueling increased investments across the semiconductor ecosystem, with hyperscalers and cloud providers expect to deploy significant data center capacity by spending around $600 billion in 2026, driving demand sharply higher. Investment by memory companies to address the bottleneck will remove a major constraint to the overall server supply chain, increasing foundry unit demand to support this growth. AI data center growth is being fueled by the rapid adoption of generative and agentic AI, and we're now seeing the early impact of physical AI as well. This new wave is driving increased demand for AI memory and leading-edge foundry logic, further accelerating fab capacity investments. These investments are driving the surge in WFE spending, with notably strong demand in leading-edge foundry logic, high-bandwidth memory and advanced packaging, all critical enablers of AI workloads. Increasing device complexity is driving higher process and equipment intensity, especially in deposition and removal, sustaining the WFE cycle and expanding UCT's opportunity. Demand continued to build week by week, and we expect this momentum to increase as customers gain clarity on fab time lines, delivery schedules and ramp readiness. Long-term customer forecast and capacity requests reinforce our confidence in continued WFE demand growth with our services business directly tied to wafer starts. We are also seeing increasing wafer volumes across IDMs and foundries, driven by AI demand and ongoing fab expansions with higher tool utilization, creating a durable multiyear growth tailwind for our service business. We're aligned with our customers and industry sentiment that we're in the early stage of a multiyear cycle that should accelerate into the second half of this year and beyond. Strong demand is occurring alongside emerging supply side constraints, including clean room capacity and the time required to bring new fabs online. As a result, today's environment is driven not only by demand, but also by the industry's ability to scale efficiently. By executing on our UCT 3.0 growth strategy, we are strategically positioning to win in this environment. Ramp readiness remains a top priority under UCT 3.0. We are executing with urgency and a customer-first mindset. We align our teams, systems and supply chain to deliver with speed, quality and consistency. We see the AI-driven ramp as a meaningful opportunity to drive growth and expand margins through improved utilization and more efficient operations and infrastructure. In parallel, we're advancing our MPX strategy, new product introduction, development and transition to accelerate time to market through our global centers of excellence. By co-innovating earlier with customers, compressing NPI cycles and strengthening responsiveness and the supply chain resilience, we are enabling faster ramps to high-volume production near our customers. This positions us to execute at speed and scale, supporting incremental share gains as customers prioritize development velocity and ramp speed, while driving UCT's operating leverage and margin expansion through higher volumes, improved mix and greater efficiency. Supporting ramp readiness and MPX, we're making strong progress on our third UCT 3.0 initiative, digital transformation. We are upgrading our systems, processes and data infrastructure with AI compatible solutions to improve visibility, reduce cycle times and increase productivity, while enabling faster customer response. These efforts are strengthening our foundation for AI-enabled operations, increasing agility, driving productivity gains and transforming UCT into a more scalable enterprise aligned to capture growth in this multiyear AI-driven industry upturn. Our global footprint supports around $3 billion in revenue today and can scale up to $4 billion with modest incremental capital investment. Assuming continued progress in workforce development, strategic supply chain and operational scaling, we do not expect infrastructure capacity to be our constraint. As volumes ramp, this should allow UCT to drive stronger operating leverage, improve profitability and create sustainable value. In closing, while the long-term outlook remains strong, the near-term environment remains dynamic with variability across customer spending, potential supply chain constraints and geopolitics. In this environment, disciplined execution will define the winners. With our trusted partnership with key customers, strong ramp readiness and a global footprint that enables speed, agility and scale, we believe we are well positioned to capture an outsized portion of the opportunities ahead of us. I will now turn the call over to Sheri, who will summarize our first quarter results and update you with our second quarter guidance. I look forward to your questions following the financial summary. Thank you. Sheri Brumm: Thanks, James, and good afternoon, everyone. Thanks for joining us. In today's discussion, I will be referring to non-GAAP numbers only. As James mentioned, we are seeing increased momentum from the early stages of a multiyear AI-driven expansion, and we're executing with urgency to support customer ramps while maintaining a strong focus on operational efficiency, cost discipline and margin improvement. For the first quarter of 2026, total revenue came in at $533.7 million compared to $506.6 million in the prior quarter. Revenue from products was $465.7 million compared to $442.4 million last quarter. Services revenue was $68 million in Q1 compared to $64.2 million in Q4. Our global footprint supports about $3 billion in revenue today and can scale to approximately $4 billion with modest incremental capital investment. With ongoing progress in workforce and operational scaling, we do not expect capacity constraints. As production increases over time, we would expect to benefit from improved operating leverage and corresponding margin expansion. Total gross margin for the first quarter was 16.5% compared to 16.1% last quarter. Product gross margin was 14.6% compared to 14.1% in Q4 and services was 30% compared to 29.7% last quarter. Gross margin improved primarily due to better product mix and higher volumes, driving factory efficiencies. Margins continue to be influenced by fluctuations in volume, mix and manufacturing region as well as material and transportation costs. So there will be variances quarter-to-quarter. Operating expense for the quarter was $61.1 million compared to $56.6 million in Q4. As a percentage of revenue, operating expenses were 11.4% versus 11.2% last quarter. Total operating margin for the quarter came in at 5.1% compared to 4.9% last quarter. Margin from our products division was 4.2% compared to 3.9% and services margin was 11.5% compared to 12.4% in the prior quarter. The first quarter tax rate came in at 20%, consistent with our expectations. Our mix of earnings between higher and lower tax jurisdictions can cause our rate to fluctuate throughout the year. For 2026, we expect our tax rate to stay in the low 20% range. Based on 46.3 million shares outstanding, earnings per share for the quarter were $0.31 on net income of $14.5 million compared to $0.24 on net income of $10.9 million in the prior quarter. During the quarter, we made the strategic decision to further strengthen our balance sheet and meaningfully reduce our ongoing cost of capital. In February, we priced a $600 million offering of zero-coupon convertible senior notes. We used a portion of the proceeds to fully repay our Term Loan B, reducing our annual cash interest expense by approximately $30 million. Subsequent to quarter end, we refinanced and upsized our revolving credit facility from $150 million to $250 million, reduced the interest margin by 75 basis points and extended the maturity to 2031, further enhancing our liquidity and financial flexibility. Together, these actions are expected to reduce our weighted average borrowing rate from around 6.2% to approximately 1.4%. Turning to the balance sheet. Cash and cash equivalents were $323.5 million compared to $311.8 million at the end of last quarter. Operating cash flow was negative $33.3 million this quarter compared to positive $8.1 million last quarter, driven primarily by higher working capital as we build inventory to meet near-term demand and support future growth. We are seeing broad-based improvements across the semiconductor landscape heading into the second half of this year and beyond, underpinned by sustained industry investment in AI-driven computing. We remain focused on maintaining discipline around margin expansion and driving sustainable shareholder returns over time. Turning to the guidance. For the second quarter, we project total revenue to be between $565 million and $605 million and EPS in the range of $0.44 to $0.60. And with that, I'd like to turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Charles Shi from Needham. Yu Shi: Maybe the first question, James, what's the WFE outlook you are seeing as of today? And I think in your prepared remarks, there's a line you mentioned you talked about solving the memory bottleneck and the relation to how that increases foundry unit output. And I'm not sure the context of that line. And are you kind of implying maybe the memory WFE growth is pretty high today, maybe some of that strength will transition more to the leading-edge foundry logic? I'm not sure what you meant by that line, but can you elaborate a little bit while you address the WFE outlook question. James Xiao: Thanks, Charles. Yes, so the WFE outlook is really continue to grow bigger than we saw the previous quarter. We see really from our customers, they're quoting $140 billion to $145 billion in 2026. So that's dependent on where you see the '25 number end up with at 18% to 20% year-over-year growth. And we see the similar momentum. The customers are talking about 15% and above for the 2027. So to your question about the memory growth, I think that we kind of see that the AI capacity is somehow gated by the memory capacity in the past 3, 4 quarters. And now we see that all the major memory customers are investing in their greenfield factories and also upgrading their existing fabs to maximize their current footprint. So that actually gave a whole industry an unlock of the constrained capacity. So we see more of the new leading-edge new factory launches in basically all 3 leading customers, TSMC, Intel and Samsung. Yu Shi: Got it. So maybe the second question, James, I understand that the outlook is getting stronger on a week-by-week basis. You gave a special shout out to etch deposition, and I think that's well understood. But is there any part of your end markets that may still be a little bit slow, maybe even on a relative basis? I didn't hear you talk about lithography. I didn't hear you talk about your domestic Chinese customers. So what's going on there in those areas? James Xiao: Yes. I think that, first of all, very good question. If you see the -- really the fast-growing segment in WFE overall, it is really the leading-edge foundry logic and HBM on the memory side and advanced packaging. So those are more an etch and removal intensive in terms of capital intensity. So therefore, relatively, you hear our customers are saying that they see that the first half, the deposition and etch is at mid-30s of the WFE. And in the second half, they see that increase to the high 30s of WFE. So naturally, because this high-growth area are etch and dep intensive, so we see a higher share of dep and etch in overall WFE. The flattish area we see is probably the non-dep and etch segment overall. And the surprising is the trailing node foundry logic are also not going down. They're more like flattish. China, as we discussed before, it was a kind of building inventory safety stock situation in '24 and '25. Therefore, they're really kind of become a bigger portion of worldwide WFE at 35 to 40. Now we're seeing they're back to normal in the low 20s as the portion of the worldwide WFE. So I don't think that's an outlier. It's more back to the normal business situation. Yu Shi: Got it. Maybe the last question from me, if I may. If I understand the typical behavior of your customers correctly, I think this is a year -- I mean this year is when they are competing for basically who can ship tools faster to their customers. How do you assess in this kind of situation, whether the requests are coming from your customers are reasonable, whether -- or if any chance some of the requests you would see unreasonable and potentially at the expense of the growth for your outer years? How do you handle the situation like that and in terms of how you allocate your capacity, grow your capacity, et cetera? Just maybe a little bit of high-level philosophical question from -- I want to understand how you operate in an environment like this. James Xiao: Actually, this is a great question. I think that I really see a very healthy move as an industry. What I mean by that is that we see the customer actually giving us a long-term forecast, so we can do the planning better. And the long-term forecast is actually showing the growth momentum. They gave us a confidence to really kind of utilize our current capacity and also have the confidence to plan for the next step expansion. As I mentioned in my previous earnings call and this one, we really have capacity to really run at $3 billion run rate per year. The current run rate is still $2 billion, $2.2 billion. So we have the runway to really kind of address additional demand. And our brick-and-mortar capacity can handle up to $4 billion. So by minimal capital investment, we can have 6 to 9 months to build that capacity so we can really reach the $4 billion run rate. So in that sense, we're well positioned to address the drop-in demand from our customers. Operator: Our next question comes from the line of Krish Sankar from TD Cowen. Robert Mertens: This is Robert Mertens on the line on behalf of Krish. I guess the first one is just around your domestic China business. Do you have a percentage of sales figure you could share for the March quarter? And just how you sort of expect that portion of your business to trend given that the current semi-cap customers in China have been doing pretty well. James Xiao: Yes. As we previously discussed, the percentage of our China business, domestic China business is less than 5% of our overall revenue. We maintain that kind of range. And what we see is that gradually the domestic Chinese WFE customers will increase their share within the China WFE market. And we see also the growth opportunity as we grow the share with those Chinese customers. Operator: Our next question is from Christian Schwab from Craig-Hallum Capital Group. Christian Schwab: Great. Congrats on the great quarter and outlook. Given the demand is improving week by week, I guess it's kind of crystal clear. But do you -- as you look at the year, do you have an idea of what percentage of revenue will be second half weighted versus the first half? James Xiao: Yes, great question. So we -- as you can see that in our forecast, we're seeing close to double-digit growth quarter-over-quarter from Q1 to Q2. We expect a similar range of growth going forward and for the second half. Christian Schwab: Perfect. And then can you give us -- given $4 billion in revenue driven by increased WFE, but finally seeing a very material increase in wafer starts to drive your services business. When you talk about $4 billion in revenue potential and another $1 billion that could be added given a modest amount of capital and notice to put that online, what would you anticipate would be your mix of revenue at $4 billion that would be service? James Xiao: Yes, I think it's a good question. So as we discussed, we see that the -- our service revenue is really a function of wafer starts and a small portion of that business is also directly correlated to the WFE growth. So in an aggregated base, we expect a double-digit growth for the year on the service side. And going forward, we still see a range of 10% to 12% as our overall revenue percentage. Christian Schwab: Great. And then lastly, historically, if we go back to '20 and '21 as far as the last accelerated WFE spending cycle, you outgrew WFE growth materially. And should we assume the big not only market share gains and certainly your ability to potentially gain share with the ease of adding increased capacity. But as far as outgrowing WFE, there's a lag period between installing fab equipment and wafer starts being finished, which is the driver of the services business, I guess, in aggregate. Is that the way we should be thinking about the primary driver of your growth outperforming WFE? Or do you think this cycle, you're better positioned for market share gains? James Xiao: Yes. So we definitely see that we will grow with the WFE growth and with really the upside potential on both product side and service side. And really, to me, the playbook is always to defend the core, which we are really in a leading position and grow the SAM. So we enter into new modules and new gas panel business as our customers expand their product portfolio. And then finally, win at inflection. So position ourselves with stronger NPI capabilities so we can align with customers' NPI road map and win in the next node inflection. Operator: Our next question is from Edward Yang from Oppenheimer. Edward Yang: Just first question, related to that strong second quarter guide on the revenue side and for the remainder of the year, how should we think about gross margin progression? Sheri Brumm: Yes. Gross margin should start to continue to improve as we move through the year. Obviously, we'll see it being slightly up in Q2 and then continue to grow as we move through the year as the revenue potentially goes up. So obviously, mix and where it's shipping from does play a factor in that and things change as we move through the year, but we truly do see it moving up as we get closer to the Q4 time frame. Edward Yang: And Sheri, if I could dig a little deeper related to mix. I mean you've got a plethora of different products and services. Just focusing on the product side, what are the gross margin differentials between your lowest and highest? And what's your highest margin products and maybe talk some detail around that. Sheri Brumm: Yes. We probably don't publish as much on the specific product margins. But as I've mentioned before, we have a large bell curve of margins, so they can range anywhere between 10% to 50% to 60% depending upon whether it's a component part or it's a module or a gas panel. So it just really depends on the sheer volume of each of those mixes of products that play into our overall gross margin, along with how fast the revenue comes in to us and how fast we can hire labor and other costs associated with that. So those are the key factors that play into our margin as we grow revenue. So again, a large bell curve of margins. There's quite a few different products and different margins within those products as well. So that's why it makes it complicated to detail all of those out. Edward Yang: Got it. And maybe a question for James. Beyond the general uplift in WFE, you mentioned your UCT 3.0 strategy. I know it's a long-term vision, but just interested in the progress around that, the co-innovator and the MPX framework. And just wondering how customer receptivity has been to that? And when can we expect to see specific market share gains or new module wins around that MPX framework? James Xiao: We are -- great question. We are investing in our, I call it, regionalized center of excellence. So basically, we have NPI Center of Excellence in U.S. We further enhance that. And we're actually expanding our NPI capabilities in Asia and also in Europe. So the customer wants to have the engineers co-innovate, define the spec and really design the system and modules close to their core engineering team. That's actually in Europe, in U.S. and expanding to Asia. So we follow customers' need on that. Then we will also transfer that locally by region to our HVM site, also distribute in all the regions, right, U.S. and Europe and Southeast Asia. And that's really well aligned with our customer strategy where they're also moving their global engineering footprint close to their high-value production sites. So well received by customer. We see some early momentum, and that's actually accelerating our NPI engagement with customers. We already have a pretty strong pipeline of NPI engagement with existing customers. This regionalized center of excellence just further enhance our capabilities. Operator: Our next question is from Krish Sankar from TD Cowen. Robert Mertens: I realize I put myself on mute after my first prior question. And my second question was going to be around the margin profile, but you just answered it. So I won't make you repeat yourself. Operator: I'd like to turn the call back over to Sheri Savage for an announcement. Sheri Brumm: Thank you, operator. I have an announcement to make, and I wanted to share it on this call because I personally know many of you here today. After a lot of thought, I've decided to retire from UCT. Being part of UCT's journey over the past 17 years has been an incredible privilege. I'm incredibly proud of what we've built together, and I'm deeply grateful for the trust, partnership and support of our teams, our leadership and our Board. I'm confident that UCT is ideally positioned for continued growth and success in the years ahead. I'll remain fully engaged until we find my successor, looking both internally and externally, and I'll continue behind the scenes to ensure a smooth transition. Thank you for making this journey meaningful and rewarding for me. I really appreciate the support many of you have given to me over the years. And with that, thank you for joining our call today, and we look forward to seeing you when we report our second quarter earnings. Thanks. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to Booking Holdings First Quarter 2026 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guaranteed of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than the historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the safe harbor statement in Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings' earnings press release is available in the For Investors section of Booking Holdings' website, www.bookingholdings.com. Booking Holdings intends to use the Investor Relations page of its website, ir.bookingholdings.com, to disclose material information for purposes of the SEC's Regulation Fair Disclosure. Booking Holdings encourages investors to monitor this website in addition to other public announcement and SEC filings, our information -- as information posted on that page could be deemed to be material information. And now I'd like to introduce Booking Holdings' speakers for this afternoon, Glenn Fogel and Ewout Steenbergen. Please go ahead, gentlemen. Glenn Fogel: Good afternoon and thank you for joining us today. We began 2026 with solid execution across our global business. Our results this quarter reflect the continued momentum of our long-term strategy and progress in advancing our mission to make it easier for everyone to experience the world. Before turning to our results, I want to acknowledge the current macro environment, including the impact the Middle East conflict is having on travel and recognize the resilience of our employees and partners in the region. Periods of uncertainty, whether driven by geopolitical developments or economic conditions are not new to our industry. We have navigated similar moments many times before, including the global shutdown of travel during the COVID period and more recently, the Russia-Ukraine war, which began in 2022 and the Israel-Hamas conflict, which began in 2023. Each time, while the near-term environment can be difficult to predict and there are immediate consequences to travel volumes, the fundamental drivers of travel demand, the desire to experience the world do not change. People have a deep and enduring desire to explore and connect and that demand has proven resilient over time, generally growing faster than the broader global economy. So we remain focused on what we can control, delivering strong value, reliability and service for both travelers and partners through differentiated innovative solutions. That focus earns trust. It's why customers choose us today and why we believe they will continue to choose us tomorrow, next quarter, next year and over the long term. This disciplined approach was one of the drivers of our performance in the first quarter and it remains the foundation of our long-term strategy. Despite the start of the Middle East conflict at the end of February, our teams delivered a quarter with strong execution and solid results. We booked 338 million room nights, which was in line with our prior expectations and represented 6% year-over-year growth. We estimate that the Middle East conflict impacted our room night and gross bookings growth by approximately 2 percentage points, accounting for directly impacted countries in the region as well as bookers whose travel was affected by the conflict. Excluding this impact, we believe our room nights would have been up by approximately 8%. On a year-over-year basis, first quarter gross bookings of $53.8 billion grew 15%. Revenue of $5.5 billion grew 16% and adjusted EBITDA of approximately $1.3 billion, increased 19%. Finally, adjusted EPS of $1.14 grew 14% year-over-year. Ewout will provide more details on the impact of the conflict on our financial results as well as specific assumptions and implication for our second quarter and full year outlook. While near-term dynamics create some volatility, we view our overall position in the Middle East as a long-term strength and believe we are well positioned for when normal travel demand resumes. Regardless of the current uncertainty, we remain focused on the long term and the factors within our control to drive value. This includes expanding our reach in key markets such as the U.S. and Asia, advancing our Connected Trip vision and continuing to innovate across our GenAI capabilities, each of which I will speak to shortly. Our confidence in these initiatives and our future growth profile is reflected in a capital allocation strategy that we've employed for well over a decade, including the record $3.6 billion in share repurchases we completed in the first quarter. Since 2014, we have reduced our share count by over 40% even after accounting for the dilutive impact of stock-based compensation by opportunistically investing in this long-term vision through our share buyback program. No one is better positioned than we are to understand what our long-term value can and should be relative to market fluctuations on any given day or quarter. As I just mentioned, we have reduced our share count by over 40% in 12 years. Importantly, we have done so at the average price per share of $93, thereby generating significant incremental investment returns for our shareholders by betting on ourselves at the right times and while always preserving and exercising the flexibility to invest in both the organic and inorganic growth of our business. It is a strategy that we are very committed to. The U.S. is an area where we are increasingly seeing our intentional and targeted investments help drive growth. While we are a global leader, as we have mentioned in the past, we believe we have room to grow in this market. As a result of our continued disciplined execution, I am pleased to report that our U.S. room night growth accelerated for the fourth consecutive quarter to the low teens, driven primarily by strong domestic demand. We're also encouraged by the continued momentum of our direct channel in the U.S., which saw double-digit growth at Booking.com. Building a robust direct mix is not something that happens overnight. Growing our direct mix in the U.S. has been a multiyear effort built on disciplined investments in our product, brand and supply, which we believe is positioning us to drive continued progress over time. Furthermore, we saw strength in the U.S., not only in accommodations but across flights, cars and packages. This indicates that travelers are increasingly recognizing the full spectrum of our offerings as we continue to build out our Connected Trip vision. In Asia, we continue to see one of the most compelling structural growth opportunities in the global travel industry. During the first quarter, the region performed well with room night growth in the high single digits, including low double-digit growth for travel within the region. What differentiates our position in Asia is our ability to operate effectively across a highly diverse and complex set of markets. Asia is not one unified region but a collection of distinct countries and cultures, each with its own consumer behaviors, supply dynamics and distribution channels. Our approach starts with a global playbook informed by the reach and capabilities of Booking.com, combined with Agoda's deeply localized expertise across the region. Building on that foundation, we have been investing in localization at the granular level, adapting our product, payments and go-to-market strategies to meet the specific needs of each market. This includes building strong relationships with local supply partners from traditional accommodations like ryokans in Japan, to a wide variety of independent properties across markets such as Indonesia, India and Vietnam, many of which sit outside major urban centers. At the same time, our distribution strategy is designed to meet travelers where they are increasingly spending their time. In many of these markets, that means engaging through social and messaging platforms where we are seeing encouraging traction across channels such as KakaoTalk in Korea, LINE in Thailand and Taiwan and through WhatsApp in India. By combining a global playbook with strong local execution, we believe we will continue to be well positioned for the growth opportunity in Asia over time. Now on to the Connected Trip, which is about making travel easier by bringing more of the journey together in a way that provides more value, lowers complexity and ensures better customer service. We're seeing encouraging progress with more travelers choosing to book multiple parts of their trip with us. In the first quarter, connected transactions, meaning trips that included bookings across more than one vertical grew in the high teens range and represented a low double-digit percentage of Booking.com's total transactions. This growth reinforced our belief that when we reduce friction and provide more value, travelers choose to do more of their business with us. Additionally, we are able to drive more incremental value for our partners as travelers increasingly engage with multiple verticals across our platform. And working with our partners, our vision is to provide personalized benefits within the Connected Trip that provides more value to both the traveler and the partner. Our Genius loyalty program is a key component of this strategy. Unlike traditional programs, Genius is built around immediate relevant benefits such as tiered discounts, free breakfast or room upgrades that apply at the point of booking. We continue to see strong engagement from our higher-tier Genius members who book and return more frequently than non-Genius travelers. Over the last 4 quarters, Level 2 and Level 3 Genius members represented over 30% of our active base and accounted for a high 50% share of room nights, up from the prior year. Given the importance of loyalty and the success of the program to date, we see an opportunity to further strengthen Genius this year. Let me now turn to GenAI, which we continue to believe represents a significant opportunity to enhance both the traveler and partner experience. Our approach remains disciplined and focused on where AI can drive meaningful impact across our products and services, improving effectiveness for travelers and partners, driving internal efficiencies and working closely with leading external partners to ensure we are well positioned in the event that current usage of frontier LLMs for travel discovery and planning becomes more closely tied to direct immediate booking execution. Even more so, I am pleased to highlight some of the current progress we've made on AI initiatives across our brands today. At Priceline, Penny continues to evolve into a more interactive end-to-end AI-driven journey with increasingly advanced shopping and discovery capabilities. It enables conversational search and brings a multiproduct trip together in a single integrated view, including a dynamic travel map. Penny is also becoming more personalized with the ability for travelers to build trips with an understanding of their preferences with recommendations that improve over time. In very early testing from a small sample set, we are seeing a noticeable uplift from users who engage with Penny compared to non-Penny users. At Booking.com, we're introducing additional AI-driven capabilities to support travelers earlier in their journey, including enhanced natural language search and more dynamic inspiration-led discovery features. Smart filters have now been rolled out globally in accommodations and we are beginning to extend and test these capabilities within the cars vertical. A key factor in the Booking.com approach is optimizing the user experience through experimentation and data analysis, a process that we are known for. We are doing this now, bringing together these new AI capabilities in the upper funnel and doing so across verticals. We believe we are making meaningful progress in integrating these elements and we expect to continue building on this foundation over the coming year. As we advance these capabilities, AI is also enabling us to deliver greater value to our partners. By improving personalization and conversion, we can help drive incremental demand while also making partner-to-guest communication more efficient and intuitive, streamlining operations. For example, at Booking.com, agentic service flows for complaints and cancellation capabilities are improving the post-booking experience, reducing customer service contacts and increasing self-service adoption, helping partners operate more efficiently. In OpenTable, we are building on the launch of AI concierge by expanding it beyond answering diner questions into a broader discovery tool, starting with natural language search. We're also developing capabilities to better support restaurant partners through more streamlined operations and actionable revenue-focused insights, including voice-enabled reservation tools and table turnover data that help bring more off-line tables online and support higher utilization and revenue. We continue to embed AI across our operations to drive efficiency, from automating customer service interactions and improving self-service rates to enhancing internal workflows that accelerate product development and decision-making. For example, in this quarter at Agoda, we saw a double-digit year-over-year reduction in customer service cost per booking, driven by AI-assisted automation, helping us reduce costs and operate more effectively at scale. We continue to believe AI-enabled productivity and efficiencies are an area of notable opportunity. Beyond our internal efforts, we're also partnering with leading AI organizations to remain at the forefront of this rapidly evolving landscape and to expand our sources of demand. As GenAI reshapes how travelers discover and plan trips, we are focused on meeting them wherever that journey begins. Our relationships with companies such as OpenAI, Google, Anthropic and Amazon, combined with our disciplined approach, positions us well to capture these emerging opportunities and drive long-term value for both travelers and partners. Last, we believe the strength of our brands and the number of travelers who choose to come directly to our platforms will remain an important differentiator as brand increasingly guides where travelers choose to engage. Our consistent ability to deliver value underpins this dynamic and will continue to differentiate us over time while also helping ensure our supply partners, especially our small and medium enterprise partners are discoverable no matter how people begin their travel exploration and planning process. In closing and taking a broader view, we are reminded that over the long term, we benefit greatly from our large global travel platform, which has notable position in Europe, the world's largest travel market and Asia, the world's fastest-growing travel market. Given this geographic footprint, our results naturally reflect the impact of the Middle East conflict. However, we believe our diversified global portfolio of leading brands and financial strength positions us well for the medium and long term. Looking ahead, our focus remains clear. We are advancing the Connected Trip, accelerating innovation through AI and continuing to invest in the areas we believe will drive long-term growth. While we recognize that geopolitical and macroeconomic uncertainty can create near-term volatility, we have seen time and again that the underlying demand for travel does not go away. With our global business, deep supplier relationships and decades of experiencing leveraging data and technology, we believe that we are set up well to navigate these dynamics while continuing to execute our strategy and deliver attractive returns over time. With that, I'll turn the call over to Ewout to walk through our financial results in more detail. Ewout Steenbergen: Thank you, Glenn and good afternoon, everyone. Before discussing our financial results, I want to acknowledge the ongoing conflict in the Middle East. Our thoughts are with our colleagues, partners, travelers and all who are affected and we are hopeful for a swift and peaceful resolution. I will now review our results for the first quarter and provide our current thinking for the second quarter and full year. All growth rates are on a year-over-year basis, and the reconciliation of non-GAAP to GAAP financials can be found in our earnings release. Now let's move to our first quarter results. In the first quarter, our business was impacted by the ongoing situation in the Middle East, which led to elevated cancellations and a moderation in new bookings in March. The impact of the conflict was also felt outside the Middle East region as we saw changes in broader travel patterns, particularly in transit corridors such as the one between Europe and Asia. We estimate the situation in the Middle East impacted our room night growth by about 2 percentage points and that the impact on gross bookings was similar to room night growth with a slightly lower impact on revenue growth and a higher impact on adjusted EBITDA growth. Excluding these impacts, our first quarter growth rates would have exceeded the high end of our guidance ranges across all key metrics. Our room nights in the first quarter grew 6% or about 8%, excluding the impact of the situation in the Middle East. This compares to our room night growth guidance of 5% to 7%. Immediately following the onset of the conflict, we saw an increase in cancellation rates and lower travel demand, resulting in March room night growth of 1%. We estimate that the impact of the conflict on March room night growth was about 6 percentage points with about half the impact coming from reduced bookings and the other half coming from increased cancellations, which have historically been the highest in the first month after the start of a conflict. While room night growth was most impacted in the Middle East, we also saw an impact in other regions following the start of the conflict. Looking at our room night growth by booker region in the first quarter, Europe was up mid-single digits, including the impact from the conflict on bookers traveling to the Middle East and Asia. Within Europe, intra-regional demand from European bookers was up high single digits, consistent with the fourth quarter of 2025. Asia was up high single digits, including the impact from the conflict on bookers traveling to the Middle East and Europe. Within Asia, intra-regional demand from Asian bookers was up low double digits, similar to the fourth quarter of 2025. Rest of World, which includes the Middle East, was down low single digits. Bookers in the Middle East, including Turkey and Egypt, represented approximately 4% of our global room nights booked in 2025. If we include inbound travel to the Middle East, in addition to the bookers in the region, the Middle East represents approximately 7% of our 2025 global room nights. The U.S. accelerated for the fourth consecutive quarter to low teens growth, driven primarily by domestic travel. We're encouraged by the acceleration we saw in our U.S. direct channel. Our B2C direct mix remained resilient over the past 4 quarters, holding steady in the mid-60% range and consistent with prior year levels. We maintained this performance due to continued growth in direct bookers, offset by the impact of the conflict as the Middle East has traditionally had above-average direct mix and by continued declines in SEO traffic, which is a small contributor to our overall direct channel. We continue to see a higher direct booking rate in room nights received through our mobile apps as well as from travelers in our higher Genius tiers. The mobile app mix of our total room nights was in the high 50% range and the mix of Booking.com room nights booked by travelers in the Genius tiers of Levels 2 and 3 was in the high 50% range. Both of these were up from the mid-50% range a year ago. Our alternative accommodation room nights at Booking.com were also impacted by the situation in the Middle East and growth was about in line with our total room night growth. The global mix of alternative accommodation room nights was about 38% of Booking.com's room nights in the first quarter, which was up about 1 percentage point from last year. We believe that we offer a compelling experience for travelers by seamlessly integrating alternative accommodations, independent properties, global chains and our other travel verticals. Our total merchant gross bookings increased 24% year-over-year in the first quarter. Merchant gross bookings represented about 72% of total gross bookings and this mix increased 5 percentage points versus last year. Our merchant payments platform is a core enabler of the Connected Trip vision, providing flexibility for both travelers and partners while adding incremental revenue and contribution margin dollars to our business. In our other travel verticals, we delivered strong growth despite the impact of the Middle East conflict. During the first quarter, airline tickets increased 28% year-over-year and attractions tickets increased about 25%, both driven by continued growth at Booking.com and Agoda. Connected Trip transactions increased a high teens percentage or about 3x faster than Booking.com's total transaction growth. Our data shows that travelers who book more than one travel vertical with us come back to us more frequently. First quarter total gross bookings increased 15% year-over-year. On a constant currency basis, gross bookings increased about 8%, benefiting from about 1% higher constant currency ADRs as well as higher bookings growth from flights and other travel verticals. The increase in constant currency accommodation ADRs was driven by higher ADRs in Europe and was higher than our expectations to be about in line with the prior year. First quarter revenue grew 16% year-over-year or about 10% on a constant currency basis, benefiting from higher payment revenues. Revenue as a percentage of gross bookings was 10.3%, which was up about 10 basis points versus last year, driven by differences in the estimated impact of the situation in the Middle East on revenue versus gross bookings. Because we recognize revenues at the time of travel, we expect the associated impact on revenue from the conflict will not be fully realized until future quarters. Marketing expense, which is a highly variable expense line, increased 16% year-over-year. Marketing expense as a percentage of gross bookings was 3.8%, which was 4 basis points higher year-over-year, driven primarily by the situation in the Middle East as certain bookings sourced through paid channels were subsequently canceled. We estimate that excluding the impact of the conflict, we would have had marketing leverage year-over-year, helped by improved marketing efficiencies. First quarter adjusted sales and other expenses as a percentage of gross bookings was 1.5%, similar to last year despite an increase in merchant mix as higher payment expenses were offset by increased efficiencies in customer service and a $17 million onetime benefit due to the repeal of Canadian digital service taxes in March. Adjusted fixed operating expenses increased 14% year-over-year and were a source of leverage as a percentage of revenue. When normalizing for both FX and the $53 million in onetime benefits in the first quarter of 2025, constant currency adjusted fixed expenses grew in the low single digits. We remain firmly on track to deliver our previously stated goal of $500 million to $550 million of in-year savings from our transformation program for 2026. During the first quarter, we incurred $25 million in transformation cost, which were almost entirely excluded from our adjusted results. Adjusted EBITDA of approximately $1.3 billion grew 19% year-over-year, which exceeded the high end of our guidance. Adjusted EPS of $1.14 per share was up 14% year-over-year, lower than the growth in adjusted EBITDA as a higher tax rate due to discrete items was partially offset by a 4% lower average share count. This adjusted EPS figure reflects the 25-for-1 stock split that took effect on April 2. Now on to our cash and liquidity position. Our first quarter ending cash and investments balance of $16.5 billion was down versus our fourth quarter ending balance of $17.8 billion. This was primarily due to about $4 billion of total capital return, including $3.6 billion of share repurchases, which was the highest amount of quarterly share repurchases in our company's history and a quarterly cash dividend of $343 million. We also repurchased an additional $355 million in shares to satisfy employee withholding tax obligations. These uses of cash were offset by about $3.1 billion in free cash flow generated in the quarter, which benefited by about $1.9 billion from changes in working capital, driven primarily by the seasonal increase in our deferred merchant bookings balance. We have ample liquidity and a strong free cash flow profile, and we plan to continue to return capital to our shareholders as well as maintain our disciplined focus on optimizing our capital structure. Moving to our thoughts for the second quarter. For our second quarter guidance, we are assuming the direct and indirect impact from the conflict in the Middle East continues through the end of June. Specifically, our outlook accounts for continued fluctuations in travel demand across Middle Eastern inbound, outbound and intra-region routes as well as ongoing disruptions to major transit corridors such as those between Europe and Asia. Given the uncertain macro backdrop, we have begun executing targeted cost management actions, including strictly managing discretionary spend and recalibrating business as usual hiring. As we pull these levers, we remain focused on protecting our strategic investment spend. This disciplined approach ensures we protect our near-term profitability while continuing to fund the long-term innovations that drive our competitive positioning and the long-term value creation of the business. Our guidance for the second quarter assumes recent FX rates for the remainder of the quarter, including the euro-U.S. dollar exchange rate at $1.16. We estimate changes in FX will positively impact our second quarter reported U.S. dollar growth rates by about 2 percentage points. We expect the impact of the situation in the Middle East will be higher in the second quarter than it was in the first quarter as the conflict spans the full quarter, though this is partially offset by our expectation that March had the highest concentration of cancellations, which drove the first quarter marketing deleverage. We currently expect second quarter room night growth to be between 2% and 4% and for gross bookings, revenue and adjusted EBITDA to each grow between 4% and 6%. Turning to the full year 2026. Our planning assumption is that the direct and indirect impact from the conflict in the Middle East continues through the end of June, followed by a recovery in bookings in the second half of the year, reflecting the assumption that the direct and indirect impacts from the situation in the Middle East continues for 4 months or 1/3 of the year and this is followed by a recovery period, we're lowering our guidance ranges at the midpoint. The high end of the ranges for gross bookings and adjusted EPS remains in line with our prior expectations. Despite the variability of the current environment, our full year guidance reflects the resilience of our business model. On a reported basis, our expectation for the full year is as follows: gross bookings to be up high single digits to low double digits, revenue to be up high single digits, adjusted EBITDA to grow slightly faster than revenue and adjusted EBITDA margins to expand between 0 and 25 basis points year-over-year. Adjusted EPS to be up low to mid-teens. To support these targets, we aim to grow revenue faster than both marketing and adjusted fixed operating expenses, while maintaining sales and other expenses as a flat percentage of gross bookings year-over-year. Assuming recent FX rates remain steady for the remainder of the year, we estimate changes in FX will positively impact these full year reported growth rates by about 2 percentage points for gross bookings, about 1.5 percentage points for revenue and by about 1 percentage point for adjusted EBITDA and adjusted EPS. We are mindful that a sustained disruption could introduce broader inflationary pressures, including fluctuations in jet fuel prices, airline capacity reductions as well as weigh on traveler sentiment more broadly. These dynamics can create headwinds across the travel value chain and we are monitoring them closely. However, since these extended impacts on the broader economy are harder to estimate, we have not included them in our guidance assumptions. Our second quarter and full year guidance are based on estimates and the information available to us at this time in an unusually unpredictable environment. In conclusion, we continue to demonstrate solid performance despite a dynamic geopolitical environment. We remain focused on what we can control and are managing the current situation with rigorous financial discipline. And we continue to make strategic investments and technological progress to build a more frictionless and integrated offering for our travelers and partners particularly by leveraging the potential of generative AI-enabled capabilities. While our 2026 outlook is impacted by the situation in the Middle East, we remain firmly committed to our long-term constant currency growth ambition of at least 8% gross bookings growth, 8% revenue growth and 15% adjusted EPS growth for future years. Thank you to my colleagues across the world for their dedication and hard work. With that, we'll now take your questions. Operator, will you please open the lines? Operator: [Operator Instructions] And your first question comes from the line of Kevin Kopelman with TD Cowen. Kevin Kopelman: So I wanted to ask about the Middle East situation. First, could you just clarify for the second quarter, how large you expect the impact to be there kind of on a like-for-like versus that 200 basis points you saw in the first quarter? And then could you give more color into what you're seeing with those impacts? Are you seeing any cautiousness from your consumers outside of the region? Or is it more the actual disruptive effects like you talked about with the flight corridors and cancellations? Ewout Steenbergen: Yes. Sure, Kevin. This is Ewout. Let me give you a little bit more color on those aspects, what we are seeing in the Middle East and what we have assumed for the second quarter. So in terms of the headwind from a numbers perspective, approximately 3 points of headwind in the second quarter. So if you look at our, for example, our room nights from 2% to 4% on a normalized basis, you have to put 3 points on top of that to look at what we would expect without the impact of the Middle East. Specifically, what we have assumed in that number is the following: impact of Middle East inbound, outbound, intra-regional travel, the corridors between Europe and Asia and vice versa and also that ADRs will be slightly down as a consequence of the situation in the Middle East. And we have assumed that this situation will continue from a direct and indirect impact perspective for 3 months, so for the full second quarter. Of course, no one can exactly say how long it will last. Someone may have a different assumption, shorter or longer. Anyone can put whatever you want in your model. But this is what we have assumed in terms of this guidance that we see the impact for the full second quarter and then assume some kind of a recovery in the second half of this year. I would like also to point out to the full year guidance because despite, I think, this impact in the second quarter, it's important to highlight that actually, I would say our full year guidance remains still solid. And if you look at gross bookings and EPS, we're still actually from a range perspective, at the high end, still at the level of the original guidance for 2026. Glenn Fogel: Yes. Go ahead, Kevin. Kevin Kopelman: I was just going to follow up on that cautiousness question. Glenn Fogel: You go ahead, Kevin first. Kevin Kopelman: I was just going to follow up on the cautiousness, if you were seeing any broader kind of cautiousness behavior among your consumers outside of the region. Glenn Fogel: Well, that actually fits very nicely, Kevin, into what I was going to say. Here's the thing. The team has done an incredible great job of trying to come up with our best estimates of the future. And Ewout just said it though, you can have a different view. Many people do, I'm sure. The thing we absolutely are very certain of is, this will end. We don't know when but it will. We do know travel will normalize. Now, how quickly? That also an unknown thing. But we've seen a lot of these crises before. And I've been here since all the way back since 9/11 when U.S. travel shut down. I was here for the financial crisis when travel was greatly impacted as all economies were. I was here when we had short-term things like the volcano in Iceland, shut down European travel for 2 weeks. And I was here for the pandemic, worst travel event since World War II. And of course, we were deeply impacted when Russia invaded Ukraine. We had a big, big business in Russia and impacted the rest of Eastern Europe. And of course, when the Israel-Hamas event happened, that also impacted tremendously. So we have been around this type of crisis before. And I just want to thank our team for how incredibly well they worked with our partners and our customers. Anybody who's been in Dubai at 2:00 in the morning, at that airport knows the huge numbers that are flowing through there. That's a big transit point or many of the actual Middle Eastern airports are big transit points. Those people out of place and what we did to get there, help people be put in the right place, a place to stay, getting them where they needed to do, it was incredible. So a big thank you to them. Now your question is, what's the sentiment now? Well, of course, it depends on where you are. Sentiment for a Saudi person who is thinking about traveling or a person thinking about going to Saudi is quite different than the person in New York who's thinking about taking the kid down to Disneyland, very, very different. We don't know how it's going to end. We don't know when it's going to end but we do know it will end. And I think we all can pick our own guesses at what we think it will be. I wouldn't give anything more detail than that. Operator: Your next question comes from the line of Justin Post with Bank of America. Justin Post: I'll ask on agentic. It seems like some of the big AI companies are kind of moving away from transactions and even moving traffic to apps or more focused on advertising. So just how do you think you're positioned competitively in these AI engines? And are you encouraged or concerned about the changes they're making? Glenn Fogel: We are incredibly excited about the same -- and maybe recall our last call where I mentioned the possibility or belief that some of these players would go towards a performance marketing platform that we thought would be very advantageous to us given the experiences we've been able to deal with at Google and how well that has helped create our company to where we are now, it's, we believe, a good thing. But it's not just the ones who are going to that kind of a platform. It's all the elements of AI that we believe are really helping us and really setting us right for the future. And we've talked about this before about how -- the first thing, of course, is how do we improve our own offerings to our customers using AI, using proprietary data, how are we increasing conversion using that. And our scale really helps us in this area. And it helps us do that personalization as we build out the Connected Trip and using AI is going to make that even better, making it the place for people who they should go to -- they should go to us for the travel. Right now, absolutely, some people are going to go to a large language model first. Fine. And we love the relationships we are building and have built with all of the frontier players where we are involved with them, talking how we can work together to create the best experience for both of us. And we've talked -- you've seen the announcement, you -- maybe you saw the Claude Live advertisement recently where we were right upfront there. Really pleased on that. And the other thing is -- and this is just really good, it's going to increase, I believe, the TAM for overall travel. Nobody knows what the right number is. Maybe it's 35%, maybe it's 45%. Maybe it's going to be higher of people who don't buy their travel digitally but that number is going to go up. And I believe using AI is going to make it easier for people to do that. That's another positive for us. And of course, setting ourselves up includes making our internal operations more efficient. And we're using AI throughout the organization, up, down, all over, making things more efficient. And by doing so, then we have more resources to put into making a better experience for the travelers and our partners, which is also another area where we're seeing great advantages for both of us. So all in all, AI, I believe, is an absolute positive for us, not a negative. I know some people may have misunderstood and thought it as a big threat. I see it much more as an opportunity. Operator: Your next question comes from the line of Mark Mahaney with Evercore. Mark Stephen Mahaney: Okay. I'll ask 2 questions and both of them about the U.S., please. That low teens growth you had in room nights in Q1 was the strongest maybe we've ever seen or it's been a while. And Glenn, you talked about like some success in cross-selling. Just maybe spend a little bit more time on that. Is that something that -- are there -- and I know there's a lot of little things that go into it but are there 1 or 2 major unlocks that really kind of help move that growth rate to somewhat unprecedented levels? And then just getting back on this cautiousness commentary. The question I have -- I think the question out there is, are you seeing softness in travel that's sort of more economically driven, i.e., with rising airfares in the U.S., rising gas prices, are you seeing softness that's not directly at all related to the Middle East but just related to the fact that it's more expensive to fly from New York down to Disney? Glenn Fogel: Mark, so I'll take the first 2 and I'll let Ewout talk a little bit about potential softness in the U.S. He's got some data. He can talk a little bit about that. I got to say, it is just so exciting to see incredible hard work done by so many people here for so long to start seeing it result in really nice growth in the U.S. And Mark, you've heard me talk about the U.S. is an area we're going to invest in. We're spending time, money, people and I've been saying it for some time. And for now 4 quarters in a row, we've been accelerating our growth rate, now low teens. That's just wonderful. It's really nice to be able to say, this is what we're going to do. This is what we're doing and then see the results come out. So I am really pleased. When you look at share, I mean, obviously, you can look at any third party in terms of what was the total growth in the U.S. in terms of the accommodations area, far, far, far below low teens. So we are taking share, which is great. And we're doing it because we're building a better product. We're making people aware of it, doing all the things I said we were going to do. We're doing it and it's helping achieve these kind of results. Now part of it is, this idea, this cross-selling, you say, I say Connected Trip, it's really providing a better way for travelers to do their travel and we're building that out and being able to offer flights in the states. We didn't use to do that with Booking.com at all. Having that ground transportation, having attractions, Look at those numbers, they are pretty good. Now these are not U.S. numbers. These are global numbers but they're still great. 25% for those attractions, 28% for those flight growth numbers. These are really, really solid. And then you throw on the idea as we continue to build out even more things, we're able to do more of the personalization. That's the thing where I really -- my vision has always been treat the customer like they used to be treated when they used to go to the human travel agent back in the day who knew so much about you and offered you up what you really wanted, was able to get you the value that really matched up with what you could afford. That's the thing that we're really working on. And again, it goes back to GenAI, having that kind of technological capability to really bring back to the customer what they want and need, at the same time, enabling those partners of ours to get them what they need, what their incremental demand needs are and being able to put together things, orchestrate in a way that makes it so much better for them too. This is just win, win, win, that third win being us, of course. So I'm just so excited about that and I see a lot more coming. Ewout, you want to talk a little bit though of what we've seen in the States right now? Ewout Steenbergen: Yes. Mark, so what we are seeing in the U.S. travel market in general, a couple of points there. First of all, the high end is remaining strong. But that's what we already have seen over the last few quarters. Really encouraging to see that the lower-end segment is improving. And that has been quite weak, as you know, for the recent past. So what we're seeing there is the booking window is now stable. ADRs are flat and that is really a change because they were down at the lower-end segment for many quarters in a row but they are now flat, although trips are still slightly shorter. So I don't think we're completely out of the woods yet but really much more positive and optimistic than we have seen for a long period of time. In terms of the more recent signals, it's too early to draw any conclusions around it. Yes, we see some prices going up, for example, of airline ticket prices with some of the airlines reducing capacity. How much that ultimately will impact demand is still uncertain. So I can't give you a specific answer on it. But lifting this up a little bit and just from a bigger picture, outside of those areas that we highlighted in terms of Middle East impact, outside of those, actually travel markets globally have remained very healthy. Intra-European travel was up high single digits. Intra-Asia travel was up low double digits. And as we mentioned, our growth in the U.S. was up low teens. So there is very specific areas where we see this impact of the Middle East. But generally, we don't see customers globally being cautious. We actually see outside of those areas that are impacted, actually travel demand continuing to do very well. Operator: Your next question comes from the line of Ron Josey with Citi. Ronald Josey: Glenn, maybe a bigger picture question just on AI strategy and the products. We hear a lot about clearly the benefits from Penny. And I guess, the launch of AI search on Booking for natural language search on hotels. Would love to take a step back and talk to us, do you see these experiences merging? Do you take the benefits from Penny, put them into Booking? Talk to us just about how you see AI tactically sort of improve the user experience across Booking's set of brands. Glenn Fogel: Ron, you did point out 2 of numerous things we're doing to help the consumer using AI technology. And you mentioned Penny, which I'm very excited about, what it's -- what they're doing there at Priceline and you mentioned Booking and you mentioned a little bit about some of the things that -- our natural language search and what we're doing there. But we have so many more things happening. Every single one of the brands, Agoda, KAYAK, everybody is coming up with new things. Maybe you used the OpenTable concierge, great thing, really helping diners and such. Now the key thing is, though, we have people who are working on what is good for them right now but they're always sharing what's working, what's not, what's getting you better conversion or not. And we also had mentioned last quarter, we mentioned we have some other things, some start-up type things going too that will come more to in the future when we're actually ready to do a real launch and give it the publicity that it should have. All these people working together in terms of new learning but also taking different things. And the reason is because we're all so early in this. And the technology is changing so fast, too. This is the best way to ensure that we have lots of our smartest people working on this as hard as they can and be able to come up, boil up what are the best ones. And then we'll make sure to put a lot more resources and efforts into those that are winning. That's the way we've always done it. We've had multiple brands for a long time. Why did we come with that strategy? Because we saw there are different ways to do travel. So we had Priceline to start and then we had active hotels, then we had Booking, then Agoda, then we brought in Meta with KAYAK. These are all similar type results in terms of helping travel but there are different ways to do it. And that's the same thing right now at the stage right now is using different teams, different ways and then consolidate it when we see the best ones. That's the strategy. Ronald Josey: And any insights on maybe early results on conversion rates? I know we've said cancellation rates have improved somewhat. So any insights there would be great. Glenn Fogel: Yes. I mean I mentioned in the script, a very small sample. But we're very pleased about it that we're seeing natural lift in what Penny is doing in conversion. And look, the great thing, again, this is no different than way back in the day when we were first -- one of the first people who came out with A/B testing. And it's so wonderful that the scale we have that enables us to test right away what's working, what's not, what's giving us better conversion, what's a loser and don't do any more of that. That's -- again, it's an advantage you have when you're big and you can afford the resources to put to it and you have enough people coming to visit that you can very quickly get a result. Ewout Steenbergen: And Ron, if I may add to that, we're also looking at other metrics. So it's not only conversion, although we see there, as Glenn was just saying, some very early positive signs. But again, the sample size is still very limited. We're also looking at faster search, shorter path between search and ultimately booking, lower cancellation rates, positive customer satisfaction, more engagement. So many of those data points are all pointing in a positive direction. And more and more of those data points, we are collecting. So for example, we're very happy that for Penny, you now can really book through Penny directly that accommodation or flight. So we are getting now more of those data points as well. By the way, many of the AI travel planning tools that are out in the market are not possible to make that step. So in Penny, now that's possible. So we're collecting more and more data. We're reusing that data. We're learning from the data. We're making it possible. We're sharing it across the whole firm but all of these are very early stage but definitely positive. Glenn Fogel: And you don't have to wait for the next call to see some of the progress. Just keep testing out all the different brands, do it yourself, see the changes as they are rolled out, you'll have a real good sense of the progress we're making by just looking at the actual products. Operator: Your final question comes from the line of Brian Nowak with Morgan Stanley. Brian Nowak: Maybe 2. Glenn, on the public call, in the main remarks, you talked about strengthening Genius this year. Can you just maybe talk to us a little bit how you think about ways in which you want to strengthen the Genius program this year and maybe into '27? Then the second one, just to go back to your very last comment about rolling out more agentic capabilities, making Penny more widely available, expanding the booking agent. What sort of is the main constraint to scaling that for you guys at this point? Is it compute capacity? Is it you need to sort of R&D testing time? Like what is sort of the biggest lift you have to clear internally to scale this out to make it a material driver of the business? Glenn Fogel: Yes. So on the first one on Genius, absolutely something we are working on now. I believe Connected Trip by itself is fantastic. Connected Trip with Genius, superpower. And we need to bring it together and we're working on this, the best ways we're going to bring together Genius in a much better way, down the road, that will create even more loyalty, make people enjoy and feel they got a better value. They're doing a better way to travel using us by putting it all together in a much more cohesive, really holistic way. Now you'd probably like me to give you the details right now and you're probably not surprised I'm not going to do that. But I assure you, when we are ready to roll that out, you will see it, you will hear it, you will know it. That's on strengthening Genius. Regarding rolling out any of these things, whether it be Penny or any of the things, this is always a function of what do we think it is in terms of best-in-class ready-to-roll ready to rock out to as many people or do we want to still keep it somewhat limited, testing it to improve it further, make sure it's all working the exact way it should be, see what sort of problems there could be or not. It's definitely not a compute problem. It's not a sense of cost. It is purely one of the way we always do things. We like to test things. We like to make sure it's working. We don't want to have customers who are unhappy. We want to make sure we're meeting any regulatory issues that we have to deal with. That's one thing I think a lot of people really just don't have a sense of -- there are a lot of rules about AI now, particularly in Europe, now all over. And we have to meet not only the AI rules but also the privacy rules. And then if you're doing payments, kind of make sure that's sitting under there, too, lots of things. So we just want to make sure we do something right. Ewout Steenbergen: And Brian, if I may add to that. But of course, we are very focused on going as fast as we can. Because strategically, think about it in the following way. For us, it's very important to protect customers that are coming direct to us. We want to make sure that they have an experience in our environment that is at least as good as they can get at a generic horizontal agent because in that case, they want to do that with us because they are with a brand they know, they trust, they have the loyalty program with. They know that you can flip it to a booking. If something happens, they can make the update, the changes, you can make the cancellation, you know who you can call, who you can contact. So we have that brand trust, loyalty with the customer. So going as fast as we can so that they can have that experience, that full experience in our environment, is going to be the most important thing to actually not protect the direct channel but further expand the direct channel in the future. Operator: That concludes our question-and-answer session. I would now turn the call back over to Glenn Fogel for closing remarks. Glenn Fogel: Thank you. In closing, I want to thank our dedicated employees, stockholders and most importantly, our travelers and partners whose commitment and support were foundational in our strong execution and solid performance this quarter. While we remain mindful of the current macroeconomic and geopolitical environment, we have navigated similar periods before and remain confident in the enduring resilient demand for travel. We stay focused on what we can control and continue to execute against our long-term vision. Thank you and good night. Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you to everyone for joining Robinhood's Q1 2026 Earnings Call, whether you're tuning into the live stream or here with us in person. With us today are Chairman and CEO of Vlad Tenev; CFO, Shiv Verma; and VP of Corporate Finance and Investor Relations, Chris Koegel. Vlad and Shiv will offer opening remarks and then open the call to Q&A. During the Q&A portion of the call, we will answer questions from the audience, which includes institutional research analysts, finance content creators who may hold an ownership position in Robinhood and both institutional and retail shareholders. As a reminder, today's call will contain forward-looking statements. Actual results could differ materially from our current expectations, and we may not provide updates unless legally required. Potential risk factors that could cause differences, including regulatory developments that we continue to monitor are described in the press release we issued today, the earnings presentation and our SEC filings, all of which can be found at investors.robinhood.com. Today's discussion will also include non-GAAP financial measures. Reconciliations to the GAAP measures we consider most directly comparable can be found in the earnings presentation. With that, please welcome Vlad and Shiv. Vladimir Tenev: All right. All right. How's everyone doing? I've been told that this may be the first ever outdoor earnings call in history. Can you believe that? Shiv Verma: Very cool. Vladimir Tenev: Shiv, they told us before we went public that earnings calls aren't going to be very much fun that they're going to be a chore that actually being public wouldn't be very much fun. And I think part of what we're trying to do is improve the branding of being a public company. I think that's going to be pretty important. The branding of it has been very negative, and maybe that's contributing to companies staying private longer and longer and retail shareholders being left out of all those potential returns. So yes, hopefully, you guys find this informative and also entertaining, and we can shift the perception of what it means to be a public company slowly but surely. So we're back at our HQ in Menlo Park, with a growing audience of in-person folks, shareholders and analysts. So thank you all for being here. Before I get into the meat of it of Q1, I want to highlight a historic milestone in our mission to democratize finance for all Trump Accounts, okay? We announced a few weeks ago that Robinhood will be the broker and sole initial trustee for the Trump Accounts under the direction of the U.S. Department of the Treasury. And over 5.5 million American children are already signed up. Over 60 million, 6-0, are eligible. So these children will now experience the power of equity ownership in the U.S. stock market, which we believe is the greatest engine of wealth creation in human history. It's an incredible honor to be trusted by the United States Department of Treasury and to partner with BNY, America's oldest bank, which was appointed as a financial agent to manage the program. And by developing and managing the new Trump Accounts app, we're getting Robinhood technology in front of the next generation of investors, 60 million of them. This is also a new way to extend Robinhood's mission beyond just retail and institutional to helping governments and building a public sector business, which we actually see as a big opportunity and we can really help there. Now our hope and aspiration is that this should be the best technology product that the government has ever built or been associated with. So we're really excited about this. Now let's get to Q1. As a reminder, we're focused on a 3-part strategy. #1 in Active Traders, #1 in Wallet Share for the Next Generation, and of course, our long-term mark, #1 Global Financial Ecosystem. So Active Traders, we want -- if you're an active trader, we want you to feel like you're at a disadvantage trading anywhere besides Robinhood. So using another brokerage or another financial platform, that should be irresponsible and irrational decision. That's the goal. So a few things to highlight there. As we continue shipping great products for our customers, in Q1, we saw record levels across Prediction Markets, Futures, Index Options, Shorting and Margin. So our active traders were very active. We saw double-digit year-over-year growth in equity and option volumes as well. So that's been great to see. Now looking at prediction markets, specifically, we're really spending time getting ready for the Q2 launch of our JV with Susquehanna. This is our exchange Rothera, and that's coming later this quarter. So very excited about that. Now today, Robinhood is the largest retail brokerage firm in prediction markets, and we've been one of the first to adopt a new asset class. Susquehanna is one of the largest market makers. And in the past, up until now, we've been relying on third-party exchanges. With the launch of Rothera, this vertical integration gives us a couple of things. It really gives us end-to-end control of the customer experience, including product selection and pricing. So we'll have more control over what products and what pricing we can offer to customers, which I think is going to be very, very nice. Moving on. Robinhood Social, strong engagement. We've rolled out Robinhood Social to the first 10,000 customers. And what we're hearing is they absolutely love verified profiles. They love verified returns and trades. So if you remember, the value prop for Robinhood Social as opposed to other social media platforms or places where you can chat about your finances, is you have a guarantee that customers have actual skin in the game with real positions and real returns. And it seems like that's proving out. People love that, and we're working to add new requested features on a weekly basis. So these are things like live stock charts, expanded personal profiles, tools to find other traders. And we're also bringing popular creators on the platform. And there's really been strong demand from creators to participate in this network. Second, wallet share. We are building our customers' financial super app. We can see that this is starting to resonate with customers. Across Retirement, Gold credit card, Strategies and Banking, customers added 500,000 funded accounts in Q1 and more than 1.5 million in the past year. And so we're really continuing to broaden the offering beyond just brokerage. I'd give a special highlight to Robinhood Banking. So Robinhood Banking grew 5x since the last earnings. It's rapidly become a leading premium digital banking offering. And I think it's really one of a kind in that category. Over $2 billion in net deposits. Over 125,000 funded customers. And I think most interestingly, a 40% direct deposit rate. Okay, so that's a 40% direct deposit attach rate, which tells us this isn't just an add-on to your brokerage account for keeping your extra cash. People are thinking about this as a primary bank account. So I think that gets me very excited. I know Shiv as well. Gold Card. Okay, Gold credit cards have also surpassed 800,000 customers with annualized purchase volume, APV, of $15 billion. So this is a heavy purchasing card already. The credit performance continues to be strong, and we're on track to surpass 1 million cards and $100 million ARR this year and well before the end of the year as well. Demand for the new Platinum Card, which if you guys saw the Take Flight event, I mean it was very popular. The card is, I believe, the heaviest credit card on the market. So demand for it has exceeded our expectations. We look forward to rolling out in the coming months, and we're responding to initial feedback. So the great thing about this team, they iterate. And I think you're going to see a better product than what was even unveiled. So that's very exciting. Moving on to our third and long-term mark, Global Financial Ecosystem. We're making progress as we expand to different markets around the world. International is picking up, and we approach 1 million funded customers. We plan to launch crypto in Canada around midyear. Remember, this is via our WonderFi acquisition from last year. And we have received in-principle approval from regulators in Singapore to offer a comprehensive suite of brokerage services there. So that's a big deal. Bitstamp continues to win institutional customers gaining market share, and we're enhancing the offering. In particular, there's been a lot of interest in institutional lending. So you're going to see us digging in and doing more there. Across the entirety of the business, we're really turbocharging Robinhood with AI as well. And if you think about the impact of AI on our business, it's actually three different things. So first, we're aggressively leveraging AI to drive efficiency and productivity internally. We've been doing this for a long time, and Shiv will talk a little bit more about the wins we've been seeing there. The second thing, we've been and we continue to give customers access to the highest-quality AI-powered tools. So Robinhood Cortex, which we unveiled about a year ago, used by nearly 1 million customers so far. So this is like AI intelligence throughout the Robinhood app. You can see it in the Stock Digest, and you can now see it in Cortex Assistant, which is our AI assistant within the product. So now that's rolling out. That's rolled out actually to all Gold customers. And so we're putting the financial intelligence coupled with our market data in your pocket. Customers are using it to do portfolio and P&L analysis. They're using it for stock research and stock screening, and you should expect to see it get better and better. I think we really love what we're seeing there. And we're also -- you could tell, last December, there was a step change in the agentic capabilities in these AI models. And of course, we're working to bring the frontier capabilities into your product, and we've been spending a lot of time chiseling what an agentic product could look like. So stay tuned there. And third, and this is an interesting one, AI is affecting the markets and investors. So one of the things that we've been spending a lot of time on is empowering customers to participate in the economic value and the upside created by these AI companies. Now the unfortunate thing has been a lot of them are still private. In some cases, staying private valuations of hundreds of billions. But Robinhood Ventures was built to solve this. And Robinhood Ventures first fund, RVI had its IPO in March. We have a great portfolio of late-stage frontier companies, and we just added OpenAI last week, which was awesome. Now we're also hearing from customers that they want access to emerging AI companies at an even earlier stage. And we've already begun building the initial portfolio for our next fund, RVII, so the second RVI. We're excited to share more soon. But I think part of this is just building the capability now that we've proven out that private markets democratization is a real thing, making it a bigger thing. The aspiration is that if you're a founder, retail should be part of the initial seed capital for your company. And I think once we succeed in this, we could actually move the needle on entrepreneurship in this country and make it so that this is better for entrepreneurs. They can access retail and get even more capital. So taking all this together, the relentless product velocity has driven another quarter of strong business results. Total net revenue grew 15% year-over-year to $1.1 billion. Net deposits were $18 billion, which is another quarter of 20%-plus annualized net deposit growth and our third highest ever. Gold subscribers, 36% year-over-year growth to a record 4.3 million, and that's 16% attach rate relative to the total customer base and 40% of new customers in Q1. So we're seeing customers adopting gold very quickly, and that gets us very energized. Now looking ahead, we've got some great new products to share. So as I mentioned earlier, we've been working hard on extending agentic capabilities into Robinhood Cortex and your Robinhood experience. So you should see some exciting products coming in late May, so that's next month. Plus, we've got a crypto event coming up as well. That's going to be early July in the United Kingdom. We'll be holding -- so that's two things coming up very shortly. We're also holding our annual HOOD Summit for active traders in the fall. And I've been reviewing what's on deck for that one. And I think you'll really like that. So why don't I turn it over to Shiv now to discuss our financials, and then we'll circle back for the Q&A. Shiv? Shiv Verma: All right. Thank you, Vlad. So before we get started on the financials, I wanted to share 3 big takeaways from the Q1. First, as Vlad mentioned, our product velocity continues to accelerate. So we're investing for the long term. We're aggressively leveraging AI across the business, and this is leading products being shipped faster than ever. Second, we delivered another strong quarter of 20% annualized net deposit growth. As a reminder, this is our North Star KPI. It's great to see customers continue to trust us with their assets even with the macro backdrop, which was more challenging at start of the year. Customers remain engaged, they deposit on the platform, and they're rapidly adopting our new products. Banking, as example, as Vlad mentioned. So all this put together, it led to 15% year-over-year revenue growth and 50% adjusted EBITDA margins. And third, big takeaway is Q2 is off to a good start in April. So trading volumes for equities and options are on track to be our highest month of the year and actually our second highest month in history. Net deposits, they're already approximately $5 billion month-to-date. That's great to see. And retirement assets just crossed $30 billion. So really great to see customers continuing to invest for the long term on Robinhood. So let's go to the Q1 results, and all of this is compared to a year ago. So first, revenues grew 15% to $1.07 billion, and this was driven by growth across the entire business. So transaction volumes, they increased with growth in equities and options, and we had a record quarter for both prediction markets and futures. If you look at interest-earning assets, they also continue to grow, and they more than offset the lower short-term interest rates. So really great to see net interest margin grow as well. And then other revenues were up as Gold subscribers reached a new all-time high, 4.3 million subscribers. So really great to see the adoption there. And we also continue to stay disciplined on our costs. So we managed Q1 expenses to be significantly lower than our outlook. So adjusted OpEx and SBC was $607 million, and this included $14 million of costs related to Rothera and Trump Accounts that actually were not included in our outlook. So I looked ahead to the rest of the year, we expect to invest an incremental $100 million into building Trump Accounts with approximately half of these in Q2 as we prepare to launch. As Vlad said, we're super excited for this. So these costs include building an exceptional user experience and actually a brand-new app, also ensuring we have best-in-class customer service and then giving customers access to really great educational content. Importantly, I would also note that our work for Trump Accounts is contracted on a cost-plus basis with a small margin. So we expect revenues to exceed cost for this project. So given this $100 million investment in building Trump Accounts, we are raising our full year 2026 outlook for adjusted OpEx and SBC by equivalent of $100 million, and so our updated range is $2.7 billion to $2.825 billion. So turning to capital allocation. We spent a lot of time here. We've also leaned in on share repurchases to start the year. So, so far this year, we have already repurchased over $300 million or 4 million of our shares, which keeps share count on track to be approximately flat this quarter. And as we've said before, the denominator matters. Additionally, in March, our Board refreshed our share repurchase authorization to $1.5 billion. So this reflects the great confidence and opportunities we have ahead. So looking ahead, I just want to share a few top of minds that we're also thinking about. First, we're going to continue investing for the long term while maintaining our disciplined approach to costs. So customers are responding incredibly well to our new products and our product velocity, as we said, is faster than ever. We believe this combination can deliver outsized growth for years to come. But at the same time, we want to remain disciplined in the way we invest capital. And so we're continuing to underwrite each investment to strong long-term ROIs. Second, we are also increasing our focus on top-of-funnel customer growth. So this is something new again. While we continue to add customers organically, we think there is an opportunity to improve our customer growth rate, both in the U.S. and internationally. So we're starting to allocate more of our investments in capital to adding new customers again while still maintaining our focus on the strong annualized net deposit growth. And this is all in addition to supporting Trump Accounts, which also puts the Robinhood technology in front of the next generation of investors. And third, we're leaning into investments in AI, both in the customer-facing products and internally. So Vlad spoke to a lot of the customer efforts, but we also believe making AI native to our workflows is just as fundamental to winning. So last quarter, if you remember, we shared the 9-figure efficiency benefits we've already generated in engineering and customer support. But we are now giving every team the tools and mandate to adopt AI into their daily workflows to drive productivity while also making the experience of working at Robinhood even better. Today, over 90% of our employees are already using AI tooling in their workflows. That's great to see. And these adoption numbers, they continue to increase weekly. Another example of a data point we watch is commits per engineer. This measures how much code our engineers are successfully deploying into production. It hit a new high in Q1, and it's up 50% since the start of last year as our engineers are leveraging these AI tools to build even faster for customers. So we believe AI has the power to transform financial services for both customers and employees. And as a technology company, we plan to lead that charge. So putting it all together, we believe the opportunities for 2026 and beyond remain massive. Our teams are hard at work. They're shipping great products for customers, but we're also staying lean and disciplined to generate operating leverage for shareholders. And as I said last quarter, our financial North Star remains the same, maximize earnings per share and free cash flow per share for shareholders over time. So with that, Chris, why don't we go to Q&A? Chris Koegel: All right. Thank you, Shiv. For the Q&A session, we'll start by answering shareholder questions from Say Technologies, and after the Say questions, we'll turn to live questions from our audience. And then we'll go to dial-in participants. So the first question from Say comes from Sebastian G. who is joining us live via Zoom. Vladimir Tenev: Sebastian. Unknown Shareholder: My question is around the dividend tracker that you had previously announced. Can you give me an update on the current status of that? Vladimir Tenev: We love our dividend investors at Robinhood. You -- we call them dividend hounds. You're a dividend hound, Sebastian? Unknown Shareholder: I am. I sure am. Vladimir Tenev: Yes. So the short answer to your question is it's in the works, and we're going to be launching it this year. So on track for that. The reason it hasn't been launched already is that as we sat down with our team to think about what we could be doing even more for our dividend hounds, one thing came up. So a lot of them had this complaint that some of the other brokerages pay out their dividends in the morning, but we do it in the evening. So why can't we pay out the dividends a little bit earlier, match everyone else. So we looked into this. And what we discovered was that actually, the dividend record date is up to 2 to 3 weeks before the dividends are paid out typically. And so we saw an opportunity not just to match what everyone else is doing, but to beat it and to give your dividends an average of 17 days or 2 to 3 weeks earlier. And this is like real value. So one of the other reasons why, hopefully, it will be irrational to use another brokerage for your dividend investing than Robinhood. So we got excited about this. We're shipping that. That's live, should be this month. And now our team is turning their attention to making what at this point, given all the questions, needs to be the world's best dividend tracker. So stay tuned for that. And enjoy the early dividends in the meantime. Chris Koegel: Awesome. All right. The next Say question is from Matt S. Unknown Shareholder: Okay. So my top voted question was, will Robinhood have IPO Access to any of the upcoming mega offerings? Vladimir Tenev: Okay. That's a great question. So I have to preface it by saying I can't really be specific with you about what IPOs may or may not be on the platform listed before you actually see it. That being said, in the past couple of years, we've seen a distinct shift where pretty much every major IPO of consequence has been on Robinhood's platform. And in most of these cases, I mean, the founders, the CEOs are engaging with us directly, asking for help with their retail strategy. And there's a big change from when we launched IPO Access, which was back in 2021. We really had to like claw and scratch and ask for favors to get retail these allocations and everyone was telling them, you don't want retail in your IPOs, certainly don't want more than 10% retail allocation. And now we're starting to get the CEOs talking about how they're actually driving larger and larger historic-sized allocations, 20%, 30%. We're starting to get questions about how big is too big? Why isn't anyone doing larger? And I think that's awesome. I think we've helped really change the game, and now retail has a real seat at the table in IPOs. And with Robinhood Ventures, we're driving that even earlier. So I think that's a durable trend. I think it's going to continue. And so you should expect that, that will happen in the future, and we're going to continue to work tirelessly to get the highest quality IPOs and private companies to treat retail as a first-class constituency. Chris Koegel: All right. Thank you, Vlad. That concludes our shareholder questions from, Say Technologies. Now we'll move to Q&A from folks here live in Menlo Park. So the first question goes to Alex Markgraff. Alexander Markgraff: Alex Markgraff from KeyBanc. Maybe a couple of questions, Vlad, just one on Shiv's comment on customer growth. I mean the Trump Accounts effort is obviously one source. But as you think about other sources of customer growth when you're putting some more capital behind it, where does your mind go? Vladimir Tenev: Yes. I mean I think that there's a lot that we could be doing both on the product side, just making onboarding simpler, getting customers to see the value easier, right? And I think a lot of those surfaces since we've, in the past few years, turned our attention more to deepening relationships with customers, getting higher-value customers to get more value. We've been spending a little bit less attention and focus on how to make the top of funnel simpler and easier to get through. And in particular, now we have lots of products, right? So there's lots of things to market, lots of things we can put in front of customers. We really have executed on this vision of building a comprehensive financial services platform. So the challenge now is how do we kind of like organize these things for customers and make them so that we deliver the thing that you're looking for as quickly as possible, not to kind of like clutter the interface and experience. And I think we're also seeing really good impact from our marketing activities. Marketing continues to be a very high ROI for us, and that just gives us more and more levers. Alexander Markgraff: Great. Maybe Shiv, on OpEx. Last quarter, we talked about the profitable growth framework. As you think about the flexibility that showed up in the first quarter around the $607 million. When you look at the rest of the year, maybe help us think about where the flexibility exists on the lower side, if need be to ensure that profitable growth framework? Shiv Verma: Yes, great question. So our North Star is still the same. We want to drive free cash flow per share and earnings per share over the long term. So that means we need to be making investments. So we want to keep doing that, customers responding incredibly well. At the same time, we want to be disciplined. And so we're constantly re-underwriting everything we're doing, making sure it still makes sense and where we want to put our capital. 85% to 90% of our costs are fixed, but a large portion are discretionary. So as a software platform, we're constantly looking at what's the right allocation of resources internally. We also have marketing spend, as Vlad mentioned, we also have some variable costs, even though predominantly fixed. So I feel really good about our outlook. We're still building for the long term. We came in better this quarter, and we're going to continue to monitor it. But I want us to be investing for the long term. And then if we need to, we also have some levers we can pull. Chris Koegel: All right. Thank you, Alex. Now, Alex just had his second child, so we let him have two questions. But for the next -- for the remainder of the question askers, please limit yourself to one question. All right. So the next question is from Dan Fannon. Daniel Fannon: Dan Fannon from Jefferies. So I wanted to just talk more about the health of your customer base given -- and the resiliency given all the market volatility we've seen at the start of the year. And then you gave some comments about April, only mentioned a few asset classes, maybe expand a bit upon outside of just options and equities, maybe crypto, prediction markets, sec lending? Any of the other kind of areas where you're seeing any change in behavior as you go into 2Q versus what we saw in the first quarter? Shiv Verma: Yes. I'm happy to start. Vladimir Tenev: Go for it. Shiv Verma: So our North Star KPI is just net deposits. Like that is our customer is healthy, they're trusting us, $18 billion in Q1 despite was a really tough macro backdrop. If you recall, the start of the year, there was a government shutdown, a software sell-off and then a global conflict. Despite all of that, our customers remain resilient. I think the big difference from a couple of years ago is, one, we're a lot more diversified. So there's a lot of different products that customers are using. We mentioned Banking, for example, Robinhood credit card. We also have Robinhood Strategies. That's our robo-like product that has over $1.5 billion. And so regardless of the macro backdrop, customers are using that. The second thing is we have more active trader tools. So we now have index options, which allows you to go long or short. We also have shorting, which is growing nicely. So for more active traders, they're continuing to remain engaged. On your question on April specifically, really healthy volumes across equities and options, as I mentioned. Prediction markets, it's on track to be around $3 billion and probably our second highest month ever. So really strong engagement there. So everything we're seeing is the customer is healthy. They're engaged, a little bit more activity from the active trader constituency. But the thesis was if you build great products, if you diversify, if you give active traders the tools, they'll be there throughout the cycle, and that's what we've seen thus far. Chris Koegel: Great. Thank you, Shiv. Any other question -- Jeff John Roberts. Jeff Roberts: My question is on prediction markets. How does Robinhood see this industry evolving? Do you see in 2 years it being like a Uber-Lyft-type duopoly? Or is there going to be like 5 or 10 or 15 players? Vladimir Tenev: Yes. I mean, remember, prediction markets happens at various layers, right? So right now, we're kind of -- think of us as a brokerage and then there's a variety of exchanges. And there's sort of the main ones that are in the news and also a lot of the other players are growing their own exchanges, building their own, going through the CFTC registration process. There's probably been over a dozen, probably more than that. So I think we should expect to see some consolidation because, frankly, if you look at all these dozens of new exchanges that are popping up, there's not a lot of differentiation. And I think differentiation really comes down to who has an established engaged customer base and who has a unique advantage with economics. And one of the things I think we're unique with is we've got 27 million funded accounts in the U.S. And through our partnership with SIG to launch Rothera, which is one of the leading market makers in the asset class, we believe that we not only have an advantage with retail, but also institutional as well. So I think the asset class is going to continue to grow. We're very, very early. We're starting to see the beginnings of diversification outside of sports. So that's been increasing. I do think -- and it's hard to predict the exact timing. I don't believe there will be dozens of DCMs in the future. I think there will be some consolidation, and I think we should see that shaking out in the next couple of years. Chris Koegel: All right. Thank you, Vlad. Are there any other people here who would like in person to ask a question? Vladimir Tenev: Don't be shy. Chris Koegel: Okay. Well, then let's go to the Zoom queue. All right. So for those who are joining us on Zoom, please raise your hand to let us know that you'd like to ask a question. So I'm seeing first question is coming from Devin Ryan at Citizens. Devin Ryan: A question I want to dig in on the recent announcement on the Pattern Day Trader elimination. And just get your thoughts on what does that mean for Robinhood, for your customers for kind of modernization and democratization kind of near term? And then bigger picture, how do you see this playing into, I don't know, themes like agentic trading and maybe the ability for customers to trade a lot more than maybe they otherwise would have been able to do? So just love some thoughts on kind of both near term and longer term, what this means for you? Vladimir Tenev: Yes. I think it's fantastic. I mean, this rule -- so for those of you that aren't familiar, probably most are, but pattern day trading rules prevent day trading effectively for customers that have under $25,000 in their account. So when I say vestigial and kind of outdated, it's this old notion that the amount of money you have in your account or your account balance dictates how sophisticated or knowledgeable you are, right? And we've seen that maybe in the past, when we had lack of good information, this was kind of a reasonable proxy, but now we have tons of information, so it makes less sense. Moreover, the way this rule works is if you fall backwards and trip over and become flagged the pattern day trader, effectively, if you want to trade, you would have to churn out of your Robinhood account and go to another brokerage. So it wasn't even -- this follows you around as a customer. It's just on a per brokerage basis. And since we were getting the lion's share of new customers, we felt like this disproportionately affected us. So excited to see it go. This, along with the accreditation rules are kind of like vestigial rules that tie sophistication with account balance, which we think is wrong. And we're excited that there's progress there. And obviously, as you can tell, we're ready to go. The team is excited to go live with the new logic, and I think it's a great step by FINRA to push this through. Chris Koegel: All right. Thank you, Vlad. The next question is from Dan Dolev from Mizuho. Dan Dolev: So great stuff here. Everything sounds really amazing and promising. I was very impressed by the agentic trading commentary. Maybe can you educate us a little bit what you guys are doing? Because if anyone is at the forefront of agentic trading, it is probably going to be Robinhood. So I'm really curious to know what you guys are doing there. I'm sure a lot of people would like to hear that as well. Vladimir Tenev: You caught that in my prepared remarks, right? My preference really isn't to reveal too much about products before we ship them, but we've got a lot planned this year. I mean there's 3 events that I just announced. So we're going to be launching some stuff in May. Then we've got the crypto event in early July. And then we have HOOD Summit that's going to be our active trader event, third annual in the fall. And I just reviewed kind of the docket for that. You can imagine AI agents and putting the best financial intelligence in our customers' hands is going to be a starting player in the starting 5 of most, if not all, of those events. So -- and I should say there's been a lot of noise about this by the industry. I don't think anyone's kind of figured anything out yet. So we're still early, and you should expect us to be not just early, but kind of at the forefront there. Chris Koegel: Great. Thank you, Vlad. The next question is from Steven Chubak from Wolfe. Steven Chubak: And so this relates to just sec lending in particular, and that has remained under considerable pressure, not just for you, but for industry peers as well. At the same time, the outlook here is pretty constructive given both this large slate of IPOs that are coming as well as just above normal retail allocations for those IPOs as well. So given that you've had more of your clients opt in to fully paid sec lending, I was hoping you can contextualize just how meaningful of a windfall this could become. And I'm going to break my own rule. If you could speak to take rate dynamics for 2Q, that would be helpful as well. Vladimir Tenev: Shiv? Shiv Verma: Yes. I'm happy to take this one. Great question. So first on securities lending. As a reminder, this will show up in 3 different places in the financials. First is sec lending net. It will also show up in segregated cash because when customers have securities lending, we get GC collateral back and we reinvest it. It'll also show up in margin interest as customers borrow on margin. So when you look at the financials, what you saw is customers continue to opt in and use the program and fully paid. The margin book continued to grow. What you did see is securities lending net, which is primarily based on the rebates rate was lower. As you mentioned, Steve, that's mainly because lower volatility, lower IPOs in the market, so special rebates was lower. So that's what brought that down. How do we judge the business internally and its health? There's just 2 main things I look at. One, are customers opting into fully paid program; and two, how much assets are opted in. So right now, it's about 25% of customers have opted into fully paid and about 50% of assets. So really healthy adoption, but we also have a long way to go. It's hard to predict what's going to happen on the special rebates rate later in the year. But right now, it's at a low. And if the market comes back or if you see IPOs come back, you could see a rebound there. To your second question, we'll answer it even though Chris said limited to one. So take rates. As a reminder, this is an output metric. We goal on market share and we're winning and everything that we see is that the case. What happens to take rates is when active traders trade more, take rates naturally go down because we have tiered pricing. This is a good thing. It means they're engaged, they're using our products. And relative to a few years ago, we're actually seeing a much healthier adoption of active traders during some of these macro events. So what are we seeing to start the quarter? On crypto, it's about 7 basis points lower and on options, it's about $0.03. However, we're starting to see that rebound in the pickup of April. So again, it's an output metric. We focus on active traders and market share and everything we're seeing is super healthy. Chris Koegel: Thank you, Shiv, for the double header. All right, the next question is from Ben Budish at Barclays. Benjamin Budish: Maybe just tying this into Steve's question on sec lending. Shiv, I'm wondering if you could talk a little bit more about your margin funding. I think it's been a little bit of a source of confusion for investors. You've been moving bank sweep cash over to brokerage cash. I think you've been talking about using some of the sec lending related cash. So maybe just any like modeling help you can give us there? How should we think about your future plans given your margin balances are growing more rapidly would all be helpful. Shiv Verma: Yes, happy to take it. Great question. So on the margin book funding, what you'll notice in Q1 is we moved over $6 billion of cash that was off balance sheet and that was in the sweep program on to free credit balances on to balance sheet to help fund the margin book. No impact to customers. They get the exact same rate, 3.35%, one of the best in the industry. This is more of a back-end accounting change. It also helps, as you mentioned, on the funding of the margin book. This is very common in different brokerages before. So just with the health of what we're seeing, we decided that was the right time. What would I expect for modeling going forward, they'll stay roughly at this rate. About 25% of our free credit balances today is in this. So $24 billion in sweeps and then about $6 billion from free credit balances. It might move a little bit around quarter-to-quarter, but I think that's the way you should look at it. And then most of our free credit balances will continue to be earning the same rate that we do, but this $6 billion will have a smaller take rate more akin to our sweeps take rate now that it's moved over on balance sheet. Chris Koegel: All right. Thank you, Shiv. The next question is from Craig Siegenthaler from Bank of America. Craig Siegenthaler: Great. So I have a follow-up on AI, but not Cortex and not agentic AI. But taking this one step further, where are you in the process of rolling out AI-powered financial advisers? I believe you're working on it. I think you've said before you're in talks with regulators, but can you kind of share a time line with us? Vladimir Tenev: Yes, for sure. So I think when people talk about AI-powered financial advisers, they can mean 1 of 2 different things. One is just specifically advice on what to invest in, right? And that can be a spectrum of things as well, like trading recommendations and allowing you to build trading strategies with that Reg BI compliant capability. It could also mean like robo-advisor services. So for the latter, we have Robinhood strategies. And for some of the work that we're doing on the agentic side, you should expect that, that increases in capability as well in everything that we do, whenever we -- if we do add recommendations, we got to make sure they're in accordance with Reg BI and all of those rules. So we're making progress on those things and with Robinhood Strategies. I think it's the best like deposit money and we invest it for your product out there today under the fiduciary standard. We actually published some returns and historical performance a couple of weeks ago, which looked really good. Now the other thing people mean when they say financial advice is I want help just managing my entire spectrum of financial things, right? And that involves your banking, your spending and budgeting, your estate planning. And we'll have a solution there for you, multiple solutions. So with TradePMR, some people still want humans. And I should point out there's a synergy conference for TradePMR coming soon where we're going to start unveiling some of the things that we've been working with on the human advisor side. I think that's a durable product. We should expect human advisors to be around because that fills a very, very specific need that I don't think AI is quite going to fill in the near term. Then for the other things, we are working on digital self-serve solutions. We ran a pilot for concierge, where we can do your estate planning, we can do your taxes for you. That's been very successful. And through our self-serve offerings, we also have helped customers with their tax preparation. So we're kind of stitching these things together. And you can imagine as we identify more and more of our endpoints, that lowers the activation energy to having Cortex or AI assistant sees everything. But I think, first, our strategy is going to be to make the capabilities available on an individual basis and later to kind of stitch them together for you. Chris Koegel: All right. Thank you, Vlad. The next question is from James Yaro at Goldman Sachs. James Yaro: I just wanted to touch a little bit further on crypto. Maybe just any views on when crypto volumes and prices could stabilize at a high level? And perhaps also just the trends you're seeing across your crypto franchise across client types. And I know you commented on the near-term take rate dynamics in crypto. But maybe just your thoughts on longer term, what your crypto take rate could do over time? Vladimir Tenev: Yes. Maybe I'll hit the outlook, and then you can hit the take rate, Shiv. So when we talk about crypto, I think it's important. I want to get away from talking about the price of Bitcoin or all of the other native crypto assets. Our strategy is to take crypto infrastructure and apply it to assets that have real-world utility. That's why we care so much about tokenization. And you should expect that this is going to be -- I mean, we're at the very beginning of what's going to be a tokenization super cycle. You're starting to see it a little with the stables. You'll see it with stocks as well. And we're going to be at the beginning of that. And I think you should expect that at the crypto event that we're going to have in July, tokenization will be -- will have a starring role. And I think there's a lot of work to do there, but we're still very, very early. So crypto is 2 things. It's like Bitcoin and other crypto native assets, which I can't tell you what the price is going to be in 3 months. Price moves up and down. But what I can tell you is crypto as technology infrastructure is going to be big, and we're investing. We've got Robinhood Chain. We've got Robinhood Wallet. We've got our tokenization initiatives. And I think we're still very, very early. So this is going to play out over many years, and you'll see the next phase of what we've been working on in the U.K. in July. Shiv Verma: Yes. And on the monetization side, a couple of things we'd point you to. First, we are crypto bullish, as Vlad said, but it's less than 20% of our revenue last year, about 18%. So it's an important part of the business, but we've vastly diversified. On the take rate specifically, it's an output metric. It's not something we go on. What we're seeing is active traders remain on the platform, and we're winning market share. And so we're going to continue to invest there. The counterfactual is take rates could be higher, but you wouldn't have had as many active traders. And so we don't want to go on that. As I mentioned, it's a little bit lower in April, but we're already starting to see it rebound. The other thing we're super excited about is institutional. And so we bought Bitstamp last year, the crypto exchange, seeing really healthy market share there. Institutional tends to be more resilient throughout the market cycles, and so we're gaining share there. So everything we're seeing is still healthy, active traders growing in institutional book. And as Vlad mentioned, we're making big investments in tokenization and on the infrastructure side as well. Chris Koegel: All right. Thank you, Shiv. All right. The next question is from Patrick Moley at Piper. Patrick Moley: So Vlad and Shiv, one of the things you guys have done great historically has been in understanding where the puck is going in terms of retail trends, whether that's all coin trading and Dogecoin or prediction markets here more recently. But one, I think the biggest story in my mind in retail trading year-to-date has been in perpetual futures. And I don't know if we've touched on it yet this call. I know you launched crypto perpetual futures in Europe in the fourth quarter. So I would love to get your thoughts or just an update on how that rollout has gone, what adoption trends have looked like. And we've seen volumes kind of explode on some of these on-chain venues like Hyperliquid. So Vlad, would love to just get your broader thoughts on perpetuals as a product going forward internationally? And what are the hurdles to maybe offering that to U.S. customers as well? Vladimir Tenev: Yes, absolutely. The perpetuals product, I'm glad you asked about it because in Shiv's answer to the last question, I was going to butt in and say perpetuals overseas have been doing really, really well. And of course, we've listed those on Bitstamp our exchange and are making them available to EU customers. And we're seeing healthy growth. The product keeps getting better and better. It's a regulated product, unlike some of the on-chain competition, which means that we can't go quite as high on the leverage that we offer to customers, but customers have been requesting and we've been increasing that. So yes, we're doubling down. We've got -- our perpetuals team is working hard, and we see an opportunity to offer even more to customers. Now as far as the U.S. goes, we do need some rule changes to offer perpetuals here. The products that some of the other firms have been offering that they've been calling perpetuals are really just long expiry traditional futures contracts. So you don't quite have perpetual contracts in the U.S. And I think that's actually not an amazing thing thus far because people have been going to these unregulated offshore entities where there's not as much protection, not as many rules. So yes, stay tuned. Of course, we're engaging with the regulators, and we have the ability since we have this product in the EU to roll it out in the U.S. as well. And I do think it's an attractive product for active traders. So we'll definitely be on the front lines of any perpetuals expansion or regulatory [ easenings ] here. Chris Koegel: Okay. Thank you, Vlad. The next question is from Tannor from Future Investing. Tannor Manson: My question is on AI and automation. You guys have been early here at Robinhood, but how has this shifted your hiring strategy? And where are you seeing efficiencies or reduced hiring needs across the organization? Vladimir Tenev: Shiv? Shiv Verma: Yes, happy to take this. So a couple of things I'll point you to. Last year, we said we had $100 million in efficiency, primarily in CX and software engineering. If you look at our volumes last year, they grew about 50% and hiring and customer service was about flat. And so while we didn't need to reduce any hiring, what we were able to do is absorb all of our volumes through the increased productivity, which is great. What we're doing now is we're just shipping faster. So we're still hiring engineers. We're still growing, but we're using the efficiencies to just keep delivering for products for customers. And so that's where we think the big unlock is going to come. But it's not just engineering, as I mentioned. So everybody across the firm right now is adopting AI. They're using in their workflows. We're getting AI pilled. It's been incredible to see. And you're going to see that start to go out in many areas. So marketing is a great example. The team just launched some campaigns that were built end-to-end using entirely AI, which is great. All of the nondeveloper teams are also using them in their workflows. So for us, I think the biggest thing is we can absorb volumes through AI efficiencies, and we can ship faster for customers across many different vectors. Chris Koegel: All right. Thank you, Shiv. The next question is from Brian Bedell with Deutsche Bank. Brian Bedell: Can you see me? I think my video is stuck. I don't think my video is working. Okay. Can you hear my okay? Vladimir Tenev: Yes, we can hear you. Brian Bedell: Yes. All right. Great. Just wanted to just touch on the trading behavior between active and less active traders. So really, the -- as you bring in more accounts and the net deposits continue to really perform very well, how are you seeing the customer mix evolve from those new deposits? So what I'm getting at is to what extent are these more active traders and you're building that book faster than, say, the less active traders? Just thinking about how the different market environments could influence the trading patterns. And then also just on crypto as well, are you seeing a lot of cross currents between those active traders using crypto? Or is that really a separate class of traders? Vladimir Tenev: I mean one of the things that we've been really excited about is the growth in Gold attach rate. So remember, the Gold attach rate of new customers used to be in the low single digits. And now it's 40%. So 40% of new customers that come in end up adopting Gold. And that customer typically then goes into the high-yield offering, which is a great value prop for Gold. So if you remember, if you have Gold, you get interest on your cash on Robinhood with $2.5 million of FDIC protection. You also get interest on your options collateral, which for the active traders is a very, very nice new feature that they've been asking for, for a while, along with just like dozens of other things, right? You've got the Gold credit card, Banking is a Gold-only offering. So we've been -- the behavior we've been seeing is someone comes in a large portion of the time, they try Gold, then they start looking at all of the other products that we offer, and we've been really successful in kind of driving that adoption. And trading might not be a daily use case for most people. I mean some people build up their portfolios, then they kind of trade a little bit less frequently. But some of the other products like your banking, your credit card are daily use case product. And I think we have a huge opportunity in the coming months and years to get more and more of our customers into banking and credit. And then we think that even though the numbers are really good with 800,000 cardholders and 125,000 bank accounts, with a 40% direct deposit attach rate, these are still relatively small numbers. And I think we've got a lot of wood to chop to get more and more of our customers on them. So I think that will be a big tailwind to multiproduct adoption over the next year. Shiv Verma: Yes. In terms of where the deposits are coming from, I think the main way to look at it is just broadly diversified. So as Vlad said, it's going into retirement, it's going to ETFs. It's also going to high-yield cash. It's also going into trading. So it's one of the benefits of being diversified business. That's one of the ways we have the $18 billion net deposits. It's customers using the platform in a wide variety of ways. Chris Koegel: All right. Thank you, Shiv. Thank you, Vlad. The next question is from David Smith at Truist. David Smith: Following up on the discussion about banking. Could you talk a little bit more about the extent to which you see this driving new customer growth as opposed to like ARPU expansion and the levers you see for growth there? Vladimir Tenev: Yes. I think that there is a lot of potential there, and we haven't really tapped it because right now, the way that we've been giving customers banking is we've largely been giving it to Gold Card customers. And Gold Card customers are -- the Gold cards are still -- are largely being driven by existing customers. So it's -- the story has really been getting our existing customers to adopt the Gold Card. Now I think over the next year, you should see it shifting a little bit more from that to getting new customers on board who come specifically for the Gold Card and adopt our brokerage and retirement services as an adjunct to doing that. We've run some experiments there, but there's a whole bunch of things that we'll have to do to make that smoother and nicer that I think we're excited about. So yes, big opportunity. It's been really about proving the economics. And we frankly -- I think despite the fact that some customers wish they could get the Gold Card earlier and earlier, if you look at successful credit card rollouts and the speed with which we're rolling out these cards, this is actually right near the top. Like by all objective measures, if you look at card programs that have rolled out faster than us, they've pretty much gotten into trouble, right? So we're right up there with like fast yet responsible rollout. So we haven't been limited by this at this point. But as we approach -- as we get into the millions of cardholders, you should expect a little bit more top of funnel with the card and banking, which I think increasingly is going to be part of the same package. I mean when you think of Gold Card, you'll think of banking as one and the same. Chris Koegel: All right. Thank you, Vlad. the next question is from John Todaro at Needham. John Todaro: Wondering if we could just go back to Bitstamp for a moment. As you pointed out, it's obviously been quite resilient despite the crypto downturn. You had mentioned institutional lending earlier on the call. Just wondering if you could expand on that or more cross-sell opportunities within that segment to kind of drive some additional revenue beyond crypto trading? Vladimir Tenev: Yes. I mean I would just tell you at the high level, so we closed our acquisition of Bitstamp about a year ago. And one of the first things we did right around our crypto event in the south of France last year was we got together with a lot of our institutional customers for Bitstamp. We had a nice lunch, and it was very eye-opening because I got my notepad out. I was like, tell me all the things that I need to write down, we're going to deliver them to you in record time to make sure all of your volume happens on Bitstamp. And I was expecting all these fancy things, but it's like I just want you to not drop my packets. When I submit an order, I want you to acknowledge. So it's like basic stuff, right? And we just went through. We've been fixing that stuff. Our exchange at first couldn't handle a huge throughput of messages per second. So we were like getting throttled. Things were slow, right? So the engineering team has been doing yeoman's work of fixing all of that. So you're talking about increases in institutional market share and all these things. There's just a lot of low-hanging fruit here, which is what makes us so excited about all the things that we're adding. And this is even before the institutional lending desk upgrades, before all the things that we're doing with perpetual futures. So I think we're at the very beginning. And you should expect telling the customers this, keep giving us the list, we want to earn your institutional business. And I think we've demonstrated that this team can ship. Shiv Verma: Yes. On the institutional lending side, it's actually very simple, as Vlad said, a lot of it is just working capital. So you're not taking credit risk, but a lot of the institutional clients are used to having capital to trade either instantaneously or in working capital needs, whether it's overnight or on the weekends. Given our balance sheet and our technology, we're able to provide that. And so it's another thing that was just a low-hanging fruit that we're seeing really great adoption on, which is another way to monetize, but also grow market share. Chris Koegel: All right. Thank you. The next question is from Amit from Amit is Investing. Amit Kukreja: Congrats on a great quarter. My question is around international expansion. You guys just got the Singapore license, bought a brokerage in Indonesia. Is the plan to kind of expand through crypto offerings, maybe tokenization, then banking products, different promotions to get customers? Or I guess, can you walk us through how do you think of global expansion going into 2027 and what the strategy is to get customers in these different countries? Vladimir Tenev: Yes. So it's actually both. We want to be everywhere with our core products and the core products being obviously trading and eventually banking and spending. So in a few markets where it makes sense and there's like well-established regulatory environments that we can follow, we've gone and gotten full licensure. That's the in-principle approval. In Singapore, you mentioned Indonesia and obviously, the U.K. as well. I also think tokenization, which what we unveiled in the EU last year was like Robinhood, but with the infrastructure being on-chain. So instead of traditional equities, stock token, so tokenized stocks. And I think what that will allow us to do is handle the long tail of -- if we want to be live in hundreds of countries, the tokenized offering will just be a quicker way to serve those customers. And then we can see where we're getting particular traction and where we're going to need to go deeper with more traditional offerings. And typically, what those offerings are is if the jurisdiction has tax wrappers, for example, that we have to build and very specifically build to, it's the tax wrappers. It's also their local exchanges and market centers. So if you want to trade some obscure exchange like Kazakhstan securities, which believe it or not, some customers ask for, then we'll have to do local market-specific integrations. Shiv Verma: Yes. Our simple 2x2 matrix is organic and nonorganic brokerage or crypto. If you go through those 4 boxes, we've actually gone through all of them. Some of them we've built organically through brokerage, such as the U.K. Some of them we've built organically through crypto, such as the EU, and we've also done acquisitions. To Vlad's point, we want to be everywhere. We're indifferent to which way we go. We're going to look at what's the speed to market and what's the best ROI and how do we have the right to win for customers, and then that's going to be the path for how we choose. Vladimir Tenev: Yes. And the line between these is going to get increasingly blurred. So even though EU is brokerage first, we have stock tokens, which gives you exposure -- equities exposure. So I think you'll see that as a trend, too. We'll be getting more and more traditional brokerage assets in tokenized form and delivered to customers around the world. Chris Koegel: The next question is from Ramsey at Cantor. Ramsey El-Assal: I wanted to ask about the Trump Accounts again and just get your thoughts on levels of engagement there and also the degree to which you might have a plan to cross-sell or whether you'll be able to sort of cross-sell some of your other products over time into that base? Vladimir Tenev: Look, I think for us, this is really a long-term opportunity. It's an opportunity to be in front of this next generation of customers and an opportunity to show that we can be a reliable partner to the U.S. government as they're pursuing initiatives, right? And I think that we're proud to be a part of the program. We're not really spending too much time thinking about how this could be done to benefit us. We're instead focused on how we can make the best product that the government has ever been associated with. So with our friends over at National Design Studio, I think we're all just super motivated to make sure this is like one of the best financial products we've ever used. And of course, we're proud of our role as the sole initial broker and trustee. We don't take that lightly. And we want to make sure that we deliver the highest possible quality product that we can. We're very proud of what we're going to do. The best -- we've got some of our best people working on it. And I believe that good things will follow from us doing this as a business. Chris Koegel: All right. Thank you, Vlad. The next question is from Ed Engel at Compass Point. Edward Engel: You mentioned strong April rebounds across equities, options and prediction markets, but did you give an update on how April crypto volumes are trending relative to the past few months? Shiv Verma: Good question. No, I didn't give an update on that. I'd say it's probably more of the same. We are really seeing the rebound in equities options. And as I mentioned, prediction markets around $3 billion, which will probably be our second best month ever. Margin book also continues to grow. Crypto also remains about similar to what it was in Q1 and kind of in that ZIP code. Chris Koegel: All right. Thank you, Shiv. The next question is from Michael Cyprys at Morgan Stanley. Michael Cyprys: I wanted to ask about API connectivity. Just curious how API connectivity is contributing to Robinhood today. I believe you offer it in crypto. Hoping you could elaborate a bit on your API strategy, key use cases, how you see the opportunity set there emerging on a multiyear view? Vladimir Tenev: Yes, it's a great question. Historically, we've been -- we haven't really invested too much in API offerings. I think we've been focusing on building first-party experiences that maximally leverage our strengths of like design and user experience. That said, we're interested in API offerings. I think that now that things are shifting in a more agentic direction, like there's an opportunity for us to be differentiated there. We're a low-cost provider. We have great infrastructure. We have great APIs that we use internally. And I know there have been a lot of projects out there on GitHub and other things where people kind of attempt to reverse engineer in a supported -- in an unsupported way. So there's obviously demand for it. So stay tuned. When we do release something, we do generally try to make it really, really good. And I think this is an area of opportunity. Chris Koegel: All right. The next question comes from Roy from Crossroads, I mean, Dr. Roy from Crossroads. Unknown Attendee: Congratulations on the Trump Accounts. I wanted to ask another follow-up question on that as well, and congratulations on that. You note in the earnings slide deck that it's a new way to extend Robinhood's mission to helping governments, that's plural, and I thought that plural is very interesting to build a public sector business. And so beyond just this specifically with the short term with the Robinhood partnership with BNY and the Trump Accounts, what does that look like as far as that public sector business? Maybe comment on that plural as well. I know you probably can't name individual governments beyond the U.S. Vladimir Tenev: Right. Yes. I mean it's really 2 things, Roy. One is it's not always easy to be a government subcontractor. And we're learning how to do it, right? It's a first thing for us, but there was a long process to get to this point. And I don't know if a lot of other fintechs have made that leap. It's like as a company that's been around for a little bit more than 10 years, it's a big step for us. So yes, I mean, we think there's a number of ways that we could help this country. And I think it's going to be important, right, because there's certainly a lot of disruption coming with AI and with other things. And I think that we're well positioned to sort of help with that. And certainly, people's finances are going to be a key part of that. So yes, there might be other things that we can be helpful with in the U.S. in the future. And also ever since we've gotten involved with the Trump Accounts, we've heard from lots and lots of states, so not even other countries. So it's been states and other countries who just want to do similar things. And our focus has been on just doing this one thing, but we also recognize that once this is successful, I think that it's going to be something that goes all around the world. And of course, I think that's a big opportunity for us to continue to extend our mission. Chris Koegel: All right. Thank you, Vlad. The next question is from Craig Maurer at FT Partners. Craig Maurer: A lot of my questions have been asked and answered. But I wanted to ask about the flurry of states that are speaking out against prediction markets and their concerns there and if that tempers your excitement for that product at all? Vladimir Tenev: Yes. I mean I would love it if the states didn't have concerns, but it's also not -- I mean, it's not irrational, right? This is a jurisdictional dispute. Of course, the CFTC is claiming, and we agree with their standpoint that these are federally regulated products over which they have jurisdiction. And the states -- some of the states have a different view. So we continue to defend our position and think that it would be strange if the states start exerting jurisdiction over federally regulated CFTC products. And this is something that will play out in the coming years. Chris Koegel: All right. Thank you, Vlad. The next question is from Stock Market News. Unknown Attendee: I appreciate you guys for allowing me to ask a question here. Congrats, Vlad and the team on a great quarter. I wanted to ask a little bit more about Robinhood Social. And obviously, we got some of the initial people on to that recently. I would like to hear more about updates about how you're thinking about expanding that and maybe just any findings or updates as you guys have launched that. Appreciate it. Vladimir Tenev: Yes. I mean people really love engaging with other traders in the Robinhood community. The first rollout was actually to HOOD Summit attendees from last fall, which was kind of fun because a lot of the folks had met in person, and we wanted to start it really, really small. And the first pieces of feedback were kind of basic, like I want to be able to see the post that people are engaging with at the top rather than it being chronological, things like that. I want to see who the other traders are that people are engaging with. So the team has really been shipping on a weekly basis. You've seen us knock out more and more things and extend the rollout. And we've extended it to other asset classes as well. So you can see the prediction market trades are on there as well as equities and options trades. And there's a really nice experience that we've built that allows you to trade via the posts as well. So yes, you should expect that to approach general availability in the coming months. We like what we're seeing there. There's obviously a ton to do before this becomes like the world's leading financial and business social media product, but that's the aspiration. We think we have some advantages there with the verification and people really, really care about it in this domain. So plenty more to come. And getting creators on it. So stay tuned for that. Chris Koegel: Great. Thank you, Vlad. So that concludes the Zoom queue. Is there anybody else in the audience who's been waiting after we work through the Zoom queue to ask any more questions. No? Okay. Well, then, Vlad, I will turn it over to you to end the first outdoor earnings call possibly in history. Vladimir Tenev: Where is the Guinness Book of World Records. Invite them to our stuff. Thank you guys very much. Look, I hope you can tell from the presentation, we do a good job to -- like we try to convey this, but we've got a team that's working incredibly hard. The road map just there's incredibly full. There's always more to do. And yes, we're just incredibly motivated to keep shipping for our customers and for all of you. So thank you for being with us on the journey and see you next quarter and at our product events in the coming months. So cheers, appreciate it. And thank you, Shiv. Shiv Verma: Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to South Plains Financial, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead. Steven Crockett: Thank you, operator, and good afternoon, everyone. We appreciate you joining our earnings conference call. The related earnings press release and earnings slide deck presentation issued today are available on the SEC's website as well as the News and Events section of our website, spfi.bank. Please refer to Slide 2 of the presentation for our safe harbor statements regarding forward-looking statements. All comments expressed or implied made during today's call are made only as of today's date and are subject to the safe harbor statements in the presentation and earnings release. In addition, please refer to Slide 2 of the presentation for our disclaimer regarding the use of non-GAAP financial measures. A reconciliation of these measures to the most comparable GAAP financial measures can be found in our presentation and earnings release. I'm joined here today by Curtis Griffith, our Chairman and CEO; Cory Newsom, our President; and Brent Bates, City Bank's Chief Credit Officer. Curtis, let me hand it over to you. Curtis Griffith: Thank you, Steve, and good afternoon. We delivered solid first quarter results, highlighted by strong profitability, continued improvement in credit quality and disciplined balance sheet management, as can be seen on Slide 4. While the market backdrop has been uncertain, we have continued to execute our strategy designed to enhance the earning power of City Bank. Our strategy remains focused on expanding our lending team across our high-growth Texas markets while also pursuing accretive M&A. We have a meaningful organic growth opportunity as we expand our lending team across our key Texas markets. We continue to selectively add experienced lenders who fit our culture and can bring long-term customer relationships to the Bank. While we remain cautious and conservative given the uncertain macroeconomic backdrop, we are excited by the opportunities that we see to further expand our team and drive sustainable organic loan growth over time. Turning to our M&A strategy and the Bank of Houston. We were pleased to complete our merger on April 1, and officially welcome the BOH team to City Bank. We've spent a significant amount of time on the integration since announcing the merger in December to ensure that our new employees are welcomed into the Bank and positioned for success. We continue to be impressed with the BOH team, the dedication they have to delivering strong results in the Houston market and the similarities in our cultures. From an operational perspective, things are going according to plan. We expect the core conversion to be completed in early May and continue to see opportunities to reduce BOH's cost of funds over time. In fact, steps have already been taken to optimize the balance sheet as there has been a reduction in broker deposits and Federal Home Loan Bank borrowings starting in Q1. Overall, we believe BOH is a good strategic fit with low execution risk, and we continue to expect the merger to be 11% accretive to our earnings in 2027 with a tangible book value earn-back of less than 3 years, which remains compelling. Now that the BOH acquisition is completed, we will continue to explore additional M&A opportunities. However, our approach has not changed. We remain highly disciplined and patient. And to date, we have not identified another transaction that meets our strict criteria. As we've said many times in the past, we're not interested in growth for growth's sake. Any potential partner must align with our culture, credit discipline and community banking focus while also making strategic and financial sense for our shareholders. Turning to the market backdrop. We remain cautious over the near term as inflationary pressures appear to be resurfacing, driven in part by elevated energy prices related to the ongoing conflict in the Middle East. These dynamics may limit the Federal Reserve's ability to further reduce interest rates and could act as a headwind to economic activity and loan growth as we move through the year. This could also limit our ability to further reduce our cost of funds. While the near-term outlook is uncertain, we continue to be positive on the longer-term potential of the Texas economy, especially compared to the broader United States. Corporations continue to move their operations and headquarters to Texas, attracted by the state's pro-business environment, favorable demographics and ongoing population growth, which provides a constructive backdrop for economic growth and relationship-based banking. To conclude, we believe that we're in a strong capital position that will allow us to execute our growth strategy and benefit from the many opportunities that we have in front of us. Given our capital position, we remain focused on both growing City Bank while also returning a steady stream of income to our shareholders through our quarterly dividend and keeping a share buyback program in place. To that end, our Board of Directors authorized a $0.17 per share quarterly dividend on April 16, which will be our 28th consecutive dividend. Now let me turn the call over to Cory. Cory Newsom: Thanks, Curtis, and hello, everyone. Starting on Slide 5, our loans held for investment decreased by $41 million to $3.1 billion in the first quarter as compared to the linked quarter. The decrease was primarily due to the expected early payoff of a $30 million multifamily loan, which we discussed on our fourth quarter call, and $24 million of seasonal net paydowns of agricultural loans. Importantly, we experienced strong unfunded loan commitment growth during the quarter, driven in part by our new hires, which was notable. These commitments are largely in construction and will fund through the year. Our yield on loans was 6.83% in the first quarter as compared to 6.79% in the linked quarter. Excluding problem loan interest and fee recoveries noted on Slide 5, our yield on loans has held relatively steady over the last 4 quarters. While we have not experienced a material impact on our loan yields from the FOMC's most recent 25 basis point reductions in their target interest rate in September and December, we do expect our loan yields to moderate in the quarters ahead. As Steve will touch on, our goal is to maintain our margin as we grow our balance sheet in order to drive earnings growth and returns. Turning to Slide 7. Our loans held for investment in our major metropolitan markets of Dallas, Houston and El Paso declined by $23 million to $1 billion as compared to the linked quarter, largely due to the expected early payoff of the multifamily loan that I just mentioned. Looking ahead, we also expect another early payoff of approximately $34 million multifamily loan as some large payoffs will continue to be a headwind to loan growth. Importantly, our loan pipeline remains healthy, and we remain confident in delivering our loan growth guidance for the full year, albeit towards the lower end of our mid- to high single-digit range. We will also continue to execute our organic growth strategy as we look for lenders who fit our culture and can bring deep local market knowledge and long-term customer relationships to the Bank. We continue to benefit from the consolidation that the Texas banking industry continues to undergo as large regional and out-of-state institutions continue to acquire Texas-based franchises. Additionally, South Plains remain committed to being a Texas-focused community bank with experienced local bankers empowered to serve their markets. As competitors integrate acquisitions or streamline operations, we continue to attract both customers and talented bankers, reflecting the strength of our culture and conservative operating philosophy. Importantly, South Plains occupies an unique position in our market, offering the product breadth and capabilities that smaller banks cannot match while delivering the personalized service larger banks often struggle to provide. We believe this balance provides a durable competitive advantage as we move through 2026 and beyond. Since launching our recent organic growth strategy, we have completed about 50% of our expected hiring occurring across our Dallas, Houston and Midland markets. I continue to be pleased with the quality of bankers that we are speaking to and remain optimistic on our ability to recruit exceptional talent to the Bank through the balance of the year now that we have cleared the first quarter, which is typically a slower time for hiring. Skipping ahead to Slide 11, we generated $11.3 million of noninterest income in the first quarter compared to $10.9 million in the linked quarter. The increase from the fourth quarter of 2025 was primarily due to an increase of $1.5 million in mortgage banking revenues, partially offset by a loss of approximately $800,000 in an SBIC investment. Mortgage revenues grew mainly as a result of the quarter-over-quarter change of $915,000 in the MSR fair value adjustment as can be seen on Slide 12. Overall, we continue to be pleased with how our mortgage business is performing in this low transaction and interest rate environment, and we believe we are well positioned for the eventual upturn in volumes. For the first quarter, noninterest income was 21% of Bank revenues, essentially flat with the linked quarter. Continuing to grow our noninterest income remains a focus of our team. I would now like to turn the call over to Steve. Steven Crockett: Thanks, Cory. For the first quarter, diluted earnings per share were $0.85 compared to $0.90 from the linked quarter. This decrease was primarily due to acquisition-related expenses, which I'll touch on in a moment, and the SBIC investment loss, partially offset by a lower provision for credit losses. Starting on Slide 14, net interest income was $43 million for the first quarter, in line with the fourth quarter's result. Our net interest margin on a tax equivalent basis was 4.04% in the first quarter as compared to 4% in the linked quarter. Our first quarter NIM was positively impacted by 5 basis points due to $545,000 of nonaccrual loan interest recovery. Excluding the problem loan interest and fee recoveries noted on this slide, we have delivered steady NIM expansion through 2025 and which has started to moderate. As a result, our goal is to maintain our profitability at current levels while growing our balance sheet, which will drive earnings and returns. As outlined on Slide 15, deposits increased by $154 million or 4% from the linked quarter to $4.03 billion. During the quarter, we experienced strong organic growth across retail, commercial and public fund deposits. As in prior years, we expect a portion of the public funds to flow back out of the Bank and for other depositors to see outflows in the second quarter as customers make their annual tax payments. As a result, we would expect deposit growth to be flat to down in the second quarter before returning to growth in the second half of 2026 before you factor in acquisition deposits. Noninterest-bearing deposits modestly increased by $11 million in the first quarter and represents 25.7% of total deposits at the end of that quarter as compared to 26.4% at the end of the linked quarter. Our cost of deposits decreased by 4 basis points to 1.97% compared to the linked quarter as we have continued to reprice our deposit base lower following the FOMC's most recent 25 basis point reduction in December. Looking forward, we expect our cost of funds to hold steady in the second quarter, absent further rate reductions by the Fed and before we factor in the cost of the acquisition deposits. Turning to Slide 17, our ratio of allowance for credit losses to total loans held for investment was 1.44% at the end of the first quarter, stable from the prior quarter end. We recorded a $260,000 provision for credit losses, which are related to unfunded loan commitments in the first quarter, which compares to $1.8 million in the linked quarter. The decrease in provision expense was largely attributable to the decrease in loan balances, combined with a decrease of $4.8 million in nonperforming loans and a $460,000 decrease in loan net charge-offs. Skipping ahead to Slide 19, our noninterest expense increased $2.5 million to $35.5 million in the first quarter as compared to the linked quarter. We had a $1.8 million increase in personnel expenses, mainly due to annual salary adjustments and higher incentive-based compensation. We also had a $542,000 increase in professional services expenses. There was approximately $1.5 million in acquisition-related expenses in the first quarter of 2026, of which $1.2 million was for professional services as compared to approximately $500,000 in the fourth quarter of 2025, all of which was for professional services. I'll touch on our expectations for the second quarter in a moment. Moving to Slide 21, we remain well capitalized with tangible common equity to tangible assets of 10.48% at the end of the first quarter, representing a modest decline from the end of the fourth quarter. Tangible book value per share increased to $29.65 as of March 31, 2026, compared to $29.05 as of December 31, 2025. The increase was primarily driven by $11.8 million in net income after dividends paid. Turning to Slide 23, we provided high-level financials for BOH as well as spot metrics for key financial metrics for the pro forma combined bank at March 31, 2026, to help you with your modeling of South Plains looking to the second quarter of 2026. At or as of the first quarter ended March 31, 2026, consolidated BOH had approximately $632 million of loans with a portfolio loan yield of 6.94% and $596 million of deposits, where noninterest-bearing deposits represented 16% of that total and interest-bearing deposits had a cost of 342 basis points. BOH had $15 million in borrowings and their NIM was 3.9%. BOH had $226,000 of noninterest income and their noninterest expense was $4 million for the first quarter, excluding transaction-related expenses. Pro forma for the deal for the first quarter, the combined bank's cost of deposits was 210 basis points, and the NIM was 4.02%. This concludes our prepared remarks. I will now turn the call back to the operator to open the line for any questions. Operator? Operator: [Operator Instructions] Our first question is from Wood Lay with KBW. Wood Lay: The pro forma slide deck, Slide 23, is super helpful. Thanks for providing that. You mentioned that you went through some balance sheet repositioning of BOH and it looks like the balance sheet shrink a little bit. Could you just sort of walk through the repositioning went through? And it sounds like despite the smaller balance sheet, it doesn't impact the EPS accretion outlook. Steven Crockett: Yes. Woody, this is Steve. I would just say -- there were not a lot of big changes during the quarter for them, but it did start changing as they moved on. Some of the -- they were able to tighten up a little bit on liquidity from where they've been knowing where the deal was headed. Some of the Federal Home Loan Bank borrowings had dropped from where they had been, some of the brokered -- time broker deposits did not get redone. So a little bit of back and forth on some of that with us working with them. So that started. We'll continue looking to optimize the balance sheet and seeing what -- the borrowings would be pretty easy when those come up, they're all short term on that. We'll continue to look at the noncore funding where we can and pare that back. So -- but again, overall, like you said, there's not a huge impact to the net interest margin. It's -- their net interest margin for the whole quarter was 3.90%. I mean, as you got closer to the end of the quarter, if you were just looking at it for the month of March or the end there, it would have been a little bit higher than that. Cory Newsom: We've just been -- I mean, Steve and I had tons of conversations about this. And as he always likes to remind me, this is a bit more of a marathon than a sprint. We're trying to be very, very thoughtful on how we manage the balance sheet and knowing that there may even be things on our balance sheet that we can eliminate as a result of stuff that sit here with us as they bring across. We just think it blends nicely with what we've done, what we have, but there's definitely room for improvement as we move forward. Wood Lay: Yes. That's helpful color. And as you just mentioned, you think there could be room for improvement, especially maybe repricing some of the higher costing deposits. How realistic of an opportunity is that in the near term? And do you think that could still lead to some NIM expansion going forward? Steven Crockett: I mean the opportunity is real. It's just, again, trying to balance the overall liquidity position we're at, what loan expectations -- loan growth expectations are, all of that. And just finding which -- who -- we don't want to run off -- we're not looking to lose customers. We're looking at the noncore type stuff. And the stuff that's easier, we will certainly do, but it's just going to be part of the overall plan. We want to do the best that we can and improve it if we can, but also knowing, as we said, it's not about what our number looks like next quarter, it's about where we end up the year and next year and just trying to do it in a thoughtful manner. But there's definitely some noncore sources that we can look at doing something with. Cory Newsom: But the other thing that you've got to kind of keep in mind, they do a good job of pricing the loans on the other side. And -- what we're really trying to factor in is being prepared for the kind of demand that they kind of had to keep down just a little bit getting up to this because, I mean, look, there's no question, the liquidity kept getting tighter and tighter and it made it a bit of a challenge on some of the funding opportunities. That's one of the things that we think we bring to the table and how we can go help them where we can be very beneficial with the purchase of this bank that we bought. What we have not wanted to do was go buy a bank and then screw it up from all the benefits that we thought we could bring across with it. So there is no question that we think there's room to improve on the deposit cost. But I can tell you unequivocally, our ultimate focus is trying to look at what our core NIM was before this acquisition and make sure that we do not diminish that in any form or fashion if we can help it. Curtis Griffith: Woody, this is Curtis. And I just tell you in our last ALCO meeting, they already put together the list of the -- some of the broker deposits and other noncore funding sources and some of those are non-maturity as well. And essentially, as all of the higher cost stuff hits maturity and payoff dates, we're fortunate right now that we've got a lot of on-hand liquidity. And we want to grow core deposits in the Houston market. Now I'll be very clear about that. But as some of these higher cost things that are not core hit the dates we can, we'll just pay them off. So yes, we'll get some benefit, but don't lose sight of the fact that overall, this is still a fairly small piece of our overall balance sheet. So it's not going to be a radical improvement in overall deposit costs for us. But if you look at it on a BOH stand-alone basis of what they were formally, yes, we can make a pretty significant improvement in that. Wood Lay: I appreciate all the color there. Maybe just last for me, sticking on the NIM and looking at your sort of core loan yields for stand-alone for South Plains. If I adjust for the interest recovery, it still looks like loan yields were up quarter-over-quarter. Just was curious on the dynamic driving some of that loan yield expansion. Steven Crockett: Yes, I'll start, and then I'll let Brent jump in. I mean, obviously, we have seen some of the loans that have repriced down with what the Fed did in the fourth quarter. But again, we still have -- continue to have loans that have been in the -- on the lower part that the fixed rate stuff from 3 to 5 years ago, that will -- that is continuing to help mitigate some of that. So that's been beneficial to us. Brent Bates: Yes. Woody, this is Brent. A little bit of that is the mix inside the portfolio, too. Some of those -- some loan types are yielding better than others, and that mix does kind of influence that. But I'd say overall, yields are holding pretty well. Cory Newsom: Woody, just go back on both sides of the balance sheet. As we said on every call that we do, we're still using exception-based pricing all the way through it. I mean, our first and foremost is to get all you can get on the loan side. But we're still not going to -- I mean, there are some opportunities out there that we can be as competitive as we need to be at the same time, and we're going to do that if we think the credit warrants what we need to do. So like I said, it's -- we are very focused on this on how this comes together, but really looking at the NIM more than anything. Operator: Our next question is from Brett Rabatin with StoneX. Brett Rabatin: I wanted to just talk about the loan pipeline and you've added some more lenders and you're going to be over $5 billion bank here in 2Q. And just wanted to see, are any of these new lenders that you're adding in what you call specialized lines of business? And is that something that you guys are thinking about maybe as you get a little bigger, doing some things that might be a little more specialized as opposed to the traditional community banking subset? Cory Newsom: Let me go first, and I want to be very, very clear about this. We are -- of all the lenders we've hired, there's not a single one that we've hired that's going to put us into something that we don't think we have good expertise in doing or gets us out of the fairway that we like to stay in. So there's -- so no, we're not getting into anything that's specialized that could ever, I think, lead to some issues. Now if you want to talk about the quality of these lenders, very, very good. And they blend nicely with the quality of the team that we already had in place. But yes, we're -- the thing that we like is it's bringing us opportunities to have new relationships that we would not have had, had we not done these hires that have come along. But these are -- I mean, we're very, very fortunate with the ones that we've done. But please note, we're not getting outside of our skis by any stretch. Brett Rabatin: Okay. That's helpful. And then just back on the cost of interest-bearing funds for Bank of Houston. I was looking at the regulatory data and saw that the cost was down like 12 basis points linked quarter to 3.46%. And that's obviously, I think, one of the key opportunities for the margin from here. Just competitively in Houston, what are you guys seeing on rate competition on deposits? And how much can you lower that over the coming quarters? Cory Newsom: I think it's very, very competitive. One thing that Bank of Houston adds nicely to the other Houston business that we have, they do a better job with deposit relationships than we've been able to do on our own, and that's okay. I think -- but I think the fact that we can manage liquidity that they're not facing the same constraints they've had in the past, I think we have the ability to improve the cost of funds that are actually there. So I mean, we do see the benefits that are going to come with this. There's definitely room to improve the cost of funding in that portion of the portfolio. Brett Rabatin: Okay. And then maybe just lastly for me on mortgage banking. Obviously, a little noise with the servicing asset, but better than I would have expected given seasonality in 1Q and some higher interest rates. And I know mortgage is tough to predict, but maybe, Brent, any thoughts on what you see mortgage from here? And just -- it's obviously been a business you like, but it was down last year. Can it get back to '24 levels or better? Or just any thoughts on production and gain on sale margins? Brent Bates: Yes. This is Brent. I mean, look, mortgage is good business. We like it. But right now it's kind of the same song second or third, fourth, first quarter-over-quarter. We're doing well. We're not losing money at it. We're making money, but it's not the days you're talking about this robust. I think rates probably have to drop quite a bit to make a meaningful difference there. Cory Newsom: So Brett, here's the thing -- we got to look at mortgage. Do we think we're setting the world higher? Absolutely not. Here's the thing that we're proud of. And I know that -- there's others that have been successful like we are. And when I talk about success, we've kept the nucleus of this business together, and we're not losing any money. And it's one we've been very, very focused on. We're also very focused on hiring in this portion of the industry as well, but we're trying to be very thoughtful about how we go about that. We are trying to advance the ball with the hiring aspect of that. But more than anything, what we look at on the mortgage is that we can offer this service to our clients without referring them to a competitor and be able to turn the spigot back on when rates improve and the demand comes back like it should. I don't know that if you sit here and look over the last 3 or 4 years, if we sit here have been losing money every quarter on this, I don't know that we'd still be doing it. But we know how to run this and keep it from -- keep it in the black and keep it very efficient. And I think our guys have done a very, very good job with it, and we're very proud to be in this business because it's something that we want to be able to offer our clients. Operator: Our next question is from Stephen Scouten with Piper Sandler. Stephen Scouten: I wanted to just follow back around on kind of the loan growth commentary, if I could. I think as you said, Cory, you guys had talked about the multifamily payoff last quarter. Just kind of wondering if the incremental payoff that you spoke of the $30 million plus was already anticipated in your guide? Or kind of if not, what changed in terms of loan growth demand or dynamics overall? Cory Newsom: I don't think there's anything that we're seeing like that, that wasn't just kind of in the normal course of business. A lot of these that kind of just run their cycle of life. I mean, from the time that we have them go out there and finance them, whether they're going to try to get it stabilized with whatever. We've never been in a position that we're the long-term holder of some of these multi-families in most of these situations. Brent, I mean, am I describing that correctly? I mean... Brent Bates: Yes, Stephen, we anticipated this. This is what we talked about in the fourth quarter. It was kind of baked in. And we think there's probably maybe one more that is stabilized. And these are credits that are looking for long-term fixed rate financing that we're just not going to do. But like the credit that they're performing, and this was kind of the plan all along from -- back from origination. So I'd say it's fully expected. Cory Newsom: I would say most of these -- when we come into something like a multifamily or something of this caliber, I mean, we're usually a 5-year player in one of these deals where it goes out, they can usually get some nonrecourse funding from some other arm that's out there that's not necessarily as traditional as what we are. We kind of think we fit that role pretty well. And I don't know that we're really prepared to start being the long-term holder on some of this stuff. What we try to make sure is that we're ready to turn around and find something to replace it if those things continue to cycle. And it's typically -- we're using some of the same relationships that are cycling some of this stuff on multiple occasions. So I mean -- and we're going to be careful with our whole limit. I mean we'd like to see this fall off and the next one come back on and just keep going. Brent Bates: Yes. And to Cory's point, just adding on, I mean, to your comment, that's really where some of our unfunded growth came from replacing with same clients that were successful achieving their long-term fixed rate goal. Stephen Scouten: Got it. Okay. Makes sense. So I mean, if I think about the reduction in loans on an end-of-period basis this quarter, I mean, that would seem to imply if you think you can still hit the guide, there's maybe $200 million of incremental organic growth for the rest of the year, a pretty significant pace. Is that -- am I thinking about that correctly for the rest of the year? Cory Newsom: We're still very comfortable with our -- the guidance that we put out. I mean it's -- we're not sitting here trying to convince everybody that we're going to be high single digits. But I mean, low to mid-single-digit growth, we're still very comfortable where we think we are. Stephen Scouten: Okay. Helpful. And then maybe lastly, I know it's still very early days here, but just in terms of BOH and the extraction of the synergies, kind of how has that progressed? Do you feel good about the realization of all those cost saves and kind of any change in terms of the timing of when you'd anticipate those coming through? Cory Newsom: Here's what I see. This is kind of what we're really proud of. And this is what we've been very, very focused on is trying to make sure that we're efficient in the process of trying to do an acquisition because I think it's going to impact how people look at us on the next acquisition that we want to do. If you look at how this one came together, we closed, we have converted and integrated everything about this inside of a quarter. And that's -- I mean, like we're going to do a conversion May 8. And our team has been very, very thoughtful. I mean we've had -- I mean, from [ project lead ] all the way through trying to make sure that we take this from cradle to grave all the way in the right fashion. The other side of that is we've tried to make sure that we maintain very good communication and trying to onboard these people so that we can be successful. Well, the last thing we want to do is come in here and not be successful in retaining the business that we have -- that they have that we really like. I mean if you look back through when we did due diligence, I mean, we were past 65% of the portfolio looking at it. We liked what we saw, and we don't want to lose it. So we've had to really be thoughtful in trying to make sure that we're prepared to do this in a way that we could find success instead of the way you see some transactions have gone where you kind of have a big runoff after the fact. I don't see that coming for us. I'm really intent where we are. I don't think any one of us would sit here and tell you that -- I don't think you could find buyers regret at any point in time with us right now at all. Curtis Griffith: Stephen, this is Curtis. And to be clear, this is not in the projections, everything that we put out. But we felt all along and in talking and working with the team there, I think we're even more convinced of it that they have some real good opportunities. They were becoming, as we've said a few times now, pretty constrained by liquidity. And now that's not a problem. I mean, I guess, ultimately, everybody, we've got to maintain good liquidity. We're not going to get stretched. But it's going to be transformative to their ability to go back out to their customers and customers they wanted to get and start bringing those loans in. That's not going to happen overnight. I don't look for huge increases in Q2. But I do think that we will hit some targets in Q3, Q4 overall for the year because I think the business is there, and I think this team can go get it. Cory Newsom: I mean, look, we like what Bank of Houston brings to us, but I think it's fair to say they like what we bring to them. And I think we just expand a little bit of an opportunity with some of the scale that we've had the ability to probably do that it's been a little more challenging for them. And so yes, I do feel really good about it right now. But we're not taking anything for granted. We're very, very focused on it. Stephen Scouten: And what are you hearing -- last thing for me really, what are you hearing from your customers maybe in West Texas and kind of throughout your footprint around the price of oil and kind of the macro impacts from the Iranian conflict and kind of if that extends -- if the price of oil extends here around $100 for a longer period of time, would that have a kind of pronounced impact on those markets and potentially the loan growth targets? Cory Newsom: I think there's a lot of them that are taking advantage of price oil if they're on that side of the deal. Nobody is going out there and trying to make long-term commitments on the price of oil being at that level. We're not seeing any of that with our customer base. They're pretty much -- everybody we talk to, they're all saying things like getting a less, and we're not going to get ourselves back to a corner on it. And Brent, you talked about -- I mean, from the deck of your underwriting, I mean, you don't factor that in at all. Brent Bates: Yes, we don't. We don't factor in. And I mean, on the consumer side, we haven't seen any impact on that side either from the consumer side of that at this stage. Cory Newsom: I don't think we really have much of our customer base that's in a position where they get hurt by it in some big fashion. Operator: [Operator Instructions] Our next question is from Joe Yanchunis with Raymond James. Joseph Yanchunis: I want to beat the horse one more time and ask about the NIM here. It sounds like you're optimistic you can keep the NIM relatively steady. And I understand there's a lot of moving parts. So in your deck, you call it a pro forma NIM of 4.02%. Does that pro forma NIM back out the onetime loan interest recovery you received in the March quarter? I'm just trying to understand what the jumping off point is. Steven Crockett: No, that is just using our gross NIM. Just pushing the... Joseph Yanchunis: And then shifting over to loans. So can you talk about just a little more about your energy portfolio and what the exposure is on a pro forma basis? And what does loan demand look like in that vertical in the quarter? Brent Bates: Yes. Joe, most of our energy portfolio is really on the C&I servicing side. That's small business clients that we know well have been in the business and survived cycles in the past. And so really, we don't have a whole lot of exposure in that segment to upstream lending. Joseph Yanchunis: Okay. So pretty steady then for -- on a pro forma basis. I think last update you gave, I think it was around 4%. Brent Bates: Yes. We're still under 5% of the portfolio. Joseph Yanchunis: And then what about the -- it looks like the major metro kind of market loan balances appear to be on a downward trajectory. And I assume that's a function of payoffs. Can you talk about your pipeline that exists in these markets, especially given the backdrop of your kind of aggressive lender hire approach? Brent Bates: Joe, the pipeline is really -- I'm pleased with it, particularly on a combined basis, it's strong. I think what you're seeing there is the effect of the decline in multifamily over the last really 4 quarters, which is exactly what we experienced this quarter, loans going into the permanent market for long-term fixed rates. So I think that's really the effect that you're seeing there in the metro markets. A lot of those loans were in our metro markets, but our pipelines are very strong, particularly on a combined basis. Cory Newsom: Joe, I think if you go back and look over the last year, we had identified a handful of credits that we wanted to exit a relationship with. We had -- I mean we didn't had it in any form or fashion. We don't have that right now. I mean we feel pretty good about the portfolio. And I don't really know of anything -- of any significance that we've got identified that we need to separate from. And so I think we accomplished what we wanted to. We've identified the ones that we felt like that probably weren't prepared to move into higher rates from the cheaper stuff that they -- the way they got into it originally. I think we're kind of past that. I mean we're stressing the portfolio ever which way you can imagine, and we feel really good about it. I do -- that's why we still feel confident about the guidance we gave out on loan growth. Joseph Yanchunis: Okay. Then last one for me here. So I mean, it sounds like the kind of year-over-year decline in multifamily portfolio loans could reverse with some of the unfunded commitments that you have. Just kind of wondering where are you seeing the best risk-adjusted returns across your portfolios right now? Brent Bates: Sorry, I couldn't hear you. Joe, what was your question? Joseph Yanchunis: The best risk-adjusted returns that you're seeing from a lending perspective? Steven Crockett: Feeling secured. Cory Newsom: I mean if you look at the -- I mean, the owner-occupied stuff, I mean, there's a variety of things that -- I mean, it's like we said earlier, we're not getting out there doing a lot of stuff that is a little bit edgy in any stretch. Brent? Brent Bates: I agree. And -- to Cory's point, I mean, on our residential sides, we've got pretty good risk-adjusted yields there as well as the ag. Production still actually has good yields on the funded balances as it funds throughout the year. Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to Curtis Griffith for closing remarks. Curtis Griffith: Thank you, operator, and thanks to everyone joining us on today's call. We are pleased with our first quarter performance reflects strong profitability, improving credit quality and continued discipline across our balance sheet. We've also successfully completed the Bank of Houston acquisition, a transaction that meaningfully enhances our presence in a highly attractive market and aligns well with our long-term strategy. We believe we've laid the foundation to continue building a larger, more capable community bank that includes investments in our people, technology, operating infrastructure that support both organic growth and disciplined M&A. While the near-term environment remains uncertain, we are confident in our strategy, our capital position and our ability to execute. Most importantly, we remain focused on creating long-term value for our shareholders while continuing to serve our customers and communities. I'd also like to take a moment to thank our employees across City Bank, including our newest team from Bank of Houston for their hard work, commitment and professionalism, particularly during a period of ongoing change. Their dedication to our customers and communities continues to be a key driver of our success. Thank you again for your time and interest in South Plains Financial. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the NXP First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Jeff Palmer: Thank you, Lisa. Good afternoon, everyone. Welcome to NXP Semiconductors First Quarter Earnings Call. With me on the call today is Rafael Sotomayor, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for the financial results for the second quarter of 2026. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and our first quarter 2026 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section. Now I'd like to turn the call over to Rafael. Rafael Sotomayor: Thank you, Jeff, and good afternoon. We appreciate you joining us today. Our first quarter performance exceeded expectations with broad-based improvements across all our focus end markets, led by our company-specific growth drivers and importantly, with momentum now visibly broadening into the core of our business. What we're seeing today is the compounding result of sustained investment, disciplined execution and deepening customer adoption across our differentiated portfolio that is increasingly well positioned for the most durable secular trends in semiconductors, software-defined vehicles, physical AI and now with greater visibility than before, data center infrastructure. The remainder of 2026 is set up to be stronger than we anticipated just 90 days ago. Now I want to walk you through the key drivers behind that improvement. Turning to the quarter. We delivered revenue of $3.18 billion, up 12% year-over-year and seasonally down 5% sequentially. All end markets grew year-over-year. And in aggregate, we outperformed by $31 million, above the midpoint of our guidance. Our company-specific strategic growth drivers across the auto and industrial and IoT end markets grew 18% year-over-year year and represented roughly 1/3 of first quarter revenue, 120 basis points above last year and 40 basis points above the midpoint of our guidance. Taken together, we delivered non-GAAP earnings per share of $3.05, $0.08 above the midpoint of our guidance. Now turning to end market performance. In automotive, revenue was $1.78 billion, up 6% year-over-year and in line with expectations. Adjusted for the sales of the MEMS Sensors business, automotive growth was 10% year-over-year. During the quarter, the growth was driven primarily by accelerating customer software-defined vehicle programs, improved electrification trends and continued momentum in radar and connectivity. Together, the auto accelerated growth drivers contributed nearly 90% of the year-over-year growth. From a customer adoption perspective, we're seeing strong design win traction for our S32N and S32K5 products, platforms that will serve as the backbone of our automotive processing franchise for years to come. We also secured new radar awards for imaging radar solutions, along with wins for our 10-gigabit automotive Ethernet products. These are multiyear platform commitments that expand NXP content per vehicle and deepen the structural relationship with our customers. The automotive opportunity is a long-duration compounding story and our progress reinforces that trajectory. In industrial & IoT, revenue was $628 million, up 24% year-over-year and near the high end of our guidance. Growth was driven by our newer industrial processing solutions, including i.MX, RT and MCX. Together, these products grew about 75% year-over-year and contributed nearly half the end market growth versus Q1 2025. Within the end market, industrial was strong with notable strength in factory automation, data centers and energy storage. Looking ahead, the industrial & IoT market is entering a transformative phase as physical AI moves intelligence into real-world systems and robotics. This is creating significant content growth opportunities for NXP, particularly in processing, connectivity and security. As AI is deployed at the edge, customers need greater processing headroom to future-proof their platforms. As a result, we're seeing customers making deeper multigenerational commitments to NXP because of the strength of our AI-enabled product portfolio. Now I want to take a moment to speak directly about our data center exposure because this is an area that we haven't previously emphasized. In 2025, revenue related to data center applications was about $200 million, and it was reflected evenly in both our industrial & IoT and communication infrastructure end markets. Based on our other programs now ramping, we believe this business will be north of $500 million this year with a similar end market split. We have established meaningful positions in system cooling, power supply, board management and control plane switching applications. Across these subsystems, customers choose NXP for our processing depth and security capabilities. Based on customer engagements, we are reinforcing our i.MX application processor family for this opportunity, creating a durable and expanding revenue presence in data centers. With communications infrastructure, revenue was $380 million, up 21% year-on-year and at the high end of our guidance. Growth was driven by digital networking exposure to data center and continued ramps of our UCODE RFID product. And lastly, mobile revenue was $391 million, up 16% year-over-year and in line with guidance, reflecting continued strength in our secure mobile transactions franchise. Now turning to the second quarter. Our outlook is better than we anticipated 90 days ago. We are guiding second quarter revenue to $3.45 billion, up 18% year-over-year and up 8% sequentially. This sequential growth represents an acceleration of our company-specific drivers. We expect all regions and all end markets to be up year-on-year, a reflection of expanded customer adoption of our differentiated portfolio. At the midpoint, we expect the following trends in our business during Q2. Automotive is expected to be up in the low double-digit percent range year-on-year and up in the high single-digit range sequentially. Adjusted for the sales of the MEMS Sensors business, our guidance implies a high teens percentage growth year-over-year and 10% sequentially. Industrial & IoT is expected to be up in the high 30% range year-over-year and up in the high teens range sequentially, continuing the acceleration we saw in Q1. Mobile is expected to be up in the low single-digit percent range year-over-year and down in the low double-digit percent range on a sequential basis. And finally, communications infrastructure and other is expected to be up in the mid-30% range versus Q2 2025 and up in the mid-teens percent range versus Q1 2026. In summary, our second quarter outlook and our growth trajectory in 2026 reflect the story of breadth, depth and acceleration. Our company-specific growth drivers are performing as designed. Our core business is inflecting. And today, we have made the growth of our data center revenue transparent to support your understanding of our exposure to this important market. Data center revenue is ramping now, and it will more than double in 2026 from a year ago. We remain disciplined in how we invest, how we allocate capital and how we manage the factors we can control. Our framework is unchanged: invest for growth, pursue targeted M&A to strengthen the portfolio and return excess cash through dividends and buybacks, consistent with our long-term model. And now, I would like to pass the call to Bill for a review of our financial performance. Bill Betz: Thank you, Rafael, and good afternoon to everyone on today's call. As Rafael has already covered the revenue drivers, I will turn to the financial highlights. Overall, our Q1 results were solid, which were led by our company-specific growth drivers across our focused end markets, reinforcing the strength of our strategic priorities. We continue to ramp our new products and see strong customer adoption and design win momentum across our latest products and solutions. This momentum reinforces the value of our long-term R&D investments and the strength of our product road map. In summary, revenue, gross profit and operating profit were all better than the midpoint of guidance, and we delivered non-GAAP earnings per share of $3.05 or $0.08 better than the midpoint. Non-GAAP gross profit was $1.82 billion, with a 57.1% non-GAAP gross margin, modestly above guidance, driven by solid fall-through on higher revenues. Non-GAAP operating expenses were $758 million or 23.8% of revenue, favorable to guidance, driven by efficiency gains. Non-GAAP operating profit was $1.05 billion, and non-GAAP operating margin was 33.1%, 40 basis points above guidance. Below the line, non-GAAP interest expense was $90 million and taxes were $173 million. Noncontrolling interest expense was $11 million and results from equity accounted investees were a $4 million loss. Taken together, below-the-line items were $3 million unfavorable to guidance. During the quarter, stock-based compensation was $109 million, and it is excluded from our non-GAAP earnings. Turning to changes in cash, debt and capital returns. Our balance sheet remains strong and provides flexibility to invest in our strategic priorities and hybrid manufacturing plans. We ended Q1 with $11.7 billion in total debt and $3.7 billion in cash. Cash usage during the quarter reflected debt repayments, joint venture investments, capital returns and CapEx, partially offset by cash generation, including $878 million of proceeds from the sale of the MEMS Sensors business. Net debt was $8 billion or 1.7x adjusted EBITDA, and our adjusted EBITDA interest coverage ratio was 14.5x. During Q1, we retired the $500 million, 5.35% tranche due in March. And after the end of the quarter, we retired the $750 million, 3.875% tranche due in June. In Q1, we returned $358 million to our owners comprised of $256 million in dividends and $102 million in share repurchases. After quarter end, we repurchased another $32 million under our 10b5-1 program. We remain committed to our long-term capital allocation strategy, balancing returns to shareholders with disciplined investments in the business to support long-term profitable growth. Turning to working capital. Days of inventory were 165 days, including 7 days of prebuilds. Receivables were 34 days and payables were 59 days, resulting in a cash conversion cycle of 140 days. Inventory levels remain aligned to support our future growth and our planned front-end factory consolidation plans. Cash flow from operations was $793 million, and net CapEx was $79 million, resulting in non-GAAP free cash flow of $714 million or 22% of revenue. From a cash deployment perspective, during Q1, we continue to advance our manufacturing strategy, which supports our long-term supply resiliency. Over time, this is expected to contribute approximately 200 basis points of structural gross margin expansion once the facility is fully operational in 2028. In the quarter, we invested $385 million in VSMC, our manufacturing joint venture in Singapore. This is comprised of $189 million in long-term capacity access fees and $196 million in equity contributions. Overall, we are about 67% through the investment cycle for VSMC and about 30% for ESMC. For VSMC, we expect an additional $425 million in 2026. For ESMC, we expect the 2026 investments to be about $50 million. Now turning to our expectations for Q2. We expect Q2 revenue of $3.45 billion, plus or minus $100 million. This is up 18% year-on-year and 8% sequentially. The expected first half results support our view that NXP's growth is increasingly company-specific and reinforces our confidence in achieving our long-term revenue growth targets. We expect non-GAAP gross margin of 58%, plus or minus 50 basis points, up 150 basis points year-on-year and up 90 basis points sequentially. This is driven by higher revenue, product mix and front-end utilization improvements. We expect operating expenses of $800 million, plus or minus $10 million. This reflects the $17 million annual RFID licensing fee and normal annual merit increases. At the midpoint, this results into a non-GAAP operating margin of 34.7%. Below the line, we expect non-GAAP financial expense to be approximately $92 million and our non-GAAP tax rate to be 18%. We expect noncontrolling interest to be $14 million, including $4 million losses in our equity accounted investees. Stock-based compensation is expected to be approximately $107 million and is excluded from our non-GAAP guidance. This implies Q2 non-GAAP earnings per share of $3.50 at the midpoint. Turning to Q2 uses of cash. We expect capital expenditures to be approximately 3% of revenue with a capacity access fee payment to VSMC of $55 million and equity investments into VSMC of $125 million and for ESMC $10 million. Overall, our first half performance and expectations reinforce the durability of our financial model, driven by our company-specific growth drivers finally shining through, gross margin back to expansion mode and improved efficiency in our operating expenses. In closing, we remain confident in delivering our 2027 financial commitments which implies double-digit revenue growth in both 2026 and 2027, gross margin expanding towards 60-plus percent and continued discipline in our operating expenses. I would like to now turn the call back to the operator for your questions. Operator: [Operator Instructions] First question will be coming from the line of Vivek Arya of Bank of America Securities. Vivek Arya: Rafael, I was hoping that you could give us a sense for what is driving the growth in your automotive business, both kind of within China and outside of China. And then how much of a pricing benefit are you seeing because everything appears to be in kind of short supply right now, and I was wondering if NXP is seeing any benefit from the pricing side of the equation? Or do you think this is more just kind of company-specific and these are more unit rather than pricing given growth upside that you're seeing right now in autos? Rafael Sotomayor: Yes. Thank you, Vivek, for the question. I think let me tackle the question on auto. I think that we have right now is a backdrop of constant news of SAAR being down and maybe people getting confused about what does it mean for us in auto business. And I'll say out of the back, while SAAR gives you how many vehicles are produced, it's nothing about semiconductor content per vehicle. Now in this environment, our auto business, NXP is performing well. And you can see from the print in Q1, it grew 10% after you account for the sensor business, and Q2 guide implies a high teens year-over-year growth on the same basis. So you can see that clearly, the momentum is improving. And so that tells you already that this is not necessarily a story about unit growth, this is a story about the transformation, the architecture transformation that is driving content growth. So my answer to you is architecture led. And that's a real story, right? For us, it's a content story that's starting to show in our numbers. The one thing I want to leave you as well is this growth is increasingly structural. What does that mean? Well, our accelerated growth drivers have been growing double digits since Q4. And that also happened in Q1, is going to continue in Q2, and that contributing to 90% or 90-plus percent of the growth of the segment. And that kind of tells you that our growth is increasingly structural. You talk about China, you talk about some of the events that says production is down, but every segment -- I'm sorry, every region in automotive is up year-over-year. Despite the sequential decline a quarter, year-on-year, we're actually growing year-over-year in every segment, and that continues into Q2. Vivek Arya: And for my follow-up, perhaps on the comms infrastructure segment, I think the last call, you kind of broke it out, right, half, I think, in your tagging products and then digital networking and RF power. And back at your Analyst Day, you had said essentially kind of a flattish outlook from '24 to '27. What is the right way to think about this business? How much of this do you still plan to exit? How much of this are you reinvesting in? So what is kind of the true growth rate of your comms infrastructure business in '26 and '27 that we should be looking forward to versus what you thought of at the Analyst Day? Rafael Sotomayor: So let me answer just by stating that we're not going to change the long-term model of comms and infra, but I think your question is very valid with respect to the composition of what's in, in comms and infra. And if you -- if you remember what I said is that this end market was going to be flat -- CAGR, basically flat for the next 3 years between '24 and '27. And we experienced a decline on close to 25% last year. Now we closed the year on this segment with about 50% of this revenue being tied to secure cards, about 1/4 of that was the digital networking and 1/4 of that was RF power. Now you can see that the comms and infra end market is recovering, primarily on the back of the strength of secure cards, RFID is actually going up and our exposure to data centers through our digital networking products is actually rebounding. And so I think the composition of this segment is going to shift a little bit more into -- from RF power, which we are actually deemphasizing and is going to probably start decelerating in 2027. The revenue composition is going to change from RF power more towards digital network and secure cards is likely to stay around 50%. And that's the way you should think about it. Operator: And our next question will be coming from the line of Ross Seymore of Deutsche Bank. Ross Seymore: One of the lines you said in your preamble, Rafael, as well as in your press release was about the momentum accelerating throughout the rest of the year. Can you just talk about what that is? I'm not trying to get you to guide for the back half of the year, but just is your visibility improving? What gives you the confidence in that? How much is cyclical versus secular, those sorts of things? Rafael Sotomayor: No, I think it is a fair question. First of all, I will kind of resonate with you. I'm not going to guide second half today. But I would say the setup has clearly improved. And if you take the Q2 guide, you can probably right estimate at 15% growth in the first half of 2026 versus second half -- sorry, first half of this year versus first half of last year. And actually, it's 18% if you adjust for sensors. So actually, you can see that we're starting the year stronger. What has changed? The visibility has improved. I think what has changed, direct order book continues to strengthen. The distribution backlog continues to improve. So I think we believe the momentum continues. And so we're going to stay disciplined in the way we guide, but the signals that we track gives us confidence that the momentum of our company-specific growth drivers will continue throughout the year and it's going to drive what we believe is going to be growth in the second half. Ross Seymore: I guess for my follow-up, thanks for breaking out the data center side. Talk a little bit about that 200 more than doubling this year. You went through a few of the drivers there. But are these new products? Is this just the rising tide of that CapEx lifting all the boats you included? Or is this a strategic area that you're targeting? Just talk a little bit about what gives you the confidence in that and how NXP is differentiated. Rafael Sotomayor: Yes. Maybe, Ross, I'll start by maybe explaining what is our exposure to data center because that could be confusing. So off the bat, right, I would say we're not claiming exposure to the data plane. So no GPUs, no accelerators, no high-speed AI connectivity. So our domain is in the control plane. So the way to think about it as data center scales, the constraints are not just compute and memory, they're also power, cooling, uptime, secure controls. And I think this is where NXP plays. What are our products? Our products are Layerscape networking processing for control plane networking. We have our i.MX products for board management. We have our MCUs doing root of trust or being part of the cooling system. So the way to think about it is we play in the part of the system where you need high reliability and long life cycle applications. And I think this is where NXP's industrial strength portfolio is differentiated. And so the growth that we anticipated from last year to this year is underpinned. I mean these are products that they're not only designing, but they're ramping. And I think this is just about just making sure the momentum continues into the second half. Operator: And the next question will be coming from the line of Thomas O'Malley of Barclays. Thomas O'Malley: Just on the channel, you guys went from 9 weeks to 10 weeks now, it looks like 10 weeks to 11 weeks. Clearly, the demand profile for the rest of the year is stronger. I was curious if you guys had any additional views on the channel. Do you think that you would expand it just given the stronger demand profile? Are you comfortable with it at that 11 weeks mark that you guys have kind of described in the past? Rafael Sotomayor: Yes. So in this quarter, right, in Q1, we went to 11 weeks. And if you remember, our guide of Q1 last quarter already reflected the 1-week increase in our inventory. And it was primarily to actually service what it was a much stronger demand environment. And if you look at our growth in industrial & IoT in Q1, it grew over 20%, and 80% of that business is serviced through distribution. So you can see that we already had an idea of where the strength is going to come. And then our Q2 guide in industrial & IoT, which is -- but you have to remember, 80% of that comes from the channel is guiding towards high 30% range. So we're clearly servicing the channel. Now Q2 guide is based on inventory channel staying flat, staying at 11 weeks. So we intend to stay in our long-term target, which is 11 weeks. Thomas O'Malley: And then just as a follow-up on the data center side. You guys are obviously seeing gross margin benefit from volume, and you also talked about mix as well. You guys don't give specific gross margin targets on your segments, but could you maybe give us a flavor of are these new products beneficial to corporate gross margins? And as that scales, should you see a tailwind from the data center business as well on the gross margin line? Bill Betz: Yes. Tom, this is Bill. Thanks for your question. Let me address the gross margin in general and specifically your question. Our gross margins continue to expand, driven by the higher revenue, the product mix and the utilization levels. Our utilization on our front end, think about the first half to be in the low 80s and think about the second half to be in the mid-80s. So we will get benefit from that from the utilization levels for our gross margin. Again, all the investments we're making is all about -- and servicing is all about focus on being accretive to our corporate gross margins. So in these areas and when we make investments or provide our broad portfolio into different applications, it's extremely important that we extract value and also create value for our customers. So the way to think about that, to your question is, yes, they are very favorable to the corporate gross margins, but we'll continue to drive and focus there. Operator: And the next question will come from the line of Francois Bouvignies of UBS. Francois-Xavier Bouvignies: I wanted to follow up on the -- maybe on the pricing dynamics. I mean we have seen pricing increase in the industry so far since the beginning of the year. And also we have seen some reports that NXP is also involved in these pricing dynamics. You don't talk much about pricing. So maybe I think that maybe it's not that a big impact yet. But should we impact the pricing move for the rest of the year as an upside potential if it's getting tighter? And Bill, you mentioned [ 85% ] in the second half of the year. So maybe you are reaching a level where maybe you could increase the pricing over time. Is that a scenario possible? Rafael Sotomayor: Francois, let me answer the question here with -- in the way we see. I mean, I think your question relates to inflationary costs and the impact into pricing. And pressure in terms of cost is always a challenge. And this is something that we do that -- we're paid to actually handle. And so we must tackle it. So our first reaction to cost increase is always to mitigate it through operational efficiency. And that for us is our preferred approach. That said, in selected areas, we are seeing high input cost pressure. And so we are taking selectively smart pricing adjustments to protect the economics of the business. The reason we haven't talked about it is because the Q2 impact is immaterial. Now we will continue to be disciplined and protect gross margins when cost inflation requires a response. And so we'll keep you updated if things change. Francois-Xavier Bouvignies: Makes sense. And maybe the second question is on this broad-based recovery across all products and China when you said China is also growing. And of course, when we look at the Q1, the China auto car sales, at least for the domestic part is actually down meaningfully, I mean, mid-teens percentage year-on-year. So do you see as well China still strong year-on-year in Q2 and for the remainder of the year? Or do you see as well some impact from that data we see for the sales of cars in China or the content is higher and offsetting, any color on this China specifically would be great. Rafael Sotomayor: No. Francois, I acknowledge the headlines of China, right? I think it's been very public that the production in China was weak, primarily driven by the weakness on the internal consumption and some of the headlines that the Chinese OEMs are focusing more on export to overcome some of the challenges that are happening with the domestic market. But I think the contradiction is that -- and I continue to say it is that production volatility is very small compared to content growth. And China is no different than the rest of the world. And I tell you for us, China grew year-on-year in Q1. I mean it wasn't necessarily massive, but it grew and it continues to grow into Q2. And so I think that is the story. And if the story doesn't change, content growth overcomes unit volatility. Operator: And our next question is coming from the line of Jim Schneider of Goldman Sachs. James Schneider: Given the commentary you've made and the idiosyncratic growth drivers you're seeing relative to '26 and '27, just wanted to clarify that you are still on track to sort of deliver to your Analyst Day targets from 2024 out into 2027. And maybe you can confirm both the revenue and gross margin side of that. Rafael Sotomayor: Yes. I think the question on 2027, we were specific both in our script, both Bill and I in our prepared remarks that we are confident and we have a conviction on the trajectory that we have with our secular growth drivers that 2027 is achievable. And so I think the answer is yes. We stay put with our 2027 targets. Bill Betz: Yes. And just to add the secular drivers, they continue to perform very, very well. We expect for the auto ones to be above our high end into Q2 and also for industrial & IoT, the growth rates to be above the high end of what we said for our industrial & IoT growth drivers that are company specific. James Schneider: That's helpful. And then relative to the data center disclosure you provided, that by all accounts appears to be at least at or potentially above the rate of data center growth for many of your analog peers. Can you maybe talk about whether there's any specific areas that are growing -- sort of outgrowing the overall envelope there? And whether you plan to deliver or introduce any new products to further apply towards that opportunity? Rafael Sotomayor: Yes. The data center -- so the way to think about data center is that we are just ramping, right? So the growth -- and again, we're going to be focused in the control plane of the data center. The growth of that exposure to that segment is just beginning because we're just ramping. And our SAM, if you look at our SAM on the control plane, it's probably growing about 10% to 11% per year. We are going to outgrow the SAM because we're just ramping and I expect that to continue to happen in '26 and '27. We are doubling down on some of the products to actually seize kind of the opportunity that we have in the current engagements. We are talking to our customers what the next generation of products is going to be. And I'll tell you, the exposure in the data centers has about 20 to 25 products. Obviously, some of the higher ASP products are in the networking side and the i.MX products for management control. And so we're speaking to our customers what the next-generation needs are going to be, and we're developing those products. Operator: And our next question is coming from the line of Matthew Prisco of Cantor. Matthew Prisco: Maybe to kick it off, can you share a little more color on the customer ordering patterns that you've seen, what's changed over kind of the past 90 days? And have you seen any impact from memory dynamics out there or Middle East conflict either in the order patterns today or in customer conversations? Rafael Sotomayor: Well, the visibility on our backlog and then the distributors' backlog has improved significantly. And that's what gives us the confidence that we have going into the second half of the year that the demand is strong. Memory is always a topic, and our customers are doing everything possible to actually secure supply. This is more of a supply issue versus a price issue. We all know what the prices are in the memory. We are -- if you look at our customers on the consumer side, they are very well-funded customers that they have the ability to actually go get the supply they need. So we haven't seen any impact in our orders yet in industrial, IoT and automotive due to memory, even though memory is still a big conversation in every customer meeting that we have. Matthew Prisco: Helpful. And then maybe talking about the supply backdrop a bit. Are you seeing any tightness out there impacting the business as we kind of see those Tier 2 wafer pricing increases and kind of what we're talking about supply, an update on VSMC or ESMC timing? Bill Betz: Sure. Let me take that. Let me take your last question first on the timing of VSMC and ESMC. Both are on schedule. VSMC Navy, I know the tools are installed. They're going to start ramping soon. And hopefully, we get up and running in 2028, where we get the -- expand our structural gross margins by another 200 basis points. Related to other supply factors, yes, supply in different parts of the supply chain are tight. And we do see these inflationary costs that Rafael referred to. And if we can't offset them internally from operational efficiency or productivity, we then unfortunately have to pass them along to our customers. And so we are starting to do that in selective areas, but trying to do that in a controlled way. If things get really tight, we'll do what we did during COVID to do -- to make sure that we protect our gross margins related to it. But we are seeing bottlenecks -- slight bottlenecks in certain parts of the supply chain. Operator: And the next question will come from the line of Joe Moore of Morgan Stanley. Joseph Moore: I wonder if you could talk about the growth drivers in the auto space, and you sort of talked about seeing your business get better from that. Any -- is that kind of an indication of 2027 model year? Or I sort of think of these as 5-year rolling programs. Just anything you can do to help us what's giving you the confidence to sort of call that an inflection rather than something cyclical? Rafael Sotomayor: Yes. So let me talk about the auto growth drivers. They've become a very important part of the business now, and it's really changing the composition of the revenue in auto. The growth drivers -- just to give you a sense, the growth drivers in Q1, they were north of 45% of the revenue composition. And so we continue to see growth. And just to give you a sense, this is now coming from a 39% composition. I think we're going to end up the year in 2026 closer to the 50% range as opposed to the mid-40s. And because they are growing strongly, right, and they are growing double digits. And it's driven by the software-defined vehicle portfolio that we have. That is the strength of NXP and automotive is we have products in the processing portfolio that today don't have equivalents in the market, and they are really well positioned for zonal architectures and central compute architectures. So we expect this transition into SDV to really be a very, very strong tailwind and position NXP as the leadership in automotive. But it's all driven by our SDV platform. Joseph Moore: Great. And is there anything different about that in the China market? I'm sort of thinking when you build the car architecture from scratch, it's probably easier to build around software-defined vehicles than it is if you're sort of in an entrenched architecture. On the other hand, there's local suppliers and things like that. Just is the China market any different in terms of those growth drivers? Rafael Sotomayor: It is not necessarily different in terms of the adoption of the growth drivers. I think what is different is in the speed in which they adopt the products. And for instance, I would say that -- let me just take an example, the S32K5, which is our 60-nanometer -- latest 60-nanometer zonal product, a product with a lot of performance. We expect the K5 to go to production in China despite the fact that this product has been sampled to Western customers first. So the speed in which they adopt the next-generation architectures is what is different. Now you made a comment with respect to local competitors. I think the shift in architecture is also benefiting us because at the end of the day, you will see local competitors emerge in the automotive market, and they are likely to emerge in the low end. But this architectural shift to zonal and central compute, it favors higher processing capabilities, it favors higher redundancy. The other thing that you have to take into account, China is moving fast to automation to Level 3, Level 4 ADAS. So that also requires more redundancy, a better security, better safety. And so this is where I think innovation and MCUs and MPUs is going to be key to actually win in the market. So we are quite excited about the transformative move that Chinese are making in architectures and the speed in which we're doing it because we have the right road map for them. Operator: And the next question will be coming from the line of Chris Caso of Wolfe Research. Christopher Caso: First question is coming back to some of the comments you made about input costs rising. And if you could talk to us about what you're seeing with regard to foundry wafer pricing now? And how that gets affected as you -- as VSMC starts to ramp next year? What impact is that on you? And perhaps does that provide you with some sort of an advantage if pricing does go up as VSMC ramps? Bill Betz: Yes. Let me take that one. The way to think about the supply, VSMC services is one sort of supply which we kind of have a little bit more control over and why we're paying additional capacity access fees to get additional supply. But that's probably more linked to some of our technologies that are mostly in-house from part of our consolidation rationalization project that we're doing. The other capacity, what we're seeing is when you want additional, so if you have surprises above what the agreement that you kind of entered in the beginning of the year, we're seeing additional charges because they may need to obviously, capacity gets tight, so they also may need to add new tools and so forth to help you supply. But we're not -- from the current agreement, it's probably more upside that they charge and then can we offset that internally? If we can't, then we pass it along to our customers. Christopher Caso: Right. Understood. As a follow-up, you mentioned in your opening remarks that the -- I guess you were confident still in the Analyst Day targets and that implied double-digit growth for '26 and '27. Obviously, '27 is far away. I'm not sure what we should read into that. Is there any particular visibility that you have? Or is this just some confidence that perhaps we finally turned the corner? And if that's the case, we get a good growth year next year. I'm not sure how much we should read into those comments. Rafael Sotomayor: Well, let me address that because I think it's a question on the model and why we're doubling down on basically our commitments in 2027, which will imply just doing the math, a particular growth rate in 2026 and 2027. And that conviction, our revenue targets emanate from the traction that we have in our accelerated growth drivers and the traction that we have now with data center and the traction that we show you in both industrial & IoT. And I think you can get there through different contributions by the different end markets and some segments are going to be in the low end of the range, some segments are going to be in the high end of the range. But our targets for us in 2027, they seem to be within reach. Now just to be honest, I don't -- internally in NXP, we don't see 2027 as a destination, of course, just a milestone. And if you were to look into 2027, getting -- what's important, obviously, for you from a revenue perspective is why we have the conviction, but for us internally is how we close the year and enter 2028 with momentum in our focus markets. The progress we make in our portfolio, the traction that we have on becoming mission-critical to our customers. And I think the conviction that we have is the progress we're making right now in 2026 and last year with the adoption of our customers and our new products, I think makes our view on this path towards 2027 very, very constructive. Bill Betz: Yes. And maybe I'd just add just on the secular growth drivers. Obviously, we have visibility next quarter, the quarter after and the following quarter. And the order intake on those secular growth drivers for the company specific are all at high end or above what we said during Investor Day. So really a lot of company-specific growth that's given us confidence behind it because, again, it's a content, it's a ramp of products, design wins that have won and they're ramping now. And so since they're tracking to at the high end or above the high end of the model that we provided, we feel very confident that this will continue because of the adoption of our solutions. Operator: And our next question is coming from the line of Gary Mobley of Loop Capital. Gary Mobley: I was hoping that you can give us an update on the integration of Kinara, Aviva, TTTech, how that's progressing, whether it relates to enhancements to existing road maps or full commercialization on an independent basis? Any update there would be helpful. Rafael Sotomayor: Yes. I'll give you an update. This is Rafael. So I think let's start with TTTech. I think great engineering organization. They have been redeployed now to our internal efforts to do S32 CoreRide. This is a very important kind of initiative that we have. We expect to sample with customers in Q3, the zonal reference design, the zonal K5 reference design that involves not only the K5, but other MCUs and our 48-volt architecture, and we're doing it both in the East and the West. I think we have high single-digit number of customers engaged in POCs. So it's quite exciting. And we do expect that this effort is going to accelerate the K5 adoption into 2027. Aviva Links, I think, is a great platform that we got on SerDes platform. This is an open standard, very important for SDVs given the fact that the sensors and displays are multiplying in next-generation vehicles and all these are connected to SerDes. And I think companies are looking for an open platform versus the proprietary solutions they have today. We have customer awards now, and we expect to be in production with them in 2028. So this is a new SAM for us. This is a new market that we haven't entered. And in the past, there were 2 very entrenched, obviously, competitors there. But now with this open standard allows NXP to come and compete and compete with great technology. And the last one on Kinara. Kinara was a great acquisition directly in the middle of our North Star, which is becoming intelligent systems at the edge. And Kinara is -- it's been a perfect combination for our i.MX platform that is our application processor. It allows us to really engage with customers in ways that we couldn't have done in the past just because we didn't have the capability, we didn't even have the credibility on it. And so today, sales funnel is quite large and literally over $1 billion of sales funnel. So obviously, a lot of things to go and go and chase. Our customer reaction is really good. We have I think we have like more than 30 POCs going on, and we expect -- again, we are on track to have some revenue of combination of the Kinara asset with i.MX in the second half of 2027 and 2028. The other important thing is that we're starting to integrate the Kinara IP already into our industrial processors and our auto processors. This is monolithic integration of the IP. So this is also going to be part of our next-generation processing for our auto and industrial products. Gary Mobley: Appreciate it, Rafael. I want to ask really more of a direct question on your comfort to the 2027 targets. We all know what the revenue would materialize to at $15.8 billion if you hit the growth targets as laid out in November 2024. But we've had, of course, the divestiture of the MEMS Sensors business. So should we think about the endpoint or I guess, the milestone for 2027 is about $15.4 billion in revenue? Jeff Palmer: So Gary, let me take that modeling question. So first, in your calculation, remember, you've got to back off the sale of the MEMS business. So that's just a housekeeping item. But I think that what you've heard from both Rafael and Bill today is we are standing solidly behind our long-term growth rates. At the total company level, that means we're going to hit 6% to 10% total company. And I know you guys know how to do modeling better than anybody. You can kind of back into what that means for '26 and '27, and we're going to leave that exercise to you. But we are not backing away from those targets. And I would say the thing to take away from maybe some of the comments from both Bill and Rafael is the design wins we have, and they are starting to go into production. So our clarity and our belief in achieving those targets is increasing daily. Operator: And the next question will be coming from the line of Quinn Bolton of Needham & Company. Quinn Bolton: I guess I wanted to come back to the IIoT business. And if I've got my numbers right, it looks like that business will hit a record revenue level in the second quarter. How much of that is just broad-based industrial end market recovery versus your company-specific growth drivers? And then I've got a quick follow-up for Bill. Rafael Sotomayor: Yes. Let me jump on that one. I think you're right. I think the strength -- IoT, industrial and IoT for us started showing strength in Q3 last year. We started to grow year-over-year, and that growth continued in Q4, continue in Q1 with a 20-plus percent range, and now we're guiding to the high 30s. So we said it clearly, the strength is broad-based. It's all geographical regions in all markets. We have certain products right now that are driving the growth. We said that half of that growth came from new industrial processing portfolio. That is on -- that is the accelerated secular growth drivers. What is also very encouraging is that we're seeing the core part of industrial IoT also growing. This is a part of the revenue of the last year decline now is back into growth. In Q1, it grew 15% year-on-year. And so you can see that the rest of the portfolio is also recovering. So it's very -- it's broad-based now. It's also not only the accelerated growth drivers performing, but the core part of our business in industrial and IoT is coming back. And so that kind of tells you hopefully a little bit of flavor of the strength of the momentum that we have going into Q2 and likely carry in the second half of the year. Bill Betz: Yes. Maybe I'll just put a number there. The way to think about industrial IoT, the secular growth drivers are representing about 37%, and they're growing north of 40%, 50% kind of range, just to give you a feel. Quinn Bolton: Great. And then for Bill, you've talked about the 200 basis points that you get from the ramp of VSMC and in-sourcing or moving production from 200-millimeter to 300-millimeter. Can you give us a sense as that facility comes online, how quickly do you get that benefit? Does it -- can you see it all in 1 year? Or does it take several years to achieve the full 200 basis points? Bill Betz: Yes, it's a great question. Typically, we should start to see it when the factory is fully utilized, which is probably a good utilization number for that type of factory runs 90%, 95%. And so it will take several quarters to get that full benefit, depending on the ramp, of course. So my guess is you'll probably get a partial of it for sure in 2028. Will you get the full amount? Not sure. It all depends on the timing of the ramp, but we're pushing strong, and we want to get it as well and drive it. Jeff Palmer: Lisa, I think that will be our last question, and I think we'll pass it back to Rafael to conclude the call today. Rafael Sotomayor: Thank you, everyone, for joining us today and for your thoughtful questions. In closing, I would like to leave you with three takeaways. First, NXP growth is driven by leadership in SDV and physical AI and industrial & IoT. Second, our company-specific growth drivers are performing as designed. Lastly, we're reaffirming our Analyst Day commitments, which implies double-digit growth in both 2026 and 2027. This quarter reaffirms the strength of the execution to our strategy. We remain committed to disciplined investment, margin expansion and portfolio optimization to deliver sustainable long-term value for our shareholders. Thank you. Operator: Thank you. This does conclude today's program. Thank you all for joining. You may now disconnect.