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Operator: Good day, and thank you for standing by. Welcome to Itron, Inc.'s First Quarter 2026 Earnings Conference Call. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will then hear an automated message advising that your hand is raised. Today’s call is being recorded. I will now hand the conference over to your speaker host, Paul Vincent, Vice President of Investor Relations. Please go ahead. Good morning. Paul Vincent: And welcome to Itron, Inc.'s First Quarter 2026 Earnings Conference Call. Thomas L. Deitrich, Itron, Inc.'s President and Chief Executive Officer, and Joan S. Hooper, Senior Vice President and Chief Financial Officer, will review Itron, Inc.'s first quarter results and provide a general business update and outlook. Earlier today, the company issued a press release announcing its results. This release also includes details related to the conference call and webcast replay information. Accompanying today’s call is a presentation that is available through the webcast and our corporate website under the Investor Relations tab. Following prepared remarks, the call will open for questions using the process described. Before Thomas begins, a reminder that our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance. Reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our Investor Relations website. We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations because of factors that were presented in today’s earnings release and comments made during this conference call, as well as those presented in the Risk Factors section of our Form 10-Ks and other reports and filings with the Securities and Exchange Commission. All company comments, estimates or forward-looking statements are made in a good-faith attempt to provide appropriate insight to our current and future operating and financial environment. Materials discussed today, 04/28/2026, may materially change, and we do not undertake any duty to update any of our forward-looking statements. Now please turn to Page 4 of our presentation as our CEO, Thomas Deitrich, begins his remarks. Thomas L. Deitrich: Thank you, Paul. Good morning, everyone, and thank you for joining our call today. Itron, Inc. had a solid start to the year. Our first quarter results were ahead of expectations due to strong execution from our teams and some first-half projects progressing ahead of schedule. Turning to Slide 4 for the highlights. Revenue of $587 million, adjusted EBITDA of $92 million, non-GAAP earnings per share of $1.49, and free cash flow of $79 million. Turning to Slide 5. While project timing provided a modest tailwind in Q1 revenue, we anticipate the first half to be consistent with our initial guidance. Overall, the pace of ongoing field deployment of grid-edge technology is well aligned to our expectations with no material constraints for labor or materials. The adoption of flexible and intelligent solutions is accelerating and that is translating into durable, compounding growth over time. Our Outcomes segment grew 22% year-over-year. Total company annual recurring revenue at quarter end was $400 million, up 28% due to strong organic growth plus our recently acquired Resiliency Solutions segment. More broadly, the size and scope of the opportunity funnel remain outsized from historical levels, driven by the age-out of existing infrastructure and new requirements. Grid modernization is inevitable, and we are confident in the multiyear structural investment to add intelligence to the grid, but we also understand the market we serve. Our customers continue to work in a complex environment balancing global uncertainty, affordability concerns, resiliency imperatives, and growing demand variability. We are confident our product portfolio addresses these disparate needs across electricity, gas, and water systems with flexible implementation models that are well aligned to the specific needs of our utility customers. Turning to Slide 6. Our first quarter bookings were $476 million, bringing the total backlog to $4.4 billion at quarter end, in line with our expectations. The quarter included several notable wins. We advanced a strategic grid visibility program with Duquesne Light Company. This engagement reflects the growing demand for distributed intelligence and grid-edge computing as utilities modernize their networks to improve reliability, resilience, and operational efficiency. Importantly, this program highlights Itron, Inc.'s abilities to deliver an integrated, first-of-its-kind solution that brings together smart devices, software, and communication to support next-generation grid operations. Additionally, an existing customer that is deploying a safety-enhanced meter program has expanded their development of Intelis StaticCas endpoints. Intelis technology offers numerous safety enhancements, which include automatic and remote shut-off capabilities, as well as reliability and efficiency features that benefit the utility and the consumers they serve. More broadly, this activity is a perfect example of the unique value that Itron, Inc.'s multi-commodity platform creates for customers and benefits our shareholders through diversification across electricity, gas, and water verticals. The integration of our Resiliency Solutions segment is on track and the team is already contributing meaningfully. In worker safety, we established a new contract with a major U.S. electricity utility. The customer required a best-in-class system to protect thousands of field workers at the job site, leveraging intelligent workflows and real-time hazard recognition. The digital construction management team extended a contract with a large natural gas pipeline customer, a strong signal of the customer value of deploying our platform. These are only a few examples of the kind of mission-critical problems that Itron, Inc. is uniquely positioned to solve. As a result, our backlog profile continues to evolve in quantity and quality. Outcomes and Resiliency Solutions combined now represent 25% of total backlog, and that share is growing. The reason we are winning is straightforward. We help customers make one investment dollar do more. Our solutions are designed to create multiple opportunities for value across the useful life, deepening relationships, expanding our installed base, and generating durable recurring revenue streams. With that, I will turn it over to Joan to walk through the first quarter financials in detail. Joan S. Hooper: Thank you, Thomas. Please turn to Slide 7 for a summary of consolidated GAAP results. First quarter revenue of $587 million was above our outlook range due to an acceleration of certain first-half project deployments. As expected, revenue was down versus last year, primarily due to the timing of large Networks projects. Gross margin was 450 basis points higher than last year due to favorable mix and operational efficiencies. GAAP net income of $53 million, or $1.18 per diluted share, compares to $65 million, or $1.42, in the prior year. The decrease was due to higher GAAP operating expenses related to the two recently completed acquisitions as well as lower interest income. Regarding non-GAAP metrics on Slide 8, adjusted gross margin of 40.7% increased 490 basis points versus 2025. Non-GAAP operating income of $84 million and adjusted EBITDA of $92 million both increased 5% year-over-year. Non-GAAP net income for the quarter was $68 million, or $1.49 per diluted share, versus $1.52 a year ago. The year-over-year decline was due to lower interest income, partially offset by higher operating income. Free cash flow was $79 million in Q1 versus $67 million a year ago. The increase was primarily due to lower tax payments. Year-over-year revenue growth by business segment is on Slide 9. Device Solutions revenue decreased 9% on a constant currency basis due to the expected decline in legacy electricity products in EMEA and the timing of projects in North America. Network Solutions revenue decreased 14% on a constant currency basis due to the timing of large deployments. Outcomes revenue increased 20% on a constant currency basis driven by higher recurring and services revenue. Our new segment, Resiliency Solutions, which includes the Urbint and LocustView acquisitions, contributed $16 million of revenue in Q1. Moving to the non-GAAP year-over-year EPS bridge on Slide 10. Our Q1 non-GAAP EPS of $1.49 per diluted share decreased $0.03 year-over-year. Operating income contributed an increase of $0.05 per share, but this was more than offset by the negative impact of lower interest income at $0.13 per share. Lower tax expense had a positive year-over-year impact of $0.01 per share, and FX, share count, and other items had a positive impact of $0.04 per share. Turning to Slides 11 through 14, I will review Q1 segments compared with the prior year. Device Solutions revenue was $124 million with adjusted gross margin of 35.4% and operating margin of 29.7%. Both margin results are segment-level quarterly records. Adjusted gross margin increased 540 basis points year-over-year and operating margin was up 550 basis points due to favorable mix and operational efficiencies. Network Solutions revenue was $351 million with adjusted gross margin of 40.8% and operating margin of 31.4%. Adjusted gross margin increased 390 basis points year-over-year due to favorable mix and operational efficiencies, and operating margin was up 260 basis points. Outcomes revenue was $96 million with adjusted gross margin of 41.7% and operating margin of 23.3%. Adjusted gross margin increased 250 basis points year-over-year due to a higher margin revenue mix, and operating margin increased 510 basis points due to higher operating leverage. Resiliency Solutions had revenue of $16 million, adjusted gross margin of 73%, and operating margin of 27%. Turn to Slide 15 and I will review liquidity and debt at the end of Q1. Total debt was $1.61 billion, and cash and equivalents were $713 million. Our cash balance declined approximately $300 million versus year-end 2025, due to the net impact of the January acquisition of LocustView, the February issuance of $[inaudible] of zero-interest convertible senior notes, the March $460 million repayment of the company’s 2021 convertible senior notes, the February share repurchase of $[inaudible], and free cash flow generation of $79 million during the first quarter. As of March 31, net leverage was 2.4 times. Now please turn to Slide 16 for our second quarter outlook. We anticipate Q2 revenue to be within a range of $560 million to $570 million, which at the midpoint is down 7% versus last year. As previously mentioned, Q1 benefited from an acceleration of first-half projects. Our current view of 2026 is consistent with our thinking when we set the annual outlook back in February. We anticipate second quarter non-GAAP EPS to be within a range of $1.25 to $1.35 per diluted share, which at the midpoint is down approximately 8% year-over-year after normalizing for the tax rate and the level of interest income. Now I will turn the call back to Thomas. Thomas L. Deitrich: Thank you, Joan. Utilities today are managing energy and water systems under increasing strain. Those systems were not designed for the complexity created by distributed energy resources, increasing industrial and AI-driven demand, resource scarcity, and escalating weather volatility. At the local level, electricity distribution networks are often significantly underutilized, and our customers draw an important conclusion: while investment in new generation and transmission is essential, the fastest electron available to them is the one they already have. Itron, Inc. solutions unlock time-to-power using existing capacity by working with the right data and the ability to act on it. Itron, Inc. serves as the intelligence layer for our customers, delivering multipurpose networks, analytics, and applications that give grid operators the visibility to optimize their distribution infrastructure. Industry data suggests utility distribution spending will continue to grow at least through the end of the decade. We believe this represents a durable structural trend and that modernization will benefit consumers while reducing waste across the system. I am encouraged by our team’s strong execution this quarter. The operating environment remains volatile, domestically and globally, and that volatility creates risks. We have built a more resilient business and are delivering consistent results through these crosswinds. Our focus is unchanged: backlog quality, recurring revenue growth, margin discipline, cash generation, and above all, ensuring our customers are successful with every engagement. Itron, Inc. is well positioned for a multiyear grid buildout that has already begun and is expected to continue for years to come. Thank you for joining us today. Operator, please open the line for some questions. Operator: Thank you. To withdraw your question, simply press 1-1 again. Please stand by while we compile the queue roster. Our first question coming from the line of Noah Kaye with Oppenheimer. Your line is now open. Noah Kaye: Thanks so much. You know, first, just hoping to get a little bit more color on what drove the acceleration of project timing in 1Q. And then you were very helpful in noting the first half as a whole is kind of consistent with what you had assumed in February. What the guidance had implied in February was a pickup in the back half. So can you help us think through what might be impacting the step down in run rate in 2Q and then what might account for a pickup in the back half of the year? Joan S. Hooper: Yes. Let me start, and then a timing comment. We did mention in our prepared remarks that Q1 was better than we had guided to because of an acceleration of projects from the first half of the year. It was primarily in the Network business, but also a little bit in Devices. If you take the combination of Q1 actuals with the midpoint of our Q2 guidance, it is actually slightly higher than what we would have expected back in February—slightly higher on revenue and actually higher on gross margin, EBITDA, and EPS. So the first half is shaping up as expected. Regarding the back half, yes, we knew the year would be more end loaded when we entered the year. We talked about it on last quarter’s call. What would drive an uptick in the second half are project deployments primarily in Networks. Certainly Outcomes continues to grow; we would expect that. Same for Resiliency Solutions. Devices is roughly flat. So that growth is going to have to happen from Networks deployments. Thomas L. Deitrich: I would add just a bit on the operational side of things. What we saw in Q1 was no constraints when it comes to supply chain. Material was fine, labor was fine, customer deployments were ticking along quite nicely, and that led to some of the overage that you saw in the Network space primarily. Turns were at the level that we expected. We went in, and I think we even commented on this in our previous call, that turns were expected to be a little bit higher, and indeed they were. So all in all, the market was well aligned to our expectations within the normal push and pull where some of the Network deployments were moving a little bit faster. Noah Kaye: And then, Thomas, you mentioned the outsized funnel. I wondered if you could give us a little bit more commentary on the behavior patterns you are seeing now among customers. In particular, DOE recently provided a list to Congress of grid projects that seem to be reinstated under the SPARC program. Maybe talk a little bit about potential impact from that as you look at the bookings trajectory over the course of the year. Thomas L. Deitrich: Sure. Maybe a broad-brush view on the market, then the specifics on the SPARC program. On a vertical basis, Water in Europe continues to be strong, above historical levels. Water in the U.S. is a little bit slower; that is a smaller segment for us overall, so where our strength is in Water continues to perform well, and you see that primarily in the Devices segment, which is punching a little bit above its weight—more pushing $120 million-plus rather than the $100 to $110 million level where we had sort of anchored expectations. On Gas, North America is particularly strong. There is more than 5x the number of endpoints that are live at the moment on the Gas side; that is much higher than historical levels and absolutely a bright spot. Electricity is strong in Asia Pacific and in line with expectations in North America. There is a lot of activity in the press with some of the early movers in the electricity space really coming back into the marketplace for activities in, let us call it, back ’26 into 2028. Across the board, we see strength in Outcomes and Resiliency Solutions—Outcomes up 22% year-over-year, ARR up 28% year-over-year. We feel really good about that part of the strategy playing through. Our portfolio really aligns to the way the market is operating these days. We have the ability to work with our customers depending on what pressures they may have—whether regulatory oriented or particular resiliency needs—we have the tools in the toolbox to help them. On government funding, you are correct: some time ago, some of those GRIP projects were put on hold or “canceled.” There are still some state attorney generals that are suing over those cancellations. But by and large, most of the activities are being replaced now with this new DOE program called SPARC, which clearly is part of that electricity market view I just described. In general, we have not seen any cancellations even when projects were put on hold. Customers need to do these things; they were not discretionary. It was only a question of how they would work through all of the things going on in the marketplace. So we feel very good about the inevitability of intelligence in the grid, and we are very well positioned to benefit over the years to come. Operator: Thank you. Now next question coming from the line of Ben Kallo with Baird. Your line is now open. Ben Kallo: Just adding on to Noah’s question there, as you think about that TMG, Thomas, and I know it is hard to predict, could you give us your thoughts about next year and the original targets you laid out at the Analyst Day and anything that has changed, plus or minus, since the last time you updated us? And I have a follow-up. Thomas L. Deitrich: Absolutely. I would say there is no change from how we commented on things in our prior earnings call. We are very much ahead of those 2027 targets when it comes to gross margin, EBITDA, cash flow, and EPS. Revenue is probably toward the low end of that range, as we commented before. Nothing has changed in the market that would pull us away from that view. The large opportunities that were part of my color commentary to Noah’s question really give us the view as to what the market looks like. This buildout of the grid and infrastructure in general is absolutely structural. It is inevitable. It will happen over the years ahead, and we are in a position to benefit from it. Ben Kallo: Following—zeroing in on that 25% backlog for Outcomes and Resiliency—could you talk about how much of that is recurring revenue? Because if I add that up with your current recurring revenue, you could get to a big number, depending on what you assume. What percentage of that 25% is actual recurring revenue versus services? Thomas L. Deitrich: Our Outcomes segment generally runs somewhere between two-thirds to three-quarters recurring revenue. That percentage probably drifts northward over the years ahead. Resiliency Solutions—the vast majority of it is recurring revenue overall. The only caution I would give you is that the backlog number we quote is a multiyear backlog. It usually plays out over a three- to four-year timeframe depending on the mix of projects. All in all, our portion of business that is recurring revenue continues to grow—ARR at $400 million at the end of the quarter, up 28% year-over-year—still very much on track for that growth to continue in the quarters ahead. Joan S. Hooper: And just to clarify, recurring revenue can include services revenue as well. It is not just software. Ben Kallo: Right. Okay. Got it. And last thing, on the acquisition front—because multiples for software-type companies are coming down—how do you think about your capital allocation? Joan S. Hooper: Our first priority in 2026 is the successful integration of Urbint and LocustView. Things are on track, but we have additional work to do to integrate systems and things of that nature. That is our first priority. We will opportunistically look at other things that come our way, but we are not actively going to seek something to buy in 2026. We do feel good about our balance sheet and our ability to act on something if it comes along. Operator: Thank you. Our next question coming from the line of Martin Malloy with Johnson Rice & Company. Your line is now open. Martin Malloy: Good morning. Thank you for taking my questions. First question was on the recent acquisitions, Urbint and LocustView, and if you could give us some perspective on progress in terms of revenue synergies with your wide customer platform—being able to sell through some of those services—any anecdotal evidence about how that is going would be helpful. Joan S. Hooper: I would say that the results to date have not really included any synergies per se. What you are seeing in our Resiliency Solutions is the businesses we bought from Urbint and LocustView. Certainly over time we would expect the ability to drive synergies, but we are really trying to ensure in these early days that we are not getting in the way of them running their business. We have not spent a lot of time trying to build synergies; we want to get all the integration and the plumbing in place before we start doing that. So everything you saw in Resiliency Solutions is the businesses we bought, with no contribution from Itron, Inc. Martin Malloy: And with your commentary about pipeline and confidence in the customer need for your solutions, could you talk about book-to-bill and when that might trend back over one? Thomas L. Deitrich: The pipeline is at or very near all-time records. That buildup of pipeline we saw over the last year to eighteen months shows no signs of cooling. We feel very good about the opportunities and our portfolio positioning. Bookings in the Networking space are inherently a bit lumpy. They move around quarter to quarter depending on the size of individual projects. A large project is generally a three- to four-year effort, which yields lumpiness. Outcomes and Resiliency Solutions are a bit more normalized, and the same with Devices. We still feel great about where we are portfolio-wise and will look to capitalize on the inevitable growth in the marketplace in the quarters ahead. Operator: Thank you. Our next question coming from the line of Scott Graham with Seaport Research Partners. Scott Graham: Hey. Good morning. Thank you for taking my question. I know you do not update your full-year guide until the second quarter, but T&D spending is expected to be up double digit this year, and your organic guidance is minus 4% to flat, which implies an uptick in the second half of the year. How are you feeling about that uptick right now, Thomas? I know your pipeline of opportunities is increasing, but that does not necessarily translate to the second half of this year. Is it possible that second-half sales could be down given the TTM book-to-bill being below 0.9? Any color would be helpful. Thomas L. Deitrich: We expected the year to be back-half loaded; that was part of the initial guidance. The first half, as Joan commented earlier, is in line to slightly better than where we set our view. Nothing has changed in the marketplace. Second-half guidance definitely implies an uptick in the rate of Network deployments. You saw even in first quarter how that can happen pretty quickly, and we are well positioned to continue to do that. We think we have supply chain flexibility and labor flexibility to make it happen. We will support our customers, but first half ahead of expectations is already a pretty good place for us to anchor our view for the year. Scott Graham: Thank you. Staying on the second half, I want to make sure I understand what is going on with the backlog and how purchase orders being written against that backlog are shaping the second half. In prior quarters, you talked about having a booking in the backlog, but only writing a smaller purchase order because the utility was focused on high bang-for-the-buck near term versus out-years. What type of risk is inherent in that to your thinking that second-half sales will be up, relative to that chopping up of purchase orders? Thomas L. Deitrich: A few things to consider. We expected turns business to be higher, and that is what we continue to expect. But the real needle mover is Network deployments for the second half of the year. In general, there is backlog there; it just needs to be converted based on the timing of deployments, and that is something we work with our customers on an ongoing basis. You can see how these things tend to move through the pipe quicker—you saw that in our first quarter results. When projects start to go well, everyone gains confidence and you can accelerate deployments. The table is set for it to happen, and we will work with our customers to make sure we support our portion of the program. Operator: Thank you. Our next question coming from the line of Bobby Sulphur with Raymond James. Your line is now open. Bobby Sulphur: Hi. Thanks for taking the question. I was wondering if you could talk about the definitional differences between RPO and backlog. And then on the gross margin front, is there a good way to handicap what you have been calling out as customer mix benefits for a couple of quarters—what the customer mix benefit is in gross margins versus what the ongoing recurring gross margin of the business would be? Joan S. Hooper: Sure. RPO appears in our revenue footnotes in our 10-Ks and 10-Qs. It starts with the total backlog that we report and backs off contracts that have a termination-for-convenience clause. Often the termination for convenience is governed by regulatory bodies, meaning the contract has to be structured that way. So at any given quarter, the mix of contracts in backlog will dictate how much is backed out to get what we call a net 606 backlog, which you refer to as remaining performance obligations. Importantly, we do not use that to forecast revenue. We use our full backlog because those contracts, while some may be cancelable, nobody ever cancels. If you look at our historical backlog, you have not seen big adjustments for cancellations. It really is a function of the 606 literature on revenue, and it affects our 606 revenue models, but does not impact how we look at revenue flowing into the P&L. So we use the gross backlog, which is also in that footnote. Thomas L. Deitrich: On gross margin, what you saw was the last of some of that pre-inflation backlog rolling out. Recall a couple of years ago inflation spiked and we had some contracts priced pre-inflation with limited flexibility on pricing. That is now fully played through and has helped the margin profile as we knew it would. All of the self-help over the years with factory consolidation and portfolio pruning is showing through, and I am proud of how the team has handled demand levels, managing cost structure, and ensuring material availability. So Q1 gross margin was a bit ahead of expectations based on really good execution. Relative to our 2027 targets, Devices will be materially ahead; Networks maybe toward the upper end of the range; Outcomes will depend on mix as we scale; and Resiliency Solutions is clearly strong on gross margin and, as it scales, will pull the company average upward. Bobby Sulphur: If I could just ask a clarifying question on Devices’ gross margin—when you say it is ahead, does that mean better than your original expectations, or should we assume it goes back to the previous long-term target? Thomas L. Deitrich: Good clarification. It is ahead of those 2027 targets, and we believe it stays at roughly the level it is at now. There can be quarter-to-quarter variation, but the last couple of quarters are more the level that business can operate. Operator: And I see one question just came in coming from the line of Joseph Osha with Guggenheim Partners. Your line is now open. Joseph Osha: Hi. Yes. Thank you. To follow up a bit on the previous question, you pointed out, Thomas, Resiliency is gross margin accretive. It is a high-growth business and growing into that operating cost footprint. I assume there is a lot of R&D there. Can you give us a sense as to when Resiliency might be getting closer to the corporate average at the operating margin level? Thanks. Joan S. Hooper: I can try to answer that. Not specific on numbers, but as we commented on the February call, Resiliency Solutions was immediately accretive to Itron, Inc.'s revenue growth and gross margins and EBITDA, dilutive to 2026 EPS due to less interest income, but on an operational basis accretive in 2026. By the time we are into 2027, it is completely accretive on an EPS level. Operationally, what drags them today is just a higher operating structure, which they will grow into. We are encouraging continued R&D spending and platform buildout. Joseph Osha: Would it be fair to say that, simply at the percentage level, it will take them a while to grow into that higher R&D budget, even though it is accretive as you point out? Joan S. Hooper: Over time, we will look for synergies in R&D across all segments. It is hard to give a precise answer on when the R&D percentage goes down and operating income percent goes up, but we certainly expect them to scale, and we believe these were two attractive acquisitions that we will execute on according to plan. Operator: Thank you. I am showing no further questions. I will now turn the call back over to Mr. Thomas Deitrich for any closing remarks. Thomas L. Deitrich: Thank you, Olivia. Thank you, everyone, for joining our call today. We look forward to updating you again next quarter. Operator: This concludes today’s conference call. Thank you for your participation and you may now disconnect.
Operator: Welcome to the Fiscal 2026 Third Quarter Earnings Call for Applied Industrial Technologies, Inc. My name is Alexandra, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to ask a question at that time, please press 1 on your telephone keypad to raise your hand. To withdraw your question from the queue, press 1 again. Prior to asking a question, please lift your handset to ensure the best audio quality. If at any time during the conference call you need to reach an operator, please press 0. Please note that this conference is being recorded. I will now turn the call over to Ryan Dale Cieslak, Director of Investor Relations and Treasury. Ryan, you may now begin. Ryan Dale Cieslak: Thank you, Alexandra, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our third quarter results. Both of these documents are available in the Investor Relations section of applied.com. Before we begin, a reminder that we will discuss our business outlook and make forward-looking statements. All forward-looking statements are based on current expectations and are subject to certain risks and uncertainties, including those detailed in our SEC filings. Actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statement. In addition, this conference call will use non-GAAP financial measures which are subject to the qualifications referenced in those documents. Our speakers today include Neil A. Schrimsher, Applied Industrial Technologies, Inc.’s President and Chief Executive Officer, and David K. Wells, our Chief Financial Officer. With that, I will turn it over to Neil. Neil A. Schrimsher: Thanks, Ryan, and good morning, everyone. We appreciate you joining us. I will begin with perspective and highlights on our results, including an update on industry conditions and expectations going forward. David will follow with more financial detail on the quarter’s performance and provide additional color on our updated outlook. I will then close with some final thoughts. Overall, we reported a solid third quarter underpinned by stronger organic sales growth across the business. Specifically, sales increased 6% organically over the prior year, which was the strongest growth in over two years. This was up notably from 2% last quarter and at the high end of our third quarter guidance. In addition, orders, backlog, and business funnel activity continue to build positive momentum. We also delivered another quarter of steady underlying margin performance with gross margins holding firm year over year inclusive of ongoing LIFO headwinds. These dynamics drove record quarterly EBITDA at the high end of our expectations, as well as 6% above the prior year, or 8% when excluding the impact of LIFO. At the same time, we continue to invest internally to support our growth potential and strategy. Taken together, it was a very productive quarter with many encouraging signals for the business moving forward. I want to thank our Applied Industrial Technologies, Inc. team for another solid quarter of execution. A few key points to emphasize. First, stronger sales growth in the quarter was broad-based with several encouraging underlying trends. Average organic daily sales increased 5% sequentially, which was above normal seasonal patterns. Trends strengthened as the quarter progressed, with organic sales in March up 10% over the prior-year period. The stronger growth was volume-driven with customer spending behavior increasingly positive and showing signs of broadening. More positive underlying demand was apparent in year-over-year trends across our top 30 end markets, where 17 generated positive sales growth compared to 15 last quarter. In addition, two-year stack trends across our top 30 markets improved notably on a sequential basis. Growth was strongest across metals, technology, machinery, aggregates, utilities and energy, mining, and construction. This was offset by declines primarily in chemicals, lumber and wood, transportation, rubber and plastics, and refining. Stronger sales activity was evident across both segments in the quarter, with particular strength in our Engineered Solutions segment, which delivered over 9% organic growth year over year. Growth was strongest across automation and fluid power, both increasing by a double-digit percent year over year in the quarter. Organic sales growth across our flow control operations also improved and was a contributor. In addition, segment orders were up by a double-digit percent over the prior year for the second straight quarter, with backlog and book-to-bill both increasing sequentially during the quarter. Overall, this performance is an encouraging sign for our Engineered Solutions segment’s expanding and differentiated growth potential as several favorable dynamics are converging. Of note, sales cycles for our advanced automation solutions are turning faster as customers put money to work in brownfield applications to drive production agility within existing capacity and address labor constraints. Our engineering depth, tailored solutions, and comprehensive application support are helping customers navigate automation deployments in both high-tech industries as well as across our legacy industrial verticals and in process infrastructure. In addition, project activity and investment across the U.S. is gradually increasing. We are also seeing recovery continuing to take shape in our legacy industrial and mobile OEM fluid power end markets following a prolonged multiyear downturn, alongside structural and secular growth in newer verticals where our exposure has increased in recent years following the ongoing expansion of the segment. On this last point, we are seeing solid demand build across our technology vertical, which today represents over 15% of the Engineered Solutions segment and contributed over 300 basis points to the segment’s organic sales growth rate in the quarter. Our exposure to the technology vertical includes an established and ongoing position across the semiconductor space, as well as emerging growth opportunities developing within the data center market. On slide eight of our earnings presentation, we added an overview of our position and the solutions we provide within these verticals, which spans across all three areas of the segment including fluid power, automation, and flow control. In semiconductor, we provide various fluid conveyance, pneumatic, robotic, and mechatronic solutions that are primarily tied to wafer fab equipment manufacturing, as well as flow control solutions used in material processing. In data centers, our deep expertise of fluid management and handling combined with established supplier relationships are presenting growing opportunities supporting various thermal management applications through engineered assemblies. In addition, our automation team provides robotic and machine vision solutions that automate and trace material handling within a data center facility. Our data center service capabilities and coverage were also enhanced through our Hydrodyne acquisition, where we are providing various fluid conveyance solutions and assemblies specified in liquid cooling systems. Overall, it is a very diverse and embedded position within these key growth verticals that highlights our ongoing evolution and technical capabilities as we continue to expand our Engineered Solutions segment. I am also encouraged by the growth potential developing across our core Service Center segment. Organic sales growth of 4% in the third quarter strengthened from last quarter, with average daily sales up approximately 5% sequentially on an organic basis ahead of normal seasonality. Trends were strongest during March, when organic sales increased over 6% compared to the prior year, including nearly 8% within the U.S. Customer spending behavior continues to strengthen as greater capacity utilization drives more break-fix activity and required maintenance on critical and aged production equipment. This drove stronger growth across strategic national accounts as well as our local accounts during the quarter. In addition, 13 of our top 15 industry verticals were up year over year in our U.S. Service Center network during the third quarter. This compares to 10 last quarter and six in the prior-year quarter. Benefits from our sales initiatives and our One Applied value proposition are resonating as we support our customers’ heightened technical MRO requirements within an increasingly positive U.S. industrial backdrop. This includes our deep knowledge and supplier relationships tied to critical motion control equipment and infrastructure, supported by our local service capabilities. Over the past several years, our Service Center team has been executing on a comprehensive strategic plan focusing on deepening our customer relationships, modernizing our sales processes and tools, and enhancing our speed to market through investments in talent, systems, and analytics. In addition, our Service Center team’s value proposition has strengthened through the expansion of our Engineered Solutions segment, giving them access to engineering, design, assembly, repair, and integration support to address our customers’ legacy industrial system needs as well as emerging required investments in automation. This is driving new business wins as well as greater cross-selling activity. We estimate cross-selling contributed over 100 basis points to the segment’s organic growth in the quarter, which is up from the first-half fiscal 2026 levels, and an encouraging sign. Overall, these initiatives remain ongoing and provide solid company-specific growth drivers for our Service Center segment moving forward as end-market demand cycles higher and as customers look to leverage the many secular and structural tailwinds developing across the North American manufacturing sector. Overall, it was a solid quarter highlighting building top-line momentum across Applied Industrial Technologies, Inc. and our differentiated industry position. Positive sales trends have continued in the early part of our fourth quarter with organic sales trending up by a high-single-digit percent year over year month-to-date in April. We are also well positioned to drive further EBITDA margin expansion and stronger earnings growth, assuming the improved top-line trends sustain moving forward. During the third quarter, EBITDA margins were in line with our expectations, while our year-over-year trends improved as the quarter progressed and sales growth strengthened. As a reminder, on an annualized basis, we target mid- to high-teen incremental EBITDA margins at mid-single-digit organic sales growth, with strong support from our ongoing internal margin initiatives, continuous improvement culture, and structural mix tailwinds. We remain mindful that we continue to operate in a dynamic environment where customers’ purchasing decisions remain sensitive to broader macro uncertainty that is persisting. This includes an ongoing dynamic trade policy and tariff backdrop. To date, we have not seen a significant impact from recent tariff and trade policy modifications. Price increase announcements from our suppliers remain steady, and over the last several quarters have normalized to a more regular cadence following an active pace this time last year. However, the inflationary environment and suppliers’ approach to pricing remains highly fluid at this point. We continue to work closely with our suppliers as they assess the evolving backdrop as well as other inflationary pressures on their supply chains. As evidenced by our performance over the past year, our teams continue to effectively manage broader inflationary pressures, and overall, we remain well positioned. We operate from an agile business model in well-structured markets tied to critical and technical processes with strategic supplier relationships. Combined with structural mix tailwinds and various self-help gross margin countermeasures inherent to our strategy, we are highly confident in our ability to continue to adapt and execute as the tariff and broader inflationary backdrop continues to evolve. Lastly, on capital deployment and ongoing opportunities moving forward, year to date we have remained active, deploying over $300 million on share repurchases, M&A, and growing our dividend. With regard to M&A, which remains a top priority and key element of our growth strategy, we are actively evaluating various targets across both our segments with our focus primarily on midsize and smaller tuck-in companies. While timing of M&A can vary quarter to quarter, I continue to believe the next 12 to 18 months will be a more active period for Applied Industrial Technologies, Inc. given the work being done and as we continue to execute on our strategy. Since 2018, we have closed 18 acquisitions representing over $1 billion in acquired sales. This included key strategic acquisitions that expanded our Engineered Solutions capabilities into areas of flow control and automation, as well as strengthened legacy positions in fluid power and within our Service Center network. Over that same period, we have grown EPS by 16% and free cash flow by 18% on a compounded annual basis. I believe that flywheel position and approach to M&A is even stronger today, given the investments we have made in our team, processes, and systems, as well as the compelling value proposition we offer to many companies looking to join our leading technical industry position within a still fragmented industry. In addition to ongoing M&A activity, we remain proactive with share buybacks. Long term, we see significant value creation potential across Applied Industrial Technologies, Inc. considering our strategic initiatives, industry position, exposure to secular growth tailwinds, and margin expansion potential. When appropriate, we will continue to utilize share buybacks to enhance shareholder returns, and as indicated in our press release today, I am pleased to announce our Board has approved a new authorization to repurchase up to 3 million shares. At this time, I will turn it over to David for additional detail on our results and outlook. David K. Wells: Thanks, Neil, and good morning to everyone joining today. As a reminder, our quarterly earnings presentation is available on our Investor Relations site. We hope that you will find it a useful reference as we recap our most recent quarter performance and updated guidance. Turning to our financial performance, consolidated sales increased 7.3% over the prior-year quarter. Acquisitions and foreign currency were a modest tailwind in the period, adding 50 and 80 basis points of growth, respectively. The number of selling days in the quarter was consistent year over year. Netting these factors, sales increased 6% on an organic basis. As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was approximately 250 basis points in the quarter, which was in line with our guidance and last quarter’s trend. Netting this impact, we estimate volumes grew 3.5% over the prior year, a nice acceleration from the prior quarter. Moving to consolidated gross margin performance, as highlighted on page nine of the deck, gross margin of 30.4% was relatively unchanged compared to the prior-year level. During the quarter, we recognized LIFO expense of $5.6 million compared to $2.2 million in the prior-year quarter. On a net basis, this resulted in an unfavorable 27 basis point year-over-year impact on gross margins. Excluding the LIFO headwind, gross margins improved year over year reflecting ongoing progress with our internal margin initiatives, price and channel execution, and more favorable mix. As it relates to our operating costs, selling, distribution, and administrative expenses increased 7.5% compared to prior-year levels. On an organic constant-currency basis, SG&A expense was up 6% year over year. Our teams continue to drive strong cost discipline while also focusing on various efficiency initiatives tied to technology investments, shared services, and sales tools. This helped offset ongoing inflationary headwinds, annual merit increases, higher incentives, and ongoing growth investment into the business during the quarter. SG&A expense as a percentage of sales at 19.4% was relatively unchanged from the prior year, but improved approximately 40 basis points sequentially. We saw cost leverage improve nicely through the quarter as sales growth strengthened. Overall, stronger organic sales growth, modest M&A contribution, and favorable underlying gross margin performance resulted in reported EBITDA increasing 6.2% over the prior year. This is inclusive of greater LIFO expense year over year, which negatively impacted EBITDA growth by 2.3 percentage points compared to the prior-year quarter. Reported EBITDA margin of 12.3% was down 13 basis points from the prior-year level, with year-over-year LIFO headwinds negatively impacting EBITDA margin by 27 basis points. EBITDA margins were in line with our third quarter guidance range of 12.2% to 12.4%. In addition, year-over-year EBITDA growth and EBITDA margin trends strengthened as the quarter progressed. Reported earnings per share of $2.65 in the third quarter increased 3.1% from prior-year EPS of $2.57. On a year-over-year basis, EPS was impacted by a higher tax rate and net interest expense, partially offset by a lower diluted share count. Results this quarter included $1.7 million, or approximately $0.05 per share, of non-routine discrete tax expense related to prior-year tax provision adjustments. We expect our tax rate in the fourth quarter to be within a range of 24.4% to 24.6%. Turning to sales performance by segment, as highlighted on slides 10 and 11 of the presentation, sales in our Service Center segment increased 4.2% year over year on an organic daily basis. This excludes 20 basis points of contribution from acquisitions and a positive 130 basis point impact from foreign currency translation. Organic sales growth was driven by stable price contribution and stronger volume growth across our U.S. Service Center operations, partially offset by softer international sales. Segment EBITDA increased 2.7% over the prior year, while segment EBITDA margin of 14.2% decreased 42 basis points. Year-over-year segment EBITDA and EBITDA margin trends were impacted by LIFO headwinds and higher employee-related costs, including incentives, as well as a difficult prior-year comparison. On a year-to-date basis, segment EBITDA growth of approximately 5% is slightly ahead of reported sales growth, while segment EBITDA margins are relatively unchanged year over year. Within our Engineered Solutions segment, sales increased 10.2% over the prior-year quarter, with acquisitions contributing 90 basis points of growth. On an organic basis, segment sales increased 9.3% year over year, primarily reflecting strong volume growth across our fluid power and automation operations, as well as improved growth across our flow control operations. Segment EBITDA increased 11.9% over the prior year, or approximately 14% when excluding the impact of LIFO expense. In addition, segment EBITDA margin of 14% was up 21 basis points from prior levels inclusive of a 50 basis point year-over-year LIFO headwind. The strong EBITDA growth and margin performance in the quarter primarily reflects solid underlying incremental margins on stronger sales growth, firm gross margin performance, and ongoing cost accountability. Turning to cash flow, cash generated from operating activities during the third quarter was $100.1 million, while free cash flow totaled $95.4 million, representing conversion of approximately 96% relative to net income. Compared to the prior year, free cash flow was down 8% reflecting greater working capital investment in relation to stronger sales growth, partially balanced by ongoing progress with internal initiatives. From a balance sheet perspective, we ended March with approximately $172 million of cash on hand, and net leverage at 0.3 times EBITDA. Our balance sheet remains in a solid position to support our capital deployment initiatives moving forward, including accretive M&A, dividend growth, and share buybacks. During the third quarter, we repurchased over 346 thousand shares for $93 million, bringing the year-to-date total to over 897 thousand shares and $236 million. Turning to our outlook, as indicated in today’s press release and detailed on page 14 of our presentation, we are tightening our full-year fiscal 2026 guidance toward the high end of our prior range following our third quarter performance. We now project EPS within a range of $10.60 to $10.75 based on sales growth of 7.2% to 7.7%, including a 3.8% to 4.2% organic sales growth assumption, as well as EBITDA margins of 12.3% to 12.4%. Previously, our guidance assumed EPS of $10.45 to $10.75 on sales growth of 5.5% to 7%, including 2.5% to 4% on an organic basis, and EBITDA margins of 12.2% to 12.4%. Our updated guidance assumes a fiscal fourth quarter EPS range of $2.85 to $2.96 on organic sales growth of 4% to 5.5% year over year, as well as EBITDA margins in a range of 12.6% to 12.8%. We expect inorganic M&A sales contribution to be slightly lower sequentially in the fourth quarter as we anniversary our IRIS Factory Automation acquisition at the end of May, combined with ongoing initial contribution from our Thompson Industrial Supply acquisition announced last quarter. Our fourth quarter organic sales growth assumption takes into account more difficult prior-year comparisons in May and June. While we are encouraged by the positive sales momentum developing, we remain mindful of ongoing geopolitical developments and trade policy uncertainty that may continue to influence customer spending behavior. As a result, we continue to assume a degree of variability persists across our end markets near term. Lastly, from a margin perspective, we expect fourth quarter gross margins to be relatively stable sequentially. This assumes slightly higher LIFO expense compared to the third quarter. With that, I will now turn the call back over to Neil A. Schrimsher for some final comments. Neil A. Schrimsher: As we prepare to close out fiscal 2026, we do so from a position of strength with several growth catalysts beginning to emerge across our business. We remain prudent with our near-term assumptions and outlook as we are still navigating an evolving and dynamic market backdrop influenced by geopolitical and trade-related uncertainty. As we have seen over the past year, this could still present choppy and uneven end-market demand as customers continue to balance a complex landscape. That said, the trajectory of our sales and broader industrial macro indicators year to date in calendar 2026 are currently more indicative of an early end-market recovery beginning to take shape following a prolonged stagnant period of deferred maintenance and capital spending throughout the last two years. Business funnel and order momentum are sustaining a positive trajectory, while technical MRO spending requirements are high given aged manufacturing equipment across North America. As these trends progress, we expect customers to partner with larger, more capable providers like Applied Industrial Technologies, Inc., given our comprehensive solutions and technical service capabilities. At the same time, automation growth is accelerating as adoption of cobots, mobile robots, machine vision, and IoT solutions are increasingly viewed as need-to-have. We are also favorably positioned to benefit from multiyear growth tailwinds continuing to develop across our technology vertical, while our cross-selling initiative is gaining traction. Overall, momentum is building in the right direction. Our teams are executing well. The industry and competitive position we have assembled is strong. We are excited about the opportunities in front of us and remain highly focused on translating our growing momentum into superior long-term shareholder value creation. We will now open the call for questions. Operator: We will now open the call for questions. If you would like to ask a question, please pick up your handset and press star one on your telephone keypad to raise your hand. To withdraw your question from the queue, press star one again. As a reminder, if at any time you need to reach an operator, please press star 0. We will pause for just a moment to compile the Q&A. Your first question comes from the line of Christopher Glynn with Omnicom. Your line is now open. Please go ahead. Christopher D. Glynn: Thanks. Good morning, everyone. I was curious if you may have mentioned a little bit, but I wanted to go a little deeper into the trends you are seeing with locals versus nationals. I am guessing some of the sequential acceleration may have been led by the local accounts picking up some momentum, but I will speculate. Neil A. Schrimsher: We saw good growth with both. Local accounts year over year were up 5% versus 3.5% in Q2. We also saw good growth and progress with national accounts, up 7% year over year versus 4% in the second quarter. Christopher D. Glynn: Great. You have some exciting things going on with automation and fluid power. Flow control has been kind of a narrower sine wave trajectory, but clearly some broadening out there. Can you go down a layer or two into flow control and the process arena? Neil A. Schrimsher: Flow control benefited from the technology vertical, which contributed roughly 300 basis points to the segment’s organic growth in the quarter. Flow control was up about 6%, so strong mid-single-digit growth. We also saw benefit in primary metals, general industry, and energy and utilities. Chemicals would be the one still down year over year, but the trend is improving, and they are encouraged as we close the year and move into the next fiscal year. Christopher D. Glynn: You mentioned on automation that sales lead times and conversions were shortening. Are you seeing that trend on the process side as well? Neil A. Schrimsher: The reference was really around customers moving projects faster. When we are part of a larger project, we are seeing good speed there, and when we are providing productized solutions, more customers are accelerating automation projects for productivity and quality assurance. That is encouraging, as are the order rates and the backlog that we have been building. Thank you. Operator: Your next question comes from the line of Ken Newman with KeyBanc Capital Markets. Ken, your line is now open. Please go ahead. Kenneth Newman: Good morning. On Engineered Solutions, the operating leverage seemed a little lighter than I would have expected given the 9% organic growth. You are talking to mid-single-digit growth with mid- to high-teen incremental margins on the EBITDA side. Can you talk about what we saw in the margins, how much was driven by LIFO headwinds or mix, and what you think about normalized operating leverage in the ES segment into the fourth quarter and beyond? David K. Wells: Incrementals in the quarter for Engineered Solutions were about 16% ex-LIFO and roughly 19% when excluding LIFO entirely. We feel good about that performance. Neil A. Schrimsher: Within that, flow control had some projects that came in lower margin given mix, which can be typical. Also recall that Hydrodyne is currently at about the fleet average for the company, which is under the Engineered Solutions average, but with continued focus and improvement. We are pleased with the trajectory. David K. Wells: I would add that through the quarter we saw incremental margins and EBITDA margins in the segment strengthen on a year-over-year basis as the top line strengthened. The results from an incremental margin and leverage standpoint were aligned with our expectations, with improvement as the quarter played out. Kenneth Newman: Thanks. It was nice to hear about orders within Engineered Solutions being up double digits for the second straight quarter. How should we think about the timing of those orders flowing through the P&L into fiscal 2027, and how much conservatism is embedded in the fourth quarter guide relative to what you are seeing on orders? Neil A. Schrimsher: We want to be prudent given trade policy changes and geopolitical dynamics. We are encouraged by orders. Timing of conversion can vary based on the complexity of the order and our engineering time, and because some projects are tied to customers’ broader project schedules. Some orders convert in 60 to 90 days, while others extend out. Kenneth Newman: One more quick one. How big is the step-up in the May and June comps versus last year? David K. Wells: May’s comp compared to April steps up about 200 basis points, and June steps up another 200 basis points. Operator: As a reminder, if you would like to ask a question, please press 1 on your telephone keypad to raise your hand. Your next question comes from the line of Andrew Oven with Bank of America. Your line is now open. Please go ahead. Andrew Oven: Good morning. On the M&A environment, it is such a big driver for value creation. Your M&A has been slower post-COVID. What are you seeing that encourages you? You have been constructive for a while, but we have not seen a huge acceleration. What is changing or remaining stable, and what would it take to unlock the M&A potential? Neil A. Schrimsher: We have clear priorities, with Engineered Solutions targets across fluid power, flow control, and automation—both bolt-ons and midsize opportunities like Hydrodyne. We also have adjacency and geographic opportunities in our Service Center network. We are active and engaged at various stages of the M&A process. An improving environment may bring more sellers to the table. Given our pipeline, priorities, and team engagement, I expect M&A to be a stronger contributor over the next 12 to 18 months. Andrew Oven: Thank you. On markets you highlighted as headwinds—refining, chemicals, and transportation—we have heard some spending pauses tied to events in the Middle East, but a view that activity comes back in the second half of calendar 2026. And on transportation, would you be positively impacted if trucks come back? Neil A. Schrimsher: In refining and chemicals, I agree with the logic for second-half improvements. Given our North American footprint and focus, we are likely to see more activity occur in the U.S. and North America. Broadly across transportation, it is not our largest segment, but we will participate, so an improving environment would be good for us. Operator: Your next question comes from the line of David Manthey with Baird. Your line is now open. Please go ahead. Anar Khan: Hi. Good morning. This is Anar Khan hopping on for Dave. For my first question, I know pricing can be imperfect to measure since you do not sell every SKU every year, but with that caveat, can you frame how the 6% organic growth this quarter split between price and volume? Is realization tracking ahead of the 1% to 2% range? David K. Wells: Price in the quarter was about 250 basis points by our estimate, based on SKUs where we have clear reads and extrapolations. That implies about 350 basis points from volume. The 250 basis points was consistent sequentially and in line with expectations. Our Q4 guide assumes pricing moderates a bit, largely due to tougher year-over-year comparisons from tariff and other discretionary, impact-driven increases we saw in the prior-year Q4. Still a nice contributor, and a nice volume rebound this quarter. Anar Khan: Super helpful. Can you provide an early April read on volume through the first few weeks? Are you seeing customers pre-buy or pause given the policy environment? And can you remind us what One Applied specifically means to you today and how you are measuring progress? David K. Wells: Month to date we are up high single digits year over year. As a reminder, the comparison steps up by about 200 basis points in May and another 200 basis points in June, so comps get tougher as the quarter progresses, but we are encouraged by the start. Neil A. Schrimsher: One Applied means that from the end-customer standpoint, there is really nothing moving inside their facilities that our products, services, and solutions are not a part of. Our Service Center teams have deep operating know-how of customers’ equipment and how they make money with uptime and production. We support those plant operations with greater Engineered Solutions expertise—fluid power systems, process flow control, and discrete automation—collaborative and mobile robots, machine vision for quality and inspection, and IoT connectivity to pull performance data across equipment and facilities. We are seeing growing customer need for that full utilization. Our pipeline of projects is growing, and cross-selling contributed over 100 basis points to Service Center organic growth this quarter. We expect that to continue to grow. Operator: At this time, we have no further questions. I will now turn the call over to Mr. Schrimsher for any closing remarks. Neil A. Schrimsher: Thank you, everyone, for joining us today. We look forward to speaking with you throughout the quarter. Operator: Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help you. Please standby, your meeting is about to begin. Welcome to the Crane Company First Quarter 2026 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions and answers following the prepared remarks. Lastly, should you require operator assistance, please press 0. I would like to now turn the call over to Allison Ann Poliniak-Cusic, Vice President of Investor Relations. Please go ahead. Allison Ann Poliniak-Cusic: Thank you, operator, and good day, everyone. Welcome to our first quarter 2026 earnings release conference call. I am Allison Ann Poliniak-Cusic, Vice President of Investor Relations. On our call this morning, we have Alejandro A. Alcala, President and Chief Executive Officer, and Richard A. Maue, our Executive Vice President and Chief Financial Officer, along with Jason D. Feldman, Senior Vice President, Investor Relations, Treasury and Tax, who is on for Q&A. We will start off our call with a few prepared remarks from Alejandro A. Alcala and Richard A. Maue, after which we will respond to questions. As a reminder, the comments we make on this call will include forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our Annual Report on Form 10-Ks and subsequent filings pertaining to forward-looking statements. Also during the call, we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers in tables at the end of our press release and accompanying slide presentation, both of which are available on our website at craneco.com in the Investor Relations section. Now let me turn the call over to Alejandro. Alejandro A. Alcala: Thank you, Allison. Good morning, everyone. I appreciate you joining us today. As I step into the role of CEO, I am energized by the opportunity to lead Crane at a time when strong leadership, disciplined execution, and agility truly matter. Much like this time a year ago, we are operating in an environment that continues to evolve rapidly. Fortunately, our business system, the CBS machine, together with our global team’s relentless focus, resilience, and commitment to execution with a disciplined cadence, continues to differentiate Crane Company. We view periods of uncertainty and market dislocation not as obstacles but as opportunities to elevate our performance. Time and again, Crane has emerged from challenging environments stronger than before and increasingly advantaged relative to our competitors. We are off to a strong start in 2026, with first quarter results reflecting excellent execution across the company, exceeding our expectations and underscoring the strength of our teams and our commitment to delivering shareholder value. Adjusted EPS of $1.65 was up 15% over the prior year, driven by 4% core sales growth reflecting broad-based strength at Aerospace and Advanced Technologies and continued strong execution at Process Flow Technologies, including solid core order and backlog momentum. Also of note was the strong performance of our recent acquisitions that drove a substantial amount of upside in the quarter relative to our expectations. Druck, Panametrics, Reuter-Stokes, and OPTECH all performed exceptionally well, with integration and deployment of CBS progressing ahead of plan and early benefits emerging faster than anticipated and ahead of what was reflected in our January guidance. We entered the year with positive momentum at both AAT and PFT. As the first quarter progressed, our execution further strengthened our confidence in the underlying earnings trajectory for the year. At the same time, however, the external environment became more challenging. Geopolitical dynamics are evolving and macroeconomic uncertainty is still very much part of the backdrop. Taking all of this into account—our performance to date and the range of scenarios, risks, and opportunities we see ahead—we are raising our adjusted full-year outlook by 10 cents to a range of $6.65 to $6.85. Our guidance reflects what we have clear line of sight to and a high level of confidence in delivering, even against a more uncertain macro backdrop. It assumes continued elevated energy prices and inflation through the balance of the year and already factors in a potential decline in commercial aftermarket. In addition, as you would expect, our teams have actions to get ahead of the increased inflation as we move through the year. We remain focused on execution, continuing to build on our momentum, and finding potential opportunities to overdeliver. Across the organization, we continue to stay agile in a dynamic environment. Our deep management teams have been here before, and we will manage with the cadence and disciplined execution that you have all come to expect from Crane Company. Now some thoughts on the performance of the recent acquisitions and the segments in the quarter, and as we look to the balance of 2026. As I mentioned, the acquisitions performed exceptionally well. I am extremely pleased with the execution and pace of improvements. Over the years, we have built tremendous organizational capability that has enabled us to integrate four businesses simultaneously at speed and with zero disruption to the core businesses. This performance reinforces the strength of CBS and the opportunity to create meaningful shareholder value through continued disciplined inorganic growth combined with the power of the CBS machine. The teams are energized, having fun, and driving results better than our expectations at the start of the year. Strong operational execution, restructuring and cost actions, and early commercial excellence momentum drove a majority of the upside relative to our January guidance, reinforcing our confidence in both the quality of the businesses and our integration playbook. Margins across the acquired businesses were substantially improved from last year and ahead of our plan, and we see opportunity for continued progression in the quarters ahead. More specifically, we now expect the margin and earnings contribution from the acquisitions to be more evenly weighted throughout the year compared to our prior expectation of back-half-weighted performance. Based on what we are seeing today, we now expect accretion for the full year to be at least double what we communicated in January, or about 15 cents of EPS. My confidence in exceeding our target ROIC by year five has only increased over the last few months. I am so proud of all our new associates that have joined Crane this year, and I am excited to see how we will continue to take these outstanding brands in the future. We are already moving beyond just the tactical integration actions and are well on our way with strategy deployment, painting a very exciting future for everyone, including our shareholders. Turning to Aerospace and Advanced Technologies, we continue to see strength across the aerospace and defense demand environment. The backlog we built, along with the new programs and opportunities our Aerospace and Advanced Technologies teams have secured, continue to provide us with great visibility well beyond 2026. Looking to the balance of the year, we continue to expect full-year core sales growth for the segment to land at the high end of our long-term 7% to 9% range. On the commercial side, OE activity remains healthy, with Boeing continuing with strong production rates. Commercial aftermarket revenue was down as expected in the quarter due to unfavorable year-over-year comparisons, while commercial aftermarket orders were up 11% in the quarter. While we have not seen an impact to orders at this time, given the geopolitical situation, elevated oil prices, and long-haul travel disruption through the Middle East, we could see an impact to commercial aftermarket as the year progresses. However, even factoring in a decline in commercial aftermarket, we remain confident in our 7% to 9% sales growth range leveraging at 35% to 40%. Richard will provide more details on how we are thinking about this. On the defense side, there has been a lot of activity and interesting industry announcements over the past few weeks. Procurement spending remains solid, and there is a continued focus on strengthening the broader defense industrial base given the heightened global uncertainty we continue to see. We are seeing significant demand signals across both missile defense and radar applications, among other areas in our portfolio, further strengthening the long-term outlook, with the potential for some benefit this year depending on order timing and lead times. In the quarter, we received strong orders for the PAC-3 program and remain under negotiations for similar wins. Additionally, we received incremental orders for LTAMDS and are currently under negotiations for additional contracts with other providers. We fully anticipate additional orders in these two defense growth areas as we move through the year, and beyond this, we continue to develop new technologies, win new business, and pursue additional opportunities across this segment that give us confidence we will deliver above-market growth for the rest of the decade. Particularly on the defense side, we expect replenishment of military aircraft spares and missiles along with continued demand for ground-based radar systems, all extending the period of strong demand for years. We are very confident in yet another outstanding year at Aerospace and Advanced Technologies. At Process Flow Technologies, it was another solid quarter and we remain well positioned to consistently outgrow our markets across the cycles. We have deliberately repositioned the portfolio around our core end markets—pharmaceuticals, wastewater, cryogenics, chemicals, and nuclear power—where we hold strong competitive positions and differentiated capabilities that support sustainable market outperformance. Overall demand for the quarter came in slightly ahead of our expectations, and execution was strong, driving a 50-basis-point improvement in adjusted margins even with the dilutive impact of acquisitions. On the order side, power generation remained a key area of strength. We also saw solid project activity in pharma tied to U.S. capacity expansion, continued momentum in cryogenics driven by capacity needs within the space launch segment, and strong orders in LNG. In nuclear, as part of the Holtec Palisades restart, we were able to add value by extending contract terms. With respect to the ongoing conflict, note that only about 5% of PFT segment sales are directly exposed to the Middle East. While we are continuing to ship today and overall demand in the region in the quarter was on track, we do see projects moving to the right and potentially impacting the balance of 2026, along with some shipment lane disruptions. Notably, we are not seeing cancellations. Longer term, we do see incremental opportunities for rebuilding as the geopolitical environment stabilizes. Even with this uncertain backdrop, we continue to invest for long-term growth through disciplined execution of our multiyear technology and new product development roadmaps, along with ongoing commercial excellence initiatives, all supported by strong and consistent operational execution. Tactically, we have proven our ability to respond quickly to changes in demand. We will remain nimble during this period, taking appropriate pricing and cost actions as needed. For the full year, we still expect core growth to be consistent with our initial guidance of flat to low single digits, leveraging within our target range of 30% to 35%. In summary, a really solid start. Our strategy is unchanged, and we remain focused on managing through any near-term demand variability without losing sight of our long-term objectives. Taken together, our businesses remain exceptionally well positioned to continue delivering strong results. We also continue to see significant opportunity to further enhance performance through acquisitions. Our balance sheet remains exceptionally strong, with substantial available M&A capacity. We continue to pursue our robust pipeline of potential opportunities. M&A activity has not slowed, and we are actively engaged on a number of opportunities across both Aerospace and Advanced Technologies and Process Flow Technologies. While there is nothing imminent at this point, our pipeline remains healthy, and we remain disciplined and selective as we evaluate potential transactions. Before turning the call over to Richard, I want to emphasize that while external conditions remain dynamic, our focus has not changed. We remain disciplined in the areas we control—execution, customer focus, cost improvement, development of our people, and continued investment in our growth initiatives and technology roadmaps. We believe this approach positions Crane Company to outperform our end markets and create long-term shareholder value. Regardless of near-term volatility, over the long term, our approach remains consistent. We will deliver 4% to 6% long-term core sales growth through the cycles from resilient and durable businesses with solid aftermarket, substantial operating leverage on top of already solid margins today that should lead to double-digit average annual core profit growth, with significant upside from capital deployment. Now let me turn the call over to our CFO, Mr. Richard A. Maue, for more specifics on the quarter. Richard A. Maue: Thank you, Alejandro, and good morning, everyone. Wow, what a start to the year. Let me start off with total company results. Total sales were up 25% in the quarter compared to last year, with 4% core growth driven primarily by the ongoing strength within the Aerospace and Advanced Technologies segment. Sales from acquisitions contributed 18% in the quarter, which was modestly above expectations, reflecting strong execution as these four new businesses become a part of the Crane machine. Adjusted operating profit increased 29%, reflecting the impact of the higher core sales, contribution from the acquisitions, and productivity and favorable price net of inflation—truly outstanding results. Total core FX-neutral backlog was up 9% compared to the first quarter last year, reflecting continued strength at Aerospace and Advanced Technologies, and core backlog was up 3% sequentially driven primarily by Process Flow Technologies. Core orders were down 5% year-over-year, but were modestly better than we expected. The decline was entirely driven by an unfavorable comparison within Aerospace and Advanced Technologies; a 15% decline reflected the record first-quarter orders last year in this business, which included several multiyear orders that we highlighted to you last April. Core orders in PFT increased 5% compared to last year, and core backlog in PFT was up 7% compared to December. Backlog and orders across the acquisitions were also solid, coming in modestly above our expectations, continuing to support a strong full-year outlook. From a balance sheet perspective, we ended the quarter with pro forma net leverage at 1.4 times, leaving us well positioned for further M&A, as Alejandro noted. A few more details on the segments in the quarter. Starting with Aerospace and Advanced Technologies, sales of $318 million increased 28% in the quarter, with core sales up 9.4%. Our backlog of nearly $1.2 billion increased 14% on a core basis and increased 24% including Druck. On a sequential basis, core backlog increased 2% with total backlog up 11%—again, no surprises and at record levels. Demand remains strong. We are seeing increasing RFP and RFQ activities across several defense programs supporting missile defense and ground-based radar, some of which reflect recent wins at some of our defense customers, giving us further confidence in our multiyear outlook. Let me spend a minute on the core business in the quarter. On the OEM side, sales were strong, up 16%, with commercial OEM up 20% and military up 10%. Total aftermarket was down 2% in the quarter, with military aftermarket posting a very strong increase, up 28% in the quarter, reflecting the breadth and strength of our portfolio. That military strength was offset by commercial aftermarket, which was down 13% as expected. Specific to commercial aftermarket, shipments were largely in line with what we expected for Q1 but with an unfavorable comparison against higher initial provisioning in the prior-year first quarter. Even with that decline, we came in above our growth expectations for the quarter. Of note, commercial aftermarket orders in the quarter were up 11% year-over-year and 10% sequentially. While we have not seen any impacts to orders so far resulting from the ongoing conflict, elevated oil prices and disruptions to long-haul travel through the Middle East could create pressure on commercial aftermarket as the year progresses. We are factoring into our guidance that commercial aftermarket could decline on a full-year basis. Taken altogether though, we remain very confident in our full-year segment sales outlook. We continue to expect total core sales growth at the high end of our 7% to 9% algorithm. While the mix across sub-segments may shift as the year plays out, our overall guidance is unchanged and that really speaks to the diversity and durability of our Aerospace and Advanced Technologies portfolio. Adjusted segment margin of 24.6% compared to 26.2% last year, primarily reflecting the impact of the Druck acquisition. This was an outstanding result and nearly 200 basis points better than we expected given Druck outperformance in the quarter as well as continued strong performance in our core AAT business. At Process Flow Technologies, in Q1 we delivered sales of $378 million, up 23% compared to a year ago, with core sales down 0.6%—slightly better than we anticipated—with the acquisitions of Panametrics, Reuter-Stokes, and OPTECH Danielote adding 19 points of growth, and FX contributing four points of growth in the quarter. Compared to the prior year, FX-neutral backlog at PFT decreased 2.5%, but on a sequential basis improved a solid 7%. In addition, core FX-neutral orders were up 5%, also modestly above our expectations. Adjusted operating margin of 22.1% was approximately 50 basis points above the prior year, and this was inclusive of the dilutive impact from the recent acquisitions and, like Aerospace and Advanced Technologies, results were above our expectations given better performance across our core businesses and each acquired business. Productivity is reading through as well as price net of cost. In the quarter, the impact from the conflict in the Middle East was nominal. As Alejandro mentioned, we have just under 5% of total exposure in-region on a full-year basis. We expect projects to move to the right, and we do expect notable freight and other inflationary headwinds as we move through the balance of 2026. Our teams are already executing to ensure no net inflation risk to the P&L inclusive of margin impacts. In summary, we continue to expect core operating leverage for the segment between 30% to 35% for the full year. Moving to the non-operational items below the segments, corporate expense for the quarter was $24 million, slightly lower than our expectations. Recall, we anticipated corporate expense to be highest in Q1 due to accounting rules that require accelerated amortization of stock-based compensation expense for associates that are retirement eligible. For 2026, we continue to forecast corporate expense to be in the range of $80 million to $85 million. Given the funding for the acquisitions of Panametrics, Druck, Reuter-Stokes, and OPTECH Danielote, net non-operating expense in the quarter was $15 million, and we continue to estimate full-year 2026 net non-operating expense of approximately $58 million. Lastly, we continue to expect our tax rate for 2026 to approximate 23%. Taking all of this into account—our performance to date as well as the risks and opportunities we see ahead—as Alejandro mentioned, we are raising our adjusted full-year guidance by 10 cents to a range of $6.65 to $6.85, again reflecting what we have clear line of sight to and a high level of confidence in delivering. Looking at the cadence of quarterly results for the year, we expect Q2 to be similar to Q1, and our full-year earnings split to now be more balanced at around 49% to 51% between the first and second half given the strong Q1 performance. The second-half earnings performance is expected to be more evenly balanced relative to our historical quarterly cadence of a sequential decline from Q3 to Q4, given the expected performance of our recent acquisitions. We began the year with performance that exceeded our expectations, underscoring the strength of our teams, our strategic direction, and our execution. We remain committed to building on that momentum and consistently delivering results. You know, Alejandro, all the uncertainty that everyone is talking about this earnings season reminded me of a notable quote from the Academy Award-winning actor Ryan Reynolds from the timeless movie classic National Lampoon’s Van Wilder: “Worrying is like a rocking chair. It gives you something to do, but it does not get you anywhere.” At Crane Company, leveraging our CBS machine, we are very intentional and focused on what is in our control no matter what the environment, and we always view periods of uncertainty as periods of opportunity. And with that, operator, we are now ready to take our first question. Operator: Thank you. The floor is now open for questions. We will take our first question from Amit Mehrotra. Please go ahead. Your line is open. Amit Mehrotra: Thanks, operator. Good morning. I wish I had a good movie quote, but I will have to come up with one next quarter. Maybe starting with the progress you are making on PSI, which is obviously very, very strong and clear. Maybe just unpack where the upside is coming from across Druck, Panametrics, Reuter-Stokes. Obviously, you have had this target of getting from $60 million to $150 million over five years to hit that ROIC target. It seems like you are achieving that greater or even faster. Maybe you can just update us on timing with respect to that progression. Alejandro A. Alcala: Good morning, Amit. Thank you for that question. Related to PSI, the quarter upside—I mentioned three areas. First, the execution of the three businesses was stronger than expected. Just as a volume standpoint, demand is stronger, execution has been very solid, so that created some upside. The cost actions—you may recall that we are taking two types of cost actions in the short term. One is eliminating the overall PSI layer, the management layer—we are really operating these three businesses—so that was executed very well. Then within the businesses, as we are executing product line simplification, there is realignment of resources and restructuring. The teams moved quite quickly in the quarter and we started to see some of that upside. The third element is the beginnings of value pricing and commercial excellence that are starting to read through as we move, also at great speed. I expect that to improve during the year. Related to timing overall, this year we came in thinking on the top line the PSI set of businesses would be in the range of 4% to 6% growth. We are now thinking closer to the higher side of that range. And we were thinking we would improve 200 basis points of margin, and now we are thinking at least 300 basis points of margin. So we are ahead of schedule of our plan, which puts us overall in that five-year timeline really gaining ground. We are very confident in overdelivering to those benchmarks. Amit Mehrotra: Great, thank you for that. And just maybe as a follow-up, can we talk about PFT core order improvement? Obviously, very strong sequentially. Is it enough to call an inflection in the process flow cycle? Where are you seeing the strongest momentum across the various regions and end markets? If you could just double click on that in terms of what you are seeing in that momentum. Alejandro A. Alcala: On orders for PFT, the strength has come in some markets that we have been highlighting in the past and that has continued. I think that will continue through the year—power generation in the Americas, pharmaceuticals, cryogenics, wastewater in particular gave us the upside. That has been pretty consistent. Interestingly, we do not see those segments impacted by higher energy prices, so we think demand will remain solid through the year. Chemicals has continued to be sluggish, at a trough holding, but I would not call it an inflection point yet until we see that piece of the business changing. Historically, higher energy prices have led to increased demand in that chemical segment, but it takes a while to read through, particularly in the Gulf, where customers see that benefit of feedstock between gas and oil. Even though end-customer demand may be slower, it still makes sense to invest and expand capacity, debottlenecking, and so forth. So I think it is solid—better than we expected going into the year—and we feel better about the prospects than we did three months ago, but not quite calling an inflection, especially on chemicals. Amit Mehrotra: Great. Thank you very much. Congrats on the good results. Appreciate it. Alejandro A. Alcala: Thank you. Thank you, Amit. Operator: Thank you. We will take our next question from Matt J. Summerville of D.A. Davidson. Please go ahead. Your line is open. Matt J. Summerville: Thanks. A couple questions. Can you comment on the magnitude of EPS accretion you witnessed as it pertained to the acquisitions and specifically what you have done to drive near-immediate linearity in those businesses, which last conference call were sort of deemed to be quite second-half loaded overall? And then I have a follow-up. Richard A. Maue: Yes, so we did see some accretion in the quarter, as Alejandro mentioned. Given the results, we feel like we are going to see at least double what we thought on a full-year basis. Coming into the year, we had about an 8-cent number in mind, and we felt comfortable today saying that we would see a full year of 15 cents. We did see a portion of that here in the first quarter. I would not say it is necessarily linear, but perhaps close. That would be the overall impact and how we are feeling about the business. Alejandro A. Alcala: To add, Matt, on the cost actions that we took, we were able to execute faster than we had originally planned. That creates not only upside for the year, but also more balanced earnings through the year. That said, as some of this backlog with improved pricing reads through, we still expect to see some gradual improvements from the acquisitions as the year progresses. Richard A. Maue: Yes, the only other thing I would add is that we saw a little bit more in the way of volumes being stronger as well, in particular for Druck. Matt J. Summerville: Understood. Thank you for that. Maybe expand on the actionability you are seeing in the M&A pipeline. Can you handicap whether you see more deals getting over the finish line before the end of the year into the early part of 2027? And is the average deal size starting to mount higher, maybe more similar in nature to the size of PSI, as an example? Alejandro A. Alcala: Activity in M&A opportunities continues to be quite strong. There is a lot happening. We are involved in several processes on both segments. It is a range of sizes. We have commented before that our sweet spot is around that $500 million of value, but there are deals smaller than that we are looking at that seem quite interesting as bolt-ons, and there are some deals a little bit bigger than that that also look interesting. It is a bit opportunistic. We will remain disciplined. We will see how the year plays out. As far as activity and focus, there is quite a bit happening. Richard A. Maue: I think that sums it up. From a complexity and bandwidth perspective, everything we are looking at—nothing is going to cause us to hesitate in the way of resource constraints. Matt J. Summerville: Understood. Thank you, guys. Operator: Thank you. We will take our next question from Jeffrey Todd Sprague with Vertical Research. Please go ahead. Your line is open. Jeffrey Todd Sprague: Hey, thanks. Good morning, everyone. I wanted to come back to the comments about aero aftermarket. I completely understand it could fade as the year progresses given what is going on, but it is a little unclear what you are actually doing with your guidance. Are you saying it could be weaker but you can make it up elsewhere, or have you dialed in a decline in aftermarket in the way you have guided the year here? Richard A. Maue: Thanks, Jeff. Maybe a little perspective to start as well. If you remember when we came into the year and initially issued our guidance for commercial aftermarket, we were, I would say, on the lower end of what the rest of the industry was projecting—something like mid-single-digit growth—and we did get a lot of questions back on that. Here we are a quarter later and we see the headwinds in the marketplace, potentially from the Middle East conflict and so forth, and we are basically saying we are going to guide down. So our guidance reflects a down number for commercial aftermarket. Now when you consider what our initial guide was, the move—and you can all do the math—it is not a big number overall. In terms of offset, what we are seeing is a pretty considerable demand increase in military, in particular in spares. Aftermarket was up 28% in the quarter. We have the incremental benefit that comes in the second quarter through the balance of the year in the F-16 brake control upgrade program. So when you step back and look at the overall complexion of our aftermarket and where we are coming from off the first guidance number that we put out in January, we feel highly confident that we are going to offset even in this revised down outlook for commercial aftermarket. Alejandro A. Alcala: If it plays out differently, Jeff—aftermarket demand has been resilient post-COVID, as you know, to higher energy, and travel has been resilient—but if it plays better than our assumption, then that is an opportunity for us, an upside. We felt comfortable assuming a more conservative view because we have the offsets already with line of sight in our backlog. Jeffrey Todd Sprague: Great. Very clear. And then back to PSI: to what degree have you seen the commercial front end of the business change? These are very good businesses but “orphan,” so to speak, inside a larger organization. Are you seeing better order intake or inquiries in some of those businesses than you might have otherwise expected, or is the upside more about pricing and cost actions you already elaborated on? Alejandro A. Alcala: On the commercial side, there have been significant changes in how we operate, which projects we go after, and how we go after them. We are being more successful in winning target projects that are more interesting and more profitable for us, very quickly. Also around our pricing practices—value pricing—those would be the primary areas where we are starting to see differences. We had a six-month period to really prepare and ramp up, and those are the areas we have been able to impact shortly. Now we are starting to work the strategies of longer-term growth which were never baked into our model, and we think there is upside even to the numbers that we talked about as those initiatives develop. Jeffrey Todd Sprague: Maybe just a quick unrelated one: do you have plenty of capacity in your defense businesses for these missile-related ramps, or should we expect some more capacity going in to ride this wave? Alejandro A. Alcala: We have plenty of capacity. Richard and I just did a deep-dive review with the team a few weeks ago. We are very well positioned. I think the pacing item in the industry will be more with the primes. We can significantly outpace the ramp-ups of the manufacturers of the actual missile. We are in pretty good shape there. Jeffrey Todd Sprague: Great. Thank you. Operator: Thank you. We will take our next question from Justin Ian Ages with CJS Securities. Please go ahead. Your line is open. Justin Ian Ages: Hi, good morning all. You mentioned chemicals still sluggish, holding at trough levels, and I just want to know how that fits into the broader commentary you gave about seeing some PFT projects being pushed out. Is that chemical being pushed out, or have those already been pushed out, so no change in the timeline there? Alejandro A. Alcala: The pushouts that we commented on were specific to the Middle East dynamic, and it is really related to the conflict where some of the petrochemical areas or refineries have been shut down temporarily. Some of that activity has pushed out to the right—no cancellations. That is very unique to that region and that conflict. As we started Q2, we started seeing those things begin to move a little bit faster than I thought they would. That said, in our guidance, we did factor in some delays in projects in that region—the Middle East—from a conservative standpoint. If it moves faster, then again it will be a positive for us. More broadly in chemicals, with higher oil prices we expect the Gulf at some point to see some momentum in projects. That will take several quarters. We are starting to see a little bit of MRO activity pick up, particularly in the Americas, which usually precedes project investments later in the year going into next year. Justin Ian Ages: Thanks for that, Alex. And then staying in PFT, you mentioned good performance in cryo. Can you give us some color on the size of that space and the market opportunity there? Alejandro A. Alcala: Our cryo business today is about 4% to 5% of total PFT, but it is growing at mid-teens—15%, 16%, 17%—so it is growing quite fast. It is mainly Americas-based, servicing very high-growth markets like space launch—commercial space launch is increasing significantly. Supporting that launch platform, not on the actual rockets or aircraft but on the launch infrastructure, is where we are seeing a lot of demand. Also supporting general aerospace environmental testing—so as aerospace keeps ramping up, the investments in infrastructure for testing—pharmaceuticals and other areas, semiconductors as well. These are very interesting markets, high growth, and growing at a fast pace. This is an area that has been part of our transformation. We basically went from zero a few years ago to 4% to 5% now, a combination of organic and inorganic actions. Justin Ian Ages: That is great. I appreciate you taking the questions. Operator: Thank you. We will go next to Scott Deuschle with Deutsche Bank. Please go ahead. Your line is open. Scott Deuschle: Hi, good morning. Alex, what are the most PMI-sensitive parts of PFT, and are you seeing any uptick in demand in those PMI-sensitive businesses, or is it more just areas like pharma and cryo and nuclear? Alejandro A. Alcala: Our biggest uptick has been power generation, which is right now driven by the investment in data centers—that is not, I think, PMI-related. Pharma, cryo, wastewater—we did see pretty solid general industrial activity in the quarter. We did not call it out, but it was a little bit stronger than we expected going into the year. Richard A. Maue: Yes, I would say that general industrial portion of the market is where we are seeing a little improvement, Scott. Scott Deuschle: That helps. You have described PFT as being pretty early cycle. If the broader industrial cycle is turning as the PMI data suggests, why would it just be a small benefit to your general industrial business? Alejandro A. Alcala: The activity we saw there was mid-single-digit type growth. In the industrial spaces, that is pretty healthy activity. We will see how things progress, but we were pleased with how it started the year. Scott Deuschle: Okay. And then, Alex, how large is the PAC-3 product line for Crane today? If not material now, could it become material if it grows 200%? Alejandro A. Alcala: We look at the whole missile platform, which is the number I have in my head—it is around that $30 million to $40 million range of microwave and modular power product lines. I would use $30 million to $40 million as the jump-off point, and the projections are from 2x to 4–5x growth from now to 2030. Richard A. Maue: PAC-3 would be towards the top end of the programs. We have maybe 12 or so programs that we are watching closely, and that would be one of the ones at the top, Scott. Scott Deuschle: Thank you. Then, Alex, can you give us a sense as to how much of PFT’s cryo sales are related to the space market, and will that space growth within cryo correlate with SpaceX’s launch cadence over the coming years? Alejandro A. Alcala: On space launch, it is about 35%. If you then include aerospace in general, you are looking more like 45%, and the balance is other industrials like pharma and so forth. The growth does correlate with launch activity, which is increasing—not only SpaceX, but other companies like Blue Origin and so forth. We service, I think, six or seven key customers of ours in that space launch ecosystem, and it is growing in line with the space launch activity. Scott Deuschle: Thank you. Operator: Thank you. We will take our next question from Myles Walton with Wolfe Research. Please go ahead. Your line is open. Myles Walton: Thanks. Good morning. On the commercial aftermarket, are you reducing the outlook because of what you are seeing or because of what you anticipate seeing? Any color as it relates to recent bookings trends—the 11% growth in orders versus the 13% decline in revenue in the quarter would not suggest you are seeing much—so maybe just add color if you are doing this based on what you are seeing or what you anticipate you will see. Alejandro A. Alcala: Historically over the last 15 years, high energy prices pre-COVID and post-COVID are two different stories. Pre-COVID, there was a pretty strong correlation—higher energy prices, higher airfare, lower activity demand. Post-COVID, we saw a big spike in energy prices in 2022 with the Ukraine conflict, and demand was very resilient. There was no slowdown from there. We are not sure what is going to happen. We have not seen any decline—as Richard mentioned, orders were up 11%, and also up sequentially. However, as we look forward and consider the industry’s general concerns, we wanted to think through a range of scenarios that would give us a lot of confidence in our guide. Based on that, we assumed a decline in our guide to have really high confidence. But it could sustain, and that would be upside for us. Richard A. Maue: I think that sums it up. Myles Walton: Relative to the decline, you were thinking mid-single-digit positive before, and now you are conceptually thinking mid-single-digit decline is what you are baking in from a conservative viewpoint. Is that right? Richard A. Maue: Yes, I think that is fair. Myles Walton: Great. And then on PFT core, as you look to the rest of the year given the strong orders in the first quarter, are you able to see the turning to get to low-single-digit positive organic growth for PFT in the second quarter? Alejandro A. Alcala: For the year, we are still expecting flat to low-single-digit. For the quarters, I would think Q2 is maybe a little bit consistent with Q1. Richard A. Maue: Yes, if you are looking just sequentially, think of it as not that different from Q1 into Q2, without having the FX in front of me. That is the way we are thinking about the overall absolute number. Myles Walton: And one last one: what is the downward pressure on margins for the rest of the year versus the 23.2% you did in the first quarter? Richard A. Maue: We mentioned on the call we are starting to see inflation on commodities as well as freight. Earlier in the year, you have a backlog that you are getting through, but just from a timing perspective, we see the opportunity to get more price to offset as we move through the balance of the year and we get through that backlog. That pressure is modest, but something that we are working through, with overall suggesting an increase net to the margins. Alejandro A. Alcala: So for the full year, improved margins versus last year. Richard A. Maue: Yes, we are saying about a half a point improved overall margin profile. If you are comparing the first quarter versus the implied next three quarters, the next three quarters are slightly down versus the first quarter, and that is basically the same answer—it is going to be that inflationary pressure. Myles Walton: Got it. Thank you. Operator: Thank you. We will take our next question from Nathan Hardie Jones with Stifel. Please go ahead. Your line is open. Nathan Hardie Jones: Good morning, everyone. I will do a couple on the acquisitions. Alex, you talked about moving to the strategy deployment phase on the acquisitions. I think you talked a little bit about shifting the focus to growth initiatives. Could you provide a little more color on what that involves for each business? Alejandro A. Alcala: To be clear, Nathan, none of this was baked into our model—it is all upside. For Druck, some of the opportunities we saw were in military/defense. Druck has a good position in Europe and not really any position of note in the United States defense, where our legacy Aerospace and Defense business has strength. We are building strategies to create those synergies and growth. There are various regional differences in penetration and share, also in channel versus direct in Europe and the U.S., that we are working through. For Panametrics, we see more opportunity in the Americas to grow; they have a lower share in the Americas than average, so there is opportunity there in aligning those efforts from a commercial standpoint. For Reuter-Stokes, we have a very strong position in the power generation piece of nuclear, but we also have product lines around other platforms of radiation monitoring and homeland security, so we plan to build on those platforms as well and grow. Those are some of the things we are thinking about from a strategy deployment standpoint. Nathan Hardie Jones: Thanks. My second question is on the value-based pricing that you are already beginning to realize. I know some of these businesses have longer-term contracts. Maybe talk a little bit about where you are seeing value-based pricing, where you will see it in the future, and any color you can give us around that. Alejandro A. Alcala: The longer-term contracts are probably less than you would think. For Druck, about 30% of the business is on longer-term contracts, so there are a lot of areas where we can move more quickly. For the Reuter-Stokes part of the business, it is about 40%. Some of these are naturally coming up and being renegotiated. For Panametrics, the longer-term contract exposure is very low. All in all, there are a lot of opportunities within the year, and then as we continue to work the longer-term contracts. We are very confident in our ability to keep improving these margins through the year and going into next year. Nathan Hardie Jones: Thanks very much for taking the questions. Operator: Thank you. We will take our next question from Ronald Epstein with Bank of America. Please go ahead. Your line is open. Jordan J Lyonnais: Hey, good morning. This is Jordan Lyonnais on for Ron. Thanks for taking the question. On the balance of the year for commercial aero, if we are going to see aftermarket decline in the guide, how should we be thinking about margins for the segment? And for PFT, are you factoring in or do you have any concerns on the new tariffs that are going through on raw materials? Richard A. Maue: Good question. On margins overall, when you look at that mix differential, I would step back and say our portfolio in Aerospace and Advanced Technologies—when we say commercial OE, we make money on commercial OE. Our model, as you know, is different from others in the industry. So when we do mix up and down, yes, there is some impact, but not as drastic as maybe in other companies. Specific to the commercial aftermarket coming down in our guidance, when we look at what we are seeing in military moving in the opposite direction, the margin profiles are not that far off, frankly—they are quite similar. So that mix change is not going to be as significant, if at all, from a margin pressure point of view. In PFT with respect to tariffs, I would say the overall tariff change has not been all that material to us so far in the year or for the year. The one area I would point to is with the refund process—to the extent that we are successful there, we will of course call that out in the balance of the year, but none of that is factored into our guidance. No upside is factored into our guidance. Jordan J Lyonnais: Got it. Thank you. Operator: Thank you. This concludes the Q&A portion of today’s call. I would now like to turn the floor back over to Alejandro A. Alcala for closing remarks. Alejandro A. Alcala: Thank you all for joining us today. Over the past 13 years, Crane Company has undergone a meaningful transformation—reshaping the portfolio, significantly improving margins and growth, and delivering strong shareholder value under Max’s leadership. That foundation positions us exceptionally well for what comes next. This transition is not a change in direction; it is the next phase of the same journey. It is about acceleration of profitable growth. Looking ahead, I am more excited than ever about Crane Company’s future and the opportunity to continue delivering for our customers, our communities, and our shareholders. We will remain focused on executing our strategy, leveraging the Crane Business System to drive strong organic growth while continuing to pursue our disciplined approach to accelerating inorganic growth. I have had the privilege of working alongside an extraordinary team across the globe, and I am energized by the path ahead. With this team, this strategy, and this portfolio, I am confident that the best chapters of Crane Company are still in front of us. Thank you all for your interest in Crane Company and your time and attention this morning. Have a great day. Operator: Thank you. This concludes today’s Crane Company First Quarter 2026 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.
Operator: Greetings, and welcome to the Brixmor Property Group Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacy Slater, Executive Vice President and Investor Relations. Thank you. You may begin. Stacy Slater: Thank you, operator, and thank you all for joining Brixmor Property Group Inc.'s first quarter conference call. With me on the call today are Brian T. Finnegan, CEO and President, and Steven T. Gallagher, Chief Financial Officer. Mark T. Horgan, Executive Vice President and Chief Investment Officer, will also be available for Q&A. Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties, as described in our SEC filings, and actual future results may differ materially. We assume no obligation to update any forward-looking statements. Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website. Given the number of participants on the call, we kindly ask that you limit your questions to one per person; if you have additional questions, please re-queue. At this time, it is my pleasure to introduce Brian T. Finnegan. Brian T. Finnegan: Thank you, Stacy, good morning, everyone. I am pleased to report on another quarter of outstanding results by the Brixmor Property Group Inc. team as we continued to execute across all facets of our business plan to start the year. We grew same property NOI 6.4% over last year and delivered $0.58 per share in FFO, results that demonstrate the momentum that is accelerating across the platform which is also reflected in our improved outlook for the year. These results continue to differentiate Brixmor Property Group Inc. in what remains a positive backdrop for open-air, grocery-anchored retail. Before providing additional detail on Brixmor Property Group Inc.'s strong start to the year, I want to share a few thoughts on the broader environment and how Brixmor Property Group Inc. is positioned within it. We are operating in a period of heightened uncertainty. Geopolitical tensions and capital markets volatility are real, and we are monitoring them. That said, the fundamentals for our property type remain exceptionally strong. Consumer traffic at our centers continues to grow, with over 220 million visits in the first quarter, up over 3.5% year over year. New supply remains at historic lows, and demand from high-quality retailers for well-located space is as strong as we have seen, as physical stores remain the most cost-effective way to deliver goods to the consumer. These secular tailwinds are attracting institutional capital into our sector at the highest pace in decades. Within this environment, Brixmor Property Group Inc. stands apart. We have meaningful embedded upside across our portfolio, enabling us to continue to deliver on industry-leading mark-to-market opportunities. Our reinvestment and signed-but-not-commenced pipelines provide exceptional visibility into future cash flow growth. The underlying credit quality of our tenant base is the strongest in our company's history, and we have the talent and experience to continue to deliver for our stakeholders. Now let us turn to our results for the quarter, which highlight the operating strength in our business. Leasing demand from best-in-class tenants remains elevated. We executed 1.3 million square feet of new and renewal leases at a blended cash spread of 27%, with new lease spreads at 42% and record renewal growth of 21%. Our team is capitalizing on strong tenant demand, as well as the investments we have made across the portfolio to elevate the quality of our tenant mix. During the quarter, we added first-to-portfolio locations with Pottery Barn, Williams-Sonoma, L.L.Bean, Rowan, and Teso Life, while continuing to grow with leading operators across the off-price, health and wellness, and quick service restaurant segments. From an occupancy perspective, total leased occupancy ended the quarter at 95.1%, flat sequentially and up 100 basis points year over year, while small shop occupancy was 92.1%, up 130 basis points year over year, underscoring sustained demand for space. We are still well below peak occupancy expectations for the portfolio, which represents meaningful future upside. And while we do expect overall occupancy headwinds in the second quarter due to a handful of anticipated box recaptures, we expect to return to a growth trajectory in the second half of the year. Our leasing activity during the quarter also increased our signed-but-not-commenced pipeline to $67 million, up 10% year over year. Accretive reinvestment remains central to our strategy, and we were active in the first quarter. We stabilized $78 million of projects at a 9% average incremental return. This included two transformational projects: the opening of our first large-format Target at Wynnewood Village in South Dallas, Texas, and phase one of Block 59 in suburban Chicago. Both have been exceptionally well received in their respective markets and demonstrate our team's ability to execute large-scale projects that generate meaningful value creation and growth, with future phases still to come at both locations. We also commenced phase three of our Roosevelt Mall redevelopment in Philadelphia, further densifying the site with exceptional operators like Ulta, Shake Shack, and Victoria's Secret. We continue to make meaningful progress on our outparcel development program, adding a record six new projects at an attractive 16% incremental return. This has been and will continue to be a compelling area of focus, as demand is deep, returns are strong, and the program is highly complementary to our merchandising strategy. In addition, the communities that we serve are increasingly supportive of these projects as they share our desire to convert large, underutilized parking fields into thriving retail and restaurant destinations. At quarter end, our active reinvestment pipeline stood at $[inaudible] with a 10% average incremental return, with another $700 million in our future pipeline, including opportunities at assets we acquired over the last two years. The depth of this pipeline continues to differentiate Brixmor Property Group Inc., providing many years of runway for accretive reinvestment. On the transaction front, the market has been competitive and dynamic. Increasing demand for open-air retail allowed Mark and team to dispose of $108 million of assets where value had been maximized. And while we did not acquire any assets during the quarter, we continue to identify compelling opportunities to put our platform to work, with over $160 million of assets under control in high-growth markets where we have a strong presence and a deep pipeline of additional opportunities we are currently underwriting. To support our capital recycling strategy, we raised $116 million through our forward ATM, which provides flexibility as we execute. We will remain disciplined in our approach to capital allocation, focused on acquiring assets where our platform can create value and that are accretive to our long-term growth profile. Before I turn it over to Steve, I want to take a moment to thank the entire Brixmor Property Group Inc. team. The results we delivered this quarter and the acceleration of our business plan are a direct reflection of your focus, discipline, and commitment to this company. I am incredibly proud of this team and grateful for the energy and thoughtfulness you bring every single day. With that, I will turn the call over to Steve for a deeper review of our financial results and improved 2026 outlook. Steven T. Gallagher: Thanks, Brian. I am pleased to report solid first quarter results and an improved forward outlook as we continue to capitalize on the strength of the current retail environment and the embedded opportunity within the Brixmor Property Group Inc. portfolio. First quarter same property NOI increased 6.4%, supported by a 410 basis point contribution from base rent growth due to the stacking of rent commencements. [inaudible] and other income contributed an additional 120 basis points, driven in part by the [inaudible] Orlando garage restructure discussed last year. While these dollars are recurring, the year-over-year benefit to same property NOI growth is limited to the first quarter, as the garage contribution began in the second quarter of last year. Revenues deemed uncollectible contributed 30 basis points to growth as we continue to benefit from the improving underlying credit quality of the portfolio. NAREIT FFO was $0.58 per share in the first quarter, benefiting from the strong same property NOI performance. Our signed-but-not-yet-commenced pipeline ended the quarter at $67 million at a record $24 per square foot, 25% above in-place ABR per square foot, and ended the period with a 370 basis point spread between leased and billed occupancy. We anticipate approximately $38 million of that signed-but-not-commenced ABR to commence ratably throughout 2026. Turning to our forward outlook, we increased our same property NOI growth guidance to 4.75% to 5.5% and our FFO guidance to $2.34 to $2.37 per share. We expect base rent contribution to growth will accelerate as the year progresses, and we continue to expect revenues deemed uncollectible of 75 to 100 basis points of total revenues, supported by ongoing positive trends in rent collections. The increase in our FFO guidance reflects the strength and visibility of our same property NOI trajectory. From a balance sheet perspective, we took advantage of our improved cost of capital and proactively raised $115 million of equity under our at-the-market equity program on a forward basis to partially fund our growing acquisition pipeline. As we look to our upcoming bond maturity in June, we proactively entered into a $100 million interest rate hedge at 3.99%, providing us protection against recent volatility in the Treasury markets. We ended the period with $1.8 billion of available liquidity, including $425 million in cash, $115 million of unsettled forward ATM proceeds, and $1.25 billion in capacity under our revolving credit facility, leaving us well positioned with flexibility to execute under our business plan. Debt to EBITDA is 5.3 times, as the continued growth in free cash flow of the underlying portfolio has allowed us to naturally deleverage while funding accretive redevelopment and acquisition pipelines. Our first quarter results demonstrate strong fundamentals, sustained leasing momentum, and solid visibility into future earnings. With same property NOI and FFO growth expected to be approximately 5% at the midpoint of our revised guidance, supported by meaningful embedded growth and a flexible balance sheet, we are well positioned to execute and drive long-term value. I will now turn the call over to the operator for Q&A. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. As a reminder, we ask analysts to limit themselves to one question and to re-queue for a follow-up so that other analysts have an opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from Michael Anderson Griffin with Evercore ISI. Please proceed with your question. Michael Anderson Griffin: Great. Thanks. Brian, appreciate your commentary there on the prepared remarks. Curious if you could quantify the expected headwind to occupancy in the second quarter that you detailed? And then maybe as it relates to the SNOC commencement, Steve, I know you mentioned about $38 million coming on ratably throughout the balance of the year. If that delta between signed and occupied was 370 basis points in the first quarter, how do you expect that to progress throughout the balance of the year? Brian T. Finnegan: Mike, thanks for the question. Just on the first part related to occupancy, we are highlighting it because it may impact the growth trajectory throughout the year. It is not always linear. Those boxes are within our improved guidance range and outlook. There is opportunity there for mark-to-market. We knew we were getting them back. We do expect to get back on a path to growth. Overall, we are very pleased with the portfolio. We are well below peak occupancy, so it is a handful of boxes. We expect it to be modest, but ultimately expect to be able to put better tenants in at much higher rents. Steven T. Gallagher: And on the commencement side of the SNOC pipeline, we do expect it to commence ratably. Importantly, the entire team is really focused on backfilling that pipeline. As we continue to backfill and commence rent out of that pipeline, you might see a wider delta for the remainder of the year, as there are some really impactful leases within that SNOC pipeline that are coming on in 2027. One of our largest pipelines we have had with Publix is in that longer-term portion within the SNOC pipeline. Operator: Thank you. Our next question comes from Michael Goldsmith with UBS. Please proceed with your question. Michael Goldsmith: Good morning. Thanks for taking my question. Can you talk a little bit about the acquisition environment? What are the opportunities you are seeing, if you are seeing any, and if that is influencing pricing? Clearly, you disposed of some stuff in the quarter and you tapped the ATM, so you have the liquidity to participate, but just a sense of the opportunities that you could use this capital on. Thanks. Brian T. Finnegan: Michael, I would just say, as I mentioned, it has been competitive, but we also like what we are seeing out there. Mark, why do you not give more detail on that? Mark T. Horgan: As Brian highlighted in his remarks, we are certainly seeing new capital come into the space, which I think is a real reflection of the healthy fundamentals that everyone is seeing, and a good signal for future growth in the overall business in open-air retail. From a competitive market perspective, that new capital is certainly compressing cap rates across all asset types. You are seeing compression on smaller grocery-anchored deals and smaller unanchored deals. We are also seeing the return of some really low-priced capital chasing high-profile deals, which has pushed some deals into the high 4s in certain cases. From a Brixmor Property Group Inc. perspective, we have been at this acquisition game for a long time. We have developed lots of relationships. As we think about sourcing acquisitions, part of it is through brokers, like it has been for many years, and the other half really has been direct deals. That is how we compete. We really try to have a good and intentional way of thinking about assets that work for Brixmor Property Group Inc. You should expect us on the transaction front to always remain disciplined. If you look at last year, we did not close any acquisitions in the first couple of quarters. We closed $420 million in the second half of the year. We really try to drive this business for long-term cash flow and value growth. We are excited about what we see in this $160 million we have under control, and importantly, we see a really healthy pipeline of assets behind that. We are going to continue to find those assets where we can really put our platform to work and drive strong rent mark-to-market, redevelopment opportunities, and drive those unlevered IRRs in the 9% to 10% range. We are really bullish about what we are seeing in the acquisition market today, but expect us to remain disciplined once we put capital out. Brian T. Finnegan: And, Michael, I would just add, we have been thrilled with how the team is executing on what we bought. We are ahead of our underwriting on the $400 million that we bought last year. That gives us a lot of conviction as we are out there in the market in terms of being able to drive a growth profile that is accretive to the growth profile of the company and in line with what we have been doing. We are excited about that. Michael Goldsmith: Excellent color here, guys. Thanks. Good luck in the second quarter. Operator: Our next question comes from Alexander David Goldfarb with Piper Sandler. Please proceed with your question. Alexander David Goldfarb: Hey, good morning. Big picture: we have had massive inflation since COVID the past few years, which fortunately seems to be subsiding, but now we have spiking energy prices. Yet you do not seem to talk about any slowdown in tenant leasing. You talked about consumer traffic being up, I think, 3% year over year. Is it just that the consumer and the retailers are basically impenetrable from price shock? How do we sort of manifest this, especially as your portfolio is sort of middle market? It is not like you are super high end. You are middle market. Trying to get a better sense for how the consumer and the retailers seem to be stomaching it when the headlines would suggest otherwise? Brian T. Finnegan: Alex, it is a great question. I would say consumers are adapting versus collapsing. Across the income spectrum, you are seeing consumers look for value. That helps our grocers and our off-price retailers. There is a higher percentage of share going to health and wellness; that helps our fitness operators and our higher-quality restaurant options. You are still seeing some positive trends in the economy: there is still decent wage growth and a strong job market. We have been pleased with traffic trends. Interestingly, from a leasing perspective, two-thirds of our leasing during the quarter happened after the conflict started. Retailers today have been nimble and have been catering to what the consumers want. Another point is retailers have more data today than they ever have on their consumer—understanding what is selling within the stores, what is getting delivered from the stores, and how that fits within an omnichannel strategy. They are better positioned to adapt to different consumer trends. We are encouraged. It is something that we are watching very closely. We do not see any delinquencies picking up in our small shop tenancies. You can see that coming through in the bad debt numbers for the quarter. We will continue to watch, but have been encouraged by the trends so far. Operator: Our next question comes from Todd Michael Thomas with KeyBanc Capital Markets. Please proceed with your question. Todd Michael Thomas: Yes. Hi. Thanks. Good morning. I just wanted to ask about the equity issuance in the quarter and that decision. Can you speak about your interest level to issue additional equity at these prices, how you are thinking about funding obligations in general, and whether you might look to over-equitize acquisitions here a bit to perhaps drive down leverage more meaningfully than you had previously? Brian T. Finnegan: Todd, I will take the first part and maybe Steve can chime in. We saw a window during the first quarter, with the acquisition pipeline growing, to utilize the ATM on a forward basis. It is very similar to what we did in 2024 to help fund acquisitions. We are going to remain very disciplined with our equity. We recognize that it is precious. We saw an opportunity, so we took it during the first quarter, and we are pleased with what we are seeing in the acquisition market. Steven T. Gallagher: These are long-term assets, and we think about our balance sheet over the long term. While the match funding might not always occur in the quarter, we are really thinking about long-term funding of our business. Importantly, what you have seen in our leverage level is that we have been able to naturally delever through the growth that is coming through in the portfolio without having to issue equity. At 5.3 times levered, we feel really comfortable where we are today. Operator: Our next question comes from Haendel St. Juste with Mizuho Securities. Please proceed with your question. Haendel St. Juste: Hey there. Thanks for taking my question. My question is on the leasing CapEx. A bit of a jump in the quarter—I think it is up 30% year over year. I am assuming that is tied to the recent backfillings and why the anchor and release spreads are up 90%. Can you add some color on what is driving this, and should we expect the leasing CapEx figure to stay elevated near term given the size of the SNOC pipeline? Thanks. Brian T. Finnegan: Haendel, we remain pleased with the overall CapEx trends in the portfolio. I think that was the nature of the pool this quarter. If you looked at overall CapEx, it was down versus the fourth quarter of last year. We expect CapEx as a percentage of NOI to be in line with where we were a year ago, which were decade lows for this portfolio. All the things that we have been talking about relative to demand for space and tenants taking on more existing conditions have allowed us to be more efficient with that leasing capital spend. We did lease a lot of space last year, so there are some costs associated with that, but we are filling those boxes much more efficiently. Our payback trends remain at decade lows for the portfolio as well. Maintenance CapEx will continue to be at a level we were at a year ago, which again was the lowest for the portfolio. We feel very well positioned in terms of what we are seeing from those CapEx trends, and what you saw during the quarter was just the nature of how some of the deals came through. Operator: Our next question comes from Greg Michael McGinniss with Scotiabank. Please proceed with your question. Greg Michael McGinniss: I appreciate the color so far on the acquisition market, but I am curious what type of buyer you are running into on the competition side and also who tends to be acquiring your assets and at what cap rates. And then was the comment on high-4% cap rates related to types of assets that you would be interested in acquiring, or is that just a high watermark that you have seen in the market? Mark T. Horgan: The high-4% comment is really just a high watermark you are seeing from some of the lower-priced capital coming in for high-profile deals. Our strategy is going to remain finding assets where we can drive long-term IRR growth in that 9% to 10% range. With respect to buyers, you have seen a full range of buyers. You have seen private equity funds come in, the rise of high net worth buyers purchasing assets, and smaller private equity funds coming to the forefront. The broad trend is that a lot of private capital is saying the cash flow generation out of open-air retail is very attractive relative to other asset types today. They are coming into the space, seeing very strong fundamentals that Brian has been talking about, and they like access to this cash flow level. We are competing with this full set of folks when we are trying to buy assets, and we are selling assets to that same group. Where it comes back to for Brixmor Property Group Inc. is our operating platform. We try to find those assets where we can put the platform to work to drive value. Greg Michael McGinniss: Mhmm. Okay. Thank you. Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question. Caitlin Burrows: Hi. Good morning, everyone. Maybe just on the same-store NOI growth side, I know you gave some comments about a unique factor that drove especially strong results in the first quarter. You mentioned a potential expected occupancy dip in the second quarter. Could you go through what it would take to get you to the low versus high end of the same-store NOI guidance range now? Steven T. Gallagher: Importantly, when you look at the trajectory of same property NOI growth, focusing on that top-line base rent, that has been accelerating since the middle of last year, and we expect that to continue throughout the remainder of this year. When you think about the highs and lows and the puts and takes, it is similar to most quarters. The team works every day to get rent commencing sooner—pulling those rent commencement dates forward—continuing to lease additional space and getting them open within the year. Then ultimately, what will happen on the bad debt side: we have seen some positive trends. We still think 75 to 100 basis points is appropriate where we sit at this point in the year. Those are really the puts and takes to the high and the low within that range. Brian T. Finnegan: And, Caitlin, just because you mentioned occupancy again, to reiterate, we expect that impact to be fairly modest. We get the question on trajectory a lot. We are expecting to be back on a path to growth towards the end of the year. What we leased in the first quarter was ahead of where we were last year. Our deal flow into committee is ahead of where we were, both in rent and square footage. We remain very excited by what we are seeing in the leasing environment. It is just not always linear in terms of the growth trajectory as it relates to occupancy. Caitlin Burrows: Thanks. Operator: Our next question comes from Cooper R. Clark with Wells Fargo. Please proceed with your question. Cooper R. Clark: Great. Thanks for taking the question, and I appreciate the earlier comments on the acquisition pipeline. I just wanted to touch on the transaction market and was curious if you could provide any incremental color in terms of liquidity today. It seems like higher demand for the sector is being met with an ample amount of product coming to the market. Also, any color on some of the product where you might be seeing better opportunities, whether on the large format side or value-add? Brian T. Finnegan: Let me start, and I will give it to Mark for more detail. What you are seeing from institutions and the demand for the space is because of all the great things that are happening. We are in a very low supply environment. Traffic continues to grow at our shopping centers. The consumer remains resilient. Our retailers are performing, and there continues to be upside in the asset class. That is why you are seeing so much demand from a wide range of capital sources. Mark T. Horgan: I will just reiterate what Brian said. It has been a big change over the last several years with the amount of capital flowing in. There is plenty of liquidity for us today. As far as where we are seeing opportunities, it is the same type we have been trying to take advantage of for a long time: assets that are under-rented, where there is large rent mark-to-market and redevelopment opportunities. That will not change as we look to place capital. We want to find ways to put our platform to work and drive long-term value and cash flow. Cooper R. Clark: Great. Thank you. Operator: Our next question comes from Craig Allen Mailman with Citi. Please proceed with your question. Craig Allen Mailman: Just to the acquisition side of things, as we think about the equity being put to work, how should we view the going-in yields versus that longer-term 9% to 10% IRR? And then also, on the other side of Todd’s earlier question about over-equitizing, how do you think about competing with the private guys that are using more debt, given the stability of the asset class, while you and your public peers are driving leverage down at the same time? It kind of puts you at a competitive disadvantage on the margin. How do you think about the use of equity here versus even expanding leverage a bit on the margin? Brian T. Finnegan: Craig, let me start. We are spending a bunch of time on acquisitions and we are pleased with what we are seeing in the market, but let us not forget, our core business strategy is to accretively reinvest in the portfolio. We had a fantastic quarter on the redevelopment front. The pipeline continues to be very large. Our team is demonstrating the ability to deliver larger projects at scale. You are seeing those come through. We have been pleased with what we are seeing in the acquisition market and will continue to be opportunistic there, but it is secondary to what we do. We can remain disciplined. We do not have to buy to drive growth. Mark T. Horgan: On how we are competing with private capital, they are seeking simpler, more stabilized deals. We are trying to find assets where we can put our platform to work for future redevelopment, like the Brittni Plaza platform from a couple of years ago. The private folks are not really seeking that type of opportunity today. On going-in yields versus IRR, we underwrite to drive that 9% to 10% unlevered IRR over time through mark-to-market and redevelopment, so the going-in yield can be lower with clear, actionable value-creation levers. Steven T. Gallagher: On the balance sheet side, with the equity issuance, we look at all sources of capital available to us. We were a net acquirer last year and did not issue any equity. It is about the long-term financing of the business and providing us with the flexibility to execute under the business plan. The redevelopment pipeline is still funded with free cash flow on a leverage-neutral basis, so where we are issuing equity is generally going to be additive to what we can do in the transaction market. Operator: Our next question comes from Samir Upadhyay Khanal with Bank of America. Please proceed with your question. Samir Upadhyay Khanal: Good morning, everybody. Brian, maybe talk about bad debt and how that is tracking year to date and how that compares to your guidance of, I think you said, 75 to 100 basis points. It sounds like you are tracking better from your comments, but you left the guide unchanged from that perspective. Any categories driving that conservatism? Thanks. Brian T. Finnegan: Steve can touch on the guide, but this is the best underlying credit profile this portfolio has ever seen. Move-outs were at historic lows for the portfolio last year and are down 10% from a GLA perspective thus far year to date. If you include the bankruptcies, that is just normal course move-outs; include the bankruptcies last year and they are cut in half. From a payment trend perspective, all the things that we have been doing to attract higher-quality tenants and the stringent underwriting standards that Steve’s team has in place, working with our leasing team, have positioned us very well. Looking out over the balance of the year, we feel adequately provisioned, and we feel very confident in the quality of the cash flows in the portfolio today. From a category perspective, drugstores are going to continue to close stores. It is a very low percentage of what we do—it is about 80 basis points. We cut our office supply exposure in half; they are going to close stores, and we leased a number of those boxes to off-price uses over the last few quarters at significant spreads. Even within categories that may be on a “watch list,” we have very low exposure. In restaurants, two-thirds of our exposure is from national and regional tenants. Our top restaurants are Starbucks, Chipotle, and Darden. We feel really good about the nature of that tenancy as well. Taken as a whole, this is the best position we have ever been in from a credit quality perspective. Steven T. Gallagher: We were at 54 basis points of total revenues within the quarter. If you look back over the last several years, there is a little bit of seasonality on when we report that, based on the collection mainly of real estate tax bills for large cash-basis tenants. So when you are looking at the quarter, it is not always a straight trajectory. We have commented on that in previous years. Saying all of that, we agree with everything Brian said. We are still seeing a lot of positive trends in collection, and that is where the 54 will sort of balance out at some point, all things considered. Operator: Our next question comes from Analyst with BMO Capital Markets. Please proceed with your question. Analyst: Hey. Thanks. Good morning, everyone. I appreciate the comments around the positive foot traffic seen to start the year, but I was just curious if you could update us on tenant OCRs, and are there any parts of the tenant base where OCRs are improving or deteriorating? Thank you. Brian T. Finnegan: From an occupancy cost perspective, tenant sales remain very healthy. You saw that come through in the percentage rent line item this quarter. We have actually seen some wins on the audit front as well. For a lot of our tenants that pay percentage rent—whether that is grocers or restaurants—we continue to see those numbers stick, and they are elevated a bit this year. Across the board, as we look at occupancy costs and assess those from a renewal perspective, we have renewals at record rates for the portfolio at 21%. Retailers and operators are not paying that unless their stores are profitable. We are seeing positivity across the board. This is still the most profitable way to deliver goods to the consumer, and retailers are getting smarter about how they are stocking their stores and managing inventory levels, which ultimately makes those stores more productive. From an occupancy cost and overall sales trend perspective, we are encouraged by what we see. Operator: Our next question comes from Floris van Dijkum with Ladenburg Thalmann. Please proceed with your question. Floris van Dijkum: Hey, thanks, guys. You had really strong ABR growth again this quarter. Could you maybe talk a little bit about the differential in ABR between renovated portfolios and non-renovated portfolios and where the future upside potentially could come from in terms of ABR growth? Brian T. Finnegan: Floris, it is fairly broad-based in terms of what we have been seeing, both in assets where we have reinvested and across the portfolio. In projects where we have been able to bring grocers in or significantly change out what was there previously, you are going to see a higher upside. We are now three years running of renewal growth in the mid-teens. We just hit a high for the portfolio. We have taken rents from $12.50 to over $19. We are signing new leases today in the mid-$20s. Our anchor rents over the last year were a record at over $17, and we have leases expiring that we control over the next year at $10. We have been doing that more efficiently with less capital. We can point to box opportunities where they have been straight backfills and we have doubled or tripled the rent, and we can also point to places where we have made reinvestments and continue to see the benefit. Look at a reinvestment project like Newtown in suburban Philadelphia, which we stabilized several years ago—we are still achieving the highest rents that we ever have in that center, and that was not part of our initial underwriting. It is tough to perfectly differentiate between the two, and we can get back to you with specific numbers, but the upside has been fairly broad-based. Steven T. Gallagher: And to add to Brian’s point with Newtown, it is also about the amount of properties we have touched at this point. There is a wider range that we have touched, getting that growth flywheel effect across a larger percentage of the portfolio. It is about 25% higher in in-place rents on the assets that we redeveloped versus the broader in-place portfolio. Floris van Dijkum: Thanks, Steve. Appreciate that. Brian T. Finnegan: Thanks, Floris. Operator: As a reminder, if you would like to ask a question, please press 1 on your telephone keypad. Our next question comes from Hong Zhang with JPMorgan. Please proceed with your question. Hong Zhang: As it relates to the expected box move-outs this quarter, can you provide any color on whether you have tenants lined up, what the expected downtime is, and anything on the expected rent spread on re-leasing? Brian T. Finnegan: This is why I said it should be modest in terms of what we are seeing. We do have leases out on several of those spaces; a few of them we are putting grocers in at significantly higher spreads. I would point to the fact that overall, our in-place anchor rents are in the low double digits. We have been signing them at records for the portfolio. This is the tightest box supply environment across the country, among the tightest that we have ever had, with additional occupancy upside. It is just the nature of when we get those leases signed, but we are very pleased with the activity, the tenants we are negotiating with, and the rents we are going to be able to achieve as well. Hong Zhang: Got it. Thank you. Brian T. Finnegan: You got it. Thanks. Operator: We have reached the end of our question-and-answer session. There are no further questions at this time. I would now like to turn the floor back over to Stacy Slater for closing comments. Stacy Slater: Thanks, everyone. We will catch up with you soon. Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to the Pentair plc First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to Shelly Hubbard, Vice President of Investor Relations. Ma'am, please go ahead. Shelly Hubbard: Thank you, Operator, and welcome to Pentair plc's first quarter 2026 earnings conference call. On the call with me are John L. Stauch, our President and Chief Executive Officer, and Nick Brazos, our Chief Financial Officer. On today's call, we will provide details on our first quarter performance as outlined in this morning's press release. On the Pentair plc Investor Relations website, you can find our earnings release and slide deck which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's performance and the impact these items and events have on the financial results. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements which are predictions, projections, or other statements about future events. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Pentair plc. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-Ks. Please note that during the presentation today, we will be making references to record financial results. These references reflect the time period post the nVent separation in 2018, unless noted otherwise. Following our prepared remarks, we will open the call up for questions. Please limit your questions to two and reenter the queue to allow everyone an opportunity to participate. I will now turn the call over to John. John L. Stauch: Let us start with our long-term strategy on slide four. At our Investor Day in March, we outlined our long-term strategy, growth initiatives, favorable secular trends, innovation pipeline, and our financial growth outlook. We are very excited about the next level of growth and profitability that we expect will build upon the structural improvements we have made to our operating model over the last several years to drive more durable financial performance during economic cycles. We believe our balanced water portfolio is uniquely positioned to drive superior value across our Move, Improve, and Enjoy water segments. We are focused on accelerating growth through innovation and elite customer experiences. We expect to continue to see strong execution drive profitable growth and accelerate operational efficiencies over the next few years. And our strong cash flow and ROIC provide flexibility for enhanced value creation. Let us move to the executive summary on slide five. In Q1, we delivered another solid quarter supported by disciplined execution and continued focus on our Pentair plc Business System tools. Sales increased 3%. Adjusted operating income increased 7%. ROS expanded by 100 basis points to 25%, our sixteenth consecutive quarter of margin expansion, and adjusted EPS rose double digits to $1.22. Flow delivered strong financial and operational performance in the quarter, and Water Solutions and Pool also contributed to core sales growth and margin expansion. Our strategy, supported by our Pentair plc Business System tools, including transformation processes inclusive of 80/20, continues to guide our execution across the company. At our Investor Day in March, we introduced new long-term financial targets through 2028. Reflecting our confidence in our value creation model, we repurchased $200 million of outstanding shares in the open market during Q1. We also achieved Dividend King status, marking our fiftieth consecutive year of higher dividends. We continue to see a range of underlying demand drivers, including aging U.S. infrastructure, population growth in Sunbelt states, evolving customer demand in beverage, premiumization in food service with an emphasis on reliability and serviceability, and growth in the aftermarket. We also had several key wins in Q1: sales growth with our top customers, QuadOne, strong productivity driven by the Pentair plc Business System, a solid innovation pipeline across our segments, and continued execution against our strategy. Our 2026 outlook reflects our current expectations and continued confidence in our business model and the resilience of our end markets. We plan to continue investing in digital and AI-enabled solutions, strengthening our portfolio, and returning capital to shareholders while advancing our efforts in sustainable water technologies. For full year 2026, we narrowed our adjusted EPS guidance range to $5.30 to $5.40, raising the low end by $0.05 versus our initial outlook. At the midpoint, this represents 9% growth year over year. We remain focused as we navigate macro volatility and the broader operating environment. We are watching housing and related markets closely along with the pace of nonresidential investment, and we remain focused on prudent pricing, productivity, and execution to manage through the environment. Now let us turn to our strategic actions driving performance on slide six. We are off to a solid start in 2026, with Q1 performance supported by targeted growth initiatives, strong productivity execution, and disciplined delivery across our water portfolio. Q1 also reflected strong segment income and return on sales performance across all three segments. We delivered 3% sales growth despite ongoing headwinds in the residential markets, driven by execution on our growth initiatives. We are investing in technology and capabilities to expand Pool's total addressable market, accelerate growth in commercial buildings and data center infrastructure, and support U.S. water infrastructure needs. We have also strengthened digital capabilities and leveraged our global technology and R&D resources across the portfolio. And we continue to maintain a strong balance sheet and a disciplined capital deployment strategy. Before I turn it over to Nick, I want to thank Jerome Pedretti for 20 years of outstanding leadership. Throughout his career, Jerome has delivered superior results in all of the roles he has held. He has taken on difficult challenges, and has always optimized the businesses and engaged employees in the Pentair plc way. I and the ELT will personally miss his passionate debates with me and, of course, his enthusiasm for French and Italian food and wines. I also want to thank Shelly Hubbard for over three years of superior and professional engagement with shareholders. She has elevated our investor outreach and discussions, and we wish her well in her new role. Shelly has accepted a new position as VP of Investor Relations for a much larger company that helps her to further her development and broaden her experience. An announcement regarding Shelly will be issued by her new company in the near future. Shelly will continue with Pentair plc through May 1. We are using this opportunity to rotate Jeff Thompson, the CFO of our Flow and Water Solutions segments, into the Investor Relations role, and we are confident that Jeff will learn quickly and be able to share unique insights regarding our PBS playbook and business positioning. With that, I will turn it over to Nick to walk through our financial results and our 2026 guidance in more detail. Nick? Nick Brazos: Thank you, John, and good morning, everyone. Let us start on slide seven. We delivered a first-quarter record for Pentair plc sales and adjusted operating income. Additionally, we enhanced return on sales across each of our three segments. In Q1, we reported sales of over $1 billion, up 3%; adjusted operating income of $259 million, up 7%; return on sales of 25%, an increase of 100 basis points; and adjusted earnings per share of $1.22, up 10% to 11% year over year. Core sales were up, driven by a 2% increase in Flow, and a 1% increase in both Water Solutions and Pool. Moving to adjusted operating income, driven by our long-term plan, our Pentair plc Business System, and our targeted ongoing structural cost improvement actions, we achieved 100 basis points of margin expansion in Q1. Price offset inflation and we delivered net productivity of $21 million while continuing to invest in targeted growth initiatives and our innovation pipeline. Please turn to slide eight. Flow sales were up 11% year over year to $258 million, driven by our HydroStop acquisition, growth in QuadOne accounts, a focus on growing flow control equipment and aftermarket sales for the aging U.S. water infrastructure, data centers, and other commercial buildings. As a reminder, last quarter, we announced that we have strategically combined our Flow residential business and our residential business within Water Solutions beginning Q1 2026. Additionally, our long-range plan as communicated in Q1 aims to deliver mid single-digit growth within our Flow segment, with margin and income expansion driven by structural cost improvements and a focus on growth within our QuadOne customers. Segment income grew 22% and return on sales expanded 210 basis points to 23.7%, driven by strong sales growth, which, as mentioned, includes the acquisition of HydroStop in Q3 last year. Finally, price offset inflation. Please turn to slide nine. In Q1, Water Solutions sales declined 1% to $391 million, driven primarily by our targeted portfolio shaping and exit of the commercial services business in 2025. The pro channel grew mid teens during the quarter, reflecting gains supported by our decision to combine the residential Flow and residential Water Solutions businesses to both drive structural cost improvements and bring targeted QuadOne channel synergies to our pro channel. We continue to drive ongoing structural cost improvements and our make/buy strategies and tools. We have made progress on our structural cost initiatives but remain early in those actions and opportunities as we continue to deploy our Pentair plc Business System. Segment income grew 6% to $100 million and return on sales increased 160 basis points to 25.5%, primarily driven by our Pentair plc Business System productivity savings. Price contribution offset inflation. Please turn to slide 10. In Q1, Pool sales increased 1% to $387 million. Segment income was $128 million, up 2%. Return on sales increased 30 basis points to approximately 33%. Price offset inflation, and our Pentair plc Business System drove continued net productivity. We are focused on investing in this business through a regional focus with targeted programs in sales and marketing, field service and customer service support, new product innovation, and breakthrough innovation that we believe should grow the total addressable market for Pool and elevate our brand and offerings. Please turn to slide 11. Our balance sheet remains strong, and our return on invested capital increased to 16.6% from 15.8% a year ago, reflecting our strong commitment to ongoing shareholder value creation. Our net debt leverage ratio is 1.7x. In Q1, we repurchased $200 million of shares, reflecting continued confidence in our strategy, our Pentair plc Business System, and our team's ability to execute. We have also increased our dividend by 8% and achieved our fiftieth consecutive year of dividend increases, making Pentair plc a Dividend King while maintaining our Dividend Aristocrat status. Our significant annual free cash flow generation has enabled us to strategically deploy capital via dividends, debt paydown, share repurchases, and strategic acquisitions. We plan to remain disciplined with our capital and have flexibility to strategically allocate capital to areas with the highest shareholder return, and we are planning additional share repurchases during 2026 reflecting our confidence in our ability to execute on our long-term strategy. Let us turn to our outlook on slide 12. For the full year, we are increasing our adjusted EPS guidance midpoint to approximately $5.35, with a range of $5.30 to $5.40, which is up roughly 8% to 10% year over year. Also, for the full year, we expect total Pentair plc sales in 2026 to be up approximately 2% to 4%. We expect Flow sales to be up approximately mid single digits to high single digits and in line with our long-term plan. Water Solutions sales are expected to be approximately flat with core sales up approximately low single digits and in line with our long-term plan. Pool sales are expected to increase approximately 1% to 3% in 2026. While we are encouraged by sell-through dynamics in Q1, sell-through levels for this Pool season, which concludes in 2026, may require our channel partners to reduce purchases in Q2 and Q3 to reflect 2026 pool industry growth. Therefore, we evaluated a wider range of Pool revenue and income scenarios and have incorporated these assumptions and scenarios into our guidance update. We expect total Pentair plc adjusted operating income to increase approximately 6% to 8%, with return on sales expansion of roughly 100 basis points to approximately 26%. We expect price to offset inflation and expect another strong year of Pentair plc Business System-driven productivity of approximately $70 million, net of investment. We continue to evaluate and respond to ongoing changes in U.S. tariffs, inflation, and global supply chain impacts. We expect tariffs and inflation to have a net neutral impact over the year. For the second quarter, we expect sales to be up approximately 1%. We expect Flow sales to be up approximately high single digits, which includes our HydroStop acquisition, approximately $10 million of sales in the quarter at approximately 30% return on sales. We anticipate Water Solution sales to be down approximately low single digits, with core sales approximately flat, reflecting the commercial services sale in Q2 2025. Commercial Water core sales are expected to be up approximately low single digits. Pool sales are expected to be approximately flat to up 1%, reflecting our active management of sell-in and sell-out dynamics. We expect second-quarter adjusted operating income to increase approximately 5% to 6%. We are also introducing adjusted EPS guidance for the second quarter of approximately $1.47 to $1.50, up roughly 6% to 8%. We are pleased with our performance in Q1. We have a balanced water portfolio and a global team with a proven track record of delivering our near and long-term strategies, and we are focused on delivering our new near and long-term plans for our shareholders, our customers, and our employees. I would like to now turn the call over to the Operator for Q&A, after which John will have a few closing remarks. Operator, please open the line for questions. Thank you. Operator: We will now begin the question and answer session. To ask a question, you may press star and then one on your touchtone phones. If you are using a speakerphone, we ask that you please pick up the handset prior to pressing the keys. To withdraw your questions, you may press star and two. We ask that you please limit yourselves to one question and a single follow-up. Please note that you may rejoin the question queue if you have additional questions. Again, that is star and then one. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Nathan Hardie Jones from Stifel. Please go ahead with your question. Analyst: Good morning. This is Adam Farley on for Nathan. My first question is on the full-year sales guidance. Price and FX tailwinds are likely to fade through the year as we lap last year's increases from price, with volume likely needing to make up a shortfall. Could you talk about areas of the business that are expected to see volume improvement as the year progresses? John L. Stauch: Yes, thanks for your question. We are seeing green shoots in our Commercial Water, Water Solutions business. We are seeing volume improvements across pockets of our Flow business as well. Several of our innovation and targeted market efforts in those businesses are reading out. As communicated at our Investor Day back in Q1, we are working to drive both margin expansion and volume expansion in our Commercial Water Solutions business and, of course, in our Pool business as well, with margin expansion from our Flow and Water Quality Management businesses coming more from our structural cost efforts. Analyst: Thank you for that. Following up on that margin expansion, could you talk about where you are seeing better-than-expected productivity, and then maybe talk about the impact of volume on that productivity? John L. Stauch: We saw productivity gains that exceeded our plan across the enterprise, but specifically within our Commercial Water Solutions and within our Water Quality Management business. So our Water Solutions business in aggregate drove incremental net productivity. I would just remind everyone that our transformation and productivity numbers are net of investment. Driving that margin expansion within Commercial Water and incremental volume beyond what we had originally planned for Q1 really read out nicely in the Water Solutions business. In pockets of our Flow business, we saw additional productivity gains, and then, of course, about 30 basis points of margin improvement in Pool. We really drove nice productivity gains within the Water Solutions business in Q1, and we are working to continue to drive that through the year. Operator: Our next question comes from Steve Volcan from Jefferies. Please go ahead with your question. Analyst: Hi. Good morning, guys. Thank you for taking my question. John L. Stauch: Good morning. Analyst: I wanted to focus a little on the Pool segment. I was a little surprised by the decline there given what we hear from other players in the channel doing some strong early buys. Maybe that is consistent. Do you think they overdid it on the early buys? You had some commentary about some potential destocking as the year progresses. Can you tease that out a little for us? John L. Stauch: We have two components to our growth. First, we measure and manage sell-through growth, which is equal to what you see as the channel distribution measurements, so generally aligned with those external pulse points that you are hearing. But we also have ship-in growth or sell-in growth that goes into the channel. As we shared at the end of Q4 and into our full-year guidance, we think that the current sell-through activity does not warrant a big pickup in the sell-in activity. We are expecting that to work its way out through Q2 and Q3 with lower shipments in for us. Ultimately, that sets up better long-term dynamics as we head into the 2027 pool season. Analyst: Great, that is helpful. Any comment on any trends you are seeing relative to market share in the Pool business? John L. Stauch: We feel good about our positions. We have high-end premium pools, mid-range pools and remodeling, and then the aftermarket. The challenge is that we are not seeing overall volume growth across the pool industry as a whole. You are seeing some de-featuring in the aftermarket or push-outs from consumer discretionary. Overall, we are looking at overall volume flat on the sell-through side, and we are taking a lot of activity and energy to achieve that. Ultimately, we are hanging in there in what I would say is a flattish market. Operator: Our next question comes from Nigel Edward Coe from Wolfe Research. Please go ahead with your question. Nigel Edward Coe: Thanks. Good morning. Maybe we could just touch on the tariffs. We have seen some changes in the regime during the quarter. I think you said $30 million of impact this year. How might that be changing? John L. Stauch: Tariffs are net-net slightly more than we currently expected, not by a lot, Nigel, but a little bit more. We feel that we have pushed that price appropriately to the channel. I also want to mention that there are tariffs and then what I would call incremental inflation. We are seeing some commodities running hotter right now than they were initially expected. Again, we have taken price actions to neutralize those in our full-year guidance forecast. A little bit of benefit from one side of the tariffs, and then the incremental 232 tariffs offset it, and then we priced effectively on both of those elements. Nick Brazos: And just to add to that, Nigel, about 70% of our sales go through two-step distribution. When we think about the year, we are planning for price to offset those inflationary headwinds, whether they be tariff, commodity, or otherwise. Nigel Edward Coe: Great. How is price looking over the balance of the year from here? Nick Brazos: For the aggregate of Pentair plc, we are looking at low single-digit price across the year and expect approximately flat volume across the full year. Operator: Our next question comes from Patrick Baumann from J.P. Morgan. Please go ahead with your question. Analyst: Hi. Good morning. A quick question on your assumptions related to sell-through for the Pool markets this year. What is embedded in your new guide of 1% to 3% for the segment for industry sell-through? John L. Stauch: Flattish on volume plus price. That is generally what we have assumed in this current outlook. Analyst: Flattish volume sell-through for the industry? John L. Stauch: Plus price. Yes, so you have price plus flattish volume for sell-through. Analyst: Understood. And then a quick one on the capital allocation side. Did I hear you say you are going to do additional share repurchases this year? Is that embedded in guidance, or did I mishear that? Nick Brazos: It is a great question. We expect to generate strong free cash flow in 2026, like we have historically, about 100% of our net income converting into free cash flow. We did buy $200 million worth of shares in Q1, and we expect to remain active in 2026 in share repurchases, but none of those additional share repurchases are reflected in our current 2026 full-year guide. Operator: Our next question comes from Deane Michael Dray from RBC Capital Markets. Please go ahead with your question. Deane Michael Dray: Thank you. Good morning, everyone, and also want to wish Shelly all the best. A question that came up at the Analyst Day: you said there are still lots of opportunities in 80/20. Part of it is walk-away revenues, walking away from some customers, shutting down some product lines. Have we seen any of the net effects on those revenues going away? What is baked into the guide there? Thank you. John L. Stauch: We saw some of that in 2025, Deane, and we are actively managing our QuadOne customers, which are our top-tier customers buying our top-tier products, and ultimately seeing really good results across the portfolio. There are temptations of the businesses to go back after some of those twenties, as we mentioned, and we are pushing back on those efforts unless it is a misplaced twenty—maybe they were a big customer regionally and we looked at them nationally. That would be the only reason that we would go back to that, Deane. We are not seeing further headwinds from 80/20 actions in 2026 results. Nick Brazos: In pockets of our businesses, we are seeing growth with our QuadOne customers. You have that balance of the exits we made and then the growth with QuadOne. I mentioned it in the prepared remarks: in our Water Solutions business, we grew mid teens with our pro channel while we continue to drive out some of the structural cost opportunities within Water Quality Management. Those QuadOne growth opportunities are starting to read for us, and we are excited about what that is going to continue to deliver. Deane Michael Dray: Good to hear. A second question on Pool: can you expand on the point on some of the new product innovation and expansion of the TAM? I know there are some product areas that you said Pentair plc is not interested in, like chemicals, for example. Where are attractive areas? Is it in the automation side, and how much does the TAM increase? Nick Brazos: It is partially in the automation side. We have a great and sticky product offering already with our IntelliCenter and with our pumping technology. We expect to continue to expand the TAM with the automation capabilities that we deliver and are expecting to deliver in the future. Additionally, at our Investor Day, we talked about some new purification and membrane technologies that we are excited about bringing to market. Both of those are TAM expanders for us. We are excited to continue to develop those in addition to the digital connectivity of the pad. Operator: Our next question comes from Julian C.H. Mitchell from Barclays. Please go ahead with your question. Julian C.H. Mitchell: Hi. Good morning, and best wishes to Shelly. First off, trying to understand the overall company-wide slight guidance changes. You have a slightly lower sales guide because of the Pool uncertainty, but I think you pushed up your op profit guide slightly, with an unchanged productivity savings guide at $70 million, and that is with the sales guide coming down. Help us understand the moving parts within that and anything by segment that has changed versus prior guide. John L. Stauch: Just to remind you, we are a $4-plus billion company, and we do have revenue in Europe and Asia as well. In this guide, we have reflected a little bit lower outlook to those regions relative to some of the supply chain challenges related to what is going on in the Middle East. We are seeing those and reflected those in the guide. Some of that is being made up by North America, and you have a positive mix on U.S. revenue offsetting what is lower-margin mix in Europe and Asia. I wanted to share that insight as to what is in the guide as well that is helping margin. Nick Brazos: That is right. It is a combination of mix, transformation, and a little bit of benefit below the line, but these are really strong transformation efforts net of investments that we are driving within the businesses. Julian C.H. Mitchell: That is helpful. Thank you. Circling back to the Pool business, is the core assumption that market sell-through is pretty flat year on year each quarter in terms of volumes, and then the sell-in has a bit of pressure in the second quarter from channel partners, with sell-in returning to growth later in the year? Just trying to understand the sell-in versus sell-through as we go through the year, understanding it is a very seasonal business. John L. Stauch: You nailed it. We expect most of the sell-in pressure to be Q2 and Q3. We reflect that in this guide, and we are continuing to drive sell-through actions. Right now, the assumption is flattish. We are looking to drive higher than that on the volume side. We are encouraged by what could be there in Q4 next year. This industry has been hoping for volume growth for the last couple of years. With all the price activity happening in tariffs and inflation, they generally bought ahead at a pace that we do not think will continue, which is why we are addressing that in Q2 and Q3 this year. Operator: Our next question comes from Andrew Jon Krill from Deutsche Bank. Please go ahead with your question. Andrew Jon Krill: Hi, thanks. Good morning, everyone. Going back to margins, could you give us some directional help on which segments you expect to lead the margin expansion this year? For Pool, in particular, I believe before it was going to be one of the lower expansions of the three. Can you expand margins there this year with the modestly lower sales outlook? Nick Brazos: What we guided at Investor Day is that our long-term plan is that Pool will modestly expand margin, whereas our Water Quality Management and Flow businesses will have margin expansion that outpaces the aggregate of Pentair plc. When you look for margin expansion within our businesses, it is really that Water Quality Management and Flow businesses that will drive the additional structural cost improvement. The remainder of our businesses effectively see margin expansion in line with the portfolio. Andrew Jon Krill: Okay, great. For productivity, the $21 million in the quarter—if you annualize that, you are tracking nicely above the $70 million for the year. For the remaining three quarters, should we expect the remaining ~$50 million to be linear, or is there any reason it is going to vary by quarter? Nick Brazos: I think a linearization is appropriate, and we are still holding to the $70 million for the year. Operator: Our next question comes from Andrew Alec Kaplowitz from Citigroup. Please go ahead with your question. Andrew Alec Kaplowitz: Good morning, everyone. Morning, Shelly, thanks for everything. I think Flow revenue was slightly ahead of forecast for Q1. Maybe give a little more color on what you are seeing out of your CapEx businesses there. You are also focused on significant commercial initiatives in that segment. What are you seeing in the market versus your own improvements towards growth? Nick Brazos: The Flow business did generate a little bit of incremental top line in Q1. We are expecting full year for Flow to be up approximately mid single digits to high single digits, which is in line with where we guided for the full year. There are green shoots because of our efforts specifically focused on commercial buildings—that is K-12, hospitals, universities, and even a little bit of data centers in the pumping technology space. We have targeted technology and market investments. We feel good about the full-year guide to continue to grow Flow, and those are reading out for us. You saw that in Q1. Andrew Alec Kaplowitz: Helpful. Maybe give us a little more color about what is going on in Water Solutions with Manitowoc Ice and Everpure. You did return to very modest growth. You talked about North America leading the charge. Are you seeing international stabilize? What are you seeing in that business? Nick Brazos: Some of the changes we have made within Water Solutions, particularly our Commercial Water Solutions business, are reading out nicely. The targeted efforts we talked about at Investor Day—as we are seeing some retail shoppers moving from stopping at a drive-through to stopping at a convenience store—are reading out for us in both the commercial filtration and the commercial ice space. We expect those to continue. We have ongoing efforts across North America to continue to develop those channel partnerships and to drive sales in that space. Operator: Our next question comes from Scott Graham from Seaport. Please go ahead with your question. Scott Graham: Yes, hi. Good morning. Thanks for taking the question, and Shelly, you have been excellent—best of luck to you. I wanted to ask about the quarter's pricing. With your guide for the year for pricing being up low single, does the decline as we move through the quarters reflect Q1 having maybe two points of carryover price from last year? Nick Brazos: There is a little bit of carryover, and then there is the year-over-year comp as well between Q1 of this year and last year. We expect, again, low single-digit price take on the year, so you are right on Q1. John L. Stauch: To add to that, keep in mind that the tariff impact came at us and most of the price increases were put in Q2 last year. That is why you are seeing a slightly higher readout in Q1. Scott Graham: Understood. The other question was on the Flow business. In the past, you have talked about markets specifically with percentages. You indicated some of your initiatives, but could you delineate specifically how industrial versus commercial performed? Nick Brazos: Both businesses performed well in the quarter, both from a top-line and a margin expansion perspective. Both the commercial businesses and the industrial businesses, and the businesses underneath them, are expected to continue on that track, specifically with the margin expansion initiatives that we have already seen read out and continuing to drive that into the rest of 2026 and into our 2028 longer-term plan horizon. Operator: Our next question comes from Amit Mehrotra from UBS. Please go ahead with your question. Amit Mehrotra: Thanks. Morning. I want to start on Pool and get your commentary on whether there is evidence that price is affecting demand elasticity or even share. Within categories—new pool, remodel, replacement, aftermarket—any noteworthy inflections, positive or negative? John L. Stauch: Pool is playing out generally the way we anticipated it. We have decently high interest rates in the United States right now that did not get any better after the Middle East war started. We have higher levels of HELOCs on home remodeling, which would affect remodeling. We have pressure on consumers in the form of overall cost of living. If you play that out over new pool builds, mid-market pools and remodels, and the service side, what we are seeing is people focused on break/fix repair but not taking the opportunity to upgrade. Those upgrades are a big part of the long-term growth drivers. We are going to have to work harder to build programs around it. Prices over the last three to four years are pretty high. We needed to level off at these levels, and then we have to go work and drive the growth actions by region. In a region, you look at new pool builds separately than aftermarket and service, making sure you have the right product availability and lineup, the right value propositions, and the right marketing and sales programs to penetrate the opportunities. That is the playbook. We are encouraged by the way that we flattened out on sell-through on volume plus price. We think that is more balanced as we look into 2027 and beyond. We will get this sell-in behind us, and we will be off to mid single-digit growth plus in the future. Amit Mehrotra: Thank you. You mentioned green shoots. Maybe give more color—products, regions—on why you feel comfortable that they are actually green shoots. John L. Stauch: For clarity, when I say green shoots, I mean a result of our Pentair plc efforts—what we are doing to win commercial building opportunities, municipal opportunities, and industrial opportunities, even if there are not green shoots in those macro markets, including in Europe. Our teams are doing a good job with targeted selling efforts by region and by city within those commercial and industrial opportunities for municipals and commercial buildings and by project. Green shoots there are really the result of our team's efforts to take those opportunities and to drive growth at healthy margins that are a nice mix balance within each of those Flow businesses. Amit Mehrotra: Got it. Thank you very much. Appreciate it. Operator: Our next question comes from Jeffrey David Hammond from KeyBanc Capital Markets. Please go ahead with your question. Jeffrey David Hammond: Hey. Good morning, everyone. John L. Stauch: Morning, Jeff. Jeffrey David Hammond: Looking at the Q2 guide, the first half is a little bit lower than the midpoint of your revenue growth. Talk through the moving pieces that get you to a better second half to start. John L. Stauch: I will simplify Q2 by reminding everyone that is when we started to see the heavier price increases that followed the tariff actions last year. In our Q2 guide is the anticipation that people jumped ahead of those price increases and bought a little bit more in Q2, and we need to be mindful that our year-over-year results reflect that. As you head into Q3 and Q4, things leveled out. We should have some easier compares across the portfolio across those actions last year. Jeffrey David Hammond: Perfect. Then on capital allocation, it seems like the preference is buybacks over deals. Talk about the pipeline and where the focus is. Historically, you were not doing much at Flow, but that was your last deal. Do we start to see more activity in the Flow business going forward? John L. Stauch: We are actively in the pipeline, but it is hard to say that it is a robust pipeline at the moment. A lot of sponsor-based deals are waiting for a better backdrop and climate to come out. The deals that are in the market today we are looking at, but we have to be thoughtful and careful about the returns on those assets. We have to look at them in the tariff environment, the inflation environment, the regional impacts, and also across the vertical market landscape. We are active, but we want to make sure that we are always looking at long-term value creation and comparing that against our own organic growth opportunities. Operator: Our next question comes from Joseph Craig Giordano from TD Cowen. Please go ahead with your question. Joseph Craig Giordano: Hey, guys. Good morning. Thanks for taking my questions. When we look at your performance in Pool versus your biggest channel partner, historically it was a tight relationship in terms of their tracking—your performance versus their purchases of inventories. It has not been nearly as reliable an indicator over the last year plus. How should we think about that relationship going forward? Nick Brazos: I think you should use that indicator as how sell-through is tracking for us. I would say that we are very mindful of that one channel partner's sell-through. I would remind you that there are other channel partners as well. From our equipment performance, it was slightly higher than their equipment sell-through in the quarter. Then you have to think about our sell-in, and that should be equal to sell-through over time. We have been clear that our sell-in outpaced our sell-through at the end of last year—probably in anticipation of what the 2026 full year would look like and also people trying to get ahead of incremental tariff and pricing. That needs to come back in line, which is why we are adjusting Q2 and Q3 appropriately. Joseph Craig Giordano: If I think about automation, can you talk about how much this causes a lock-in of equipment? If I use Pentair plc automation as an overarching solution, how much does that lock you into using Pentair plc equipment underneath it? I have heard there has been more ability for other companies' automation solutions to sit on top of an agnostic hardware platform. How has that changed or evolved, and how do you think you are positioned there from a lock-in from automation? John L. Stauch: Where we are really well positioned is on a premium pool—multi-body, large water features, high-end aspects. When you talk about automation at that level, you have a lot of optimization of products. You turn on a spa, you want to move valves to change the flow of water, you want to toggle between heat pumps and natural-gas heat to optimize your energy capability, and you want to optimize energy of pumps. That is what high-end automation looks like. If you are looking for simple control features—on/off and time—there are a lot of lower-cost automation solutions, and we will also have a low-end automation solution in 2027 to address that small or simple pad. I am optimistic that it could change the automation penetration, but you still need a consumer to want automation, a service provider that wants to utilize that automation, and you ultimately have to create value at a certain price point and have the channel to sell it. We have it in our pipeline. It is an opportunity. We talked about the TAM that will be produced at Analyst Day, and we are going to work very hard to get that automation of simple pools to breakthrough levels. Operator: With that, we will be concluding today's question-and-answer session. I would like to turn the floor back over to management for any closing remarks. John L. Stauch: Thank you for joining us today. In closing, I would like to reinforce some key takeaways on slide 13. We have a balanced and resilient water portfolio that has delivered superior value over the last several years. We have a clear strategy, proven operating model, and an energized leadership team. We expect to accelerate long-term growth through innovation and elite customer experiences. We expect our focused water strategy and strong execution to continue to strengthen our foundation and drive operational efficiency, supporting long-term growth, profitability, and shareholder value. We believe that we are well positioned to participate in growth opportunities supported by long-term water-related trends consistent with our focused strategy. Thank you, everyone, and have a great day. Operator: Ladies and gentlemen, with that, we will conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Universal Health Services, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session. To ask a question during the session, please press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Darren Lehrich, Vice President of Investor Relations. Please go ahead. Darren Lehrich: Thanks, Daniel. Good morning, and welcome to Universal Health Services, Inc. first quarter 2026 earnings conference call. With me this morning are our President and CEO, Marc D. Miller, and our Chief Financial Officer, Steve G. Filton. Marc D. Miller and Steve G. Filton will provide prepared remarks, and then we will open it up to Q&A. During today's conference call, we will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecasts, projections, and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, we recommend a careful reading of the section on forward-looking statements and risk factors in our Form 10-Ks for the year ended December 31, 2025. In addition, we may reference during today's call measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI, and adjusted net income attributable to UHS which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in today's press release. With that, let me now turn it over to Marc D. Miller for some introductory remarks. Marc D. Miller: Thank you, Darren. Good morning to all participants on today's call, and thank you for your continued interest in Universal Health Services, Inc. The first quarter of 2026 featured significant acceleration in our behavioral health outpatient strategy with the announcement of the Talkspace acquisition and continued steady operating performance and cash flow generation in our core operations in the midst of more challenging seasonal volume trends. Revenue growth for the first quarter was 9.6%. Adjusted EBITDA, net of NCI, increased 8.4% and adjusted EPS increased 16.1% as compared to the first quarter of 2025. These results highlight the adaptability and financial discipline of our leadership teams and the benefits of our efficiency initiatives which are driven by technology adoption and operational excellence. Speaking first to the Talkspace acquisition, announced on March 9, Talkspace is an established market leader in virtual outpatient behavioral health care with a network of 6,000 licensed professionals serving all 50 states. We believe Talkspace is the best-in-class virtual platform in the behavioral industry with a differentiated technology offering and strong brand recognition among patients and clinicians. Talkspace's successful payer-driven business model aligns well with our strategy to increase access to a full spectrum of outpatient services and diversify our behavioral payer mix. Over the past 24 months, we focused significant resources to grow existing outpatient service locations adjacent to our hospital campuses and develop new freestanding outpatient clinic locations. We will continue to invest in these areas internally. The addition of Talkspace's high-quality, scaled platform accelerates our ability to create the industry's first end-to-end continuum of behavioral health care services that is strongly aligned to the demand trends and preferences of the market overall. This national continuum includes lower-acuity outpatient and step-in services, all the way to residential and inpatient services where we have led the market for more than four decades. We plan to share more details about the impact of the transaction after closing, but I would like to highlight two primary benefits of the acquisition. First, from a strategic perspective, Talkspace represents a multiyear value creation opportunity underpinned by access to new sources of outpatient revenue growth. This is supported by the strength of the base Talkspace business, which has a very strong outlook on a standalone basis, and is enhanced further by the programs we plan to develop alongside Talkspace to complement each other's businesses. For example, there is a significant opportunity for us to introduce Talkspace's 6,000 clinicians into our environment to develop higher-acuity virtual offerings such as virtual intensive outpatient programs, or IOPs. This will improve our ability to manage more patients stepping down from Universal Health Services, Inc. facilities with a preferred virtual option. The types of programs we build on a virtual outpatient basis will drive higher-quality continuity of care further downstream after our patients step down from higher levels of care. There are numerous other bidirectional revenue synergies we will be working on post closing that will improve access to outpatient virtual services for Universal Health Services, Inc. patients and improve access to higher levels of care for Talkspace patients. Second, from a financial perspective, we expect the deal to be accretive to earnings during the first 12 months post closing, and we expect it to be increasingly accretive thereafter. By year three post closing, we expect the effective EBITDA multiple for the Talkspace transaction to be in the single-digit range. Moving on to the quarter, I would like to highlight a few items before I turn it over to Steve G. Filton to review the financials. From a growth perspective, we met our internal same-facility revenue growth and earnings objectives in the first quarter despite a more dynamic operating backdrop. This was accomplished through solid expense management and higher contributions from pricing in both segments due to more positive trends in rate. We expect same-facility growth to be more balanced between volume and pricing as the year progresses, as we believe first quarter volume performance was impacted heavily by seasonal factors consistent with what we highlighted in February on our fourth quarter earnings call. From a technology perspective, our enterprise-level AI governance process remains very active and is focused on two primary domains within our business: in the operational domain to impact quality and patient experience, and in the administrative domain to increase efficiency. During 2025, we focused heavily on scaling solutions that reduce the burden of routine administrative tasks. We deployed and scaled a total of eight different use cases of AI solutions into our revenue cycle operations that are now yielding significant benefit on a go-forward basis. For 2026, we are focusing more heavily on enabling solutions in our clinical operations to improve hospital-level efficiency and patient experience. Included in our 2026 roadmap are several new use cases being designed and built with Hippocratic AI, which is one of our key AI solution partners. It is too early to project the longer-term financial impact of the 2026 initiatives. Although we expect them to be incremental to margins over time, and just as importantly, we expect them to have a real impact on quality and patient experience. In closing, I am encouraged by our progress so far in 2026 and remain optimistic about our ability to deliver high-quality services in an efficient manner to the communities we serve. On behalf of our entire organization, we look forward to welcoming Talkspace employees into Universal Health Services, Inc. in the coming months. With that, I will now turn the call over to Steve G. Filton for more details on the quarter. Steve G. Filton: Thanks, Marc. I will highlight a few financial and operational trends before opening the call up to questions. The company reported net income attributable to Universal Health Services, Inc. per diluted share of $5.65 for the first quarter of 2026. After adjusting for the impact of the items reflected on the supplemental schedule included with the press release, our adjusted EPS was $5.62 for the first quarter. On a same-facility basis, adjusted admissions at our acute care hospitals declined versus the first quarter of 2025. We estimate acute care volumes during the first quarter of 2026 were impacted by approximately 200 basis points due to weaker flu and respiratory activity and winter weather in certain markets. Performance in the Nevada market rebounded slightly with adjusted admissions increasing approximately 1.5% over the prior year. Same-facility acute care emergency department visits increased approximately 2%, and we also saw positive trends in certain higher-acuity important inpatient service lines, notably cardiology, orthopedics, and neurology. On a same-facility basis, net revenues in our acute segment in the first quarter of 2026 increased 8.2% and were up 6.2% excluding the impact of our health plan. Acute care same-facility revenue per adjusted admission increased 6.3% during the first quarter of 2026 on a reported basis and was up 4.9% after excluding approximately $30 million of prior-period supplemental program net benefit related to the expanded 2025 Nevada program which we contemplated in our guidance. Operating expenses were well managed across labor and other expense categories. Same-facility acute care salaries, wages, and benefits expense per adjusted admission increased 3.1%, and supply expense per adjusted admission increased 3.5% over last year's first quarter. Same-facility contract labor was 2.3% of acute care segment revenues, or 40 basis points lower year over year. Other operating expenses increased primarily as a result of the growth in our health plan. For the first quarter of 2026, our acute care performance resulted in 11.7% growth in same-facility segment EBITDA. Excluding the prior-period supplemental program revenue, first quarter 2026 same-facility acute care segment revenue would have increased 3.3% on a year-over-year basis. With respect to health insurance exchange trends during the first quarter of 2026, we estimate an impact of approximately $15 million. Our exchange adjusted admissions declined approximately 5% as compared to the first quarter of 2025. However, due to our expectation that some of the exchange members treated at our acute care facilities during the first quarter will not sustain their premium payments, the impact to our acute care financials assumes an effective HIX decline that is higher than the reported trend. We are reiterating the full-year $75 million pretax impact which assumes the exchange declines will steepen somewhat as the year progresses. Turning to our behavioral health segment results during the first quarter of 2026, same-facility net revenues increased 7.3%, supported by a 5.8% increase in same-facility revenue per adjusted patient day and a 1.6% increase in same-facility adjusted patient days as compared to the first quarter of 2025. We estimate that the winter weather impacted first quarter behavioral health volume growth by approximately 40 to 50 basis points. Same-facility behavioral health segment EBITDA increased by 8.4% in the first quarter of 2026. Excluding the net benefit from prior-period supplemental payments, same-facility revenue per adjusted patient day would have increased 4.9% and same-facility segment EBITDA would have increased 4.3%. For wage trends in behavioral in 2026, we expect growth of approximately 6% on a year-over-year basis, moderating slightly from the 7% to 8% level we experienced during 2025. In California, we are making good progress year to date with respect to the state's nurse staffing ratio requirements that go into effect June 1, and we remain on track with the assumptions contemplated in our 2026 outlook. Cash generated from operating activities was $402 million for the three months ended 03/31/2026, as compared to $360 million during the same period last year. During the first quarter of 2026, we spent $217 million on capital expenditures. In the acute care segment, we continue to invest in the 156-bed de novo hospital in Florida scheduled to open in May, and in two bed towers and a replacement hospital project together comprising 178 beds that go online during the second quarter. In our behavioral health segment, we opened a 144-bed de novo joint venture hospital in Pennsylvania in the early part of the first quarter, and plan to open a 120-bed de novo hospital in Missouri later this year. During the first quarter of 2026, we acquired 675,000 of our shares at a total cost of $127 million. As of 03/31/2026, we had $1.3 billion of repurchase authorization available pursuant to our stock buyback program, and we expect to remain active with share repurchase throughout 2026, including leading up to and following the closing of the Talkspace acquisition. From a balance sheet perspective, in late April, we expanded the aggregate capacity of our credit facilities by $900 million to provide additional flexibility with the pending Talkspace transaction, other potential acquisitions, and our continued prioritization of returning capital to shareholders through buybacks and dividends. As of 03/31/2026, we had $373 million of borrowings outstanding pursuant to our revolving credit facility, the borrowing capacity of which was recently expanded to $1.5 billion. Turning to our outlook for 2026, we are reiterating the financial and operating forecast that we established on February 25 in conjunction with fourth quarter earnings. Customary with our historical practice, we plan to reevaluate annual guidance as necessary in conjunction with our second quarter earnings planned for July. Operator, that concludes our prepared remarks, and we are pleased to answer questions at this time. Operator: We will now open the call for questions. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To allow as many people as possible to submit a question, please limit yourself to one question and one follow-up. Please standby while we compile the Q&A roster. Our first question comes from A.J. Rice with UBS. Your line is open. A.J. Rice: Hi, everybody. Thanks. I appreciate the number you gave on the behavioral side, 4.3% as sort of the normalized core growth. There are a lot of moving parts in the acute business: the negative impact from the weather and the flu, and on the positive side some DPP variance year to year. Can you parse those out and give us a sense of what the core grew on an EBITDA basis in the acute side, possibly? And then, on AI use cases that Marc called out, can you pick two or three that are really meaningful and delve a bit more into the opportunity to deploy AI? Steve G. Filton: I think it was in the low single-digit range, A.J. Marc D. Miller: On AI, we are focused on administrative functions to increase efficiency and on clinical operations where we can impact patient experience and improve outcomes. We have already deployed and scaled eight different AI use cases in our revenue cycle operations, which are yielding significant benefits, including improvements in denials management and revenue capture. We are also doing a lot of things that touch the patient experience. We are not doing much in the core clinical decision space yet, but over time we expect progress there as well. A.J. Rice: Okay. Alright. Thanks so much. Operator: Thank you. Our next question comes from Jason Paul Cassorla with Guggenheim. Your line is open. Jason Paul Cassorla: Thanks. Good morning. I wanted to check back in on the $46 million of combined Nevada and Ohio out-of-period Medicaid supplemental payments. I think we are calculating around a $120 million to $130 million year-over-year benefit from total Medicaid supplemental payments in the quarter. Is that a fair characterization? And if so, can you help bridge what would indicate a decent step up in core EBITDA ramp for the remainder of the year to meet that 5% growth expectation? Steve G. Filton: That is accurate, and it is worth noting that none of what you enumerated was outside of our expectations. The vast majority of DPP we recorded in Q1 was in our guidance. If you exclude the $46 million of out-of-period DPP in Q1, you will have a good run rate for the rest of the year, and that number is consistent with what we disclosed in our 10-K and will disclose in our first quarter 10-Q as our estimated DPP for the year. We recognized that we would have this significant benefit in Q1 largely because we had a number of large DPP programs last year, for example Tennessee and D.C., that were not approved and therefore recorded until after the first quarter. As far as the ramp for the rest of the year, our overall results were within our expectations, and that implies we expect a ramp in our earnings as the year goes on to get to that core level growth of 5% embedded in our guidance. Those assumptions include the continued ramp-up of new facilities, Cedar Hill in Washington, D.C., which celebrated its first-year anniversary this month, the opening of the new hospital in Florida, the opening of 178 new beds in existing hospitals in California, Las Vegas, and Florida, continued improvement in behavioral, both in outpatient revenues and operating leverage from volume growth. Volumes were on the softer side in both acute and behavioral, and we expect them to improve as the year goes on. Finally, we expect continued moderation in wage pressures in behavioral versus the significant investments in 2025. Jason Paul Cassorla: Great. Thanks. As a follow-up on the behavioral volume picture, excluding weather impacts, you still hit the low end of your 2% to 3% volume target in the quarter. How much of that acceleration ex-weather was a function of higher headcount and increased labor supply versus changes in demand or throughput? Steve G. Filton: Two broad trends. First, we invested heavily in staffing in behavioral in 2025 to allow greater flexibility to take on demand, and that is beginning to reflect in volumes. Second, we continue to focus on outpatient growth, where more and more of the demand is shifting. We think demand remains strong for behavioral services, and we are doing a better and more focused job capturing that demand, which we view as an upward trajectory. Operator: Thank you. Our next question comes from Ann Hynes with Mizuho. Your line is open. Ann Hynes: Good morning. Can we talk about bad debt reserve trends? With Medicaid disenrollment and the expiration of the ACA subsidies, how is that trending versus your expectation? And does your guidance assume deterioration of collectability on copays and deductibles? Steve G. Filton: We addressed the HIX dynamic as it relates to uncompensated care and bad debt in our prepared remarks. We saw a decline in HIX volume in Q1, and we recorded an additional reserve because some HIX patients presenting with coverage will later be deemed not to have coverage if they fail to make premium payments. We have taken a reasonably conservative position in Q1. We continue to believe our $75 million negative estimate for the impact of the HIX subsidies expiring is appropriate; it will get larger as the year goes on, which was always our expectation, and that impact largely is reflected in higher bad debt and uncompensated care. Other than that, no dramatic changes in payer mix: slight increases in uninsured and Medicare, slight decreases in Medicaid utilization, and no big changes in denials or patient status changes. Investments in technology, people, and process in our revenue cycle, particularly in acute, are helping us keep pace with payers. We will increase that focus in behavioral throughout 2026. Operator: Thank you. Our next question comes from Matthew Dale Gillmor with KeyBanc. Your line is open. Matthew Dale Gillmor: Thanks. Following up on pricing, it seemed like rate outperformed even excluding the DPP. What drove the stronger price in the quarter, and why do you expect moderation for the rest of the year? Steve G. Filton: Mix was a factor. With significantly lower flu this year, by definition the remaining patients were of higher acuity; flu and respiratory are lower-acuity cases. We also saw healthy increases in more acute service lines—cardiology, orthopedics, and neurology—which supported acuity and pricing. We expect a more balanced contribution between rate and volume as the year progresses. Matthew Dale Gillmor: And on professional fees, any trend updates and what are you doing to alleviate pressure, particularly in radiology? Steve G. Filton: Our guidance contemplated professional fees rising at an inflationary single-digit rate, maybe toward the high single digits, and we are largely operating within that range. We are addressing pressure from certain hospital-based physicians by running more competitive RFPs for coverage and reducing locums usage, which is more expensive. It is a daily operational focus, but we have been successful keeping fees manageable. Operator: Thank you. Our next question comes from Joanna Gajuk, filling in for Kevin Mark Fischbeck with Bank of America. Your line is open. Joanna Gajuk: Hi, good morning. On the HIX volume decline, can you talk more about payer mix in the quarter? Steve G. Filton: We saw a decline in HIX volumes, a slight decline in Medicaid utilization, a slight increase in uninsured volumes, and a slight increase in Medicare volumes—no major changes beyond that. Joanna Gajuk: Thanks. And on supplemental payment programs, sounds like nothing new was approved this quarter. Any update on Florida and California? Steve G. Filton: In Florida, there is a high level of confidence among providers, based on feedback from the state, that the pending 2025 program is likely to be approved. We do not know the exact timing. We have been estimating about a $50 million benefit, and when we see the final approvals, that benefit could be measurably higher; we will adjust guidance when appropriate. In California, a renewed or expanded program is much less certain. We are not estimating a potential benefit there until there is further consensus between the state and CMS, although it is possible an expanded program could be meaningful. Operator: Thank you. Our next question comes from Justin Lake with Wolfe Research. Your line is open. Justin Lake: Thanks. On core growth, ex-DPP your core EBITDA looks down about 5% to 6% by my math. Anything in last year’s first quarter that did not reoccur, or anything else driving the decline? Steve G. Filton: It is difficult to respond with precision without your calculation in front of me, but the items you referenced were anticipated and embedded in our guidance. We understood the difficult DPP comparison in Q1 and that our earnings trajectory would need to increase over the year to get to the core 5% growth embedded in guidance. We believe we can get there for the full year, but we are not at that core 5% growth in the quarter when excluding DPP and other nonrecurring items. Operator: Thank you. Our next question comes from Benjamin Hendrix with RBC Capital Markets. Your line is open. Benjamin Hendrix: Thank you. On HIX trends, you cited a 5% decline in volume, but for the year you assume 25% to 30% of HIX patients lose coverage. Are you updating that assumption based on 1Q results? Steve G. Filton: While we could identify a 5% decline in HIX volumes in Q1, we expect some patients recognized as HIX will later be identified as not having coverage due to nonpayment of premiums. Our reserve reflects a higher effective HIX volume decline, probably in the low double digits—around 10% to 12%. We continue to believe the decline could reach 25% to 30% for the year. We were not expecting to be at that level in Q1. There are still dynamics around premium payments and coverage status that we will learn more about over the next quarter or more, and we are being conservative from an accounting perspective. Operator: Thank you. Our next question comes from Andrew Mok with Barclays. Your line is open. Andrew Mok: Good morning. Given flu and weather were early quarter dynamics, can you comment on volume progression throughout the quarter in each segment, including exit rates in March and April? Steve G. Filton: The flu comparison was more significant in January and February; flu season was largely over by March in both years. Weather impacts were concentrated in January and February and were market-specific. March was a “cleaner” month—no real flu impact and no significant weather impact—and volumes showed a more normative year-over-year increase. Operator: Great. Thank you. Our next question comes from Raj Kumar with Stephens. Your line is open. Raj Kumar: Following up on March and April trends, did you see a pickup from deferred care pushed by winter storms? And any commentary on acute care surgical volumes and acuity shifts year over year? Steve G. Filton: Elective procedures that are scheduled and postponed due to weather tend to be rescheduled. The bigger acute impact was flu, which is not something you recover. We estimate $5 million to $7 million of weather impact, mostly in the D.C. market where burst pipes closed beds temporarily. You recover from closures operationally, but you do not recapture the lost patient days. On the behavioral side, you may recapture outpatient visits, but inpatient trauma-type admissions are generally redirected elsewhere if patients cannot reach the hospital. We are not counting on significant recapture of deferred procedures in our growth outlook. Operator: Thank you. Our next question comes from Craig Matthew Hettenbach with Morgan Stanley. Your line is open. Craig Matthew Hettenbach: On the outpatient behavioral strategy and Talkspace, how has the Thousand Branches initiative been going, and did it inform the Talkspace decision? Marc D. Miller: Things are going well, though deployment has been a bit slower due to state-by-state factors. Thousand Branches did not drive the Talkspace decision. We have known Talkspace for many years and have long focused on building outpatient capabilities. The Talkspace opportunity emerged when they indicated an openness to strategic options, and we moved forward. Our internally developed outpatient offerings will complement Talkspace as we build the full continuum. Craig Matthew Hettenbach: You mentioned the effective multiple could be single digits a few years out. What gives you that confidence? Marc D. Miller: We have confidence based on a full look at their business model, recent performance, and their standalone plans for the next 24 months, combined with the incremental programs we can drive together. Today’s multiple is harder to assess off current earnings, but with their growth path and our combined initiatives, we expect earnings to scale such that in a few years the effective multiple will be in the single digits. Operator: Thank you. Our next question comes from Benjamin Rossi with JPMorgan. Your line is open. Benjamin Rossi: Good morning. On volumes, what is your current outlook for Medicaid volumes for the year in both segments, and are you seeing any signs of volatility returning through administrative churn or eligibility friction? Steve G. Filton: We saw slight declines in Medicaid utilization in Q1, which is consistent with our expectations for the year. Outside of HIX, payer mix changes in Q1 were relatively minor and consistent with expectations, and that is how we are thinking about the rest of the year. Benjamin Rossi: As a follow-up on de novos, can you update on recent openings in Nevada and D.C., and the Florida hospital set to open next month, and how you are thinking about full-year EBITDA performance? Steve G. Filton: As part of our guidance, we said the new Florida hospital would likely have an operating loss in its first year, as most de novos do. We expect that loss to be largely offset by gains at Cedar Hill in D.C. We still believe that, though Cedar Hill’s improvement is likely more back-end loaded than originally contemplated due to weather and other dynamics. The additional capacity coming online in Q2—new towers in Las Vegas and on Florida’s West Coast, and a replacement facility in California—are in existing markets and should ramp relatively quickly, contributing positively in the back half. Operator: Thank you. Our next question comes from Ryan M. Langston with TD Cowen. Your line is open. Ryan M. Langston: On denials activity, are you seeing accelerating levels of denials but navigating more effectively? Any color by payer class? Steve G. Filton: We are not seeing a material increase in denials. Others have cited more aggressive payer behavior; our investments in revenue cycle technology, personnel, and processes—particularly in acute—are allowing us to keep pace. We plan similar investments in behavioral over the next 12 to 18 months. Operator: Thank you. Our next question comes from Analyst with Goldman Sachs. Your line is open. Analyst: Good morning. Update on behavioral supply-demand equilibrium—any incremental shifts on supply or demand versus the last couple of years? Steve G. Filton: Behavioral demand remains strong. Our greatest challenge has been meeting that demand due to staffing in certain markets and roles—nurses, therapists, mental health technicians. We have made progress but it remains a focus. Demand is also shifting more to outpatient delivery, similar to the long-term trend in acute. We are addressing this through freestanding outpatient facilities (Thousand Branches), step-down programs, and the Talkspace acquisition. Analyst: As a follow-up on outpatient strategy and capital allocation, how are you balancing buybacks relative to allocating more capital toward building out outpatient and digital capabilities? Steve G. Filton: Since announcing Talkspace, we have emphasized it is not an either/or with share repurchase. We continue to view buybacks as compelling and intend to remain active; our previously discussed annual target of $800 million to $900 million remains a minimum target. The Talkspace deal modestly increases leverage from just under 2x to just over 2x, leaving plenty of capacity for additional M&A, an aggressive CapEx program, and continued returns of capital through buybacks and dividends. Operator: Thank you. Our next question comes from Analyst with Baird. Your line is open. Analyst: Thank you. Following up on core growth math, inputs I am considering include net DPPs, the exchange subsidy headwind, California staffing requirement headwind, flu/weather impact, Palm Beach Gardens de novo costs, and Cedar Hill which sounds more back-end loaded now. Anything else to consider, or any nonrecurring items from last year’s first quarter? Steve G. Filton: Those are the items we have discussed, and none were a surprise to us in the quarter. Overall results were consistent with our internal expectations. Weather and flu were the less predictable elements, but we referenced both on our Q4 call. On Cedar Hill and the new Florida hospital, we continue to expect a near wash for the year, with Cedar Hill more back-end loaded. Analyst: And on behavioral labor efforts focused on retention of year-one hires—last time you cited turnover moving down from as high as 50% to at least 40% over the last half year. Where does turnover stand today, and what was the pre-COVID reference point? Steve G. Filton: Behavioral salary and wage expense was up about 8% in 2025 and moderated to roughly 6% to 7% in Q1 2026. We expect further moderation as the year progresses, reflecting less aggressive hiring, moderation in wage increases, and measurable progress in turnover. Turnover remains elevated industrywide but is improving meaningfully versus last year. Pre-COVID turnover was materially lower than today’s levels, and our initiatives are aimed at continuing to narrow that gap. Operator: I am showing no further questions at this time. I would now like to turn it back to Darren Lehrich for closing remarks. Darren Lehrich: Thank you, everyone, for participating in today's call and for your interest in Universal Health Services, Inc. Have a great rest of your day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, everyone, and welcome to the CMS Energy 2026 First Quarter Results. The earnings news release issued earlier today and the presentation used in this webcast are available on CMS Energy Corporation’s website in the Investor Relations section. This call is being recorded. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. If at any time during the conference you need to reach an operator, please press the star followed by 0. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 PM Eastern Time running through May 5. This presentation is also being webcast and is available on CMS Energy Corporation’s website in the Investor Relations section. At this time, I would like to turn the call over to Jason Shore, Treasurer and Vice President of Investor Relations. Jason Shore: Thank you, Rob. Good morning, everyone, and thank you for joining us today. With me are Garrick J. Rochow, President and Chief Executive Officer, and Rejji P. Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website. I will now turn the call over to Garrick. Garrick J. Rochow: Thank you, Jason, and thank you, everyone, for joining us today. Our investment thesis, which you see on slide three, continues to stand the test of time. Whether it is our long capital runway, Michigan’s top-tier regulatory jurisdiction, our ability to keep bills affordable for customers, or the strong economic growth across the state, this model works. And it works consistently. It drives a premium total shareholder return, 6% to 8% adjusted EPS growth with annual compounding paired with approximately 3% dividend yield. It is a simple, durable formula. It is why CMS Energy Corporation continues to be a smart, long-term investment, delivering for more than two decades with consistent industry-leading performance. Turning to slide four, you will see the outcome of our most recent electric rate case. The commission approved over 65% of our ask and maintained our 9.9% ROE in the electric business. I continue to be pleased with our regulatory outcomes and, most importantly, the support for our customer investments. On the graph to the left, what stands out is a consistent record of support and constructive outcomes we have seen across our electric rate case filings over the last several years. These outcomes reflect deliberate, customer-focused investments designed to deliver on Michigan’s energy law and materially improve the reliability and resiliency of the electric grid. It is the investments approved in this rate case and previous cases that directly support better service. That includes everything from critical capital investments across the grid to advanced tree trimming on a five-year cycle—work that meaningfully reduces outages, restoration time, and customer costs. Affordability can and should go hand in hand. That is good for our customers. Our track record of consistent and constructive rate case outcomes is strong, and that is possible through a deliberate process, a constructive environment, and focused work by the team. These strong outcomes are not a one-off or by chance; they are the result of a very deliberate regulatory strategy. It starts with Michigan’s energy law and enabling legislation. From there, we build alignment, support, and pre-approvals through a coordinated set of filings: our integrated resource plan, renewable energy plan, and five-year electric distribution plan. We also utilize proven regulatory mechanisms like the investment recovery mechanism that streamline proceedings, ensure certainty of recovery, and drive accountability. You combine that framework with strong testimony and clear business cases, and the result is exactly what you see here: constructive outcomes and the support needed for customer investments while maintaining affordability. Looking forward to our upcoming regulatory agenda, in April we saw the MPSC staff position in our current gas rate case recommending over 75% of our $240 million ask be approved. In our twenty-year renewable energy plan, our filing will also include a growth scenario highlighting the need for additional capacity to ensure we are prepared for the growing customer base in Michigan as we see data center and manufacturing interest in our service territory. A portion of these renewables and the additional gas capacity are in our current five-year plan, with more upside opportunity given additional storage and renewables to meet Michigan’s energy law and customer load beyond the five-year plan. We have identified that for every 1 gigawatt of new large load, we could see capital opportunity of $2 billion to $5 billion. Again, those investments would be incremental to our current capital plan. I am very proud of the team and the thoughtful work on these plans. The comprehensive analysis and modeling take months and are done with a deep commitment to building a plan that is best for our customers and our state. At CMS Energy Corporation, our customers are at the center of all we do—a promise to deliver safe, reliable, and affordable energy. While we are committed to the important and necessary investments in our electric and gas systems, we remain laser-focused on customer affordability. Our track record is strong—customer savings driven through the CE Way and further optimized with digital automation, episodic cost savings, load growth, and energy waste reduction, as further examples. Our efforts here are meaningful and impactful. As a result, Michigan electric bills are the fourteenth lowest in the nation, well below the national average and also below the Midwest average. In our bill growth, you see on the left side of the slide, among the lowest in the country. On the right side of the slide, looking forward, customer bills—electric and gas—remain below the energy CPI, while investing over $24 billion over our five-year plan period. I am pleased with our progress, but we are not done yet. While delivering, we are sharply focused on continuing to bring down costs for our customers, particularly for those most in need. Additionally, affordability is supported by growth. Michigan continues to make headlines and top rankings nationwide as we see new or expanding load materialize in the state and support 2% to 3% annual sales growth. This growth allows us to spread fixed costs over a larger customer base and improve affordability for all customers. We have significant interest in our service territory with contracts for roughly 100 megawatts of new load signed last year, and we have exceeded that in just Q1 of this year—approximately 110 megawatts of signed contracts year to date. This is all on top of the approximately 450 megawatts connected last year. As I have shared in many investor meetings, Michigan has more engineers per capita than any other state. We are the second most diverse state in agriculture. We have many aerospace and defense businesses and a rich automotive heritage. Our service territory is growing with manufacturing and industrial, bringing with it large investments, jobs, supply chains, and commercial and residential growth. One of our larger recently signed contracts is with Michigan Potash and Salt Company, a strategic and critical mineral manufacturer and the only established and sustainable potash reserve in the U.S., expanding in our service territory, bringing with it 130 jobs and over $1.3 billion of investment in Michigan. I love seeing growth like this and the value that it brings to Michigan, our customers, communities, and investors. There is also diversity in this growth, which is important in the context of data centers, which I will cover on the next slide. Moving on to our growth pipeline, you see that win here on slide eight with Michigan Potash moving through the funnel to a signed contract. There were also several other smaller customer expansions not shown on the slide that make up roughly 110 megawatts year to date. In addition to strong manufacturing and industrial processing, Michigan continues to attract data center interest, and I am pleased with the progress we have made over the last quarter. Our announced data center continues to close in on final contract after reaching commercial terms on the extraordinary facilities agreement and now commercial terms on the rate contract. As I mentioned in our year-end call, another data center has continued to progress in advanced contract negotiations. I am also pleased with community engagement and the forward progress experienced at a local zoning level. Keep in mind, these data centers are not yet reflected in our five-year customer investment plan, and associated additional investments will not be borne by existing customers. In fact, each gigawatt of new data center load that materializes in our service territory will reduce our average customer rate by 2% annually over a five-year period. Now on to the financials for the quarter. In the first quarter, we reported adjusted earnings per share of $1.13. We remain confident in this year’s guidance and long-term outlook and are reaffirming all our financial objectives. Our full-year guidance remains at $3.83 to $3.90 per share, with continued confidence toward the high end. Longer term, we continue to guide toward the high end of our adjusted EPS growth range of 6% to 8%. With that, I will hand the call over to Rejji. Rejji P. Hayes: Thank you, Garrick, and good morning, everyone. On slide 10, you will see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the quarter and our year-to-go expectations. For clarification purposes, all of the variance analyses herein are in comparison to 2025, both on a first quarter and a nine-months-to-go basis. In summary, through the first quarter of 2026, we delivered adjusted net income of $346 million, or $1.13 per share, which compares favorably to the comparable period in 2025, largely due to NorthStar outperforming a relatively soft comp in the first quarter of last year coupled with higher rate relief net of investments at the utility. These sources of positive variance were partially offset by a significant ice storm in our electric service territory in March. From a top-line perspective at the utility, heating degree days in Michigan ended up at relatively normal volumes for the quarter, as a relatively warm March and February offset a typically cold January. The impact of normal weather drove $0.01 per share of favorable variance versus 2025. Rate relief net of investment-related expenses resulted in $0.11 per share of positive variance due to the residual benefits of last year’s constructive electric and gas rate orders as well as earnings associated with ongoing renewable projects at the utility. Moving on to cost trends, as noted, we experienced an uptick in storm activity during the quarter, including a sizable ice storm in March, which was bigger than last year’s storm. As such, we saw $0.05 per share of negative variance for this cost category, which includes some positive offsets associated with our electric supply business. In our catch-all category represented by the final bucket in the actual section of the chart, you will note a positive variance of $0.04 per share, largely driven by the impact of achieving key milestones for ongoing renewable projects at NorthStar and a reversal of last year’s outage at DIG, partially offset by higher parent financing costs, namely a higher average share count. Looking ahead, we plan for normal weather as always, which equates to $0.23 per share of negative variance for the remaining nine months of the year driven by the absence of favorable temperatures experienced in 2025, primarily in our electric business. From a regulatory perspective, we are assuming $0.24 per share of positive variance, which is largely driven by the constructive electric rate order received from the commission in March, ongoing benefits of renewable projects at the utility, and the assumption of a constructive outcome in our pending gas rate case. On the cost side, we anticipate lower overall O&M expense equating to $0.04 per share of positive variance at the utility for the remainder of the year, largely driven by expected cost performance through the CE Way and other cost reduction initiatives underway. Lastly, in the penultimate bar on the right-hand side, you will see an estimated range of $0.06 to $0.13 per share of positive variance, which incorporates continued solid performance at NorthStar, partially offset by planned parent financing costs including the effects of equity dilution. Before moving on, I will just note that our track record of delivering on our financial objectives over the last two decades, irrespective of the circumstances, speaks for itself. That said, we will always do the worrying so you do not have to. We remain confident in our ability to deliver on our financial and operational objectives this year to the benefit of all stakeholders. Slide 11 offers an update to our funding needs in 2026 at the utility and the parent. As a reminder, the convertible debt that was opportunistically issued last November addressed a good portion of our financing needs at the parent for the year while offering significant financial flexibility on our remaining needs. From an equity needs perspective, given the trading performance of our stock during the first quarter versus our plan assumptions, we executed equity forward contracts totaling approximately $495 million, significantly de-risking our planned needs for the year. As you can see in the table on the slide, we settled approximately $142 million of said equity contracts during the quarter, and as per our guidance, we plan to issue an aggregate amount of approximately $700 million over the course of the year. Finally, we will look to complete the balance of our financing plan at the utility over the remainder of the year, and as always, we will be opportunistic and look to capitalize on strong market conditions. Moving on to credit quality, I am pleased to report that both Moody’s and Fitch reaffirmed our credit ratings in March as indicated at the bottom of the table on slide 12. That said, it is worth noting that Moody’s did move the utility to a negative outlook largely due to the size of our five-year capital investment plan relative to the timing of cost recovery, particularly for large projects with protracted construction cycles. Needless to say, we are evaluating a variety of countermeasures to address Moody’s concerns. As always, we will continue to target solid investment-grade credit ratings and we will manage our key credit metrics accordingly as we balance the needs of the business. With that, I will hand it back to Garrick for his final remarks before the Q&A session. Garrick J. Rochow: Thanks, Rejji. At CMS Energy Corporation, we deliver—twenty-three years now of consistent, industry-leading performance regardless of circumstances, year in and year out. You can count on CMS Energy Corporation to deliver for all of its stakeholders. With that, Rob, please open the lines for Q&A. Operator: Thank you very much, Garrick. The question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you are using a speaker function, please make sure you pick up your handset. We will proceed in the order you signal us, and we will take as many questions as time permits. If you find that your question has been answered, you may remove yourself by pressing the star key followed by the digit one. We will pause for just a second. Our first question comes from the line of Richard Sutherland from Truist. Your line is open. Analyst: Hey, good morning. Garrick J. Rochow: Hey. Welcome. Analyst: Thank you. There has been a lot of attention on data centers, and there is a lot to dig into here. You talked about confidence in what you are seeing. I am curious about the opportunities as it stands now relative to last quarter, and in particular, if you see both of these data centers come through, what is the potential to defer or delay your electric rate case filing cadence on the back of that? Anything you can speak to there—load ramp—would be helpful. Thank you. Garrick J. Rochow: I am very pleased with the progress. Let me take a step back. If I start with the pipeline, we have shared historically it is roughly about 9 gigawatts. There are customers that are falling out of the pipeline and going through what we saw with Michigan Potash and having successful contracts. There are new companies coming in, and so the pipeline is strong and actually much larger than 9 gigawatts. Those are the ones that are more qualified, you might say, in the process. As I shared in the Q4 call, I continue to be pleased with the progress of the data centers—the hyperscalers—in our service territory, looking at different locations, multiple locations, to locate those data centers. We have made great progress with the contractual pieces with those companies. I am pleased with that, pleased with the work the team is doing, and we are working through the zoning process here in Michigan. I have seen those data center companies out meeting with local commissions and communities. We are standing side by side with them to address those issues. So a lot of positive progress. In the context of the “stay out” you are referring to—the DTE approach—I have not seen their filing yet, so I cannot speak to the specifics, just what has been in the media. I will say this: we, in November, put a tariff in place—a really great tariff—setting the standard, really one of the best in the country. These hyperscalers have quickly adapted to it. They know what the hurdle mark looks like. I am very pleased with it. It speaks to how we protect existing customers, we protect the business, and it really provides a path for benefits to flow back to customers, which is critically important. It is also important to put this in context. There is significant capital runway—there are a lot of opportunities to invest in this business. We are investing heavily in the electric grid to improve reliability and resiliency so it is better for our customers. I hate when a customer is without power and the cost and the impact of that. I appreciate the commissioners’ comments on how affordability and reliability can go hand in hand; they are not opposed. We have this twenty-year IRP for the supply needs of the state. We have to meet Michigan’s energy law and the renewables, but we also have to think about those times when the sun is not shining or the wind is not blowing. Batteries make up a part of that, but we have to introduce natural gas to replace some of our existing peaking. That is an important piece of investment right now. There is also the importance of the safety of the gas system. That is why we are in annual rate cases. But the most important thing is affordability for our customers right now. We have talked about that through the CE Way, through episodic cost savings. A big piece of this is growth, and that is how I tie it back to data centers. Whether that is internal focus or what we are doing externally, know this: we are focused on the root cause. We have important investments, and we believe we can go in for annual rate cases and keep them close to the rate of inflation for our customers. One thing that is important about annual rate cases is we pass along savings to our customers every single time, and that is what we are focused on. The stats are we are the fourteenth lowest electric bill out there. That is still not good enough because affordability is defined by our customers, and there are some customers that are struggling. We need to help them, and that is what we are focused on—affordability for our customers. Thanks for your question. Long answer, but there is a lot there. Analyst: Certainly a lot there, and I appreciate the comprehensive response. Switching gears, there have been some media reports out there around NorthStar. Maybe to zoom out broadly across your portfolio, if you were to consider any transactions around the portfolio, do you have any guiding lights around how you think about the qualitative versus quantitative aspects of a deal—in particular, accretion, dilution, the prospects of near-term dilution versus breakeven over the long term? Garrick J. Rochow: Just to be clear, we have a long-standing company policy: we do not comment on M&A. Period. What I have shared about NorthStar in the past is consistent with other investor meetings or earnings calls. Look at the thermal assets—Dearborn Industrial Generation. Energy and capacity prices are increasing. We strike bilateral contracts and layer them over time. They have been better than plan, and we have shown that in some of the slides before. In terms of the renewables, we have used this baseball analogy: we hit singles and doubles. We are not aiming for home runs. These are solid projects. We do one or two of them a year—maybe three in a busy year—utility-like returns or better, with a contracted off-taker, long-term contracts. We safe harbor the assets out in the 2028–2029 time frame and look to recycle the capital. That whole NorthStar mix is about 5% of our earnings mix. The rest is utility. Analyst: Understood. Thanks for the time. Garrick J. Rochow: Thank you. Operator: Your next question comes from the line of Wells Fargo. This is Marvella on for Shahriar Pourreza. Your line is open. Analyst: Maybe building on the data center topic, what specific color can you give us on what is going on with Gaines Township and the Microsoft data center—status there and how we should be thinking about public pushback? Garrick J. Rochow: My mom used to say good things come to those who wait, and my mom was right. I talked about the contract pieces in my remarks, and I shared that I am pleased with the zoning piece. It is important for the investment community to understand Michigan’s local units of government. There are roughly 2,800 local units in Michigan. About 96% of the state is covered by some kind of township. In those townships there are planning commissions or planning boards. They work through zoning, but they also work on site layout and other plans, and then there is a township board. There are several steps in that approval process. I have been pleased because not only have the data centers been meeting with the township and planning officials; we have been meeting with them, and we have seen good progress. They are doing good due diligence. They are elected officials, and they are doing the right things. They have to dig into property tax impact, zoning requirements, implications for agricultural or industrial land, water, and so on. They are making sure they do good due diligence. I appreciate the process. I am familiar with it because we go through it when we are doing big projects, whether a gas pipeline or a solar project. Again, I feel good about where we are headed. My mom was right—good things come to those who wait—and we are working through that process and are pleased with where it is headed. Analyst: Thanks, that is super helpful. Following up on case cadence, are there any specific triggers that would increase the time between cases? Garrick J. Rochow: In terms of settlement, we have stayed out of cases before. That is not abnormal or unusual for us. I would certainly consider that in the future. I go back to my comments: large capital runway and the ability to pass savings forward to our customers. At the heart of it, this is not about skipping cases and pushing a wave; it is about bringing affordability to our customers. That is where we are focused. Operator: Your next question comes from the line of Jefferies. Your line is open. Analyst: Garrick, given the Gaines Township tabling on April 15, can you reaffirm the “as early as 2028” online date for your final-stages prospect, or has that timeline softened? Garrick J. Rochow: The project timelines are the same. 2028 is the timeline within the contracts—early electrons, you might say, and then a ramp over 2029–2030. Those time frames are the same. Analyst: Thank you. Without naming the customer, is the prospect you have reached commercial agreement with the same one tied to the Gaines process or a different site in your territory? Garrick J. Rochow: There are at least two hyperscalers that we are in advanced negotiation with. I have shared that one we are finalizing the contract with, and there are many more in the pipeline. I really cannot disclose more at this time. Analyst: Thanks. Last one: given some news out there, and keeping in mind your policy, higher level—where IPP multiples are trading and the DIG re-contracting out past 2030—has anything shifted in how you are thinking about NorthStar strategically, or is DIG still something you see being part of CMS Energy Corporation well into the next decade? Garrick J. Rochow: Consistent with how we have talked about it in previous investor meetings and earnings calls, there is no change. I walked through the thermal units and the renewables earlier, and that stands. Operator: Your next question comes from the line of Nicholas Joseph Campanella from Barclays. Your line is open. Nicholas Joseph Campanella: Hey, thanks for taking my questions, and thanks for the time. There are two opportunities. We do not know who the commercial agreement is specifically with. I understand from the prepared remarks and your response earlier you are still working through the permit. I am trying to understand more granularity on what is needed for the permit and your expectation to have that done by summer—or will this go through the entire year? Garrick J. Rochow: It varies depending on location. I am not trying to dodge your question; there are multiple townships, and these hyperscalers are pursuing investment in multiple properties in multiple areas of the state. I cannot give a blanket status. There are steps: first, the planning commission determines whether it meets zoning requirements and whether there must be a change; then they review a site layout; and eventually it goes to the township board. It varies by place. The hyperscalers are looking at multiple locations and are at multiple points in that process—and have advanced within that process. They are active in the communities, meeting with local officials and communities and doing the right things, which gives me optimism about the progress underway. We know this process well. When they pause to do more due diligence and listen to constituents, it goes back and forth. It would not be appropriate for me to jump ahead and predict the date. Let those elected officials do their work. You will be one of the first to know, Nick, when we make the announcements. Nicholas Joseph Campanella: Thanks, I appreciate that. Since you have executed on the bulk of 2026 equity needs—still a little outstanding—how are you thinking about being proactive to de-risk 2027 and 2028? My understanding is there might be more front-end equity in this five-year plan. Rejji P. Hayes: Yeah, Nick, appreciate the question. To reground on the five-year equity needs we walked through on our fourth-quarter call: we are planning $700 million this year—that is still the plan—and then on average thereafter for the next four years it will be $750 million, but it is far from linear; that is just a simple average. As you rightly noted, it is a bit more front-end loaded. We expect the majority of the equity needs to be issued in the first three years of this plan, commensurate with the capital plan. We have been big proponents of the equity forward product, which we used to good effect in the first quarter. As I noted, we already priced just under $500 million to take that risk off the table and settled a small portion in the first quarter. That will be the bias going forward. While I believe we are undervalued, there is valuation and then there is what is in our plan. We saw the stock trading at levels above our plan assumptions over the course of the quarter, so we were opportunistic. If we see the stock continue to trade at levels better than our plan assumptions this year and in subsequent years, we may execute additional equity forwards to de-risk 2027 and beyond. First and foremost, we will prioritize our needs in 2026, address those, and then see where we are by the second half of the year. Nicholas Joseph Campanella: That is helpful. Thank you. One more—reflecting on past portfolio rotation efforts like the EnerBank sale—strategically, is there appetite to do something like that again, or do you continue to have very clear line of sight to the high end of the 6% to 8% through 2026–2028? Garrick J. Rochow: No comments on M&A, and we are providing guidance on the call. Nicholas Joseph Campanella: Thank you for the time. Garrick J. Rochow: Thank you. Operator: Your next question comes from the line of JPMorgan. Your line is open. Analyst: Good morning. This is Aiden Kelly on for Jeremy Tonet. How are you thinking about affordability going into the elections? What is the level of understanding from the candidates over the possibility that utilities could lower rates with new data center load, and any thoughts there? Garrick J. Rochow: There is an important slide in our deck—one of my favorites—showing consistent growth over twenty-three years: multiple CEOs, different governors, Republicans and Democrats, different commissions and legislators, and we have delivered. The sweet spot—the secret sauce—is being an honest broker focused on what is best for Michigan and our customers, and listening to policymakers and candidates to see what they want to get done and how we can be a solution provider. I was with a governor candidate last night, and that is what we were talking about—how can we be a solution provider? You stay in that space—hard as it may be—and you build trust. It is an election year; we are a purple state, and we are used to a lot of back and forth. I sleep well at night not because I am arrogant or know how this plays out, but because we have a good team. Focus on the customer, build trust, and you can find solutions. Even though we are the fourteenth lowest state for electric bills—and you can present that data—the reality is affordability is defined by the end user. We have to keep working on that. Some of that is internal tools; some is external. I walk around with two pages of ideas for policymakers. We meet with all the gubernatorial candidates. We approach it as a business leader, not just from an energy perspective. Every one of these candidates is focused on growing Michigan. The three leading candidates are supportive of data centers in a thoughtful, comprehensive way. We talked about how that can shape affordability. They are concerned about education; we help with those conversations because we are concerned too. We can work with all three of the leading candidates. Be an honest broker, focus on the customer, listen to what they are trying to get done. Some focus on low-to-moderate income; some focus on the business environment. We can do both and provide good solutions for our customers to help on affordability. Rejji P. Hayes: All I would add to Garrick’s remarks is to reemphasize the flywheel and algorithm in our financial planning. Affordability remains one of the key governors in our planning process. For almost twenty-five years, we do not take a plan to our board, let alone to the street, unless it passes the laugh test from an affordability perspective, meets balance sheet hurdle rates, and can we get the work done. On affordability, the dimensions are broad: we look at compound annual growth of rates over the planning period, we benchmark versus the region and the country, and we take into account both rates and bills. While we have grown rate base historically high single digits and now low double digits in our forecast, we are still self-funding two thirds to three quarters of that rate base growth with CE Way, episodic cost reductions, and energy waste reduction. Over time, we hope it will also be sales growth as we execute on the economic development pipeline. That is how, even while growing rate base, you keep bills and rates in low single-digit levels year in and year out, irrespective of who is running the state. Analyst: Makes sense. One separate question on CapEx upside: could you remind us what underlies the “1 gigawatt equals $2 billion to $5 billion of CapEx” sensitivity—what drives the low and high ends? Rejji P. Hayes: For the low end—around $2 billion—you have assumptions of storage resources and our current estimates for a simple-cycle combustion turbine, plus some infrastructure costs like substation work and wires. As you move toward the high end, a couple things occur. First, a change in resource—if the cup runneth over and we see highly successful conversion of the backlog, we would potentially look at combined-cycle gas. That starts to get you toward the upper range. You likely warrant additional infrastructure—substations and wires—as you see additional economic development come to fruition. It is also important that we comply with the clean energy law requirements, which are predicated on sales. That also adds to the high end of the equation. That is what drives the range. Operator: Your next question comes from the line of Michael Sullivan from Wolfe Research. Your line is open. Michael Sullivan: Good morning. On the data center pipeline, you talked to incremental CapEx upside that is not in the plan. As we think about your earnings trajectory, is this something that can contribute in the next five years if you bring these over the finish line? Rejji P. Hayes: Appreciate the question. It is really a function of the load ramp. Most opportunities in our backlog today—particularly those in advanced to final stages—have load ramps that really start to materialize, as Garrick noted, in the 2028 time frame. Some that are slightly lower probability are 2029–2030, and the material ramp is really in the next decade. Supply needs will increase commensurately with that ramp. While we would see additional capital investment opportunities likely come in the next five-year plan that we roll out, it is a little early to suggest whether it would put upward pressure on our EPS growth range. Job one is to convert these opportunities. If we see success, it will drive additional capital investment opportunities. Given the ramp, we will see what happens over the next five to ten years, but it is premature to say it would immediately increase EPS growth. Michael Sullivan: Looking ahead to the IRP filing you have coming up, you mentioned a growth scenario highlighting the need for additional capacity. Tying that into the questions around NorthStar, is there any world where DIG can be used as a solution? I know it has been tried in the past—any change in appetite to use that asset to meet additional demand growth? Garrick J. Rochow: Going back to our last IRP, we attempted to bring DIG into the utility. From an affiliate transaction perspective, it was too big of a hurdle, and we do not see proposing that in this IRP to bring it into the utility. Stepping back, I am pleased with the team’s work on this IRP—about 1.5 gigawatts of net natural gas to replace existing, and for resource adequacy of the grid, you need renewables and batteries, but there are times of day and year where you need natural gas to peak. Campbell 3 and 4—which are older oil-fired and gas-fired peaking units—this really works to replace those almost megawatt-for-megawatt from a capacity perspective. The renewable story—much of what is approved is in the REP. As part of this IRP, we are looking out twenty-plus years, so it will give some color and context for investments beyond the five-year capital plan out into the ten-year window as well. In this IRP, we have to do multiple scenarios, and one is a growth scenario. Given interest from manufacturing, industrial processing, and data centers, that is important. That would mean more batteries, more renewables, and potentially other assets. Those line up well with the contracts we are working through and should come together through the IRP process. Operator: Your next question comes from the line of Travis Miller from Morningstar. Your line is open. Travis Miller: Good morning. State legislation update—does anything get done in an election year? Any impact on your cadence of regulatory filings? Garrick J. Rochow: Most focus, particularly after spring recess, will be on the state budget. It has been a bit contentious given our purple state. It was contentious last year and will likely be that way this year as well, and it dragged out most of the year. I do not know that we will see a whole lot of policy movement. If we do, know that we are engaged and focused on finding the right solution for customers. In some cases, there are great ideas in bills that can help with affordability, and we would like to see those progress with the right mechanisms. We will see if there is enough time and space in the sessions. Travis Miller: Any change in your rate case cadence—electric in spring and gas in fall? Garrick J. Rochow: No. We will file our electric rate case in June. For the gas case, we had staff position in April. The PFD will come out in the August time frame, and then it is September–October for the final order. That is roughly when you will see the gas order if we go the full distance. Operator: Your next question comes from the line of Andrew Weisel from Scotiabank. Your line is open. Andrew Weisel: Good morning. On the demand side, you signed 110 megawatts of new load year to date versus 100 megawatts signed last year and 450 megawatts connected last year. Of the 110 new, when do you expect that to connect and ramp? Does that take you to the high end of the 2% to 3%? Garrick J. Rochow: It varies—different customers make that up. Some are expansions underway; some will play out over this five years. For Michigan Potash, we got permission to talk about jobs and investment, but not timeline yet; we will share specifics when we can. What we have communicated in our five-year plan is 2% to 3% load growth, and we keep giving concrete examples of how that is materializing, giving us confidence in delivering that for shareholders and customers. Andrew Weisel: You mentioned Moody’s has the utility on negative outlook and you are considering countermeasures. Can you elaborate on options and how proactive you need to be? Rejji P. Hayes: Since this is at the OpCo, and you are constrained by the ratemaking capital structure, we will have to evaluate a variety of solutions and likely educate the commission and other stakeholders on what we would do over the next twelve to eighteen months to avoid further action by Moody’s. Not prepared to elaborate on specifics today; I think they are fairly intuitive—related to the ratemaking capital structure, cost of capital, and the like. We are exploring a variety of qualitative and quantitative measures and will have conversations over time with key stakeholders. Andrew Weisel: One last one. Without speculating on M&A, would you consider splitting NorthStar into pieces—DIG versus the renewables development business? Garrick J. Rochow: I appreciate the persistence. No comment on M&A. Operator: Your next question comes from the line of Sophie Karp from KeyBanc. Your line is open. Sophie Karp: Good morning. You highlighted increasing diversity within your development pipeline. Is it fair to think about deemphasizing data centers in that pipeline? Any change in attractiveness of your service territory for hyperscalers? Garrick J. Rochow: No, it is not a deemphasis at all. I love Michigan, and I like to see we are growing in a variety of ways. More engineers per capita has attracted businesses alone. Our rich automotive heritage and the WWII era defense base has stuck—defense projects are underway. There is some onshoring as well. We are the second most diverse state in agriculture, and we have seen more food processing. We will have more announcements coming. There is really diverse growth in the state. Data centers are in there; we are making great progress. That is one part of our growth story, and I love the diversification. That is unique and gives me a lot of confidence in our future and growth profile. Rejji P. Hayes: Adding to Garrick’s comments, we talk about the full portfolio versus just data centers. About 15% of that 9 gigawatt backlog is represented by non–data center opportunities. When you do the math, that is over a gigawatt—quite impactful. We have talked about positive spillover effects: sustainable job growth and commercial activity once you get residential and population growth. Those are higher-margin customer classes than industrial. We like the data center opportunities, but also the non–data center ones—large manufacturing companies and so on—because of the externalities. There is a lot of good momentum in Michigan and diverse opportunities. Operator: Your next question comes from the line of Anthony Crowdell from Mizuho. Your line is open. Anthony Crowdell: Good morning. I think the equity issuance plan steps up from $500 million in 2025 to $750 million on average over 2026–2030. Does incremental large-load conversion above your base case reduce the need for equity, or does it accelerate capital intensity and therefore increase equity? Rejji P. Hayes: Because our customer investment plan does not include these large-load prospects, converting one or two of the larger opportunities would likely put upward pressure on our capital plan. As we noted, every gigawatt gets you somewhere between $2 billion to $5 billion of incremental CapEx. That would put upward pressure on CapEx and thus on financing needs—equity, debt, and all things in between. There would likely be additional equity needs, funding growth and rate base expansion as a result. So yes, upward pressure on equity, but because capital grows with the conversion. Anthony Crowdell: Perfect. That is all I had. And, Garrick, you are right—Mom is always right. Garrick J. Rochow: Thanks, Anthony. Operator: We have reached the end of our question and answer session. I will now turn the call back over to Garrick J. Rochow for closing remarks. Garrick J. Rochow: Thanks, Rob. I would like to thank you for joining us today. I look forward to seeing you at the American Gas Association Financial Forum. Take care and stay safe. Operator: This concludes today’s conference. We thank everyone for your participation.
Operator: Thank you for standing by. The conference will begin shortly. Until such time, you will hear music. Thank you, and please continue to stand by. Good morning, and welcome to Crown Holdings, Inc. First Quarter 2026 Conference Call. Your lines have been placed on a listen-only mode until the question and answer session. Please be advised that this conference is being recorded. I would now like to turn the conference over to Mr. Kevin Charles Clothier, Senior Vice President and Chief Financial Officer. You may begin. Kevin Charles Clothier: Thank you, Elle, and good morning. With me on today's call is Timothy J. Donahue, President and Chief Executive Officer. If you do not already have the earnings release, it is available on our website at crowncourt.com. On this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and our SEC filings, including our Form 10-K for 2025 and subsequent filings. Earnings for the quarter were $1.56 per share, compared to $1.65 per share in the prior-year quarter. Adjusted earnings per share were $1.86, up 11% compared to $1.67 in the prior-year quarter. Net sales for the quarter were up 13% compared to the prior-year quarter, reflecting a 5% increase in global beverage can volumes, $234 million from the pass-through of higher raw material cost, and $74 million from favorable foreign exchange. Segment income was $405 million in the quarter, compared to $398 million in the prior year, reflecting higher beverage can shipments in Europe and Asia Pacific, partially offset by lower volumes in Brazil and lower cost recovery in North American beverage. Second quarter 2026 adjusted earnings per diluted share are projected to be in the range of $2.10 to $2.20 per share, and full year is projected to be $7.90 to $8.30 per share, with a $0.05 headwind in the second quarter and a $0.10 headwind for the full year due to the conflict in The Middle East. The adjusted earnings guidance for the full year includes net interest expense of approximately $355 million, exchange rates at current levels with the euro at 1.17 to the dollar, a full year tax rate of approximately 25%, depreciation of approximately $330 million, noncontrolling interest expense of approximately $145 million, while dividends to noncontrolling interest are expected to be $110 million. Share repurchases are expected to be approximately $600 million. We maintain our 2026 full year free cash flow guidance of approximately $900 million after $550 million of capital spending to support our growth projects in Brazil, Greece, Spain, and India. The company's net leverage was 2.7 times at the end of the first quarter, reflecting seasonal working capital build. The company expects year-end net leverage to be approximately 2.5 times, in line with our long-term target. With that, I will turn the call over to Tim. Timothy J. Donahue: Thank you, Kevin, and good morning to everyone. As Kevin just discussed and as reflected in last night's earnings release, the company had a firm start to the year with earnings per share up 11% over 2025. Global beverage unit volumes were up 5% in the quarter on the back of strong demand across Europe and Asia Pacific. When coupled with 3% North American food can volume growth, that offset volume declines in Brazil and higher input costs in North America. The conflict in The Middle East continues to create volatility across energy, transportation, and direct materials such as aluminum and coatings. The biggest direct impact to Crown Holdings, Inc. has been in The Middle East where religious tourism has been significantly reduced and some customers have not been able to export. Although Crown Holdings, Inc.'s March month shipments in The Middle East were up 19% over the prior year as our operations in Saudi and Jordan supported the UAE, all Crown Holdings, Inc. plants remain operational with adequate supplies of materials, although for safety purposes we have curtailed operations in Dubai from time to time over the last two months. As Kevin just discussed, we have included a full year $0.10 per share headwind with $0.05 a share in the second quarter and $0.05 a share in the second half to account for increased costs related to ocean freight, energy, and direct materials. We are also mindful of building inflationary pressure on consumers, although can demand remains strong globally owing to its many favorable characteristics. Turning to the operating segments, in Americas Beverage, sales increased by 16% in the quarter primarily reflecting the pass-through of higher material costs. Unit volumes in the Americas were up 1% to the prior-year first quarter, with North America up 1% and Brazil down 5%. Income was down about 10% in the quarter, in line with expectations, owing to volume mix effects, Q1 cost timing, and higher cost inputs not recovered through our contractual pricing formula. We do expect the deltas to the prior year to narrow significantly in the second quarter. The aluminum beverage can market in North America is steadily growing across multiple categories due to new product launches and convenient packaging. We expect strengthening demand into what should be a very tight can supply situation this summer, with our current full year growth estimate unchanged at 2% to 3%. In Brazil, we forecast second quarter volume to be down with the full year showing modest volume growth. European beverage volumes advanced 7% in the quarter with growth noted throughout Northwest and Southern Europe and the Gulf States, leading to a 28% increase in segment income. Capacity remains tight across Europe, again leading to what should be a very tight can market this summer. As previously discussed, we have two expansion projects underway in both Greece and Spain to support future growth. Income in Asia Pacific advanced 10% in the quarter on the back of 17% unit volume gains. Growth was notable across Vietnam, Cambodia, and China as results from our commercial adjustment strategy combined with recent cost reduction programs begin to bear fruit. Volumes across Transit Packaging held up well during the first quarter with equipment, plastic strap, and film offsetting most of the declines in steel strap and protective. Margins were down compared to the prior year as input cost inflation ran ahead of our price recovery. We do expect to begin to recover cost inflation in the second half of the year. First quarter volumes in North American food cans advanced 3%, and when combined with better results in food closures and beverage can equipment, income in Other increased $18 million in the quarter. So just to recap before opening the call to questions, global beverage volumes advanced 5% in the quarter, and demand looks to remain strong for the balance of the year despite inflationary pressures on consumers, in what should be very tight market conditions across both North America and Europe. Food can volumes up 3%, following 5% growth in the prior-year first quarter. Earnings per share up 11% to $1.86. We returned in excess of $250 million to shareholders in the first quarter, and in the last five quarters have repurchased approximately 6% of outstanding company common stock. The balance sheet remains strong. Cash flow is significant, which will allow for the continued return of value to shareholders. And with that, Elle, I think we are now ready to take questions, please. Operator: We will now open the call for questions. Please press star and then the number one. Please unmute your phone and record your name and company name clearly when prompted. These are required to introduce your question. To cancel your request, please press star and then the number two. Our first question will be coming from George Leon Staphos of Bank of America. Sir, your line is open. George Leon Staphos: And congrats on the progress so far. Did the supply chain issues as they were building give you any volume opportunities? You pointed to in the release that you were able to leverage your network globally. All your peers have global networks too, but did any of that make for maybe some extra volume that you were not considering to start the year if some of your peers were having issues elsewhere? And then the volumes have been very strong. You talked about it being tight into the summer, and that is terrific. Having said that, you are coming off tough comps already. We had very strong growth in the fourth quarter. Are there any factors out there that would suggest maybe there is a little prebuying going on in terms of this volume demand? And then I had a follow-on. Timothy J. Donahue: Okay. So let me address the first question, George. I think we feel pretty confident that the answer to your first question is not yet. That is, if there is going to be a tight raw material supply situation vis-à-vis the aluminum supplier fire that is causing some aluminum disruption to some of our peers, if there is a benefit to that, we have not seen that as of yet. I think what I would characterize is that this was always going to be, I believe, a tight summer situation in both North America and Europe, notwithstanding the North American aluminum outage. We are all global. Well, you know, careful how I say this. I do not mean this in the way it is going to sound. We are the only ones that are really global, George, in that we have a fairly large Asian footprint that we can supply and support other regions from when need be, and we will see that into the second and third quarter depending on the length of the Middle East conflict and the Strait of Hormuz blockage where some suppliers cannot ship to India. We will pick up some cans into India from our operations in Southeast Asia. So that will occur potentially in Q2 and possibly even in Q3. That would be one area. When we talked about leveraging the global network, it is more towards reflecting on the immediate circumstances and danger that was present in the United Arab Emirates and specifically in Dubai where there is Crown Holdings, Inc. and one other can manufacturer, amongst a whole host of manufacturing companies, that were threatened with drones and missile strikes. So we were able to leverage from the other operations in The Middle East and, obviously, were able to reroute and redirect aluminum supplies from Asia and/or The Middle East or European suppliers in and out of The Middle East to other locations. So that was the basis of that comment. And since I just spoke for so long, you are going to have to remind me of your second question. I apologize. George Leon Staphos: No worries, and I should have mentioned I hope everyone is safe both at Crown Holdings, Inc. and your suppliers with what has been going on in The Middle East. The question was: look, volumes have been strong for a while. Volumes are strong in the first quarter, up 5% globally. Any concerns on your side that this is prebuying? Why or why not? And then I had a follow-on that I will piggyback. Timothy J. Donahue: It is hard to know. The North American market, George, as well as we do—you have covered the space as long as we have been at Crown Holdings, Inc.—the customers keep absolutely zero inventory. They basically receive deliveries from us, and they go right into the can washer, into the filling line within minutes. We have fifteen-minute delivery windows that we are expected to deliver into so they do not get shut down. So I do not think there is a lot of prebuy because they do not keep a lot of inventory, and they have got direct delivery right to the store. In Europe, could there be a little prebuy? Maybe with some of the beer customers, but again, the soft drink side is not keeping a lot of inventory. And the growth in Asia has been—if we just take a step back and talk about Asia real quick—the growth there has been mid- to high-single-digit for the last several years. We elected not to participate in that for reasons surrounding the value. We got our cost structure where we want it. We think we have the lowest cost structure of any producer in Asia, and we think we are now well positioned to afford us a different commercial strategy, and that is what you saw in the first quarter. So I do not think there has been any prebuy. I could be wrong, and there could be some on the margin, but nothing large enough, George, to move the needle. George Leon Staphos: Okay. A quick one, and I will turn it over just to be fair. On Signode, any green shoots at all? You suggested that the margin was a function of timing of pass-through relative to your cost inputs, and we will take that at face value. You are seeing some pickup in volume, but when do you expect we are going to see, along with green shoots, a pickup in margin there? Because that is ultimately trapped earnings at some point that could leverage to the benefit. Anyway, I will turn it over there. Thanks for the time. Good luck in the quarter. Timothy J. Donahue: Thanks for the question. January data looked pretty promising. Although I saw consumer sentiment the other day—I do not know if it is University of Michigan or who publishes it—but it was just dreadful, and I think the last two months have been bad, and I think we are at the lowest level ever is what I read the other day. Having said that, volumes have held up fairly well on the commodity side, although there has been some margin squeeze. And on the equipment and tools side where the margins are much higher, there has been volume loss over the last couple of years. Now in the month of April, we have seen order inflows at much higher rates, 10% to 20% higher than this time last year. That typically takes about ninety days for it to manifest itself into delivery. So we are hopeful. I do not tell you that because I am promising you anything, but if we are looking for a green shoot, orders received in the month of April look promising across equipment and tools. So we are hopeful for a stronger third and fourth quarter. Operator: Thank you. Our next question will be coming from Philip H. Ng of Jefferies. Your line is open. Philip H. Ng: Hey, Tim. You mentioned the bev can market is going to be quite tight in the summer months in North America and Europe. Certainly, there are some supply chain dynamics at large. How comfortable are you in terms of meeting that demand if the market comes in a little better than, call it, low single-digit growth in the U.S. as well as Europe? Give us some context of your ability to potentially meet that demand. Timothy J. Donahue: Only because it is early in the year and, as I said, we are mindful of the inflationary pressure building on the consumer, we have left our growth expectations for volume in North America at 2% to 3%. We certainly have some room to do a little better than that. I would like to wait to see how the second quarter unfolds and how the consumer reacts to what they are faced with, which is higher energy costs across the board, whether it is their home heating and electric bill for air conditioning and/or their gasoline bill. So we can go a little bit above 2% to 3%, but let us be clear, Phil, we have limitations as well. We, like every other can supplier, have a limited amount of capacity and if the market goes gangbusters—which it feels very strong now—when you look at the categories over the last fifty-two weeks, with the exception of beer in cans—beer is only down 1.1%—every other category is up low- to mid-single-digits with the exception of energy, which is up almost 20%. So it feels like the consumers and then our customers, recognizing that the consumers favor the positive characteristics of the can, that things are really positive for the can right now. But we do have limitations, but we will do our best to sell every can we can at the right price and satisfy the market. Certainly contract customers come before spot customers. Philip H. Ng: The reason why I asked is because your volumes for 1Q looked a little muted. Certainly, you have tougher comps in Brazil. But it sounds like you have the runway to support that demand. As we think about how the year unfolds in March and April, how have trends actually been trending, whether it is North America, Europe, and Asia, Middle East? There is a lot of uncertainty on the macro front. Timothy J. Donahue: We got off to a slow start in January. The month of March, I think, was the highest shipment month ever for the company, which is surprising that it happened in March, not like a May month. Yesterday was our highest shipment day ever in the history of the company. This is North America. So things are pretty firm right now. March was a strong month, and April is going to be maybe not as strong as March, but April typically is a soft month, and it is going to be a strong month. Brazil, we had a pretty difficult comp. I think we were up like 11% last year in the first quarter in Brazil. And not to place too much on the comp, I do think conditions in Brazil are different than conditions in North America right now. I think the Brazilian consumer is not as resilient as the North American consumer. So post-Carnival and getting into their winter months, we will see how the market in Brazil reacts and hopefully, the Brazilians and the Mexicans go deep into the tournament. We are pulling for both the Mexicans and the Brazilians to go as deep as possible. That will be really positive for can demand in both of those countries and even among the Hispanic and broader Latino population across the United States. Philip H. Ng: Got it. And one last quick one for me. You talked about how, just given some of the supply chain in Asia, that could be an opportunity for you shipping into places like India. Certainly, that could be uplift on demand. Is there anything we should be mindful of in terms of cost associated with that? Is that something you just pass on to the consumer and that would be accretive to EBITDA and EBITDA margins? Or how should we think about that opportunity that could be a good guide in 2Q and 3Q? Timothy J. Donahue: If you sell more cans, you are going to make more, right? You are going to make more earnings, more EBITDA. Percentages move around a little bit, as you know, with the pass-through of higher material costs, so you always have the denominator effect. But if there is an opportunity for us to ship 50 million to 100 million cans into The Middle East from Thailand and/or Cambodia to Vietnam, and the customers need support, we are ready and able to do that. Philip H. Ng: Thank you. Appreciate the call. Timothy J. Donahue: Thank you, Phil. Operator: Thank you. Our next question will be coming from Ghansham Panjabi of RW Baird. Your line is open. Ghansham Panjabi: Yes, thank you. Good morning, everybody. Tim, just going back to commodity costs—obviously a big increase in oil and aluminum and much of everything else the last couple of months. It sounds like you are still embedding a pretty intact volume outlook for 2026, apart from what you called out in The Middle East. But last time we had inflation a few years back, it was very tough for your end markets in the developed markets in particular. So what gives you confidence on the implied resilience this go-around? I know there is some distortion with the World Cup, but then the emerging market consumer, I would have to imagine, is much more sensitive to fuel prices, etc. So just going back to the question on confidence on volumes. Timothy J. Donahue: The big inflation that we have right now is principally in North America and it is opposed to the Midwest premium. We do not see that level of inflation in Asia and Europe. But your question is a good question. It is why we left our volume expectation unchanged from what we provided to you in February. We are always mindful of this, and you are right—2022. Kevin and I went back, and we looked at it. The big shock then was there was a rapid increase in LME from, let us say, $2,500 to $4,000 a ton. The LME has been more or less bouncing around $3,200 to $3,500 right now. It has been really the Midwest premium that has kind of been the proxy to absorb the tariffs. But having said that, as you have said and as we have said earlier, pressure on the consumer from broader inflation and specifically energy-related inflation is there. But what we see right now, what we are feeling right now, what the customers are asking for right now—at least through the end of the second quarter—it does not look like it is going to slow down. Now if your question is could we have a shock like we had in 2022, anything is possible. It just does not feel like it is going to happen this year. Ghansham Panjabi: Okay. Got it. And then for the nonreportable segment, the step function in profitability—was there anything one-time-ish that drove that? I know you called out strength in beverage can equipment and also North American food cans. And then finally, on India, can you just frame how big the market is from a unit standpoint and your current position in context of the greenfield capacity you announced? Timothy J. Donahue: The market is roughly 4 billion to 5 billion units and growing 15% to 20% per year. We supply very little into the market right now. We used to, before there were can plants there—we supplied almost the entire market from Dubai—but we have very little supply other than what we are shipping in now from Asia to cover some of the Middle Eastern supply, and then we are adding 2.2 billion units over a couple of years here, with a large customer under contract already, so we feel pretty good about that market. On nonreportable, beverage can equipment—we tripled the income in the quarter compared to last year, albeit off a lower base. Food cans again, as I said, growing 3% and utilizing more capacity, and we had some new capacity brought on over the last several years. So utilizing that new capacity in a really balanced mix among seasonal vegetables, non-seasonal human food, and pet foods—pet food making up 40% to 45% of our mix nowadays—so a really good mix. And then food closures—surprisingly, closures performing quite well among nutraceuticals, other nutrition drinks, and some human food. If you think about condiments and jar lids, things like that. Could there have been some minor one-offs? Maybe a handful, if even that—not that much. Operator: Our next question will be from Christopher S. Parkinson of Wolfe Research. Your line is open. Christopher S. Parkinson: Great, thank you. Given all the moving parts in Asia over the last few years, and I know you have dramatically improved your operating base, can you just give some insights on how you think about the sustainability of the inflection on a go-forward basis? It seems like there are still some mixed results on a country-by-country basis, but I would love to hear your perspectives. Thank you. Timothy J. Donahue: I do not know that we have any mixed results on a country-by-country basis. Volumes were strong throughout the segment, particularly strong in Cambodia, Vietnam, and China, as I mentioned. We have a number of large customers that we are partnered with—some in joint ventures, some not in joint ventures. As I said in February, we agreed among all of us here at Crown Holdings, Inc. that we were going to, on a new commercial adjustment strategy, go out and grab more volume, and it seems to have worked. There has been a fair amount of consolidation among the Chinese beverage can suppliers. So it does appear that there is a slight firming in China right now, and we will see how that progresses. There has been growth in Asia for the last several years. We have elected by and large not to participate in that because it was at prices that we said were not worth participating. That has changed a little bit, and so now we are participating again. Keeping in mind, we make 16% to 17% operating income. It is a pretty healthy segment for us. So I am always puzzled when people say they are disappointed when we are making 17% in the packaging industry. Most packagers would like that. So that is a division that we have high hopes for and continue to support, and we think it will continue to be a really good asset for the company into the future. Christopher S. Parkinson: Great. And just as a follow-up, obviously you have gone through your expansions in Brazil, Greece, Spain, India. At the same time, it seems like the developed market side of it—the U.S. and broadly in Western Europe—still seems pretty tight. Are there any other aspirations in terms of adding additional lines that you are considering? Is now the right time? Do you foresee others kind of taking the progress just given the constructive S/D through the end of the decade? Any quick perceptions on that? Timothy J. Donahue: As you rightly point out, with Greece and Spain we have some Western European expansion. Obviously, that is not Northwest, but it is Western Europe. In Brazil as well. North America—I guess your question is probably most specific around North America. At this time, we do not see the need for Crown Holdings, Inc. to expand capacity in North America. That obviously could change depending on the market and specific circumstances, but for the time being, no. Operator: Our next question will be from Analyst of Raymond James and Associates. Your line is open. Analyst: Hey, Tim, Kevin, Tom. Good morning, everyone. On Americas segment income for 1Q, could you help parse out what was the function of lower volumes in Brazil versus weather in North America versus general inflationary pressures? And on those inflationary pressures, how does 2Q compare to what you saw in 1Q in Americas? And how quickly are you able to offset those raws pressures with regards to freight, energy, or coatings? Timothy J. Donahue: You are generally well aware of the formula price we use, using PPI as a proxy to recover our nonmetal costs on an annual basis. And PPI has been somewhat benign. The PPI adjuster has been somewhat benign over the last couple of years. So a little bit of a building pressure that perhaps last year we skirted away from it, but this year it kind of caught us. We kind of knew this was going to get us this year. You have got labor—labor goes up every year. You have got the coatings—the coatings fellows are facing pressure all the time, especially right now with the Middle East crisis. Warehousing costs for us in the first quarter of this year were about a handful or a touch more only, as we try to warehouse more cans early on to meet what we expect to be strong summer demand. We had a little timing situation whereby we used some Chinese metal in some locations, and the Chinese government in January or February removed the VAT refund on exported aluminum. So we had one or two months comparison this year that we did not have last year. And then as you point out, the mix—depending on the customer and depending on the size of the can—the profit mix in Brazil sometimes is a little better than the profit mix in North America. So it is a whole bunch of things, and to the second part of your question, as we said in the prepared remarks, we will significantly reduce the delta between last year and this year in the second quarter. Maybe not fully, but it certainly will not be $26 million. Analyst: If you want to quantify, was there a certain amount in 1Q from January-February winter cost headwinds? Timothy J. Donahue: Not going to quantify anything. I would tell you that January volumes were down about 6%, and I think February volumes were up a few percent as well. So it was a tough few weeks in there where we had difficulty transporting. We had difficulty getting our own people to factories. Analyst: Makes sense. Thanks again, Tim. And if I could sneak one more in—Kevin, share repurchases, I think you said $600 million. I believe it was $650 million before. Any change there? Is that future CapEx in regard to India—just some more dry powder? Anything that we should consider? Kevin Charles Clothier: No change. The number is approximately $600 million. We have a little room to go higher than that. It was just putting a number out there, so no change. Operator: Our next question will be from Anthony James Pettinari of Citigroup. Your line is open. Anthony James Pettinari: Good morning. With the $0.10 hit from The Middle East, is that primarily hitting your Europe segment where I guess those assets sit? Or is it sort of spread across the company? And then, is there any kind of assumptions around—you talked about ocean freight, energy, direct materials—those costs staying at current levels, maybe the conflict resolving at some point and then maybe coming down or maybe going up further? Any color you can give around the assumptions? Timothy J. Donahue: Most of it will be in the European segment. Depending on ocean freight, we could have a penny in the Americas business as we bring metal into parts of the Americas business from China. And certainly ocean freight as it relates to the Asian business because we do move cans and materials around Asia as well. And then energy—if you think about diesel and some of the industrial gases, LPG, LNG, etc., into Asia—many of the markets are subsidized. There is little impact to us. There are some markets that are not subsidized. So we have forecast a bit of a headwind in Asia—maybe a penny or two in Asia as well. Anthony James Pettinari: And just generally, directionally, do you expect these costs to maintain at current levels towards the end of the year, or some relief? Timothy J. Donahue: I think your leading assumption is probably correct, that even if the conflict resolves itself, we are going to see elevated costs for some period of time. We are working on plans right now to minimize the cost and/or share cost with customers. Your assumption is correct. Costs will remain elevated for some period of time. They will ultimately fall back depending on demand and industrial activity, but we, like you, expect them to remain elevated. Anthony James Pettinari: That is very helpful. And then just one quick one on nonreportable. You obviously had a really strong 4Q/1Q in North American food cans. As you look to the second half, do those comps get tougher? Is there anything from a timing perspective we should be mindful of? Timothy J. Donahue: I do not think there are any notable customer wins on the food can side or the closure side. We have two customers that are growing. So if they have wins, and because they are Crown Holdings, Inc. contract customers, we, by default, get their win. Second quarter, I think we expect earnings in Other to be up, and maybe the comps get a little bit more difficult in Q3 and Q4. You are not likely to see the big outperformance in Q3 and Q4 that you see in Q1 and then a little smaller in Q2. Operator: Our next question will be from Anojja Shah of UBS, sitting in for Joshua David Spector. Your line is open. Anojja Shah: Hi. Good morning, everyone. We are seeing fertilizer prices increasing quite significantly this year, right ahead of planting season. What does that mean for the pack season this year? Do you think that means they will plant less and have less of a yield this year? Timothy J. Donahue: They will plant as much as they think they can sell, and they will plant as much as what the demand from the retail or the wholesale markets tell them that they have to plant. To be honest with you, I do not know if they hedge fertilizer or not. I do think we are going to see a stronger period of food can and at-home consumption here as inflation begins to pull up the consumer. As President Obama once said, maybe it is time people start eating their peas again—one of my favorite lines from President Obama. I do not think that our customers will necessarily plant less. They are, by and large, much healthier over the last decade. Consolidation has helped them do that. They are broadly specialized among certain kinds of vegetables, soup, pet food. Pet food—fertilizer has little to do with pet food. So I do not think they are going to plant less, no. One thing I would say is if you are hearing that in the market, follow the cattle cycle. The cattle cycle is at a seventy-five-year low, principally because of drought conditions in the Midwest. So when we talk about human food versus feed grains and feedstocks, there could be a difference in how much feedstock is planted versus human stock. Anojja Shah: Thank you. And then switching over to Mexico. It looks like your volume was pretty strong in Q1, which is a little surprising because they just put that second sugar tax in. Maybe we could get an update on what happened in Mexico in Q1 and then what you are expecting for the rest of the year. Timothy J. Donahue: Mexico was up about 4% in the first quarter. Kind of expecting a flatter year, to be honest with you. We will see how the year goes. Both glass and metal did well, with cans up 4%. But we are currently modeling Mexico flat year over year. Anojja Shah: And the sugar cap? Timothy J. Donahue: We are mostly a beer supplier in Mexico. Anojja Shah: Thank you. I will turn it over. Timothy J. Donahue: Thank you. Operator: Our next question will be from Arun Shankar Viswanathan of RBC Capital Markets. Your line is open. Arun Shankar Viswanathan: Great, thanks for taking my question. I guess, apologies if I missed this, but maybe you can offer your thoughts on the tariffs and the potential impact, especially the 232 tariffs. I know that the Midwest premium has already kind of increased the cost of the can, but any further impacts you expect here? And then also on the steel side, are there any impacts there that would potentially impact food and aerosol? How do you see that playing out as far as demand? Timothy J. Donahue: Other than the Supreme Court striking down some of the Liberation Day tariffs, 232 and 301 are largely unchanged. Demand remains pretty strong in both food cans and beverage. I do not see any near-term impact. Tariffs generally—my feeling about tariffs is they are not helpful. It is a distortion. The administration is picking one industry over several other industries to be a winner. If they think we are saving 300 jobs at a steel mill, they are putting at risk 50,000 jobs across a whole host of other industries. So not helpful. It is what it is, and we dealt with this in the first Trump administration, and we will deal with it again. It is poor policy by any measure. But I do not think he is going to listen to a CEO of a can company. We soldier on. The good thing for us is that the food can still offers the best bargain, the best benefit, some of the highest nutrition levels of any packaged food or fresh food to the consumer—especially in times of inflation—so we feel good about the product and the product line we are in. And on the beverage can side, I think by and large, younger generations are embracing the can. My father’s generation was a can drinker. I was a bottle drinker, and now my kids are can drinkers, and they are the drinkers of the future. There are a lot of things to like about the beverage can, and I think the consumers are grasping that. We have not seen any near-term nor do I see any long-term damage currently as it relates to tariffs. Arun Shankar Viswanathan: As a follow-up, where are you on the PPI in North American beverage? I know there may be a drag from that this year, but does that subside and maybe reverse next year, especially given some of the inflation that we are seeing? And does that mean you could grow low-single-digit volume and then segment income maybe be above that just given a reversal of PPI? Timothy J. Donahue: Let us say we hope you are right. I think it is really early to talk about next year. We are only in Q1. So I am going to pass on that. Operator: Our next question will be from Analyst of Deutsche Bank. Your line is open. Analyst: Could you just remind us how pass-throughs are designed in your contracts? How long are the lags? How much are pass-through? And any hedges that you may have on the portion that is not passed through? Thank you. Timothy J. Donahue: Generally—because it is not the same in every region of the world—but in the big markets, we have total pass-through on LME, premium, and conversion of ingot to can sheet. So on metal, think about metal as passed through. Many of our customers elect to hedge aluminum, but we pass through. For passing nonmetal costs through on an annual basis, we pass through a percentage of the PPI index and/or CPI, again depending on the region of the world. Not a perfect proxy for our costs every year, but it is designed to capture some of the increase. We do pass through freight and energy across many contracts. But nonfreight, nonenergy—if you think about labor, which goes up every year, and then other direct material costs like coatings, and other system costs like warehousing—from time to time, the PPI is either more or less than our actual costs. This year, our actual input costs are a little higher than the formula we had January 1. Analyst: Got it. That is helpful. Thank you very much. And, in terms of capital allocation, you mentioned really no change this year. As we look out further, do we expect any changes in terms of CapEx? You have greenfields that you are planning. Any changes in buyback plans as we look further out? Timothy J. Donahue: We have the great fortune of being in a packaging company—being in a can company—and we have the great fortune of having a portfolio of businesses that generates a lot of cash flow. Your hope and our hope is that we are not foolish with that cash flow. We are going to invest to grow our business from time to time, and where we have greenfield and/or brownfield opportunities, we look to do that to support our customers' growth objectives. Beyond that, currently, beyond our own capital needs, as we declared, we are going to pay a dividend, and we are going to buy back shares. Kevin Charles Clothier: As Tim said, the first thing we are going to do is invest in the business. After that, we are going to pay the dividend, which we just increased. And then with remaining cash that is left over, we will repurchase stock. We will do it somewhat on a program basis, but also when we feel that there is good value, we will be opportunistic and buy a little more within each of the quarters. Our plans have not changed. On a long-term basis, we will average somewhere around $500 million of capital a year, which gives us plenty of money to pay the dividend and buy back stock. Operator: Our next question will be from Michael Andrew Roxland of Truist Securities. Your line is open. Michael Andrew Roxland: Thank you, Tim, Kevin, Tom, for taking my questions. Tim, not trying to beat a dead horse, but just wanted to grab your thoughts on consumer elasticity. You mentioned the consumers have been resilient thus far, but it does sound like some of the larger CPG customers are planning to raise prices this year. And obviously consumers are, as you mentioned, contending with elevated costs. How do you think about consumer demand in the next twelve months relative to possibly higher prices from your customer as well as increasing costs to consumers? Timothy J. Donahue: There is only so much the consumer can absorb before they have to start making choices. One thing they are not going to do is not put gas in their car because they have to get to work. So we know the choices that they have to make first before they buy packaged goods. Fortunately for us, people have to eat and drink. And as I said earlier, canned food offers, by and large, the best value for a family to prepare nutritious food on a daily basis. So we are always concerned about demand, but we are less so concerned about that. On the beverage can side, you start making choices: you do not go out to dinner so much; maybe travel is lower. Looking at the price of airfares these days with jet fuel, maybe people do not travel so much, and they stay closer to home. Generally, we do much better with consumption when people stay closer to home. It does feel, as we sit here today—we are equally as mindful as you are about the pressure on consumers—but as we sit here today, it feels like we are going to be into a very strong summer. Michael Andrew Roxland: Thank you for that, Tim. Then just one quick follow-up. You mentioned you are working on plans to mitigate costs and/or share costs with your customers. Can you provide any more color around what those initiatives are—surcharges and the like? Timothy J. Donahue: I do not want to discuss too much of what our strategy and/or plan would be in that regard, but there is a limit to how much any company or anybody within a supply chain can absorb. Depending on how long costs stay elevated and how elevated they are, there are different conversations that need to be had. That is all the point meant. Operator: Next question will be coming from Jeffrey John Zekauskas of JPMorgan. Your line is open. Jeffrey John Zekauskas: Thanks very much. You talked about catching up to higher raw material costs in your transit business. Do you buy much polyethylene in that? Polyethylene prices in March maybe were up $0.10 a pound, and in April, maybe they will be up $0.30 a pound. So there seems to be a rising dynamic there. And for Kevin, in cash flows from financing activities, there was an other net use of cash of $107 million. What was that, and are there any positive offsets to that later in the year? Kevin Charles Clothier: I will address the financing item. That $100 million—actually a little bit less than that—related to our North American securitization program. At the end of the year, as we sell receivables, we end up collecting more on the receivables that we sold. As a result, we have to repay the bank. I fully expect that amount to basically reverse itself and be closer to zero by the end of the year. Timothy J. Donahue: To your first question, Jeff, you are right—there are rising input costs over the transit business. We do not have a lot of resin-based businesses within transit. We have some resin-based, not a lot. But there are rising costs everywhere, whether it is steel, paper, resin, and we just have to do a better job of maintaining and expanding margins in the business. Jeffrey John Zekauskas: Okay. Great. Thank you very much. Timothy J. Donahue: Thank you. Operator: Our last question will be coming from Edlain S. Rodriguez of Mizuho. Your line is open. Edlain S. Rodriguez: Thank you, and good morning, everyone. Tim, you talked about the potential impact on the consumer because of inflation. Where do you think you could see the most impact? Is it in Southeast Asia where this could probably come under a lot of pressure? Is it in Europe? Where do you think you could see the most impact? Timothy J. Donahue: The markets you would expect would first be markets like Brazil, Mexico, maybe Southern Europe, maybe parts of Asia, although there is so much growth in Asia right now that it feels like we are going to grow through this in Asia. The only thing I worry about in Europe—I do not know how big the tourism season will be in Southern Europe this year. Airfares are really high. People are stretched anyway. Do they postpone the European vacation or not? We will see. But everything—the demand we have right now in Europe is extraordinary. You do not see us letting up. We probably, at the beginning of the year, would have expected mid- to higher volumes in Europe for the year—maybe we have haircut our assumption to 4%—but we are still expecting growth, and 4% might be too low as well. Things are pretty firm. Brazil feels like there is a weakening right now, and they have some elections. We will see how the market reacts. It is also wintertime, so it is hard to gauge it. We will see if the World Cup bolsters it. In Mexico, we had a pretty strong start to the year principally in beer, and we will see how that holds up, although we are expecting a flatter performance in Mexico. As Ghansham pointed out earlier, four years ago—even in North America—the consumer bought at higher prices across the board when inflation shot up. Could we see that again here in North America? We could, although conditions feel really firm right now, and it just does not feel like we are in the same place as we were in 2022. Edlain S. Rodriguez: Thank you for the color. That is all I have. Operator: Once again, that concludes today's conference. Thank you, everyone, for participating. You may now disconnect, and have a great day.
Operator: Welcome to the Invesco Ltd.'s First Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session. This call will last one hour. To allow more participants to ask questions, one question and a follow-up can be submitted per participant. As a reminder, today's call is being recorded. Now I would like to turn the call over to Gregory Wade Ketron, Invesco Ltd.'s Head of Investor Relations. Gregory Wade Ketron: Thanks, Operator, and to all of you joining us on the call today. In addition to the press release, we have provided a presentation that covers the topics we plan to address. The press release and presentation are available on our website, invesco.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide two as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Ltd. is not responsible for the accuracy of our earnings transcripts provided by third parties. The only authorized webcasts are located on our website. Andrew Ryan Schlossberg, President and CEO, and Laura Allison Dukes, Chief Financial Officer, will present our results this morning and then we will open up the call for questions. I will now turn the call over to Andrew Ryan Schlossberg. Andrew Ryan Schlossberg: Thank you, Gregory Wade Ketron, and good morning to everyone. I am pleased to be speaking with you today. Before we review this quarter's results, I would like to reiterate our strategic priorities and our key performance drivers as highlighted on slide three of today's presentation. These strategic imperatives focus our efforts, guide our decisions, and provide a clear framework for navigating a rapidly evolving asset management landscape. Our strategic priorities remain grounded in a simple conviction. Regardless of broader market conditions, geopolitical events, or cyclical, structural, or fundamental headwinds, executing against these priorities will leverage the best of Invesco Ltd., accelerate our key areas of opportunity, and drive profitable growth. And that is exactly what we are seeing in our business. Profitable organic growth is paramount. As such, we are focusing on high-demand, scalable investment capabilities like fixed income, and delivery vehicles like ETFs. We continue to drive value through our expansive global footprint with a significant and unique Asia Pacific presence, including a hard-to-replicate Chinese JV, and a strong performing and growing EMEA business. Together, these regions represent nearly $700 billion of our client AUM. We are also well positioned to generate increased value in our private markets business where we have a strong institutional heritage in real asset and alternative credit strategies, which we are now leveraging as we bring those products into the faster growing wealth management space. These existing Invesco Ltd. strategies are being augmented by our recently announced partnerships with Barings and LGT Capital. Each of these relationships is progressing well, and we look forward to updating you on developments with additional product launches later this year. We also continue to sharpen our focus and accelerate innovation across products and vehicles such as active ETFs, SMAs, models, customized solutions, and digital assets. We are seeing momentum build in each of these areas and have launched several new products and partnerships this year already. Our progress on strategic priorities also includes continued strengthening of our balance sheet and efficient capital deployment, including returning a portion of it to our shareholders through increasing common share repurchases and dividends. We continue to prioritize the intersection of market size and secular change where Invesco Ltd. is uniquely positioned to drive growth in the highest opportunity regions, channels, and asset classes. This is the guiding principle by which we measure opportunities, deemphasize when needed, and focus resources to drive growth across the organization. We will continue to execute with discipline, allocate capital and resources accordingly, and measure progress against our key performance drivers indicated on the far right-hand side of this slide. So let us turn to slide four and take a look at how our efforts translated into asset flow results in the first quarter. Markets had strong momentum coming into the quarter, but ultimately gave way to heightened volatility as geopolitical uncertainty, sharp moves in energy prices, and changing interest rate expectations weighed on public markets. It is in this type of operating environment that the benefits of our broad, scaled, diversified global platform are most evident. With elevated volatility, money was in motion, and clients continued to entrust Invesco Ltd. with significant capital across our global product set. Net long-term inflows were $21.8 billion, marking the eleventh straight quarter of net inflows and representing annualized organic growth of 4%. It is also worth noting that we generated $11.6 billion in global liquidity inflows and we ended the period with over $200 billion in AUM. We continue to be encouraged by the breadth of our overall growth. We had solid positive flows across several dimensions, including in many of our strategically important investment capabilities, across each of our three regions, in both our active and passive strategies, and across wealth management and institutional channels. The Asia Pacific and EMEA regions again produced very strong net inflows with 17% and 8% annualized organic growth, respectively. We also saw our strongest quarter of active net inflows with nearly $15 billion generated around the world. Additionally, institutional demand has remained strong, our fifth consecutive quarter of annualized organic growth in excess of 5%. So let me spend a few minutes clicking into growth drivers in each of these investment capabilities. Starting with our ETF and index capability, where we continue to meaningfully scale and diversify our platform to meet evolving client demand. Our ending AUM stood at a record $638 billion, or over $1 trillion including the QQQ. We had nearly $19 billion of net inflows during the quarter, or 11% annualized organic growth. Within our ETF range, we garnered net inflows across a diverse set of products, both equity and fixed income. Our equal-weight S&P 500 delivered record net inflows and we saw strong demand for QQQM from investors with long-term horizons. We continue to see strength in S&P quality and momentum lineup as well. We remain focused on innovation in the ETF space as we launched four new active ETFs this quarter, strengthening our market position in this high-demand segment as investors continue to use the ETF wrapper to access active equity and fixed income strategies, particularly in more volatile market environments like we are seeing today. We have built a robust active ETF platform currently managing over $20 billion in assets, which increases to more than $35 billion when you include index strategies implemented by our active teams. With our QQQ fund conversion on December 20, we had a full quarter of the fund’s flows included in our results. The fund continues to attract good demand, but after multiple quarters of very strong inflows, we ultimately had net outflows this quarter. This reflected normal rotation and profit-taking as investors broaden exposures amidst the more volatile market environment. However, with abating market volatility in April, we have seen strong demand and net inflows return for this flagship product. Let me take a moment here to address the recent developments that Nasdaq has expanded its licensing to allow two additional U.S.-listed ETFs to track the Nasdaq-100. First, we see this as an evolution of a highly successful benchmark reflecting the global importance of the Nasdaq-100, where we dominate with our flagship QQQ fund, which is one of the world's most actively traded ETFs and a core exposure vehicle globally for the Nasdaq-100. As you know, QQQ's position is supported by unmatched liquidity with tight spreads, deep options and derivatives markets, and a very large and broad institutional and retail investor base. These critical characteristics, coupled with the immense brand recognition that is synonymous with Invesco QQQ, a one-of-a-kind and a large marketing spend, and positive client outcomes built over 25-plus years, minimizes the dependence on being the sole licensed product from an index provider. Our installed base is tough to erode, and it has been proven that switching costs are higher than assumed, with taxes being a major factor. By example, the introduction of our own QQQM expanded the Nasdaq-100 ecosystem without cannibalizing the QQQ. Nasdaq has historically been selective in how it has licensed the Nasdaq-100 index, and that selectivity resulted in the QQQ being the primary U.S.-listed ETF tracking the index for decades. Nasdaq has publicly reaffirmed its commitment to our QQQ innovation suite as a cornerstone of their Nasdaq-100 ecosystem. Further, Nasdaq's licensing for these new Nasdaq-100 exchange-traded funds is consistent with our QQQ at eight basis points, meaning any competitor fund will pay the same amount and the existing licensing agreements are not impacted by these filings. Our relationship with Nasdaq remains strategic and long-standing. To put a fine point on it, our installed base, where we have built a dominant, entrenched position over decades, will be difficult to displace. More so, we believe that the attention will create an increasingly large pool of assets behind this important benchmark. Let us move on to fundamental fixed income, where we garnered a very healthy $3.7 billion in net long-term inflows, or 5% annualized organic growth, with strong attribution across geographies and channels. This only considers the narrower view of our fundamental fixed income capability. Looking more broadly at the asset class across all of our investment capabilities, that net flow number jumps to $14 billion with the inclusion of our related ETF and China-based fixed income assets. Momentum in our fundamental fixed income capability was broadly driven by institutional inflows into investment-grade products, as well as fixed income SMAs, where we continue to see strong demand. Our entire SMA platform, which also includes a portion of equity assets, now stands at $37 billion in AUM. We have one of the fastest growing SMA offerings in the United States wealth management market, generating an annualized organic growth rate of 19% this quarter. Moving on to the China JV, we produced another exceptionally strong quarter, demonstrating that we are well positioned in this market. We reached a record high AUM of $142 billion and delivered $8.7 billion of net long-term inflows, or a 31% annualized organic growth rate. In a volatile global market environment, the China JV demonstrated the benefits of its diversified platform. Looking at the quarter as a whole, net inflows continued to be driven by fixed income plus strategies, which have now reached $40 billion in AUM on our JV platform. We have developed a diversified product lineup in our China JV designed to meet varying client risk appetites, and we like the position we have built and the opportunity it presents long term. To support this growth during the quarter, we launched 14 funds with total AUM of $2.5 billion, mostly aligned with the growing demand for balanced and equity ETF strategies. Shifting to private markets, we posted $400 million of net inflows driven by direct real estate. The asset class has gained momentum, led by INCREIF, our real estate debt fund for the U.S. wealth management channel, which continues to gain scale, and our U.S. core plus real estate equity fund, which is seeing strong institutional engagement. Assets in INCREIF with leverage now total $5 billion after a little more than two years in the market. This is one of the fastest ramp-ups in the wealth channel for a commercial real estate credit product and is a reflection of how our innovation mindset is helping drive our results. Additionally, we continue to prioritize private markets product development for the defined contribution channels around the world. During the quarter, we launched the Invesco Core Plus Real Estate Trust, which is a collective investment trust designed to provide U.S. defined contribution plans access to private real estate. Among the first of its kind, this CIT introduces institutional real estate capabilities that support the long-term needs of defined contribution investors. We launched this fund with a mandate from a large U.S. corporate institutional investor as the anchor client, marking a significant win for our business. Our real estate net inflows were modestly offset by net outflows in alternative credit, which were exclusively driven by our bank loan products. BKLN, our industry-leading ETF, experienced redemptions of $400 million in Q1, instigated by the technology-led sell-off. However, the fund remains well scaled and positioned in the market. Regarding the market dynamics in private credit at large, the headlines are oftentimes drowning out the fundamentals and conflating various products. Invesco Ltd.'s alternative credit platform, built around broadly syndicated loans, CLOs, and disciplined direct lending, had zero software exposure, showcasing the diversified nature of the platform that is designed precisely for environments like this one. From a product standpoint, it is important to note that we are not in the BDC space. We have dry powder, diversification, and extensive experience. For managers with their discipline, this volatility may ultimately prove to be an opportunity. The growth potential in private credit has not fundamentally changed, and manager selection remains key given the wide dispersion in the sector. The current turbulence has not impacted our long-term views, and we believe we have a very favorable position. We are excited about the prospects in private markets, organic growth opportunities amplified through our innovative partnerships with Barings and LGT Capital to further penetrate the wealth management and defined contribution markets. Moving on to multi-asset capabilities, we also had strong long-term net inflows driven by our institutional quantitative equity strategies, which generated $4.7 billion of net inflows during Q1. Finally, in fundamental equities, U.S. value equities turned to net inflows during the quarter, which was matched by continued positive net flows in global, international, and regional equities. Clients in Asia Pacific and EMEA drove ongoing momentum in these markets, headlined by our Global Equity Income Fund, which remains the top selling retail active fund in the Japanese market. This fund posted net inflows of $3 billion during the quarter, rapidly growing to $23 billion in AUM, while generating a very favorable net revenue yield for Invesco Ltd. Despite these positive fundamental equity flow highlights this quarter, we did remain in net outflows of $2.4 billion overall in the segment. This included the expected $1.2 billion in net outflows from our developing markets fund, albeit a significant moderation from recent history. However, it is important to highlight that our overall fundamental equity outflows this quarter were the smallest we have seen in nearly nine years. On a gross sales basis, we had our best fundamental equities flow quarter since 2022. Moving on to slide five, which shows our overall investment performance relative to benchmarks and peers, as well as our performance in key capabilities where information is readily comparable and more meaningful to drive results. Investment performance is key to winning and maintaining market share regardless of overall market demand, and achieving first quartile investment performance remains a top priority for Invesco Ltd. Overall, 46% of our active funds are performing in the top quartile of peers on a three-year time horizon, with nearly half reaching that bar on a five-year basis. Further, over 70% of our active AUM is beating its respective benchmark on a five-year basis. With that, I will take a pause and turn the call over to Laura Allison Dukes to discuss the quarter's financial results, and I look forward to your questions. Laura Allison Dukes: Thank you, Andrew, and good morning, everyone. I will start with the first quarter financial results on slide six. Assets under management held up well against market volatility in the first quarter. While volatility drove a $42 billion decline in AUM for the quarter, we were able to mostly offset this with continued strong net long-term asset inflows of $22 billion and $12 billion of net liquidity inflows. AUM at the end of the quarter was $2.2 trillion, nearly the same level as the end of the fourth quarter. Average long-term AUM, which included a full quarter of the QQQ, reached nearly $2 trillion, an increase of over $400 billion, or 26% over last quarter, largely due to the QQQ. Average long-term AUM is up nearly 50% over the same quarter last year due to the QQQ, as well as organic growth of 6% over the last four quarters and higher market levels. While we did see market weakness that negatively impacted our AUM levels later in the first quarter, we subsequently saw a strong rebound as markets have recovered so far in April, with both key domestic and global equity indices up and bond indices holding at recent levels. This has led to our AUM growing into the $2.3 trillion range more recently, an increase of over 5% versus quarter-end, with growth across nearly all of our capabilities, led by ETFs and the QQQ, and, to a lesser degree, fundamental equities, the China JV, and fundamental fixed income. Net revenues, adjusted operating income, and adjusted operating margin all showed significant improvement from the same quarter last year, while adjusted operating expenses continued to be well managed. This drove 500 basis points of positive operating leverage and a 300 basis point operating margin improvement year over year, with operating margin improving to 34.5%. Adjusted diluted earnings per share was $0.57 for the first quarter versus $0.44 for the same quarter last year, a 30% improvement. Our focus on strengthening the balance sheet continued during the quarter as we redeemed a $500 million senior note that matured in January. Finally, we increased the amount of common share repurchases in the first quarter compared to prior quarters, buying back $40 million, or 1.6 million shares. Also in February, our Board authorized an additional $1 billion in common share repurchases. Moving to slide seven. Net revenue yield increased over the fourth quarter, largely due to the QQQ reclass to fee-earning, partly offset by the impact of the divestitures that occurred in the fourth quarter. Client demand continues to drive diversification of our portfolio, with strong growth in lower-fee products such as ETFs and fundamental fixed income capabilities, while the demand for higher-fee products such as fundamental equities, particularly global equities, has been weaker. This has resulted in a more balanced AUM, which better positions the firm to navigate various market cycles, events, and shifting client demand. We have seen the impact of the asset mix shift moderate over the last year, resulting in a more modest decline in the net revenue yield and, more recently, approaching a degree of stabilization, or an inflection point, we experienced in the first quarter. To provide context, the net revenue yield was 22.9 basis points for the first quarter, and the exit yield at the end of the first quarter was 22.8 basis points. The future direction of asset mix shift will dictate the net revenue yield trajectory. Turning to slide eight. Net revenue of $1.3 billion in the first quarter was $155 million higher as compared to the same quarter last year. The increase in net revenue was largely from investment management fees, mainly driven by higher average AUM and the reclassification of QQQ to fee-earning. Operating expenses increased $69 million versus the same quarter last year, mainly driven by higher employee compensation and marketing expenses. Employee compensation was $43 million higher than the same quarter last year, largely due to a factor that we noted on our prior call. We made incremental changes to our retirement eligibility criteria for long-term awards that will result in a timing change in how retirement-related expenses will be recognized going forward. This resulted in a $33 million increase in compensation expense in the first quarter. Marketing expenses were $21 million higher due to the marketing associated with the QQQ now being recognized in marketing expenses upon reclassification. The hybrid investment platform implementation costs were $12 million in the first quarter, in line with our expectations and prior quarters. The incremental operating expense associated with AUM that has been moved onto the hybrid platform was $4 million in the first quarter. We continue to make progress in implementing the hybrid approach with expected completion by 2026. Regarding the hybrid investment platform cost for 2026, we expect one-time implementation quarterly costs to continue in the $10 million to $15 million range per quarter going forward, with the push to have implementation completed by year-end. As we transition more AUM onto the platform throughout the year, the incremental expense related to AUM on the platform will build towards $10 million per quarter later this year. Expenses associated with the platform may fluctuate quarter to quarter due to timing. Looking ahead to the impact the hybrid investment platform will have on operating expenses in 2027 and beyond, we expect the cost base to be at least $60 million in calendar year 2027, excluding the implementation costs that will roll off after 2026 when the project is complete, with run-rate savings that should build as 2027 unfolds. We will provide further updates as implementation progresses. Regarding the overall operating expense outlook for 2026, with the impact of the divestitures and the QQQ-related marketing expenses now in our expense run-rate, we expect operating expenses for 2026 to be in the $3.275 billion range under flat markets from the higher April AUM level that we indicated is in the $2.3 trillion range. We still believe that our operating expense base is approximately 25% variable in relation to changes in net revenue. The effective tax rate for the first quarter was close to 24%. For the second quarter, we estimate our non-GAAP effective tax rate will be in the 25% to 26% range, excluding any discrete items. The actual effective rate can vary due to the impact of nonrecurring items on pretax income and discrete tax items. I will wrap up on slide nine. We continue to make considerable progress on building balance sheet strength and improving our leverage profile. In January, we redeemed the $500 million senior notes that matured. We did end the quarter with $1.1 billion drawn on the revolving credit facility as expected, driven mainly by repurchasing $500 million of preferred stock in December and the senior note redemption in January. The benefits gained in financing these transactions through the credit facility are a lower floating interest rate and flexibility to pay down the facility as cash flows beyond our capital priorities allow without prepayment penalties. We expect to reduce the amount drawn on the revolver as the year progresses. Leverage ratios in the first quarter ticked up very slightly due to the higher balance on the credit facility, but we expect the ratios will improve the remainder of this year as we reduce the amount drawn on the facility and simultaneously grow EBITDA. We also continued common share repurchases in the first quarter, increasing the amount repurchased to $40 million, or 1.6 million shares. We intend to continue a regular common share repurchase program going forward as we target a total payout ratio, including common dividends and share buybacks, to be near 60% for 2026. And as I noted previously, our Board authorized in February an additional $1 billion in common share repurchases. We will continually evaluate our future capital return levels in line with our capital priorities. To conclude, the strength of our net flow performance and diversity of our business continued despite a volatile market environment, and we delivered strong revenue growth as a result. This, combined with well-managed expenses, delivered significant operating leverage and a sizable improvement in our operating margin over the prior year. We will also continue making progress in building a stronger balance sheet throughout 2026. We are committed to driving profitable growth, a high level of financial performance, and enhancing the return of capital to our shareholders. We will now open the call for questions. Operator: Please press 1. You will be announced prior to asking your question. Please pick up your handset when asking your question. To withdraw your request, please press 2. And one moment please for our first question. Our first question comes from Brennan Hawken with BMO Capital Markets. You may ask your question. Brennan Hawken: Good morning. Thanks for taking my question. Would love to start on the Qs. Andrew, thanks for that color and the case study with the QQQM. I think it was really helpful in contextualizing. Now that you have managed QQQ in the new structure for a while, what is a reasonable expectation that we could have for securities lending that you might be able to generate from that product? Andrew Ryan Schlossberg: Yes. Hey, thanks, Brennan, for the question. Securities lending is definitely something we have eligible for the QQQ. Given the size and the concentration of some of those positions, the opportunities are there, but they are not super large. We will continue to evaluate ways, but we do not see that as a huge opportunity. Brennan Hawken: Okay. Fair enough. And then, Andrew, I was hoping to maybe take a step back and ask a bigger, picture question. 2025 was an eventful year for Invesco Ltd. for sure. We had the first preferred paydowns, the QQQ restructuring, notable callouts. When you turn the page and look at what you would like to achieve in the coming years, what are some of the strategic priorities that investors should be thinking about? Andrew Ryan Schlossberg: Yes, thank you. We did get a lot done last year in 2025. I think it really set Invesco Ltd. increasingly on a course for continued future growth, a much improved balance sheet, and ability to return capital to shareholders. We do still have a lot more to do and execute against. I think there are four principal areas that we are focused on to continue the organic growth we have been seeing and hopefully accelerate it. One is the enormous shift in personalization that is going on around the world, but in particular in the wealth management channels, and then even more in particular in the United States. We feel like our $1 trillion ETF platform really sets us up well as that personalization theme continues. The growth in our SMA platform has been exceptional, and we view that as another winner in the personalization and tax optimization theme. Lastly, we have a models business that we are going to lean into even more. All of those things around personalization matter. We think the demand for income is not going away around the world, and as I highlighted in our remarks, we continue to grow quarter after quarter exceptionally. We have an over $700 billion platform that spans geography and all duration. As you see income needing to be generated in different formats, whether that is ETFs or SMAs, we will be there to participate. Another area is the flow growth expectations that we have because of money in motion, demographic shifts, and the like in Asia and in Europe in particular. We have been seeing outsized growth there and we continue to have a really favorable position with now something like a third to 40% of our AUM out in those markets. We have been talking about private markets into wealth management, but I think the less discussed industry-wide has been the opportunity in retirement and defined contribution, not just with some of the things happening in the United States, but what is happening around the world for wealth and DC for private markets. Then, of course, technology and what it is going to do to innovate and move at a different pace. All those things are opportunities we have been leaning into, and we are going to lean into even more in 2026. Brennan Hawken: Thanks for taking my question. Thank you. Operator: Thank you. Our next question comes from Daniel Fannon with Jefferies. You may ask your question. Daniel Fannon: Thanks. Good morning. Allison, I appreciate all the comments around expenses for this year and some of the savings into next year. But I was hoping to get a little bit further in terms of detail as we think about this year and as it progresses, maybe the sequential changes or other things to think about to get to that $3.275 billion as we exit 2026? Laura Allison Dukes: Sure. Let me see if I can give you a little bit of color. The $3.275 billion, again, I will make sure that is clear, is based on that AUM level of around $2.3 trillion towards the end of April. That is kind of all things being equal, and we do not consider market in any of that. Thinking about that, I would say, to start from a compensation standpoint, our target has historically been in that 38% to 42% range. This year, we are expecting to be in the middle of that range. So maybe that gives you some idea around compensation as a percent of revenue and what that could look like. Keep in mind the seasonality that we have in the first quarter. We noted some of that seasonality already in terms of the change in our retirement provisions and what that did in terms of the acceleration of long-term awards—about $33 million in the quarter. We always have about $10 million of seasonality in payroll taxes in the first quarter. We think about compensation-to-revenue on a full-year basis, not quarter to quarter. Hopefully, that gives you a little bit of color. I gave you some of the context around the hybrid investment platform, and we think implementation will continue in that $10 million to $15 million range per quarter, maybe trending towards the higher side as we get closer and closer to full implementation by the end of the year. The incremental cost of running the platform—we noted that is $4 million in this quarter. We think that will be fully phased in to about $10 million incremental by the end of this year. And then, of course, marketing—you have the QQQ fully in this quarter, so there is not a lot of change there. There was a lot of noise coming out of the fourth quarter, but the first quarter is relatively clean with the exception of the seasonality. The only other thing I would point to is just a reminder that we are entering into our partnership in the Canadian business. We expect that to close with CI at the end of the second quarter. That is a transition of about $19 billion in AUM, and that has a modestly negative operating income impact for the third and the fourth quarter of this year. That will be a loss of operating income to the tune of $5 million to $10 million per quarter, which we expect to improve over time as we continue to execute the subadvisory relationship with CI and grow that relationship overall. The guidance I gave is inclusive of Canada. It is inclusive of everything I just mentioned. Hopefully, that gives you a little bit of color and context underneath the full expense guide. Daniel Fannon: Yes, that is helpful. Thank you. And then just in general for the industry, you are seeing shelf space on platforms like Schwab or other third parties getting more expensive for ETFs and other products. Can you talk about the economic impact you see as you think about this year and next in terms of operating on some of these third-party distribution platforms? Andrew Ryan Schlossberg: Maybe I will start, and Allison can add to it. We do not want to comment specifically on any discussions with any particular wealth platform. But what I can say is that platform fees as a whole—we always look at them as the value of the distribution and the growth that they provide. Industry-wide, it is logical that as continued vehicle shift happens from mutual funds to ETFs, we are going to see overall mutual fund platform fees decline, and an element of this shift in some ways is going to go to other product types. But all of that said, any new platform fee— Laura Allison Dukes: Dan, did you catch the rest of Andrew's answer, or do we need to go over that one again? Daniel Fannon: It cut out about midway through, I think. Andrew Ryan Schlossberg: Alright. Let me start at the beginning a little bit and make sure everybody caught it. I definitely do not want to comment specifically on any one particular wealth platform. But what I can tell you is that we look at the value of distribution and the growth provided. Industry-wide, there has really been a vehicle shift going on that we are all familiar with from mutual funds to ETFs. It is logical that you are going to see overall mutual fund platform fees decline, and an element of that is going to shift to some other product types. New platform fees that we would consider are really going to be focused on new assets, not assets that are on the platforms today. We are also going to have to account for the composition of the ETF and the relevance of the legacy services that are very much associated with mutual fund sharing that do not exist in ETFs, and then, of course, the overall cost of ETFs in general. There is a lot to look at when this is discussed. But all of this said, to your specific question, we do not see this having a material impact at all. We will continue to evaluate any changes case by case at the firm level, at the product positioning level, for outcomes we expect with clients, and also long-term economics. Daniel Fannon: Great. Thanks for taking my questions. Andrew Ryan Schlossberg: Thanks. Sorry about the technology. Operator: Thank you. Our next question comes from Glenn Paul Schorr with Evercore. Your line is open. You may ask your question. Glenn Paul Schorr: Hi. Thanks very much. Hi, Andrew. Curious if we could drill down a little bit more on your non-U.S. platform. You saw the growth; you talked about the growth in both Asia and EMEA. But maybe we could drill down on assessing the durability of it by getting you to talk about what changes or additions you have made on the product lineup and distribution investments that you are piecing together as we think about growth going forward. Thanks. Andrew Ryan Schlossberg: Yes, thanks for the question. As I mentioned, the non-U.S. profile has just continued to go from strength to strength over several quarters. It has always been a legacy strength of Invesco Ltd., but the acceleration has been meaningful over the last few years. Part of the testament to our strength is that we have been in those markets for decades. We never left the markets when there have been challenges, and that longstanding nature is really critical. We are also pretty focused on the markets in both Asia and EMEA that we choose to compete in. In Asia, China, Japan, Southeast Asia, and parts of Greater China are all huge priorities for us, and we have made them those priorities. In a market like India, we chose to enter into a JV through the partial sale that we made last year. Product development is critical. We continue to innovate. I mentioned some of those innovations in China. The strength we are seeing in global equity is innovation we put in place in Japan five, six, seven years ago that is starting to pay off the last few years. The distribution is really strong and diverse; it cuts across institutions and private banks. In EMEA, same kind of thing. The slower overall growth in the industry and in the economies in parts of Europe and the UK—we are not seeing it necessarily flow through into our business. We are taking advantage of some real secular changes that are happening with regulatory reforms in the UK and more emphasis on retirement in those markets. We are winning really meaningful mandates in parts of fixed income that are very solutions-oriented. We continue to see growth in that ETF platform where we planted seeds over a decade ago, plus distribution in those markets is really strong and diverse. They continue to be places where the long-term applications we put in place, coupled with the investments we continue to make there, position us well. We believe that these markets have outsized growth in terms of asset flow and money in motion for demographic reasons and the regulatory and societal topics that I mentioned before. We are really uniquely positioned, and so we are going to continue to focus there. Glenn Paul Schorr: Thanks for all that, Andrew. Maybe one quickie that goes hand in hand with that is I think I saw an article this week on a potential QQQ on the international side. It got me thinking it was like bottled water—you are like, wow, how did I not think of that before? Just curious on where that is in development and how you are thinking about the rollout and marketing plan. Andrew Ryan Schlossberg: Yes. We extended the Q lineup last year in Hong Kong, and this year it is going to be in Japan. That is just one of the innovations that we are putting forward. QQQ is a very important ETF and product for us. We are also putting other extensions around the ETF business out in Asia, both last year and this year. The Qs will be a big flagship in those two markets, but it will be the start of even more to come with ETFs in Asia for us. Laura Allison Dukes: I will just underscore the marketing behind that, starting over a year ago, has been significant. Getting back to some of the earlier comments, the brand awareness around the QQQ extends far beyond the United States. It is deep across Europe, and now across Hong Kong and soon to be Japan. We put quite a bit of firepower behind that and feel very good about our competitive positioning there. Andrew Ryan Schlossberg: I mean, we often talk about the QQQ in and of itself, but the broader ecosystem around the QQQ is something like $550 billion of AUM around the world. That is what we call our innovation suite, and we will continue to look for extensions globally. Glenn Paul Schorr: Okay. Thanks for all that. Appreciate it. Operator: Thank you. Our next question comes from Alexander Blostein with Goldman Sachs. Alexander Blostein: Thank you. Good morning, everybody. Just another one around the competitive dynamics in Qs. And also, Andrew, thank you for the color and the background there. I guess the question is less about the back book and more about the forward growth algorithm if competition starts to become more intense. When it comes to fees, anything you would be willing to share in how you would potentially respond if competitors come in at a lower price point, or does the product have enough competitive moat around it to sustain the current fee structure? Andrew Ryan Schlossberg: Yes. Just to be super clear, the eight basis point index licensing fee that we pay for the funds is the same index licensing fee that others will pay. We have a contract around that. The fee differentials that could get put on these funds—we will look at when those funds get launched. I really want to emphasize what I was saying in the prepared remarks: the way that ETF owners look at this is a total cost of ownership. That includes the tightness of the spreads and the liquidity. What we have learned over time is that marginal fee rate differences at the headline level oftentimes do not relate to changes in people's conviction around where to invest. I also would not underestimate at all the 25-year history and the brand recognition that has had hundreds of millions of dollars invested in it over the last couple of decades. We are synonymous with it. Of course, we will pay attention and make sure we remain competitive, but I think some of those extra facts really give us confidence. Alexander Blostein: Yep. Totally. That makes sense. I wanted to ask a question about China. Really good growth there now for a couple of quarters; those markets seem to be coming back more and more. As you look at your pipeline of additional new products, what does that look like today? And is there enough there to move the needle on the blended fee rate when it comes to that bucket as a whole for you? Andrew Ryan Schlossberg: Thank you. As we have been saying over the last couple of years, because of the growth and the maturity of the platform and because of our leadership, we have a very full product line. That does not mean we are not continuing to innovate. Much of the flow from the last several quarters has come from our existing products; that really was not the feature several years ago. This quarter, as an example of continuing to innovate, we launched 14 new products, mostly in ETFs and balanced funds, and those products generated $2.5 billion in flows in the quarter. Still, 75% of the flows came from our existing product line. Fixed income plus has been the key driver—remember, that is kind of like a balanced fund in American terms—and it is a precursor, we think, for people continuing to get more interested in the equity markets. As they graduate into the equity markets and gain more confidence—these are retail Chinese investors—into their domestic market, we have a product line that is really well set to take advantage of that. We will continue to innovate. Laura Allison Dukes: Relative to the fee rates in China and the range that we see there, as that market continues to evolve and as it continues to be very fixed income and fixed income plus heavy, as Andrew noted, the fee rates of products we launch tend to be slightly lower than the range that we disclosed in the presentation as to where the fee rates are running right now. What I would point you to is the fact that the margins continue to improve there. As we continue to evolve that market and it matures—and the fee rate caps that went in several years ago that you will recall kind of totally washed through—the market becomes more and more mature, and the fee rates start to look a lot more like fee rates around the world. As there continues to be real strength and demand for ETFs, as opposed to mutual funds, you see the expected fee rate being a little bit lower than it would be for a mutual fund. We see fee rates just slightly lower; it would not surprise me if that continues to compress a bit over time, but I think our margins have been in the high 50s to low 60s. That is a good proof point to look to in terms of the strength of the overall platform. We have a very scaled business, a very hard-to-replicate business, as we said, and we have the opportunity now to continue to innovate with products across the fee spectrum. As demand continues to evolve and perhaps as they start to move more into equities—which right now is not a market where the uptake in equities is very high—perhaps you would see fee rates move. It is going to be very much a mix shift story over time but with really strong margin. Alexander Blostein: Great. Thank you for all the detail. Operator: Thank you. Our next question comes from Brian Bertram Bedell with Deutsche Bank. Your line is open. You may ask your question. Brian Bertram Bedell: Great. Thanks. Good morning. Thanks for taking the questions. Maybe just back on the QQQ, another angle on this. Can you talk about the institutional usage versus the retail usage? It is very different dynamics, obviously. You mentioned, Andrew, the really powerful liquidity that you have in the QQQ product. What is the thought around potentially in the future having different price points for institutional versus retail flavors of the QQQ? And on the marketing budget, I think Allison, the latest guidance was $80 million, something in the midpoint of that $60 million to $100 million range. For the marketing budget, is that still the same? It sounds like you are mixing that a little bit more towards international growth in terms of the marketing spend. If you can comment on that. Andrew Ryan Schlossberg: Great, thank you. Let me start, and Allison can pick up. With the first part of your question, QQQ is well owned institutionally, and it will continue to be a focus for us. Every single one of our hundreds of salesforce members carry the QQQ in their bag, so to speak. They are going to continue to do so. We think demand in the institutional market is growing, not only here in the U.S. but around the world. There is access to it with people owning it in the U.S. We also have a UCITS version of it where institutions can own it on that core platform. Then some of the things I talked about earlier where we are listing it into those couple of Asian markets—there are plenty of places for institutions to own it. A lot of times, these are not institutional buy-and-hold investors; these are institutional traders that are using it to take a position. But increasingly, as buy-and-hold comes, we will be there to participate. In terms of your question on price points, not possible in the ETF space per se, but separate accounts that invest in the QQQ index are things that we have today. Those could be at different price points for individual institutions, and that is something we capture and can continue to capture over time. Laura Allison Dukes: As it relates to the budget, yes, the same guidance that was out there in the proxy that was filed last summer—that it is fully discretionary. We expect marketing to be in a range of $60 million to $100 million. It is fully in our run-rate today, so you have the full marketing run-rate inclusive of the QQQ in the line item for the first quarter, and we expect that to be pretty consistent throughout the year. There may be a little bit of timing differential quarter to quarter, but for the most part, that is pretty much the range that we expect for both the QQQ and our entire marketing budget. In terms of the mix between the United States and the rest of the world, that has been in the run-rate now—even when marketing was classified somewhere else—we have been spending quite a bit of marketing money outside of the United States in marketing the QQQ. We expect to continue to do so as we see demand. We have the flexibility to choose to market how we want, where we want, and what we think is best for the product. We feel very good about the opportunities we have from here. Brian Bertram Bedell: That makes sense. And then just one modeling question on the ratio of servicing and distribution fees to average AUM, and also third-party distribution expense relative to average AUM. It looks like on the servicing and distribution revenue side, it went down to a little less than six basis points from seven in 4Q, and then the expense went up to around 12 basis points from 11 in 4Q. I suspect this is the dynamics around the QQQ adjustments, but I did not know if there was anything one-time-ish or seasonal in those numbers. Do you think those ratios—that relationship—is a good run-rate to be modeling for the rest of the year? Laura Allison Dukes: The relationship I would point you to is third-party plus distribution fees divided by management fees. That is your best relationship to look to given the pass-through nature of some of those third-party and distribution fees. Consistent with the guidance we gave last quarter, we expect that to be in the 22% to 23% range with the full impact of the QQQ going forward. This quarter, it was 22.7%, and we expect that relationship of 22% to 23% to hold with the full impact of the QQQ. The one thing I would point to as you see some of the quarter-over-quarter noise in the service and distribution fees is yes, we had the reclassification change with the QQQ marketing coming out of service and distribution fees and going into marketing. It also came out of third-party contra-revenue. The other thing to note in service and distribution fees in the first quarter is you had a little over $11 million reduction related to the sale of Intelliflo. This being the first full quarter without Intelliflo, you saw that have a negative impact on service and distribution fees, but also, importantly, an even higher magnitude, better impact on expenses. As that was the operating income headwind, it is now a bit of a tailwind that is fully in the run-rate from here. Hopefully, that helps with the relationship on the third-party and distribution fees. Brian Bertram Bedell: Yep, very helpful. Thank you. Operator: Thank you. Our next question comes from William Raymond Katz with TD Cowen. Your line is open. You may ask your question. William Raymond Katz: Great. Thank you very much for taking the question. I got disconnected from the call, so I apologize if some of this was already asked. Coming back to expenses—Andrew, I hear a lot of good things around incremental margin outlook, non-U.S. scaling nicely, seems like all the kerfuffle on the QQQs is not really that bad at the end of the day. The expense guide you gave today is very good in terms of incremental margin. Can you give us an update on how you are thinking about the intermediate- to longer-term opportunity for margins at this point in time? Laura Allison Dukes: Sure, Bill, I will take that. You continue to see the operating leverage that we are generating quarter to quarter, and we feel very good about the momentum behind that. Given the work we did last year and the simplification of our portfolio—really focusing our efforts on the higher growth, higher profitability aspects of our portfolio and the conversion of the QQQ—we have a lot of momentum behind that. We feel like we have the opportunity to continue to generate positive operating leverage. There will be some seasonality quarter to quarter. You saw a little bit of seasonality as you always do in the first quarter, but absent seasonality, we think there is pretty significant momentum. We said all along we needed to get the margin back to the mid-30s on a path to high-30s, and we feel like we are starting to see mid-30s here. Now we have our sights focused on how we get back to the high-30s, and we feel good about the momentum behind that. We will continue managing expenses in a really disciplined way. I am glad you found the expense guide helpful today. We know there has been a lot of noise with the divestitures. We think we have a fairly clean outlook from here. It is really important to note that underneath that, we are investing in the firm—not just through the hybrid investment platform. We are looking at constant opportunities where we can invest, drive productivity, and drive efficiency, really with an eye towards scale and positive operating leverage. It is a collective effort across our management team, and we think it is really going to deliver the momentum we need to get the margin back to the high-30s. Andrew Ryan Schlossberg: To add to Allison's comment, the areas where we are seeing the greatest growth and we expect to continue to see the greatest growth—ETFs and China, just as two examples—scale well. We will continue to see that growth translate to strong profit growth. William Raymond Katz: Great. Thank you, Andrew and Allison. As a follow-up, one of your peers earlier in the quarter described the retail opportunity shifting to after-tax return as a focal point. I think you have mentioned that in some of your commentary. Could you expand on that? How do you see Invesco Ltd. positioned as we move from pretax to after-tax? And is there anything in the legislative area or in the tax code that could potentially impair the opportunity to migrate to after-tax returns? Thank you. Andrew Ryan Schlossberg: We agree. The after-tax return focus of individual investors has always been there, but it has been heightened. A lot of the tools that are available now to individual investors have increased, and those were the ones I was mentioning earlier. We are really well positioned to compete in those, and they are areas we will continue to invest behind to grow. Specifically, ETFs have that feature built in—being very tax-aware and tax-efficient. We are a major player, as you know, and we will continue to build out the active side of that ETF business. SMAs have been the other way that people have played that. You have seen our growth; we now have nearly a $40 billion platform. A major feature of that is tax optimization, and we are really winning in fixed income there, which has been smaller historically in the industry. Model portfolios are taking hold and are going to be another way for people to tax-optimize. This is largely a feature in the United States. To your question about regulatory changes, there is nothing that we see specifically on the horizon. Individual investors are speaking with their wallets by being hyper-focused here, and we think that is a good thing for Invesco Ltd. William Raymond Katz: Great. Thank you very much. Operator: Thank you. Our next question comes from Benjamin Elliot Budish with Barclays. Your line is open. You may ask your question. Hi, good morning, and thank you for taking the question. Just one for me this morning. I appreciate the clean expense guide, so at risk of upsetting that, I just wanted to ask: you have narrowed and trimmed the portfolio a little bit—Intelliflo, the India JV. As you look across the business, is there anywhere else that might make sense to trim and continue to focus, or are you happy with the set you have right now and we can continue to enjoy this cleaner expense guide? Benjamin Elliot Budish: Thank you. Laura Allison Dukes: The only thing I will point back to—and I said it earlier in my comments—is just a reminder that our partnership on the Canadian business is set to close at the end of the second quarter. That is about $19 billion in AUM. That was all built into my expense guidance, but that is a part of it. There is a modest negative impact to operating income of about $5 million to $10 million per quarter that will improve over time as we grow that subadvisory revenue. Beyond that, in terms of our overall portfolio and profile, we feel like we have done a lot of hard work in simplifying where we operate, and we think we have a lot of opportunities to grow from here. I do not know that there is a lot more pruning to be done. We are in a lot of the high-growth markets where we want to be, and we have a well-set group of investment capabilities as we have been talking about today. We are very well positioned to continue to grow from here. The simplification efforts are going to continue to focus more than anything on remixing our expense base, being really disciplined behind that expense base, continuing our efforts around the balance sheet and improving our leverage profile, and improving our capital return. I hate to say it is all blue skies from here—it will not be. What we are doing is making sure we are built to operate in any environment and create the momentum and the leverage we need behind that, and we feel good about the efforts that are already underway. Andrew Ryan Schlossberg: The only thing I would add—and this maybe takes it back to the beginning of the call where we really emphasized our strategic focuses—in addition to the headline things that we did last year around repositioning the portfolio, divesting, and reinvesting, we have really simplified the company over the last few years. We have one fixed income platform now around the world, one equities platform around the world, one private markets platform around the world, and we have clarified for the organization how to operate in a simpler, cleaner way. That allowed us to be able to do the things that we did last year. It is just an example of the benefits from it. To echo what Allison was saying, now we can put even more of our focus on growth. Andrew Ryan Schlossberg: Operator, we have time for one more question. Operator: Thank you. That question comes from Craig Siegenthaler with Bank of America. Your line is open. You may ask your question. Craig, your line is open. You may ask your question. Thank you. He is not responding. We will go ahead to Michael J. Cyprys with Morgan Stanley. Your line is open. You may ask your question. Michael J. Cyprys: Hey, thanks for squeezing me in here. Just a question on AI. I was hoping you could update us on how you are using AI across the organization today, what use cases have been most impactful so far as well as some of the key learnings you have had, and how you might quantify any of the benefits that you are seeing. As you look out over the next couple of years, can you talk to some of the steps that you are taking to further embed AI throughout the organization and how you are thinking about the longer-term opportunity set and benefits? Thank you. Andrew Ryan Schlossberg: Yes, thanks—an important question. We are treating AI across the firm as a way to accelerate capabilities that we have today. It has been a focus of augmenting the teams that we have and applying it in data analysis, things like content creation, and creating operational efficiency. One of the main things we have focused on the last year or two has been investing in tools for all of our teammates—the 7,500 people that we have around the world. Not just investing in the tools, but in education and how to apply them to process adoption across AI and GenAI. It gets applied to large-scale applications and to people's BAU. We estimate that close to 80% of our employees, in some way, shape, or form, are using these tools every day in their business activities. To your specific question about big use cases, they are either in use or in development across the entire company, with an emphasis on enabling outputs. We have use cases in the investment process and around client growth—things like investment research aggregation, sell signal adaptation, performance analytics, client communications—all those sorts of things. We are really trying to couple that with all the things that our clients expect from us, which is to protect their data and to protect the integrity around it. We are moving fast but cautiously, too. Michael J. Cyprys: Great. Thank you. Operator: At this time, I will turn the call back over to the speakers. Andrew Ryan Schlossberg: Thanks, Operator. In closing, we are pleased with the continued strong results this quarter. As we discussed, we advanced several strategically important investment capabilities and vehicles, with many reaching record assets under management. We did this with discipline, focus, and the benefits of scale, and we are generating meaningful operating leverage and improving margins. We will continue to stay focused on our highly defined growth strategy with an emphasis on relentless execution, client-focused innovation, and teamwork across the firm. Thanks, everyone, for joining the call today. Please reach out to our Investor Relations team for any additional questions. We appreciate your interest in Invesco Ltd. and look forward to speaking with you all again very soon. Operator: This concludes today's conference. We thank you for your participation. At this time, you may disconnect your lines.
Operator: Good day, and welcome to the Watsco, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star and then one on your touchtone phone. To withdraw your question, you may press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Albert H. Nahmad. Thank you, and over to you. Albert H. Nahmad: Welcome to our first quarter earnings call. This is Al Nahmad, Chairman and CEO. With me are Aaron J. Nahmad, our President, Paul W. Johnston, Barry S. Logan, and Rick Gomez. Before we start, our cautionary statement: this conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the safe harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. First quarter results point to improving stability now that the transition to A2L products has matured. We expect a more simplified business environment this year. It is still early in our summer season, but so far, so good. We are also excited to announce our agreement to acquire Jackson Supply, a legendary, market-leading Sunbelt distributor with $230 million in annual sales. We are fortunate to know many great entrepreneurs in our industry. Jim Duret, Jackson’s owner, and his talented group of leaders, all of whom will remain with the company, certainly meet the definition of great entrepreneur. Our relationship with Jackson dates back more than 20 years, and we are grateful to Jim for entrusting us with this company’s next chapter. Jackson will expand our Sunbelt presence by 25 locations and provide diversification of brand and products, given their strong presence in parts and supplies. As I mentioned, and consistent with our culture, the Jackson team will continue to operate and grow the company with our full support. In addition, our community of leaders, along with Jackson, will collaborate and learn from each other, as is also our culture. We expect to close the transaction sometime in the second quarter. Within our existing business, we continue to build and expand our technology platform, which provides us an immense long-term competitive advantage. E-commerce sales increased 16% during the quarter while outpacing overall growth rates. OnCallAir, our digital platform that helps contractors present and sell solutions to homeowners, increased customer sales by 20%, reflecting a rich sales mix of high-efficiency systems. We expect the gross merchandise value for OnCallAir to exceed $2 billion this year. Let me say that again: we expect sales on OnCallAir to exceed $2 billion this year. We feel like this is a good start and expect more progress as adoption by contractors gains momentum in years ahead. Turning now to our first quarter results. Sales increased 2% in the U.S. markets, reflecting a mature mix of A2L products as well as an improved mix of high-efficiency systems, offset by lower unit sales. Unit volumes stabilized as the first quarter progressed. Gross margins remained largely intact, reflecting good execution by our leadership team to sustain price and competitiveness. We continue to execute on several ongoing initiatives to enhance gross margins with the long-term goal of achieving 30%. SG&A remained flat as improved operating efficiency offset incremental technology investments and new locations. We expect overall operating efficiency to further improve, and our technology can now show its mettle in a simpler operating environment. Our balance sheet continues to be strong, and we remain debt free. Let me repeat that: we remain debt free. As I mentioned, we continue to invest in innovation and technology to separate us from our competitors, and we are making incremental investments to enhance our competitive position and add to our long-term growth and margin profile. For example, we are developing new innovations aimed at capturing more sales to large institutional customers, which is set to launch during the second quarter. We are accelerating the use of our pricing optimization tools to make further progress towards our long-term target. We have launched a new initiative to compete and grow sales in a highly fragmented parts and supplies segment, which comprises almost 50% of the industry’s market share. And we have begun to harness the power of artificial intelligence, offering the potential to further transform the customer experience, improve operating efficiency, and create new data-driven growth strategies. These investments, along with our scale, entrepreneurial culture, and capacity to invest, are unmatched in our industry. With that, we will now open the call for questions. Operator: We will now begin the question-and-answer session. To ask a question, please press star and then one on your touchtone telephone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we will pause momentarily to assemble our roster. We have the first question from the line of Ryan James Merkel from William Blair. Please go ahead. Albert H. Nahmad: Good morning, Ryan. Operator: Can you hear us? Ryan James Merkel: Yes, can you hear me? Yes, sir. Now I can. Yes. Okay. Hey, everyone. Congrats on the deal and a good start to the year. I wanted to start high level. Al, can you just unpack your comments about improved stability as we head into the summer? What is changing? And are you seeing April positive in terms of year-over-year growth at this point? Albert H. Nahmad: Let me turn to our expert on that sort of thing, Barry S. Logan. Oh—he just dropped off the call. Please let the operator know we are trying to reconnect him. Operator: Yes. Okay. Aaron J. Nahmad: Rick, do you want to jump in there? Rick Gomez: Sure. I will take a stab, and then Barry can backfill and enhance it. Ryan, good morning. If we just look at the first quarter in isolation, and then I will turn to April: we saw the full maturity of the A2L product transition, with units still weighing a little bit, which means the market is not yet fully healed. There is no inflection point here, but things did get incrementally better as the quarter progressed, and we exited the quarter nicely, with March up high single digits on a same-day basis. So far, three weeks into April, that momentum has sustained itself, and we are seeing incrementally more stability in April than we did to start the year. April has begun nicely. All of that said, we are still not yet in what is the thick of the selling season, so we will be a little cautious in our tone and our optimism, but this is incrementally more stable, more positive, and less complex. We will take that in a first quarter. Barry S. Logan: If you zoom out even further, the history of this industry for 30, 40, 50 years has been a pretty mature, slow-growth, steady-as-you-go industry. Then COVID hit, and it seems like all chaos broke loose over the last five years. We had extreme demand as people were investing in their homes. We had extreme supply chain challenges, which constrained the products that we could sell. We had multiple regulatory changes that changed the products that sold—almost 100% of the equipment we sold—twice in that period. We have had tariffs. We have had inflation. We have had different tariffs. We have had constraints or limitations on refrigerant canisters. It has just been one thing after the other for five years, and it seems like, coming into 2026, most of that is behind us—certainly the items being driven by the industry in terms of regulatory changes and so forth. So we look forward to a more normalized 2026 as we started the year, and I think we have gotten at least most of the way there. Obviously, there are still some things changing with tariffs and some dynamics, but we are looking forward to a more normalized environment and getting back to business, hitting the streets, taking care of our customers, and growing the business. I think that is materializing. It is also interesting that we saw e-commerce sales bloom this quarter. That tells us the contractors’ daily life has reset into a good place to start this year. I always mention contractor credit as a critical measurement of how the market looks, and that is in very good shape. Also, now that the product line is the product line, we saw an increase in higher-efficiency systems being sold. As Rick said, it is early, but those are good indicators and what we have been looking for. Ryan James Merkel: Alright. Very helpful. I will leave it there and pass it to others. Thanks. Operator: Thank you. We have our next question from the line of David John Manthey from Baird. Please go ahead. Albert H. Nahmad: Morning, David. David John Manthey: Morning, Al. Thanks for taking my question. My question is primarily on the Jackson Supply acquisition. Correct me if I am wrong, this looks like a Goodman distributor primarily, and as far as I can tell, it looks like a great fit within the CE, GEMA, and Baker footprint that you currently have. Is there anything else you can share with us about mix, margins, growth? What made this an attractive acquisition for Watsco, Inc.? Albert H. Nahmad: This is a relationship we have had for a very long time, and we have seen them succeed in our markets over years. We know they have the right leadership and the right strategy, and all we want to do is support it so they can continue to expand. If they need more capital, we will provide that. If they need more technology, we will provide that. If they need more equity for their leadership, we will provide that. It is just a wonderful business to become part of Watsco in every respect. Texas is where they are from mostly, and that is always a very good HVAC market. It resonates on all the points that are important. David John Manthey: Sounds good. And then as it relates to the stabilization or normalization theme, when we look at your numbers through the year, the volume comps get easier, the price comps get more difficult. I do not want to slice this too thin, but thinking about normalization through 2026, would we expect a natural handoff based on year-to-year comps—if we are going to have a normal, stable year—that equipment would grow whereas price tails off toward the end of the year? Is that how you are thinking about it? Albert H. Nahmad: We are hopeful that we are going to grow, and it seems like we will. But it is too early. We are not going to make a call on market conditions that far out. We are seeing improvements, and we are pretty sure we are on the right path, but let us wait and see. Regardless of what the markets do, we will do well, and we have a competitive edge over other distributors that we tell you about over and over again. David John Manthey: Sounds good. Thanks a lot, Al. Albert H. Nahmad: You bet. Operator: Thank you. We have the next question from the line of Thomas Allen Moll from Stephens. Please go ahead. Albert H. Nahmad: Good morning, Tommy. Thomas Allen Moll: Good morning, Al, and thanks for taking my questions. To start, I wanted to expand a bit on the year-to-date comments that Rick made. If March exited the quarter in high single-digit growth and April has continued that momentum, is it fair to infer that your residential equipment volumes are now flat or maybe a little bit better than flat in those two months? And how long has it been since that was the case? Albert H. Nahmad: All yours, Rick. Rick Gomez: Yeah, Tommy, we are not going to slice it that thinly for three weeks in April. Again, we are not yet in the full selling season. The prior question got at it a little bit: this time last year, we saw volumes begin to degrade a bit, so mathematically it stands to reason that looks better now. Price-wise, we had pricing actions that took effect last year. I will remind everyone that our mix of A2L products in the first quarter of last year was about 25%, and like-for-like, the new equipment is at a double-digit price point above where it was last year. It was about 60% of our mix in the second quarter of last year. The ultimate comparison is versus two years ago or three years ago, and we will be in a smarter position to answer that after the second quarter. So far, so good is how I would describe the start in April. Thomas Allen Moll: Fair enough. Al, a question for you on inventory. There have been some big moves in recent quarters and years. As you enter the selling season for 2026, how would you characterize the inventory position? Albert H. Nahmad: We expect, given the market conditions, to reduce our investment in inventory, which affects our cash flow because we will improve the inventory turn. So many changes were occurring recently that it can only get better. We expect our inventory turns to increase and contribute to cash flow for the rest of the year. Paul W. Johnston: Plus, our supply chain is a lot more solid than it was in the past. Aaron mentioned COVID and all these changes in models and products. Finally, our manufacturers have an opportunity to make a single line of products continuously throughout the year, and I think that is going to help inventory turns. Thomas Allen Moll: Thank you both. I will turn it back. Paul W. Johnston: Thank you. Operator: We have the next question from the line of Jeffrey David Hammond from KeyBanc Capital Markets. Please go ahead. Jeffrey David Hammond: Hey, good morning, everyone. Maybe just to start, the Section 232 update seemed to bring about questions about follow-on pricing. Have you seen any pricing from your OEMs in the near term outside of normal course that would suggest more upward movement in pricing? Albert H. Nahmad: I do expect it because of the duties that are being paid now by some of the manufacturers. I cannot quantify it yet, but yes, the pressure is on the manufacturer, and I believe they will raise their prices. We have had a number of price increases to date from several manufacturers which have already become public, so they are well known. I believe we will have a price increase pretty much across the board, but we will have to wait—probably in the second quarter we will know for sure exactly what those price increases look like. Jeffrey David Hammond: Okay, great. On that, there has been increasing questions about price elasticity. Unit costs are getting up, and there was debate last year about repair versus replace. Was that the A2L transition, or was that the consumer being tight? I noticed your non-equipment or other products were up. What are you seeing, and how are you thinking about repair versus replace as we go into the selling season? Paul W. Johnston: We are happy with both. We are seeing a definite uptick in our compressor sales, which are not going to offset, by any material stretch of the imagination, the equipment sales, but we are also seeing a rebound in equipment sales. I think it is going to be a dual market for a while where we have an increase in parts and, at the same time, an increase—hopefully—in equipment. I do not think it is either-or anymore. Rick Gomez: Just to expand on that for a second, remember that non-equipment for us means a lot of things. It is a very broad basket of goods. Parts are actually the minority of what is non-equipment. Yes, parts grew, but so did virtually everything else in non-equipment, including supplies, our small and growing plumbing business, and commercial refrigeration (which we report separately). So there is broad-based growth there, and it is not necessarily a read on repair versus replace all the time. Paul W. Johnston: To say it analytically, replacement parts—parts sales—are less than 10% of Watsco, Inc. So when we say 30% is non-equipment, that means roughly 20% is everything else from an analytical point of view. Jeffrey David Hammond: Thank you. Operator: Again, if you have a question, please press star and then one. We have the next question from the line of Nigel Edward Coe from Wolfe Research. Please go ahead. Albert H. Nahmad: Good morning. Nigel Edward Coe: Hi, Al. I wanted to go back to your comments on inventory turns continuing to increase. The 1Q inventory build was a little bit higher than what we expected; it looked quite normal. My initial reaction was that the destocking is behind us—it sounds like that is the case. I just wanted to clarify that comment. And I am wondering if the inventory build is getting ahead of price increases or slightly better demand. Anything more there? Albert H. Nahmad: There has been a shift in product innovation. When products innovate, we have to carry the existing inventory to support what has been out there, and then we have to take inventory in for the new changes in the product. That does inflate inventory, but that does not bother us. It is part of the normal course. We run a very conservative balance sheet. We have no debt, so we can afford to have swings in inventory perhaps better than our competition can. Aaron J. Nahmad: I would not call our expected inventory turns enhancement and burn-through of inventory “structural destocking.” That is not what we are talking about. As Paul mentioned, the supply chain, our OEMs, and the whole process are more stable and reliable than they have been. We bought inventory for the summer selling season to make sure that we have the right amount of product in the right places to support expected customer demand, and we expect to turn inventory better than we have been able to because there is less noise in the system. Nigel Edward Coe: Another way to ask it: do you expect sell-in and sell-through to equalize now, going forward? And with these price increases—which do not sound like they have been formalized—you had a big uptick in gross margin last year in 2Q versus 1Q on the price increases. Do you expect that to happen this year with the pricing coming through? Albert H. Nahmad: Let me refresh our discussion on that. We have a target of 30% gross profit margin, and a lot of things go into that. We are not going to get there overnight. We have a plan to get there, and that involves pricing technology, which we are getting really good at. I am sure the sophistication of our pricing system is superior to anything else on the market; that will help gross profit margins. Our ability to consolidate purchases across the whole company from vendors and manufacturers will also help improve gross profit margin. Barry S. Logan: I want to go back to the inventory discussion to be educational about it. This is not a structural further reduction in inventory—that is not the goal. The goal is to own less inventory on average throughout a given year. That is the equation of inventory turns: cost of sales divided by average inventory. We want less load in the branches over time while keeping our customers happy every single minute of the day. As lead times and on-time delivery metrics with manufacturers improve, it lets us moderate the amount of inventory we carry. It is much more subtle than the big stick we took to inventory last year. This is the subtlety of improving inventory turns over time and going back to where they should be and where they had been for many years before all these changes. Aaron J. Nahmad: I will add one more note: with our new Hydros system, which we discussed at our investor day, we can increase product assortment at each branch while still carrying less inventory because we can turn that inventory faster. Operator: Do we move on to the next question? Albert H. Nahmad: Yes. Go ahead. Operator: Thank you. We have the next question from the line of Steven Volkmann from Jefferies. Please go ahead. Albert H. Nahmad: Good morning, Steven. Steven Volkmann: Good morning. Most of mine have been answered, but I have a bigger-picture one. Back in the pre-COVID times, there was often a meaningful difference between announced price increases and what was actually realized in the market. How are you viewing that these days? We have seen a number of announced increases year-to-date and whispers about more coming, yet the demand environment is still not great. How does that play out as the year progresses? Paul W. Johnston: One thing to realize is we have a very diverse market—both geographically and by type of customer. An announced price increase does not always apply completely to certain segments, for example, people with longer-term contracts. We end up with an announced price increase and then a realized price increase, and it is generally less than what was announced. Aaron J. Nahmad: I would add that the software we have brought online to help our businesses—not only with analytics and pricing and making sure we have the right price for the right customer—but also to administer those increases, is important. Every time there is a price increase from an OEM, it touches thousands of SKUs for thousands of customers, and the number of permutations and the administrative work associated with that—which used to be done essentially by hand—was overwhelming. With our tooling, one of the benefits is that we can appropriately adjust pricing for all customers for all SKUs that have new pricing very quickly so that we do not have the risk of a lag in implementing price increases where we otherwise did have that risk, sometimes missing changes that needed to be made. Steven Volkmann: Appreciate that. Almost a segue, AJ: it feels like you are talking as if there is an inflection in your e-commerce platform. Assuming growth in that platform is accelerating, does that impact your gross margin target? Is that a tailwind, or is it just more sales? Aaron J. Nahmad: All of the above. We realize a higher gross margin with our online sales than our offline sales, and e-commerce sales are increasing. We expect that trend to continue. Our cost to serve is lower with online sales, and customers are using that tooling because it helps them organize their businesses and how they procure products. It is a win for all of us, especially the customers. We very much expect to continue investing in our e-commerce technologies and tooling for our customers, and we expect adoption to continue. To give you a sense of what is possible, we have markets—like the state of Florida for one of our subsidiaries, an $800 million business—where almost 70% of their sales go through e-commerce tools. Barry S. Logan: Looking even more long term, this is one of the most underappreciated aspects we write about every quarter. The future attrition benefits we get when we have active e-commerce users create an incredible moat and stickiness to future revenues and customer relationships. That really matters when you look out three, five, seven years. Aaron J. Nahmad: While we are on the subject, we also sell more line items per invoice when we sell online versus offline. It is a winning formula to sell more products online, and we are focused on it. Steven Volkmann: Thank you all. Albert H. Nahmad: Thank you. Operator: We have the next question from the line of Christopher M. Snyder from Morgan Stanley. Please go ahead. Christopher M. Snyder: Thank you. I wanted to ask about Q1 inventory. It was up about 25% quarter-on-quarter, which matches what we saw in the last five to six years, but in those years OEM inventory was tight and lead times were long. This year, it feels like the opposite. I was surprised at how much your inventory came up in that construct. Is this because you feel that demand is turning, or are there well-appreciated April price increases coming even before the Section 232 changes and there was some building to get ahead of that? Paul W. Johnston: First, remember that the composite inventory today is all A2L product. A year ago, it was a mixture of old and new product. If you look at the inventory increase for equipment, it is in the mix of price, not units. We actually own fewer units at March-end than we did a year ago. Also, when you sell an A2L product today, you have to sell an indoor unit and an outdoor unit. We had to increase our inventory of indoor units to accommodate the new A2L refrigerant, and that could be part of what you are seeing. Christopher M. Snyder: Interesting. Following up on inventory: over the last year, it seemed difficult for the industry—both distributors and OEMs—to have a sense of how much product customers were holding. Now it feels like there is another round of OEM price increases coming. I imagine here in early Q2, distributors and contractors may look to get ahead of that. How do you think about those channel dynamics? Have you done anything versus a year ago to have better visibility or confidence in how much inventory customers are holding? Aaron J. Nahmad: We did not buy ahead of the expected price increases coming from the Section 232 tariffs. Some of our customers hold some inventory, and we do not have visibility into those numbers, but I do not think it is particularly material. There were some customers that bought ahead of the price increases coming now from the Section 232 tariffs, but by the end of the quarter or end of the season, that will be noise—it will smooth out. Paul W. Johnston: Most of our contractors are not carrying a lot of inventory. They do not have mega warehouses where they put inventory in. Aaron J. Nahmad: The reason we have all the convenient locations with as much product variety as they need is because most customers do not carry inventory. They do not know what they are going to sell that day until they go to someone’s house, figure out the problem and the solution, and then they work with our teams to get the right product out of our stores to go install it in that home or building. Across brands and OEMs, there are different business models. Our model with our brands and customers is that we carry it for them, with over 100 locations in Florida to take the pressure off them having to stock anything. There are other models—including some factory-operated models—that have under 30 branches in Florida and need their customers to stock product to get it into the channel. That is a business model choice. It is not right or wrong; it is just a different model. Christopher M. Snyder: Good point. Appreciate that distinction. Thank you. Operator: We have the next question from the line of Patrick Michael Baumann from JPMorgan. Please go ahead. Paul W. Johnston: Good morning. Albert H. Nahmad: Morning. Patrick Michael Baumann: I know it is early in the season, but do you have a view on what you think unit sell-through will be this year? Rick Gomez: Better than last year. Albert H. Nahmad: I have no idea. Rick Gomez: We are obviously shy to answer that question in April. If I ask it back: do we feel better or worse today? I feel better today for sure. The other equations in the answer—existing home sales, new home sales, consumer spending, consumer confidence, and contractor confidence (who ultimately sells the product in someone’s home)—seem like a better situation, but time will tell. Patrick Michael Baumann: Did you see any regional disparity in performance in March and April? Asking in the context of a really hot start to the year from a weather perspective in certain areas. Paul W. Johnston: In the northern markets, you had some severe winter, closed locations, and lost business. We rarely blame or complement the weather, but the northern markets had a bit of disruption in the quarter. That resolves as time goes on too. The Sunbelt outperformed the North for those reasons. That is just the first quarter and not something to draw an inference from over the longer term. Aaron J. Nahmad: Part of why we are geographically diverse is so that all of that becomes normalized over time. Patrick Michael Baumann: Of course. My final question: could you opine on Home Depot’s acquisition of Mingledorff’s and how you see that impacting acquisition opportunities for you? Are you seeing valuation multiples go up in the industry after that deal, or anything else to point out on how it might impact the competitive landscape? Albert H. Nahmad: We have been competing with the business they bought for a long time. We are not threatened by it at all. I am not going to say what I really think because it would not be nice, but no—it is not something that we worry about. Aaron J. Nahmad: We have known the Mingledorff family for a long time. We wish them well and that business well. It takes two to tango, especially in our business model and formula, which our Chairman started 50 years ago. The family needs to want to join our family, be here, run their business, and use our tools, technology, and capital to do what they do—do more of it and continue to grow. If that is not in their interest, then it is not a good fit. If it is, and there is mutual trust and respect, then it is a wonderful fit. We will keep doing what we do. We have done it successfully for a long time, and I do not think we are short of opportunities in the future. Patrick Michael Baumann: Makes sense. Thanks a lot, guys. Best of luck. Albert H. Nahmad: Thank you. Patrick Michael Baumann: Thank you. Operator: We have the next question from the line of Jeffrey David Hammond from KeyBanc Capital Markets. Please go ahead. Jeffrey David Hammond: Hey, guys. Just a couple follow-ups. On gross margins, you held the line pretty well, and I know you got some price benefit in 1Q last year—that was good to see. How do you think gross margins trend, given you have a particularly tough comp in February? And separately, can you give us what commercial HVAC equipment was in the quarter? I am not sure if I missed that. Rick Gomez: On the commercial side, we did not see a whole lot of divergence between residential and commercial. The biggest divergence was domestic versus international, but residential and commercial traveled very close together. On margins, if you go back 10 years and take second quarter and third quarter together, there is usually a modest retreat in margins only because historically those quarters have some OEM pricing actions, and the cooling season plus R&C mix typically influences second and third quarter margins versus off-season margins. Last year did not follow that trajectory because of the price increases. We will see what this year brings; in the absence of new information, we will see what the OEMs begin to talk about in the next few days. Historically, there is a different profile to margin during season versus out of season. Offsetting that, supply sync is now launching, and we expect that to be helpful as it scales. Aaron mentioned Hydros and DCR—its companion initiative around purchasing in non-equipment—that is gaining momentum and scaling. There are puts and takes. We will share more when we know more, but historically there is always a little difference between seasonal and off-season margins. Jeffrey David Hammond: Okay. Thanks. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Albert H. Nahmad for closing comments. Albert H. Nahmad: Thanks for listening, and thanks for your interest in our business. We are very excited about the future. As I said, we are uniquely capable of investing in the industry through acquisitions and post-acquisition initiatives. We are in it for the long term, and we are happy you are with us. Bye-bye. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Bank Earnings Conference Call for the First Quarter 2026. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Patrick Ryan, President and CEO. Please go ahead. Patrick Ryan: I would like to welcome everyone today to First Bank’s first quarter 2026 earnings call. I am joined by Andrew Hibshman, our CFO, Darleen Gillespie, our Chief Retail Banking Officer, and Peter Cahill, our Chief Lending Officer. Before we begin, Andrew will read the safe harbor statement. The following discussion may contain forward-looking statements. Andrew Hibshman: The following discussion may contain forward-looking statements concerning the financial condition, results of operations, and business of First Bank. We caution that such statements are subject to a number of uncertainties and actual results could differ materially. Therefore, you should not place undue reliance on any forward-looking statements we make. We may not update any forward-looking statements we make today for future events or developments. Information about risks and uncertainties is described under Item 1A, Risk Factors, in our annual report on Form 10-K for the year ended 12/31/2025 filed with the FDIC. Pat, back to you. Patrick Ryan: Thank you, Andrew. Earnings came in below our expectations in the first quarter. Elevated credit costs in the credit-scored small business portfolio were the primary driver. We have taken a very proactive stance regarding the management and cleanup of this portfolio. The product parameters and sales processes were revamped starting in 2025, and all known issues in the portfolio have either been charged off in full or specific reserves have been established. Elevated loan payoff activity also impacted earnings. As Peter and Andrew will discuss, unusually high payoffs in the fourth quarter drove lower average balances during Q1 and that impacted the overall results. We are still working to make up for those elevated payoffs, but strong loan growth so far in April and healthy pipelines provide reason for optimism that we can still achieve our loan growth goals. The net interest margin was down slightly in the first quarter, partly driven by reduced purchase accounting accretion income and partly driven by heightened deposit competition. Overall, credit quality seems to be holding at manageable levels. Specifically, our levels of nonperforming assets and criticized loans remain at levels well within historical norms and peer averages. Furthermore, our strong allowance for credit losses and overall capital levels provide a strong buffer. Regarding overall core profitability, I believe we will see a return to strong balance sheet growth as we move forward as payoffs normalize. In fact, through mid-April, net loan growth was up $50 million, putting us pretty close to plan. The margin will obviously be dependent on the overall rate and competitive environment, but we expect it should remain at healthy levels moving forward. First quarter expenses were somewhat elevated based on seasonal factors like payroll taxes and snow removal, and we expect they will remain relatively stable throughout the remainder of this year. Furthermore, our strong capital levels provide significant dry powder for share buybacks should attractive buying opportunities emerge. In summary, while the quarterly results were disappointing, we believe the elevated credit costs are isolated to the small business portfolio, and profitability should return to stronger levels as we move forward in 2026. At this time, I would like to turn it over to Andrew to provide some additional detail on the financial results. Andrew? Andrew Hibshman: Thanks, Pat. For the three months ended 03/31/2026, we recorded net income of $7.6 million, or $0.30 per diluted share. This translates to a 0.79% return on average assets. Net interest income decreased $2.2 million compared to the fourth quarter, primarily due to lower average loan balances, which resulted from limited growth during the current quarter coupled with the late-quarter timing of payoffs in the linked fourth quarter. Additionally, the yield on average loans declined by 21 basis points, which was partly related to the elevated level of prepayment fees in the linked fourth quarter. This outpaced the 15 basis point decline in interest-bearing deposit costs and contributed to a five basis point decline in the net interest margin. I will note that compared to last year’s first quarter, net interest income grew by $1.9 million, or 6%, and that was primarily driven by lower interest-bearing deposit costs. At 3.69%, we believe our first quarter net interest margin remained very strong and compares favorably to our peers. Looking ahead, we continue to manage a well-balanced asset and liability position, and we anticipate stronger loan and deposit growth, which should result in increased net interest income generation regardless of what happens with rates. We anticipate continued declines in our purchase accounting accretion over the next several quarters. We are also seeing enhanced deposit pricing pressure as the market adjusts to the expectation that the effective Fed funds rate will stay higher for longer. Offsetting some of that pressure is that we continue to replace the runoff of lower-yielding assets with higher-yielding loans. We expect these factors in aggregate to support a relatively stable margin, with the potential for some pressure should the current flat yield curve environment persist. Net charge-offs increased to $5 million in the first quarter from $1.7 million in the linked quarter, almost exclusively related to our small business portfolio. This was the primary driver of increased credit loss expenses in the first quarter. Our allowance for credit losses to total loans increased one basis point to 1.39% from 1.38% at December 31. With the recent increases in our allowance, our reserve coverage ratios are very strong. Noninterest income grew to $2.4 million in the first quarter of 2026, compared to $2.3 million in the linked fourth quarter and $2 million in 2025. The slight increase in the current quarter primarily relates to higher earnings from some modest investments we have made in certain small business investment funds. Noninterest expenses were $20.9 million for the first quarter, compared to $17.1 million in Q4. The increase was primarily driven by a $1.9 million gain on sale of an OREO asset, which was booked as a contra expense in the fourth quarter. Excluding the impact of this nonrecurring item in Q4, noninterest expense increased by $1.9 million primarily due to seasonal factors. Salary and benefits expense increased primarily due to typical first quarter increases related to merit salary adjustments, benefit cost increases, and increased employment taxes connected to annual incentive payments. Occupancy and equipment expenses were impacted by annual rent increases, along with the impact of higher maintenance costs given the harsh winter in our primary footprint. Looking ahead, we view our first quarter expense level as a reasonable overall run rate as we move forward. The first quarter marked our 27th consecutive quarter of operating with an efficiency ratio below 60%. This has positioned us as a top quartile performer among our peers on this metric and is a differentiating strength for First Bank. We expect to drive revenue growth during the rest of the year without needing to add to expenses, which should move our efficiency ratio down over the next several quarters. Tax expenses totaled $2.3 million for the first quarter, with an effective tax rate of 22.7%. This compares to 25.7% for Q4. First quarter taxes included the benefit of items related to stock compensation and compensation activity, which historically has an outsized impact during the first quarter. We anticipate our future effective tax rate will be approximately 24% to 25%. Our capital ratios remain strong. We executed a modest amount of share repurchases during the quarter, and we could fully execute our approved $20 million buyback program and still maintain strong capital ratios. For example, assuming $20 million in buybacks and a static balance sheet, our total risk-based capital would be approximately 12.5%, well in excess of any regulatory minimums or internal policy limits. Going forward, we aim to continue driving shareholder value through a combination of core earnings, a stable cash dividend, and share buybacks as applicable over time. At this time, I will turn it over to Darleen Gillespie, our Chief Retail Banking Officer, for her remarks. Darleen? Darleen Gillespie: Thanks, Andrew, and good morning, everyone. Deposit growth of $25.1 million was modest during the quarter. While we saw solid activity onboarding new relationships and expanding existing ones, seasonal fluctuations and some expected outflows influenced ending balances for the quarter. Average interest-bearing deposit costs came down 15 basis points during the quarter, and we benefited from the Federal Reserve rate cuts that occurred in 2025, as well as our continued proactive efforts to optimize and manage deposit pricing. Going forward, we may see some moderation in this benefit as heightened industry competition continues to place pressure on deposit pricing. We remain focused on striking the appropriate balance between growth and cost discipline. Overall, we continue to execute effectively against our dual priorities of deepening relationships while prudently managing funding costs. In addition, targeted promotional pricing has proven successful in attracting new customers and, importantly, retaining those relationships beyond the promotional period. Our newly opened and relocated branches are doing well and meeting deposit growth expectations. Retention levels among customers impacted by branch consolidations have remained strong, and associated attrition has tracked within our plans and budgeted expectations. This is a testament to the outstanding execution of our relationship bankers across our footprint. Looking ahead in 2026, deposit growth continues to be a priority in order to fund our expected loan growth in a profitable manner and to maintain a strong net interest margin. We intend to achieve this by maintaining a strong deposit funding pipeline, continuing to retain and grow existing relationships, and utilizing promotional pricing when prudent and necessary to win in this highly competitive market. Our teams are closing loans and adding full operating accounts, which is a key element of our growth and funding strategy. After a very active year of optimizing our branch network in 2025, we have minimal branch activity on the horizon in 2026. We will continue to be opportunistic where it makes sense to enhance the efficiency of our network, the convenience for our customers, and our potential exposure to new clients in existing or adjacent markets. But right now, our focus is on optimizing the growth and pricing of our deposit portfolio. We intend to keep working to achieve our goal of bringing our deposit costs closer to our peer bank median. At this time, I will turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Peter? Peter Cahill: Thanks, Darleen. As Pat and Andrew described, our Q1 numbers reflected a slower quarter in terms of loan growth. Last year, as you know, despite average loan growth of $267 million, we finished with annual growth of $149 million, or 4.7%. Much of that second-half decline was due to loan payoffs in Q4 of $135 million, which far exceeded payoffs that averaged $50 million in each of the previous three quarters. Results this past quarter were impacted again by loan payoffs. We mentioned a good loan pipeline at year end, and I think we had a pretty good quarter from the standpoint of converting that pipeline into new funded loans. Loans closed and funded in Q1 totaled $106 million, which equals the quarterly average for both 2024 and 2025—so not a slow quarter from the standpoint of new loans closing and funding. Payoffs in Q1 were $73 million, however, higher than our average quarterly payoffs in each of the past five years. Payoffs bank-wide were made up of 59% investor real estate loans. Of all the payoffs in the quarter, the same figure, 59%, stemmed from the underlying asset being sold, and the balance of those payoffs were primarily from loans being refinanced out of the bank. As in previous quarters, new loans continue to be centered in C&I and owner-occupied real estate. For the quarter, this category made up 50% of new loans, with investor real estate loans comprising 40% and consumer lending 10%. We are seeing the same competition we have seen in previous quarters, primarily from the regional banks in our market. We continue to get decent spreads in the 250 basis point range over FHLB. Some of the competition is pricing lower, and we are also seeing banks loosening terms a bit by not requiring deposits or offering longer amortization schedules, etc. Despite the competition, we are still seeing good things in our lending pipeline. After closing and funding over $100 million in new loans during the quarter, the pipeline at quarter end—what we call probable fundings—stood at $383 million, up 15% from where it was at year end. The number of loans in the pipeline—the number of individual loans—at quarter end was up 9% over year end. Regarding the makeup of those loans, 66.5% are C&I loans compared to 61% at 12/31. The impact of our solid pipeline, as Pat mentioned, has been seen already in Q2. In mid-April, we hit loan growth for the year of close to $50 million, which is where we should have been a couple of weeks earlier at March 31. On the topic of asset quality, we have mentioned the softness we have been experiencing in the small business portfolio over the last couple of quarters, and Pat and Andrew both talked about the impact this past quarter. Last quarter, I mentioned that we have turned over staffs in that area and significantly tightened credit parameters, which, as you would imagine, has slowed production significantly. Delinquencies are no longer growing; we are very focused on providing attention to the relationships we have in that portfolio presently. Otherwise, delinquencies across all business lines were very manageable at quarter end. The earnings release did mention that our increase in nonperforming loans was related primarily to the addition of a well-secured single-borrower commercial real estate credit totaling $9.5 million. I will just add that this assisted living property shows current cash flows north of 1.8 times debt service coverage and a loan-to-value of 52%. So while it impacts our numbers presently, we expect a positive resolution there. In summary, while the payoffs we experienced resulted in a slow quarter as far as loan growth goes, we have seen a pickup since then and we remain confident in our plan to grow the loan portfolio by $200 million this year. All segments are expected to contribute to that growth. That concludes my remarks about lending, so I will turn things back now to Pat for some final comments. Patrick Ryan: Thanks, Peter. We will now open the call for questions. Operator: Press star then the number one on your telephone keypad. Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open. Patrick Ryan: Good morning, Justin. Justin Crowley: First, I was just wondering if you could spend a little more time on the small business portfolio that I know we have discussed a lot—what has been driving the weakness there, and what gets you to a point where you are comfortable that any further negative impact in that book should be contained, given some of the actions taken over the past couple of quarters? Patrick Ryan: Yeah. Absolutely. So the short answer, Justin, is there is no one factor. Certainly, we have seen plenty of data in the market that small businesses have been feeling some stress given the volatility in the overall economy. In general economic factors within a small business portfolio, these are companies by definition that have a smaller revenue base and therefore less of a cushion to absorb things like volatility in margins or the loss of a big customer, etc. On top of that, some of it, we believe, was tied to folks being a little more aggressive than we would have liked on the overall marketing of the product. It is a credit score product. It is one that we have been using for six or seven years now, so it was not a brand new solution. But we were looking to grow and scale that business over the last couple of years, and I think some folks, in an effort to try to build that, were moving beyond the core tenets of our relationship banking model. So we have revamped those processes. We have tightened up the parameters. And as Peter mentioned, new production has slowed down significantly. We are tracking the data closely. When we see issues—when we have significant delinquency—we are moving quickly to take care of those loans either through charge-off or specific reserve. As Peter mentioned, as we have looked at some of the delinquency trends, it feels like things are starting to settle down there. Obviously, time will tell, but we are definitely feeling like that initial surge is past us. Given the changes we have made over the last nine months, we think the results moving forward should be significantly better. Exactly what “better” means, time will tell. But again, it is a relatively small portfolio; it is down under $100 million at this point. Given the steps we have taken to address the known issues, we think we are getting past the uptick, and we think we will see some better performance out of that portfolio moving forward. Justin Crowley: And then just to clarify, the stress you are seeing is not coming from the SBA product; it is coming outside of that program and the smaller-dollar-type loans. Is that accurate? Patrick Ryan: These are smaller-ticket—couple hundred thousand—lines of credit and term loans that are not necessarily SBA-related. So it is not an SBA-specific situation. Justin Crowley: And you said it was about $100 million. Just looking to put some more numbers around it—do you have what the reserves against that portfolio are, and then a sense of where charge-off rates have been in that book specifically so far? Patrick Ryan: If you looked at the quarter, the $5 million number was almost exclusively related to that portfolio. Over a 12-month period, the number was probably closer to $9 million. But if you scroll back further, again, this is not a brand new product. It is one that we have been using for a while, and it felt like the scoring became a little less predictable. Some of it might have been related to some of the cash infusions from COVID—we cannot really say for sure. Prior to that, the performance was actually really good; we had very minimal charge-offs. If you look at it at a point in time, the numbers look really high. If you spread it out over a two- or three-year period, you are probably looking at maybe 2% to 3% a year over that time frame. Again, higher than we would like, and, obviously, as a result, we made changes to the underwriting and the sales process to slow that production down. But what we have in the portfolio now is folks that have been with us for a while, have been paying as agreed, and have not been showing delinquency issues. So, again, we think the performance moving forward should be significantly better. Andrew Hibshman: I will just quickly add: we have about $2 million of specific reserves allocated to known problems, and we have also made some adjustments in our allowance calculation to put some money away for unknown problems. Right now, it is $2 million of specific reserves for identified specific loans, and we have adjusted some of the other factors within our calculation to address some potential issues going forward. Justin Crowley: Okay. So does that get you north of a 3% reserve in that book? Andrew Hibshman: Yeah, probably. Patrick Ryan: Within the allowance models, small business is part of overall C&I, but you can see the overall allowance is up in the 1.37% range, which is a very healthy level relative to where we have been and relative to where the industry is. We certainly think there is significant money set aside to deal with potential issues. And listen, we are charging everything off in full. There will be some recoveries here—we are not factoring that into the numbers. But we think that we have put a lot of money aside to make sure we are protected here. Justin Crowley: Got it. Shifting gears: on the comment that the NIM should hold relatively stable here—that has been the messaging—could you detail what is embedded in that in terms of new loan yields versus what is rolling off the portfolio, and the volume of repricing opportunity as we get through the year? Patrick Ryan: I can address part of that. Peter can jump in on new loan yields. With some of the volatility in the markets, Treasury yields moving higher, I think loan pricing is well in the 6% to 6.5% range—higher depending on asset class, product type, things like that. Then, Andrew, if you want to provide some details on the repricing and the modeling. Andrew Hibshman: We still have a good chunk—without getting into a ton of specifics—of loans that are repricing off of loans that were originated five years ago in a significantly lower interest rate environment. So we have a lot of loan activity that is repricing a couple hundred basis points higher in some instances. We believe that repricing is going to offset some of the purchase accounting accretion declines, and those declines we expect to be a little more muted than they were over the last couple of quarters. I believe purchase accounting accretion was $1.2 million in the first quarter. It was $2.6 million last year. That will continue to come down, but probably only $100 thousand to a couple hundred thousand dollars a quarter going forward. So that will continue to have a negative pull on the margin, but we continue to see enough loans repricing higher that should offset most of those declines. The big wildcard will be what we need to do on the deposit pricing side—whether we need to price up to bring in new money to fund the loan growth that we expect. Again, we feel fairly confident that we can maintain a fairly stable margin with a lean towards maybe some pressure depending on deposit pricing over the next several months. Justin Crowley: And do you have what floating-rate exposure is in the loan book? Andrew Hibshman: It is still about 25% of the portfolio. It fluctuates a little bit. That number has moved a little higher over the last couple of years because we have been doing more C&I and shorter-term stuff than we had been doing in the past, but it is still about 25%. It was closer to 20% a couple of years ago, and now it is between 25% and 30%, but around 25% is still the right number. Justin Crowley: Would that all reprice immediately, or is there a lag, and is there any protection in the way of interest rate floors? Andrew Hibshman: I do not have the details on the floors, but yes, there is some protection there. Most of it would reprice either right away or the next month. We still have some interest rate swaps in place that are protecting us a little bit on some of these things, but not much. Especially as rates move lower, some of those would move lower. It is pretty much right away for the 25%. There are some floors, but I do not believe most of the loans are at the floors. Obviously, if we see some bigger rate cuts, the floors become more relevant than a quarter-point adjustment by the Fed. Justin Crowley: That is helpful. On expenses, you called out some of the seasonally higher occupancy costs inflating the number in the period. As we look at compensation, is that a good way to think about that level moving forward? You mentioned higher payroll taxes—curious how much should flow back out as we think about the forward trajectory. Peter Cahill: The first quarter is a pretty reasonable expectation. Andrew Hibshman: It could move a little bit down because of the technical factors you noted. We did our salary increases in March, so you do not have the full impact of those salary increases in the first quarter. I think the run rate in Q1 is pretty close to where we would see things going forward because some of the one-time items will get offset by the increases in the salary line item that happened late in the quarter. I do not anticipate any significant increases to that number going forward. Across most expense line items, a fairly stable run rate over the next several quarters is where we see things. Justin Crowley: On the broader topic of expenses—balancing further investment, particularly on the technology side as we are seeing more rapid AI adoption—how are you thinking about implementing that? Patrick Ryan: I would say it is a combination of working internally with folks who are our first movers. We have a full team doing testing; they have access to the more advanced tools and are developing use cases. As those use cases roll out, there will almost certainly be some tech cost associated with them, but in many cases there should also be corresponding savings. There may be a situation where tech spend increases a bit, but we would also envision some other expenses coming down. In conversations with our primary technology providers, they are looking at embedding AI tools into products and services we are using. We have, in most cases, fixed-price contracts there, so we do not expect that will drive significantly higher cost in the short run. Over time, as the quality or value-add of the tools they embed are more noticeable, that could drive some pricing power on their part. The short answer is we will be looking to make strategic incremental investments based on use cases that we uncover, but it is not something we expect would be huge additional dollars. We are not spending time on R&D and coding like the big guys are doing to try to get a step ahead. We want to be ready to move quickly, which is why we have developed the working groups, the use cases, the testing parameters, and the sandbox safety parameters so that we can start using some of these AI tools in a safe way. Justin Crowley: Great. I appreciate the color. I will leave it there. Thanks so much. Patrick Ryan: Alright. Thanks. Operator: Your next question comes from the line of David Bishop with Hovde Group. Your line is open. David Bishop: Hey, good morning, guys. Patrick Ryan: Morning, David. Andrew Hibshman: Hey. David Bishop: I think you mentioned in the preamble that you still sit in a very enviable tangible and regulatory capital position. Maybe your view of excess capital—how aggressive can you be in terms of addressing the buyback on any pullback in the share price? Patrick Ryan: We have an approved buyback in place and plenty of availability within the plan. Obviously, slower growth in the quarter is not the goal, but the paydowns during the fourth quarter and first quarter led to some significant additional capital accretion during the last half year. The short answer is we have strong capital levels to put to work if it makes sense. David Bishop: Got it. And then, in terms of revamping the small business group—you have the other specialized business units. Do you continue to see good opportunity to grow there? Any stress in any of those segments, like private equity or ABL, and your appetite to continue to grow those segments? Patrick Ryan: Those segments are doing well. We talk about them together as niche businesses, but they are very different. You are talking about a credit-scored product that is supposed to be scalable and light-touch, which is very different than the detailed, thorough, traditional underwriting we are doing on the ABL and the private equity side. Those other groups are performing well. We take a measured, methodical approach—not looking to bet the farm on any one of these individual segments. We think each of them could grow reasonably over the next couple of years and continue to contribute to overall profitability and diversification of the portfolio. David Bishop: Got it. As a follow-up, I think Peter mentioned the one larger commercial real estate credit—assisted living. Any additional color on ultimate resolution and the near-term outlook for that credit? Patrick Ryan: We are a participant with a larger bank on that, so we are taking our cues from them. All the data regarding our specific borrower—which is part of a much larger corporate entity that is going through a restructuring—points to the fact that we are in a very strong position. When you have a corporate restructuring, things get put on hold while that gets sorted out. Given the underlying strength of the asset, from a cash flow and LTV perspective, we have every reason to believe we are going to be fine there. The timing of when that comes off the books will be driven by how long it takes to work through the corporate restructuring process. We think and hope it would be gone by the end of the year, but it is hard to be more specific than that. David Bishop: Got it. Final question: there is a lot of discussion about deposit pricing competition across the Metro New Jersey/New York market. It is very competitive. Do you have the spot rate of deposits or margin at the end of the quarter, and maybe the marginal cost of deposits so far through April? Patrick Ryan: Andrew probably has the March deposit cost number; maybe that is the best place to start. Certainly, for incremental dollars, we are seeing pressure. If you want to try to raise some money in the CD market, that might have been a 3.50% rate six months ago, and now it is moving closer to 3.75% or even higher. You have seen the cost move higher on the brokered and wholesale side, and those markets are moving in lockstep. Andrew, if you have more specific data around what the March deposit level looks like. Andrew Hibshman: We had a rate cut in December and a couple of other rate cuts earlier in the quarter, so that trickled into the first quarter. We saw the big benefit of that hit in January. Pricing has stayed relatively stable when you look at overall deposit costs in January, February, and March. There is a little bit of pressure now with us trying to bring in some additional money, and pricing has gotten a little bit more competitive with Treasury yields moving a bit. I think deposit pricing should remain relatively stable compared to the first quarter, with maybe a little bit of pressure as we saw starting in March, and we will have to continue to be competitive into the second quarter. Operator: Your next question comes from the line of Jake Civillo with D.A. Davidson. Your line is open. Jake Civillo: Hey, good morning. On the compensation expense side, you talked about some of the moving parts. Is any of that competition-related or opportunistic hiring? Patrick Ryan: Regarding hiring, that is always happening, but I do not think there was anything in particular I would point to in Q1 as a driver. It was more a function of seasonal items that are nonrecurring for the remainder of the year, and that was the driver of the elevated numbers in Q1. Andrew Hibshman: I would just add that the market is still competitive for finding people, but we have not seen a ton of extra pressure. Salary increases are pretty standard this year. Overall, it is more standard stuff and some seasonal items in Q1, but nothing outside of normal or outsized salary increases, and we do not expect that we will have to be more competitive than normal to continue to bring good people into the bank. Jake Civillo: Fair. Thanks, Andrew. And then one more for me. You pointed to the $50 million net loan growth number in the first couple weeks of April. Does that follow the similar 50/40/10 split you referenced earlier? Patrick Ryan: I think year to date has been pretty consistent with the portfolio that exists today. In any given quarter or month, you could have a particular larger loan that might sway the numbers one way or the other. Peter, was there anything that jumped out at you if you looked at year-to-date growth that was an outlier from the overall portfolio composition? Peter Cahill: No. I would say it fits right in. Because it is more recent, I know a couple of the chunkier loans since 03/31 were in the C&I owner-occupied category. It was not the case where we closed and funded a couple of investor real estate loans to help the numbers or anything like that. It has been more of what we have been chasing for previous years. Jake Civillo: Okay. Great. Thank you. Operator: Again, if you would like to ask a question, press star then 1 on your telephone keypad. I will now turn the call back over to Patrick Ryan for closing remarks. Patrick Ryan: Thank you, everybody. We appreciate your time today, and we will look forward to regrouping with folks once we get through the second quarter here. Thanks, everyone. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Good morning. Thank you for joining The Sherwin-Williams Company's review of first quarter 2026 and our outlook for the second quarter and full year of 2026. With us on today's call are Heidi Petz, Chair, President and Chief Executive Officer; Ben Meisenzoll, Chief Financial Officer; Paul Lang, Chief Accounting Officer; and Jim Jaye, Senior Vice President, Investor Relations and Communications. This conference call is being webcast simultaneously in listen-only mode by accessing Newswire via the Internet at sherwin.com. An archived replay of this webcast will be available at sherwin.com beginning approximately two hours after this conference call concludes. This conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect to sales, earnings, and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open up this session to questions. I will now turn the call over to Jim Jaye. Jim Jaye: Thank you, and good morning to everyone. The Sherwin-Williams Company delivered strong sales in a quarter characterized by heightened global uncertainty and persistent demand softness in most end markets. Our growth investments and ongoing new account and share-of-wallet initiatives continue to yield results, as sales exceeded guidance on a consolidated basis and in all three reportable segments. Consolidated sales grew by a high single-digit percentage inclusive of a low single-digit contribution from the Suvenil acquisition. Reported gross margin expanded by 90 basis points inclusive of a dilutive impact from Suvenil. This was the fourteenth quarter out of the last 15 quarters we have delivered year-over-year gross margin expansion. Against a challenging prior-year comparison, SG&A increased by a mid single-digit percentage. Excluding the anticipated headwinds from our non-annualized acquisition of Suvenil, non-annualized operating costs and depreciation related to our new buildings, and foreign currency translation that we anticipated to unfavorably impact our SG&A as a percent to sales by approximately 100 basis points. Our full-year guidance of a low single-digit increase in SG&A remains unchanged. Adjusted diluted net income per share in the quarter increased by a mid single-digit percentage, and adjusted EBITDA increased by a high single-digit percentage. Net operating cash improved by 200 million dollars driven by an increase in net income and working capital being a lower use of funds. Our full-year guidance for adjusted diluted income per share remains unchanged. We continue to execute our disciplined capital allocation strategy in the quarter by returning 773 million dollars to shareholders through share buybacks and dividends. We ended the first quarter with a strong balance sheet and a net debt to adjusted EBITDA ratio of 2.5 times. Let me now turn it over to Heidi who will provide some color on first quarter segment performance before moving on to our outlook and your questions. Heidi Petz: Thank you, Jim, and good morning to everyone. I want to begin by thanking our more than 64,000 employees for executing our strategy in what remains a very challenging operating environment. We are continuing to deliver reliability, consistency, and solutions for our customers at a time when these are more valuable than ever. Our differentiation continues to widen the gap between The Sherwin-Williams Company and our competitors as evidenced by our strong top line and robust new account growth across the business. Looking at our segment results in the first quarter, I will begin with Paint Stores Group, which grew by a mid single-digit percentage. Price mix and volume both increased by low single-digit percentages, with price mix increasing more than volume. Effectiveness of our January 1 price increase is trending slightly better than expected. Our protective and marine team continued to deliver impressive growth for us, as sales increased by double digits versus a high single-digit comparison. It was the seventh straight quarter of high single-digit growth in this business. In the commercial business, sales increased by mid single digits in what remains a choppy market reflecting our very targeted and ongoing share gain efforts. These efforts are also evident in residential repaint, which returned to mid single-digit growth in the quarter. Low single-digit growth in property maintenance was encouraging, while demand in new residential remained very challenging as we anticipated. Segment profit grew by low single digits with segment margin basically flat. We opened 21 new stores during the quarter and, as planned, closed 27, or about half a percent of total PSG stores. As we have done for decades, we continually assess and optimize our store portfolio to drive profitability, strengthen operational flexibility, drive improvement in return on net assets employed, and ensure we maintain the highest level of service for our customers. We still expect to open 80 to 100 new stores for the year. Consumer Brands sales exceeded our expectations driven by high-teens growth from the Suvenil acquisition. Price mix and FX both increased in the low single-digit range, and volume decreased in the mid single-digit range. Group sales excluding Suvenil increased by low single digits driven by high-teens growth in Europe and high single-digit growth in our Latin America business. Softness persisted in North America where sales decreased by low single digits. Adjusted segment margin increased driven by the strong top line with flow-through of 34.3%. In Performance Coatings Group, sales increased slightly above the mid single-digit range we expected, with growth in every division and region. These results reflect the strong new account growth focus we have spoken about over the last year as demand in our underlying core business is still declining in some end markets. Volume in the quarter grew by low single digits, acquisitions were slightly positive, price mix was flat, and FX was a tailwind. Automotive refinish sales increased by a low-teens percentage driven by high single-digit volume. The growth was broad based with sales up by double digits in all regions, providing further evidence of the value we are delivering in this end market to win new business. Packaging continued its strong performance as sales increased by high single digits against a high single-digit comparison. General industrial, coil, and wood also delivered solid growth. Group sales expanded in all regions, including double-digit increases in Asia Pacific and Europe. Adjusted segment profit for the group increased by mid single digits and segment margin was flat. Higher incentive compensation related to the strong year-over-year sales along with the significant FX headwinds drove segment SG&A higher, resulting in muted flow-through. These same dynamics, in addition to our non-annualized new building costs, also drove SG&A higher within the administrative segment. The slide deck accompanying our press release this morning provides more detail on second quarter segment results. Now moving on to our guidance. The assumptions we provided in our January call and slide deck largely remain intact. What has not changed is that our customer feedback as well as the indicators we track continue to signal little support for meaningful recovery in most end markets. What has changed is the Middle East conflict, which has added further complexity and uncertainty in navigating the macro landscape. Our team has repeatedly demonstrated its ability to manage through crises, most recently during the pandemic and the U.S. supply chain disruption to name just a few. I am highly confident we are well equipped to manage through this newest challenge and continue supporting our customers at the highest level. Let me provide some perspective here. First, we expect to see some negative impacts on demand from recent events as the year progresses. It is difficult to predict the magnitude at this time given the highly fluid nature of the situation. But I will remind you that this is our fourth year in a row we have been operating with the benefit of getting no help from the market. We know we are operating in a share gain environment, and we will continue to be very aggressive here. We see opportunity in uncertainty. We will continue to support our existing and new customers by being the most reliable and consistent business partner in our industry. From a raw material perspective, our first objective is certainty of supply. The good news is that over 80% of our consolidated revenue is in North America. The majority of raw materials for these sales are sourced in-region and remain largely insulated from supply disruptions tied to Strait of Hormuz volatility. In areas such as Asia Pacific and EMEA, where supply could become more challenged, we are managing risk closely. Our focus over many years on building strong relationships with strategic suppliers versus transactional ones is a competitive advantage and should continue to serve us well. In terms of raw material price/cost dynamics, costs for oil, natural gas, and key petrochemical feedstocks, such as propylene, have inflated and remain volatile. As we have previously indicated, sustained inflation in these commodities typically takes about a quarter or two before we begin seeing an impact in our P&L. Specifically, we would expect to see these inflating costs impacting us more materially as we move through the second quarter and into the second half of the year. Our industrial business is seeing inflationary pressures first, starting in APAC and EMEA and to a smaller extent in North America. More recently, we have started to see the inflationary impact in our North and South American architectural businesses. This leads us to increase our full-year raw material inflation outlook to the range of up low to mid single digits. In this environment, we continue to focus on securing incremental volume balanced with appropriate and decisive pricing and cost-out actions that allow us to maintain the products, services, and supply solutions which drive productivity and profitability for our customers. In terms of pricing, we are out across the business with incremental targeted actions by customer, geography, and end market. As a result, our expectation for consolidated price/mix for the year increases to the high end of our low single-digit range. We are actively working to limit these increases for our customers by accelerating meaningful and aggressive cost reduction actions. At the same time, we expect continued volatility in the raw material environment as the year progresses, and we are prepared to implement additional increases if necessary. The slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for 2026. Our consolidated sales and earnings guidance for the full year are unchanged, so our deck outlines some adjustments in the mix of volume, price, and FX. The deck also contains other details you may find useful for modeling purposes. The Sherwin-Williams Company remains well positioned to outperform the market. We are highly confident in the clarity of our strategy and, importantly, our team's deep experience and ability to out-execute in this environment. We remain deeply focused on the success of our customers, while continuously assessing and adapting to market conditions and controlling what we can. Whenever there is uncertainty and disruption, there is significant opportunity to demonstrate what makes The Sherwin-Williams Company so unique. This concludes our prepared remarks. With that, I would like to thank you for joining us this morning, and we will be happy to take your questions. Operator: We will now open the call for questions. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from John McNulty with BMO Capital Markets. John McNulty: Yeah, good morning. Thanks for taking my question. Maybe a question on the price and cost dynamic. It seems like on your pricing commentary, it sounds like it is a little bit more surgical than maybe you have taken in the past and a little more customer specific or very end market specific. I guess given the global cost pressures that we are seeing, why is it sounding maybe a little bit more surgical than usual and maybe a little bit less of a full across-the-board type price move? Can you help us to think about that? Heidi Petz: Yes, John. I will start, and I will hand this over to Ben here for some color commentary. I do want to emphasize that this is an opportunity. We have operated through so many different types of cycles where volume is clearly key, and the discipline of the team to know when and where to go with pricing is on clear display. You see it in our first quarter results. But I want to take a moment before I hand this over to Ben. I said this in our prepared comments: it is a credit to our 24,000 employees globally that are operating belly to belly with customers and have that intimacy so that when we do need to take pricing, we have high credibility that it is absolutely out of necessity. I will hand it over to Ben to give some comments on a more surgical approach. Ben Meisenzoll: Hey, good morning, John. Just to add to what Heidi said here, I think one place to anchor is that we have more than twice the pricing now in this new guide than what we had in the original guidance that we gave you in January. And it reflects, if you think about the phasing by the regions, we know that Asia Pacific is maybe more impacted right now. That is going to impact EMEA. North America comes later. You also have the phasing where industrial is impacted sooner than you would have architectural. That is because a lot of the solvent pricing that you would expect you see first. Even the way that we buy is a variable here. You think about we are like 50/50 between contractual and spot buying. More of our architectural business is on a contract, and so you would expect on the industrial side you are going to see more of that spot buying where you have a more varied range of raw materials. These are all things that have gone into how we thought about the pricing here. And Heidi is absolutely right. We are going to monitor and watch. We are going to work with our customers. We are also really early in the year still, and so we have a lot of opportunity if our base case does not play out the way that we think. We are going to have that ability to go out and get additional pricing. And lastly, we always talk about it as balancing price with the right volume, and as we look at some of the competitive opportunities, we are not looking for all volume. That is an opportunity that we want to make sure that we do not forget about here. Operator: Thank you, John. We do ask to please limit yourself to one question. If you have any additional, you may reenter the queue by pressing star one. Your next question for today is from Duffy Fischer with Goldman Sachs. Duffy Fischer: Yeah. Good morning, guys. Just a question on cost. If you could kind of break that down a little bit where you have seen the increase and, you know, going from kind of low single digits to low to mid, what is that based off of vis-à-vis spot prices? Do you think that we put in the peak already for a lot of, you know, the VAMs, the propylenes, all that kind of stuff, and they are starting to roll over, or do you think they will continue to go up? And then just some help on what that increase is vis-à-vis what you think the market is going to show us over the several months. Jim Jaye: Yeah. Good morning, Duffy. It is Jim. I would say where we are seeing the most pressure, as Ben mentioned, would be more on the industrial basket. So you are seeing that in the solvents and resins, those petrochemical-based commodities. Propylene drives about 75% of our basket, and that pricing is up because of the Middle East. It is forecasted maybe up 50% more through the rest of 2026 related to those disruptions. The solvents are elevated as well. Epoxies, I would say, as well. TiO2, for the most part, has not elevated as much yet. I think we have talked, Duffy, offline about the sulfur dynamics coming out of the Strait of Hormuz. The good news is we are not really buying sulfate TiO2. I understand it is a global market, but we are more on the chlorinated side, so I think that is important. The other thing I would say is, again, Heidi mentioned in her remarks, over 80% of our sales are in North America and the vast majority of our raws that we are buying come from that region. So from a supply perspective, we feel very good. And the contractual buying that Ben mentioned, the way we buy, is also helping us navigate these initial headwinds. And thanks for the question. Operator: Your next question for today is from David Begleiter with Deutsche Bank. David Begleiter: Thank you. Good morning. This is a small thing. On your guidance for raw materials, you removed the term “select commodity inflation” from the prior quarter slide deck. Help us with what that meant and why that was removed? Thank you. Jim Jaye: Yeah. I will take that one, David. I think when we talked about it earlier in the year, we just wanted to make sure that people were indicating that tariffs were part of it. We wanted to say, hey, commodities were moving a little bit as well. We just took that off now because it is very obvious that the commodities are moving upwards. So I would not read much into that. And thanks for the question, David. Operator: Your next question is from Christopher Parkinson with Wolfe Research. Christopher Parkinson: Great. Thank you so much. Heidi, you mentioned we have been consistently in that share gain environment over the last several years. Can you just give us kind of a quick update, given the current dynamics, on how you are thinking about gross spend, how you are thinking about net new store openings and closures? Just any dynamics that you could help us think about not only 2026, but also the trajectory which you still see for 2027 and 2028 would be particularly helpful. Thank you so much. Heidi Petz: You bet. Good morning, Chris. You know, there is a lot of volatility obviously in the macro, but there is also a lot of volatility in the competitive environment. I also said in the prepared remarks, that is absolutely our opportunity. You are going to hear us talk about this jump ball environment. And so in this economy and in this competitive landscape, we are going to be extremely aggressive in making sure that we continue to take more than our fair share of volume. I will point to a couple examples here, and then I will come back to the stores and your second question. If you look at our res repaint segment, we are up mid single digits in a flat to down market. Focusing on a lot of these share gains, we see in interiors increasing some bidding activity. We are going to take advantage of that. We see the exterior backlogs are very healthy. We are going to take advantage of that. Our team has been out laser focused. Justin Bins and the stores organization are committing to aggressive new account activity. I would tell you it is the strongest we have seen in a long time. So even though there is some slowing in the market, our teams are out chasing square footage, earning business with these contractors every single day. I would point to our commercial segment. We are outperforming. There are soft completions, and yet we are up mid single digits while completions are down double digits. Again, some good bidding activity out there. We see some positive signals that there is uptick with office tenant improvement. Some modest uptick in multifamily starts that will not benefit us for at least 12 to 18 months. But we are up year over year all four quarters of 2025 and 2026 because we have been completely focused on demonstrating value with these contractors. Let me take a moment and give you a bit more by segment. If you look at our property maintenance, we are up low single digits here in a market where turns and CapEx were both under pressure. So we continue to be laser focused on how we can add value. Even in the DIY space, we are up mid single digits in stores. That premium DIYer is holding up a bit better than that value-conscious DIYer that prefers a home center environment. Our protective and marine business: seventh straight quarter of being up at least high single digits. It is all share gains. And so we are going to be relentless in being very targeted on our strategic investments as we are obviously very focused on taking cost out on the admin side. But to your point on stores, it is going to be a continued disciplined process of looking at our portfolio. Ultimately, we are going to be driving a focus on return on net assets employed. It is incumbent upon us that as we are looking at that portfolio, as we have done for decades, we are going to make sure that we are driving profitability and strengthening our flexibility and our agility. As we see migration and changes in the competitive landscape, we are going to be very thoughtful in chasing that volume. Operator: Your next question is from Ghansham Panjabi with Baird. Ghansham Panjabi: Yes. Good morning. On the 2026 guidance, I think initially you had volumes up low single digits for your original expectation and then it seems like now it is guided towards low single-digit decline. Is the delta just your reflection of what you think the market will do the rest of the year just given this sequence of events? And then what are the offsets as it relates to the intact earnings expectations on the plus side? Thank you. Ben Meisenzoll: Hey, Ghansham. On the volume piece, yes. I mean, you heard us talk about a lot of the stronger price that is coming through. We recognize that with some of the inflation that there is going to be a likely demand impact. And so I think what you see in our guide, keeping it full year in that same range, it is how we get there that is very, very different. We expect maybe volumes to be a little more muted. And you think through the consumer sentiment numbers. I mean, we have seen lowest levels on record even going back to GFC and COVID, we have seen prints that are much worse than that. Some of our guidance is baking in some of the expectation on that volume being softer there. And again, as we talked about on the prior question, price is obviously an offset to that, and that helps us get to that same kind of guide for the full year. Operator: Your next question for today is from John Roberts with Mizuho. John Roberts: Thank you. The current administration has turned its attention towards housing affordability. Do you see anything in the proposed actions that you think could help out the end markets materially? Ben Meisenzoll: Hey, John. We have been monitoring, obviously, a lot of what they are doing. We agree that affordability is a big part of the equation. We have talked pretty openly that we thought rates were maybe going to be the first indicator that could drive additional unlocking demand, then affordability and consumer confidence. That may be more at the forefront. Our opinion is that we would like to see some more of the supply opportunities versus some more of the gimmicky demand. You have seen the 50-year mortgage. You have seen the “Trump homes.” You have seen some of these other maybe shorter-term unlocks. What we are looking for in some of these policy changes would be how do you get local governments working better with the federal government to open up land that makes it more cost effective for the new homebuilders to lower their costs. That, I would say, has a trickle-down effect to the affordability piece for the consumer who is buying the home. We welcome, obviously, any of the unlocking of affordability-type mechanisms, and we are watching that closely to see how we should be reacting and be ready to act when you do see something. Operator: Your next question for today is from Vincent Andrews with Morgan Stanley. Vincent Andrews: Thank you, and good morning. Could you talk a little bit about the margin improvement in Consumer Brands? And I guess from a couple of different lenses? One, should we think about that as a base level? Typically, I believe those margins go up in the middle of the year. So will they be improving sequentially? And then was there any reallocation of costs among the three segments? I recall in prior years, sometimes at the beginning of the year, you have changed the cost allocation of, you know, the paint supply from Consumer Brands into the other two segments. Thank you. Ben Meisenzoll: Hey, Vincent. On the first part of your question, the margin improvement in Consumer Brands that you saw, a lot of that is coming from our global supply chain efficiencies. We have talked many quarters about a lot of the simplification and continuous improvement culture that team has, and we continue to see benefits there. If you remember the second half of last year where our production was lower than what we had called out the first half of the year, that team is getting lean in a lot of different ways. That is a big part of what you see in the improved margin there. You also have some opportunities where our price mix has been a little bit better. You think about premium gallons improving in that segment and maybe a little bit of price ahead of some of the things Heidi and I have already talked about with inflation. So you see that there in that part of it. There is no reallocation. I know back in 2023, we talked about how we had that fixed cost allocation between the businesses. Nothing here. You should expect to still see low-20s margin in this segment as we have talked about. Operator: Your next question for today is from Mike Harrison with Seaport Research Partners. Mike Harrison: Hi. Good morning. I was hoping that we could go back to pricing. It seems like maybe the realization that you are getting on that 7% increase from January 1 is a little bit better than you had initially thought. And I am curious at this point, have all of those conversations with customers taken place and the pricing is what it is, or are there still some conversations yet to happen? And in terms of potentially needing another increase in response to what is going on in the Middle East and higher raw material costs, has the window passed to announce a price increase ahead of this year’s paint season, or would you be willing to break tradition and go with a mid-season increase if that is what is necessary or if you see competitors doing that? Thank you. Heidi Petz: Yeah, Mike. Good morning. I will start with—this is kind of a two-part question. The first part of your question relative to the January increase: yes, the realization is better than we expected, and yes, all of those conversations have happened and are out there. As it relates to has the window passed, or how do we think about maybe more of this turbulent environment? We have done this in the past. In fact, I did this when I was running stores. When you are in a more volatile environment, what we are not going to do is go out with a big increase in the middle of the season and announce “effective immediately.” But what we might do—if we need to go out with price, we will go out with price—in the middle or the beginning or the end of the season, but we will do it the right way. We will sit down with our customers. We will make sure that they are prepared so they are not stuck absorbing this, and we can work with them to get those into their bids. We will do it very methodically. But let me be very clear: if we need to go again, we will go again. Operator: Your next question for today is from Greg Melich with Evercore ISI. Greg Melich: Hi. Thanks. I would love to dig a little deeper on the gross margin expansion in the first quarter, I guess the 90 bps. And what it would have been without the Suvenil degradation? And if you think about going forward, do you think gross margins could be up each quarter this year, year on year? Or does that volatility mean there could be some quarters where it contracts year over year? Thanks. Ben Meisenzoll: Hey, Greg. You know, we have not been calling out the specifics with Suvenil, but I could tell you that it is a multi-basis-point level up. We would have been over a 100-basis-point improvement without Suvenil in the quarter. And then as you look forward to prior quarters, you do normally see our gross margins increase into the selling season as our sales improve and we get better cost/margin dynamics. There could still be a little bit of lumpiness. We have talked about—even with our midterm gross margin target—that it is not a straight line up, that it is a little bit lumpy. But we would expect that we continue to get a little bit of expansion there. Obviously, all the things that we are trying to manage through with the Middle East conflict and the raw materials, that plays into it as well. But if, again, you look at the normal phasing quarter by quarter, you should expect us to see improved gross margins as we go into spring and summer selling season. Operator: Your next question for today is from Arun Viswanathan with RBC. Arun Viswanathan: Great. Thanks for taking my question. I guess I was a little bit pleasantly surprised by some of the volume comments and performance across a couple of your businesses. So maybe in PSG, still very strong, I guess, or relatively solid resi repaint. Do you see that continuing? And then in PCG, better-than-expected performance out of refinish and general industrial and coil turning around. Do you see those continuing as well? Thanks. Heidi Petz: The answer is absolutely we see those continuing. And, Arun, I will point to res repaint—just a little bit more color on that. It is the actions that we have taken over the last three to four years that help. The Sherwin-Williams Company has never been better positioned. I would tell you we are better positioned now than even the turbulent last two, three, four years. The controllables mindset: residential repaint—this is an area where we are bringing really important innovation forward and technologies to help job site productivity. For example, we just launched a product system called Emerald Symmetry, which is our best performing interior product that we have ever produced. These performance characteristics are putting our contractors in a position to get on and off job sites faster. The secondary benefit of something like this is it happens to be zero-VOC, a plant-based interior coating. So it helps us on a number of fronts. We are taking the time to make sure that we are setting our contractors up for success, and when we do that, we get rewarded. To your point on some of the important businesses in PCG—this does not happen by chance. We talk about success by design. You mentioned Refinish. We have very strong momentum here. We are up double digits in every region. We are getting price in, and I think that is a demonstration of a clear value proposition that customers are really understanding. There are a lot of dynamics certainly within the industry that we watch closely. But what we do not do is sit back and wait for the market to correct. We are out chasing new business aggressively. Our direct install continues to grow double digits in the quarter, so there is a lot of runway in terms of future share gains there. Packaging—another fantastic example. We are up high single digits. The global beverage market is up low single digits. The global food market is flat to down low single digits. So if it tells you that we are up high single digits, what we are doing is working. Coil, general industrial, and wood all have really positive stories. The coil business—we are up mid single digits, and that is despite a lot of softness tied to the North American commercial/residential construction, tariff uncertainty. The teams are out aggressively hunting. GI is another great example. General finish heavy equipment—they are both up double digits. We are out trying to offset core erosion and core softness there. And industrial wood being up low single digits despite the correlation to residential there—there are soft residential end markets that impact wood furniture, flooring, and cabinetry. Despite that backdrop, the team is out chasing. Here is the punch line: we are building new muscle. And I do expect that we will continue to keep our foot on the gas and take share. Operator: Your next question for today is from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. Thank you, and good morning. I had a clarification and a question. On the clarification side, Ben, I think you made a comment that the price embedded in today’s guide is more than twice what you had included last quarter. I guess the clarification was, is that all to do with the January 1 increase and the realization against that, or have you implemented incremental pricing since the onset of the war on March 1? And then just my question is on raw materials. You are ratcheting the guide up a little bit, although, frankly, not as much as I might have thought. So wondering if you could just talk about the quarterly cadence of that. I think you are a majority LIFO company, so maybe you can speak to the accounting flow-through and the assumptions that you are making on duration of the conflict there? Thanks. Ben Meisenzoll: Hey, Kevin. To clarify on my price comment from earlier, that is on the consolidated pricing. That would have been everything that we did in January with stores, and everything new that we have done since then. You see in our guide that we took up our pricing in Performance Coatings Group. It goes back to the comment we made—industrial, with all the more solventborne-type raw materials, with the international locations, that is where we are seeing it first. That kind of phases into your second question of how you see the raw materials flowing through. In our updated guide to low to mid on a full year, you have to expect that in the first half of this year, even as we have some of the deferrals, you do not see it as much in the first half. You are going to see it heavier in the second half. And as you exit the year, you are going to be at the higher end of that up low to mid single digits. We are managing that closely. As I mentioned earlier, we have enough price with what we see right now for what that inflation is. If the baseline changes, as Heidi mentioned, we are willing to go out and work with our customers to implement new pricing. There is plenty of time in the year to do that, and so that is how we are going to manage that. Operator: Your next question is from Josh Spector with UBS. Josh Spector: Yes. Hi. Good morning. To go down a similar line of questioning as Kevin: it is surprising to hear that at the exit rate you are talking about the high end to low to mid single digits on raws. I mean, we have math out there that says you could see raws up 20% in that range, and that seems more consistent with some of the competitor price increases that are out there. So I do not know if due to your North America exposure you would say that inflation is substantially less, or if how you are buying those raw materials and maybe some of the contracts either give you more protection for this year, so this is more of an early 2027 inflationary event that you would see, or if there is something that gives you more permanent kind of protection against some of that. Can you talk about that a little bit and help us understand maybe what is going on that is different for you guys versus some of your competitors? Ben Meisenzoll: Josh, I cannot comment on how our competitors buy, but I can tell you—with, and Heidi called out, our strategic relationships with key suppliers—our procurement is maybe tighter than some of the others. We are using that as a strategic advantage so that we are not having to maybe pass as much price to our customers as some of our competitors might have to do right now who are not advantaged because of the way that their contracts are set up. We do have a number of spot buying arrangements. We are not seeing the exit rates in that 20% range that you are seeing. And again, I think you alluded to the mix of our business, the architectural and the industrial. That probably has some impact on that. And then again, I will point back to 50% of our business on contract. That is an advantage for us right now. Operator: Your next question is from Analyst with Bank of America. Analyst: Good morning, everyone. Heidi, you talked a bunch about the packaging. It has been brought up a few times, and clearly the numbers are really good. As we move into next year and we lap some of these regulatory shifts, how much of what you are accomplishing now is because of that catalyst? Do you expect you can continue to outgrow the industry this much, or would you expect growth to shift closer to that low single-digit level that the industry is kind of growing at? Heidi Petz: It is an interesting question because I think based on our preferred technology and our position to be ready for a lot of what is coming—you know, I am sure the European Food and Safety Association’s ban on BPA is scheduled to take effect in Q2 of this year—and we are at the very front edge of that. So there is a nice tailwind there. It is going to continue to drive a lot more customer conversions, certainly first half this year, well into the back half and into 2027. I can tell you with confidence that no one is better positioned to ride that. So we do expect to see some significant wins here. Jim Jaye: And, Matt, just to add to that, that conversion to the non-BPA—Europe you called out—but really if you look at Asia and LatAm, there is still a lot of room to run in those regions as well. And thanks for the question. Operator: Your next question for today is from Chuck Cerankosky with Northcoast Research. Chuck Cerankosky: Good morning, everyone. Could you talk a little bit about what you are looking at in terms of the mortgage environment, household formations in North America for the remainder of this year? Jim Jaye: Yeah, Chuck, it is Jim. I think in terms of the mortgage rate environment for this year, we are not expecting it to move a whole lot. I think Ben referenced—if you dial back a year or so ago—we were putting a lot of emphasis on rates getting below that six number. I think that would help. But certainly, it is more about affordability as well. And it is sort of this triangle that we look at of rates, affordability, and incomes. We need all three of those to work in sync, if you will. In terms of where we go from household formations, it has slowed a little bit, but it is still a pretty healthy rate, and we expect that to continue. I would also point to—as we have talked about many times, Chuck—the structural deficit that is out there in terms of we have underbuilt for a long period of time. Even if household formations do slow a little bit, there is tremendous pent-up demand that has to happen. Whether that is single family—if it does not come through that way, it is going to come through in multifamily. People have a need for a place to live, so we are well positioned on that multifamily side as well. Heidi Petz: One piece I would add to that, Chuck: because of the depth of our position with a lot of these national homebuilders and exclusive partnerships, I do believe we will be uniquely rewarded as this pent-up demand starts to soften, because it is what we do right now in these partnerships. We said this on the supplier side. It is true with our customers. We want to be the strategic partner that is helping them solve for simplification, helping them solve for cycle time. The work that we are doing now—while it is masked in the market—when starts to move, I think we will be uniquely rewarded for that. Operator: Your next question for today is from Patrick Cunningham with Citi. Patrick Cunningham: Hi. Good morning. I just wanted to unpack the lower Performance Coatings sales volume guide. Have you seen any evidence of weakness quarter to date in order books or any indication that there was perhaps some pull-forward in March? And conversely, we have seen some fits and starts on stable to expansionary industrial activity, particularly in the U.S. Have you seen any areas of more positive underlying market growth? Heidi Petz: No, I would not say that we are seeing any material shift there in terms of orders or timing from a pull-forward standpoint, but I will hand this over to Ben to give a bit more commentary on guidance. Ben Meisenzoll: I think one way to think about it is we know that there is going to be this gap in feedstocks. You have had boats that are on the water 60 to 90 days from the start of a conflict, and so at some point, Asia and Europe are going to feel the squeeze a little bit more than maybe what they are seeing right now. I think what you see in our guide is a pretty realistic view that there is going to be an inflection point where getting those feedstocks is going to be tougher. That could have, obviously, a greater inflationary impact on the business there. We feel—as one of the big global companies—we are going to be able to get our customers’ product. It may come at a higher cost, so you may start seeing some people waiting for prices to come down, and that could have an impact on demand. That is really what you see in our guide that has that there. I will call out—we have started to look at inflation not as an uncontrollable headwind but a variable we are actively managing. You start to see that with how we are looking at each of the different regions and that realistic view and our confidence for how we are going to support our customers. Operator: Your next question for today is from Analyst with Jefferies. Analyst: Hey. Good morning. This is Kevin Especk on for Laurence. Just in Performance Coatings, given the macro uncertainty, how would you characterize customer behavior? Are you seeing confidence around production schedules or more short-cycle ordering and hesitation to commit to longer-term orders? Thanks. Heidi Petz: There is probably a mix if we are honest. On balance, I think there will be some prudence and people waiting to see where cost of capital is, but there is also a lot of confidence in the backlogs and the pipelines, and so it is really a mix across the board. But I think it is a portfolio. Importantly in that, while we would love for all segments to be up at all times across PCG, the reality is that we are going to be very focused on where the market is and make sure that we are best positioned for that run-up. We are going to continue to do what we do. Carl Jorgengrud in that organization runs with a very strong sense of agility and urgency, and you are seeing that play out right now. I think our strategy is clearly working. What we said we would do, we are doing it, and we are doing it better than we even thought. That is a result of that strategy. Operator: Your next question for today is from Analyst with Loop Capital. Analyst: Good morning. This is Zach Pacheco on for Gareth Shmois. Just another quick one on customer behavior. Do you get the sense of any prebuy taking place due to inflationary increases where customers are trying to lock in supply, or is this not really something you are seeing at this moment? Thanks. Jim Jaye: We are not seeing that in this moment. Nothing material. Heidi Petz: We are not at all concerned on that. Operator: Your next question is from Mike Sison with Wells Fargo. Mike Sison: Hey, good morning. Nice quarter. Heidi, it just feels like U.S. architectural paint demand in the U.S. has been structurally impaired. If this continues to the end of the decade, how do you think about strategy in this environment for even longer than we are seeing it? And then just curious on your 2026 full year, your sales guide for Paint Stores Group. Are we kind of tracking toward that down low single digits given how the housing market is shaping up this year? Heidi Petz: So, Mike, two-part question. I will take the first part on demand and then hand it to Ben for guidance. I would not use the word “impaired.” I would say “under pressure.” But you can imagine when we are sitting in our conference rooms and boardrooms, we are looking at every scenario, including softer for much, much longer. I can assure you that we do have a whole host of multiple levers that we look at and contemplate. We do not want to have to pull some of those, and so we are going to do what we said we would do: control the controllables. We are going to look at this as a jump ball environment. There are a lot of gallons available and up for grabs right now. If I point to res repaint—you know this well—this is an area where not only do we continue to take share, but it is the area where we have the most share to gain. Even in this environment, we are going to continue to outperform the market, and we are going to compensate for some of that core softness. Ben Meisenzoll: Yeah. Mike, I will add to that. As far as our full-year guidance for Paint Stores Group, it remains aligned in that low single-digit range. You do not see as many of the variables changing as maybe you saw with some of the other segments. I think that is a barometer of confidence for us in how we are assessing the business there. But as we have talked about already, we will continue to make the right selling investments there. There could be different mix by the different segments that Heidi has walked through, but we feel pretty confident about our continued opportunities, especially with all the share gains that we have been after in Stores Group. That is why you see the guide remaining where it is at. Operator: Your next question is from Analyst with Berenberg. Analyst: Hello, good morning, and thank you for taking my question. I am interested in two areas where Sherwin has taken market share: refinish and the EMEA decorative market. What is it that Sherwin has to offer in refinish that its competitors do not? Is the aggressiveness on pricing something that has happened here? And any comments that you can give on EMEA deco as well? I think Sherwin has a relatively niche position in the UK and one or two other markets. Thank you. Heidi Petz: Thanks. On the refinish side, I will take you—not to make this a history lesson—but I think context is really important here. If you look at the acquisition of Valspar a few years ago, you leverage the best of both. We have combined not only our controlled distribution platform with our automotive business and everything that we have to offer with the subject matter expertise of our reps that are embedded in these customers' body shops. Then you layer in, with Valspar, the waterborne technologies that we have been able to bring together, and we really have created kind of a best of both in terms of the value proposition. Ben Meisenzoll: On the Europe sales, Europe benefited from a reporting mix impact this quarter. Certain immaterial resin sales we had previously reported as part of Performance Coatings Group are fully integrated and reflected in our global supply chain, which is reported here in our Consumer Brands Group. So do not read too much into the much stronger reported sales. If you look at the core sales of Consumer Brands Group in Europe, it grew by more of a mid single-digit percentage if I exclude that resin classification. Similar to what we have seen in Europe, with the challenging environment, DIY being a more challenged part of the segment, I think you see that playing out here. Thank you. Operator: Your next question for today is from Jeff Zekauskas with JPMorgan. Jeff Zekauskas: Thanks very much. Is it fair to say that your architectural paint price increase happened at the very beginning of the year, but there have not been architectural increases since then? But in your industrial businesses, you have increased prices later in 2026. And I was wondering how much that might be—what those price issuances were? And then secondly, your description of raw materials—you said that 75% of your raw materials are related to propylene, and you said that propylene was up 50%. So would not that mean that your raw materials are up 37% to 38%, if you ignore timing? Ben Meisenzoll: Hey, Jeff. I am going to take this first part here. I will let Jim answer the question about raw materials. The pricing phasing—you are right. Yes, our architectural price that we went out with in January, the intention before the conflict was that is the price that we needed for the year. If you go back to our initial raw material guidance of up low single digits for the year, we built that initial pricing based on that assumption that we made at that time. As you can imagine, we have a lot of architectural customers who are on contracts, so we have other points throughout the year. We have talked about our effectiveness getting better throughout the year as you hit those certain milestones where we are able to get more pricing. But yeah, you are right. A bulk of that comes at the start of the year. Industrial historically has been all throughout the year at different times based on business needs, based on what the raw material basket is doing. I think what you have seen post–Middle East conflict—we have had to go out and reassess in all parts of the business. Even though there is not an announced general increase for Paint Stores Group, as we try to manage through cost-out and other simplification efforts, there might be some spotty other areas where we are able to get price without doing a full launch. Similarly with the industrial business, as you can imagine, in Asia and Europe where you have got pricing that has got to be 20% or higher to cover where you have the bigger part of the inflation happening, our teams are out by the business unit and geography getting coverage where they need. Again, that would be bigger on industrial in APAC and in EMEA. There are still industrial impacts happening in The Americas, and so there is pricing that is going out there on the industrial side. But I think, as we have talked about on a couple of different questions and even in Heidi’s opening remarks, being very surgical in trying to find where we can take that price without having to be generic because we realize right now in this inflationary environment we do not want to put volume at risk. You have to do that maybe to a stronger degree than you normally would see us do. And our confidence is that being very thoughtful about chasing volume in this environment—with the right programs, we are trading these contractors up because of the ability to get them on and off job sites faster, the ability for less touch-up required. They are willing to pay a premium for that even in an inflationary environment because 85% of their cost is labor. We are being very thoughtful to get the volume, and it has to be the right volume. Jim Jaye: And then, Jeff, on your question about propylene, I would give you a couple things to think about. The 50% that I mentioned is a forecast of where it could go perhaps over the rest of the year. We will see how that plays out, and as Ben mentioned here, we will be out with price if we need to. The other thing I would say is, as you know, we are not buying propylene. We are buying the things that are derivatives of propylene. Those do take some time to flow into our basket, and we will be ready again if we need to go out with additional surgical price increases. We will be prepared to do that. And thanks for the question. Operator: We have reached the end of the question and answer session, and I will now turn the call over to Jim Jaye for closing remarks. Jim Jaye: Yes. Thank you, Holly, and thank you again, everyone, for joining our call. And special thanks to our employees for their hard work in delivering a really solid start to our year. I think Heidi said it well. Our strategy is clear. It is working, and it is not changing. We are continuing to focus on providing our customers with solutions that make them more productive and profitable. You can count on us. We are going to continue executing at a high level, focusing on winning new business, and controlling what we can. I will close with a reminder: our 2026 financial community presentation is coming up in Cleveland this year, September 24. You will have an opportunity to see our investments in our new global headquarters and our global technology center. We are excited for all of you to experience that and see how that is moving the needle forward for us. So thanks again for your interest in The Sherwin-Williams Company. As always, we will be available for follow-up calls. Hope you have a great day. Thank you. Operator: This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, and welcome to Wave Life Sciences First Quarter 2026 Earnings Call. [Operator Instructions]. Also, as a reminder, this conference call is being recorded today. I will now turn the call over to Kate Rausch, Vice President of Corporate Affairs and Investor Relations. Kate Rausch: Thank you, operator, and good morning to everyone on the call. Earlier this morning, we issued a press release outlining our first quarter 2026 earnings update. Joining me today with prepared remarks are Dr. Paul Bolno, President and Chief Executive Officer; Dr. Eric Ingelsson, Chief Scientific Officer; Dr. Chris Wright, Chief Medical Officer; and Kyle Moran, Chief Financial Officer. The press release issued this morning is available on the Investors section of our website, www.wavelifesciences.com. Before we begin, I would like to remind you that discussions during this conference call will include forward-looking statements. These statements are subject to several risks and uncertainties that could cause our actual results to differ materially from those described in these forward-looking statements. The factors that could cause actual results to differ are discussed in the press release issued today and in our SEC filings. We undertake no obligation to update or revise any forward-looking statement for any reason. I'd now like to turn the call over to Paul. Paul Bolno: Thanks, Kate, and good morning to everyone joining us on today's call. Coming into the year, we outlined our key priorities for 2026, accelerating development of WVE-007, our INHIBNE GalNAc siRNA program for obesity and rapidly advancing our RNA editing portfolio led by WVE-006 for AATD and followed by WVE-008 for PNPLA3 liver disease. Today, I'm pleased to share an update on the significant progress we've made towards these goals. We are rapidly advancing 007, which has the potential to be transformational in the treatment of cardiometabolic diseases, including obesity. Using our best-in-class chemistry, 007 continues to demonstrate a highly differentiated profile. Clinical data, even in a Phase I population continues to demonstrate improvement in body composition with fat loss, importantly, visceral fat loss and muscle preservation, impressive durability with potential for once or twice a year dosing and a clean safety profile. We're accelerating 007 to the next stages of development where we have the opportunity to unlock its full potential across multiple treatment settings, beginning with our Phase IIa trial in participants with higher BMI and with and without diabetes. We are preparing to initiate our Phase IIa trial this quarter as the FDA has recently accepted the multi-dose portion of INLIGHT. Closely following the initiation of our Phase IIa trial in higher BMI participants, we plan to initiate studies evaluating 007 in combination with incretins and maintenance post cessation of incretin treatment. In RNA editing, we continue to lead the field with 006. Clinical data from our ongoing RestorA-2 trial has already demonstrated the potential for 006 to provide a much-needed novel therapeutic option to individuals living with AATD, including generating over 20 micromolar of AAT protein during an acute phase response. It's important to note that these acute phase responses are the drivers of lung damage in AATD. We look forward to highlighting these data during the ATS conference and hosting an investor webcast to share our monthly 400-milligram multiple dose as well as single-dose 600-milligram data. Having already achieved therapeutically relevant AAT restoration with our interim data, we are on track to receive regulatory feedback on a potential accelerated approval pathway in mid-2026. We're also building on our success in RNA editing to advance our next candidate, WVE-008 towards the clinic this year, which has the potential to address the 9 million individuals living with PNPLA3 liver disease. Beyond our lead RNAi and RNA editing programs, we are continuing to push the boundaries of innovation through our bifunctional modality that allows us to both silence and/or edit to treat diseases with a single construct at a single dose. We're also advancing a growing pipeline of new hepatic and extrahepatic candidates. With the substantial progress we've made, we believe we are well positioned and well capitalized to advance our pipeline of transformational therapies for patients. Now I'd like to turn the call over to Erik, who will discuss how we are leveraging our proprietary chemistry and human genetic insights to advance WVE-006 for AATD and WVE-007 for obesity. Erik? Erik Ingelsson: Thank you, Paul, and thank you to everyone joining us on the call today. I'll start with WVE-006, our GalNAc-siRNA editing oligonucleotide or AIMer for alpha-1 antitrypsin deficiency. ATD is a uniquely compelling disease for RNA editing. It's a monogenic disorder caused by a single well-characterized genetic variant in the SERPinA1 gene, which leads to misfolded alpha-1 antitrypsin or AAT protein teredZ-AAT. Healthy circulating AAT turned MAAT protects the lungs during inflammatory or infectious events. ATD is sometimes referred to as genetic COPD for a reason. Without dynamic production of functional AAT, patients are at risk of lung damage and ultimately developing emphysema and bronchiectasis, which is characterized by chronic cough, recurrent infections and shortness of breath. In parallel, Z-AAT accumulates in hepatocytes and causes progressive liver injury and risk of liver disease. By correcting the mutant transcript in the liver, RNA editing addresses the root cause of both the lung and liver manifestations of the disease. Approximately 200,000 individuals in the U.S. and Europe live with homozygous PICV-AATD. It's a devastating disease, impacting the ability of patients to work, play with their children or even walk to the mailbox. Currently, the only approved treatment for AATD is weekly IV plasma-derived augmentation therapy, which carries several limitations. With a fixed scheduled dose, there is no restoration of dynamic response, leaving patients at risk if AAT protein falls too low during an acute space reaction as a result of infectious or inflammatory events. IV therapy is time consuming and often required in patient visits and IV therapy does nothing to lower AAT to address development of liver disease in these patients. RNA editing is designed to restore heterozygous emptT-like phenotype, including AAT production that drives to meet the demand during acute space response. This is a particularly important distinction between RNA editing and the current augmentation standard of care that we continue to hear echoed in our conversations with physicians and patients as there is uncertainty that there is adequate lung protection when patients experience infections between infusions. Such acute exacerbations, the sudden worsening of a patient's respiratory symptoms that often require urgent treatment occurs roughly twice per year on average, even on weekly augmentation therapy. 006 is a highly specific and efficient GalNAc AIMer. Unlike DNA editing therapies in development, RNA editing does not modify DNA and 006 does not require delivery with lipid nanoparticles or LNPs that may be as with systemic and liver inflammation, potentially inducing hepatocellular stress and activating a hepatic acute phase response. 006 also avoids reversible collateral bystander edits and inults, which are associated with DNA editing. With 006, our goal is to recapsulate the emptylike phenotype as it is well established that heterozygous PINC individuals at significantly lower risk of both lung and liver disease. T individuals maintain basal AAT levels above the protective threshold of 11 micromolar, wild-type MAAT above 50% of total AAT and most importantly, they retain the ability to mount a dynamic AAT response during an acute infection. That combination, protected beta levels and meaningful proportion of authentic MAAT and a preserved acute face response is the bar we set for 006 and that we cleared in the interim readout of our RestorAATion-2 trial in the fall. We demonstrated that 200-milligram biweekly dosing of 006 can restore endogenous MAAT protein to therapeutically meaningful levels and reduce mutant AAT correspond. This will lead to improved liver health and potentially even higher MAAT production over time, in line with what we have observed preclinically and ultimately lead to improved lung and liver outcomes in AAT. Crucially, we have shown that 006 reestablishes the body's physiological response to inflammatory stress, something that is not possible with IV augmentation. Now with upcoming data from our 400-milligram multi-dose cohort, we look to continue to recapsulate the MC-like phenyat but at a more convenient monthly dosing interval. Moving on to our INHBE GalNAc-siRNA program for obesity WVE-007. Individuals living with obesity face markedly high risk of a range of diseases such as NASH, type 2 diabetes and cardiovascular disease. Excess body fat, in particular, visceral fat is a key driver behind this elevated risk of disease. Current standard of care therapies reduce body weight through both fat and muscle loss and carry high discontinuation rates, limiting potential for long-term health benefits. An ideal obesity therapy would instead selectively reduce harmful visceral fat, the fat surrounding once organ that is most strongly linked to MASH type 2 diabetes and cardiovascular disease, while also lowering subcutaneous fat and liver steatosis and critically preserving skeletal muscle. Muscle preservation matters. Why? Because muscle sustains based on metabolic rate, glucose disposal and insulin sensitivity. Also it prevents weight regain, mostly from fat, which occurs in the majority of individuals that discontinue increasing therapies. And remember, as much as up to 70% of individuals discontinue incretin within a year. Preserving muscle while decreasing total and in particular, visceral fat is the ideal profile for an obesity medicine and is well established at already a 5% to 10% reduction in visceral fat mass associated with direct health outcomes by reducing risk of multiple preventable metabolic diseases and preserving patient function and quality of life. All these benefits can be delivered by 007's mechanism of action. Rather than acting on appetite, it silences in the knee and lower serum actin, a liver-derived hepatokine that signals adocytes put the brakes on lipolysis. Removing those brakes drives fat loss without calorie restriction and without the muscle loss seen with incretin-based therapies. This approach is also strongly grounded in human genetics as carriers of heterozygous in loss of function variants, nature's own knockdown experiments exhibit a healthier overall metabolic profile, driven by lower visceral fat as evidenced by lower waste-to-hip ratio and lower visceral lose volume as well as downstream effects with lower triglycerides, ApoB and HbA1c and higher HDL cholesterol. These carriers also have favorable associations with liver traits such as ALT, a measure of liver damage and CT1, a measure of liver inflammation and fibrosis and importantly, lower risk of developing type 2 diabetes and coronary heart disease. And as we have said on prior calls, targets supported by human genetics carry a 2 to 4x higher probability of success in drug development. IvenE a textbook example of this opportunity. We chose to target the activin E ligand through IBE silencing over its receptor ALK 7 for several reasons. Turning off protein production in hepatocytes to upstream source with GalNAc-siRNA is the most efficient and durable way to impact this pathway. Also suppressing activin E rather than disabling a receptor that induces signals via multiple ligands across different tissues is a more selective approach with lower risk of unintended consequences. This selectivity is especially important for long-term safety and for clinical translation. CER-07's unique ability to durably suppress IE is driven by our proprietary chemistry and SNAiRNAign. While RNAi is a well-established therapeutic modality and there are extensive human genetic data supporting IBE as a target, we believe our proprietary chemistry distinguishes us from others attending a similar approach. 007 is highly differentiated by Wave's proprietary pheno design, including backbone serrochemistry and PN chemistry, which enhances interactions with AVO2, stabilizes the loaded risk complex and improves liver exposure. This contributes to dramatically improved potency and durability when compared with industry standard siRNA science. Our interim Phase I ENLIGHT data sets from lower BMI, otherwise healthy individuals confirm that this proprietary chemistry and the underlying human genetics are already translating with preservation of lean mass and clinically meaningful reductions in total fat, visceral fat and waster complement after just a single dose. As Chris will discuss further in a moment, we're rapidly advancing 007 into patients with higher BMI and comorbidities in the Phase IIa portion of INLIGHT, where a scientific rationale predicts a larger effect. Activin E binds AP7 on allocytes and visceral fat being the more metabolically active and better pursued mobilizes first, exactly what we have observed in Phase I. Together, this means that we expect both visceral and total fat loss with 007 to be substantially more pronounced in higher BMI participants with more excess fat. To review our clinical progress with 007 and our RNA editing programs in further detail, I'd now like to turn the call over to Chris. Christopher Wright: Thanks, Erik. I'll begin by discussing our recent data and plans to accelerate development of WVE-007. In March, we shared interim data from the Phase I portion of our ongoing in-LI clinical program, placebo-controlled single ascending dose study designed to measure safety, tolerability and PK/PD. Participants were healthy individuals living with overweight or Class I obesity with an average BMI of 32, a population with less fat and lower BMI than those included in Phase II and Phase III obesity studies. The safety and tolerability profile of WV007 remains encouraging, and we continue to observe robust, highly statically significant dose-dependent and durable active E reductions through at least 7 months. This combination of tolerability and durability supports a convenient dosing interval of once or twice a year that may allow for enhanced patient adherence, more persistent fat loss and better health outcomes. Having reached 6 months of follow-up in our 240-milligram cohort, we observed further improvements in body composition following a single subcutaneous dose. This included placebo-adjusted visceral fat reductions of 14.3% well above the established threshold to deliver improved cardiovascular outcomes. Total fat reductions were 5.3% and lean mass was stable. There were also improvements across clinical measures, including a clinically meaningful 3.3% reduction in weight circumference. These results are particularly encouraging given this is a Phase I study of otherwise healthy participants with an average BMI of 32 and no dietary or exercise restrictions. As Erik just spoke to, reducing fat, particularly harmful visceral fat while also preserving muscle is critically important for the treatment of obesity, including overall functional improvement and cardiometabolic health benefits. The current standard of care pushes the limits on high percentage weight reductions, but it comes at a cost of substantial muscle loss. To provide context for our results at this early development stage, we calculated the visceral fat to muscle ratio or VMR, which is a measure of body composition that integrates harmful visceral fat and beneficial lean mass into a single index. Lower VMR is associated with decreased risk of NASH, type 2 diabetes and cardiometabolic disorders. We believe VMR has the potential to serve as a novel composite biomarker as compared to BMI alone that more holistically captures the body composition improvements driven by INHBE knockdown and that may better predict long-term clinical benefit. With a single dose of 007 in our Phase I population, we've already observed a 16.5% improvement or greater reduction in BMR which was more than the 12.2% achieved with weekly semaglutide in BELIEVE and approached the 18.8% observed with vimanrimab. What makes this comparison particularly exciting is that our INLIGHT participants had substantially lower BMI, visceral fat and total fat compared to Phase II or Phase III obesity studies. Clinical experience highlights the importance of baseline adiposity. Early Phase I studies in leaner subjects show modest fat reductions, while studies of individuals with higher baseline obesity demonstrate large clinically meaningful losses in total and visceral fat mass. Early follow-up from our 400-milligram cohort, which included a substantially higher proportion of individuals with lower levels of visceral fat also confirmed that higher baseline visceral fat leads to greater visceral fat reductions overall. Collectively, these data emphasize the impact of baseline body composition on therapeutic effect and support the potential to deliver even more pronounced improvements in body composition in the Phase IIa portion of INLIGHT, given participants higher excess fat at baseline and 007's mechanism of targeted lipolysis. Following the FDA's recent acceptance of our protocol amendment, we remain on track to initiate the Phase IIa multiple dose portion of INLIGHT this quarter. This global placebo-controlled trial will enroll individuals with higher BMIs in the range of 35 to 50 and comorbidities across 2 dose levels, 240 milligrams and 400 milligrams and 2 study populations with and without type 2 diabetes for a total of 4 cohorts of 40 patients each. Assessments in the multi-dose portion are similar to those in the SAD portion with additional inclusion of body composition measures by MRI, liver fat content measured by MRI-PDFF, HbA1c, lipid levels, CRP and muscle function. The design and study population enables enhanced evaluation not only of improved body composition and weight loss, but also informs additional opportunities for 007 in NASH, type 2 diabetes and cardiovascular disease. Participants will be given 2 doses of 007 at day 1 and day 85 and followed for 12 months with the first main assessment occurring at day 85. As Paul discussed earlier, we are also planning to initiate trials evaluating 007 in combination with incretins and as maintenance post incretin this year. We believe that 007's orthogonal mechanism, ability to drive reductions in fat while preserving muscle and favorable safety profile are actively suited to combination and maintenance approaches. Our preclinical data provides compelling support for both use cases. Planning is well underway for studies addressing incretin combination and post incretin maintenance, and these will initiate this year. We also expect to share additional data from the Phase I portion of INLIGHT this year, including data from our 600-milligram cohort, which will further inform the durability of 007. Turning to our ongoing RestorAATion-2 clinical trial of WVE-006 for AATD. We continue to advance this study while engaging with key opinion leaders and patient organizations who are eager to be involved. As we speak to key opinion leaders, there are several aspects of our data that excite them. one, restoring a dynamic AAT response to address acute lung infections; two, decreasing harmful Z protein to address liver disease; and three, offering a safe, well-tolerated infrequent nonintravenous treatment for patients that avoids permanent genetic modifications. We look forward to presenting an expanded data set during ATS on May 18, which includes data from the 400-milligram monthly cohort as well as the 600-milligram single-dose cohort. Continuing to recapitulate our prior interim results with a less frequent dose would strengthen the overall profile of 006 as a differentiated patient-friendly therapy for AATD. In addition, we plan to share from the 600-milligram multi-dose cohort in the second half of this year. Now turning to our second RNA editing clinical candidate, WVE-008 for homozygous PNPLA3 I148M liver disease. This PNPLA3 variant is a well-established driver of NASH pathology. Yet there are no approved medicines that directly address this biology. There are an estimated 9 million homozygous PNPLA3 I148M carriers across the U.S. and Europe who are at a ninefold higher risk of dying from their liver disease compared to noncarriers. With 008, we aim to correct the I148M variant using our leading RNA editing capability, which is expected to restore PNPLA3 activity and lipid metabolism, reversing steatosis and fibrosis and improving liver health. In our upcoming first-in-human study of 008, we plan to leverage previously genotype populations to efficiently identify homozygous I148M carriers, evaluate target engagement with circulating biomarkers and assess early signs of efficacy using noninvasive imaging. We remain on track for a CTA submission in 2026. With that, I'll turn the call over to Kyle to provide an update on our financials. Kyle? Kyle Moran: Thanks, Chris. Our revenue for the first quarter of 2026 was $38.2 million compared to $9.2 million in the prior year quarter. The year-over-year increase primarily relates to recognizing the full amount of revenue associated with WVE-006 as a result of regaining full rights to that program, along with the progression of work in our ongoing GSK collaboration. Research and development expenses were $47.4 million in the first quarter of 2026 as compared to $40.6 million in the same period of 2025. The increase primarily reflects continued investment in advancing our clinical programs, including preparation for the Phase IIa portion of INLIGHT and continued progress across our RNA editing pipeline. Our G&A expenses were $22.1 million in the first quarter of 2026 as compared to $18.4 million in the prior year quarter. This increase primarily reflects costs associated with supporting our expanding pipeline and preparing for the next stages of development. As a result, our net loss was $26.1 million for the first quarter of 2026 as compared to a net loss of $46.9 million in the prior year quarter. We ended the first quarter with $544.6 million in cash and cash equivalents, which we expect will be sufficient to fund operations into the third quarter of 2028. I'll now turn the call back over to Paul for closing remarks. Paul Bolno: Thank you, Kyle. As we look ahead, we believe we are well positioned and well capitalized to continue delivering on our clinical development plans. We are rapidly advancing multiple studies of 007 across treatment settings, which are strategically designed to unlock its full potential in obesity and other cardiometabolic diseases. We're delivering new 006 data in May that will continue to inform its potential to provide a differentiated treatment option to individuals living with AATD. And we are progressing 008 towards the clinic for the 9 million individuals living with liver disease. With our proprietary chemistry translating in the clinic and an emerging pipeline of next-generation candidates, we are committed to translating powerful human genetic insights into potentially transformational RNA medicines for people who need them. We look forward to keeping you updated on our progress. And with that, I will turn it over to the operator for Q&A. Operator? Operator: [Operator Instructions]. We'll take our first question from Joe Schwartz from Leerink Partners. Joseph Schwartz: Congrats on all the progress. It seems like a treatment approach targeting INHBE biology could be somewhat sensitive to baseline patient characteristics. So I was wondering, how are you thinking about optimizing for that in future trial design? Are there any screening or enrichment strategies you could implement to enhance signal detection? Paul Bolno: Yes, Joe, and we appreciate the question. I think first and foremost, in the obesity study, as you point out, is particularly, as Chris mentioned on the study, a mechanism that's driven on hypolysis is excess fat, the requirement to have not just large BMI, but have fat to lose in order to have a reduction in fat, which is typical in most Phase I to Phase II transition. So if we look at the BELIEVE study, we actually haven't updated those who look at the 8-K today on the corporate deck on Slide 24, the realization that as you shift patients from a low BMI, low fat setting to a higher BMI, high fat setting, meaning the shift that you see from where our study started, which is where the BELIEVE patient ended to where the BELIEVE patient started both on semaglutide and bimagrumab. There's an elevation not just in visceral fat, but on the left panel that slide, an increase in total fat. And so when we see those changes, we do expect, as you said, to see that reduction. Now what can we do to actually assure that as we enroll patients in that study that the patients exhibit the phenotype, meaning in an obese study are not just large in BMI, but large in visceral fat and in total fat. And I think there, we've seen pretty consistently that if you use other metrics like weight circumference, allowing comorbidities, those patients do tend to fall into that range. One other opportunity we have to assure this as the study is enrolling is we are, as Chris mentioned, doing baseline MRI imaging on these patients as we start. So we will have the opportunity to look at baseline images to ensure that patients are collecting in that region. Operator: We will take our next question from Steve Seedhouse. Steven Seedhouse: I wanted to ask about the regulatory interactions in AATD and just get your thoughts on if the FDA -- or really just the discussions you've had, if the FDA is looking for specific MAAT levels, if that's part of the thinking here or if like the degree of MAAT increase that would support approval or accelerated approval is going to be more of a review issue. And then I'm also curious if you know yet if the primary analysis in a pivotal study here is going to be more of like a responder analysis on a certain threshold or if it's more of like a mean change in MAT or total AAT in the entire population? Paul Bolno: Yes. No. Thanks, Steven. I'll start and then turn it over to Chris for further comments. But I think one is, obviously, we don't comment on individual interactions, but we will have feedback as we get to midyear. So it's safe to assume we're preparing and engaging in those conversations. I think in general, it's about the dynamic response, right? So it is this kind of shift from -- and based actually on comments that the FDA has made actually publicly, specifically as it relates to AATD and patient meetings, they did refer to AATD as an ideal example of a plausible mechanism pathway, meaning that there's the opportunity that we can see that editing translates these patients from a ZZ phenotype to an MZ phenotype. So I think that we -- as we move past this kind of just threshold concept of what does it take to be an MZ patient, well, greater than 11. But we need to step back and remember that actually, the 11 micromolar, as people discuss that threshold level increasing is one of protein replacement therapy, this idea with a consumptive protein that you need to put more in, in order to have that when it gets depleted during an acute event be there. I think the context of not just Wave, but as we've seen B as well, seeing that when you do edit, you see this restoring of this dynamic response and what is the ability of that dynamic response to actually protect patients. I think those are the best examples of the plausible mechanism meaning if you're at that greater than 11 micromolar and over 50% of that being N protein, then you're in the position that when you have a proportionate CRP or inflammatory response, you can mount that proportionate response in both total protein and in N protein. And that's exactly what we saw. We saw actually, if you model the CRP exposure that we saw, we saw an MZ level response both in total protein exceeding 20 micromolar and over 10 micromolar of protein in that individual. So that dynamic response is what's required being demonstrating the total both on threshold and percent M, we think is important. And those will be the nature of the conversations that we'll be having with the agents. And I'm sorry, the last -- you... Christopher Wright: Last, I think responders versus me and the like. I think those are exactly the types of questions that we'll be engaging with the FDA on the pivotal studies. So more on that as we have those discussions. Paul Bolno: Yes, it's important to note, remember that these patients are coming in with 0 and protein. So the idea that this is all de novo functional from editing to those responses is crucial. And I think the agency has been receptive... Operator: We'll take our next question from Cheng Li with Opp &Co. Cheng Li: Congrats on the update. I'm just curious about the 007 like future clinical path, recognizing the body composition is an important feature for this mechanism. And also you mentioned several measures, including BMR. I'm just curious about which one you think can be incorporated into the clinical trial to support registration that you think has the best chance. Paul Bolno: Yes. I mean I think as Chris mentioned, we're going to have a number of endpoints in this study that independently help us build the cardiometabolic profile. So obviously, we'll have body composition measures anddexXa looking at total fat, visceral fat. We'll have MRI imaging as well. And importantly, MRI-PDFF to look at liver fat. I mean I think that's going to be interesting as these patients would be expected to have increases. In addition to that, as we think about just why when you have -- and I think about Phase I studies where you exclude comorbidities of why you end up seeing this lower level of total fat, but importantly, visceral fat, visceral fat is harmful fat, and it's responsible for a number of these other cardiometabolic risk factors, including diabetes and cardiovascular disease. So one of the opportunities we have in removing the cardiometabolic -- sorry, the comorbidities in addition to allowing patients with and without diabetes is we're going to have the ability to see what's played out in human genetics with reduction in IHIB-E, which is reductions in hemoglobin A1c. Well, that's a registrational endpoint in the treatment of diabetes. We'll be able to look at ratios of triglycerides and HDL in terms of insulin sensitivity, and we'll be able to look at other measures like CRP from an inflammatory standpoint. So it really is important as we think about this study as being able to open up, one, how do we think about the treatment of obesity and what's really important, and we are seeing a big shift, particularly in the last quarter on finally discussions about body composition being what target and what should be targeted for these patients with an ability to tie that to an impactful measurement that will be in the appropriate Phase IIa. And as Chris said, I mean, we'll have a 160-patient study across doses, across disease states that really will let us fully exploit the mechanism and shortly thereafter. So again, accreting the data to where I do think there's a substantial opportunity for INHBE which is in the maintenance setting. This idea that 70% of people can't stay on incretins. And if we think about the therapy for obesity with incretins being like the treatment of hypertension, we're seeing patients who need a lifelong treatment to stay in this range of body composition that they achieve. I think we're also going to have the opportunity as we think about the Phase II studies that we will be initiating the concept of being able to have and lock in, in a maintenance setting an infrequent way of treating patients and preserving and locking in the benefits from a cardiometabolic outcome position that's been achieved with other weight loss therapies. So I think the totality of data that we'll be generating to unlock the full mechanism of is both in this Phase IIa study in the multi-dose, but also in the subsequent studies that we will be initiating. Operator: We'll take our next question from Samantha Lynn Semenkow with Citi. Samantha Semenkow: Just one for me on AATD. I think your explanation around the dynamic nature of the mechanism makes a lot of sense. I just wonder from a competitive landscape, we're seeing the DNA base editors get up to a mean of about 16 micromolar total in MAT. We've seen at least one patient from another competitor go up to 20. Do you think optically you need to achieve some sort of threshold in order to entice both patients and physicians to use an RNA editing approach? Or have you done any market research around this? Just curious your thoughts there on what the actual profile could end up being and how competitive that would be? Paul Bolno: Thank you. And I mean this is where we spent a lot of time with clinicians as again, in preparation as we think about ATS coming. And I think there's a lot of enthusiasm from this community RNA editing. And I say that for a couple of reasons. I mean, one, the idea of being able to -- and we'll talk about kind of the thresholds and numbers in a minute. But I think the most important thing is that if we think about the ability to be able to infrequently redose patients, it's important because over time, the liver does regenerate. And the idea that as these cells that are on a pathway to dying and becoming fibrotic are actually now rescued and saved because you're able to, through editing, deplete protein, take those toxic aggregates out of the liver, restore liver health, those cells are now right to be able to be dosed and have actually correction and actually become productive in their responses and producing healthy M protein. And so as we talk to clinicians, that notion of infrequent repeat dosing is actually viewed as actually favorable as opposed to the risks and potential outcomes from permanent DNA mutations. I think the other thing that as we think about patients who have liver disease and ZZ patients, where they are on the spectrum will have liver disease is the notion of not using LNPs. We have to remember that LNPs activate IL-6 and the CRP immune response and in and of themselves are immunogenic. And if we think about that as being a causing and inducing an acute phase response could also elevate 1 antitrypsin and a protective response to that. And so the notion that in patients with liver disease, we want to avoid things that are going to irritate the liver is also important as we think about the totality of the therapeutic modality that clinicians are thinking about in terms of their treatment of patients. Now while all of that is wonderful, at the same time, what we want to see is the ability to actually drive the correction. And so as we think about the production of protein and what RNA editing is designed to do is entirely specific. So when we talk about protein and oftentimes, these things get inflated with numbers, when we say M protein numbers or M protein percentage, we are talking about purely the actual isoform of AATD. So this is the native M-AAT protein. And as the prior question suggested, that's something we're discussing as part of our regulatory interactions, which is that we make only the native M-AAT protein. We don't create bystanders. We don't create indels. But importantly, those bystander edited proteins have different ranges of function. So we can be assured that the protein we're creating behaves like the native natural protein. So as we kind of shift back to the beginning of your question, which is what's going to be important as we think about this, I think where we've also seen clinicians is not being able to make that switch to thinking about. And actually at ATS, it's going to be interesting because it will be wave on presenting on editing and then there will be the updates on protein replacement therapy. It's really this shift from having to say, well, more is more to baseline because that is a protein replacement narrative that's you have to put more protein in because the patient can actually produce more. And so therefore, it's a race to put more protein in that gets depleted. We'll have the opportunity to continue to say, with editing, you can now create that dynamic response. And as we said, we can create a dynamic response that's proportionate to a CRP response up to 20 when the patient needed 20 and could have easily generated more if the patients needed more. So I think if we think about the range of both total and protein, we are very much convinced that we can create the baseline levels that serve as the biomarker to demonstrate that these patients are able to go out, live a healthy functional normal life and have the appropriate responses to these acute phase events as they happen. And I think one of the most interesting things when we went back and kind of looked at that initial patient wasn't just the spike the patient had that got up to 20, but it was the realization and every went back to those slides that are there on this dynamic response that over the multi-dose, these patients had small elevations in CRP. And what was really compelling is every time they had those adjustments, they were generating an increased response to total protein that met that. So I think by restoring this dynamic response, that's ultimately how you prevent the chronic injury that happens for the 1 to 3 times a year that these patients needed. Operator: Our next question comes from Alec Stranahan from Bank of America. Alec Stranahan: Just a couple of quick ones on the Phase IIa portion of INLIGHT. Could you walk us through how you're thinking about the dose selection given the Phase I portion is still ongoing? And will GLP-1 use be allowed in this population for enrollment? Or is this maybe a population you'll reserve for future studies? And in terms of cadence of data from the Phase IIa, is your plan to share regular interim updates like the Phase I, maybe, say, at the first 3-month assessment following the first dose? Paul Bolno: I'll take the last question and then hand it over to Chris. But in terms of the cadence of data at this point, yes, it's possible that we could deliver the initial, as you pointed out, 3-month time point. We'll give a more concrete update on milestone cadence when the study initiates and as that study launch. But yes, there's a possibility of data as we think about this year. Chris, do you want to take the first question? Christopher Wright: Sure. So in terms of the doses chosen, so this is really based on -- I mean, it is ongoing, but we clearly have interesting data on 240 as well as 400. And so based on the data that we've seen in terms of the level of knockdown, PK/PD modeling and the degree of efficacy that we saw even at 240, we felt that we could move forward in the multi-dose with the 240 and 400 and that these should be the range of doses that are expected to be efficacious also based on the modeling. So it kind of all falls together, modeling from preclinical. So it all kind of falls together from that perspective, and that's how those 2 initial doses were chosen. In terms of incretin in this particular study amendment, it's a monotherapy amendment. So we're not allowing incretence. However, we're in the throes of combination study design, which would include incretN and we'll provide more information on that shortly as well. Paul Bolno: Just to follow up on the last point. I mean, as Chris mentioned, I mean, we do see substantial reductions in the 2 dose cohorts that we're taking forward with very tight ranges between patients. And so I think a lot of what we're going to learn is not just getting more efficacy from that, but the impact of time, durability and which dose is going to allow for the most less frequent interval while not losing any efficacy signal. Operator: Our next question comes from Yun Zhong with Wedbush. Yun Zhong: So the question is on the Phase IIa portion of the obesity study. On the second dose, do you have any expectation on the potential impact on gene and protein expression? And in terms of the clinical outcome, would you expect the benefit to be on durability or the magnitude of fat reduction or both because you're changing the patient baseline characteristics. So I just wonder, will you be able to tell whether that's -- and any potential better outcome will be from repeat dosing or from the more higher BMI or both? Will you be able to tell the difference, please? Paul Bolno: Yes. Christopher Wright: I can just say our the way that it is designed and what we know about the pharmacokinetics and pharmacodynamics, we expect a very substantial knockdown with the 2 doses that would be very persistent over time. So we think that, that's a great approach to identify the right doses and understand the duration better and to optimize our likelihood of efficacy. And then to that point, and you also mentioned it, the patient characteristics are different. And so the dose response could also be slightly different in people that have higher levels of obesity or higher BMIs. And so it's important to look at a number of doses in that context as well. But we would expect that we should see stronger results there, as we outlined earlier in the sense that this is a drug that increases fat metabolism. And so the more you have to metabolize the bigger the effect should be. Erik Ingelsson: Just to add one more thing as well. The design here, the 0 and 3 months dosing is really to accelerate the Phase IIa trial. It's not because we do think we need to give the dose that frequent. So all of our PK modeling indicates that it's once a year or at most twice a year. So it's a way to kind of accelerate and facilitate data readouts fast. Paul Bolno: And to that point, I mean, if you look at our 240, I mean, past 7 months, we're still seeing suppression of activin E. So again, with 400, we expect that to be larger. But you also bring up an interesting question on just -- and I heard you mention genetics. I mean I think we have to go back to the genetics and realize that activin E is a biomarker. Hence, we're able to look at the impact of the reduction on the actual protein biomarker over time. And when one looks at that interaction, there were the discussions that had come up a while ago about diabetes, nondiabetes. And I think the data that has been shared to date doesn't demonstrate that these patients should be different in disposition, whether they have diabetes or not. Actually, the data that was run in that, I think it was an over 300-patient observational study from Alnylam clearly showed that acne correlated with high BMI, insulin sensitivity and truncal fat in nondiabetic patients. So I think the implication here is really that if you can dial back a protein that drives hypolysis, then you're going to see that impact. Now we're going to be able to be in a position where we're going to look at that in different settings. So we'll have it in the nondiabetic setting, the diabetic setting will look at how that plays a role, particularly on endpoints like hemoglobin A1c. So if we think about the implications for broader cardiometabolic disease beyond obesity, we'll be able to look at what happens with insulin sensitivity, what happens with hemoglobin A1c for diabetes and other measurements in lipids and inflammatory markers as we think about cardiovascular disease. So I think the study is really stepping back and letting us look at the broad range of cardiometabolic diseases in those different patient settings. Operator: Our next question comes from Salim Syed with Mizuho. Salim Syed: Congrats on the progress, guys. Paul, Chris, maybe one for us on the data coming out on 006 and ATS. So is it possible to just kind of give us high level kind of what people should expect here or look out for? I mean, obviously, the data that was presented in September of last year, the 200 single and 200 multi, there wasn't much of a dose response or even got to the 40 milligram single that you guys continued progress here with the 400 multi and then we'll be getting 600 single and then I guess, in the second half of this year, 600 multi. So is there any reason here people should be expecting some sort of threshold effect as you break through the higher doses that we get more efficacy? Paul Bolno: Yes. I mean... No, it's a great question. I think if we went back to September, there's actually a dose response if we think about M protein. It went from 0 to like 44% to 65%. So I mean, I think if we think about the context of where patients start and how that builds over time, I think editing can continue to grow. I think with the question of is more going to drive more in the absence of an acute phase response, that's really the distinction that we're separating, which is once you hit a point where you can catalytically edit, the transcripts that are necessary. It's really a function of time. You deplete Z protein, the Z protein continues to come down and clear from the liver, the cells get better. And you should, over time, as we've seen with MZ patients who actually don't have liver disease over their lifespan, they can actually generate more protein. And so I think that notion of correction over time is important. But I think our guidance is we were able to mount a response that could generate a lot of proteins, 20 micromolar if you had the right event. So it's not substrate limited to the effect that people will say, is the enzyme exhausted or there is substrate limitation in the context that if you're not having an acute phase response and the body is not producing or needing to produce protein that it won't produce more. And so I think that's been the example we've seen and others have seen. I think what we're able to do is look at this without the conflation of LNP irritation, which can also create kind of a inflationary signal of inflammation. In a signal where you have GalNAc, you can go directly to the target site, we do see that when you have these elevations of acute phase responses that you can meet those dynamics. So I think stepping back, if we could see that we could produce the same levels, meaning you could create stable levels of very micromolar, we were 13. So edited protein that's M that's above, again, the MZ threshold, so again, above 50% protein and be in a position where you can protect patients from a dynamic response, but now no longer have to deliver biweekly injections to get there, but demonstrate we can do it monthly or less frequently. I think that puts us in a very good position in terms of the regulatory context and ultimately, most importantly, to treat patients with alpha-1 antitrypsin. Operator: Our next question comes from Roger Song with Jefferies. Jiale Song: Also on the INHBE. So understanding you will have a poster at the ADA. So just curious what kind of incremental data we will -- we should expect to see? And then regarding the FDA interaction, have you had any discussion around the 5% is coming to the total body weight reduction versus we can look at a total fat or even visceral fat reduction threshold moving away from the overall body weight given the novel mechanism? Paul Bolno: Thank you, Roger. And I mean, to your first question, yes, we will have a poster at ADA. As it relates to new data cadence, we haven't provided any updates other than 2026, we'll be providing continued updates on 007. To your second question, as it relates to kind of regulatory thresholds and 007, I think it is important that there is a broader range of discussions beyond a flat 5% change in total body weight. Nonetheless, it's why I think Slide 24 in the new corporate deck is important because I think the notion of -- and I know people were kind of trying to think about with visceral fat, it's kilogram.5 k and if you lose that, and everybody is trying to figure out where body weight reduction comes from. But if you look at the parallel side of what happens to total fat in that population, you've got about 48 kilos of total subcutaneous body fat that gets produced that ultimately delivers weight loss. So I don't think we're needing to necessarily have a different conversation around how in a Phase II/III obesity study in patients with excess fat, how you can deliver on that 5% threshold. Nonetheless, I think there is a very robust conversation that we're preparing for with the agency, where I think there's a lot of alignment, particularly in this administration, thinking about the impact of pharmacovisceral fat. I mean there's 2 decades of literature on elevations of visceral fat driving NASH, driving cardiovascular disease, driving diabetes. quantitatively, meaning a 10% change in visceral fat changes outcomes that are clinically. And what do payers pay for? They pay for outcomes. And so as we think about the endpoint of visceral fat reduction as actually being the driver of what makes patients unhealthy, that focus on being able to reduce visceral fat is important. As Chris pointed out, it doesn't -- there's not a lot of complicated mathematics to take BMR and look at the impact of visceral fat and lean mass preservation. There's literature around that. So this is not a new metric of identifying how you can change body composition in a positive way. And very much, we do plan to have a conversation with the agency that specifically focuses on looking at other metrics like BMR and visceral fat as an endpoint, not just to the exclusion of the 5%, but even in addition to that, being able to build in the real impact of improving body composition, which is what's required for the treatment of obesity is important. And I think we all need to remember that obesity is a cardiometabolic disease. And so ultimately, a lot of the endpoints that we're measuring hemoglobin A1c, insulin sensitivity driven off of visceral fat reduction are going to be important. So yes, it will be very much a topic of conversation this year as we think about the path forward. Operator: Our next question comes from Bill Maughan with Clear Street. William Maughan: So I wanted to just mix things up and actually ask about your exon skipper program. While obviously not as massive a market as obesity, it is a fairly near-term opportunity and a potential significant revenue driver, yet there seems to be a bit of a lack of, I guess, emphasis just around discussions around Wave on the exon skipper. So I just wanted to get your most recent kind of thoughts on how big that could be commercially and whether or not there's potential for that to surprise a bit and get a little more credit than it's being given currently. Paul Bolno: Yes. No, thank you for the question. As we think about DMD, I mean, we have delivered a differentiated approach with the clinical data update we gave. As we said, we were in the process of delivering and putting together that studies continuing to get to the monthly dosing regimen, which we believe would be, again, differentiated and required for an NDA filing. So that work continues to remain on track. I think as you also point out, as we think about the opportunities of allocation of capital in terms of building out to commercialization, we have said that we do plan to engage in strategic partnering discussions as it relates to that transition and commercialization. And we continue to look for several things evolving. One, the evolution of the commercial landscape as we look at the product dispositions that are out there and two, the regulatory environment. So I think over the course of this year, there's going to be a lot of opportunities for us to make those assessments in commercial landscape, the regulatory landscape as we can continue to deliver on that pathway. Operator: Our next question comes from Ben Burnett with Wells Fargo. Our next question comes from Danielle Brill with Truist Securities. Our next question comes from Luca from RBC. Unknown Analyst: This is Cassie on for Luca. Congrats on all the progress and a quick one on the competitive landscape for obesity. Your competitor is moving into combination approaches relatively earlier on in development. Could you -- maybe could we take that as maybe signaling that monotherapy alone has inherent limitations in obesity treatment for INHBE? Paul, you already gave some color on this, but do you believe there's a feeling what INHBE alone can achieve? And are you concerned that waiting until Phase II or later to explore combinations may put you in a competitive disadvantage versus competitors already testing combo strategies? Sorry for the long question, but any color would appreciate. Paul Bolno: I think it's a wonderful question because I do think already, if we look at where we were relative to just our Phase I population with our single-dose data, we are competing with visceral fat reductions that were in multi-dose of others, right? And as we think -- including combination. So I think if we think about what we have is differentiated, and I think Eric shared that during his update on the call, our chemistry is giving us a high degree of potency and durability. And if we think about the INHBE target itself, it requires not just potent reduction, but requires stable suppression. And so this notion of being able to keep that target low despite any desire of the body to upregulate it is a key differentiator. We saw that in preclinical data that differentiated us from our competitors where they to do repeat dosing of a GalNAc siRNA to drive weight loss. Remember, these are obese mice. So the mice that we're all talking about in these studies were mice that would be much more representative of your Phase II/III high BMI mice. And what do we see? We saw that if we could give a single dose and suppress activin E, we could see weight loss in that model, driven off of fat reduction, visceral fat reduction, subcutaneous fat reduction. So I think we're seeing strong clinical translation on potency and durability distinction from our competitors, such that absolutely, I think we will see continued fat loss substantially with muscle preservation in this high BMI setting. So I don't think that there's necessarily the ceiling effect as much as it is the treatment effect in the appropriate population. As we said a number of times last year, it was always going to be about treating the patients with the right disease setting, meaning the Phase II/III population of obesity, high fat with the right dose over the right amount of time. So I think we're set up to see that. Nonetheless, I think the power, as you point out, in combinations is very real. So if we stay in the monotherapy, we do believe that, that's going to be a segmented marketplace. We think about the opportunity for -- I think there's nearly 30 million people in the U.S. who are at risk of lean mass reduction who need weight loss. And so as we think about segmentation, I think there is a substantial population monotherapy that's going to need fat reduction without the risk of lean mass loss. Combination nonetheless is a very interesting place to be. I don't think we're losing our lead there. As Chris alluded to, we're actually accelerating the combination studies. And so already at a monotherapy piece, we have a distinction from our competitors. And again, we believe that in combination, we should see a more robust effect by being able to add INHBE onto existing inreatment therapies. And so the opportunities there are twofold. I know on one hand, we tend to think about giving more and trying to drive even more weight loss, importantly, fat loss, which comes from INHBE. I think we've got another distinction, which is the ability, frankly, not to have to kind of push incretin to the edge of tolerability, but being able to think about actually in this environment, particularly as we watch that space evolve, being able to actually have to give less incretin therapy in combination to exert a maximal effect. And so I think there's a big piece on titration where INHBE can add to that combination strategy to ultimately drive profound visceral fat loss, subcutaneous fat loss along and coincidentally with incretin. And then ultimately, where we have generated data uniquely, I think for Wave with INHIBN-E, I think this maintenance setting is actually a wonderful place to be. We were just on calls recently where there's a lot of thought going into what does the evolving treatment landscape look like in a world where like antihypertensive, obesity treatment is now going into a place where you have patients who have BMI reductions. And frankly, now you have payers saying, now that you're no longer meet the BMI criteria, you might need to come off therapy. And so there's actually now discussions on the payer side of saying, actually, you're going to lose those benefits and actually build a maintenance setting. So as that maintenance concept evolves, so what does a lifelong therapy look like that preserved outcomes, I think this maintenance opportunity is pretty substantial for us that if people invest, payers invest in getting to that healthy, stable outcome, how do you sustain that in a way that's going to be tolerable is not going to help drive additional complication side effects, tolerability effects and the potential for now a once to twice a year maintenance therapy is consequential. So I think all 3 settings are set up for us to be uniquely differentiated. And as we said, all 3 studies are pulled into this year and being accelerated. So we'll be generating human data in the right population in all 3 of the settings. Erik Ingelsson: Maybe just to add one more thing. So since this is new biology as well, I think it's important to really try to understand the potential across a lot of ways, and we have so many ways of winning this year, like we're going to look at the 5% threshold for weight loss. We're looking at body composition with a focus on fat loss. We're looking at potential cardiometabolic protection across lipids, HbA1c with diabetes and fat in liver for MASH. And then in addition, the combo and maintenance. There are a lot of opportunities, and we're accelerating. So we're going to get all of that data and starting everything this year. Operator: Our next question comes from Catherine Novack with Jones. Catherine Novack: I just have one on the 006 multi-dose regimen. I guess knowing that successive dosing can push mean max AAT higher, how should we be thinking about mean max AAT achievable with monthly versus biweekly dosing that was used for a multi-dose regimen prior readout? And how do we think about the delta between the single dose and the multi-dose when we're switching to monthly? Paul Bolno: Yes. I mean I think one -- and I'll take the second part first. I think that will be interesting, right, as we look about what's the difference in terms of the on rate, if we think about it between the 200 to 400 and the 600. So we'll have the opportunity to look at what do those kinetics look like as you point out. And then the difference between biweekly dosing versus again, monthly and then the impact on those rates. And I think, again, -- our framing today is that if we assume that we are getting a biweekly 200 to near steady state in the sense that it's not substrate limited, but in the absence of an acute phase response where you're producing more transcript that you're not going to necessarily get more without the benefit of time, right, the ability of cells to clear out the cells to get healthier producing hem. That's going to be the chief driver of seeing those increases. And so we'll be able to look at what happens on the repeat dosing of monthly versus biweekly. But I think that's the big shift in the dosing regimen. I think 600, as Chris alluded to later this year, 600 monthly would give a better sense of keeping the kinetics and the timing of those dosing intervals coupled with dose to get better. But this is really to see can we see that we get to that same steady state, the ability to balance acute phase responses of as much protein as patients need, they can produce, but do that in a monthly I think that's going to be the driver for this next update. Operator: Our next question comes from Whitney Ijem with Canaccord Genuity. Whitney Ijem: I think just to quickly follow up on the last question. I think you've answered it, but just to put a finer point on it, is what you're saying that given the time frame of the next update, we shouldn't necessarily expect to see a dose response on either total or M protein at steady state at ATS in particular, but that dose response could come over time or maybe in the setting of an acute phase response later. Is that the right way to think about it? Paul Bolno: I think the way to see it is when we should -- it is going to be that. We'll see what the driver is of more. But again, I think our demonstration to date, even looking at the early data is we got to more, right? We got to 20 micromolar in the setting of an acute phase response where you actually generate more substrate, more transcript to be edited. So I think at a certain point, there's going to be this concept of steady-state editing where as much transcript is being edited, you can clear Z. I think that's going to be what we clearly want to see as Z protein continuing to come down. And then there's a function of time. And so I think it's more than thinking about dose at the time of what -- how much duration is there for the body over time to clear Z, get healthier hepatocytes that can produce more protein. I don't know if there's... Operator: Our next question comes from Madison Wynne El-Saadi with B. Riley. Madison Wynne El-Saadi: Just looking at the Phase IIa MAD design, I mean, it's certainly looking like a CV MAT versus, say, pure obesity study. I'm curious if -- did the FDA acceptance include any commentary on body comp as a kind of co-primary -- or was it more of a kind of protocol discussion? And then relatedly, what's the magnitude of MRI-PDFF reduction in Phase IIa in lGHT that management would view as supporting a stand-alone MASH development versus, say, a subsegment of the obesity program? Paul Bolno: Yes. I mean I think to your first point in general, I do think it's just important, we can't say this enough that obesity is a cardiometabolic disease. So running a study that fully interrogates the cardiometabolic implications of a target that comes out of human genetics that is a cardiometabolic target. So I think being able to fully extrapolate all of the value of what does that mean for a patient beyond just as you said, at classic obesity, which is the classic studies are looking at weight loss at the expense really of muscle and muscle drives the predominant early reduction in that body weight. So being able to shift the narrative to not just reduction of fat that will be important in the treatment of obesity, but all of the other advantages that come to patients and frankly, are recognized by, again, what payers pay for, which is the cardiometabolic improvement is what this study is designed to elucidate. So yes, we'll be able to look at body composition, and that's part of the endpoints as we said, as part of an obesity study in addition to body weight. But all the important metrics, as you point out, are critical for us because they are all part of the development paradigm here. The last piece is, I mean -- and we've seen this with others and competitors who've done monotherapy reduction of liver fat, and they saw consequential reductions in liver fat that pretty much surpassed other match programs and reduction of again, fat in the liver. So given our potency, durability, given that we wouldn't expect this mechanism to be differentiated, we should see in terms of like reduction in liver fat because of what we're doing, we would expect to see substantial reductions and that target engagement there, reduction of fat on imaging would guide us to say that MASH would be a target to pursue a dependent. Erik Ingelsson: Maybe I add one more thing, and that is that these cardiometabolic risk factors and liver fat are very strongly correlated with obesity and visceral fat. So it's not so much that we're not requiring -- it's not an inclusion criteria. It's more that we're removing the exclusion criteria from the Phase I, which hampered us in terms of looking at those things. So again, we -- just based on the normal distribution of liver fat in this obesity class, we expect that there is liver fat that we can look... Operator: Our next question comes from Michael King with Rodman & Renshaw. Unknown Analyst: This is [indiscernible] on for Mike. Congrats on the updates. Just a quick question on the DMD program. So Novartis was just talking about the drugs they got from Avidity that they're using antibodies to deliver oligos to the muscle. Do you think you have the best tissue penetration you can get with N 531? And how are you thinking about the competitive dynamic as you head towards the NDA filing? Paul Bolno: Yes. I mean I think in general, it's a wonderful question because, again, in the absence of conjugates, if you look at the muscle exposure, our muscle exposure was pretty extraordinary even in comparison to muscle targeted ligand. So when we think about distribution to the tissue without having to add that, that was consequential nonlimiting. And we saw for the first time actually real measurements of muscle regeneration. So when we think about getting into stem cells and regenerating muscle and think about more broadly the platform implications for being able to treat the disease in the muscle, both with splicing oligonucleotide, siRNA and others, we talk about extrahepatic. I think there was not a requirement as we think to have to create the complexity of that to get exposure. So the landscape is something we continue to look at as it evolves. But in terms of being able to access the tissue and what would be required to do that, I think our platform delivers exquisitely muscle.... Operator: Our last question comes from Ananda Ghosh with H.C. Wainwright & Co. Ananda Ghosh: When you look at the genetics of the actin and when you talk to the academic community, one aspect of the biology, which they all stress about is that Iin probably works best in the negative energy balance, which you see when you add actin knockdown approach with GLP-1s, which also Arrowhead has already shown. The question is what happens when you take off the GLP-1s during the maintenance phase when probably the patient energy balance either neutralizes or probably goes to a positive energy balance. Then what happens to those liberated free fatty acids? Do you actually think that you will see a stability in the weight gain? And if you do see where does those 3 fatty acids go, which are liberated when you don't have GLP-1s, in which tissues do they accumulate? Paul Bolno: And probably in the same as they did in the first point, right, when we saw it go to muscle. And if you actually a beautiful experiment that we had run in this was the preclinical data where when you stabilize these obese mice on GLP-1 exactly to your point, their caloric consumption declines dramatically, they lose weight, they hit their steady state. And interestingly enough, and I think it does speak to the mechanism of action when you predose and the timing of that was critical, not after you dose before the cessation to get the on-ramp of active suppression before turning off the GLP-1. When you stop the GLP-1, you actually saw caloric consumption increase in both arms of the study. the placebo arm and the INHBE treatment arm. So again, the energy balance while going up wasn't changed. Now what you did do in advance of putting those excess calories on is actually turn off exactly what the body wants to do and actually what's really damaging in weight cycling with GLP-1s and it's a real problem in patients who chronically come on and off of them is that when the weights regain, it's regained its fat, fat is position in a variety of tissues, and that's unhealthy. And so what we did see is when you actually take the brakes off lipolysis, the body is now not able to store new fat. So you don't see that reaccumulation of fat. What you do see is -- and we kind of see this slight -- much like probably what we saw in the slight increase in the monotherapy arm, which is it goes to muscle. So you end up with the free fatty acids and the muscle, muscle can then actually build. And so we don't expect -- that will be interesting to see whether or not that plays out that people who have actually been losing muscle over time might gain some muscle back when at the same time, but not restore that as fat and hence stay at steady state. So again, as we said on the call, that study is going to initiate this year, we're going to be generating that human data to recapitulate what we saw in the animal model. But I do think if we think about what the best human genetic evidence is for INHBE, it's maintenance. These are people who go over a lifetime without thinking about their caloric consumption and have low abdominal visceral fat, have an improved metabolic profile in terms of risk of diabetes and cardiovascular disease and lipid profile. And so actually the setting where there's the most human genetic data for, and we're excited to run that human clinical trial. Operator: There are no further questions at this time. I'll now turn the call back over to Paul Bolno for closing remarks. Paul Bolno: Thank you for joining our call this morning. We look forward to speaking with many of you later today and during the ATS conference next month. Have a great day.
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