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Operator: Hello, and welcome to Banc of California, Inc.'s First Quarter 2026 Earnings Conference Call. I will now turn it over to Ann Park DeVries, Head of Investor Relations at Banc of California, Inc. Please go ahead. Ann Park DeVries: Good morning, and thank you for joining Banc of California, Inc.'s first quarter earnings call. Today's call is being recorded, and a copy of the recording will be available later today on our Investor Relations website. Today's presentation will also include non-GAAP measures. The reconciliations for these measures and additional required information are available in the earnings press release and earnings presentation, which are available on our Investor Relations website. Before we begin, we would also like to remind everyone that today's call will include forward-looking statements, including statements about our targets, goals, strategies, and outlook for 2026 and beyond. These statements are subject to risks, uncertainties, and other factors outside of our control, and actual results may differ materially. For a discussion of some of the risks that could affect our results, please see our safe harbor statement on forward-looking statements included in both the earnings release and the earnings presentation as well as the Risk Factors section of our most recent 10-Ks. Joining me on today's call are Jared M. Wolff, Chairman and Chief Executive Officer, and Joseph Kauder, Chief Financial Officer. After our prepared remarks, we will be taking questions from the analyst community. I would now like to turn the conference call over to Jared. Jared M. Wolff: Thanks, Ann. Good morning, everybody. We are pleased to report another strong quarter for Banc of California, Inc. with year-over-year earnings growth, net interest margin expansion, and continued positive operating leverage. First quarter earnings per share grew 50% from a year ago to $0.39, driven by continued net interest margin expansion and positive operating leverage. Pretax, pre-provision income increased 28% while our adjusted efficiency ratio improved by nearly 500 basis points year over year. More importantly, the quarter reinforced our confidence in the earnings trajectory ahead. We continue to see durable momentum across the core drivers of the franchise, including margin expansion, deposit mix improvement, disciplined expense management, and embedded balance sheet remixing that should support profitability and shareholder value for the coming quarters. Efficient use of capital remains an important priority for us. In the first quarter, we repurchased 1.7 million shares, extended our buyback program through March 2027, and increased our dividend from $0.10 per share to $0.12 per share. We also announced our plans to redeem $385 million of subordinated debt in May. These actions reflect both our confidence in the long-term value we are building and our commitment to deploying capital thoughtfully and opportunistically for the benefit of shareholders. Our core earnings engine continues to generate capital at a healthy pace. With a CET1 ratio of 10.18% at quarter end, our tangible book value per share increased 1.5% quarter over quarter to $17.77. Core deposit trends were constructive during the quarter with continued growth in average noninterest-bearing deposits of 4% annualized quarter over quarter and an improvement in deposit mix with NIB representing about 29% of total average deposits. We continue to steadily attract new business relationships and are also seeing noninterest-bearing deposit balances ramp up in previously opened accounts, with average balances per account up 2.5% from the prior quarter. That reflects the quality of the relationships our teams are bringing in and the strength of our relationship-based deposit strategy. Loan production and disbursements remained strong at $2.1 billion in the quarter, with healthy and broad-based activity across the portfolio. Strong production levels continue to drive the remixing of the balance sheet toward higher-rate loans from lower fixed-rate legacy CRE loans. This remixing has helped protect our overall loan yield and net interest margin despite a declining rate environment. We expect the margin benefit from remixing to continue as new production comes in at meaningfully higher rates than maturing loans, providing embedded earnings upside in the portfolio. New production in Q1 came in at a rate of 6.65%, while fixed-rate and hybrid loan repricings or maturities by year end have a weighted average coupon of 4.7%. We view that ongoing remixing as an important driver of future net interest income growth. This quarter, we continued to manage credit proactively—remaining quick to downgrade and slow to upgrade. This resulted in some credit migration during the quarter, which was concentrated in a few specific real estate credits and does not reflect a broad change in portfolio performance or underwriting standards. We believe this disciplined approach to managing credit is important because it allows us to address issues early, helps reduce the risk of larger surprises later, and should keep credit from becoming a more meaningful headwind as we continue to grow earnings. As in the past, we will migrate credit when appropriate to take proactive action. We expect the ratios to improve over several quarters; importantly, such migration will not disrupt our earnings trajectory. This quarter's delinquency and special mention inflows were primarily driven by a limited number of credits with defined resolution paths. Special mention inflows and delinquency inflows were driven primarily by LIHTC, or low-income housing tax credit, loans tied to a longstanding customer where we have had a relationship for more than 20 years with no historical losses. The loans have low loan-to-values, personal guarantees in place, and strong collateral values, and we expect them to be made current before the end of the second quarter. Classified inflows were tied mainly to two multifamily loans in a single relationship to a longstanding customer of the company. These loans were restructured with credit enhancements and are not expected to result in any losses. Overall, we do not expect losses to appear with migrated loans based on our strong collateral and defined resolution paths. Net charge-offs were $13.8 million, or 23 basis points annualized, and were driven by two specific situations that had already been identified and actively managed. Net charge-offs also included a partial charge-off related to a hotel property that migrated to nonperforming status in 2025 and an office loan where the balance was adjusted to reflect an updated appraisal, while the loan remains current and performing. We do not view these items as indicative of a broader deterioration trend in any of our portfolios. Importantly, reserve levels remain solid. We increased reserves where appropriate in the areas that saw migration. Taken together, we do not expect this quarter's credit migration to disrupt our earnings trajectory. The balance sheet remains strong with healthy capital and liquidity positions. We are also encouraged by the constructive backdrop from proposed regulation around capital requirements, which, if finalized substantially as proposed, could provide $150 million to $160 million of additional CET1. That would create additional flexibility as we evaluate attractive capital deployment opportunities, including further optimizing our balance sheet to accelerate our earnings trajectory, supporting prudent balance sheet growth, and returning capital to our shareholders. $150 million to $160 million is a baseline projection; it could be higher under various scenarios. Overall, this was another strong quarter for Banc of California, Inc. We continue to build the company the right way with disciplined execution, a strong and resilient balance sheet, and a clear focus on sustainable growth and long-term shareholder value. Let me now turn it over to Joe for some additional financial details, and I will return afterwards. Joe? Joseph Kauder: Thank you, Jared. For the quarter, we reported net income of $62 million, or $0.39 per diluted share, which was up 50% from $0.26 per diluted share in the comparable prior-year period. Net interest income of $251.6 million increased 8% year over year and was relatively flat versus the prior quarter. The increase in net interest income from a year ago reflects materially improved funding costs, while the linked-quarter variance was mainly due to two fewer days in Q1 versus Q4. Q1 interest income from securities also increased due to the purchase of high-yielding securities and a $1.3 million special dividend on FHLB stock. Net interest margin expanded to 3.24%, up four basis points from Q4 and six basis points from a year ago, driven primarily by lower funding costs. Our spot NIM at March 31 was 3.22% after normalizing for the FHLB special dividend. We expect NIM to continue expanding through the remainder of the year supported by strong production, ongoing balance sheet remixing, and disciplined deposit pricing and mix. These tailwinds are evident in our portfolio today. As a result, we continue to expect average quarterly NIM expansion of three to four basis points, though the path may not be perfectly linear. As always, we do not assume any Fed rate cuts in our outlook. Average loan yield declined nine basis points to 5.74% versus the Q4 loan yield of 5.83% and was relatively flat to the December 31 spot yield of 5.75%. The Q1 loan yield reflects the full-quarter impact of two Fed rate cuts on the rates for new production and on our floating-rate loan portfolio, which represents 38% of total loans. Our spot loan yield at the end of Q1 remained stable at 5.75%. Total average loan balances increased 4% annualized. While Q1 loan production was strong, end-of-period loans declined modestly from the prior quarter mainly due to higher payoffs and paydowns, which were primarily in warehouse, fund finance, and other CRE. We continue to expect full-year loan growth in the mid-single digits, depending on broader economic conditions. Deposit trends remain solid, with average noninterest-bearing deposits continuing to grow in the quarter and average core deposits, excluding one-way ICS deposit sales, also increasing modestly. We use one-way ICS sales to move deposits off balance sheet and manage excess liquidity. In the first quarter, average balances swept off balance sheet through one-way ICS sales were $271 million. End-of-period deposits declined slightly from the fourth quarter due to lower brokered deposits and retail CD deposits. We continue to expect deposits to grow mid-single digits over the course of this year. Deposit costs declined 11 basis points to 1.78%, driven by the benefit of Q4 Fed rate cuts and the continued runoff of higher-cost deposits. We remain disciplined on pricing and achieved an interest-bearing deposit beta of 57% in the first quarter. Spot cost of deposits at March 31 was 1.78%. Our balance sheet remains positioned to perform well across rate environments and is largely neutral to changes in rates from a net interest income perspective. Sitting at neutral, we have the flexibility to manage our balance sheet to optimize results in any interest rate environment. For example, in a rising rate environment, we would expect to manage deposit betas to be more measured than in a down-rate cycle, and the interest-rate impact would be outpaced by the impact on interest income of the contractual repricing of our variable-rate loans. At the same time, we expect ongoing balance sheet remixing to continue to support net interest income expansion across rate environments. Fixed-rate and hybrid loan repricings or maturities by year end have a weighted average coupon of 4.7%, well below current production rates. Approximately $3.2 billion of multifamily loans are expected to mature or reprice over the next two and a half years. That embedded repricing opportunity remains an important earnings tailwind. Noninterest income was $35.3 million, which was relatively flat quarter over quarter when excluding the $6 million lease residual gain in the fourth quarter. Noninterest expense of $181.4 million was relatively flat from the prior quarter and down 1% from a year ago. Compensation expense increased linked quarter due to seasonality, which includes Q1 resets for payroll taxes and benefits. Customer-related expenses declined $1.1 million quarter over quarter due to the impact from Q4 rate cuts on ECR cost. The broader expense base remains well controlled, and we continue to target positive operating leverage through revenue growth, margin expansion, and disciplined expense management. Turning to credit, reserve levels remain solid, with the ACL ratio stable at 1.12% and the economic coverage ratio at 1.6%. Provision expense of $9.8 million reflects the Q1 migration and impact of other credit activity. While the Moody’s updated economic forecast, which included a significant improvement in the CRE price index, would have supported a reserve release, we continue to maintain a more conservative outlook for purposes of our methodology and increased the weighting of adverse scenarios, offsetting that benefit. We continue to believe overall loan reserve levels are appropriate, particularly given the continued shift in growth towards historically lower-loss categories, which now represent 34% of loans held for investment. We are pleased with the strong start to the year and the progress we are making in building the company's earnings power. As we look ahead to the rest of 2026, we are reaffirming our guidance for pretax, pre-provision income growth of 20% to 25% and noninterest expense growth of 3% to 3.5%. Our net drivers of earnings growth remain firmly in place, including continued loan portfolio remixing, disciplined expense management, healthy client activity, and further benefits from deposit repricing and mix. Taken together, those levers give us good visibility into continued earnings growth through the balance of the year. And with that, I will turn the call back over to Jared. Jared M. Wolff: Thank you, Joe. This was another strong quarter for Banc of California, Inc., with continued progress in key areas—positive operating leverage, growth in our core earnings drivers, strong balance sheet fundamentals, disciplined expense and credit management, and, of course, thoughtful capital deployment. The consistency of our results reflects the quality of the franchise we have built and the discipline with which our teams continue to execute. As we look ahead, we remain mindful of the uncertainty created by the conflict in the Middle East and the potential for second-order effects on growth, inflation, and client activity. That said, what we are seeing today across our business lines is very positive, with strong pipelines, a resilient client base, and a healthy balance sheet. Our teams continue to win relationships in all areas of our business. We remain very optimistic with strong pipelines. Importantly, our outlook is supported primarily by company-specific levers already in motion, rather than by the need for a more favorable macro environment. We remain confident in the path ahead as our drivers of earnings growth are tangible, diversified, and already underway. We have a valuable deposit franchise, attractive business segments, strong pipelines, and a healthy balance sheet. We also have meaningful embedded earnings opportunities over time, including, as Joe mentioned, the runoff of approximately $8 billion of lower-yielding assets, the redemption of expensive capital, including our preferred stock, and the opportunity to further optimize the balance sheet as the regulatory backdrop improves. These levers provide additional flexibility to accelerate earnings growth and compound shareholder value. We are also making strong progress in deploying AI tools broadly across the company, with nearly universal employee access, a robust Copilot active user rate, broad developer adoption, and more than 80% of our developers using AI in their daily workflows. We see AI as a practical enabler of productivity, operating leverage, risk management, and scalable growth, and we are already seeing early signs of efficiency gains across code development, reporting, compliance support, and workflow automation. We also have a number of targeted use cases underway, including BSA review support and customer service applications. Over time, we expect these efforts to contribute to a more efficient operating model and improved client service. Our focus remains the same: to continue growing high-quality, consistent, and sustainable earnings by serving clients well, adding strong new relationships, maintaining disciplined underwriting and expense management, and further optimizing the balance sheet to drive long-term shareholder value. We like the momentum in the business, we see multiple embedded levers for future earnings growth, and we believe Banc of California, Inc. is well positioned for continued progress in 2026 and beyond. I want to thank our employees for everything they are doing to move the company forward. Their execution, commitment, and focus continue to set us apart in all of our markets. With that, operator, let us open up the line for questions. Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. The first question comes from David Cioverini with Jefferies. Please go ahead. David Cioverini: Hi. Thanks for taking the questions. Good morning. I wanted to start on credit quality. You touched on this a bit, but can you walk through what the plan is for working out the increases in special mention and nonperforming loans? You mentioned the two credits that were restructured with credit enhancements. Can you talk about what those enhancements were? Did these borrowers contribute more equity into their projects? Jared M. Wolff: Yes, they contributed more equity in both cases in those loans that were downgraded. They brought more equity. What we want to see is more time; we want to see them work according to plan. We have every expectation that they will. But when we talk about being quick to downgrade and slow to upgrade, we do not immediately make a change to the rating just because they provided a credit enhancement. We want to see performance over time, and we expect that these projects will return to normalcy over time and be upgraded with improvement over several quarters. We also have visibility to other projects in those classifications that we expect to be upgraded. And so that is why, over time, we expect to see benefits not only from those projects but other projects in those categories. David Cioverini: Got it. Very helpful. And then shifting over to the net interest margin, it sounds like you have some good tailwinds in place, especially with the 6.65% production versus the 4.7% rolling off. The three to four basis points of quarterly expansion—how linear should that be? And remind us of the sensitivity to rate cuts to the extent we do get some rate cuts later this year? Jared M. Wolff: I will start, and I will let Joe jump in. We sit today relatively neutral, and we believe, as Joe mentioned, we have the ability to pivot depending on the rate environment. We have already seen that in a down-rate environment, our net interest margin expands. In an up-rate environment, we would expect deposit increases to trail and go much more slowly, and we benefit from rising rates in our floating-rate loan portfolio and new production. We would expect to benefit in a rising-rate environment as well, and we think that those benefits would more than offset any contribution that ECR would take in an up-rate environment. Joe, do you want to comment specifically on how linear our NIM should move? Joseph Kauder: In theory, it should be pretty linear through the year, picking up as the year goes on. As we grow our balance sheet and as we add more higher-yielding loans and continue to manage our funding costs, the NIM improvement and benefit will expand as the year goes on. What we do not have in there is accelerated accretion. We have this $8 billion of loans which we know are going to pay off or pay down at some point, and when that happens, we will get the accelerated accretion from the portion that was marked during the merger. David Cioverini: Thank you. Operator: The next question comes from Matthew Timothy Clark with Piper Sandler. Please go ahead. Matthew Timothy Clark: Hey, good morning. The expense run rate—relative to last year you are on pace to be flattish, and you maintained the 3% to 3.5% growth guide. What are the things coming online that would cause that run rate to grow from here this year? Joseph Kauder: As we look into the next couple of quarters, you will see a little bit of a continued increase in compensation expense as year-end inflation adjustments and those items kick in. They will be somewhat mitigated by the payroll taxes and other benefit adjustments rolling off, but they should step up just a little bit. We are also making some more investments in our platform, so you will see a little bit of an increase potentially in some professional fees and other things as we move forward in some of our really important projects to grow earnings and help the balance sheet. Jared M. Wolff: I would just add that we are going to continue to be disciplined. It is normal to expect those increases through the year. If we find ways to offset them, we will do that because we believe that we can keep finding efficiencies. The AI initiatives are real, and we are seeing some early signs and some early wins. We will not lose the opportunity to manage expenses as we always have. Matthew Timothy Clark: Okay. And then just on the ECR deposit balances—understand the sensitivity to rate—but with no rate cuts this year, assuming there are no rate cuts, is there any effort to try to remix away from those deposits or to try to incrementally push those costs down? Jared M. Wolff: We are looking for ways to improve our deposit costs across the board. The biggest and most important way to do that is to bring in noninterest-bearing deposits that have no expectation of yield and that rely on our services. We have a lot of efforts underway and continue to make progress there. I am really pleased with what our teams are doing. I see stories every day of clients coming to the bank and bringing more. For example, this morning we heard about a client that was acquired, and the company that acquired them decided to keep all of the deposits at our bank because we were providing better service, and they brought more deposits in. Another example: a customer that left after the merger to a large bank was not getting the service they expected and brought back $3 million of deposits. These stories are meaningful. So first, we can grow operating accounts, and our teams are doing a great job. Second, we are very proactive on deposit costs regardless of Fed moves. As it relates to ECR, those contracts generally come up annually, and when they come up, depending upon our deposit flexibility, we will negotiate to improve our positioning. That has been the case the last two years as our deposit positioning has improved, and we have been able to negotiate those accounts to our benefit. Matthew Timothy Clark: Okay. Great. Thank you. Jared M. Wolff: Thank you. Operator: The next question comes from David Pipkin Feaster with Raymond James. Please go ahead. David Pipkin Feaster: Hey. Good morning. Jared M. Wolff: Morning. David Pipkin Feaster: Jared, I wanted to follow up on your commentary on the capital side with the regulatory capital relief. What are your top priorities? Obviously, buybacks are extremely attractive, but are there other capital optimization opportunities that you are considering? Jared M. Wolff: We run a lot of different scenarios. Buybacks are a big part of it. Using it to redeem preferred is also in our plans; we would not need other funding sources if we did that. We will also look at our balance sheet for low-hanging fruit and suboptimally priced items and assess the earn-back. The $150 million to $160 million is a very conservative estimate of what we could achieve under these new rules. We are still doing the analysis, but a third party reviewed it and they think we will get more than that. I feel very good about that opportunity and the number of things we could do. David Pipkin Feaster: That is helpful. Switching gears to loan growth—you reiterated the loan growth guide. How do you get to your mid-single-digit pace of growth this year? Production was solid and diversified, but how do you think about production over the course of the year, and how do ongoing payoffs and paydowns play into expectations? Jared M. Wolff: We added a new chart in the deck—page 15—that shows production and disbursements as well as paydowns and payoffs, so people can see how heavy and broad-based production actually was and the average rate. One of the best things about that chart is it shows our weighted average rate on loans has stayed flat since the first quarter of last year despite a declining rate environment, which demonstrates that remixing our portfolio as deposit costs have dropped has resulted in our margin expansion and making more money on a flat balance sheet. We know that will continue. Whether or not we have net growth or just remixing from high production, we will continue to make more money. If we also grow the balance sheet, earnings will grow even faster than projected. Our budget hits our numbers without needing fast balance sheet growth, and if we grow faster, we will make even more money. We have line of sight into payoffs; they were elevated in the first quarter. Whether they remain elevated is hard to know, but right now, production looks set to outpace payoffs and paydowns for the foreseeable future. There are certain loan pools we can buy to improve the balance sheet if necessary. Overall, we still expect mid-single-digit loan growth. Even if net growth were lower than our estimates, we still hit our earnings targets based on our ability to remix the balance sheet. David Pipkin Feaster: That is helpful. Thanks. Jared M. Wolff: Thank you. Operator: The next question comes from Jared David Shaw with Barclays. Please go ahead. Jared David Shaw: Hey, everybody. Thanks. Sticking with production, numbers are relatively stable—what would have to happen to really see that grow? You have spoken about the strength of your economies and competitive disruption. What is keeping production from growing more? Jared M. Wolff: First quarter is generally a little bit lower. We were at $2.1 billion versus $2.2 billion last year; in the fourth quarter we were at $2.7 billion. Those are pretty good numbers on a loan portfolio that is about $24 billion—to do $8 billion of production annually on a $24 billion loan portfolio. Could we move faster? We probably could by asking certain business units to increase sizes or take larger positions, but we believe it is necessary to grow in balance. We look at deposit flows and our balance sheet overall. We are at a very comfortable loan-to-deposit ratio; we could move that up. I am not looking to grow as fast as we can; we are looking to do it in a sustainable, reliable way so earnings are repeatable—consistent, reliable, high-quality earnings. We could move faster, but it feels like we are at a good pace and moving a little faster than the economy around us. Jared David Shaw: On the $8 billion of identified target runoff—how long does that take to move through the system? Jared M. Wolff: We have $6 billion of multifamily loans that will reprice or mature; about half of those mature or reprice in the next two and a half years. We show this on page 16 of our deck. Less than one year is $1.7 billion, one to two years is $1.1 billion, and then a big chunk—$2.3 billion—is more than three years. We see $2.8 billion in the next one and a half to two years, and then about $1 billion in the next two to three years. That is how you get to $3.2 billion over two and a half years. Jared David Shaw: And on the deposit side, how have flows been early in the second quarter? Jared M. Wolff: We are up this quarter relative to last quarter at the same point in time. Inflows have been higher early this quarter versus last quarter. Last quarter, our averages were pretty up. Oftentimes in the first quarter, balances come down for taxes; we focus on averages because they move the balance sheet, and it was a really good quarter. So far, we are higher this quarter than last quarter at this point. Jared David Shaw: One more on the allowance—you talked about utilizing more of the adverse scenario to prevent reserve releases. With the loan book the way it is right now, is 96 basis points a good level to expect for the rest of the year, assuming no broader macro change? Joseph Kauder: Our ACL is 1.12% and our economic coverage ratio is about 1.6%. That feels very comfortable. That assumes we continue provisioning around this quarter’s level—$9 million to $9.5 million—and, depending on production, it could be $10 million to $11 million. It feels like the right level. Jared David Shaw: Great. Thank you. Jared M. Wolff: Thank you. Operator: The next question comes from Robert Andrew Terrell with Stephens. Please go ahead. Robert Andrew Terrell: Hey, good morning. Jared M. Wolff: Morning. Robert Andrew Terrell: On brokered time deposits, over the past year they are up about $500 million. As we think about mid-single-digit deposit growth this year, should we expect more brokered deposit additions to support that growth, or is there opportunity to remix the brokered position? Jared M. Wolff: We focus on overall deposit costs and keep brokered within a band. We will opportunistically use brokered, especially when we see paydowns in certain areas or big chunks of deposits running off, and we will selectively go into the brokered market when pricing is attractive relative to alternatives. We continue to move our cost of deposits down, so we do not mind selectively using brokered. Joseph Kauder: Brokered was 9.3% of total fundings this quarter compared to 9.7% in the fourth quarter—pretty flat year over year. Brokered also depends a bit on loan growth. If loan growth accelerates and we can put really good high-quality loans on the books, we need to keep balance with deposits, but we are not afraid to dip into brokered a bit to help put those loans on, knowing deposits will catch up. Jared M. Wolff: To that point, we saw loans coming in late and average balances moving down, so we grabbed some brokered to keep our loan-to-deposit ratio in balance. If we have excess, we will invest it. Our team is pretty good at balance sheet management, and we can let our loan-to-deposit ratio float up as well if we want. Robert Andrew Terrell: Understood. Do you have any term in the brokered deposit portfolio, or is it all shorter or floating rate? Joseph Kauder: We do a little bit of term, but it is largely within three to six months. All is less than a year, with a little that goes out to nine or twelve months. Robert Andrew Terrell: Okay. Great. Thanks for taking the questions. Joseph Kauder: Thank you. Operator: The next question comes from Christopher Edward McGratty with KBW. Please go ahead. Christopher Edward McGratty: Hey. Jared, on credit, you went through a similar set of portfolio downgrades last year where you ultimately worked things through. What is different or similar this year as you go through this process? Jared M. Wolff: It is pretty similar. These are some larger legacy relationships where we are trying to migrate them down to more manageable levels. Similar to last year, we migrated this, it did not get in the way of earnings, and we earned through it. Gradually, our ratios improved. Is this the last chunk? Probably—it is pretty close. You never say never because something else can pop up, but I feel pretty good about where we are, and it was time to move some things around. You have conversations with borrowers and say, “We do not want these relationships to be this large anymore,” and ask them to move faster—that was the case in a couple of loans. In other loans, they did not manage well; we watched them and held their feet to the fire. As we mentioned, we have personal guarantees and plenty of support. These LIHTC loans are very valuable, really good projects, and housing that is sorely needed with tax benefits. I am not worried about the outcome. Sometimes this is just the right thing to do. So, similar to last year, we expect the ratios to migrate better over several quarters. These are large relationships, and we set expectations a little more aggressively than perhaps in the past. Christopher Edward McGratty: While we are on credit, could you speak about the legacy Square 1 book from PacWest? Software is a big topic, but remind us of the makeup and how you are thinking about tech. Jared M. Wolff: Our venture ecosystem overall—outlined in our deck—includes more than just “tech.” Fund finance, which is capital call lines of credit to private equity and venture capital firms, is approximately $1.4 billion, and deposits are about the same. The rest of our venture and Square 1 ecosystem is about $950 million of loans, split evenly between tech and life sciences—call it roughly $475 million each. They have about $5 billion of deposits against that $950 million of loans. Of the ~$475 million in tech, we analyzed potential AI disruption—whether business models or funding could be negatively impacted. We ran this a couple of ways and identified a handful of loans with a little over $40 million of outstanding that we put on a high-risk watch list. We will keep monitoring, but we do not see material disruption to our portfolio today. It is important to remember that out of our $24 billion of loans, the tech group is about $450–$475 million, a small portion of which is attached to software that could be disrupted—against $5 billion of deposits between tech and life sciences. Christopher Edward McGratty: That is great color. Thank you. Jared M. Wolff: Thank you. Operator: The next question comes from Gary Peter Tenner with D.A. Davidson. Please go ahead. Gary Peter Tenner: Thanks. Good morning. A follow-up on NIM—Joe, you mentioned the pace of NIM expansion. Is that expansion pretty exclusively driven by the asset yield side, or is there any material contribution from further reduction of funding costs over the course of the year? Joseph Kauder: It is a combination of both. There is definitely benefit from loans continuing to grow and remix at higher rates. We also have deposit growth in conjunction with loan growth, and we really focus on bringing in noninterest-bearing deposits—there is little we can do that is more profitable than adding NIB. You saw the NIB percentage grow slightly this quarter, and we expect that to continue to grow this year. As our deposit mix shifts toward NIB and other lower-cost interest-bearing, we expect to pick up NIM from that as well as from loan growth. Jared M. Wolff: This quarter, we saw more contribution from the full-quarter benefit of deposit cost reduction from the Fed cuts in the fourth quarter, and the fact that our loan portfolio yield stayed flat in a declining rate environment is pretty powerful. In an up-rate environment, you would see more from loan yield; in a down-rate environment, more from deposits. Gary Peter Tenner: Thinking about a neutral environment for the rest of the year, is there more room on one side versus the other? Jared M. Wolff: In a neutral environment, a lot of it is probably loan-based because the loans we are putting on are at much higher rates than the loans coming off. That is a fair way to think about it. Gary Peter Tenner: Makes sense. Any updated thoughts you could share on the BankEdge product after bringing on Chris Healy to head that business? Jared M. Wolff: Chris is doing a great job with the team. I am getting an updated budget this week on expectations for BankEdge, which is our merchant acquiring platform, as well as our card products where we are issuing. Both are doing extremely well. We expect to provide more guidance in the back half of the year on how these will contribute. I am pleased with our focus, and I think Chris will bring ideas he used at his prior institution to accelerate growth in both card and merchant acquiring through partnerships and direct selling. More to come. Gary Peter Tenner: Great. Thank you. Jared M. Wolff: Thank you. Operator: The next question comes from Anthony Elian with JPMorgan. Please go ahead. Anthony Elian: Hi, everyone. On NII, last quarter you gave a range of up 10% to 12% for the full year, including accretion. Does that still feel like the right level? And can you talk about the cadence of NII over the course of this year? Joseph Kauder: We still feel pretty comfortable about all of our guidance we provided at the end of 2025. As loans pick up, we do have some seasonality—the first quarter is historically one of our weaker quarters. It usually picks up in the second quarter and continues throughout the year. We still feel confident about those numbers and the cadence. Anthony Elian: On comp expense, can you quantify how much the seasonal resets contributed to 1Q, and how much of that do you expect to come out going forward? Joseph Kauder: You can see it on the noninterest expense page—the increase in compensation from the fourth quarter to the first quarter is substantially all driven by the resets. Not all of it will come out; over the year, maybe half to two-thirds of those increases roll off as people hit their Social Security limits or 401(k) match limits. Anthony Elian: Thank you. Operator: This concludes our question-and-answer session and Banc of California, Inc.'s First Quarter 2026 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the S&T Bancorp, Inc. First Quarter 2026 Earnings Conference Call. After management’s remarks, there will be a question and answer session. Now, I would like to turn the call over to Chief Financial Officer, Mark Kochvar. Please go ahead. Mark Kochvar: Thank you, and good afternoon, everyone. Thank you for participating in today’s earnings call. Before beginning the presentation, I want to refer you to our statement about forward-looking statements and risk factors. This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation. A copy of the first quarter 2026 earnings release as well as the earnings supplement slide deck can be obtained by clicking on the materials button in the lower right section of your screen. This will open a panel on the right where you can download these items. You can also obtain a copy of these materials by visiting our Investor Relations website at stbancorp.com. With me today are Christopher J. McComish, S&T Bancorp, Inc.’s CEO, and David G. Antolik, S&T Bancorp, Inc.’s President. I would now like to turn the program over to Christopher. Christopher J. McComish: Mark, thank you, and I want to welcome everybody to the call. Good afternoon. We appreciate the analysts being here with us, and we look forward to your questions. I am going to begin my comments on page three. Before I do that, I want to reflect on the busy week that it has been here in Western Pennsylvania and in Pittsburgh, as Pittsburgh is the center of the sporting universe with the NFL Draft taking place starting today. Mark, David, and I are actually coming to you from the S&T Bancorp, Inc. draft headquarters in downtown Pittsburgh. There has been quite a buzz. We have significant customer engagement events going on, which started yesterday evening, and it is very gratifying to see the impact S&T Bancorp, Inc. has on the markets we serve and the customer relationships that we have built. A big thank you to our employees and teammates who are leading the charge building our People Forward bank. We are seeing it firsthand this week with all of these interactions. Turning to the quarter, our $35 million in net income equates to $0.94 per share, up almost 6% from Q4 2025 and 8% from the first quarter a year ago. Return metrics were strong again this quarter, highlighted by a [inaudible] ROA, up seven basis points, and an ROTCE of 13.22%, which was up almost 1% over Q4 2025. Almost $50 million in buybacks in the quarter played a key role in this ROTCE improvement. Our NIM and efficiency ratios remained solid at [inaudible], and Mark will provide more color here. Asset quality showed good improvement over the last quarter, and David will provide more color on both asset quality and loan growth. Turning to page four, I would like to focus on our strong deposit growth. For the quarter, our customer deposit growth was up over $300 million. We achieved the highest level of customer deposit growth in the 125-year history of S&T Bancorp, Inc., surpassing $8 billion. This growth was broad-based, with all lines of business contributing and all product categories showing growth. In fact, we showed growth in more than 80% of our branches in the market, which is a real testament to the great work our employees are doing with customers every day and the disciplined customer engagement processes that we have built. It really is a strong reflection of the customer relationships that we have. This deposit growth allowed us to reduce wholesale funding by almost $200 million in the quarter, and the quality of the growth was quite strong, with our DDA levels relative to total deposits increased to 28% in the quarter, up 1% from Q4 2025. While I would love to be able to tell you that we will be able to repeat another 16% annualized growth in Q2, we want to make sure that we are realistic, as there are always temporary fluctuations in deposit balances. We have done an analysis, and we do see some seasonal or temporary growth in these balances. However, our analysis would tell you that $150 million to $200 million of this growth is what we define as solid core growth in our customer deposit base. Again, even at this level, it would be one of the best quarters we have had in our history. I will stop there and turn it over to David, and he can cover asset quality and loan growth. David G. Antolik: Great. Thank you, Christopher, and good afternoon, everyone. Continuing on page four of the presentation, loan balances declined in Q1 by $113 million. Several factors impacted this outcome. First, we entered the new year with a reduced commercial pipeline as a result of solid activity in Q4 of last year. This, along with increased competition for new commercial deals, especially related to pricing, contributed to lower-than-anticipated new fundings in the first quarter. Second, commercial real estate payouts were higher than anticipated, primarily as a result of permanent market offerings from insurance companies and other nonbank lenders who offer more aggressive pricing and structure. Third, we did see a slight reduction in utilization rates on our revolving credit commitments. Q1 construction fundings were negatively impacted by poor weather, particularly in February, but we anticipate increased draw activity in Q2 as projects move forward. Our unfunded construction commitments remained at similar levels to year end. In our consumer loan categories, we saw reductions in our residential mortgage balances, including construction. We anticipate this level of reduced activity in Q2. Based on current pipeline and activity, we expect increased growth in our home equity balances in Q2, and we continue to focus on mortgage and home equity products as key components to enhancing customer engagement. Looking forward, we are adjusting our loan growth guidance to low single digits for the second quarter. In response to growth pressures, we are focused on adding talent and building for the long term, with the goal of increasing our commercial banking team in 2026, primarily focused on C&I additions and some geographic expansion in the CRE space. During the first quarter, we hired four new commercial bankers and saw a modest increase in our pipeline. Turning to page five, credit results for the quarter were in line with expectations. Nonperforming assets were down $5.7 million and remain at a manageable level of $50 million, or 63 basis points. This reduction was a result of our ability to execute on well-defined asset resolution strategies, primarily related to one C&I credit that was mentioned last quarter. Loan charge-offs were low at $1.7 million, or 9 basis points. We saw criticized and classified assets increase during the quarter as compared to year-end 2025 when we were at historically low levels. Criticized and classified loans remain at a very manageable level, and when factored into our reserve methodology, our allowance for credit losses remained stable at 1.17%. I will turn the call over to Mark. Mark? Mark Kochvar: Thanks, David. First-quarter net interest income declined by $2.6 million, due primarily to fewer days, which accounts for about $1.4 million, and we also had an interest recovery in 2025 that was $0.9 million. In addition, strong deposit growth and loan decline led to a higher cash balance as we adjusted our wholesale borrowing levels. The interest recovery in 2025 and higher cash flow in the first quarter were the main reasons behind the net interest margin rate decline in the first quarter of seven basis points, to a still very strong 3.92%. With muted expectations for Fed moves in 2026, we expect relative NIM stability to continue and believe we are well positioned for the remainder of this year should interest rate conditions change. Tailwinds from our maturing receive-fixed swaps, along with securities, fixed-rate loan, and CD repricing, all contribute to stability in the face of somewhat heightened loan and deposit pricing competition. As we look into 2026, we expect relative stability in the net interest margin around the current level, with net interest income growth coming from a return of loan growth. Next, noninterest income decreased by $700,000 in the first quarter. Debit and credit card activity was seasonally slower, and “other” includes timing related to letter-of-credit fees and distributions from some SBIC investments that happened in the fourth quarter. Our expectations for fees in 2026 remain at approximately $13 million to $14 million per quarter. On the expense side, they were in line in the first quarter, down about $500,000 compared to the fourth quarter. The largest change was in salaries and benefits. Within that, medical costs were lower with the reset of deductibles, and salaries were lower due to the number of days. Occupancy was impacted by higher seasonal snow removal costs and utilities. Other taxes were also a little bit higher due to Pennsylvania shares tax, which is based on equity levels. We expect to manage our 2026 noninterest expense year-over-year increase to around 3%, which implies a quarterly run rate of right around $58 million. With capital, the TCE ratio decreased by 43 basis points this quarter, primarily due to the share repurchases that we completed in the first quarter: over 1.146 million shares at an average price of $43.30, totaling just under $50 million. That brings our total repurchases over the last two quarters to $85.8 million over 2 million shares, approximately 5.5% of outstanding shares. Our regulatory ratios continue to be very strong with significant excess capital. We have just over $50 million remaining in our authorized repurchase program. We are comfortable with these levels, even considering additional repurchases. We have more than sufficient current capital and generation capabilities to position us well for the environment and enable us to take advantage of organic or inorganic growth opportunities. Thanks very much. We will now open the call for questions. Operator: The floor is now open for questions. If you have any questions, please press 1 on your telephone keypad. To remove yourself from the queue, press 1 again. We ask that while asking your question, please pick up your phone and turn off speakerphone for enhanced audio quality. We will go first to Justin Frank Crowley at Piper Sandler. Justin Frank Crowley: Hey. Good afternoon, everyone. Just wanted to start out on the loan growth. I think you touched on it, David, but can you give a little more detail on how origination versus payout activity fared in the quarter, and then a sense of where the pipeline ended the period? David G. Antolik: Yeah, sure. Relative to origination activity in Q1, as I mentioned, we entered the year with a lower pipeline. We built pipelines, but the fallout from the early-stage pipeline was a little higher than what we anticipated, primarily as a result of increased competition relative to pricing. We had some lower utilization that impacted balance growth, and some construction draws were delayed due to weather. We know those will happen, and we anticipate utilization to improve as we move throughout Q2. Payouts were lower than what we had expected overall, and there is no specific reason for that other than some specific paydowns, including large draws that happened in Q4 and then repaid in Q1. The pipeline is up modestly—when I say modestly, 10% to 15% over year-end. As we onboard new bankers and continue to be disciplined around pricing, that all boils down to a little lighter loan growth than what we had expected back in Q4. Justin Frank Crowley: And then you mentioned some of the hires and adding bankers. Is that coming across the board, or is it more weighted towards C&I? David G. Antolik: The hiring in Q1 was more C&I-focused, but we are hiring both C&I and CRE bankers. We still feel really good about our ability to grow CRE—we are good at it, and we have historically built a brand in that space—so we are adding to that staff as well. Based on our geographies, there are significant opportunities in the C&I space for us. The CRE space, as I mentioned in the prepared comments, might include some geographic expansion, particularly in Ohio. So it is a combination of the two. We are also adding business bankers and treasury management officers—really growth-focused positions—to the organization. Justin Frank Crowley: Okay, great. One last one, pivoting a little. On the margin guide calling for stability here, we think a higher-for-longer environment is beneficial, but trying to square some of the puts and takes as far as loan repricing and anything that offsets that on the funding side—maybe starting to see upward pressure. What are some of the underlying assumptions there? And where are new production spreads versus what is repricing or rolling off? Mark Kochvar: I think we are back to thinking that there is not going to be a lot of rate increase. Given that, we would have some natural improvement in margin, but as David mentioned, we have seen some higher competitive pressures, particularly on the loan side. Factoring that in gets us to more of a flatter NIM as we move throughout the year. We still have those tailwinds, but a lot of that might get absorbed by the more competitive loan environment. David G. Antolik: On spreads, we are kind of in the mid—like a 2.00% to 2.25%—range, and we saw that slip probably 5 or 10 basis points over the last quarter. In the bank competition, we saw two deals that were sub-2% that we decided not to move forward with, so we lost those to the competition. For us, it is about getting more looks, which leads to adding more bankers, and that will allow us to accelerate growth. But we also want to be cognizant of the impact that growth has on the NIM and net interest income. Justin Frank Crowley: Understood. Great. I will leave it there. Thank you so much. Christopher J. McComish: Thank you, Justin. Operator: We will move next to Daniel Tamayo at Raymond James. Daniel Tamayo: Thank you. Good afternoon, everyone. Maybe starting first on the capital and the buyback side. You did about $50 million in the first quarter, and you have a similar amount remaining in the authorization. Capital is still really strong—CET1 over 14%, really by any measure. Do you think it is in the cards to re-up that authorization and continue the repurchase further out than just the second quarter? How are you thinking about the trajectory of buybacks given the level of capital you have and the growth expected? Mark Kochvar: Yes, we would definitely take a very hard look at the remaining authorization. I think we will see how that goes before we look at the next leg. Our internal target ratios—the next $50 million will put us quite a bit closer to that—so we may enter more of a maintenance phase in terms of target capital ratios at that point. Going forward, it might be more dependent on the growth trajectory from there and how much capital that uses. Daniel Tamayo: Okay. And remind me what the target capital ratio is? Mark Kochvar: We are looking to be approximately—across the different ratios—above median peer level, between median and 75th percentile. They vary for the different ratios, but we want to make sure that we have enough to grow and enough to take advantage of a merger that might arise or present itself. Christopher J. McComish: Daniel, this is Christopher. I want to reemphasize that having financial flexibility is a real benefit for us. Being able to think about this in an organic growth lens while at the same time having the financial flexibility should an inorganic opportunity present itself is important. As we were getting north of 14%, it made sense to dial that back and, as Mark said, bring those ratios closer to the 50th to 75th percentile, which makes more sense to us long term. Daniel Tamayo: Understood. And then, diving in a little on the hirings—you mentioned new geographic expansion, including Ohio. Could you provide a little more detail on the markets where you are hiring? David G. Antolik: Sure. We have a group of bankers in Columbus, and we are looking westward, like the Cincinnati market perhaps, and then in Northeast Ohio, expanding more towards Cleveland. There are opportunities in those two markets that we think we can take advantage of as we grow. Also, in our Eastern Pennsylvania franchise, we have done a lot of work into Maryland and Delaware, particularly in the CRE space, and we think there is more opportunity there for us to grow as well. Operator: We will take our next question from Kelly Ann Motta at KBW. Kelly Ann Motta: I would love to follow up on that capital question since you mentioned M&A. If you could, Christopher, give us an update on the pace of conversations. Clearly, there is an M&A window open at this time. How is this going? Christopher J. McComish: I would describe that we are consistently having discussions, and we look at opportunities. We are disciplined, as you can tell, and we are going to remain so. But I think you are right, Kelly; there is a window here that seems to make sense, and we would like to capitalize on the right opportunity should it present itself. We have not slowed down at all in the number of conversations that we have had. Quite honestly, the financial performance and the returns that we are able to deliver open up windows for conversations for us, and we want to be able to capitalize on those. Kelly Ann Motta: Great. I would like to switch back to the deposit growth because that was a major highlight of the quarter and something you have been working diligently on. Was there one or a couple of things that really drove that outsized growth? Any market dynamics? It clearly was a remarkable quarter for you. Christopher J. McComish: Thanks for that recognition, Kelly. It is a real point of pride for our employees. I am coming up on my fifth year here at S&T Bancorp, Inc. in another couple of months, and we have been unrelenting in our focus on the importance of building a high-quality core deposit franchise. We have seen positive momentum over the last 18-plus months on the consumer side. We have talked a lot about the rigor and discipline of the customer engagement process we define as CARE. If you think, how do you know it is working, I go back to the anecdote I provided: broad-based growth in 80% of our branches in the quarter tells me the right customer interactions are taking place. We have also talked a lot about the way that we manage exception pricing and the need to be dynamic while responsive. That is a process built over the past couple of years that continues to work in a rising or declining rate environment. On the commercial and business banking side, we have spent the past few years enhancing our treasury management capabilities and the number of teammates, both in commercial banking as well as business banking. We are seeing good momentum there, and we know a portion of this in the commercial space was true new customer acquisition. We also analyzed the impact of tax law changes. Tax receipt deposits into our accounts showed year-over-year growth of about $30 million, and higher tax refunds contributed to some of this. That is why we guided that all $300 million probably is not going to stick forever—there is some fluctuation in it. But we feel really good about that $150 million to $200 million, which by itself would have been a really strong quarter. Operator: We will move next to Tyler Cacciatore at Stephens Inc. Tyler Cacciatore: Good afternoon. This is Tyler on for Matt Breese. Maybe just a follow-up on the M&A commentary. Can you update us on what the ideal target would look like, and if there is any ideal size or whether you want to dive into new markets or complement existing ones? Christopher J. McComish: I will be consistent with what we have talked about in the past. We look geographically at the core markets we are in and adjacent markets, and we are active in building relationships throughout that geography. From a pure acquisition standpoint, given our size, you are talking about banks probably in the $1 billion to $6 billion–$7 billion range—it makes sense from a size standpoint. Our focus is on the quality of the core deposit franchise, cultural fit, and the ability to accelerate growth in the company—those are the criteria we look through. Tyler Cacciatore: Thank you for the color. Moving to credit—nice to see the charge-offs move much lower, which led to a lower provision than expected. What are you seeing from a credit perspective going forward, and what levels of charge-offs are you comfortable running at, to help model the provision from here? And a quick one on deposit costs—do you have the spot cost of deposits at quarter end or in the month of March? David G. Antolik: In total for 2026, we would expect similar total results relative to 2025. We are targeting to reduce NPLs from where we are now, modestly. As I mentioned, we did see a slight uptick in our criticized and classified assets; it did not have a significant impact on provisioning or a large increase in the ACL. There is nothing outside of normal movements that we anticipate. We are a commercial-focused bank; when something happens negatively from a credit perspective, it tends to be a little larger than a bank with a bigger consumer base, and we acknowledge that. We have fine-tuned our methodology and spend a lot of time internally discussing how we can get ahead of things and forecast better. Externally, we are watching the environment—gas and oil prices have run up. That has not really impacted the economy dramatically in the short term, but if it continues, it could have impacts down the road. We are not outsized one way or another, but there is a lot we do not control that we have to pay attention to. Mark Kochvar: On deposit costs, for the month of March, our total deposit cost was right around 2.47%. Tyler Cacciatore: Thank you. I will step back here. Operator: As a reminder, if you would like to ask a question, press 1. We will go next to David Jason Bishop at Hovde Group. David Jason Bishop: Hey. Good afternoon, Chris. Excited for the draft as well down here. Christopher J. McComish: We are excited for the draft down here. We are not going to say anything about Baltimore, David. I am sure you are waving your terrible towel up there. David G. Antolik has his eye black on right now. He is locked in. I am wearing a Steelers helmet as well. David Jason Bishop: A lot of my questions have been asked, but I would be curious: you had the good growth in deposits and maybe some cash flows from the loan portfolio sitting in cash at the end of the quarter. Is that sort of earmarked for funding expected loan growth? Do you see any line of sight to maybe temporary deposits outflowing? How should we think about cash levels moving into the back half of the year? Mark Kochvar: We do expect that to decrease. We still have some wholesale borrowings that we have an opportunity to reduce, so that would be the first priority. As Christopher mentioned, we do expect some of that to potentially roll off, at least temporarily, in the second quarter. We will keep some cash powder dry for that and then for the return to loan growth—some in the second quarter, but perhaps more in the back half of the year. So that cash level will not stay where it is, for a combination of reducing wholesale, natural deposit fluctuation, and a return to loan growth. David Jason Bishop: Got it. Final question: as you look across your fee income segments and categories, any areas you are most bullish about for augmentation as you look out into the rest of the year? Mark Kochvar: We have seen some encouraging pickup on the treasury management side. There is a group within that—kind of the non–account analysis group—where we have seen improvement in the last couple of quarters, and there is a renewed emphasis in the bank, especially in our business banking group. On the basic treasury management side, in account analysis, we did some price adjustments that helped in the first quarter, and that group is making headway in the market as well. So deposit fees on the treasury management side probably offer some potential. Financial services has been solid for us as well. Christopher J. McComish: On the non-analyzed treasury management services, that is really the result of work we started a couple of years ago. We built a product for the small business banking space that provided a combination of, call it, six to eight important treasury management products—anything from information reporting to collection and disbursement services, fraud protection—packaged into basically one price. We rolled that out a couple of years ago, trained our teams, and put it in the market. We believe it was a differentiating factor, and we are seeing balance growth come from it as well as some treasury management fee income and the annuity nature of that. It is nice to see something go from concept to reality and start to produce results. David Jason Bishop: Got it. That is great color. That was all I had. Thanks. Operator: That concludes the question and answer session. I would like to turn the call back over to Chief Executive Officer, Christopher J. McComish, for closing remarks. Christopher J. McComish: Thank you for your interest in S&T Bancorp, Inc., your good questions, and the relationships you have built with us. They are really important to us. We are proud of the performance we are showing and are looking for continued growth and impact in the marketplace. Spring is here, so the weather has turned and there is a lot of optimism in the air. Thanks for your time, and have a great rest of the day. Operator: That concludes today’s conference. Thank you for your participation. You may now disconnect.
Operator: Welcome to the Liberty Energy Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Anjali Voria, Vice President of Investor Relations. Please go ahead. Anjali Voria: Thank you, Chloe. Good morning, and welcome to the Liberty Energy First Quarter 2026 Earnings Conference Call. Joining us on the call are Ron Gusek Chief Executive Officer; and Michael Stock, Chief Financial Officer. Before we begin, I would like to remind all participants that some of our comments today may include forward-looking statements reflecting the company's view about future prospects, revenues, expenses or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in our earnings release and other public filings. Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA, adjusted net income, adjusted net income per diluted share, adjusted pretax return on capital employed and cash return on capital invested are not a substitute for GAAP measures and may not be comparable to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA, net income to adjusted net income and adjusted net income per diluted share and the calculation of adjusted pretax return on capital employed and cash return on capital investments as discussed on this call are available on our Investor Relations website. I will now turn the call over to Ron. Ron Gusek: Good morning, everyone, and thank you for joining us to discuss our first quarter 2026 operational and financial results. Our first quarter results were driven by outsized demand for Liberty's premium completion service offering, outstanding operational execution and technology-driven efficiency gains. Revenue of $1 billion and adjusted EBITDA of $126 million reflected record pumping efficiencies and high fleet utilization, while absorbing the full realization of pricing headwinds and winter weather disruption. Despite a 3-year slowdown in industry completions activity, Liberty has continued to deliver record performance quarter after quarter, an achievement that is no small feat. I want to thank the team for the hard work and dedication throughout this period that has prepared us well for the next phase of the cycle. We are confident that the North American oil and gas industry has established a cyclical floor. We are seeing an accelerating shift in momentum, driven by unprecedented oil and gas supply disruption and renewed focus on the importance of energy security. By strategically investing through this period of frac industry softness, we are well positioned to generate superior returns as the focus shifts to secure North American supply. Distributed power generation demand continues to build as grid interconnection bottlenecks, utility imposed operational constraints and system congestion drive hyperscalers towards on-site power as the preferred long-term model. This shift is reinforced by extraordinary hyperscaler investment in infrastructure, supporting voracious demand for AI-enabled productivity increases. Widening policy mandates to expand generation capacity and provide grid resilience within local communities further encourage distributed power solutions. As customer requirements grow more complex, Liberty is experiencing more direct collaboration with hyperscalers, expanding beyond the developer ecosystem. Large load customers are increasingly prioritizing fully integrated end-to-end power solutions that brings together land, fuel sourcing, midstream and generation infrastructure, grid interconnection, on-site power delivery, load optimization and life cycle operations. LPI provides seamlessly delivered power through a single trusted partner. Onsite power is a complex operational symphony that requires a sophisticated ecosystem of telemetry, logistics and technical readiness. At LPI, we have built a comprehensive execution solution designed to manage this complexity at scale. From a globally integrated supply chain and a mobilized workforce to an AI-driven technology overlay to ensure peak performance. Our commitment to reliability is anchored by our lab advanced testing facility, where we rigorously validate the integration of hardware, software, and dynamic load following performance for real customer load profiles in a controlled, low-risk environment. Our microgrid testing facility in El Reno is designed to evaluate how complex multisource energy systems within the Forte offering perform under dynamic operating conditions using our simple proprietary control system that governs overall system behavior. It is structured around three phases of validation. First, a software phase evaluate system performance from a first principles perspective, allowing us to understand how generation, storage and power electronics respond to dynamic customer load while also supporting system resiliency and equipment lifetime. This work informs control tuning, system architecture and the type and size of supporting assets required. Second, a hardware in the loop phase applies these learnings using the physical control system operating against simulated generation, storage and load assets. This allows us to assess response times, control logic and system coordination by validating how real controller decisions interact with dynamic system behavior before physical equipment is introduced. Third, Integrated system validation brings physical generation, storage and power electronics together on a common bus to serve representative load profiles at meaningful scale. While not full plant capacity, this step ensures that control logic, hardware interfaces, protection schemes and dynamic response translate correctly on to real equipment and operating conditions. By progressing from modeling to controller validation to integrated system testing, we identify integration risks and control issues prior to field deployment, providing our customers with the operational certainty required to support the next generation of data center demand. In completions, we are at the leading edge of equipment innovation and design, redefining how systems are built through our digiTechnologies platform. We are excited to reach commercial deployment of the latest digiPrime technology, the only 100% natural gas engine with variable speed capabilities in the oilfield. In addition, we now have a path to upgrade our engine control software to enable variable speed on our early digiPrime Rolls-Royce mtu pump systems. Upon completion of the update, over 70% of our digiPrime fleet will have variable speed capabilities and increased horsepower. Simply put, these developments mark a major advancement in the design and engineering of mechanical power systems, improving overall efficiency and reducing total cost. This is purposeful and focused evolution of technology, a continuous improvement where we design, test, validate and deal across our fleet. We are building upon years of experience in designing complex engineering systems and equipment innovation from digiFrac electric fleets to digiPrime direct drive systems and now variable speed capabilities. That foundation of engineering expertise empowers not only the oil field, but also our power applications. Liberty is pushing frac efficiencies to new heights through integration of real-time execution control and continuously learning intelligence. StimCommander, our advanced fleet control software automates rate and pressure control in real time to improve stage consistency and use variability. While Forge, our cloud-based optimization platform, continuously learns from fleet-wide data to enhance performance over time through closed-loop feedback. Together, they create a system that compounds efficiency across every stage of execution delivering more consistent operations and a lower cost per barrel of oil. In today's high oil price environment, operators are increasingly focused on total fuel consumption and well site efficiency, and our integrated system delivers meaningful reductions in fuel intensity and optimization of natural gas substitution in dual fuel systems. The performance gap between industry frac fleets is increasingly defined by the strength of this digital intelligence layer, allowing us to support improved well economics. Liberty's success is based on innovation and disciplined investment consistently seizing opportunities through every phase of the cycle. We have strengthened our platform and enhanced our ability to deliver differentiated performance, positioning us well to benefit from both cyclical recovery in the oilfield and the secular growth in power demand. During the first quarter, we executed $1.3 billion in convertible debt offerings, further strengthening our financial flexibility and positioning us for durable long-term growth. Concurrently, we entered capped call transactions at a 150% premium to the reference share price designed to preserve substantial upside for shareholders by meaningfully reducing potential dilution from these offerings as we execute on our growing power opportunity. This enables the necessary investment for long lead time items to achieve our 2029 goal of reaching 3 gigawatts of deployed power. The structural disruption in the Middle East has catalyzed a fundamental shift in global supply side dynamics, establishing a higher baseline for energy security and recalibrate a risk profile of regional supply. In oil markets, the conflict in Iran has driven a tax on regional energy infrastructure, and the unprecedented effective closure of the Strait of Hormuz inducing higher oil prices and raising the prospect of a sustained increase in supply side risk premiums. In parallel, global LNG markets may face multiyear supply constraints following attacks on Qatar's Ros Lafane hub and other regional gas infrastructure. The resulting shock is most acute in Asia, where high import dependence is forcing demand rationing amid constrained physical supply. The shale revolution has allowed the U.S. to become the world's largest oil producer and LNG exporter, securing our energy future while providing a reliable supply source for consumers worldwide. Over time, geopolitical dynamics may support structural tailwinds for North America as global consumers reevaluate energy supply chains and diversified sourcing with greater reliance on U.S. and Canadian sourced oil and refined product supply. As the market's way rising concerns over physical oil and gas supply shortages against potential cease-fire implications, North American E&P companies are evaluating a range of macroeconomic scenarios. The recent rise in oil prices is well above early year expectations, now driving substantially better E&P economics with greater potential for increased free cash flow generation. Entering the year, service companies recalibrated frac fleet supply for flattish activity expectations, resulting in a tighter balance to meet expected demand. Pricing pressure and softer activity over the past few years led to accelerated equipment cannibalization, fleet attrition and underinvestment in its generation technology. Emerging strength in frac markets, driven by more price responsive private E&Ps and accelerated DUC activity is enabling earlier than anticipated pricing recovery from cyclical lows at the start of the year. Moving to the core outlook. U.S. demand estimates continue to accelerate, exemplified by ERCOT's recent projections that Texas grid demand could quadruple by 2032. This significant expansion is being met by a fundamental shift in the commercial landscape. Hyperscalers and other large load customers are increasingly relying on distributed power service providers to self-generate and bypass traditional grid constraints. LPI is uniquely positioned as the enabling infrastructure provider, supporting customers as they transform from large-scale power consumers to more localized on-site energy users rather than grid dependent power users. LPI's scalable, decentralized power solutions provide a critical operational infrastructure for these large load customers with the ability to support local grid stability. In the second quarter, we expect sequential growth in revenue on increased utilization and corresponding improvement in profitability. While a challenging market in recent years led many to retrench, we chose to lean in and accelerate strategic investments. We have fortified our competitive advantages in power and completion technologies and are well prepared to meet the rising demand for our services that Liberty is seeing today. Recent events have reinforced the importance of energy diversification for global consumers, and we are proud to support the growth of reliable energy sources worldwide, including through our alliances and investments in Okla, Fervo and the Australian Beetaloo Shale Basin. I will now turn the call over to Michael to discuss our financial results and outlook. Michael Stock: Good morning, everyone. The first quarter set a strong tone for the year. We overcame significant January weather disruptions and quickly returned to strong efficiency and utilization as the quarter progressed. We closed the quarter delivering record level output, generating more horsepower hours in the quarter than ever before in our 15-year operating history. Let's turn to the earnings results. In the first quarter of '26, revenue was $1 billion, slightly below the prior quarter, but modestly higher than the year ago period. Our results reflected the full realization of pricing headwinds and winter weather challenges, partially offset by strong operational execution and customer demand for Liberty fleets. First quarter net income of $23 million compared to $14 million in the prior quarter. Adjusted net income of $10 million compared to $8 million in the prior quarter and excludes $12 million of tax-effective gains on investments. Fully diluted net income per share in the first quarter was $0.14 compared to $0.08 in the prior quarter and adjusted net income per diluted share was $0.06 compared to $0.05 in the prior quarter. First quarter adjusted EBITDA was $126 million. General and administrative expenses totaled $60 million in the first quarter compared to $65 million in the prior quarter and included noncash stock-based compensation of approximately $6 million. Excluding stock-based compensation, G&A decreased $5 million, primarily due to higher variable compensation costs recognized in the fourth quarter. Other income items totaled $10 million for the quarter, inclusive of $17 million of gain on investments, offset by interest expense of approximately $8 million. First quarter tax expense was $9 million, approximately 29% of pretax income. We expect tax expense for the remainder of 2026 to be approximately 25% of pretax income and do not expect to pay material cash taxes in the year. We ended the quarter with a cash balance of $699 million and net debt of $579 million. Net debt increased by $360 million, primarily due to convertible debt issuances. Total liquidity at the end of the quarter, including availability under the credit facility, was $1.2 billion. First quarter uses of cash included capital expenditures and $15 million of in cash dividends. Net capital expenditures and long-term deposits were $133 million in the first quarter, which included investments in digiFleets, capitalized maintenance spending, power generation and other projects. We had approximately $24 million of proceeds from asset sales in the quarter. Recent geopolitical developments have introduced both volatility and opportunity, shifting market momentum and reshaping our outlook. We are seeing customer demand inquiries accelerate with customers turning to Liberty for fully integrated services to support their goals. With demand for Liberty fleets exceeding capacity, we are working diligently to plan to accommodate this demand and selectively deepening relationships with strategic customers who value differential services. Our second quarter is expected to see early benefits as customers accelerate DUC activity and evaluate future plans. As a reminder, our 2026 completions CapEx investment moderates meaningfully from prior years, but includes ongoing investment in digiFleets that have structurally advantaged economics versus competing next-gen technologies. Our completions free cash flow is strengthening. In power, we are similarly seeing customers -- more customers gravitate to LPI. Our collaborative framework and turnkey power solutions are gaining traction as end users prioritize fully integrated one-stop solutions that reduce the complexity of finding and securing powered land. To advance these efforts, we currently have planned contract milestone payments of approximately $300 million in the second quarter or early part of the third quarter. That secure generation capacity in support of our 3 gigawatt plan for 2029. Power opportunities inherently carry longer duration time horizons with multiyear execution cycles, and these costs will ultimately be funded by project finance as discussed on our prior calls. We remain focused on driving long-term value creation, positioning our Premier Completions business to lead through market cycles and scaling our power infrastructure platform to meet the growing demand for power services. I will now turn it back to the operator for Q&A, after which Rob will have some closing comments at the end of the call. Operator: [Operator Instructions] The first question today comes from Scott Gruber with Citigroup. Scott Gruber: I was wondering if you guys could just kind of unpack the completion fundamentals from here. Obviously, activity is improving. white space is kind of getting squeezed out of the calendar. It seems like pricing is improving. And obviously, you'll lap the winter storm burn impact from last quarter. Maybe you can just kind of walk through those pieces and any color you can provide on the activity uplift and if you'll start to see some pricing in the second quarter or whether that's a second half phenomenon? Ron Gusek: Thank the question, Scott. I think you characterized most of that very, very well. We are in a different position than we would have anticipated going into this year. So as I said in my opening remarks, we definitely feel like the market is quite tight today from a utilization standpoint. We went through the end of the calendar year, us and our peers rightsized fleets for the outlook on work. And as a result, have relatively well utilized capacity prior to any uptick in activity. Now that's not to say there aren't some fleets on the sidelines. We believe there is some capacity that could come back. But I think the message is pretty consistent that that's a relatively limited amount of equipment and that there's going to be a meaningful capital investment for that to happen. As a result, I would say, if you start to look forward, there's a few things in play. Number one, we went into the year with a relatively strong calendar to start with. We already had pretty strong utilization. We've had inbound calls around accelerating activity at this point. So those customers who had DUCs in their inventory are reaching out and asking about the opportunity to get those on to the calendar sooner rather than later. On top of that, you're starting to see some reaction from the privates. You've heard some announcements around the commitment to increase drilling activity over the remainder of the year. And well, we don't feel that impact immediately. Those inbound starts to come for planned completions activity later in the year, again, just starting to absorb any remaining white space that was left on the calendar. As that white space gets soaked up, then comes that conversation around restarting capacity. as we've said, we don't have any capacity on the fence. We have no additional pumps that we had signed. And so for us, that conversation really starts to look like a price conversation. Our sales team has been out in the market today, engaging in that conversation with our customers, recognizing that their economics have changed meaningfully over the last number of weeks. And that while we were responsive on the way back down, we feel it's reasonable to ask for some of that on the way back up. I would say that they are having great success in those conversations and that we will start to recognize some of that price here in the second quarter along with a bit of utilization improvement to the extent we had white space on the calendar. The biggest impact of that is going to be felt in the back half of the year. But we're certainly going to feel a little bit of that here in the second quarter. I would say -- it's still early days for the bigger picture stuff to play out. We haven't yet heard really any of the publics make a statement around increasing their expected spend this year. I think they started to hint at it. You've heard some companies that some of the most recent conferences talk about that idea, but they've not yet acted on that. And so we will wait to see how that plays out and then start to plan for the back half of the year and potentially early '27 accordingly. Michael, do you have anything to add there? Scott Gruber: Yes. No, I was -- I didn't know if you had any additional comments there, Michael. Okay. Also a follow-up on the power business, if you don't mind. It seems like initially in power, you guys were focused on a broad set of opportunities. And then I don't know, maybe call it over the last 6, 12 months, there's been a focus more on the data center opportunity, which probably reflects not wanting to tie up capacity on smaller shorter-term deals as bigger projects and bigger contracts are coming down the pipe. And maybe my perception is off on that a bit. But just how do you view kind of where you should put your marketing efforts in power? Are you comfortable with the focus that's kind of mainly on data centers or do you think about taking a broader approach to establish a kind of more diversified business? Just how do you think about the -- where to put your marketing efforts in power? Ron Gusek: So, we definitely not chosen to focus specifically on one area. While data centers, of course, are all the talk. They are all the news today and certainly what gets all the front-page headlines just given the massive growth and the incredible amount of capital being deployed there. Our marketing efforts certainly remain broad-based. We fully anticipate doing work not only with the data centers, but also outside of that space in other commercial and industrial opportunities. I would say that as you would expect, the demand for power generation co-located behind the meter just continues to get larger and larger and larger. And while that's happening in the data center space, it's also happening outside of that space. Everybody is facing the same constraints that you hear around trying to get connected to the grid. The time lines get longer, the upfront capital commitments get stronger and stronger and stronger. As a result, it doesn't matter whether you're a commercial or industrial applications, I think remote mining or something in oil and gas or whatever the case might be or a data center, you're facing those same constraints. And as a result, they're having the same conversations with LPI. And so we remain focused on all of those opportunities. if you looked at our sales pipeline, the largest share of that remains data centers. But I absolutely expect that we are going to be doing work for commercial and industrial opportunities as well. Just given where we are in conversations with them at this point in time. So I think you're going to see our contractual nature as it plays out represents a good cross-section of business that well we're going to be while we're going to have a large percentage of our assets dedicated to data centers, we're absolutely going to be having some megawatts put to work outside of that space. Michael Stock: Yes. And Scott, I just would add a little color on that side of the world. You were right in sort of a subpart of your question. In this time when generation is limited, our focus is definitely on longer-term contracts, right? That is the key -- that is also the key part in both sectors, whether it be data centers or the C&I industrial, mining, critical minerals, et cetera, of the world. So it's focusing on that, not on the short term. These are long-term build-w-operate contracts, 10 to 20 years in duration. So that's where the focus is. Operator: The next question comes from Arun Jayaram with JPMorgan. Arun Jayaram: Good morning, gentlemen. Ron, you discussed in your prepared remarks some trends towards perhaps the disintermediation of the developers and you're having more direct interaction with the hyperscalers. Could you talk about that trend? And could that be a favorable trend for Liberty in particular, like how you've commented how there's been a move towards more fully integrated solutions. Ron Gusek: Yes, that's a great question. And it certainly is a very, very important trend. Of course, if you look at the landscape, there's a huge number of land opportunities being developed. That's not where the challenge lies in this world. So lots of potential sites. It's ultimately up to the hyperscaler to evaluate those sites and find the ones that meet all of the criteria that they are looking at to ultimately build and operate a data center. And we can work very closely with them alongside of them to help work through that checklist and understand the sites that represent the best possible opportunity going forward. That list is a long one. We've talked about that in the past. But you think about things like access to gas, community engagement, surface access rights, some surface access rights. The list goes on and on and on. And the hyperscalers are recognized that, that list is a complex one and that they have choice in land. What they want is a great partner on the power generation side of things that can help them navigate things like the community engagement, the air permitting, the gas access and the things that LPI has worked very, very hard to bring to the table. And so what we found over the last little while is that while we initially started engaging with the developers that were effectively a bit of an intermediary between us and the hyperscalers, we've seen a lot more interest in the rec conversation there. And now our conversations at LPI tend to be directly with the hyperscalers evaluating a range of land opportunities, recognizing that not all of those will get across the finish line, but helping them to high-grade those and then standing alongside them as a partner to bring all of the skills and capabilities that we have to the table. Michael Stock: Yes. I'd sort of characterize it as we want to become -- if we go back, I'm showing my age, the Intel and side. right? Sort of really what the difference here is you've got the land developers and you've got the land opportunities, you've got the data center developers who are bringing -- are going vertical and building the buildings. Ultimately, it's all getting paid for by the hyperscalers. And we are the key element in there. And so being involved with all three of those stakeholders at the table is the key part. And now we're more directly involved with the hyperscalers because multiple vertical developers are coming to the hyperscalers and they're going, okay, Liberty -- Liberty is our power solution. They're now comfortable with it. Land developers are going to the developers and going and say, I've got 1,000 acres. Liberty is going -- can be our power on this land, both the vertical developers and the hyperscalers are comfortable with that. But think about it that way, and that's how the conversations have kind of moved over the last 3 months or so. Arun Jayaram: Great. And my follow-up is just in completions. On the last call, you mentioned how you're adding kind of three to four kind of digiFleets in calendar 2026. I wanted to see if those were planned to be incremental units or replacement units. And just thoughts on -- obviously, you guys have been pretty busy in frac for some time. Do your agreements with your dedicated customers provide for openers, where you can start to move pricing, particularly on some of those large, more dedicated agreements? Ron Gusek: All right. I'll take the first part of that first. As we think about digiPrime, I would say that as we went into the year, it was fully our anticipation that those pumps that equipment would be replacement equipment. We are working hard to transition away from the last of our diesel equipment. I think it's some 10% of what we have left operating in the field today. And so it was our expectation we would have retired the last of that and replace that with digiPrime, making our entire fleet dual-fuel or better going forward. We do have optionality there, however, to the extent the right opportunity presented itself and that opportunity would have to be the right combination of price, margin and really duration outlook on that work before we would consider turning that equipment into a new fleet, hiring the people to support that and going forward with that idea. But we do retain that flexibility. And so at this point in time, I would say we continue to watch the market. We'll see how the broader market chooses to move forward given the dynamics that are at play today. And to the extent there is support for that, we would consider making that choice to add a fleet rather than make it all replacement. As far as pricing going forward, of course, we do operate typically on a year-to-year arrangement. But that said, I think we work hard to maintain an open conversation with all of our customers. That's critical in a partnership. It was critical on the way down as the market evolved, our customers would come to us. And recognizing where the market had gotten to ask for a pricing adjustment that reflected that. We don't view that as any different on the way up. It's reasonable for us in times like this where their economics have moved meaningfully. The price of WTI has climbed significantly to go back and have that conversation again in the other direction. So while we do have some that have very fixed definitions around how that pricing evolves. For the most part, that is an open conversation with our customers that works both on the way down and again on the way back up. Operator: The next question comes from Stephen Gengaro with Stifel. Stephen Gengaro: I think following up on the prior question a little bit. When you think about the arb between diesel and gas burning assets, what are the supply demand look like for non-diesel assets in the market right now? And how do you think that sort of the tightness plays out? I think what I was getting at, and I appreciate the answer you just gave, Ron. But when we think about -- like when -- if you were us, when would you start to expect the pricing impact to show up on the income statement. Ron Gusek: I would say meaningfully in Q3 is the right way to think about it. We'll start to feel maybe very modest impact this quarter. But in reality, given time to have those conversations and then to work through pads and get to a place where we can enact that step in pricing, really expect that to start to show up in Q3. I would say to the first part of your question that if there is capacity that has some ability to consume natural gas, it's in high demand today. We've talked in calls on past about that delta between the cost of running a fleet on diesel fuel versus the cost of running a fleet on natural gas. And that ebbs and flows, of course, depending on exactly where diesel prices are. But anybody who's driven by a gas station today knows where the price of diesel has gone to of late, and it is highly elevated. That pushes that spread back up to probably something north of $20 million annualized in potential fuel savings going from 100% diesel to 100% natural gas. And so as you can imagine right now, dual fuel or 100% gas is in high demand. Fuel is effectively a pass-through on a location. That's a cost that the E&P absorbs directly. And so they're doing all they can to mitigate that. I talked about in our -- in my opening remarks, our focus on even maximizing the substitution on those fleets about eating out that incremental couple of percent of gas substitution because that's meaningful to our customers today and they see that as critical to helping out their economics over the long term. So lots of focus on that particular area and certainly a huge amount of interest in gas-fired equipment. Stephen Gengaro: And then on the power gen side, we get a lot of questions about this, and just curious if you could clarify. When we think about the arrangement with Vantage, and kind of what it means for you. Can you talk about how we should think about that impacting power contracts and then what exactly does the contract pay you starting with the renovation fee? How does that work exactly? Michael Stock: Yes. So we've released some details on it, but let me give you the general overview. We have committed to them 400 megawatts starting in the beginning of '27 that's available for them to put on any project. So think about this as saying, okay, this is a developer, we're working with them very, very closely on 9 or 10 different projects, looking at gas, looking at land availability, working specific kind of their permits on a specific project, et cetera, that we're going to be developing. And they can do that very much so because as they choose -- want to see which -- as they're going to pitch to the hyperscaler and they're going to choose a piece of land, they know that they have this early power they can commit. Now that 400 megawatts, right, which is not under an ESA because that will be signed with the hyperscaler -- they know that they could do that in one single site, and that would be -- that's landed in the U.S. and therefore, that would be starting to go in service late '27, early '28. So they can develop that site with surety that they have that early power or they can develop 2 sites, split it in 2 and have early power on both those sites without having to commit to us for any more power, right? Now in exchange for that, we have a payment stream that, as I said in our press release, mirrors the equivalent of an ESA over a 5-year period for that portion of the capital expenditures that the generation relates to. So what we've committed to on our balance sheet versus the full build-out. And as you know, kind of generation is approximately 55%, 60% of the full power in general, right? So ultimately, that's what they've committed to. So it gives them surety to be able to go out and do this development track. And that is the focus of that. So it's a long-term development partnership, and those discussions are ongoing with others as well. So it's a great way to deeply embed. So we become a little bit of their part of their internal power group, looking at gas, looking at gas availability, working on land sites, they want to evaluate, seeing which ones work, which ones don't, what the power cost would be there, what that long-term view would be. So that's how that agreement works. And that's really how you want to develop infrastructure across the board in the future, right, because there are so many moving parts, whether it's air permits, whether it's local engagement, whether it's the fiber access, whether it's sort of what's happening specifically in that area of generation, if you end up wanting to have an interconnection, et cetera. So a lot of moving parts, right? So that's the right way to do it to have these deep long-term partnerships to develop infrastructure. And I think you've seen in some ways, and I think people will realize, it mirrors exactly the way that we built our completions company, right? It was these deep, long-term relationships. Our biggest customers are our oldest customers. We were completely engaged with them in their underground engineering, even though that was service we gave for free. We had sort of like the best database in the world, everything that happened underground. And we were deeply engaged in their completions design, allowing them to get to what Lane Byers, our VP of Technology, would always call the Happy Valley, right? The lowest cost to bring a barrel of oil to the ground and the lowest net cost, right? Because ultimately, if the oil price goes up like now and sand prices are low, it's good value to pump more sand. When sand prices are high, you pump less sand because it's that net. So working with that same partnership mentality in the power business is what we're doing. Operator: The next question comes from Josh Silverstein with UBS. Joshua Silverstein: First question on the power side for me. Given the kind of 6- to 9-month time duration to deploy capacity, I wanted to see if you've already taken receipt of some of this inbound to go and support the Vantage 400 megawatts for next year. I know there's some technology things that you guys have to do in-house before deploying it. So I just wanted to see what sort of milestones you could talk about along the way there. Ron Gusek: We certainly are taking delivery of power generation equipment already. It started arriving late last year and has been arriving through this year. We're working on packaging that right now. As Michael has alluded to in some of his comments, these deployments tend to happen in larger blocks, hundreds of megawatts at a time in some cases. And so it means that we ultimately build up a bit of a backlog of assets and then they will deploy it and be deployed in a relatively large tranche of equipment. Specific to the Vantage assets, those are assets that are arriving in '27 that are allocated to them. So this generation that we're taking delivery of today is allocated to other opportunities in our sales pipeline. Joshua Silverstein: And then on the frac side, there's been a lot of uptick in discussions about increased energy security globally now. You guys do have some frac equipment outside the U.S. I'm curious if you're starting to have discussions with any international oil companies or any other countries or U.S. companies with international assets that are bringing some of the frac equipment you guys have here abroad. Ron Gusek: We certainly have. We continue to get inbound calls with an ask for Liberty to go and be a presence elsewhere in the world. Of course, we took the step in Australia and excited about the opportunities there. I think we'll have first gas celebration there, a little bit later this summer, maybe August, I think, is the plan for that pipeline to get connected. And of course, you've seen a lot of momentum in that area. I think Australia very well situated to serve the growing LNG needs in Asia, but that's certainly not the only place. Of course, there's lots of excitement elsewhere in the world. We continue to field inbounds to be a partner in that development elsewhere in the world. And we look at each and every one of those opportunities. We'll continue to evaluate them on a case-by-case basis. And when we see an opportunity that we think makes good sense, a place where we can add real value and be a great partner to either a North American E&P or a national oil company elsewhere, we're prepared to take that step. What I would say is that at this point in time, we just -- we don't have spare equipment. And so it's always been a challenge for us to say yes to that one. We're still working hard to meet the needs of our customers here in North America. Maybe one other thing to add on top of that beyond just the oil and gas opportunities is the enhanced geothermal. Of course, we're a partner with [ Pergo ] here. that idea of taking directional drilling horizontal wells and hydraulic fracturing and advancing geothermal is also of interest around the world. Lots of folks evaluating their energy stack and opportunities to have that grow, and that's a piece of the puzzle as well. So we've seen some inbound in that area as well. Operator: The next question comes from Derek Podhaizer with Piper Sandler. Derek Podhaizer: Maybe a little bit of a bigger picture question on the frac side. I know, Ron, you've discussed a lot about how we've underinvested and we've been in this maintenance mode or below maintenance mode for U.S. frac fundamentals. But in the name of energy security, if we do get this call on short-cycle barrels out of U.S. shale, how should we think about the tightening frac fundamentals over the next 1 or 2 years if we actually want to flip back to more of a growth or stay at this plateau that we reached that? And what could it mean for availability of equipment and maybe further conversations as we start to continue to high-grade the equipment base just because you said there's really not much available supply out there in the market. Just trying to think further down the line in '27 and beyond about what the frac supply and demand could look like. So maybe just some thoughts around that. Ron Gusek: I think a very interesting question to look at. I would suggest it would be a market that would tighten very, very rapidly. There have been some folks in the industry who've done their best to count available capacity that could come back to the table. And of course, that's not next generation capacity. That's older diesel equipment that tends to be against the fence. But that is just a handful of, we'll call it, conventional fleet set that could do zipper frac work. Most of the work we're doing today is simul frac work. And so you probably cut that number even in half from that. I could anticipate that getting soaked up very, very quickly. There is not, as you -- I think you've heard in the last number of calls from folks in the industry, a huge commitment to CapEx in this space. There is not a pile of new equipment being built at this point in time. And as a result, you're talking about a meaningful amount of lead time for the industry to be able to react to that call on additional equipment, probably takes 9 months or something like that to get a fleet built and then staffed and stood up and ready to go. So there is a scenario where we start to see a very, very tight market here in the coming months, and ultimately, years, just given the lead time that's going to be required to react to that. We'll see that first on the drilling side of things. Ultimately, we get a little bit of a lag on that. So we get a bit of warning. But I think while it might not be the ramp out of COVID, it certainly could get us back to some very, very strong economics like that. Derek Podhaizer: Got it. That makes sense. I appreciate that. And I guess flipping to the power side of things. I know in your recent deck, you highlighted that 330-megawatt data center expansion was canceled. I think you're still working with that developer. But maybe just an update around that, kind of what happened there, how we should think about those megawatts moving forward? You totally appreciate the extended time lines withstanding these power project stuff you just spoke about the Vantage megawatts being deployed, but how should we think about that other contract you announced and then just future contracts, future deployments outside of the Vantage one? Michael Stock: Yes, that was working with one specific hyperscale developer who was working with a specific hyperscaler on a campus expansion. And we were deep in the heart of contractual negotiations on both the U.S.A. and the technical side of the world. Ultimately, the hyperscaler decided to delay that campus expansion. And that reservation agreement with the developer, the way those work is they have quickly ratcheting cancellation fees to have us take megawatts off the market, which is like guaranteed off the market potentially. We have this kind of ratcheting reservation fee and it changes sort of goes up significantly each month. And so they paid a multimillion dollar cancellation fee for that. But we're still working with that developer. And on that campus, I think long term, it will probably go. But those -- that 330 megawatts have been associated with a different opportunity that will execute in the same time frame. Operator: Next question comes from Keith Mackey with RBC Capital Markets. Keith MacKey: Maybe if we could just stay on the power side for a moment. Can you just speak to the pipeline of opportunities that you're seeing? I'm guessing it's maybe a little bit more weighted towards the data center space, but are you seeing an acceleration of these opportunities or things slowing down a little bit? And are there any opportunities you might be closer to the finish line than others for some of the incremental capacity that you've got coming? Ron Gusek: Yes, I would say certainly accelerating. Urgency continues to strengthen in that space. Our recognition behind the meter power just continues to get better and better and better. We continue to be served well by the challenges that people face on the grid and really the additional commercial constraints that are being added to those. So our sales pipeline is getting larger and larger and larger. We've added even in the last couple of weeks, a number of campuses that have the potential to be gigawatt scale or larger to our sales pipeline. As you might expect, they're all in different states of progress towards completion. We have some of those that are targeting power generation by 2027. Some of those out towards 2028. And we're working closely alongside of them to meet those timelines. I think at this point in time, we remain comfortable that we have the ability, given that we've leaned in on this to meet those time lines. And so -- but I would say that our sales pipeline is still manyfold larger than what we're going to be able to deploy. We will not be able to take all of these campuses across the finish line. And so we'll ultimately end up a little with a number of keepers. And to your -- the very early part of your question, not all in the data center space. I mean if you look at the sales pipeline, the largest percentage of that, we'll be focused at data center campuses, but there are in our sales pipeline, and I think clearly probably pretty close to the finish line, some opportunities that are outside of that in the commercial and industrial space that we will execute on as well. Keith MacKey: Okay. Understood. And just following up on the frac technology side, specifically the variable speed to G Prime pump. I think one of the solutions that companies have been working with to solve a single speed issue is just mixing a 100% gas recip engine with some Tier 2 or Tier 4 dual fuel equipment. So what is different about what you're doing? And how does having a variable speed 100% gas pump provide an advantage for you going forward? Ron Gusek: Well, effectively, it ultimately removes the need to have that diesel -- that dual fuel equipment on location at all. It was a challenge in the early days as we really pioneered this path towards direct drive natural gas equipment was overcoming that constant speed situation and really the limiter of just a change in gear to allow a change in rate. But now, first of all, with Cummins and subsequently with mtu, we will have a variable speed natural gas leak. And that means that for all intents and purposes, we have a path towards 100% natural gas on location and we'll remove the need for diesel entirely on that site. That's the long-term goal is to get to that place where we're running on 100% clean burning natural gas. It offers obviously, huge economic benefits, but it certainly comes with an emissions benefit as well that our E&P customers value tremendously in their conversations as they think about working around communities and things like that. So there's a huge amount of benefit there, and we're excited to be on that path to a place where for those fleets. Digi focused, we will not need any dual-fuel equipment. Operator: The next question comes from Saurabh Pant with Bank of America. Saurabh Pant: Ron, you talked about how quickly the market can tighten, and I heard you talk about pricing headwind and pricing recovery on the same call, right? So that answers the question, I guess, to some extent, how quickly the market can tighten. -- right? Just the nature of the market, I guess, right, in both directions. But if I just focus on the very near term, just to calibrate numbers a little bit, Ron, Mike, maybe you want to step in is -- as we think about the second quarter, Ryan, Ron, correct me if I heard you wrong, right? But you talked about potentially there's a little bit of pricing upside in 2Q as well, more in second half, but maybe a little bit in 2Q. And then seasonality helps you on the utilization side, granted you're coming off of a record high in the first quarter, right? But how should we think about 2Q? Maybe just some guideposts around how to think about what to expect for EBITDA in 2Q? Michael Stock: Yes. I mean I thought the easiest way to think about it is, yes, there will be a very small amount of pricing. So I'd say high single digits kind of up on the revenue side, but mostly activity like pull-throughs. Saurabh Pant: Okay. Okay. I got it, right? And then obviously, utilization is better, so you get some benefit from that. Okay. Okay. That makes sense. And then the other one for me, right? I'm just thinking kind of bigger picture on the power side of things, Ron, like you described in your remarks, on-site power is a complex operational symphony, right? I think that's a good way to put it. And you are doing a lot of things that you are in, right, integrated packaging, you are putting together a microgrid testing facility, but there's a lot of things that are still outside of your control, right? And like Derek pointed out, a data center campus expansion gets delayed, you got a preliminary ESA going to be terminated. And then again, you go back to the drawing board, right? But how do you think about the risk from a timing standpoint, Ron, Mike, right, as you are in discussions on future contracts, right, just given the timing of these things, right, they're more likely to shift to the right than the left. Ron Gusek: It certainly is an accurate statement to say that not all of those factors are in our control. There are variables that are at play on any given site that remain beyond our what we're focused on. And so yes, we have to be cognizant of those variables. I would say that as a partner to the hyperscalers, we have worked hard to understand many of the variables. And I think we can be a value add in a lot of those cases, not for everything, but for a lot of them, just given the experience we bring from the from the oil and gas side of the world. We've been through a lot of this stuff that hyperscalers are navigating today. emissions permitting, community engagement and all of those things. That stuff we know and understand. [indiscernible] haven't been in that space before. They haven't had to navigate the world of community engagement to understand what it means to it up in front of a community town hall and have them realize the benefit of having a data center or, in our case, an oil and gas operation presence in the community and then to understand all that we're doing to make that a benefit, not a detractor from the area. But we, of course, have an immense amount of experience there. And I think it's one of the true benefits of now being engaged directly with the hyperscalers is we're able to stand beside them. Help them work through this check list of opportunities. We get a little bit clearer line of sight into those things, but we can aid where possible. I would say that recognizing that risk, we have a sales pipeline that's meaningfully larger than the amount of generation that we are going to bring to the table. And that's true because we understand that not all of the sites will get across the finish line. Michael noted that we're working with Vantage on quite a number of sites that they are trying to move forward. Not all of those sites will get to the finish line, but a handful of them will. And the same is true with the other parties that we're working with. And so we remain very, very confident in our ability to deploy that 3 gigawatts by and have that working in 2029. I don't think sitting here today, Michael and I see any concerns with that all. There remains an incredible of urgency around getting AI up and running at larger scale. You continue to hear the success stories from businesses every time a business takes something that was a pilot project and scale that up to full deployment across their company. There is no benefit of scale there that the amount of compute required grows linearly with the number of people that are putting that technology to use. And the hyperscalers are seeing that firsthand. And as a result, I remain confident that while we will have some of these sites like to the right. Our ability to put 3 gigawatts to work in the next couple of years is, I think we remain very confident in that. Saurabh Pant: No, that makes a kind of sums on. I get the fact that you're working directly with the health care is only going to help, right, just to iron out the pieces. Ron Gusek: It certainly is. Yes. Nice to be right at the table with them as well. As Michael alluded to, there's a number of parties at the table and critical to be at having a conversation with each and every one of them. . Operator: The next question comes from Dan Kutz with Morgan Stanley. Daniel Kutz: So Michael, I think I caught that you said maybe 2Q revenue could be up high single digits sequentially. So correct me if that's wrong. And then wondering if you guys could share anything on what kind of incremental margins you could see on that revenue increase, if there's any factors we should be thinking through that kind of could support above or below normal incrementals into the second quarter. I guess one example could be that the 1Q winter storm impact, I could see that maybe driving some above normal incrementals into the second quarter. But yes, just anything you could help us with there as we're thinking through what margins could look like this quarter? Michael Stock: No, I just said high single digit on the top line, normal incrementals through the EBITDA sideline for activity incrementals is probably the best way to look at it. But now that's kind of the view we give. Daniel Kutz: Super helpful. And then maybe if I could ask on the two convertible notes offerings. Just wondering if you could share any incremental color around strategy there and the timing, I guess, you had the first offering in early February and then relatively shortly after that in late March for the second offering. Was that just opportunistic? I've heard that the convertible market, especially paired with the cap calls is actually a pretty inexpensive and kind of favorable source of capital at this time. So wondering if that was just opportunistic or if anything changed in kind of the power funding requirements or time lines there that catalyzed the second notes offering. Michael Stock: No, it was opportunistic. I mean, I think you've got to think about the fact that we've got a significant amount of forward payments that we're making on generation that will flip into project finance and then that money will recycle onto the corporate balance sheet. And that's what we're using the converts for. The first convert was incredibly successful, kind of 8x oversubscribed, 0% coupon, and we're up -- we bought a cap call. So sort of we don't get any dilution until we get to a significant high share price. And really, we're at probably a net between the 2 calls that's slightly below -- even with the cap call cost, less than 3% net cost of capital for that $1.2 billion. So it's an incredibly cost-effective way of raising money. And the second one, obviously, as we looked at the world economic situation with the strength of [indiscernible] being shut, you've got to be aware of the fact that there can be knock-on effects of these global -- this war and the potential to affect the financial markets and making sure that we had the capital available to execute on our growth plans was key. The financial market was completely open. The second follow-on was about the same on the oversubscription, again, a 0% effective interest rate. And so it's just a great way of raising capital to allow us to grow our power business. Operator: The next question comes from Marc Bianchi with Cowen. Marc Bianchi: I'll just ask one in the interest of time. The CapEx, I think, was originally guided to $1 billion. Michael, I know you mentioned there's this $300 million milestone payment in second quarter or early third. But how are you thinking about that CapEx guide at this point? Do you see a chance for being above or below? And can you maybe remind us of the components? Michael Stock: Yes. As we look forward, I mean, it really hasn't changed at the moment. We'll probably revisit that in July as we look at the power business and where things are going. But we're still on target for about where we were on that CapEx guide. kind of about $0.25 billion of that $250 million was on the completion side of it. And as Ron alluded to, if there's an opportunity, if that market strengthens significantly, maybe that will go up here if we are keeping -- making one of the digi fleets a new fleet, and we're keeping some of the older equipment running. But at the moment, no change to our guidance. Operator: The next question comes from John Daniel with Daniel Energy Partners. John Daniel: And keeping with Marc's comment, I'll just keep this to one question. But Ron, for a dedicated fleet, which is either dual fuel or 100% gas powered, is pricing somewhat formulaic in that there's -- that it's tied to diesel price such that if you see a rapid escalation in diesel, you get an immediate upward trigger in the price? And conversely, does it -- would there be a trigger on the downside, too? Ron Gusek: I would say that it's not necessarily formulaic. John, of course, we recognize the opportunity there as do our customers recognize the value that comes with that technology. And so that is certainly part of the conversation. But as in all of our relationships with our customers, we typically find this formulas aren't a great answer. There will always come a time when the formula doesn't quite solve to the right outcome. And so inevitably, it ends up becoming a conversation. So I would say that for us, while that certainly informs the conversations that the sales team is having with our customers to deploy that technology or to recognize the value of that technology, it's not the only piece of the conversation. John Daniel: Fair enough. And I'm going to squeeze one more out. I apologize. But sorry about it. The diesel prices, as you guys know, up like 50% or something. I don't know what the exact math is over the last couple of months, but it's a lot. I mean that would seemingly imply a very material price uplift for your higher quality fleets. I mean I know you can't quantify and don't want to quantify, but is that a wrong assumption? Ron Gusek: It's not, John. But what I would say is that those speed fleets were also a little less or a little more immune to the pricing degradation that's happened over the last number of years as we put new technology to work we have expectations around the return on that invested capital with our customers, and they recognize the value of that. And so we probably didn't see the same level of erosion in pricing there that we might have in the other technology. And as a result, despite diesel prices jumping meaningfully, we're not going to recoup the entire value of that jump in opportunity set. Operator: The next question comes from Eddie Kim with Barclays. Edward Kim: Just one question for me. Just could you remind us of the 3 gigawatt target by 2029? How much of that has been ordered to date and what's left to be ordered. In terms of what's left to be ordered, do you anticipate placing those orders before the end of this year? Or will some of that fall into 2027? I'd imagine there might be some concerns about the cost of the equipment getting more expensive. So there might be a preference to accelerate those orders as quickly as possible, but just any thoughts there. Michael Stock: Yes. I mean as you know, we started ordering in '26. So the vast majority of it is either ordered or in contractual negotiations at the moment, where we're just kind of finalizing the -- is and dot the Ts for that 3 gigawatts. So that's all going to be kind of in flight this year. Operator: I will now turn it back to Ron for closing remarks. Ron Gusek: It is unfortunate that it takes a war in the Middle East to give the energy security conversation the attention it deserves. For years, many of the lucky 1 billion have taken energy for granted. Enacting policy decisions that showed a complete disregard for the importance of access to abundant, affordable, reliable energy. Now as the realities of a global energy supply disruption set in, I wonder if there are people looking back and asking, what have we done? Make no mistake, this is not just about high gasoline prices and expensive airplane tickets, fertilizer prices and even just availability of that product are forcing crop switching or under application, threatening harvest yields by an estimated 10% to 15% this year. Cold chains, the shipment of refrigerated goods are breaking down in Asia due to lack of diesel fuel. Meaning people will do without access to groceries. Factories are being forced to run at 50% of capacity due to lack of energy supply. Those using diesel generation for backup, assuming they can get diesel, have seen their overall operating costs climb by as much as 30%. The implications are far reaching. We are fortunate here in the United States with the exception of a few states we are insulated from the worst of the impact. The shale revolution has ensured access to abundant quantities of oil and natural gas, ensuring we can not only look after our own but also play a meaningful role in supporting others around the world. We would be in a very different situation where it's not for the hard work, dedication and ingenuity of the people in the oil and gas industry. Not all countries are in the same position. Some have no choice. By virtue of not being blessed with abundant natural resources, they rely heavily on partners like the United States and Canada for access to energy they so desperately need to fuel their economies. Some did have a choice, however, and it is with them that I am more disappointed and frustrated. Their policy decisions have meant that critical energy resources are not being developed or have been shut in prematurely. These decisions were made without meaningful, if any consideration for the broader global implications. Without thought for those who rely on energy imports to either enable their current way of life or even more importantly, provide the much needed energy to plot a path out of poverty and towards a life like the one each of us leads here. I can only hope that this is a defining moment for the course of energy policy going forward. And if there is an awakening to the truly devastating impacts of misguided decisions focused on net zero policies rather than energy abundance and that we see a pivot towards support for development of oil and gas resources with the goal of ensuring no one has to go without. Thank you again for joining us on the call today. Have a great rest of your day. 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 Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the Heritage Financial 2026 Q1 Earnings Call. [Operator Instructions] I would now like to turn the call over to Mr. Bryan McDonald, President and CEO. You may begin. Bryan McDonald: Thank you, Angela. Welcome and good morning to everyone who called in and those who may listen later. This is Bryan McDonald, CEO of Heritage Financial. Attended with me are Don Hinson, Chief Financial Officer; and Tony Chalfant, Chief Credit Officer. Our first quarter earnings release went out this morning premarket, and hopefully, you have had the opportunity to review it prior to the call. In addition to the earnings release, we have also posted an updated first quarter investor presentation on the Investor Relations portion of our corporate website, which includes more detail on our deposits, loan portfolio, liquidity and credit quality. We will reference this presentation during the call. As a reminder, during this call, we may make forward-looking statements, which are subject to economic and other factors. Important factors that could cause our actual results to differ materially from those indicated in the forward-looking statements are disclosed within the earnings release and the investor presentation. We closed the merger with Olympic Bancorp during the first quarter, better positioning our company for growth in Puget Sound market. I want to highlight a couple of items as we look forward. First, as a reminder, we are converting systems in late September, and we'll be carrying higher expenses until after the conversion. Don Hinson will provide additional color on our estimated expense levels post conversion of units. Second, seeing the expected improvement to our net interest margin resulting from the addition of Olympics' balance sheet and continued asset repricing. We expect the upward trajectory to continue, primarily driven by new loans and repricing within the existing loan portfolio. We will now move to Don, who will take a few minutes to cover our financial results. Donald Hinson: Thank you, Bryan. I'll be reviewing some of the main drivers of our performance for Q1. As I walk through our financial results, unless otherwise noted, all the prior period comparisons will be with the fourth quarter of 2025. I will also be incorporating the impact of the Olympic merger into [indiscernible]. Starting with the balance sheet. Total loan balances increased $939 million in the first quarter. Loans acquired in Olympic totaled $954 million. Q1 yields on the loan portfolio were 5.73%, which was 19 basis points higher than Q4. The Olympic merger had a significant impact on the yield for the quarter as we brought over their loan portfolio at current market rates. In addition, approximately 6 basis points of the increase was due to the recovery of interest on nonaccrual loans. Bryan McDonald will have an update on loan production rates in a few minutes. Total deposits increased $1.33 billion in Q1. Deposits acquired in the Olympic merger totaled $1.39 billion. The decrease in deposits ex the acquired deposits was partially due to the maturity of $29 million of brokered CDs that were not renewed. The cost of interest-bearing deposits decreased to 1.71% from 1.83% in the prior quarter. This decrease was due partly to the merger as Olympic had a lower cost deposits and partly as a result of the Fed rate cuts in Q4, which resulted in lower deposit rates. Investment balances increased $388 million from the prior quarter, also due to the Olympic merger. Although we have reported that only $312 million was acquired in the merger, a portion of Olympic's investment portfolio as part of our restructuring strategy was sold prior to the merger date and reinvested subsequent to the merger. The yield on the investment portfolio increased 17 basis points due to acquiring the portfolio at current market rates. Moving on to the income statement. Most categories increased from the prior quarter due to the merger. I will cover a few areas of note. In addition to the impact of the earning assets acquired in the merger, net interest income also benefited from an increase in the net interest margin. The net interest margin increased to [ 3.96% ] and from 3.72% in the prior quarter and from 3.44% in the first quarter of 2025. The increase was due primarily to the previously mentioned increases in yields on the loan and investment portfolios and a decrease in the cost of deposits. The previously mentioned recovery of interest on nonaccrual loans had a 5 basis point impact on the margin for the quarter. We recognized a reversal of provision for credit losses in the amount of $1.03 million in Q1. This reversal was due primarily to adjusting the allowance from 1.10% at the end of 2025 to 1.06% at the end of Q1. This decrease in allowance was due to the acquired Olympic loan portfolio, requiring a lesser allowance based on the specific attributes of that portfolio. In addition, net charge-offs remain at very low levels. Tony will have an additional information on credit quality metrics in a few moments. In addition to the scale of a larger organization, the increase in the noninterest expense was also due to merger-related costs of $5.2 million versus $385,000 in the prior quarter and intangible amortization expense of $2.1 million to $285,000 in the prior quarter. Due to the fact that the systems conversion for Olympic is scheduled for late Q3 of this year, we expect elevated expense levels until Q4. Based on the current forecast of staffing levels and merger-related costs, including the fact that Q1 only included 2 months of combined operations with Olympic, we are expecting quarterly noninterest expense levels to increase to an average of approximately $64 million to $65 million in Q2 and Q3 before decreasing to a range of $56 million to $57 million in Q4. And finally, moving on to capital. All of our regulatory capital ratios remain comfortably above well-capitalized thresholds, and our TCE ratio was 9.6% at the end of Q1 compared to [ 10.1% ] in the prior quarter. The decrease in the TCE ratio was expected due to the impact of the merger. I will now pass the call to Tony, who will have an update on our credit quality. Tony Chalfant: Thank you, Don. I'm pleased to report that credit quality remained strong and stable in the first quarter. With the addition of the Olympic portfolio during the quarter, the high quality of these loans had a positive impact on our credit metrics at quarter end. Nonaccrual loans totaled $15 million at quarter end, declining by $6 million during the quarter. This represents 0.26% of total loans and compares to 0.44% at the end of 2025. Most of the improvement came from the full repayment of $5.8 million residential construction loan and a $1.5 million multifamily term loan. Partially offsetting the improvement was the movement of a $2.6 million [indiscernible] to nonaccrual status. Within our nonaccrual loan portfolio, we have just under [ $4.2 ] million in government guarantees. Notably, there were no nonaccrual loans in the acquired Olympic portfolio at quarter end. With the decrease in natural loans, the ratio of nonperforming loans to total loans improved to 0.26% from 0.44% at the end of 2025. During the quarter, we acquired an ORE property through a foreclosure action. This is a single-family residence with a book balance of $755,000. The house will be marketed for sale in the second quarter. This is the first ORE property we've held since 2020. Criticized loans, those rated special mention or worse, moved higher during the quarter by $37 million with $18 million coming from the inclusion of the Olympic portfolio. As a percentage of total loans, criticized loans were stable at 3.9%, the same percentage that we experienced at the end of 2025. When looking at the severe substandard category, we saw an improving trend during the quarter. Substandard loans to total loans dropped to 2.1% at quarter end versus 2.4% and at the end of 2025. Most of the improvement was from the [indiscernible] of the 2 nonaccrual loan relationships mentioned previously. It should also be noted that the Olympic portfolio had lower levels of criticized loans relative to their total loans, which had a positive impact on the combined ratios. Page 18 in our investor presentation shows the stability in our criticized loans over the past 4 years. As of quarter end, our ratio of total nonowner-occupied CRE loans to total loans moved just above the regulatory guidance level to [ 301% ]. The increase in the ratio was due to the inclusion in the Olympic portfolio and the fair value accounting for the acquisition. While growth in CRE loans was modest during the quarter, the lower combined capital level from the fair value marks resulted in a higher total CRE ratio. The increase was expected from our acquisition model, and we anticipate the ratio will decline to historical levels over time. During the quarter, we experienced total charge-offs of $583,000. Approximately 70% came from our commercial portfolio, with the remainder coming from our consumer loans. The losses were partially offset by $31,000 in recoveries, leading to net charge-offs of $552,000 for the quarter. On an annualized basis, this represents 0.04% of total loans and is consistent with the 0.03% ratio that we achieved for the full year 2025. While we are pleased with the stability in our credit metrics through the first quarter, we are aware of the emerging risks in the economy and the potential impact on our credit quality. We remain consistent in our disciplined approach to credit underwriting and believe this is reflected in the strong credit performance we have maintained over a wide range of business cycles. I'll now turn the call over to Bryan for an update on our production. Bryan McDonald: Thanks, Tony. I'm going to provide details on our first quarter production results, starting with our commercial lending group. For the quarter, our commercial team closed $166 million in new loan commitments, down from $254 million last quarter and down slightly from $183 million closed in the first quarter of 2025. Please refer to Page 12 in the investor presentation for additional detail on new originated loans over the past 5 quarters. The commercial loan pipeline ended the first quarter at $631 million, up from $468 million last quarter and up from $460 million at the end of the first quarter of 2025. Loan balances increased $939 million during the quarter. Majority of this increase was due to the merger, but Heritage loan balances, excluding any impact from Olympic, were up $20 million in the quarter. Based on the current pipeline, we expect an annualized loan growth rate in the mid-single-digit range in the next couple of quarters. Deposits increased just over $1.3 billion due to the merger. Excluding the merger, deposits decreased $61 million, which included a $29 million decline in brokered CDs. The first quarter decline is typical of our deposit seasonality, with declines often occurring in the first quarter and through the end of April due to tax payments. The deposit pipeline ended the quarter at $81 million compared to $108 million in the fourth quarter, and average balances on new deposit accounts opened during the quarter are estimated at $33 million compared with [ $45 million ] last quarter. Moving to interest rates. Our average first quarter interest rate for new commercial loans was 6.11%, which is down 45 basis points from the 6.56% average for last quarter. This rate average is based on outstanding balances. Using average commitment balances, the average was 6.41%. In addition, the first quarter rate for all new loans was 6.16%, down 27 basis points from 6.43% last quarter. In closing, as mentioned earlier, we are pleased to have the Olympic merger closed, which strengthens our position in the Puget Sound. And overall, we believe we are well positioned to navigate what is ahead and to take advantage of various opportunities to continue to grow the bank. With that said, Angela, we can now open the line for questions from call attendees. Operator: [Operator Instructions] Your first question comes from the line of Jeff Rulis with D.A. Davidson. Jeff Rulis: I wanted to circle back on the expenses. I wanted to -- it seems kind of high. I understand that you've got Olympic for the full quarter, but, by chance, are you including additional merger costs in that 60% -- I think you said 64% to 65% in the next couple of quarters? Donald Hinson: Jeff, yes, yes, that includes the merger-related expenses. If you take out merger costs, we're more in the $57 million to $58 million range for the next 2 quarters and then dropping to about $55 million by Q4. So that -- I was not putting everything in that. Jeff Rulis: So $55 million post-deal ex merger is the run rate that you're pointing to in Q4? Donald Hinson: Yes. Jeff Rulis: Okay. And if you could -- Don, the you offered some rough detail on where those merger costs were by line item, but do you have a dollar figure just to kind of really carve those out, if possible? Donald Hinson: Like over the remaining 3 quarters? Or -- is that what you're looking for? Jeff Rulis: No, no, no. In the trailing quarter, the 1Q to -- just over $5 million. The book, if you could just point as to where that -- by line item, that was mapped? Donald Hinson: Well, professional services would be a big one on that. And then also the compensation because of severance would be some. And then we -- I think we also have some contract stuff that would show up in potential data processing. But those are the bigger ones. I don't have it broken out by type, that $5 million. Jeff Rulis: Okay. That's helpful. We'll just kind of give up that. Great. And then on the margin, did you say it was the interest recovery was 5 or 6 basis points beneficial to the margin? Donald Hinson: To the margin? It was -- for the quarter, I think, it was[ 5 ] in the quarter. For the interest reversals? . Jeff Rulis: Yes. Donald Hinson: Yes. On the interest reversal, it was [ 5 ] Jeff Rulis: Okay. And moving.. Donald Hinson: [ 6 ] on the lower. Jeff Rulis: Okay, [ 6 ] on the loan yield. [ 5 ] the margin. I appreciate it. And then I guess Don, do you have the margin average for the margin, maybe . Donald Hinson: I've got that. Yes. I knew you ask for. So I know somebody would ask for it. the margin -- if I take out the interest reversals for March NIM, it was 395%. But if we take out the interest reversals that we had because a lot of them have happened in March, it was 395%. Jeff Rulis: Okay. And the 395% will include accretion that's part 1 and then part 2? Okay. And then I guess your -- is there any kind of heavy handed accretion upfront? Or could we kind of . Donald Hinson: Yes. I mean there's always a chance that you're going to get a large payoff that will cause it to increase, but I don't expect to be anything unusual we've been experiencing so far. And of course, we've had 2 months of experience. But I don't think it's going to be -- I think anything happened in March that was unusual compared to the rest of the going forward. Jeff Rulis: And then leaning back to the introductory comments about upward trajectory from here. We'll kind of do what we will with accretion, but the core sounds fairly positive. Any sort of further comments on how you have a 4% plus or -- anything on the forward margin expectations with that upward trajectory in mind? Donald Hinson: Yes. I think we're going to continue to see margin expansion not going to be significant, but again, depending on things like how much we can leverage the balance sheet and the loan growth we'll get a little bit of increase every quarter due to the fact that, again, the loans are repricing every quarter. So the ones that are either adjustable or are the new ones coming on are higher, I expect to reach the 4% by the end of the year or before. Operator: Your next question comes from the line of Jackson Laurent with Stephens. Jackson Laurent: This is Jackson on for [ Andrew Terrell ]. If I could just start off on the balance sheet. I appreciate the color on the updated growth trajectory for loans. I was just wondering where you guys are seeing signs of strength in the portfolio? What you guys are seeing from the Kitsap bankers early on? And then maybe just a little bit of color on what caused the change in expectations. I think we were talking about upper single digits in January after kind of low single digits in the first quarter? Bryan McDonald: Sure. Maybe I'll go to Tony Chalfant first, just for comments just on credit in general, and then I'll pick up on the Kitsap commercial bankers and loan pipeline and outlook. Tony Chalfant: Yes. Thanks, Bryan. This is Tony. Yes, Jackson, with the merger, the credit crises were pretty similar. So we haven't really had to make any real changes in our approach with the Kitsap bankers, they're -- they look at credit very similarly to how we look at it. I think there's going to be some opportunities for some of their better borrowers to have some higher borrowing limits, which will probably help extend those relationships a bit more. But generally, we're feeling pretty comfortable on a go-forward basis on a combined basis. Areas of strength really continue to be just a lot of opportunities in the owner-occupied CRE space and continuing to really push as hard as we can on the C&I space just because it comes with the relationship and deposits and such. Bryan, I'll let you kind of cover the pipeline things. Bryan McDonald: Yes. Really, the primary driver behind the change in loan growth from last year was the larger level of construction loan costs that we had in 2025, which we mostly work through before the end of the year. Those were the larger ones that we had been expecting, and that was really related to just a bulge in construction loan activity in prior years that then converted to payoffs last year. We did have a few payoffs in the Kitsap portfolio that were not unexpected, but a few larger ones than that transpired before and after close. The driver behind the go-forward growth rate is really the change in the pipeline. It was the pipeline had been growing when we did our Q4 all in January, and we've seen it continue to grow. The pipeline is up 35% over where it was at the end of Q4 and up a little more than that when you compare it to Q1 a year ago. And we did see some of the deal closings push a little bit from first quarter, expect them to close in the second quarter. So we didn't close quite much as we anticipated we might when we were on the Q4 call. But regardless, we're still seeing a good pipeline and absent some change in borrower behavior related to outside factors. We feel good about that pipeline driving kind of mid-single-digit loan growth in the next couple of quarters. Jackson Laurent: Got it. That's all super helpful. And then maybe just switching to deposit costs. I mean, we've all heard a lot on competition recently. And we personally would track CD promotional rates, and it looks like you guys raised your highest rate recently. So just kind of given your already low cost of deposits, I was just wondering how you guys are thinking about deposit repricing going forward. And if you guys think there's any risk to upward migration in deposit costs throughout this year? Bryan McDonald: Don, do you want to start and I'll add some comments after you're done. Donald Hinson: Sure. Yes, the competition is out there. We did raise our very highest rate, some on the CD side. While we're talking about cost deposits for the quarter, it's [ 171 ] or -- for March, it was [ 168 ]. So it came down a little bit. But I really don't expect it to move a whole lot. Now I think we'll get a little bit of help from some higher CDs coming down and -- but I think there will also be upsets to potentially if you're bringing in some maybe new customers or new -- with full relationships, there could be high rates you're paying there. So I think it's going to offset, and I think we're to stay right around that were [ 168 ] now again for the -- for March, I think we'll stay right around that for the remainder of the year, hovering around [ 170 ]. It's not going to move much, I don't think, at this point, [indiscernible] does something . Bryan McDonald: And [indiscernible] I would just add, you're right. As Don confirmed, we are seeing stronger deposit competition out there for kind of any excess dollars going into money market accounts or CDs. We're having good success with our relationship strategy, which is really the way that we're driving our deposit growth. So we are having to continue to compete for those kind of those extra funds, if you will, but still winning good quality operating relationships, and that's what's allowing us to keep the overall mix in alignment with where it's been before. and the cost at these levels? Jackson Laurent: Got it. That's helpful. And then maybe just lastly, switching over to capital. I know you guys focus is probably still on for integration and the conversion in 3Q, but just wanted to get your updated thoughts on the buyback and maybe potential future loss trades going forward? Donald Hinson: Sure. We don't -- at this point, any loss trades, things things can change on that, but we will be always looking to manage capital to keep it. I think we're in a pretty good range right now where it's at. So we may be doing things such as being involved in buybacks to kind of manage our capital levels. We still have about 800,000 shares left in our current repurchase plan. And so we may be active this quarter in that. Operator: Your next question comes from the line of [indiscernible] with KBW. Unknown Analyst: This is Charlie on for Kelly Motta. Just wondering with the ongoing disruption across Pacific Northwest banks and think that your employee count jumped with the addition of Kitsap here. Are you seeing opportunities to recruit any commercial banking teams or individual producers beyond Kitsap app? Is there any incremental like hiring embedded in expense run rate 2026? Bryan McDonald: We are out recruiting. We would traditionally add high-quality bankers as they be available across the footprint. We're not seeing necessarily an increase in total banker head count just because we continue to have retirements of our long-time makers. But we have been adding bankers in a number of our teams, just 1 or 2 to a particular team but those have been largely netted out so far with retirements. We are continuing to talk to folks, certainly would be open to doing teams if the right opportunities came our way like we have in the past. But so far, it's been on to spread out amongst various teams. Unknown Analyst: Great. And then I guess just on a step down on the acquisition, understanding conversions in 3Q. Just wondering like where if anywhere execution has kind of run, ahead of or behind schedule, just kind of maybe stepping back on? Customer retention, producer retention, any like synergy realizations, just how things are holding up that integration? Bryan McDonald: Yes. I would say we're right on track. Obviously, there's many components to the integration plan. But we look at those status every week and right on track. I think from a customer impact standpoint, it's been really -- there hasn't been any kind of negative customer response to the combination. But I think we'll learn more on that when we actually go through the systems conversion. But of course, we've retained all the branch teams, the commercial bankers. And so for the customers, they haven't had any sort of disruption as Tony Chalfant mentioned, a good fit between credit culture, so no disruptions there. So overall, going as we had hoped and anticipated. Operator: Your next question comes from the line of [indiscernible] with Raymond James. Unknown Analyst: This is Evan on for David Feaster. Just sticking on loan growth. I just was kind of curious. The color on the pipeline was really helpful. But maybe more broadly, I'm curious how borrower sentiment has been holding up within your markets, especially with some of the macro insertion we've been experiencing. And then maybe a follow-up to that, just like on payoffs and pay downs. I know they've been a headwind to the industry broadly. Good to see those pressures abating this quarter. So I'm kind of expecting what you expect to see on payoffs and paydowns going forward as well? Bryan McDonald: Sure. We've really seen the pipeline build since last summer after the big beautiful bill passed just incrementally. And we did see some delay in deals closing, but -- and that's part of the growth in the pipeline, maybe a little bit lower closings in Q1 than what we potentially could have had. But overall, continuing to see good growth in the pipeline after the increase in disruption related to the war. So we're watching it really closely. Typically, when you have disruption, there's some of the customers that just decide to hold for a little while or delay. We're not seeing that so far. But it may be a little early to tell what the final implications will be in terms of how many deals fall out of the pipeline. But as we got to the tail end of the quarter and even coming into April, we've continued to see strong new deal flow into the pipeline. And then on your second part of the question, just on payoffs and prepaid. Slide 15 in the deck has detail on last year and then Q1 of '26. And if you look at the prepayments and payoffs, last year, dividing that number by 4 to get a quarterly number, it's -- we're running a little lower in Q1 than we did on average last year, although we've got a much larger portfolio with the addition of the Kitsap and some of the payoff activity in Q1 was a couple of chunky deals on the Kitsap side. So overall, that payoff activity is lower than what we encountered last year. We'll obviously continue to update everybody on that as we go quarter-to-quarter and get a better sense of if there's some chunkier deals in Kitsap portfolio that are going to going to pay off as we continue through the year. But now it's looking like that trend is going to be something lower than last year on prepays and payouts. Unknown Analyst: That's really helpful. And then maybe switching to credit. Credit trends were really good during the quarter. Non-accruals and standards were down. And it sounds like Kitsap is additive to your credit profile. But I'm just curious if you're seeing any specific sectors or business lines that are exhibiting maybe some outsized pressure or you're watching a little bit more closely than others? Bryan McDonald: Sure. Tony, you want to take that on? Tony Chalfant: Yes. Yes, Evan. I think we've seen over the last year the nonowner-occupied loan space has been really strong, really, really a solid part of our portfolio. Where we have seen a little more pressures, in the C&I portfolio. If you look year-over-year, we've had a bit of an increase proportionately in our special mention and substantial loans in the C&I category. And a lot of that -- it's not really tied to none specific industry or one specific situation, but it all ties back to just the uncertainty in the economy. I mean, whether it's tariff issues, higher labor costs, supply chain issues, all of the above. And as you find in those kind of situations, companies -- some companies are just better positioned with management and balance sheet strength with [indiscernible] at than others. So we've just seen some weakness in that area as we go forward. So here, we'll be watching closely, but it's really difficult to sort of pinpoint it to one specific industry or one specific issue. And it's -- but it's probably worth noting. Does that cover your question, Evan, do you have more -- you want me to hit on? Operator: That concludes our question-and-answer session. I will now turn the conference back over to Mr. Bryan McDonald for closing remarks. Bryan McDonald: Thank you, Angela. If there are no more questions, then we'll wrap up this quarter's earnings call. We thank you for your time, your support and your interest in our ongoing performance. We look forward to talking with many of you in the coming weeks. Have a good day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Popular Inc. First Quarter 2026 Conference Call. [Operator Instructions]Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Investor Relations Officer at Popular, Inc. Paul Cardillo, please go ahead. Paul Cardillo: Good morning, and thank you for joining us. With me on the call today is our President and CEO, Javier Ferrer; our CFO, Jorge Garcia; and our CRO, Lidio Soriano. They will review our results for the first quarter and then answer your questions. Other members of our management team will also be available during the Q&A session. Before we begin, I would like to remind you that during today's call, we may make forward-looking statements regarding Popular, such as projections of revenue, earnings credit quality, expenses, taxes and capital as well as statements regarding Popular's plans and objectives. These statements are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements are discussed in today's earnings release and our SEC filings. You may find today's press release and our SEC filings on our web page at popular.com. I will now turn the call over to Javier. Javier Ferrer-Fernández: Thank you, Paul, and good morning, everyone. Please turn to Slide 4, where we share highlights of our strong operating performance in the first quarter. We reported net income of $246 million and earnings per share of $3.78, up $12 million and $0.25 per share from the fourth quarter. The improvement was driven by higher net interest income, margin expansion and lower operating expenses. Net income and EPS improved by 38% and 48%, respectively, compared to the first quarter of 2025. We continue to invest in our businesses and expand our capabilities in support of our strategic objectives. When we deliver for our customers, our franchise strengthens and our shareholders' benefit. Overall credit trends remained favorable with lower NPLs and improved NPL ratios. Quarterly net charge-offs increased primarily due to a single previously identified commercial relationship. We also demonstrated our commitment to returning capital to our shareholders by repurchasing $155 million in common stock and paying a quarterly common stock dividend of $0.75 per share. Our ROCE was 15.5%, up from 14.4% in the fourth quarter of 2025 and 11.4% a year ago. We are very pleased with these returns and remain focused on reaching our 14% through the cycle objective. Before turning the call over to Jorge, I will comment on the business environment in Puerto Rico. Business activity in Puerto Rico remained positive, supported by steady trends in employment and consumer activity with manufacturing, construction and tourism leading the way. We're closely monitoring ongoing geopolitical developments as sustained higher oil and commodity prices can impact our customer base. As of the end of the first quarter, we have not seen significant signs of economic stress. The labor market remains healthy with the unemployment rate at 5.6%, stable near historic lows. Three sectors have outperformed the broader labor market. Construction, transportation and warehousing and leisure and hospitality. Consumer spending remains healthy. Combined credit and debit card purchase by Banco Popular customers increased by approximately 5% and compared to the first quarter of 2025. We continue to see healthy demand for homes in Puerto Rico. Mortgage balances at Banco Popular increased modestly during the quarter. Momentum in the construction sector continues to be solid with public and private investment fueling higher employment and strong liquidity. We're optimistic that these trends will persist given the backlog of obligated federal disaster recovery funds. On the private side, real estate and tourism development projects and the renewed focus on reshoring to Puerto Rico by global manufacturing companies should continue to support economic growth on the island. The tourism and hospitality sector continues to be an important contributor to the Puerto Rico economy. Year-to-date through February, hotel occupancy increased to 83%, up from 76% in the same period last year. Over the same period, RevPAR increased 6%. Hotel demand averaged roughly 400,000 room nights, representing 10% growth versus the same month in 2025. Passenger traffic at Luis Munoz Marin International Airport was down 2% in the first quarter after a record year in 2025. JetBlue also announced an expansion of its San Juan Hub with 5 new nonstop domestic routes beginning in the spring of 2026. Cruise activity has also been a meaningful tailwind after record cruise arrivals in 2025, arrivals accelerated sharply in the first 2 months of 2026 with year-to-date arrivals through February up 40% year-over-year. In addition, the Puerto Rico Tourism Company announced a strategic partnership with Royal Caribbean, beginning in July of this year that would establish San Juan as the cruise lines home port. Moving to our strategic framework. We continue to advance our 3 objectives, a growing number of initiatives are gaining traction simultaneously and the pace of execution is accelerating. One of our objectives is to be the #1 bank for our customers, by delivering exceptional service and products. A key part of that is making it easier for customers to engage with Popular through our digital channels. We recently launched an integrated marketplace within our digital app Mi Banco, one of Puerto Rico's most widely used mobile apps. The platform gives our retail customers access to exclusive offers, discounts and benefits from a wide variety of merchants while enabling businesses, many of them small and medium-sized to reach a high volume of potential customers. This allows us to create meaningful connections between our retail and commercial customers and strengthens the value of banking with Popular. We also launched 2 new corporate credit cards designed to facilitate payments and optimize cash flow. Both have gained traction and driven purchase volume. In addition to our core, retail and commercial efforts, we are advancing targeted segment strategies to improve service, enable more personal relationship-based engagement and position Popular as the primary bank earlier in our relationship with our customers. A recent example is our newly launched program designed to meet the unique financial needs of doctors, dentists and veterinarians. The momentum behind these initiatives reflects the energy and focus of our teams. We are encouraged to see that execution translating into stronger results, and we expect the benefits to become more visible over time. And with that, I turn the call over to Jorge for more details on our financial results. Jorge Garcia: Thank you, Javier. Good morning, and thank you all for joining the call today. As Javier mentioned, our quarterly net income increased by $12 million to $246 million, and our EPS improved by $0.25 to $3.78. Compared to adjusted net income in the fourth quarter, which excluded a partial reversal of the [ SDIC ] special assessment reserve, net income increased by $22 million. These results were driven by better NII, higher NIM and lower expenses partly offset by a slightly higher provision for credit losses. Our objective is to deliver sustainable financial results, and we are pleased to have generated a 15.5% roughly for the period. We will continue to use all levers to position the company as a top-performing bank when compared to our mainland peers. Please turn to Slide 7. Net interest income of $670 million increased by approximately $13 million, driven by fixed rate asset repricing and a higher balance of investments due to higher deposit balances and lower deposit costs at both banks. Net interest margin expanded 5 basis points to 3.66% on a GAAP basis. On a taxable equivalent basis, the margin improved by 11 basis points to 4.14%, driven primarily by lower interest expense, including a meaningful reduction in the cost of Puerto Rico public deposits. Ending loan balances were essentially flat at $39.3 billion, down about $38 million from the fourth quarter, driven primarily by lower balances at Popular Bank due to paydowns in the construction segment and runoff from the exited residential mortgage business. At BPPR, modest growth in the mortgage and commercial segments were somewhat offset by weaker trends in auto lending. Given the slower demand in the consumer and auto segments, we expect consolidated loan growth in 2026 to be at the low end of our original 3% to 4% range. In our investment portfolio, we have maintained our strategy of reinvesting proceeds from bond maturities into U.S. treasury notes and bills. During the quarter, we purchased approximately $1.9 billion of treasury notes with a duration of 2.6 years at an average yield of around 3.7%, taking advantage of a modestly steeper curve. Deposit balances ended the quarter at $67.6 billion, $1.4 billion higher than the fourth quarter. Retail and commercial deposits increased by $1.2 billion, driven by tax refund activity. On an average basis, total deposits increased by $1.1 billion or by $384 million when excluding Puerto Rico public deposits. Puerto Rico public deposits increased by $250 million to end the quarter at $19.7 billion. We continue to expect public deposits to be in the range of $18 billion to $20 billion for the year. Total deposit costs decreased by 12 basis points quarter-over-quarter to 1.56%, with improvement in both of our banks. Excluding Puerto Rico public deposits, total deposit costs decreased by 5 basis points to 1.09%. At BPPR, deposit cost decreased by 11 basis points mostly as a result of Puerto Rico public deposits repricing lower by 31 basis points due to lower short-term rates. At Popular Bank, the 16 basis point reduction in deposit costs was primarily related to lower online savings deposit costs and repricing of time deposits. Given positive deposit trends in Puerto Rico, we now expect 2026 net interest income growth at the upper end of our 5% to 7% guidance range. Please turn to Slide 8. Noninterest income was $166 million, in line with Q4 and at the high end of our quarterly guidance, with solid performance across most of our fee-generating segments. Compared to the first quarter of 2025, noninterest income improved by 9%, driven by growth in debit and credit card fees of 14% and 6%, respectively, as well as 13% increase in asset management and insurance fees, demonstrating our ability to benefit from our breadth of product offerings. We continue to expect quarterly noninterest income to be in the range of $160 million to $165 million. Please turn to Slide 9. Total operating expenses were $467 million, a decrease of $6 million when compared to Q4. Excluding the FDIC reversal in Q4, operating expenses decreased by $22 million. The decrease was primarily driven by lower personnel costs, as the fourth quarter included a profit-sharing accrual of approximately $13 million, along with the impact of fewer calendar days in the first quarter. This quarter also benefited from lower employee health care-related costs. We also saw lower seasonal business promotion expenses and lower professional fees, partly offset by higher technology and software expenses, reflecting our continued investment in technology and transformation initiatives. We expect full year expenses to increase by 2% to 3% compared to our original guidance of 3%. We will continue to prioritize investments in our people and technology and continue to target expense efficiencies. Our effective tax rate in the first quarter was 16%, unchanged from the fourth quarter. We now expect the effective tax rate for the year to be at the low end of our original 15% to 17% guidance range due to higher projected excess income. Please turn to Slide 10. Tangible book value per share at the end of the quarter was $84.98, an increase of $2.33 per share driven by our net income and offset in part by our capital return activity. During the quarter, we repurchased approximately $155 million in common stock. We ended the quarter with $126 million remaining under our active repurchase authorization, which we expect to exhaust during the second quarter. As we have said in the past, we seek to maintain an active repurchase authorization in place and we are targeting an update on capital actions before the second quarter's earnings call. In addition to common stock repurchases, we also expect to continue evaluating capital optimization alternatives and pursue a dividend increase during the year. Of course, our plans are subject to market conditions, regulatory considerations and any required Board approvals. With that, I turn the call over to Lidio. Lidio Soriano: Thank you, Jorge and good morning to all. Credit quality metrics remained stable during the first quarter with lower early delinquency, NPLs and inflows and higher net charge-offs. Despite the uncertain economic environment, our consumer's businesses remain resilient. We continuously monitor our portfolios for signs of stress where our data remain consistent with normal seasonal behavior and no deterioration. Turning to Slide #11. Nonperforming assets and loans decreased by $37 million and $40 million, respectively, mainly due to Banco Popular de Puerto Rico. NPLs in BPPR decreased by $39 million. This was driven by reductions in the commercial portfolio due to an $11 million charge-off related to a commercial real estate facility classified as NPL in the third quarter of 2025 and consumer due to lower auto NPLs driven by increased payment activity. In the U.S., NPLs decreased by $2 million. Inflows of NPLs decreased by $7 million, with an improvement of $5 million in the U.S. and $2 million in BPR. The ratio of NPLs to total loans held in portfolio was 1.17% compared to 1.27% in the previous quarter. Turning to Slide #12. Net charge-offs amounted to $60 million or annualized 61 basis points compared to $50 million or 51 basis points in the prior quarter. Last quarter results included $5 million in recoveries from the sales of previously charged-off auto loans and credit cards. Excluding this, the net charge ratio for the fourth quarter was 57 basis points. Net charged-off in EDPR increased by $10 million driven by the $11 million commercial net charge-off mentioned previously. Based on current trends and macroeconomic outlook, we reiterate our 2026 annual net charged-off guidance of 55 to 70 basis points. The allowance for current losses increased by $16 million to $124 million. The change was mostly in BPPR which had higher results in the commercial portfolio due to loan modifications and additional specific reserve for a single power in the telecommunication industry. Additionally, the [ ACL ] for the mortgage portfolio increased slightly due to changes in the macroeconomic scenarios. These increases were offset in part by a reduction in the ACL for consumer loans, mainly in the auto portfolio, reflecting improvements in credit quality. In the U.S., the ACL increased by $1.4 million from the previous quarter. The cooperation ratio of the ACL to loans held in portfolio was 2.10% compared to 2.05% in the previous quarter, while the ratio of the ACL to NPLs held in portfolio increased 180% from 162%. With that, I would like to turn the call over to Javier for his concluding remarks. Thank you. Javier Ferrer-Fernández: Thank you, Lidio and Jorge, for your updates. We're happy with our strong first quarter results. We grew an interest income, expanded our margin and reduced operating expenses, all while continuing to invest in the franchise and advance our strategic priorities. While we are very pleased with the quarter, we remain focused on execution, growing deposits, regaining loans and maintaining strong expense discipline. We are confident that the sustained execution of our strategy will advance our ultimate goal to be a top-performing bank with excellent talent, delivering sustainable profitable growth and long-term value to our shareholders. On a more personal note, this past February marked a milestone for Popular. We brought together our 9,200 employees for the first time in over 20 years. And I have to say it was awesome. The event reminded each one of us, what it means to be part of Popular and connected us with our history. The excitement was palpable, and it was simply an unforgettable day. On behalf of my colleagues, I thank our clients and shareholders for their continued trust and support. We are very proud to be the leader in the Puerto Rico market. We're ready to answer your questions. Operator: [Operator Instructions] And our first question comes from Jared Shaw of Barclays. Jared David Shaw: Maybe just starting with the great growth on the deposit side, how should we think about average in end of period deposits sort of over the next few quarters as some of the tax refunds maybe get spent? Unknown Executive: Yes. So traditionally, we do see increases in ending deposits in the first quarter. This quarter, we saw also increases in average deposits that we're bringing in to strength from the fourth quarter results. Historically, in the second quarter, we would also expect ending balances to trend lower, but average balances higher after tax season overlaps the March and April and people kind of spend that money through the quarter. And then as you know, the third quarter is where we actually see ending balances coming down and then in the fourth quarter, we tend to see ending balances come back up historically. So our guide increased towards the higher end of the guide because we are expecting more retention of those deposit balances. Our teams are very much focused not only retention but also in deposit growth. And so we -- while we would expect ending balances to perhaps come down from these levels, we do not expect them to see a runoff as we saw like in 2024, for example. Jared David Shaw: Okay. So I mean overall, though, I mean, you're still feeling like average account size is stabilized at a higher level and sort of like the magnitude of what, like you said in the past may not be as severe? Unknown Executive: Yes. So I think we saw the peak in 2022, those averages are like 40% higher. Those have come down to like the third -- low 30s, 30%, 32% and has been stable for the last couple of years. We are bringing in new clients that's resulting in higher balances. We're seeing strength across not only the retail, but commercial, we see strength in our small and middle market clients. Our corporate clients also have a lot of liquidity, but they tend to be managing their treasury excess cash a little bit better. So overall, we've been very happy with the trends. Jared David Shaw: Okay. And then in the past, you've talked about looking for potential acquisitions in the mainlands that match up with your geographic focus. Any update on your thoughts there? And if you're not able to find something that fits would we -- could we expect maybe more of an organic de novo expansion utilizing some of your capital? Unknown Executive: Javier, I'll go for the first one. No change in our outlook on M&A. Our primary focus continues to be our transformation efforts and growing profitability of the institution. You want to take the second one? Javier Ferrer-Fernández: in terms of de novo growth strategy, I mean, it's tough to compete in the U.S. markets in retail, which is what normally would see with de novos. We have been successful in expanding some of our national businesses through either team acquisition or team hires and maybe that's opportunity. It's not unusual for banks our size to be looking at that, leveraging those niche businesses. But I think at this stage, we have opportunity to improve profitability in our U.S. operations organically, but not necessarily through investing in a big branch de novo expansion. Unknown Executive: And in Puerto Rico, frankly, I mean we are the strongest in the market given our branch footprint. It's a differentiating factor for us, continues to be. In the United States, as Javier saying, our strategy is more commercial led. So I mean it's going to be difficult to actually expand in any major way our footprint in terms of branches. Jared David Shaw: Okay. And if I could just ask one final one. Just have you been seeing any spread compression on the loan portfolio or on new loans and were you putting on new loans in the quarter? Javier Ferrer-Fernández: If you look at the levels and yields, we continue to be successful in expanding and are keeping our loan yields fairly flat even with rates coming down. So we have not seen that broad-based. I mean we talked in the last call how competition, particularly in Puerto Rico and auto. And you've seen kind of with the trends in that portfolio that we could see it potentially maybe more competition in pricing. But so far, we've tried to get our teams to focus, particularly in the U.S. business, where we see maybe particularly the beginning of the year, more competitive pricing. We've tried to push our teams to be smart and provide profitable loan growth, not just loan growth and focus on relationship banking, making sure that those relationships are coming in with deposits. So that gives us kind of a fresh start on making sure that we're not chasing irrational pricing on loans. Operator: And our next question comes from Brett Rabatin of StoneX Group. Unknown Analyst: Good morning, everyone. Wanted to start on the NII guide. And it was great to see the first quarter higher NII than expected lower expenses. Just thinking about the high end of the guide, with the slight growth in balance sheet would kind of imply the margin is fairly flattish, but you still have securities that are maturing. Any thoughts on -- I know you don't like to give market guidance, but any thoughts on the margin? And then just as you see it, maybe the opportunities relative to NII growth from here? Javier Ferrer-Fernández: We do expect the margin to grow by the end of the year. We had a nice expansion in the first quarter, driven a lot by the repricing of the public deposits. We don't expect that level of repricing to occur. That's going to be dependent on what happens to short-term rates. And certainly, the price with a lag -- so I think I would expect the expansion of the margin to be slower in the second quarter, but then continue to expand as we drive to that higher NII guidance. So as you said, we do have the tailwinds of the fixed rate investment portfolio to continue to reprice. So that hasn't changed. Unknown Analyst: Okay. And if the Fed doesn't cut interest rates, would that put you above the higher end of the range on NII? Jorge Garcia: Our current guidance assumes no further cuts in 2026. For us, I'd love to see the steepening of the curve, but margin really depends on the mix of deposits, we are heavier on public deposits that we'll have an impact on that margin. Really, the NII guidance is kind of how we see the front now. Deposit balances will -- as we said, and the deposit costs are really kind of the drivers of that spread and being able to get above the -- our current guidance. Unknown Analyst: Okay. That's helpful, Jorge. And then the other question I had was just around capital and 15.9% CET1. It sounds like you're going to give a lot more color in 2Q. And I think it's great that you guys have kind of acknowledged that investors have wanted to see the capital base deployed. Any color that you can give us just around your thoughts on end of your capital ratios or targets or anything that as you're working through this, if you could share with us on your progress there? Unknown Executive: We want them to be lower than they are now, unless we make a lot of money and not. But no, I mean, we really -- we are committed. We obviously have said in the past that we want this to be -- we want to do it in kind of over time in a controlled manner, but we certainly are committed to doing that. We're trying to be more intentful in our language and how we communicate about this. And we are committed to executing. Operator: And our next question comes from Timur Braziler of UBS. Timur Braziler: Going back to the profitability comment. 2 straight quarters now above that 40% objective I guess, Javier I was a little surprised to kind of hear you reiterate that comment on remaining focused on reaching that 14% through the cycle objective. Are we not there yet? And I guess that phrase through the cycle, like how far out are we looking in terms of that level of sustainability? Javier Ferrer-Fernández: Thank you for your question. I think that -- I mean 2 quarters, 2 great back-to-back reps quarters, a trend doesn't necessarily make. So I mean, we like that to continue obviously. And I think that through the cycle comment refers to a period when, of course, we were seeing stress -- major stress in the economy. And so that we actually demonstrate that facing the sort of more sort of headwinds we deliver on profitability targets. So that's how we're thinking about it. Again, I think the teams are doing great, but we don't want to -- remember that we also use the concept of sustainability. It needs to be sustainable. So that will take a little bit longer for us to claim victory. And of course, once we get there, we're not stopping there. And that's important. I mean, remember that we used the 14 when we launched a little bit over 3 years ago, our transformation program. So again, very happy with the mindset at shift and what we're producing for shareholders, but we're not there yet. Timur Braziler: Got it. Okay. That's good color. I appreciate that. Maybe sticking on the capital question. Any kind of color you can provide on just Basel III proposals, what type of impact that might have on your capital day? Unknown Executive: Yes. So first, we're not subject to the category 4 with [ AOCI ]. So we're small enough that, that doesn't impact us. We've done the preliminary review, Timur. And basically, we're -- our estimates are consistent with what the Fed guidance is that will be the impact for smaller banks. Obviously, the end result will depend on our balance sheet when that goes into place and whatever the final rule has. But right now, it's consistent with the estimates. And that's a reduction in risk-weighted assets, basically. Timur Braziler: Yes. Okay. And then just one more for me. I appreciate the full year guide on public funds. Just wondering, second quarter specifically, if there's any reason why we shouldn't be penciling in kind of a historical type run rate for the planned increase in public funds in 2Q? Unknown Executive: I mean I don't want to speculate. I mean, as you know, it's over 200 different clients, thousands of accounts. We talk to our clients, our relationship officers talk to our clients. We have some visibility, but some of these are big numbers that move around. So we're going to stick to the $18 billion to $20 billion range. Timur Braziler: Okay. And then sorry, I just want to make sure I'm understanding the Basel III impact. I think it was around 7% was the Fed guidance? Is that kind of what you're alluding to in terms of impact on RWA? Unknown Executive: That is correct. Operator: And our next question comes from Arren Cyganovich of Truist. Arren Cyganovich: Just want to hear your views on onshoring manufacturing in Puerto Rico. Obviously, last year, there were a lot of large announced investments. I haven't really seen any kind of new wins yet this year. Anything that you're hearing in terms of new potential investments in -- have you seen any actual benefits yet from the ones that were announced last year? Unknown Executive: You're right, there hasn't been any new public announcements by the government, so we don't want to get in front of them. But they continue working through the great line. They continue working on more entities coming in. There's 2 more entities that we've heard about. So -- but yes, looking at what's happening in the world, it's totally rational to believe that the momentum in continued investment, be it in big operations that are already located in Puerto Rico or new entities coming into Puerto Rico nor in United States also from Canada and the Far East and Europe, even should continue. So we are, again, expecting announcements from Puerto Rico government on it. But we don't want to get in front of rumors, but -- so far, all the rumors we've heard before, the actual announcement from last year, the Eli Lilly is the Ambience of the world found out. So we have our fingers crossed that the momentum will continue on reshoring for Puerto Rico. And as you know, manufacturing represents approximately 44% of our GDP. So it's an important contributor to our economy. I don't know direct jobs are also indirect jobs, most importantly. Arren Cyganovich: Have any of the ones that were announced last year started to get produced yet or any movement there? Is it going to take some time? Unknown Executive: Yes, it take some time. We have seen some new ones coming in and opening accounts with us and purchasing property and stuff like that. So they're setting up, typically it's a process where once they announced -- the government announced that means that they've got into an agreement with the companies and then the companies after that, start opening bank accounts, investing in real estate, getting third-party service providers coming in and doing the work. So we've seen some of that. So it has started. But as we've always said, it's going to take 3 to 5 years to actually get the actual numbers and the impact. Javier Ferrer-Fernández: And the largest announcements are expansions of facilities so they will require some significant construction investment in time. So we will first see that impact on the construction side. Arren Cyganovich: Great. And then lastly, just, Lidio, you had mentioned some loan modifications in commercial. Are these anything new abnormal increases, decreases? Just curious if you could give us a little color on that. Lidio Soriano: I mean nothing that I would characterize as being affecting the broader portfolio just one-offs, some clients are having some financial difficulty and we executed some non modification, but nothing that impacts the whole portfolio. Operator: And our next question comes from Kelly Motta of KBW. Kelly Motta: Maybe to kick it off on expenses. I see -- I think you were very well controlled in the first quarter and the guidance range is brought down a bit. Just wondering if you can opine upon the drivers of that variance I know there's some transformation efforts in play, wondering if some of those investments have been kicked out another year or 2. Unknown Executive: Thank you, Kelly. I mean there's always part of projects that maybe are slow to start. I wouldn't say that anything has been canceled or that is resulting in that reduction. But we are seeing -- we did benefit from a handful of things, better negotiations, some adjustments to expected expenditures that were lower in the first quarter, we reduced some excess accruals from the incentive payouts for profit sharing from last year. So those are all the things that you see the benefit in the first quarter, and that benefit will sustain for the year. There's others that are timing differences and -- but we'll continue to invest in technology. We'll continue to invest in people. We will continue efficiency efforts. Our expense targets for the year already included around $50 million of efficiency efforts. We continue to improve upon some of those. So that's all part of our embedded guidance. So there's just a lot of things going on, but at no moment, are we like pulling back on our technology and transformation efforts. There are shifts. For example, we went live on our ERP in January. So there are shifts in how those costs translate in terms of expenses, the things maybe were being capitalized before, now they're being amortized. But overall, we are happy with the level of focus of our teams on cost control and in execution. Kelly Motta: Got it. And just as a point of clarification, I guess. This guidance range doesn't include any of that excess profit sharing. So if you were to say, beat your NII outlook, that's the type of thing where those expenses would kick in. Is that the correct way to think through that cadence? Unknown Executive: That is the correct way. I mean we love to be able to pay profit sharing. We believe that those programs are aligned with our shareholders. That means that we are performing better than expectations. And if you assume that our original guidance are based in part by our expectations and budgets, and our interest should be aligned. Our current guidance does not include any profit sharing expense. But remember last year, even with a near $40 million profit sharing expense, we were able to deliver on our original expense guidance and of course, we always want to challenge our teams to be able to do more and absorb any incremental expenses that were not part of our plan. Kelly Motta: Got it. Maybe last question, if I can just slip it in on the size of the balance sheet. Cash money market investments have come down year-over-year. They were relatively flat about $4.8 billion, $4.9 billion-ish the past 2 quarters. Is that a good level on a go-forward basis? Or would you anticipate continued role into securities and loans off that [4.85 ] level? Unknown Executive: I think we've had that level for the last 2 or 3 quarters. We're comfortable with where we're at on that. We still have -- yes, I'll leave it at that. Operator: And our next question comes from Gerard Cassidy of RBC. Gerard Cassidy: If I recall my credit ratings correctly, and looking at your slide deck, you showed that S&P and Moody's have you on watch list with a positive implications. And it looks like you're notch below investment grade by those 2 rating agencies. I know Fitch, I think, is an investment grade. Can you share with us when do you think they'll determine whether they're going to lift that credit rating? And can you also remind us what is the last time Popular rated investment grade by Moody's or S&P? Unknown Executive: Well, I'd love to be able to guess the answer the first question, Gerard. What I would say is that we are focused on discussions with the rating agencies. We had an advocacy effort to make sure we continue to educate them and spending time, making sure that they are up to date and everything that's going on with Popular and Puerto Rico. But I cannot begin to guess. We believe that our ratings should be better, frankly. But -- and how long has it been? And my guess is probably go back to 2005, 2006 before the financial crisis. Jorge Garcia: It's an insightful question. I think that if you -- we have sort of retaken the efforts to make clear S&P and Moody's and visit with the inventory was suggesting. If you look at the purely numerical thresholds for us to be considered investment grade. I mean, we were there. But there are other things that may come into their consideration of us as Puerto Rico's largest financial institution as they see Puerto Rico -- and so -- but I think, again, if you only -- if you were to look at us as a peer banks, given our performance, we would definitely be [indiscernible] rated. Unknown Executive: But we'll take our positive outlook. We'll take that as momentum. Gerard Cassidy: Yes. I agree. As a follow-up question, I know you guys talked about the price of oil. You haven't seen any significant signs of economic stress at these elevated price levels. Can you share with us a couple of things? Do you recall in the first quarter of 2022, when Russia invaded Ukraine, obviously, the price of oil shot up. What kind of impact did that have on credit quality back then? And then second, if oil stays elevated at $125 a barrel, let's say, throughout the year, it would appear to weigh on the -- not only the Puerto Rican economy, but the U.S. economy as well. And what do you think that could do to credit quality? And then lastly, can you also remind us, I know the island is very dependent upon oil for its energy but I thought the island was moving to other alternative sources, maybe, natural gas, LNG, if you can update us on anything if I remember that correctly. Lidio Soriano: I would say, Gerard, this is Lidio. I will say that the answer to that is going to depend on the length where the first of all stays at this level. I mean, similar to the -- in 2022, I mean, the situation was -- or the increase in oil prices was short list, and that had a very minimal impact in terms of the delinquencies and the credit quality portfolio. So for us, I think the key is the -- and the impact for Puerto Rico and our portfolio is going to be the length of time in which we have elevated oil prices in the island. As we noted in our prepared remarks, we are very comfortable with our portfolios. We have seen no deterioration in the credit quality. We've seen normal seasonal patterns. And actually, our delinquencies are better than the last quarter, obviously, and much better than this time last year. So we're very, very pleased with our portfolio. Unknown Executive: The premise of your question is spot on. I mean we're no different than financial institutions in the United States. If the content continues for a long time and oil doesn't come down, as you know, dependent on that to create generate electricity in Puerto Rico. There's been growth in other sources of energy for Puerto Rico, but I don't think we're going to be able to switch quick enough not to have higher oil prices for longer impact us and our customers. So far, we haven't seen it. I think the second quarter will be -- will tell the tale more accurately if, in fact, the country continues and the price continues to go up or stay higher for longer. Gerard Cassidy: Very good. And Lidio, can I just circle back on your comment about delinquencies. Is it as simple as the health of the economy being as good as it is? You guys mentioned the unemployment rate is near record lows. Is it that straightforward that the health of the economy is the underlying factor that the delinquencies and credit are as strong as they are in the consumer books? Lidio Soriano: As always a combination of factors. But certainly, I mean, the driver for the performance of consumer books is employment. In addition to that, as alluded by Jorge in his remarks, you also have them in the first quarter, refund activity in Puerto Rico, we have given -- based on data provided by the local IRS. They have returned -- refund to customers around $2.2 billion, which is slightly up ahead of the pace of last year, about $300 million ahead of the base of last year. That's obviously impacted the liquidity of consumers in Puerto Rico and their ability to pay their loans. Operator: [Operator Instructions] And our next question comes from Manuel Navas at Piper Sandler. Manuel Navas: I think this builds off a little bit of the last commentary. But you added reserves on the commercial NPL from the third quarter. But most other loan buckets had lower reserves, especially with the auto and consumer, especially with delinquencies down, could there be some upside in provisioning from here? Reserves coming down? Or what do you -- how do you feel the progression should come -- go forward from here in credit costs? Lidio Soriano: Mean I like your thoughts. But I mean, I agree with you. I mean we had very strong performance from our consumer books, and that led to like the release of reserves, particularly in the [ older ] portfolio. We have done a lot over the last few years in order to improve the performance. So it is not by chance, it's also by the work that we have done in the commercial book, as we have said in the past, this is mostly corporate book. So every now and then, we have a situation or one-off clients that we may need to reserve for. We haven't seen anything that indicate that we have rock-based issues with our portfolios. We have dealt as we mentioned that in the third quarter of last year and to some extent in the first quarter of this year with 2 particular case, one related to commercial real estate in the U.S. and one related to telecom company in Puerto Rico. But we think if the economy stays where we are and that includes this level that there might be an opportunity in the quarters ahead. So we'll see. Manuel Navas: And that opportunity could show up in a couple of different places. And I'm going to probably ask a question that has already been asked a couple of times is, do you anticipate the buyback accelerates? Unknown Executive: I mean we'll be consistent. We'll come back to you and to the levels, we'll be consistent in trying to bring down the level of capital. But frankly, I mean, we're looking at it over a multi-quarter period to try to get to levels -- target levels that make sense. And I'm not sure that any given quarter, any provision really changes in our projected provision or where we're at is going to make a difference in our repurchase strategy. Manuel Navas: Understandable. Is the update that we're expecting at some point this quarter, would it include business line changes anything beyond just an update on a reauthorization of shares? Unknown Executive: We're talking about just our traditional kind of update on kind of authorization from our Board and perhaps dividend increases, et cetera. Operator: I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and welcome to Selective Insurance Group First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to Brad Wilson, Senior Vice President. Please go ahead, sir. Brad Wilson: Good morning. Thank you for joining Selective's First Quarter 2026 Earnings Conference Call. Yesterday, we posted our earnings press release, financial supplement and investor presentation on the Investors section of selective.com. A replay of today's webcast will be available there shortly after this call. Joining me are John Marchioni, our Chairman, President and Chief Executive Officer; and Patrick Brennan, Executive Vice President and Chief Financial Officer. They will discuss results and take your questions. During the call, we will reference non-GAAP measures used by insurance and investment professionals to evaluate financial and operating performance, including operating income, operating return on common equity and adjusted book value per common share. Reconciliations to the most comparable GAAP measures are available in our financial supplements on our Investor Relations page. We will also make forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements and projections about future performance are subject to risks and uncertainties that we disclose in our SEC filings. We undertake no obligation to update or revise any forward-looking statements. Now I'll turn the call over to John. John J. Marchioni: Thanks, Brad, and good morning. We delivered a solid start to the year, demonstrating the strength and consistency of our operating model in an increasingly competitive market. Our reserves remain stable across all insurance segments and lines of business, and our underlying profitability reinforces our confidence in achieving our full year guidance. As the industry continues to wrestle with elevated commercial casualty loss trends, we believe our efforts over the past 2 years have us well positioned moving forward. We generated an operating ROE of 12%, consistent with our long-term target. This was our seventh consecutive quarter of double-digit operating returns, which reflects disciplined execution across all our operations. As we have emphasized in prior quarters, we continue to prioritize underwriting margins over top-line growth. Our pricing posture on commercial casualty in both standard commercial and excess and surplus lines fully reflects our view on current loss trends. Despite ongoing industry-wide reserve pressure in this segment, market pricing, particularly in other liability occurrence, has not adjusted upward. As a result, our premiums declined 1% year-over-year with E&S up 1% and Standard Commercial Lines down 1%. In Standard Personal Lines, premiums declined 6%, while our target mass affluent market business grew by 1%. We believe heightened discipline is essential in today's environment. Across the industry, social inflation continues to pressure recent accident years, particularly in general liability, commercial auto liability and umbrella. Based on historical patterns, this could imply further deterioration in run rate industry profitability. In contrast, we believe our planning and reserving processes have been responsive to these trends, and we have taken meaningful action to ensure our assumptions remain aligned with emerging data. Our view of loss trends is integrated into our pricing strategies and underwriting decisions. This allows us to have conviction about where we write business and where we step back. In general liability, for example, we have delivered renewal pure price increases in the 10% range over the past 7 quarters, even as industry surveys show mid-single-digit rate increases. In commercial auto liability this quarter, we delivered renewal pure price increases approaching 12%. This discipline is impacting our competitive positioning on certain casualty-oriented accounts, but we do not believe pursuing inadequate casualty returns will create long-term value. While taking these deliberate disciplined actions amid increased competition, we are fully committed to the long-term opportunity to meaningfully expand our market share. We continue to execute on expanding our Standard Lines geographic footprint, and we remain focused on growing with existing agency partners and strategically appointing new agency locations within our existing footprint. We are also seeing positive shifts in our portfolio mix. Our relative exposure to contractors has declined within our new business mix, reflecting our efforts to diversify and improve margin durability. Contractors remain an important industry vertical for us, and we maintain differentiated expertise in serving them. However, a more diversified portfolio positions us better for long-term performance. On renewals, we have the tools and operating model to continuously improve portfolio quality, taking appropriate and granular rate actions. This results in lower retention on underperforming cohorts and stronger retention on well-performing accounts. The expected loss ratio benefit of these mix improvement actions accelerated over the course of the quarter as we leverage this capability more meaningfully. We believe these actions, combined with the continued earning of strong renewal pricing are appropriate given our market context and will drive improved underlying margins over time. We continue to invest in capabilities that support scale, diversification and profitable growth. Artificial intelligence strategically enables these efforts. Early AI achievements in claims, underwriting and risk management are delivering measurable outcomes in accuracy, speed and productivity, positioning us to responsibly scale AI across the organization. A significant portion of our strategic technology investments in 2026 is focused on improving risk selection, pricing accuracy and productivity. While we have deployed many AI tools and are evaluating more, I would like to highlight 2 that are having a meaningful impact in driving better, more consistent outcomes while also improving productivity. Our AI claims ingestion tool has processed more than 0.5 million documents, letting our adjusters focus on higher-value work. We also have deployed automation to support evaluation of contractual risk transfer adequacy, a key element of the underwriting process for contractors with over 90% of results returned by the tool within 2 minutes. These tools are supported by a governance program with a cross-disciplinary AI and model governance committee and a focus on human-in-the-loop engagement for AI outputs. These safeguards help us drive accuracy, quality and trust as we scale AI responsibly across the enterprise. We are excited about the opportunities ahead and confident in our ability to execute with discipline. Now I'll turn the call over to Patrick. Patrick Brennan: Thanks, John, and good morning. For the quarter, we reported fully diluted EPS of $1.58 and non-GAAP operating EPS of $1.69, resulting in an 11.2% ROE and a 12% operating ROE. Our GAAP combined ratio was 98.3%, including 6.2 points of catastrophe losses. Importantly, we had no prior year casualty reserve development at the segment or line of business level. We're pleased with this stability, and we'll continue to evaluate emerging data with rigor and discipline. Our underlying combined ratio was 92.1%. As a reminder, the first quarter typically runs a higher combined due to normal seasonality, and we expect our full year underlying combined ratio to fall within our original 90.5% to 91.5% range. Standard Commercial Lines net premiums written declined 1% as lower policy counts offset 7.1% renewal pure price increases and stronger new business pricing. We remain disciplined, focusing on growth in areas that meet or exceed our risk-adjusted hurdles and support our business mix diversification goals. Our first quarter general liability underlying combined ratio was 2.3 points higher than full year 2025 as we continue to embed elevated severity growth into our assumed loss trend for the line. In commercial auto, the underlying combined ratio for the quarter was 98.0%, 1.1 points better than full year 2025, driven by lower non-catastrophe property losses. Commercial auto liability picks remain consistent with full year 2025 as earned renewal pure price continues to offset severity pressures. Excluding workers' compensation, renewal pure price increased 8%. General liability pricing increased by 9.8% and commercial auto pricing increased 9.1%, up 50 basis points from the fourth quarter. Auto liability price increases approached 12%. Property renewal premium increased 10%, including 3.7 points of exposure growth. Retention was 82%, stable with recent periods, but down 3 points from a year ago due to pricing and underwriting actions to improve profitability. We are intentionally driving higher point of renewal retention on our best-performing accounts and meaningfully lower retention on underperforming businesses. These actions accelerated through the quarter and should contribute to improved underwriting margins in Standard Commercial Lines going forward. Excess and surplus lines premiums written grew 1% in the quarter with average renewal pure price increases of 4.1%. We continue to push higher rate levels in E&S casualty based on our view of general liability loss trends. Property pricing was slightly negative, reflecting heightened competition and strong margins. The E&S combined ratio was a profitable 89.5%, 3 points better than a year ago. In Personal Lines, the combined ratio improved to 92.8% for the quarter from 98.0% first quarter 2025 and 100.6% for full year 2025. Results are even stronger outside of New Jersey. Personal Lines net premiums written declined 6% year-over-year with target business up 1%. Nearly all new business came from our target mass affluent markets. Renewal pure price was 10.6%. Turning to capital management. We continue to prioritize profitable growth and aim to return 20% to 25% of earnings to shareholders through dividends. We also consider repurchasing shares when our capital position and stock price make it attractive to do so. During the quarter, we repurchased $30 million of common stock, building on the $86 million we repurchased in the full year 2025. At quarter end, $140 million remained on our authorization. We will continue to balance opportunistic repurchases with maintaining capital to support profitable underwriting and investment opportunities. After-tax net investment income was $113 million, up 18% from a year ago, generating 13.3 points of return on equity. Our portfolio is conservatively positioned with an average credit quality of A+. We modestly extended the duration of our fixed income portfolio to 4.3 years to support the durability of our book yield. Turning to guidance. We are reaffirming the guidance we communicated in January. For 2026, we expect to see a GAAP combined ratio between 96.5% and 97.5%, assuming 6 points of catastrophe losses. As a reminder, our forward guidance assumes no future reserve development as we book our best estimate each quarter. We continue to expect after-tax net investment income of $465 million. Our guidance assumes an effective tax rate of approximately 21.5% and a fully diluted weighted average share count of approximately 60.5 million, which reflects first quarter share repurchase activity, but does not make assumptions about future activity. With that, operator, please start our question-and-answer session. Operator: [Operator Instructions] our first question comes from the line of Michael Phillips from Oppenheimer. Michael Phillips: John, you touched on the GL and commercial auto top-line in your opening comments. I guess I want to dive into that a bit here. A little surprised by the downturn in premium growth. I mean maybe you can help us parse out the impact of how much was from what you call the competitive environment, maybe more greedy players at this stage of the cycle versus in your other comments, you talked about kind of deliberate actions. So which one had more of an impact there, I guess, is the first question. John J. Marchioni: Yes, sure. Thanks for the question, Mike. With regard to -- and I'll focus on commercial overall, you highlighted auto and GL. And clearly, those are the 2 lines that from a pricing perspective, I think we've really shifted our posture over the last couple of years. New business is the biggest driver of the drop in premium, and that's really, I think, predominantly driven by hit ratios. And as we've talked about over the last couple of years, as we've developed conviction in our view of loss trends and therefore, our view of rate need, we've applied a consistent approach and philosophy to how we think about pricing new business. And as a result of that, we've seen hit ratios come down. Retention on the commercial line side at 82% has been stable with what we saw for the last 3 quarters of 2025. And I think that really reflects our ability to be granular in the execution of our pricing strategy and maintain strong overall retentions, but really drive retentions down in the cohorts of business that we have a view that forward profitability is not where it needs to be. And as a result of that, when you think about deliberate action, I think that's more of a deliberate action focus, sort of maximizing retention on the business we have the strongest forward view of profitability on and maximizing rate and you're seeing retentions come down in those other cohorts. And that's how I piece together what we're seeing there in terms of overall premium growth. Michael Phillips: Okay. That's helpful, John. I guess maybe sort of sticking with that theme in a different angle. You give us your slide on the retention cohorts, the retention groups. And this is the first quarter, there was kind of a dramatic change, I think, and the average one came way down. But I guess anything to read on the excellent above average shifted up a bit, good news. The average came way down, 27%. And then the below average and very low sort of ticked up a bit as well. So I don't know if that's a short-term thing, but any comments there? Because you talked about the different contractor stuff in your opening comments, but quite a bit of a shift there in those retention cohorts. John J. Marchioni: Yes. I would say, generally speaking, the way you want to think about that is there's a modeling output and then there is an underwriting overlay on a segmentation basis that will move those buckets around a little bit to make sure that we're aligned across the board in terms of the business we really want to target. I think the bigger focus area should really be at those extremes, both good on the excellent and above-average buckets and the low and very low buckets, and that's where you really want to see the differentiation between rate and retention. And you're seeing that shift in a positive direction, and I would expect to see that continue on a go-forward basis. Operator: And our next question comes from the line of Michael Zaremski from BMO Capital Markets. Michael Zaremski: Just kind of, John, thinking about your prepared remarks about kind of the loss trend for the industry, maybe not pricing not reflecting kind of the current loss trend and seeing the -- you pull back in new sales. Is this -- to what degree would you be willing to continue pulling back and pulling back even more? Just trying to think about the pace of the top line change this quarter. Typically, the industry moves, I think, fairly slowly on kind of their view on loss trend. You guys have taken a lot of -- done a lot of deep dives and taking a lot of corrective actions. So I guess, would you allow the top line to start declining if the market doesn't move your way? John J. Marchioni: Yes. I would say a couple of things. And again, I appreciate the question, Mike. We've been through this before. And you look back to 2010 to 2012, and it was a pretty similar environment. And over the long term, that short-term pain that we felt on the top line positioned us to really outperform significantly over the following decade. And I think we're in a similar situation. Now that said, I think we have the opportunity to continue to mitigate that top line impact through the execution that we talked about in terms of granular segmentation of our renewal portfolio, which should allow us to maintain solid retentions overall and the same philosophy around how we think about new business and new business selection. There are opportunities to write new business in this market and write it profitably and our ability to target those and the depth of relationships we have, I think, will allow us to pivot and maintain strong new business performance. With regard to your comment on industry trends, though, I just want to reinforce one point, and I alluded to this in the prepared comments. I think if you look at where auto pricing is -- auto liability pricing is in the industry, that has been firmer and has stayed there on an industry basis. I think that's -- there's a better recognition of not just where trends are, but where run rate profitability is. And if you look at where run rate profitability is in commercial auto, the AM Best estimate is just over 103 for 2025. And if you were to split that between liability and physical damage, liability is probably in the 107, 108 kind of range. So the starting point is not great for the industry and the trends are elevated, so that rate need is there. And I would say the industry is more responsive. I think the bigger challenge is on the GL side, and I pointed to that in the prepared comments. If you look at where GL is, and this is other liability, both products and non-products, and again, there are different estimates out there on an industry basis, but AM best has GL at the 108 range. And I would say when you look at what happened in 2025, there's another $8 billion of adverse emergence booked by the industry. And even so, a lot of that was still '23 and prior. And I don't know that you've seen that fully reflected in 2024 and '25. I think that's the part of the market that hasn't been as responsive. And I think when you look at the way the claims come through and the shorter tail on commercial auto liability versus general liability, I think it's a quicker recognition, but I would expect that recognition to start to come through on GL in the next couple of quarters. And we see where -- how our peers comment and a couple of peers that have already released and made comments around where they think the direction of pricing is and needs to be on commercial casualty, I think that's in line with what we've been saying and what we would expect to see going forward. Michael Zaremski: Okay. That's interesting and helpful commentary. Switching gears a bit to the expense ratio guidance from last quarter about some of the investments. Should we be thinking through any operating leverage implications too on the expense ratio from the change in top line? Patrick Brennan: Yes, Mike, thanks for the question. As we look forward, obviously, we're focused on growing our business the right way. But I would say to the extent that we do see a tempering of growth, we're obviously going to be very mindful of our expense ratio and ensuring that we are continuing to compete with a competitive expense ratio. So that will definitely be a focus. But I would say our focus right now is really ensuring that we can grow the business in a way that meets our overall expectations. John J. Marchioni: And just to further that point, I think Patrick is exactly right. As we manage the expense side of the equation in light of the top line, we can't lose sight of the fact that the increasing technology investments we pointed to over the last couple of quarters will increase capacity, and I think will be a positive directional item with regard to expense ratio on a go-forward basis. Michael Zaremski: Got it. And just lastly, real quick, it was great to see no overall reserve development. I think that was a welcome sign. Just curious under the hood on the long-tail casualty lines, was there any thing worth calling out on vintages or changes? I know you're booking your '24 and '25 picks on social inflation at kind of looks like conservative levels. Just curious if there's anything you want to call out. John J. Marchioni: No, there's -- and we pointed to the line of business as well if there was nothing notable from a line perspective. But to the rest of your question, from a vintage perspective, there was nothing there either with regard to movement across vintages. Operator: And our next question comes from the line of Rowland Mayor from RBC. Rowland Mayor: Congrats on the quarter. I wanted to quickly ask on the capital return and if you could walk me through your strategy. As we look at lower growth, we start to see the payout ratio climb? Or are there other factors we should be looking at? Patrick Brennan: Yes, Rowland, thanks for the question. Look, I'd say our overall capital management philosophy is unchanged. We continue to invest in a growing and profitable business. That's our first and best use of capital, as you would expect. Our overall capital management philosophy also contemplates a dividend that is in the 20% to 25% of long-term earnings. And as and when we have capital over and above what we think we need to run the business, that provides us with a lot of flexibility, of which could include share repurchases. When we think about share repurchase activity, it's really a function of what our valuation is relative to our own view of where our stock should trade and as well as that our future needs for capital. And so I don't think there's anything particularly different about what we've done this quarter relative to the last couple of quarters. Certainly, we've seen our stock trade off. And on a relative valuation perspective, we are coming in at attractive levels at a time when we have additional capital to do that. Rowland Mayor: That's super helpful. And then I was wondering if you could help me understand the difference between the high end and the low end of the combined ratio guide for the year. Is it largely pricing and competitiveness? Or are we -- is there some non-cat losses that are kind of assumed between the difference between the 96.5% and the 97.5%? John J. Marchioni: I think it's intended to be reflective of the normal variability in non-cat property. That's the primary driver. Operator: And our next question comes from the line of Meyer Shields from KBW. Meyer Shields: I guess a question on workers' compensation. If you go back to 2023, there was sort of steady, modest favorable development just about every quarter. And I'm wondering whether the absence that we're seeing in the first quarter of '26, is that because you're not seeing the same delta or you're taking a more conservative approach to acknowledging it? John J. Marchioni: I would say just in terms of the trend of favorable emergence in workers' comp, if you look back over the last 2 calendar years, the majority of our action on workers' comp with regard to favorable emergence came in the fourth quarter of the last 2 years and was generally associated with our annual tail study that we do at the end of the year. There might have been some small releases in other quarters, but generally speaking, that's where it came from, and it was -- it was at the end of each year. So I don't think that trend has really shifted. There's no question. I think our view when you see it in our book loss ratios, our view has been that with regard to the continuing negative price environment and our view of where we believe severity trend to be, you want to take a more conservative stance relative to how you think about those more recent accident years, and that certainly feeds into our view and our philosophy. Meyer Shields: Okay. That's very helpful. And then I had a separate question. If you go back to the, I'll call it, the portfolio chart with the different cohorts of performance, when you look at the better performing accounts, are the loss trends different there? I understand the loss experience is different, but I'm wondering whether the trends vary by quality of account? John J. Marchioni: I would say there might be some nuance there. But generally speaking, especially when you think about why we see elevated trends, they're social inflationary in nature. And as we've said on a geographic and a segment basis, fairly widespread. So I think it's a pretty good assumption that you would expect your severity trend to be pretty consistent across cohorts. I would expect on the flip side, you would see some frequency improvement that might give you a better trend view on a forward basis with regard to that preferred bucket because they're better controlled accounts, generally speaking. So you would expect to see potentially some favorable frequency influencing your view of trends there. Meyer Shields: Okay. And if I can throw in one last question really quickly. Does the -- I guess, the mix change away from contractors, does that have any implication for the surety book? John J. Marchioni: I would say not really. There is some association there, but it's not that significant. We like the surety business. We think there's an opportunity there for us to continue to grow that segment over time. But I also want to reinforce the point, we like the construction business, and we've got a long history there of strong performance. This is really about optimizing other segments which will benefit the mix overall. But we are not walking away from the construction segment by any stretch. It helps us manage our overall catastrophic exposure to property cat. We think we've built up a lot of skills and experience in those -- in the various contractor segments. So we plan on continuing to be a strong player there. We just see opportunities to further diversify segments, which will also help us diversify by line of business over that same timeframe. Operator: [Operator Instructions] Our next question comes from the line of Paul Newsome from Piper Sandler. Jon Paul Newsome: Just a couple of actually kind of follow-on questions. Within contractors, obviously, there's a ton of different kind of contractors. Is there any sort of differences within the trends that we would see in that regard? And I guess I'll ask my second question too. Can we also think about or talk about some of these at least from a competitive advantage or business advantage on a state-by-state basis? Do you still have some states that New Jersey was a problem at least one point. So yes, any areas of those 2 kind of broad buckets? Any color would be great. John J. Marchioni: Yes. So -- and I was having a hard time hearing the end of the question, but it sounded like it was mostly focused around geographic hotspots with regard to loss trends. I would say, other than what we've previously pointed out, and remember, I think that was -- those comments were more around auto than they were around general liability, and that continues to be our view. Frequency and severity trends in New Jersey, auto on both personal and commercial, but we're talking commercial here have remained elevated. And I think we see that across the industry as well. We pointed to a couple of other places, sort of lesser issues, but we pointed to South Carolina. So I would say there's no change there, and that's all reflected in our view from an underwriting and a pricing perspective in terms of how we manage the business going forward. With regard to contractors, and you're right. I mean that's a very broad classification. But within that -- and our focus tends to be on the artisan contractors. So it's not a lot of the large construction outfits, although we do write some of that, but it's really the artisans. And I would say that the differences we see tend to be more around geography as we're talking about here than it does anything else from a loss trend perspective. Performance is certainly different and the auto relative to the GL exposure is going to be different by classification in terms of the size of the auto fleets in certain construction classes being bigger than in others. So you've got a little bit of a GL versus auto distributional difference. But generally speaking, the way you underwrite construction is pretty similar in terms of understanding safety practices and making sure those safety practices are employed on a consistent basis across all job sites and also making sure that when you have contractors who are involved on either a subcontracting or a general contracting basis, you've got really good information around the contracts that are in place to understand whether or not you're assuming risk from another party to the contract that you didn't anticipate and your ability to underwrite that effectively, I think it's a pretty consistent consideration across all segmentations within construction. Operator: And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to John Marchioni for any further remarks. John J. Marchioni: Well, as always, we appreciate your interest and engagement. And if you have any follow-up items, please feel free to reach out to Brad. Thank you very much. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Greetings, and welcome to the Gentherm First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Gregory Blanchette, Senior Director, Investor Relations. Thank you. You may begin. Gregory Blanchette: Thank you, and good morning, everyone. Thanks for joining us today. Gentherm's earnings results were released earlier this morning, and a copy of the release is available at gentherm.com. Additionally, a webcast replay of today's call will be available later today on the Investor Relations section of Gentherm's website. During this call, we will make forward-looking statements within the meaning of federal securities laws. These statements reflect our current views with respect to future events and financial performance and actual results may differ materially. We undertake no obligation to update them, except as required by law. Please see Gentherm's earnings release and its SEC filings, including the latest 10-K and subsequent reports for discussions of our risk factors and other significant assumptions, risks and uncertainties underlying such forward-looking statements. During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release and investor presentation. On the call with me today are Bill Presley, President and Chief Executive Officer; and Jon Douyard, Chief Financial Officer. During their comments, they will be referring to a presentation deck that we made available in the Investors section of Gentherm's website. After the prepared remarks, we'd be pleased to take your questions. Now I'd like to turn the call over to Bill. William Presley: Thank you, Greg, and good morning, everyone. Let's begin on Slide 3. I want to start by saying that the Gentherm team demonstrated strong execution in the first quarter. Over the last year, we spent a lot of time improving our operating system. We've been focused on fundamentals that are core to operating in an efficient, consistent manner in all aspects of the business. I visited Gentherm sites in multiple countries over the last 3 months and was able to observe changes in how we operate in all locations versus last year. The teams are engaged in targeted actions for growth in new markets, factory floor space occupation and efficiency are increasing and the teams are adopting tools we put in place to drive financial rigor. I was pleased to see these efforts starting to produce tangible results in the quarter. The first quarter also demonstrated our ability to execute in a dynamic environment, and we are confident in our ability to continually improve our operations. After spending the year with the team putting tools and processes in place, we concluded that realigning our operating model and structure will drive increased speed and transparency across the organization. Therefore, during the quarter, we initiated an organizational realignment that reduced spans and layers to increase agility and provides a concentrated focus on internal improvements as well as the ability to accelerate our growth platforms. This realignment positions us well to deliver key financial and operational priorities going forward. Strategically, this quarter marked an inflection point in our journey to transform Gentherm. We took action to position the company for sustainable, profitable growth with our announcement to combine with Modine Performance Technologies. This transaction transforms the company with an expanded product portfolio and broader end market exposure. We continue to execute our priorities and strategy even though the environment around us remains dynamic. Since our prior earnings call, the macro and geopolitical environment has changed significantly and is creating an increased level of economic uncertainty. Despite these recent events and other macro issues over the last year, light vehicle production schedules have remained relatively stable, which has allowed us to focus on operational improvements. We continue to assess key data inputs, including dealer inventory levels and customer schedules as well as collaborating directly with our customers to get real-time insights on future demand. That said, headwinds are beginning to emerge across the globe. These include direct cost increases in logistics due to lane disruptions and fuel surcharges as well as cost increases of petrochemicals used in raw materials. In addition, we are now starting to see cost inflation flow through to other materials, which are being indirectly impacted due to increases in processing-related costs. We continue to monitor developments in real time, and we are working closely with our suppliers and customers on a variety of mitigation strategies. We are preparing to implement pass-through or reimbursement mechanisms on applicable costs. We have actions ready to execute both commercially and operationally. We will remain agile, and we are confident in our ability to navigate through volatility and uncertainty. Now please turn to Slide 4, where I will discuss some of our first quarter highlights. The first quarter financial results were above our expectations. We secured $395 million of automotive new business awards, which were well balanced across region, customer and product. The pursuit pipeline looks robust for the remainder of the year. We made significant progress on our organic growth initiatives, including key announcements with KUKA Home and our new medical product, ThermAffyx, both of which I will discuss further in a few moments. Our product revenues for the quarter were $394 million, a quarterly record for the company, driven by strong Automotive Climate and Comfort Solutions growth over market. We delivered solid first quarter margin performance, driven by continued progress on our operational excellence initiatives. The business systems we put in place are beginning to have a meaningful impact, driving improved execution and expanded margins. As we build on this momentum, we remain confident in our ability to deliver sustained performance improvements over time. Turning to Slide 5. One of our top priorities over the last year has been scaling our existing products and technologies with new markets, new applications and nontraditional customers deliver strategic profitable growth. During the first quarter, we continued to prove the broad applicability of our technology beyond automotive through our achievements in home and office as well as medical. We officially launched and began supplying production parts to KUKA Home, which is a leading global furniture manufacturer. Since mid-2025, Gentherm played an important role as a collaborative innovation partner with KUKA, which led to co-branding of Enhanced Comfort by Gentherm. The launch this quarter also demonstrates our ability to generate revenue quickly in home and office market by utilizing our core assets and standard kit methodology to maintain the performance, quality and consumer experiences established in automotive applications. In March, Jon and I spent time in China at KUKA headquarters with their CEO and senior leadership team discussing our partnership. There is mutual interest in scaling Gentherm products across additional KUKA Home platforms. Beyond KUKA, our momentum in home and office is accelerating. Earlier this month, we were selected by a leading North American furniture brand to supply our climate and comfort products. This marks our fourth consecutive quarter securing a new home and office customer. We anticipate starting production with this customer later this year. Separately, in our medical business, we announced our FDA 510(k) submission for a new innovative product that is expected to redefine the standard of care for robotic surgeries. Our patented ThermAffyx system combines conductive air-free patient warming with securement technology to help prevent both hypothermia and patient movement on the inclined surfaces used during robotic procedures. We have been vocal about the importance of refreshing our product portfolio in the Medical segment and believe this innovative new solution will be a key contributor to accelerating our annual revenue. The regulatory approval process remains on track, and we expect the ThermAffyx system to begin generating revenue later this year. Overall, we remain committed to repositioning the company for growth by taking our technologies outside of light vehicle markets, and we achieved several important milestones during the quarter. Let's turn to Slide 6. In January, we took a major step in transforming Gentherm by announcing our agreement to combine with Modine Performance Technologies, creating a market leader in thermal and precision flow management. The more we work with the Modine team, the more excited I get about bringing this business into the Gentherm family. This is a well-run business with a great team. Through our work together, we are learning techniques and processes that Modine used to transform their business, and we intend to harness those lessons for the good of Gentherm. We have emphasized the importance of expanding our business beyond the light vehicle segment, and Modine is accelerating our access to critical growth markets, including power generation, commercial vehicles and heavy-duty equipment. This intentional shift in our end market exposure positions us for increased value creation. We are particularly excited about the new product and market opportunities this partnership unlocks and are more confident than ever in our combined growth trajectory. When we map out the next 5 years as a combined company, we see a clear path to generating $3.5 billion in revenue and more than $0.5 billion of earnings. I will now hand it over to Jon to discuss an update on the transaction and highlights for the quarter. Jonathan Douyard: Thanks, Bill. Now turning to Slide 7. Since the announcement, we have been working diligently with the Modine team to define and execute a project plan that ensures a timely, seamless closing of the merger. We have established an integration management office comprised of key stakeholders. And in March, we held a kickoff Integration Summit with business and functional leadership from both teams at our headquarters here in Michigan. Through the summit and ongoing interactions, the teams are focused on ensuring that the business can operate effectively on day 1 and that we are well positioned to deliver on value creation opportunities post merger. As we talked about that announcement, we intend to operate Modine Performance Technologies as a stand-alone division of Gentherm, similar to how the business is managed within Modine today. Given this structure, the primary integration areas relate to corporate systems and functional support, not on highly complex integration of facilities or organizations. In terms of other recent transaction highlights, we were pleased to receive HSR clearance to close from the Federal Trade Commission in March, a key regulatory milestone. Our teams continue to prepare for the S4 filing and the inputs into that process remain on track. Overall, we still expect this transaction to close later this year and are excited about the potential for the combined business. We will continue to keep you updated as the year progresses. Please turn to Slide 8 for a review of the first quarter financials. Overall, first quarter results were above expectations as revenue was higher, driven by stronger automotive volumes and outperformance in China. Revenue of $394 million was up 11.3% compared to the same period last year. Revenues, excluding foreign currency translation increased 7.2%. Automotive Climate and Comfort Solutions revenue increased 13.6% year-over-year or 9.8% ex-FX as we continue to see strong growth over market across all regions and product categories. We had particularly strong performance in China during the quarter, driven by the ramp-up of production on new program launches with domestic Chinese OEMs. This comes as a result of our intentional focus to shift revenue mix and better represent the local market. In addition, we saw increased take rates in China from global OEM customers as they look to remain competitive in the market. From an automotive product perspective, it was another strong quarter of revenue growth for our lumbar and massage comfort solutions, which grew 33% year-over-year. As we have discussed in the past, we expect to see the strong growth trend continue in this product into the future as we continue to launch previously won programs. Turning to profitability. We delivered $49.3 million of adjusted EBITDA or 12.5% of sales compared to 11.1% of sales in the first quarter of last year. The 140 basis point increase was primarily driven by operating leverage and strong net material performance, partially offset by annual price reductions and higher labor costs. On a reported GAAP basis, diluted earnings per share were $0.14 in the first quarter. This was impacted by approximately $0.70 per share related to merger and restructuring expenses. Adjusted diluted earnings per share were $0.84, up 65% compared to $0.51 per share in the first quarter of last year. Cash flow continues to be a point of emphasis for the company. And while we did have a typical seasonal operational cash outflow, the team delivered an $8 million improvement year-over-year. Additionally, CapEx purchases of $5.6 million were down $9.2 million year-over-year as we continue scrutinizing new investments. From a balance sheet perspective, we ended Q1 with net leverage of 0.2 turns, and we had liquidity of $456 million, giving us ample capacity to support our strategic priorities moving forward. Please turn to Slide 9, where I will discuss our 2026 guidance, which excludes any impact related to our planned combination with Modine Performance Technologies. As Bill mentioned in his opening remarks, the operating environment has been dynamic since we introduced guidance in February. Despite the stronger first quarter performance, given the high level of uncertainty in the macro environment, we are maintaining our full year guidance at this time. We expect revenue to be between $1.5 billion and $1.6 billion, representing approximately 3% growth for the year against the recent industry report where our key markets are expected to decrease approximately 2%, positioning us to deliver mid-single-digit revenue growth over market. For adjusted EBITDA, we expect to be in the range of $175 million to $195 million, which implies a midpoint adjusted EBITDA margin of approximately 12%. From a quarterly perspective, we expect the revenue profile to be spread fairly even throughout the year. However, we do expect margins to be depressed in the second and third quarter, and there are a couple of factors driving this. First, building on Bill's earlier comments, inflationary impacts stemming from the current geopolitical environment are expected to drive approximately $20 million in incremental costs during the year, recognizing that this estimate remains fluid and is evolving real time. Although we expect to mitigate a meaningful portion through commercial and operational initiatives, including benefits from the realignment, timing differences between cost realization and recovery are likely to create additional margin pressure. Additionally, as we work to finalize our global footprint transition later this year, we will begin depleting our inventory bank build in the second quarter, which will have a negative impact to gross margins. Turning to cash. Our estimate of adjusted free cash flow remains between $80 million and $100 million with CapEx in the range of $45 million to $55 million or approximately 3% of sales. Overall, we were pleased with our start to the year and are focused on strategic actions to accelerate profitable growth and reinforce operating discipline to drive long-term value. With that, I will hand it back to Bill for some closing remarks. William Presley: Thanks, Jon. Turning to Slide 10. I want to outline what we've accomplished, the key priorities today and how we will evolve. We are on a multiyear journey to deliver sustainable value creation. 2025 was reinforcement of the foundation that we will build on going forward. We established our strategic framework to deliver shareholder value, which focuses on profitable growth, operational excellence and superior financial performance. This drives everything we do. To drive profitable growth, we simplified and segmented into 4 technology platforms to clearly define our core competency and identify attractive markets outside of the light vehicle market where our products are applicable. This product and market alignment was a catalyst for reshaping our M&A funnel. We also saw opportunities in the business to operate more efficiently. During 2025, we focused on building core components of an operating system through business process standardization and increased utilization of assets to drive margin and cash generation improvements. We started reaping some of the benefits of that stronger operational rigor during the first quarter of 2026. With this foundation now in place, Gentherm is at an inflection point. The addition of Modine Performance Technologies accelerates our transformation. This action is the first step in establishing a product portfolio of mission-critical components across broad end markets. Our shared core competency of precision thermal and flow management allows us to scale into attractive markets together through cross-selling and integration. In addition, our complementary product expertise allows us to gain broader customer insights and provide more integrated solutions to pursue new high-growth opportunities. Gentherm continues to focus on the core business as we are confident in our ability to scale revenue and expand margins. We are actively launching products into new markets to deliver profitable growth while realigning the organization to drive speed, efficiency and accountability. As we move into the future, Gentherm will scale into attractive markets while improving profitability and cash flow, and we will leverage best practices from Modine Performance Technologies to outperform our peers. Despite the risk we may have in front of us during the months ahead, we are confident we have the right strategic plan established to drive performance improvements in the long run. We have built the foundation, we have a clear vision, and we are focused on execution. We will continue our relentless pursuit of building a more resilient company. We are at the beginning stages of transforming Gentherm into more than an automotive component supplier, where we will grow sustainably with differentiated and scalable technologies. With that, I'll turn the call back to the operator to begin the Q&A session. Operator: The first question is from Nathan Jones from Stifel. Nathan Jones: I guess I'll just start off with a question about the $20 million incremental costs you talked about. Can you just maybe provide us a little more color on how much of that passes through contractually to customers versus what you've got to go out and renegotiate versus potentially methods that you can offset that internally? Just any more detail you can give us on that. William Presley: Yes. Contractually, we're not on a simulator or escalator with any customers just because the scale of what we buy in any one product isn't large enough to be meaningful to them. So we'll have to go out, Nathan, and we'll have to work through recovery mechanisms with the customers on all of that. We will give some perspective... Nathan Jones: And so you'll -- sorry, the cost will hit pretty much immediately or it will take a couple of quarters to catch up with that pricing? William Presley: Yes. Timing-wise, we expect the costs to start hitting in Q2. So we think Q2 is going to be a definition of recovery mechanisms with the customers that we agreed to. And then there'll just be that timing disconnect that will start flowing in Q3, Q4. Nathan Jones: Okay. I guess my second question then I'm going to ask one about the internal operating structure changes. I think those are kind of important things to highlight. You talked about reducing spans and layers to increase focus. Can you maybe just provide a little more color on what you're doing there, how you think that catalyzes either whether it's growth or it's margin expansion or it's both? Just more color around those changes and how you think they improve the business, please? William Presley: Yes, absolutely. So it's intended, first of all, to do a couple of things, as we mentioned, and I'll get into some quick detail for you, Nathan. A lot of -- if you remember, Jon and I both started at the same day last year, right? So we took a year to thoughtfully understand the plumbing of the organization and how things were running. And one of the big messages we got from the broad organization was there's too many hoops. There's too many barriers. We're not moving fast enough. We're not making decisions fast enough. So we went through an organizational realignment, and we realigned it really based on product. So we segmented out valves as a business unit. So now we have Climate Comfort, Valves and Medical as a business unit within Gentherm Technologies. And over top of that, we'll have a very lean corporate structure. So that was intended to put focus on high-growth opportunities that was intended to drive continual improvement on key initiatives. So we're more aligned functionally now as opposed to a complicated matrix across regions. And we did -- we do expect that, that will have cost benefits. But it primarily was to segment the business to focus on high-growth opportunities, to continue to push the operational improvements and the sustainability there. For the year, though, it will -- annual run rate will be about $10 million-ish better on the OpEx, and we expect half of that to hit this year. Operator: The next question is from Ryan Sigdahl from Craig-Hallum Capital Group. Ryan Sigdahl: I want to start with the outperformance versus light vehicle production. This is as strong as we've seen in many years here, which was nice. Curious when I look at guidance, so 14-point outperformance in Q1, you're guiding to 5 points on the year. It implies a pretty meaningful deceleration kind of throughout the rest of the year versus the industry. Curious if you could elaborate on what the outperformance in Q1 was, why that's going to decelerate, anything from a onetime production orders, et cetera, standpoint? Jonathan Douyard: Yes. We wouldn't point to anything from a onetime perspective, and we really did see strength across all products, all regions. We pointed to China in particular. There was some outperformance there based on some launches that we did in the fourth quarter for some of the domestic OEMs that continue to show strength through the first quarter. As we look at the balance of the year, we certainly do not expect to outperform in the teens range. We'd expect it to moderate. I think at the top end of our guidance, it could push into that high single-digit range. But there's nothing specific to point to in terms of Q1 outperformance other than really just broad growth across regions and products. Ryan Sigdahl: And then GM yesterday or earlier this week, I guess, is suspending its next-gen electric truck program that was set to launch or start in 2028. Curious how much Gentherm's award backlog was from this program? Do you think you can offset that from a shift with more volume back to the ICE programs? Just curious kind of net positive, neutral, negative, how you guys think about that? William Presley: Yes. Overall, we just think it's neutral for us, Ryan. We've also won the ICE content for the platforms. So we just anticipate and based on everything we're seeing, the ICE volumes will compensate for the EV losses. Ryan Sigdahl: Very good. Maybe just a quick clarification, and then I'll hop back in the queue. But the $20 million of cost increase, is that a gross number? Or was that net of mitigation? Jonathan Douyard: That's a gross number and our best view of annualized impact or annual impact based on what we see today. Operator: The next question is from Matt Koranda from ROTH Capital Partners. Matt Koranda: Not to beat the dead horse here with the $20 million on incremental cost that you highlighted. But I guess I was curious, how much of that is incremental shipping versus material cost inflation that you're factoring in? And then on the pricing front, is it all offset via pricing? Or are there operating efficiencies that you think you'll offset the $20 million with as well? Jonathan Douyard: As you look at it, certainly a big piece of it is freight related. I'd say maybe 1/3 of it with the rest coming from commodities, and it's commodities that Bill -- or the product that Bill called out specifically, but it's also incremental processing costs. And so there's a downstream impact from increased petroleum prices. I think as we look at it, our mechanism from a recovery perspective will primarily be from recovery with the customer. We did point to the fact that the $5 million benefit that Bill talked about from the realignment will likely help offset pieces of that as well. I think we'll continue to push operationally, but we've got our teams focused on commercial recovery at this point. Matt Koranda: Okay. That makes sense. And then curious to hear a little bit more about the furniture market opportunity and how it's developed this year, I guess, just given the announcements around KUKA and the incremental wins that you highlighted. Have those catalyzed more discussions for you? Any way to characterize the opportunity funnel and how that contributes to '27 revenue? William Presley: Yes. I mean we'll start -- and again, we like the furniture business because of just super quick time to revenue that the industry has accepted and really bought into our standard methodology, our standard kit methodology. So we're getting good scale there on our assets with little to no investment. So we expect by '28 that that's clipping somewhere between $50 million and $100 million. So you can probably draw a line between now and then to figure out where '27 is. But we expect that to add 1 or 2 points of growth at accretive margins in the coming years. Operator: There are no further questions at this time. This concludes the question-and-answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. My name is Pryla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Knowles Corporation Q1 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star one again. Thank you. I would now like to turn the conference over to Sarah Cook. You may begin. Sarah Cook: Thank you, and welcome to our first quarter 2026 earnings call. I am Sarah Cook, Vice President of Investor Relations, and presenting with me today are Jeffrey Niew, our President and CEO, and John Anderson, our Senior Vice President and CFO. Our call today will include remarks about future expectations, plans, and prospects for Knowles Corporation, which constitute forward-looking statements for purposes of the safe harbor provisions under applicable federal securities laws. Forward-looking statements on this call will include comments about demand for company products, anticipated trends in company sales, expenses and profits, and involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties in the company’s SEC filings, including, but not limited to, the Annual Report on Form 10-K for the fiscal year ended December 31, 2025, periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today’s earnings release. All forward-looking statements are made as of the date of this call and Knowles Corporation disclaims any duty to update such statements except as required by law. In addition, pursuant to Reg G, any non-GAAP financial measures referenced during today’s conference call can be found in our press release posted on our website at knowles.com and in our current report on Form 8-K filed today with the SEC. This will include a reconciliation to the most directly comparable GAAP measure. All financial references on this call will be on a non-GAAP continuing operations basis, with the exception of cash from operations, unless otherwise indicated. We have made select financial information available in webcast slides that can be found in the Investor Relations section of our website. With that, let me turn the call over to Jeff, who will provide details on our results. Jeff? Jeffrey Niew: Thanks, Sarah, and thanks to all of you for joining us today. We started 2026 with solid financial results in Q1 and great momentum entering the rest of the year. Our strategy of leveraging our unique technologies to design custom engineered solutions and then delivering them at scale for blue chip customers in high growth markets that value our solutions is proving to be a powerful combination. We had strong organic growth in the first quarter. We delivered revenue of $153 million, up 16% year over year, at the high end of our guided range. EPS of $0.27, up 50% year over year, exceeded the high end of our guided range, and cash utilized in operations of $1 million was within our guided range. Now on to our segment results. In Q1, MedTech and Specialty Audio revenue was $68 million, up 14% year over year. Our customers’ new product introductions, coupled with our position on these platforms, have led to stronger than expected growth in the first quarter. Knowles Corporation continues to demonstrate our ability to deliver unique solutions with superior technology and reliability our customers have come to depend on. MSA’s first quarter revenue grew well above our annual organic growth target of 2% to 4%. However, the hearing health end market is expected to continue to grow at normal historical rates in 2026. Therefore, we are projecting MedTech and Specialty Audio will grow within the 2% to 4% range for the full year 2026. Beyond 2026, we are positioned well to win next-generation designs for MEMS microphones and balanced armature speakers. As I said during our year-end call, we also see the prospect to increase our content per device in next-generation hearing health products and expand our reach with our microsolutions group, which provides the opportunity in the future to increase growth rates above the historical rates. In the Precision Devices segment, Q1 revenue was $85 million, up 17% year over year, with all our end markets we serve—medtech, defense, industrial, and electrification—growing on a year over year basis. Let me share a couple of highlights driving growth in our end markets this quarter. We saw strength in the defense market across our product families. Our capacitors were in demand supporting ongoing OEM and defense programs, new products starting production, and share gains. We also saw broad-based orders for our RF microwave products as we continue to be a sole supplier on a number of key defense programs. Additionally, we do expect increasing demand in 2027 and beyond driven by the replenishment of stocks in connection with the Iran conflict. In the industrial market, demand continued to grow with strong order activity across a wide range of our capacitor products supporting a multitude of applications and industries at both our distribution partners and OEMs. As an example, our ceramic capacitors were in high demand in the semiconductor equipment market and also for use in downhole applications. Additionally, with inventory challenges we saw last year behind us, we believe our distributor partners’ orders are aligned with end market demand. In addition to the strong shipments we saw in the first quarter, our book to bill in Precision Devices was very strong at 1.19. This ordering pattern was broad based, and this marked the sixth consecutive quarter where the book to bill was greater than one. We see ordering strength across all our end markets both at OEMs and with our distribution partners. A robust pipeline of new design wins coupled with favorable secular trends gives me confidence in our ability to continue to grow revenue above the high end of the organic growth target of 6% to 8% for Precision Devices in 2026. I continue to be excited by the strength of our business and the momentum we exited the first quarter with. We are well positioned for continued strong organic revenue growth and margin expansion through 2026. We believe this momentum is sustainable for two key reasons: First, our portfolio of businesses are well positioned in markets with strong secular growth trends. Whether it be defense, medical, industrial, or electrification, the secular drivers of growth in these markets are forecasted to be positive for the foreseeable future. Second, we design high performance customized solutions for our customers that have demanding applications, and we have the manufacturing capabilities that allow us to ramp up these solutions quickly and efficiently. This combination differentiates us, allowing us to garner premium margins for the products we produce. This is proving to be a winning combination. Before I turn the call over to John to cover our financial results and provide our guidance, I would like to reiterate what I have said on previous calls. I believe Knowles Corporation has entered a period of accelerated organic growth. With a very healthy backlog of existing orders, we now expect our revenue growth in 2026 to be above the high end of our target organic revenue range of 4% to 6% that we provided at our Investor Day in May. Our strategy of leveraging our unique technologies to design custom engineered solutions, then deliver them at scale for blue chip customers in high growth markets that value our solutions, is proving to be a powerful combination for driving revenue growth, expanding margins, and strong cash flow to drive shareholder value. Now let me turn the call over to John for our financial results and our Q2 guidance. John Anderson: Thanks, Jeff. We reported first quarter revenues of $153 million, up 16% from the year-ago period and at the high end of our guidance range. EPS was $0.27 in the quarter, up $0.09 or 50% from the year-ago period and above the midpoint of our guidance range. Cash utilized by operating activities was $1 million, within our guidance range. In the MedTech and Specialty Audio segment, Q1 revenue was $68 million, up 14% compared with the year-ago period, driven by increased hearing health shipments associated with our customers’ successful new product introductions. Q1 gross margins were 53.5%, up 480 basis points from the year-ago period, driven by both increased factory capacity utilization and favorable mix. For full year 2026, we expect MSA gross margins to be in line with 2025 margins of 51%. The Precision Devices segment delivered first quarter revenues of $85 million, up 17% from the year-ago period, driven by broad-based strength across medtech, defense, and industrial end markets. Segment gross margins were 39.2%, up 350 basis points from 2025, as improved pricing and higher end market demand is driving increased factory capacity utilization. These improvements were partially offset by higher factory costs in our specialty film product line as we ramp up production capacity to support our $75 million-plus energy order. While we delivered significant year-over-year margin improvement in the first quarter, I am confident in our ability to further improve Precision Devices gross margins in 2026 as we increase production volume in our specialty film line. On a total company basis, R&D expense in the quarter was $10 million, up $1.4 million compared to Q1 2025 on higher project spending in both MSA and PD segments. SG&A expenses were $28 million, up $3 million from prior year levels, driven primarily by higher sales commission, timing of expenses, and additional headcount within the Precision Devices segment to support future revenue growth, including new product initiatives. Interest expense for the quarter was $2 million, $1 million lower than last year due to lower average debt balances. Now I will turn to our balance sheet and cash flow. In the first quarter, we utilized $1 million in cash from operating activities, and capital spending was $11 million. Cash from operations includes $8 million in outflows related to the CMM business, which was divested at the end of 2024. Payments related to the CMM business are now substantially complete. During the first quarter, we repurchased 276 thousand shares at a total cost of $7.5 million. We exited the quarter with cash of $41 million and $131 million of borrowings under our revolving credit facility. Lastly, our net leverage ratio, based on trailing twelve months adjusted EBITDA, was 0.6 times, and we have liquidity of more than $310 million as measured by cash plus unused capacity under our revolving credit facilities. Moving to our Q2 guidance. For Q2 2026, revenues are expected to be between $152 million and $162 million, up 8% year over year at the midpoint. R&D expenses are expected to be between $9 million and $11 million. Selling and administrative expenses are expected to be within the range of $26 million to $28 million. We are projecting adjusted EBIT margin for the quarter to be within the range of 20% to 22%. Interest expense in Q2 is estimated at $2 million, and we expect an effective tax rate of 15% to 19%. We are projecting EPS to be within a range of $0.28 to $0.32 per share, up $0.06 or 25% year over year at the midpoint. This assumes weighted average shares outstanding during the quarter of 87 million on a fully diluted basis. We are projecting cash from operating activities to be within the range of $20 million to $30 million. Capital spending is expected to be $8 million. We expect full year capital spending to be approximately 4% to 5% of revenues as we continue to make investments in the first half of this year associated with capacity expansion related to the large energy order we received in 2025. We started 2026 with significant year-over-year revenue and earnings growth, and we have positive momentum entering the remainder of the year. Our first quarter performance, combined with a robust backlog and increased order activity throughout the first four months of the year, give me confidence in our ability to deliver an increase in 2026 adjusted EBITDA above our cumulative annual growth target of 10% to 14%. I will now turn the call back over to the operator for the Q&A portion of our call. Operator? Operator: Thank you. We will now open the call for questions. We will now begin the question and answer session. If you have dialed in and would like to ask a question, simply press star followed by the number one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press the star one again. Your first question comes from the line of Christopher Rolland with Susquehanna. Please go ahead. Christopher Rolland: Hey, guys. Thanks for the question, and congrats on the results. In your press release, I think you mentioned numerous design wins across multiple end markets. And, Jeff, you might have addressed this fully in your prepared remarks, so I am not sure. But if you did not, if you could highlight perhaps those products, the applications, how you view the lifetime value of these sockets—any color would be appreciated. Jeffrey Niew: Yeah. I mean, Chris, I wish I could sit there and point to one specific one. The one obviously that we continue to ramp up or work on is the energy order, which will be fully ramped up by the end of Q2, so that is not a significant contributor in Q1. But it is very broad based. In medical, we have a lot of applications relative to wearable-type devices. In industrial, we have a lot of things going on in downhole applications—a lot of good stuff going on there. Defense, I would characterize just briefly—orders are up. There is no doubt orders are up. But the level of activity relative to everything that is going on in the globe is really high. We think in defense there is strength in 2026 that is probably stronger than we expected, and 2027 looks to be shaping up to be even better for defense. Overall, I think we are executing on this concept that we built out an engineering team that can customize to solve really hard problems across these applications, and then we can scale the production very quickly on these customized solutions. It is just very broad based what we are seeing. Christopher Rolland: Excellent. And then maybe, John, a question for you. You talked about gross margin expansion and favorable pricing. Maybe if you can talk about pricing increases—whether you put them on or whether you have an ability to increase price from here—and then just more broadly, the drivers of gross margin beyond pricing. I think you talked about ramping the specialty film line, which is great. Any other things to think about on gross margin and drivers there would be great. Jeffrey Niew: Let me take the pricing question, and I will let John cover the other drivers of gross margin expansion. More and more, Chris, what we are starting to realize as we go through this journey is that we have a lot of very strong positions, and we are looking at this on a regular basis. I would say it is more specific to the PD business, where we have a lot of different applications and a lot of different customers. Pricing strategy is becoming a big part of our opportunity every single year. The things that we have done should lead us in the 2% to 4% range in the PD business on price per year, somewhere in that range, and we should be able to garner that. It is a little different in the MSA business. We have a very limited customer base, and we have very strong margins in that business, so we are not really seeing pricing increases there—hence why we are saying that gross margins are not expected to expand. But pricing is one piece; there are other things as well. John Anderson: Chris, I talked in my prepared remarks about the MSA gross margins. We expect that to be flat around the 51% level for the full year. They were above that in Q1; we were operating near maximum capacity, and we also had some favorable mix. But for MSA, think year-over-year flattish at a very attractive 51%. For PD, that is where we think there is margin expansion opportunity. We delivered 39.2% this quarter, and as we look, Q2 will be in that range. But as we enter the back half of 2026, we see increasing capacity utilization in both the specialty film line as we ramp up production—we will be ramped up as we exit Q2, as Jeff mentioned—and we should see some really good improvement in capacity utilization in the back half. Also, in our ceramic capacitor line and our RF filters, as demand is increasing, there is opportunity. Our variable margins are very strong in all of our businesses. We will probably need to hire more direct labor as this continues to ramp, but there is not a tremendous amount of overhead needed to support increased volume. Christopher Rolland: That is great. Thank you, guys. Jeffrey Niew: Sure. Thanks, Chris. Operator: And your next question comes from the line of Robert Labick with CJS Securities. Please go ahead. Analyst: Hi. This is Will on for Bob. Looking at specialty film pilot programs—you have discussed downhole fracking and energy transmission pilots—can you give us an update on how they are progressing? When do you know if they may convert to larger programs? And did you win any new pilots in the quarter? Jeffrey Niew: There is a list we review on a very regular basis of the pilots. I would say we are due to deliver pilots to 20 different customers over the next quarter or so—just figure every quarter we are delivering pilots. Again, my base is up in downhole. I would add a little bit more specific on the energy order: we are on track from a ramp standpoint, we are on track from a yield standpoint, and we feel very strongly about that $25 million-plus at pretty good gross margins for the rest of the year, especially in the back half as it is fully ramped. Bottom line is, everything is heading in the right direction here for the specialty film line. We see the opportunity, as John laid out, that within Precision Devices—especially on a year-over-year and sequential basis—it is going to help drive improved gross margin. I will be surprised if for the full year we do not improve gross margins within the PD segment by 100 basis points, and it is really driven in the back half of 2026. Analyst: That is super helpful. Thank you. And you talked about the tailwinds from the war in defense. Are there any headwinds from the war that you are evaluating? John Anderson: Just a little bit on input cost. Transportation costs are fairly low. Think of the size of our components—they are very small—and we manufacture in a lot of the regions where we are selling, so the impacts are fairly minimal. Maybe some resin-based products have seen modest increases, but not significant. Jeffrey Niew: And on costs that we are looking at, if transportation were to become more substantial, a lot of our customers take possession at our dock—we are not paying for the shipping anyway. For input costs like resins, it does not seem to be a big portion of our bill of materials. Analyst: Thank you very much. Operator: Thank you. And once again, if you would like to ask a question, simply press star 1 on your telephone keypad. Your next question comes from the line of Anthony Stoss with Craig-Hallum. Please go ahead. Anthony Stoss: Thank you very much. Jeff, getting back to pricing power—maybe I was not following it correctly. It seems like there is a ton of activity, especially on the military defense side, and maybe there are puts and takes in each of the different divisions. Given the nature of activity, do you think it is fair to say that gross margins and pricing in 2027 on average are going to be higher than 2026? Jeffrey Niew: No. I would say we have a pretty strong cadence of how we do pricing at this point. I would not say we are going to see outsized pricing. If I say it is in PD, 2% to 4% per year—maybe it gets toward the higher end of that range. I am not seeing more than that. You are right, the demand—more than defense, the demand across the board—is pretty high. We talked about the book to bill being 1.19; that is on top of 16% growth. So that book to bill represents a fair amount of orders. I just got off the phone with our sales team—the order rate in April is already strong again. We are looking at another strong month of bookings in April. We are spending more time analyzing pricing and things like that. But we do not have huge amounts of cost in order to get these units out; they are very profitable already in the PD segment. We are going to continue to follow our playbook of increasing price on a somewhat regular basis—by market, by product, by customer—to cover any input costs that increase and add some more where we can. John Anderson: I would add, Tony, from a gross margin standpoint, there is some opportunity in 2027 to be above 2026 just because of the trajectory through 2026. We are increasing gross margins, and 2027 margins should be similar to what we exit 2026 at, which will be higher than what we are delivering right now. Anthony Stoss: Yep. Got it. That makes sense. And then two last questions on the energy ramp. Are there any technical hurdles or production setup hurdles that you still need to overcome before the end of Q2, or is it pretty much blocking and tackling at this point? Jeffrey Niew: It is a lot of blocking and tackling. All the equipment is on site; it is a matter of bringing it up, fully qualifying it, and then running high volume through it. We are not waiting for a piece of equipment that may not arrive on time—everything is in place. In Q1, they were slightly ahead of what they had projected in terms of output and getting things qualified. I am not committing that we are going to be ahead for the first half, but everything seems to be on track. I was just down there a week and a half ago at the facility—everything looks great. We are in pretty good shape. Anthony Stoss: Okay. Last question. Your RF group that you do not talk about that often—quite a few of the RF power amp folks are talking about huge orders in satellite. Do you have any products that are exposed to satellite, or can you tweak anything to gain exposure to those huge satellite orders? Jeffrey Niew: We do have some satellite business. I would not say it is a huge driver. What we provide are super high-performance RF filters, which is why we can garner great gross margins and make good money in this space. There is more of a mix in the satellite business of using more commercially available RF filters versus specialized stuff. To the extent we can be differentiated, we will sell into that market. But when they come to us and say they want something really low cost at a very low price, we tend to say there are other guys willing to do that. So we do have some exposure, but it is usually when they need something very unique and special, and we can garner very good gross margins. John Anderson: And I would add, we talked about 17% year-over-year revenue growth in Q1 in the Precision Devices segment. RF was a big contributor to that. It is smaller as a percent of the total, but their growth rate was in the double digits. Jeffrey Niew: My point is we are not going to deviate from that. We do not want to be in the commoditized portions of the market, and there are some commoditized portions. My take is satellite is a bit more mixed in terms of what they are looking for. Anthony Stoss: Got it. Thanks for all the color, guys. Operator: Thank you. And the next question comes from the line of Tristan Gerra with Baird. Please go ahead. Tristan Gerra: Hi. Good afternoon. In Precision Devices, could you give us a sense of where your front-end utilization rates are? And as utilization rates go to full utilization—above 90%—what type of gross margin would that imply? And are you able to quantify the impact on gross margin currently from the energy order production ramp, and when does that headwind go away? Jeffrey Niew: First, on capacity utilization—it is different from product to product. We have our filters, ceramic capacitors, and film capacitors (from the Cornell acquisition). It is a little different by product. Generally speaking, we have done a lot of capacity planning for the mid to longer term in the last quarter. With the growth rate we are having—at least within 2026 and likely into 2027—we are going to need more direct labor. We are not going to need a lot more equipment; there may be some selective places we need equipment. We are probably running on average in the 80% range right now across the PD business, and we have some room to bring up output without adding a lot of expensive capacity. Our variable margins are very strong, so we expect to drop a lot of this revenue growth to the bottom line. As far as the energy order, it is definitely weighing on the PD segment. We have not quantified it precisely, but it is going to be a driver of margin expansion in the back half. Directionally, think of maybe 200 to 250 basis points better than we are doing today as it relates to the PD segment, and that is driven heavily by this energy order. Tristan Gerra: Okay, great. That is very useful. And then, given lead times expanding and all types of shortages happening in the industry, are you seeing appetite from customers to try to secure capacity into 2027? Have you done LTSAs in the past? Is that the type of discussion that customers are coming to you with, or is it mostly short lead-time orders? Jeffrey Niew: In our distribution business, for the most part it has been short lead-time orders. In our OEM business, there is a lot more discussion—specifically in defense—about larger orders. We are starting to see more people come to us saying they want to place an order for three or five years instead of a year, which would be more typical for defense. There is a lot of negotiation and discussion going on about that right now. In industrial and medical, we have very long-term customers; we get regular forecasts from them, and we are prepared to meet their requirements. Defense is the area where we are starting to see more discussions about bigger orders. But I will add, that book to bill of 1.19 did not include any big orders scheduled out more than a year. There is nothing in that book to bill that would be an anomaly that drove it up to 1.19. I would say 97% of that book to bill will be shipped within twelve months. Tristan Gerra: Great. That is very useful. Thank you. Operator: Thank you. And there are no further questions at this time. Ladies and gentlemen, this now concludes today’s conference call. You may now disconnect.
Operator: Good day, everyone. Welcome to VeriSign, Inc.'s first quarter 2026 earnings call. Today's conference is being recorded. Recording of this call is not permitted unless preauthorized. At this time, I would like to turn the conference over to Mr. David Atchley, Vice President of Investor Relations and Corporate Treasurer. Please go ahead, sir. David Atchley: Thank you, operator. Welcome to VeriSign, Inc.'s first quarter 2026 earnings call. Joining me are Jim Bidzos, Executive Chairman, President and CEO, and John Callis, Executive Vice President and CFO. This call and presentation are being webcast from the Investor Relations website, which is available under About VeriSign, Inc. on verisign.com. There, you will also find our earnings release. At the end of this call, the presentation will be available on that site and, within a few hours, the replay of the call will be posted. Financial results in our earnings release are unaudited, and our remarks include forward-looking statements that are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Forms 10-K and 10-Q. VeriSign, Inc. does not update financial performance or guidance during the quarter unless it is done through a public disclosure. The financial results in today's call and the matters we will be discussing include GAAP results and two non-GAAP measures used by VeriSign, Inc.: Adjusted EBITDA and free cash flow. GAAP-to-non-GAAP reconciliation information is appended to the slide presentation, which can be found on the Investor Relations section of our website, available after this call. Jim and John will provide some prepared remarks, and afterward, we will open the call for your questions. With that, I would like to turn the call over to Jim. Jim Bidzos: Thank you, David. Good afternoon to everyone, and thank you for joining us. I am pleased to report that VeriSign, Inc. delivered strong results in 2026, both operationally and financially. The combined .com and .net domain name base is now at a record 176.1 million names. New registrations are the largest we have seen since 2021, combined with very strong renewal rates. On the financial side, revenue was up 6.6% year-over-year, and EPS increased 11.4% year-over-year. After seeing to the needs of our operations, we returned over 100% of our free cash flow to the investing public in the last twelve months for a total of $1.13 billion through share repurchases and dividends. Our financial and liquidity position remains stable with $556 million in cash, cash equivalents, and marketable securities at the end of the quarter. Also at quarter end, there was $863 million remaining available under our current share repurchase program, which has no expiration. As announced in today's earnings release, VeriSign, Inc.'s Board of Directors approved a cash dividend of $0.81 per share of VeriSign, Inc.'s outstanding common stock to stockholders of record as of the close of business on 05/19/2026, payable on 05/27/2026. VeriSign, Inc. intends to continue to pay a cash dividend on a quarterly basis, subject to market conditions and approval by VeriSign, Inc.'s Board of Directors. VeriSign, Inc.'s performance in the first quarter shows sustained demand for domain names. During the quarter, the domain name base for .com and .net grew by 2.54 million from year-end 2025. New registrations for the first quarter were 11.5 million compared with 10.7 million last quarter and 10.1 million for the first quarter of last year. The renewal rate for 2026 is expected to be 76.3% compared to 75.5% a year ago. The positive domain name base trends of 2025 continued to build strength to start 2026. We saw growth across our three main regions, with most of the strength coming from the U.S. and EMEA. It is clear to us that end users are seeing value in domain names and the domain name system, as evidenced by our strong domain name metrics and the increasing reliance on our infrastructure. We see ongoing registrar focus on customer acquisition and engagement with our marketing programs. Also, we see a positive impact from AI tools, which make content and website creation faster and easier. With the trends we have observed thus far in 2026 and our expectations for the next three quarters, we are increasing and narrowing our guidance for domain name base growth to be between 3.1% and 4.3% for 2026. As a reminder, you can monitor the progression of the domain name base on our [inaudible], which is updated daily. As announced in today's earnings release, we have given notice of a $0.71 increase to the annual wholesale price for .com domain names, which raises the wholesale price from $10.26 to $10.97, effective 11/01/2026. Even after this increase, we believe .com will remain highly competitive with other TLD choices. I would note that this is the first allowable price increase since the notice two years ago in February 2024 of a $0.67 increase. As a reminder, VeriSign, Inc. is prohibited from selling .com registrations to retail buyers. We may only sell to accredited registrars and only at a capped, regulated price. The new $10.97 price that will become effective November 1 is the maximum price that we can charge registrars. Registrars, however, are entirely price-unrestricted and can sell .com registrations at any retail price they choose, and those prices often differ significantly from the price we are limited to. I would now like to turn the call over to John. I will return when John has completed his financial report and closing remarks. John? John Callis: Thank you, Jim, and good afternoon, everyone. For the quarter ended 03/31/2026, the company generated revenue of $429 million, up 6.6% from the same quarter a year ago. Operating expense in Q1 2026 totaled $135 million, which compared to $140 million last quarter and $131 million for the first quarter a year ago. As noted last quarter, Q4 2025 results included an impairment charge. Operating income totaled $294 million, up $22 million, or 8.3%, from the previous year. Operating income was up $9 million, or 3.1%, on a sequential quarter basis. Net income for the first quarter totaled $215 million, compared to $206 million last quarter and $199 million for the same quarter a year ago. This resulted in diluted earnings per share of $2.34 for the first quarter this year, compared to $2.23 last quarter and $2.10 for the first quarter of last year, representing increases of 4.9% and 11.4%, respectively. Operating cash flow for the quarter was $272 million; free cash flow was $265 million. Compared with [inaudible] and [inaudible], respectively, in the year-ago quarter. I will now discuss our updated full-year guidance for 2026. Revenue is now expected to be between $1.73 billion and $1.745 billion. Operating income is now expected to be between $1.17 billion and $1.185 billion. Interest expense and non-operating income, net, which includes interest income estimates, is still expected to be an expense of between [inaudible] and $7 million. Capital expenditures are still expected to be between $55 million and $65 million, which includes some modest structural improvement projects at our HQ facility. The GAAP effective tax rate is still expected to be between 22% and 25%. I will now turn the call back to Jim for his closing remarks. Jim Bidzos: Thank you, John. As I said, we are pleased to have delivered another solid quarter of operational and financial performance. We extended our record of 100% service availability. We saw strength in all metrics: new registrations, renewal rates, and solid financial performance, including paying our fourth quarterly dividend and additional share repurchases to return over 100% of our free cash flow to the investing public. We have seen broad participation in our marketing programs, which are now better tailored to our diverse and evolving channel. In short, we focused on what we can control and influence. We also benefited from some tailwinds that include AI, which, as I said, has made it easier to find a good domain name, build a website, and get online. However, as we have said many times before, the delivery of our services is our primary mission. That is VeriSign, Inc.'s priority. In addition to .com/.net DNS, our services include the DNS root zone publication and the operation of two of the 13 global Internet root servers. Our employees are dedicated to support that mission, and the vast majority of them are highly skilled technical specialists directly engaged in the design, development, operation, maintenance, support, and protection of our unique, purpose-built, high-assurance critical infrastructure. As we approach 29 years of uninterrupted availability—in fact, 100% availability spanning four decades—certainly one important aspect is availability. Performance and accuracy are equally important for many reasons, including for security. Our authoritative DNS answers are cryptographically protected, and over 95% are processed in milliseconds globally, more than 600 billion transactions per day on average that we see across our infrastructure. That is 7 million transactions per second every second of every day on average. Given the ever-increasing reliance on a global Internet, we believe high assurance, as we define it, will become increasingly important. In the coming weeks, we will share a series of blogs about how we view the future of high-assurance infrastructure, the role it will play in enhancing online trust, and introduce enhanced security components. Thank you for your attention today. This concludes our prepared remarks. We will now open the call for questions. Operator, we are ready for the first question. Operator: If you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. Once your question has been stated, please mute your line. We will take our first question from Rob Oliver with Baird. Rob Oliver: Great. Thank you. Good afternoon, Jim. First question, and I had a couple of questions. First one for me is around, clearly, marketing programs that you guys announced that you intended to pursue—I think it was back in Q1 of 2024—are really starting to gain traction. You also called out tailwinds from AI, and so I am wondering the extent to which you could help us understand, as you look at the strength in domains, which I think you said we have not seen now in many years, what sort of the contributing factor balances are there. Is it more AI? Is it more things you can control, marketing? How should we think about the mix of those contributions? Jim Bidzos: That is a good question, Rob. The way we see it, it is difficult to really separate the two. The reason is that they sort of collide in a good way with each other and blend together. The registrars benefit from the tailwind from AI, which essentially makes it easier for the registrars to service folks who can quickly find a domain, get online, and build a website. That gets easier. I believe that engagement with our programs, which we know for a fact is a significant contributor—but to what extent is difficult because that demand and our programs sort of collide. We put together programs that were responsive to what we heard from the channel. The channel is evolving and diversifying constantly, and, as I have said before, we put together programs that were responsive to their diverse needs, and they are absolutely engaging with them. So there is greater drive from the tailwind engaging with more carefully tailored programs. Trying to separate those is really difficult. I wish I could give you a better answer, but they are both good news. Rob Oliver: Okay, great. That is helpful color. Thanks, Jim. Second question for me is around your comment that you have been pleased—I cannot remember your exact language—about renewal rates and what you have seen. I just wanted to double down on that a little bit. We are, I think, around the two-year anniversary of when you guys called out these marketing programs. So it is a little early to know if it was a two-year cohort, but I would specifically love to hear from you what you are hearing about the renewal cohorts around post those marketing changes and how those are holding up relative to your typical renewal rates on new domains. Jim Bidzos: Yes, good question. John has been looking into that. John? John Callis: Certainly, our renewal rate at 76.3% was very strong. Our programs, as we have talked about in the past, do have elements of design that incentivize our customers—our registrars—to sell and promote names to their customers that have a better renewal-rate characteristic. We do expect continued good, solid renewal rates through 2026. As we mentioned last quarter, the strength of new registrations in 2025 will present a little bit of a challenge this year because we will have a higher proportion of first-time renewing names through 2026. Our first-timer renewals are still averaging in the mid-40% range. Our previously renewed names are in the mid-80% range but have showed some improvement over the last year. I think we are pleased with what our programs have delivered there and are seeing some improvement. Rob Oliver: Okay. Thanks, John. I appreciate all that detail. And then I guess, last one for me, and then I will hand it over to others. Jim, I do not know the extent to which you will comment, but I wanted to ask about the upcoming round of ICANN TLD programs that is going to be coming up—I think the process may be kicking off even here in April or imminently. Any color you can provide on how we should be thinking about how you are thinking about that potential opportunity around the new TLD program? Thank you. Jim Bidzos: Sure. Yes, ICANN is opening another round of applications for new gTLDs. The last one was in 2012, and you are right, this one opens up at the end of this month for submission of applications. ICANN is opening a window for a new round. We expect it to be a long process. The new generic TLDs that come out of this process are likely not launched until 2028. There are a lot of steps ICANN goes through after the application window. There is also a potential in this new round of multiple applicants for the same TLD. In this case, ICANN will run an auction process to sort out the winners of different contention sets. So there is a lot of process to go on. We get asked a lot about VeriSign, Inc.'s participation, and we are taking the necessary technical steps to be ready should we choose to be an applicant in this round. As a reminder, in the 2012 round, we obtained several new gTLDs, some of which we have not yet launched. Also, .web, which we are continuing to pursue, was from the 2012 round. We are still evaluating our participation in this current round—the 2026 round—with the window of applications slated to open on the 30th of this month and not close until August 12. We will update you as appropriate as we get closer to the end of the application close in August. Rob Oliver: Okay. That is great. Thanks, Jim. Thanks, John. I appreciate all the color. Thanks a lot. Operator: We will move to our next question from Citi. Analyst: Good afternoon. Thank you for taking my questions. First off, with the upcoming .com price hike, what are your expectations for the price elasticity or renewal trends for these newer domains following the hike? I understand wholesale domain prices are fairly nominal relative to the end-customer costs, but any color there would be very helpful. And then also, how are you thinking about .net pricing? John Callis: Yes, so if I understood your question, you are asking us what our expectations are around renewals post price increase. It is very dependent on what our retail registrars do with pricing. If they do take price increases, that could have an effect on either new registrations or renewals, and we have seen a little bit of that in the past. But we are still pretty confident in the trends that we are seeing in renewals at this point in time, and we will see what happens come, I guess, November 1 and thereafter. Jim Bidzos: I would just add the new price—the $10.97 per-year price for a .com—works out to about $0.03 a day. I think for most registrants who are engaged in online activities, it is a relatively modest amount. Analyst: Makes sense. And then any [inaudible] .net pricing? Jim Bidzos: We have available 10% annual price increases on .net. We do not guide to pricing, of course. We take a lot of factors into consideration when we decide how to price the TLDs. I can tell you a couple of things. Number one is we have not, at this point today, announced a price increase for .net. We consider it to be a well-known, competitively priced TLD, and we invest in marketing programs for .net. If we announce a price increase, we will certainly give notice, but we have not at this point. Analyst: Got it. Thank you very much. Follow-up question here on your infrastructure build-out. In context of the over 600 billion transactions per day that VeriSign, Inc. sees, AI agents and LLMs scraping the web at an accelerated rate—Is your current infrastructure sufficient to handle this expanding Internet? Were there incremental investments you might need to ensure that 100% uptime? Jim Bidzos: Sure. There are many qualitative and quantitative improvements that we are constantly making and adjusting to our network. The best answer I can give you is that we have multiple orders of magnitude in excess capacity as one component of our resiliency planning and execution. Analyst: Great. Thank you. Jim Bidzos: Sure. Operator: We will take our last question from JPMorgan. Analyst: Hello, Jim. I appreciate the commentary at the very end of your prepared remarks about the new services. Can you maybe provide a bit more color on what those new services will solve for your customers—maybe some additional insights on the security and stability mission that you are looking to achieve there? Jim Bidzos: Sure. I can say a few more things about the foundational reasons that I alluded to concerning additional security services in high-assurance infrastructure like ours. Putting aside AI for a moment—which is, of course, a significant, major development—well, maybe not quite putting it aside, simply making the observation that with Anthropic’s research, we have seen that AI is capable of revealing vulnerabilities in various systems. So security is continuing to be important. In the many years that I ran the RSA Conference, my observation in every keynote was that the security situation provided more job security for the audience than any industry I could think of. And here we are 35 years since that conference began, and it certainly turned out to be true. High-assurance infrastructure becomes important for a lot of reasons. AI is not only beneficial for all the reasons that it is, but it reveals vulnerabilities. With the increased reliance and use of the Internet—it is such a deep part of all of our lives, with so many different infrastructures now relying on it—we think high assurance will be important. I mentioned the components. The components I talked about are our own 100% availability record—100%, not five nines—now for 28 going on 29 years. That is one. But also our performance: that we can deliver accurate, cryptographically protected answers to queries in milliseconds anywhere in the world, at a rate of 600 billion per day on average, and have multiple orders of magnitude capacity beyond it. The accuracy part is important, and the performance part is important because these are windows of vulnerability. The delays in answering queries related to secure navigation are important. We believe that there are additional security tools that would be synergistic with the type of high-assurance infrastructure that we have. I have alluded to services that we have been examining. They need to fit certain requirements: they need to fit well into our infrastructure, and work well within our channel. Nothing significantly changes in offering them other than they benefit from the properties of our infrastructure, and we think that some of them are worth considering as an offering as a service. As I said, we will have a series of blogs that roll this out, starting as soon as next month, so you will have more information then. That is probably what I am comfortable saying right now. Analyst: Okay. Perfect. Thank you, Jim. And I appreciate all the comments that you made around your own marketing activities, but can you comment on how registrar promotional intensity in Q1—for example, for GoDaddy, your biggest customer—or for other registrars, how it compared with 4Q, and how you think about promo-driven volume versus sustainable underlying demand? Jim Bidzos: There are a lot of different ways that question could be answered. I will give you one way, and John can add if he has another. I mentioned the evolving and diverse nature of our channel. This is all true. Some website builders have turned into registrars. Some have been acquired. Some have merged. Some have a different focus. All of them have different models. That evolving part led us to take a careful look at our programs and make sure that we offered those that actually work for these different models. Different models bring about issues like different lead times to prepare marketing campaigns, and so, as we learned and adapted, it was driven more by what the diverse needs were and the need to find something that could work for a larger group rather than a one-size-fits-all. We are also bound by some restrictions in how we market. We have to be careful to treat registrars equally and fairly. That is also a factor in that design. Our channel for .com and .net—I believe VeriSign, Inc.’s channel—has the broadest reach because of the popularity of .com and .net TLDs, so we service a very large number of registrars. We thought that was the path that would lead to the most productive results in the short term: simply addressing the needs of a very large, diverse, and evolving channel. We concentrate on listening to them, learning what they are doing, engaging with them, returning, assessing, adapting, revising, and presenting—and we get engagement. So it is less driven by what we think a program will do and more by what they really need to go out and market our products, which are really great, reliable, trusted products. Analyst: Makes sense. Thank you very much, Jim. Operator: That concludes today's question and answer session. I will turn the conference back to David Atchley for final comments. David Atchley: Thank you, operator. Please call the Investor Relations department with any follow-up questions from this call. Thank you for your participation. This concludes our call. Have a good evening. Unknown Speaker: Okay.
Operator: Good day, and thank you for standing by. Welcome to the SS&C Technologies Holdings, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Justine Stone, Head of Investor Relations. Justine Stone: Welcome, and thank you for joining us for our Q1 2026 earnings call. I am Investor Relations for SS&C Technologies Holdings, Inc. With me today are William C. Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer; and Brian Norman Schell, our Chief Financial Officer. Before we get started, we need to review the Safe Harbor statement. Please note, various remarks we make today about future expectations, plans, and prospects, including the financial outlook we provide, constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors of our most recent Annual Report on Form 10-K, which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, 04/23/2026. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to William C. Stone. William C. Stone: Justine, and welcome, everyone. The 2026 environment included a war in Iran, tariffs galore, spiking oil prices, and other macro headwinds. Nevertheless, we delivered strong first quarter results underscoring SS&C Technologies Holdings, Inc.'s resilience. Based on our performance and visibility today, we are raising 2026 guidance. We recently rang the Nasdaq closing bell to celebrate SS&C Technologies Holdings, Inc.'s 40-year anniversary of powering mission-critical systems our financial services and health care clients rely on every day. Our business is built on deep domain expertise, strong trusted client relations, and constant innovation guided by what we call our customer zero strategies. These strengths position us well as our industry enters the next phase of technology transformation driven by AI. We are updating the name of our largest revenue line item to better reflect the deeply embedded technology framework powering our services business. Technology-enabled services encompasses our proprietary data streams, domain expertise, software, private cloud, data center infrastructure with ISO and SOC certifications, and the redundancy and multilayered cybersecurity measures required by our sophisticated client base. First quarter results were adjusted revenue of $1.648 billion, up 9%, and adjusted diluted earnings per share of $1.69, a 14% increase. We delivered adjusted consolidated EBITDA of $651 million, up 10%, and an adjusted consolidated EBITDA margin of 39.5%. The dollar figures I just said are all Q1 records. Adjusted organic revenue growth was 5%, with performance driven by GIDS, which grew 10.4%, GlobeOp, which grew 6.7%, and our recent acquisitions are executing ahead of expectation, strengthening our global capabilities and expanding our addressable markets. Intralinks grew 3.2% with positive leading indicators and increasing adoption of its next-generation AI-enabled DealCentre platform. The resilience of our business is highlighted by the $581 billion of assets under administration we have added to our fund administration business since 2024. Across SS&C Technologies Holdings, Inc., we are leveraging AI to enhance software development, increase our speed to market, accelerate implementations, improve customer experience, and drive efficiency. These initiatives support both revenue opportunities and cost leverage over time. All of our teams are partnering closely with Blue Prism to scale our AI operations in a governed and secure manner. For the three months ended 03/31/2026, cash from operating activities was $300 million, up 10% year over year. In Q1, we returned $233 million to shareholders, which included 2.3 million shares repurchased for $168 million at an average price of $72.60 and $65 million in common stock dividends. Through share repurchases and our dividend policy, 98% of our allocated capital in Q1 was returned directly to our shareholders. At current levels, our conviction around share repurchase has strengthened, and we are prioritizing repurchases absent high-quality accretive acquisitions. We remain bullish on our opportunities and continue to see AI as a structural tailwind for our business. Our platforms are deeply embedded in our clients' day-to-day operations, serving as systems of record and execution. That positioning makes SS&C Technologies Holdings, Inc. a natural partner as clients look to advance their AI strategies. I will now turn it over to Rahul. Rahul Kanwar: Bill, we had a strong first quarter. GIDS and GlobeOp built on last year's sales performance with additional new logo wins and continued upsell and cross-sell activity. Across the business, disciplined attention to our clients is generating new opportunities. SS&C Technologies Holdings, Inc.'s pipelines are robust, and as always, execution remains the priority. Our AI capabilities, including agents and workflow orchestration, are accelerating how services are delivered. Our customer zero strategy is working as intended. Internal adoption of AgenTek capabilities is driving product maturity, credibility, and faster time to market. Deep product expertise is the prerequisite for harnessing these tools, and we are well positioned. We serve the largest and most sophisticated firms in the world, and as their businesses grow more complex, our platforms grow with them. We sit at the center of their operating models with deeply embedded workflows. These workflows form the natural foundation for further innovation. As Bill mentioned, we have renamed our largest revenue line to technology-enabled services. Our clients are buying services such as NAV computations, tax returns, regulatory filings, investor interactions, risk calculations, and hundreds of others. These services are usually tied to contracts for services rather than software license agreements. Delivery requires deep domain knowledge, expertise operating complex workflows refined over decades, the networks we operate across counterparties, and secure, resilient infrastructure. We estimate that software, largely in the form of subscriptions, represents 11% of this category. With that, I will turn it over to Brian to walk through the financials. Brian Norman Schell: Thanks, Rahul. Good day, everyone. Unless noted otherwise, the quarterly comparisons are to Q1 2025. As disclosed in our press release, our Q1 2026 GAAP results reflect revenues of $1.647 billion, net income of $226 million, and diluted earnings per share of $0.91. Our adjusted non-GAAP results include revenues of $1.648 billion, an increase of 0.8%, and adjusted diluted EPS of $1.69, a 14.2% increase. The adjusted revenue increase of $133 million was primarily driven by incremental revenue contributions from GIDS of $38 million, GlobeOp of $29 million, and a favorable impact from foreign exchange of $22 million. As a result, adjusted organic revenue growth on a constant currency basis was 5%, and our core expenses increased 2.9%, or $27 million, which also excludes acquisition impact and FX. Adjusted consolidated EBITDA was a first quarter record of $651 million, reflecting an increase of $59 million, or 10%, and a margin of 39.5%, a 40 basis point expansion. Net interest expense for the quarter was $105 million, flat year over year. Adjusted net income was $418 million, up 11.1%. Our effective non-GAAP tax rate was 22.5% this quarter. Note for comparison purposes, we have recast the 2025 adjusted net income and EPS to reflect the full-year effective tax rate of 22%. Also note, the Q1 diluted share count is down to 247.6 million from 254.9 million year over year, primarily due to lower dilutive shares and the continued impact of treasury share activity. Cash flow from operating activities growth of 10% was driven by growth in earnings. SS&C Technologies Holdings, Inc. ended the first quarter with $421 million in cash and cash equivalents and $7.5 billion in gross debt. Net debt was $7.1 billion, and our last twelve months consolidated EBITDA was $2.6 billion. The resulting net leverage ratio was 2.76 times. As we look forward to the second quarter and full year 2026, with respect to guidance, we will continue to focus on client service and assume retention rates to be in the range of our most recent results. We will continue to manage our business to support our long-term growth, and manage our expenses by controlling and aligning variable expenses, increasing productivity, leveraging technology to improve our operating margins, and effectively investing in the business, especially with respect to R&D, sales, and marketing. Specifically, we have assumed short-term interest rates remain at current levels, an effective tax rate of approximately 22.5% on an adjusted basis, capital expenditures to be 4.4% to 4.8% of revenues, and a stronger weighting to share repurchases versus debt reduction. For Q2 2026, we expect revenue to be in the range of $1.64 billion to $1.68 billion and 5.6% organic revenue growth at the midpoint, adjusted net income in the range of $408 million to $424 million, interest expense excluding amortization of deferred financing costs and original issue discount in the range of $102 million to $104 million, and adjusted diluted EPS in the range of $1.64 to $1.70. For the full year 2026, we increased our expectations to revenue in the range of $6.664 billion to $6.824 billion and 5.3% organic revenue growth at the midpoint, adjusted net income in the range of $1.665 billion to $1.765 billion, and adjusted diluted EPS in the range of $6.74 to $7.06, reflecting approximately 12% growth at the midpoint, and maintaining our targeted annual EBITDA expansion of 50 basis points, with a goal of a 40% margin in Q4. And now back to Bill. William C. Stone: Thanks, Brian. Next week, SS&C Technologies Holdings, Inc. will launch [inaudible]. It is also available at blueprism.com or by reaching out to Justine. We will now open the call for questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please limit yourself to one question and one follow-up. One moment for questions. Our first question comes from Kevin Damien McVeigh with UBS. You may proceed. Kevin Damien McVeigh: Great, thanks so much, and really just exceptional results given the environment we are in. Bill, you beat on everything. Would the results have been even stronger if not for the environment that we are in? I know the business is pretty predictable, but is there anything that kind of held it back just given the environment? William C. Stone: Well, you know, you get hesitancy, Kevin, as you well know, when you have tariffs come flying out, and then you have war, and then you have spiking oil prices, which generally is going to increase inflation. So there are a lot of macro headwinds. At the same time, people need to have the technology to run their businesses. We just had the GAIN conference, which is a big hedge fund conference in the Cayman Islands, and we had a bunch of our clients there. It was a spectacular event for us. They were happy, they were investing in us, and buying more services and products. We are pretty bullish on 2026. Kevin Damien McVeigh: The results speak to that. And then maybe remind us, because the one question we get a lot is on the AUA growth in different market environments. It obviously continues to grow. Is that just client balances increasing or the way they are running their asset allocation? It has been another terrific part of the story. William C. Stone: As we said in our comments, we grew AUA by $581 billion since 2024. I do not know where $581 billion would put you in the league tables—probably pretty high—and that is just our growth. There is market appreciation as well. The Nasdaq and the S&P 500 hit new records this past week, and the equity markets have been pretty robust. We also have almost all of the large global macro funds, and they have been getting increasing allocations from allocators and large-scale pensions to insurance companies. They are investing in hedge fund solutions, and hedge funds have been stronger over the past couple of quarters than they had been over the past couple of years. Operator: Thank you. Our next question comes from Daniel Rock Perlin with RBC Capital Markets. You may proceed. Daniel Rock Perlin: Thanks, and good evening, everyone. I had a question around private credit. Obviously, it is incredibly topical these days. I think that falls into your GlobeOp operations. From what you can tell and what you see and hear, specifically around potential redemptions, how does that impact your business? Do you see that as any kind of perceived risk, and to the extent the assets do get redeemed, what kind of recapture rate do you historically see in other areas of your portfolio? And then on GIDS, another really strong performance here—how should we think about the cadence throughout the year, given tougher comps in the back half and developments in Australia? Rahul Kanwar: Like a lot of things in the news, some of these fears might be a little bit overblown, but we have structural things that protect us. The primary one is that the vast majority of our private credit funds are closed-end fund structures, which generally means our fees are predicated on things that are fairly static—committed capital or volume-based metrics like number of investments or investors. So we are pretty immune from day-to-day fluctuations. Most of our big clients that are private credit managers still continue to grow with us. William C. Stone: On GIDS, we are making great strides. You mentioned Australia—we are up to over 3 thousand people there, and we signed Insignia, which has about $321 billion in assets. The superannuation market in Australia is about $4 trillion, so there is a lot of room to grow. We are the new kid on the block, and we are working hard to satisfy our clients there and grow our market share. We also have tremendous opportunities in North America and Europe. If I was a betting man, I would guess that GIDS is going to do very well in 2026. Operator: Thank you. Our next question comes from Jeffrey Paul Schmitt with William Blair. You may proceed. Jeffrey Paul Schmitt: Hi, good afternoon. What segments do you think have the most risk from AI, and what segments do you feel most confident are protected against disintermediation? And then, share buybacks were lower than they have been since 2023 or 2024. Is there potential for you to get more aggressive there with the stock down so much over the last few months? William C. Stone: We have some very pointed software businesses that are not large—altogether maybe about $100 million in revenue. We are so embedded in the things that we do that we do not really look at AI as a threat. Yes, there can be disruption—the Internet had disruption, client-server had disruption—but people still have to get their work done. They still have to file tax returns, quarterly and annual statements, and not just in the United States; it is everywhere around the world. We do that everywhere—whether it is the Australian Stock Exchange with rules about short sales, the Ministry of Finance in Tokyo, OSFI in Ottawa, and several regulatory bodies here in the United States as well. We are very steeped in that. It is detailed and arcane, and regulators can change it whenever they want. On buybacks, however much cash we generate tends to be our favorite investment. We bought $168 million in Q1. Q1 has bonuses and taxes, so we have other uses for our cash, but we are quite bullish. Operator: Thank you. Our next question comes from Surinder Singh Thind with Jefferies. You may proceed. Surinder Singh Thind: Thank you. Bill, can you expand upon the Blue Prism offering and the new platform? Is this a game-changer where we might begin to see a material inflection in growth in that segment? How should we think about rollout, cadence, and initial feedback? And then on expenses—you talked about investments in R&D and sales. Can you provide more color on the scale of those investments and potential margin impact versus your 50 basis points expansion target? William C. Stone: We are very vertical as a company. When we talk with large-scale firms like Jefferies and others, everyone is studying how to implement AI with governance. My talks at conferences always say AI is not just a gas pedal—somebody better have a brake. You better understand what you are doing, or you can get hurt. We are primarily a bunch of accountants and systems people. We understand controls. We are a little nerdy when it comes to internal controls. We think they are important. We reconcile all of our customers’ checking accounts. AI will be used for things that are primarily mundane first; it will get increasingly sophisticated over time, but it is very difficult to replace human judgment, human trust, years of delivery, and the ability to attack problems and solve them. On investments, there are a lot of opportunities for us to drive margin. Over the last number of years, we have plowed money back into our infrastructure and our ability to deliver new services and products quickly and efficiently, and that is expensive. We have been able to maintain our margins really close to 40%. If we want to move it up to 41% or 42%, that is within our grasp. But we are not going to take away from R&D or other initiatives we have going on. We have a lot of flexibility. Last year, we generated about $7 per share in cash. We have flexibility with buying back shares, looking at acquisitions, and paying down debt. It is nice to have plenty of cash. Operator: Thank you. Our next question comes from Peter James Heckmann with D.A. Davidson. You may proceed. Peter James Heckmann: Good afternoon. Thanks for taking the question. I wanted to talk about the emerging developments around tokenization of different asset classes. Where do you see the pain points for your customers, and how do you view SS&C Technologies Holdings, Inc.'s preparedness to have some portion of asset classes being tokenized and processed versus some of your competitors? And then, acquired revenue was a little higher than we were thinking. Did Calastone outperform in the quarter, or is there seasonality to the first quarter? Rahul Kanwar: Like a lot of these things, we view the technology as an enabler. We want to make sure it helps us get whatever our clients are looking to have happen, happen faster. We are fully prepared. We have customers that are tokenized today and customers in the process of becoming tokenized. We are helping them get on the right digital platforms and chains. We are maintaining the IDs and doing all the associated work. The primary impact we have seen—in a still limited subset of examples—is that onboarding for investors is simpler. The rest of the work stays exactly the same. We are fully prepared to be part of the process and help them any way we can, and Calastone is a big part of that for us. William C. Stone: We spent $1 billion acquiring Calastone. As usual with things we believe in, we do not dabble. We go get it and deliver it to our clients. We have several very happy clients already with our Calastone acquisition. Brian Norman Schell: They continue to perform well, and it was a strong quarter for them. There is some seasonality, but they also outperformed. Operator: Thank you. Our next question comes from Analyst on for Alexei Mihaylovich Gogolev with J.P. Morgan. You may proceed. Analyst: This is Bella Panaj on for Alexei. Thanks for taking our questions. Looking at Intralinks’ sequential improvement—would you say that was driven more by the market or by share gains? Are there any metrics such as win rates, room volumes, or retention that best evidence that? And then on health care, that segment posted a nice turnaround this quarter. How sustainable do you view this growth throughout 2026, and what are the largest points of excitement that give you optimism this year? Rahul Kanwar: It is a bit of both. The market has come back a little and is helping, and you are starting to see that show up in the numbers. We are seeing it even more in early indicators of what it might be a quarter or two from now. We have also invested a fair amount in the product itself—building out services capability around data rooms and adding more AI-enabled modules within the data room. That has helped us gain some market share. William C. Stone: On health care, the market is enormous. As more medicines and therapies come out, more people will use those. GLP-1s are obviously a big deal, and the government, I think, is going to use Humana—which is one of our great clients—to administer that program. We are excited about that. We have Domani making some inroads at big health care places. Health care does not move with extreme rapidity—they are very testing-oriented and detailed. At the same time, there are tremendous opportunities, similar to financial technology. A lot of what runs Wall Street is decades old. If you can get people to take the leap to change, there is real opportunity. We think we can be a winner. Operator: Thank you. Our next question comes from James Faucette with Morgan Stanley. You may proceed. James Faucette: Thanks very much. A lot of our questions have been answered, but I wanted to quickly touch on the wealth business. Can you help unpack what drove growth there, and going into Q2, is there any deal slippage or tough license comps we should be aware of from Q1? And then, on AI efforts specifically, how do you think about what you are doing that is aimed at revenue generation versus internal productivity? Are you getting much internal benefit today versus what you may be able to monetize later? William C. Stone: Our wealth business primarily is Black Diamond and other products embedded around that, whether that is Advent or Tier1 or InnoTrust. We have made great strides with Black Diamond Trust Suite. A lot of RIAs, as their customers get older, will move assets to their kids, often through trusts. You have to be able to do trust accounting or you will lose your best customer. That has been a nice tailwind. We also did the Morningstar Transact deal a little more than a year ago, and that gave us 600 to 700 more RIAs. Black Diamond continues to execute. It has a lot of very strong and satisfied clients, and we would guess it is going to continue to grow in excess of double digits. On AI, in 2022, we bought Blue Prism, which got us deep into robotic process automation, machine learning, and natural language processing. We have deployed close to 4 thousand digital workers, and now we are improving them by turning them into AI agents. We feel like the deployment of these digital workers has maybe saved us a couple hundred million dollars a year. Why is that not all dropping into margin improvement? Compute and large data infrastructure are not cheap. Even with that, we have maintained our margins and built MontyRx and a number of other new systems we are rolling out. Rahul is running a number of projects in the AI space. Rahul Kanwar: It is the speed of software development—we are seeing a positive impact. We also have deep domain expertise—40 years of processing in very complicated, very regulated ways. We are deeply embedded in our customers and their operating models. Taking that knowledge and turning it into skills that AI agents can run is a massive opportunity. Without giving too much away from our event week, we will preview some of what we have built already in a very short period of time. We are excited about what else we will be able to do. William C. Stone: There is a lot of enthusiasm from the earliest adopters we have rolled this out to. There is real opportunity here, and it is about orchestrating delivery, pricing, and having the right teams install it and train our clients. We are excited about it. Operator: Thank you. Our next question comes from Patrick O'Shaughnessy with Raymond James. You may proceed. Patrick O'Shaughnessy: Good evening. How are you thinking about the application of blockchain technology from the perspective of services that your GIDS business provides, such as transfer agency? Is there any disintermediation risk? Rahul Kanwar: I think it is mostly an opportunity. The number of examples of folks interested in blockchain and tokenization is still fairly small. We have a few up and running and a few in process. In the examples we have, not only are we a big part of enabling them—which is a revenue stream for us—but it simplifies our work, which is a cost opportunity for us. The rest of our work—probably 95%—stays exactly the same or grows a little. Net-net, we think it is beneficial. Patrick O'Shaughnessy: Got it, that is helpful. And GlobeOp organic growth was 6.7% in the quarter, down from 9.6% last quarter. Anything to read into that, or just natural ebbs and flows? William C. Stone: It depends on timing. When you win some very large global macros, you have to get those assets onboarded. We get paid when they are not live, but at a lower rate; when they go live, the revenue steps up materially. It just depends on timing. Sometimes there are renewals where GlobeOp might get a pickup in a particular quarter based on a renewal. Operator: Thank you. I would now like to turn the call back over to William C. Stone for any closing remarks. William C. Stone: We believe we had a strong quarter. We have a lot of momentum and are bringing out offerings that will give us more momentum. We look forward to talking to you at the end of the second quarter. Thanks for dialing in, and thanks for your questions. We will talk to you in about 90 days. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to Newmont Corporation's first quarter 2026 results conference call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Newmont Corporation's Group Head of Treasury and Investor Relations, Neil Backhouse. Neil? Please go ahead. Neil Backhouse: Thank you, Christine. Hello, everyone, and thank you for joining Newmont Corporation's first quarter 2026 results conference call. Joining me today are Natascha Viljoen, our President and Chief Executive Officer, Peter Wexler, our Interim Chief Financial Officer and Chief Legal Officer, and other members of our management team who will be available to answer questions at the end of the call. Before we begin, please take a moment to review our cautionary statements shown here and refer to our SEC filings, which can be found on our website. With that, I will turn the call over to Natascha. Natascha Viljoen: Thank you, Neil, and hello, everyone. Newmont Corporation's focus on operational excellence continues to deliver consistent and predictable performance, with our first quarter results demonstrating that we are on track to achieve our 2026 guidance. Importantly, this consistency is reflected in our compelling financial results. Our unrivaled portfolio of high-quality operations and projects, combined with our focus on cost discipline and productivity, positions us to capture the benefits of higher commodity prices even amid the operational headwinds we experienced in the first quarter, delivering margin expansion and robust free cash flow generation. The benefits of record free cash flow generation are flowing through our enhanced capital allocation framework, resulting in continuous reinvestment in our business, a predictable quarterly dividend, and ongoing share repurchases, supplemented by a new $6 billion share repurchase authorization. Before we review our quarterly results in more detail, I want to begin with an update on Cadia following the magnitude April event. As mentioned in our released statements, our immediate priority was the safety of our people. Our safety protocols operated as designed, and within minutes of the event, all personnel working underground were moved to safe locations before being brought to surface in the subsequent hours following the event, and I am pleased to share that there were no injuries. Based on our initial findings, the damage appears limited, reflecting the strength of our ground control systems. I am pleased to report that the underground power and dewatering systems have been restored and we received approval from the regulator earlier this week to begin repairs. Importantly, all surface infrastructure was inspected immediately following the event and sustained no damage. This includes our tailings facilities. From an operational standpoint, we are currently processing surface stockpiles and expect underground rehabilitation to be completed in the next five weeks, enabling return to 80% operating capacity, with full recovery expected by the end of the second quarter. As a result, second quarter production is expected to be lower due to this short gap in mill feed, with operations returning to normal levels beginning in the third quarter. I want to recognize and personally thank the team at Cadia. We responded quickly and effectively, implementing established emergency procedures to ensure the safety of all personnel and positioning the operation for the best possible recovery. Turning now to our operational performance, in the first quarter, we produced 1.3 million ounces of gold, 50 thousand tonnes of copper, and 9 million ounces of silver, with both copper and silver volumes supporting a favorable byproduct cost profile for the quarter. As the third-largest silver producer in the world, we also benefited from a favorable silver price environment, further supporting our free cash flow generation and unit cost management. Performance translated into strong financial results, including $3.8 billion in cash flow from operations after working capital and $3.1 billion in free cash flow, marking another all-time quarterly record, which is especially notable given the seasonal working capital headwinds typically experienced in the first quarter of each year. During the quarter, we also received approximately $321 million in after-tax proceeds from the sale of equity investments in SolGold and Greatland Resources, along with contingent payments related to the divestments of Musselwhite and Cripple Creek & Victor last year, bringing total after-tax proceeds received from our noncore divestiture program to over $4.6 billion. Touching briefly on cost performance, which Peter will cover in a little more detail shortly, over the last few weeks, the world has experienced a notable increase in energy prices and impacts to global supply chain dynamics as a result of the ongoing conflict in the Middle East. We continue to monitor the geopolitical environment and its potential impact on cost closely, but remain encouraged by our demonstrated ability to effectively manage cost and improve productivity, and are therefore maintaining our full-year cost guidance at this time. Taking our strong first quarter operational and financial performance into account, we expect to remain well positioned to continue executing on the enhanced capital allocation framework that we announced in February. Since our last earnings call, we have reduced debt by an additional $42 million and are pleased to share that we have returned $2.7 billion to shareholders through both regular dividends and ongoing share repurchases, fully exhausting our previous repurchase authorization. In line with our established approach, our board has approved another $6 billion share repurchase program, reinforcing our enhanced capital allocation framework and disciplined approach to returning excess cash to shareholders. This framework is designed to systematically reduce Newmont Corporation's share count and, in doing so, drive sustainable per share dividend growth and improvement across other key per share metrics. Building on our strong first quarter performance and looking ahead to the rest of the year, we remain on track to achieve our 2026 guidance, continue generating robust free cash flow from our world-class portfolio, and return capital to shareholders in a consistent manner. Operationally, we delivered a stronger-than-expected quarter, especially considering challenging conditions faced by several of our sites, including the bushfires at Boddington, where we have since made a full recovery with full throughput capacity back to normal levels for the second quarter. We have had extreme snowfall at Brucejack and record levels of rainfall at Tanami. This performance underscores the strength and resilience of our world-class portfolio, built around high-quality, long-life assets that are intentionally diversified both operationally and jurisdictionally to deliver consistent performance across a range of operating conditions, not only withstanding volatility as it arises, but also capturing value from it. Given this strong start to the year, we believe it is appropriate to maintain our existing production weighting. Our first quarter outperformance provides prudent flexibility to absorb any impact from temporary Cadia downtime in the second quarter as we progress recovery efforts following the earthquake. First quarter production was driven by several key factors. At Cadia, we saw a step up in gold and copper production compared to the fourth quarter, supported by improved throughput and favorable grades from the current panel cave. At Merian, production also increased compared to the fourth quarter as we began to access higher grades from the Merian 2 pit as planned. At Ahafo South, production increased due to higher mining rates and improved underground drawpoint availability. At Yanacocha, we delivered stronger leach production performance from high grades out of [inaudible], and as we discussed last quarter, we have begun executing on a highly capital-efficient plan to continue mining through 2026 and into 2027, adding low-cost ounces that are expected to benefit our production profile in 2027, with further potential upside. Peñasquito delivered strong co-product production in the quarter, particularly silver and zinc, as we continue to process stockpiles during the transition phase between Phase 7 and Phase 8. Finally, the ramp-up at Ahafo North continues to progress very well and in line with plan in its first full year of commercial production. We also achieved several notable milestones in our projects in execution during the quarter. At our Tanami Expansion 2 project, work has now fully resumed following the temporary pause earlier in the quarter, the underground primary crusher is now commissioned, and the materials handling system is on track for completion by the end of the second quarter. We have also completed the investigation into the fatality that occurred at Tanami earlier this year and are committed to ensuring the learnings are shared across our organization and with the broader industry. At Cadia, both PC23 and PC12 are progressing well and are tracking to plan as they move through key phases of development. Newmont Corporation's first quarter performance continues to highlight the strength and resilience of our portfolio, as well as the progress we have made to stabilize and improve our operations, positioning us to deliver consistent performance and achieve our full-year commitments. I will now turn the call over to Peter to walk through our financial results for the quarter. Peter? Thank you, Natascha. Peter Wexler: Thank you, Natascha, and hello, everyone. Newmont Corporation delivered outstanding financial results in the first quarter driven by strong operational performance that Natascha just outlined and a supportive metal price environment. Our continued focus on disciplined execution resulted in adjusted EBITDA of $5.2 billion and adjusted net income of $2.90 per diluted share for the quarter. Most notably, Newmont Corporation generated $3.8 billion in cash flow from operations after working capital and a record $3.1 billion of free cash flow, even after making approximately $1.3 billion in cash tax payments during the quarter. Gold all-in sustaining costs were below our full-year guidance at $1,029 per ounce for the first quarter on a byproduct basis. Our cost profile benefited meaningfully from stronger-than-expected co-product pricing and sales volumes, lower cost applicable to sales as a result of disciplined capital spending, and the timing of sustaining capital. As Natascha noted earlier, we are maintaining our cost guidance and, while higher oil prices may create incremental pressure, we view this as manageable at this time and are actively working to mitigate the impact rather than viewing it as a risk to our operating plan. As a reminder, the guidance we provided in February was based on a $70 per barrel Brent assumption, with diesel making up approximately 6% of our direct operating cost. For every $10 per barrel change in oil prices, we expect approximately a $60 million impact on cost, which equates to roughly a $12 per ounce impact on all-in sustaining costs. We are not currently experiencing any disruption to fuel availability and continue to maintain business continuity by leveraging our scale, and our strong supply chain team is working closely with suppliers to proactively identify and manage risks. While higher fuel prices began to materialize in March, we remain focused on offsetting these pressures through continued cost and productivity improvements across our operations. In addition, in February, we quantified the potential annual impact of the newly introduced Ghana sliding scale royalty on our cost profile. While this will represent an incremental cost headwind of approximately $25 per ounce in 2026, our goal is to mitigate the impact through disciplined cost management and productivity initiatives. Looking ahead to the second quarter, we expect production to be slightly below the first quarter, keeping us on track to deliver our full-year production guidance of 5.3 million ounces. Sustaining capital is expected to increase in the second quarter as we move into the summer season at Brucejack and Red Chris, take delivery of mobile equipment at multiple sites, and continue progressing tailings work primarily at Cadia and Boddington. Similarly, development capital is expected to increase beginning in the second quarter as we progress the expansion at Cerro Negro, advance the feasibility study work at Red Chris, and begin spending on the Lihir nearshore barrier project later this year, with our full-year development capital guidance of $1.4 billion remaining weighted to the second half. All-in sustaining costs are expected to be notably higher in the second quarter and more in line with the guidance we provided in February, driven by the ramp-up in sustaining capital, higher cost applicable to sales, and lower silver production than we saw in the fourth quarter as planned. Turning to capital allocation, last quarter we introduced our enhanced capital allocation framework, which is underpinned by net cash from operations and prioritizes cash flow in a clear and disciplined manner. This framework is designed to be sustainable through the cycle, maximize shareholder returns, and maintain a strong and flexible balance sheet, and we are already seeing the positive benefits of this framework in action through our first quarter results. Within this framework, excess cash is first allocated to sustaining capital spend and our dividend—priorities that are intended to remain consistent through the cycle. We continue to invest in sustaining capital to strengthen the longevity and integrity of our portfolio, with $381 million spent in the first quarter. Next, cash is allocated to our sustainable total cash dividend of $1.1 billion per year, which is paid quarterly. In the first quarter, we declared a dividend of $0.26 per share, which is consistent with the last quarter and aligned with this approach. Following these commitments, our development capital spend and balance sheet position may flex over time to reflect portfolio needs and broader market conditions. We continue to invest in development capital to advance our highest-return opportunities from our deep organic pipeline, with $239 million deployed in the first quarter. At the same time, we remain committed to maintaining a resilient balance sheet anchored by our net cash target of $1 billion plus or minus $2 billion over the course of a year. The target is managed on an annual basis and may vary quarter to quarter due to macroeconomic conditions, including the recent volatility in gold price. Once these priorities are met, excess cash is allocated to share repurchases. Since our last earnings call, we have repurchased $2.4 billion in shares, fully completing our previous authorization and bringing total repurchases to $6 billion since we began repurchasing shares over 24 months ago. As a result, our board has doubled the size of our share repurchase program with an additional $6 billion authorization, representing our fourth authorization since February 2024. We intend to execute this program consistently in line with our capital allocation framework, reflecting our confidence in the intrinsic value of our shares and the benefits these repurchases deliver over time. As we approach completion of this authorization, we expect to seek additional approval from our board, consistent with our disciplined and repeatable approach to returning excess cash to shareholders. Both our share repurchase program and the resulting per share dividend growth are formulaic outputs of our capital allocation framework, with repurchases systematically reducing our share count, driving higher per share metrics, and increasing shareholder exposure to the strong free cash flow generated by our portfolio. In fact, on a per share basis, our free cash flow is already 6% higher than it would have been prior to initiating our share repurchase program. At its core, this framework is designed to deliver sustained per share growth, maintain balance sheet strength, and provide shareholders with consistent and growing exposure to the value generated by our world-class portfolio. With that, I will turn the call back over to Natascha for closing remarks. Natascha Viljoen: Thank you, Peter. In closing, Newmont Corporation has had a very strong start to this year, reflecting the deliberate progress we have made to strengthen our operations and enhance the capabilities of our teams and systems, driven by disciplined execution and a clear focus on our commitments. We remain on track to achieve our 2026 guidance, supported by solid operational and financial performance in the first quarter, and are well positioned to drive margin expansion and generate strong free cash flow through continued cost discipline and productivity improvements across our world-class portfolio, which continues to deliver stable and consistent results. Our enhanced capital allocation framework is translating that performance into shareholder returns through a predictable dividend and ongoing share repurchases supported by a new $6 billion authorization. Looking ahead, we will continue to leverage our industry-leading and deep bench strength of expertise across all functions to build a stable and resilient future for Newmont Corporation, positioning us to generate growing free cash flow and deliver increasing returns on a per share basis even in a dynamic macroeconomic environment. Before turning to questions, I want to briefly address that we continue to engage constructively with our Nevada Gold Mines joint venture partner, with a clear focus on improving the performance of our shared assets and delivering long-term value for Newmont Corporation shareholders. With that, we look forward to addressing your questions, and I will now hand it back to Christine, our operator, to open the call for questions. Operator: We will now begin the question and answer session. We ask that you please limit inquiries to one primary and one follow-up question. If you would like to ask a question, please press star then 1 to raise your hand. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press star then 1 again. At this time, we will pause to assemble our roster. Our first question comes from Tanya M. Jakusconek with Scotiabank. Tanya, your line is open. Tanya M. Jakusconek: Great. Can you hear me? Peter Wexler: Yes. Yes. We can, Tanya. Yes. Tanya M. Jakusconek: Okay. Great. Thank you. Thank you for taking my question. Natascha, can you comment on where we are on the whole process with the default that was issued in February with respect to Nevada Gold Mines? Natascha Viljoen: Thank you, Tanya. Good question. I will start, and then I will hand over to Peter to get into a little bit more detail. For starters, as we said in our prepared remarks, our focus remains firstly on improving the Nevada Gold Mines joint venture performance. We are continuously working with our joint venture partner to gain more information around Fourmile and the work that we need to do there. For the notice of default specifically, I will hand over to Peter Wexler. Peter Wexler: Thank you, Tanya, for the question. The period of the notice of default is open-ended, and we are working with them, as Natascha said earlier, to work on the operations. We are working through an orderly process on the notice of default, including exercising our audit rights and reviewing those findings. It is really just an ongoing process at this point in time. Tanya M. Jakusconek: Okay. So my follow-up question is that I am just trying to understand how long this process is going to take. I am assuming that you had meetings with them, you have gotten the information or Barrick has handed over the information that you have asked for, and now you are in the process of reviewing this and talking to Barrick on how we move forward. I am just trying to understand the procedure and what to expect on a timeline. Peter Wexler: While you may see timelines in the agreements, it is more of an iterative process between the two companies. We have questions and follow-up questions on information, and, as you correctly assumed, they respond to us, and we work productively through those answers. There is no set timeline for bringing it to resolution, but we hope to do so in the near term and make sure that Nevada Gold Mines is operating at the highest level possible. Operator: Our next question comes from Matthew Murphy with BMO Capital Markets. Matthew, your line is open. Matthew Murphy: Thank you. Congratulations on a strong first quarter. Can you take us through where operations were beating your expectations? And it sounds like Q2 may be a little bit down quarter on quarter. Should we think about Q2 as the lowest production quarter for the business and then progressive momentum from there? Natascha Viljoen: Yes, Matthew, and thank you for that question. If we look at quarter one, the improved performance that we have seen was across, firstly, Yanacocha, where we saw a beat after the last [inaudible] ore that we have mined and we see the benefit of that coming through. We have also seen improved throughput and grade from Cadia coming through, and that was certainly the basis of that improvement. Then the silver production at Peñasquito was higher than what we delivered in any quarter last year, and that is just a phasing on where we are in the pit, importantly also strongly supported by really high silver prices. We have also treated the last remaining stockpile from our Subika open pit material at Ahafo South, and we have started to see Ahafo North continuing well with its production ramp-up. As we look into the second quarter and we have depleted the Subika open pit stocks at Ahafo South, we do see lower grades coming from Apensu and Amoma open pits. For Peñasquito in this quarter, we will have some months that we are treating organic carbon and, therefore, we will also see lower silver production. Then, of course, as we have touched on earlier, we will see the recovery process that we are working through at Cadia. Therefore, a slightly lower quarter as expected, and we will see the third quarter coming back stronger. Matthew Murphy: And as a second question, slightly different topic, related to the CFO recruitment process. Peter, certainly, Newmont Corporation is delivering results with you in the CFO chair, but there is the “interim” in the title. So, Natascha, any update on how that process is going? Natascha Viljoen: That recruitment process is going well, Matt, and we trust that we will be able to share more information soon. Operator: Our next question comes from Anita Soni with CIBC. Anita, you are live. Anita Soni: Hi. Thanks for taking my question, Natascha. I just wanted to ask, when it comes to the discussions around Fourmile, have you had any discussions with Barrick on bringing that into the joint venture partnership at this stage? Natascha Viljoen: Anita, we continue to collect information on Fourmile and to do our technical evaluation, as we have touched on before. Anita Soni: Okay. Sorry, I missed that. And then just in terms of some of the mine sequencing, I think you touched upon the stockpile processing that you would be doing at Cadia. Stockpile to bridge the gap between pulling ore from the underground—could you give us an indication of what grade those stockpiles are at right now? Natascha Viljoen: Anita, we will have to come back to you. I cannot give you an indication now, but I will ask Neil to give you the feedback on the grade. Anita Soni: Okay. Alright. Thank you. That is it for my question. Natascha Viljoen: Thanks, Anita. Our next question comes from Lawson Winder with Bank of America Securities. Lawson, your line is open. Lawson Winder: Thank you, operator. Hello, Natascha and team. Nice quarterly result, and thank you for today’s update. Can I ask about the cost pressures? I mean, it is notable, the impressive unit cost results in Q1 considering what have been relatively significant cost pressures on energy. Could you speak to some of the levers that Newmont Corporation can pull in order to ensure that input cost inflation does not drive 2026 unit cost guidance above the range? And then to what extent might Newmont Corporation be insulated from cost pressures across the supply chain? Natascha Viljoen: Lawson, thank you for that question. Indeed, we were very pleased with quarter one’s all-in sustaining cost on a byproduct basis. Firstly, we have seen the work that we did last year, both on productivity improvement and cost reduction, and now going into cost discipline, flow through in various aspects of our cost applicable to sales. Our cost applicable to sales was impacted in the first quarter by elements like Tanami, where we saw a period of stoppage due to the fatality. We have also had lower production in areas predominantly in the year at Cerro Negro due to shutdowns that impacted cost applicable to sales, and then we have seen a seasonal lower sustaining capital for quarter one. With the discipline that we established last year, the levers sit in two areas. One is productivity, where the best way for us to offset increased input cost pressures is through higher productivity. We have seen through the last quarter and going into this year, as an example, that we have parked a high number of pieces of equipment across our operations to help reduce consumption. That is certainly the first area we will be focusing on. We will also continue to pursue cost discipline work to offset the impact of higher gold prices on royalties and worker participation. As we think going forward, we have not seen the full impact coming through on increased fuel cost, and the same levers that I have touched on will continue to be the levers that we will pull, both in terms of fuel cost and the second- and third-order consequences that might come through as higher energy costs flow through. In the meantime, we have a really strong supply chain team that works closely with our suppliers, and we are leveraging across different jurisdictions the benefits that we have with the geographical spread to pull all of the levers we can to both sustain supply and manage cost. Lawson Winder: Okay. That is extremely helpful. If I could ask what might not be a quick follow-up, but could be— Natascha Viljoen: Sorry, Lawson, yes? Operator: We will move on to our next question while Lawson gets back on. Our next question in the meantime will be from Joshua Mark Wolfson with RBC. Josh, you are currently live. Joshua Mark Wolfson: Thank you very much. I will follow on Lawson’s questions—hopefully I am not taking them before he gets the chance to redial in. Thank you for providing some of that disclosure on energy price or oil price impacts and the diesel overall exposure. You mentioned some of the secondary factors there. Is there any way the company can quantify the impact or sensitivity to some of these overall primary and secondary impacts based on current prices? Natascha Viljoen: Josh, not at this stage. The sensitivities that we supply both, firstly on fuel and then also just our cost mix, are what we have available at this stage. Thank you. Joshua Mark Wolfson: Okay. Thanks. And then just following on that theme of costs, beyond the energy side of things, is there any commentary the company can provide in terms of broader trends in terms of costs—that would include labor or reagents? And then alongside that, regionally, is there any perspective the team can provide maybe where there are higher pressures or lower pressures? Natascha Viljoen: Joshua, if I think through the various elements of our cost—labor, materials and services, and energy—I think we have spoken at length about energy. Labor is always a continuous conversation, and we do see our agreements with labor coming up for renewal on a continuous basis across all of the jurisdictions we operate in. So far, we have been able to get agreements in place in all of the areas where we were negotiating new agreements, so nothing more than what we have planned for and included in our guidance. On services and materials, nothing else to add beyond what we discussed. Joshua Mark Wolfson: Okay. And then maybe a perspective regionally there if there are any specific areas where you see inflation higher or lower. Natascha Viljoen: No. Not on inflation. Costs are higher due to higher gold prices impacting royalties and workers’ participation, but not inflation in specific areas. Joshua Mark Wolfson: Thank you very much. Operator: The next question we have comes from Lawson Winder again from Bank of America Securities. Lawson, you are live. Lawson Winder: Just before I ask my question, I want to double check you can hear me? Natascha Viljoen: Yes. We can, Lawson. Lawson Winder: Okay. Thank you for taking the follow-up. I think Josh actually covered off a lot of the questions, but something else that I have had on my mind is just the M&A outlook. We have seen some activity from one of your peers already this week, and based on the work we have done, it is a pretty conducive environment for M&A. What is Newmont Corporation’s appetite for acquisitions at the current moment? Natascha Viljoen: Thanks, Lawson, and Josh, I do apologize if you are still on the line—I believe I just called you Lawson because I thought we were still talking to Lawson. From a disciplined capital allocation point of view, our focus remains firmly, firstly, on continuing to drive our own operations to be the best operators of these operations and to get them to operate in the way that they should. Then we have a number of brownfields opportunities that we believe would be very value accretive for us. By the time we get to greenfields projects and any potential acquisition opportunities, they will have to compete for capital within the broader portfolio. Our focus at this stage remains firmly internal on our own assets. Operator: Our next question comes from Fahad Tariq with Jefferies. Fahad, your line is now open. Fahad Tariq: Hi. Thanks for taking my question. There was a headline yesterday that Ghana is asking Newmont Corporation, among other companies, to shift mining operations to local firms by the end of this year. Maybe just any color you can provide on thoughts around that and whether that timing is feasible and what that could mean for cost, etcetera. Natascha Viljoen: Fahad, that is a very relevant topic for us. Firstly, we have a long history in Ghana. We have been investing responsibly, and we have built good relationships. The contractor mining issue is not new for us. We have been working with the Minerals Commission on this matter over a period of time and on our approach to this matter. It is important to know that we are following a process that is commercially and technically disciplined, because what we want to do is ensure that what we develop here has long-term options for our investments in Ghana and supports the government’s objectives. We are in active engagement not only with the Minerals Commission, but I had an opportunity last week to meet with President Mahama, and these relationships and conversations are very constructive and in the best interests of all parties. Fahad Tariq: And then maybe just as a follow-up. Based on the work that you have done, would it be possible to use local contractors for all of the mining operations if the deadline does not change? In other words, is that something that is even feasible? Natascha Viljoen: It depends on how you define mining operations. There are certainly certain mining operations where there is good capacity and capability in Ghana, but there are other areas that are more technically complex that would impact the productivity and the safety of our operations. We hold a very firm view on how we manage any of those areas. So I think it is a combination. If we think about some of the more bulk operations across mining, there is definitely capability, but not in all aspects. Fahad Tariq: Okay. Great. Thank you very much. Operator: Our next question comes from Daniel Morgan with Barrenjoey. Daniel, your line is now open. Daniel Morgan: Hi, Natascha. Just on the supply chain—my question is not on cost, but on availability. With regard to diesel and everything else that you need to run your business, is there anything in the supply chain you can identify that you might face shortages on that could impact your business outcomes at all? Natascha Viljoen: Daniel, no. At this stage, there is nothing that we have identified. We do, however, keep a very close eye on all of our supply chain, not only the primary supply, but also how the primary impacts on energy, for instance, will impact some of the second- and third-order consequences of any potential disruptions. We are working very closely with suppliers, industry partners, and governments to support our operations. Daniel Morgan: Thank you very much. And just on Cadia—my question is not related to the seismic event. It continues to outperform expectations with regard to grade. Is that positive grade reconciliation, or is it higher grade ore presenting itself earlier than thought? Basically, I am just wondering if this win we have had in recent times means we see lower production in future periods. Thank you. Natascha Viljoen: Daniel, what we are seeing is coming through the existing caves, PC2 specifically. It is higher grade reconciliation, and we continue to expect this grade to decrease as we get to the end of this cave life. Daniel Morgan: Okay. That is very clear. Thank you, Natascha and team. Natascha Viljoen: Thanks, Daniel. Operator: Our next question comes from Daniel Major with UBS. Daniel, your mic is now live. Daniel Major: Hi, Natascha. Thanks very much for the questions. First one, just thinking about the business beyond the current year. You have not been guiding on a three-year basis. Do you intend to reinstate medium-term guidance at some point in the future? And then, second, looking at an asset level at least directionally, what we should be expecting for the major moving parts into 2027, if you can give any steer at this point? Natascha Viljoen: Daniel, we know that there is keen interest for us to give multiyear guidance, and as we work through this year, we are keeping that in mind to consider for 2027 guidance. If I think about 2027 and key movements as we see this portfolio growing back to 6 million ounces, the areas of interest are, across the various jurisdictions, Lihir, where we are starting to get into high-grade areas—that is part of the mine plan and part of the work that we have been doing there. Cadia, where we see the new caves come on. Boddington, as we complete the pushbacks and get into high-grade areas. Ahafo North fully ramping up. Cerro Negro, as we continue to drive really hard on the productivity work there. We have some other shorter-term options that will come online. Yanacocha, as we see the shorter-term production from mining coming on as well. Those are some of the early movers that will help us—you will remember, we said that in 2026, we are in a trough—and those are the big movers that will start to build up on the other side of the trough. Daniel Major: Okay. So the message is very much this is the trough year, and there should be meaningful improvement in the subsequent years. Is that how I read that? Natascha Viljoen: Yes. That is— Peter Wexler: Thanks, Daniel. Daniel Major: Okay. Then maybe if I could ask my follow-up question on a similar growth trajectory. You have indicated the intention to FID the Red Chris project in the second half of this year. Can you give us any idea on the magnitude of increase relative to the previous CapEx estimates provided by Newcrest? Natascha Viljoen: Daniel, the process that we are following is very structured. We have taken on board the lessons from the fall of ground that we had last year. We are progressing really well with that work. We are also progressing well with the engagements with our [inaudible] community to progress our permits. All of that is tracking well, and we will be able to give you a proper estimate. You will hopefully know by now we want to say what we do and do what we say. By the time we give you an estimate on capital, it will be an estimate that we will hold ourselves accountable for. Daniel Major: Okay. Thanks so much. Operator: Our last question comes from Bob with Bernstein Research. This will be our last question. Bob, your line is now open. Analyst: Thank you very much. Good evening. I had a follow-up related to the notice of default. If I understand it properly, there was an identified event of default related to evidence of mismanagement or diversion of resources at the JV. You filed the notice of default, and there could be a range of remedies—something as simple as Barrick offering a cure related to that event of default up to much more consequential remedies. Can you talk about the range of remedies and what are your rights under the JV related to those? Natascha Viljoen: Thank you, Bob. I am going to ask Peter Wexler to respond to that. Peter Wexler: Sure, Bob, and I think you captured it accurately in your statement. There are a range of possibilities, and discussing each and every range is not practicable. At the end of the day, the best way to look at it is we are working through the process, as I told one of the other analysts, and are going back and forth in this iterative process to try and understand each other’s viewpoint on what transpired and how things were working. Once we have gone through that process, then either a potential meeting of the minds or another avenue would have to be followed. We hope it is the former, because that is part of getting NGM back on track. But, as you said, there is a range of possibilities. We are working through the structured process in the JV agreement, and where that takes us—hopefully we will work that out between us and not need to resort to any third parties intervening. Analyst: Very good. A quick follow-up. Third party intervention—would that be arbitration or litigation? Peter Wexler: It depends. There is a wide variety of ways we could pursue that path if and when it became necessary. We certainly hope it does not. Analyst: Very clear. Thanks for that. Operator: This concludes the question and answer session. Thank you for attending today’s presentation. You may now disconnect.
Operator: Thank you for holding. For Betterware de México, S.A.P.I. de C.V.’s first quarter 2026 conference call. The conference will begin in a few minutes. We appreciate your patience. Thank you, and welcome to Betterware de México, S.A.P.I. de C.V.’s first quarter 2026 earnings conference call. Before management begins their prepared remarks, please note the disclaimer regarding forward-looking statements on slide two. This call may contain forward-looking statements that are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Please consider these statements alongside the cautionary language and safe harbor statement in today’s earnings release, as well as the risk factors outlined in Betterware de México, S.A.P.I. de C.V.’s SEC filings. Betterware de México, S.A.P.I. de C.V. undertakes no obligation to update any forward-looking statements. A reconciliation of, and other information regarding, non-GAAP financial measures discussed on this call can be found in the earnings release published earlier today, as well as the Investors section of the company’s website. Present on today’s call are Betterware de México, S.A.P.I. de C.V.’s President and Chief Executive Officer Andres Campos, and Chief Financial Officer [inaudible]. Now I would like to turn the call over to Andres Campos. Please go ahead, sir. Andres Campos: Thank you, Operator, and good afternoon, everyone. Thank you for joining our call today. First, I would like to introduce our new CFO. He brings more than 30 years of experience in senior finance roles within multinational consumer companies, playing strategic roles in expanding their brand portfolios and entering new geographic markets, both of which are integral to Betterware de México, S.A.P.I. de C.V.’s own growth strategy. His experience and leadership will be instrumental in supporting our growth objectives. Turning to key highlights on slide four, we delivered slight revenue growth of 0.3% year-over-year and EBITDA growth of 14% year-over-year, expanding our EBITDA margin from 15.3% to 17.4%, supported by improving profitability across all of our business units. Net income and free cash flow remained strong and reflect a more normalized quarter without the extraordinary effects seen last year. Turning to slide five, we continue to diversify our revenue mix in terms of brands and geographies. We expect this trend to accelerate once we receive regulatory approval of the Tupperware transaction, which we expect to happen in Q2. In addition to significantly diversifying our revenue and giving us entry into the Brazilian market, this new brand will be immediately earnings accretive, contributing an estimated 40% to earnings per share. Looking at revenue on a quarter-on-quarter basis, I would like to highlight the early success of BetterWorld’s expansion into Ecuador and its improving performance in Guatemala, the contributions of which increased from 0.1% to 0.7% of total revenue over the past year. We expect this share to continue growing as the business scales in the region. Now, I will hand the call over to our CFO so he can explain Betterware de México, S.A.P.I. de C.V.’s key financials in detail. Raul: Thank you, Andres. Very excited to be part of the team. Let us turn to slide six. Contributing to the 0.3% year-over-year increase in revenue was BetterWork, which grew 2.6% despite one less week in the quarter and which benefited from its geographic expansion. Improving trends at Jafra US also contributed to Betterware de México, S.A.P.I. de C.V.’s top-line growth, which was partially offset by lower sales at Jafra Mexico. Looking at the associate base, we are beginning to see the impact of targeted initiatives, with BetterWork’s base returning to growth. Although Jafra Mexico’s associate base declined as a result of our focus on productivity, we are now shifting towards initiatives aimed at attraction and retention, which we expect to begin showing results in Q2. These trends demonstrate improving momentum across both businesses and position us well for sustained growth. On slide seven, EBITDA performance reflects a clear improvement in profitability across our business units, with margin expanding 211 basis points to 17.4%. It is important to note extraordinary expenses related to the Tupperware transaction impacted the margin. Without these expenses, margin would have been approximately 18.4%. On the right-hand side of the slide, net income accelerated, nearly doubling year-over-year, reflecting a return to more normalized profitability levels following the extraordinary expenses recorded in the prior year, as well as lower interest expenses. Overall, Betterware de México, S.A.P.I. de C.V.’s improving profitability embodies our fifth strategic pillar of maintaining financial discipline. Turning to the next slide, free cash flow normalized during the quarter, converting 58% of EBITDA into cash, supported by stronger underlying profitability and continued discipline in working capital management, particularly with respect to inventory. This will enable us to pay our twenty-fifth consecutive quarterly dividend since going public, which the board has proposed at MXN $200 million, subject to shareholder approval. Dividend payments remain aligned with our disciplined capital allocation framework, maintaining a 33% trailing twelve-month dividend-to-EBITDA ratio, while also using the cash we generate to further reduce debt leverage and continue investing in geographic expansion. Slide nine summarizes Betterware de México, S.A.P.I. de C.V.’s financial strength. Total debt continued falling, with net debt to EBITDA improving to 1.5 times. Following the completion of the Tupperware transaction, we expect our leverage ratio to increase to approximately 1.9 times, with the aim of maintaining healthy leverage levels. As you can see in the chart at the left of the slide, we successfully reduced leverage from 2.4 times at the end of 2022 and 3.1 times at the time of the Jafra acquisition to current levels. Our asset-light model remains a key source of resilience, with ROTA improving to 22.7%, demonstrating greater capital efficiency and stronger profitability. On the right-hand side, you can see that returns have also strengthened versus last year’s quarter, with ROIC increasing to 27% and EPS reaching MXN $31.9 on a trailing basis, reflecting a stronger earnings profile. Overall, we are not only improving profitability, but also translating these gains into stronger results, a healthier balance sheet, and high returns on capital, while enabling us to continue funding initiatives across our five strategic pillars. I will now pass the call back to Andres, who will talk more about each brand’s performance as well as provide an update on the strategic pillars. Andres Campos: Thank you. Turning to slide 10, as in previous quarters, we continue advancing across our five strategic pillars, which define the next stage of Betterware de México, S.A.P.I. de C.V.’s evolution. First, strengthen our leadership in Mexico with our BetterWear and Jafra brands. Second, continue our regional expansion, driving Jafra’s growth in the US and selectively expanding across LatAm. Third, develop or acquire new brands and/or product categories. Fourth, further advance our digital transformation. And finally, maintain strict financial discipline, prioritizing profitability, cash generation, and a strong balance sheet as the foundation of sustainable long-term growth. These pillars remain the framework guiding our strategic decisions and capital allocation going forward. On slide 11 is the first pillar, strengthening our leadership in the Mexican market. Starting with BetterWear on the next slide, the business delivered a solid start to the year with improving commercial momentum. We are seeing a clear inflection point in the associate base, which has returned to growth and is beginning to rebuild scale. This represents an important milestone, as it supports the recovery in revenue and reinforces the strength of our commercial model going forward. It is important to note that the quarter had one fewer week compared to last year, which affected reported growth. On a comparable basis, revenue growth would have been approximately 3.3%. Additionally, although Latin America is currently only 1.7% of BetterWorld’s total revenue, it is expected to continue expanding as we further scale our regional operations. On the right-hand side of the slide, EBITDA margin improved significantly by 190 basis points to 20.5%, with EBITDA increasing 12.9% year-over-year, driven by disciplined cost management and solid execution. Gross margin remained stable despite external pressures. On slide 13, we highlight the progress we are making against the strategic initiatives outlined for 2026. As a reminder, our key priorities for 2026 include innovation, catalog redesign, enhanced associate service, new technology capabilities, and the new payment system. Starting with innovation, we are seeing strong performance from our new fast consumption product line called Better Clean Tabs, as we continue to expand into higher-frequency consumption categories. On catalog redesign, our new catalog format is progressing well and is set to launch in the second half of the year. In terms of associate service, we are currently piloting a new segmentation within our incentive program aimed at enhancing engagement and driving activity, with a broader rollout expected in the third quarter. On the technology front, we have introduced new analytical capabilities and are advancing the development of new BetterWare Plus app features alongside the implementation of our Salesforce CRM, expected to launch in Q2. Finally, regarding our payment system, we are in the pilot phase, with ongoing testing and analysis as we prepare for a full rollout during the second half of the year. Overall, we are making solid progress in executing our 2026 priorities, reinforcing the foundations for sustainable growth. On slide 14, Jafra Mexico’s quarter reflects a temporary moderation in revenue growth. This was mainly driven by a shift in focus towards productivity of the existing consultant base, which ended up undermining base expansion. We recently implemented initiatives to rebalance our focus on capturing associate growth, which we expect to see results during the second quarter. It is important to mention that, according to the latest market reports for 2025, we have reached the number two position in the beauty market in Mexico within the direct selling channel, up from number four at the time of Jafra’s acquisition in 2022. Additionally, we now rank number seven in the overall beauty market in Mexico across all distribution channels. On the profitability side, the business delivered strong improvement, increasing EBITDA margin by 165 basis points to 17%, supported by better cost management, benefits of restructuring initiatives implemented last year, and lower extraordinary expenses. Moving on to the next slide, Jafra Mexico is also making solid progress in executing its 2026 priorities. Starting with innovation, we returned from renovation to innovation, highlighted by the launch of the new Stitch sunblock through our partnership with Disney, among other innovations, as we continue to expand our portfolio and refresh key categories. On sample trial initiatives, we have introduced increasing quantities of sensorial sampling, enhancing the product experience for consultants and customers. Regarding subscription models, we launched our new plan in March, which is already showing early traction and supporting retention. In terms of associate incentives, we are advancing our segmentation strategy with new structures designed to better address different associate profiles, with further rollout expected in Q3. Finally, on the Jafra Plus platform, we are progressing with the implementation of our new CRM expected in Q2 and the Jafra Plus app, which is set to launch in Q3. Overall, these actions position Mexico to transition into its next phase of growth. On slide 16, we highlight our second strategic pillar, which is regional expansion. Turning to slide 17, the business continues to show significant progress in the US, with net revenue in US dollars increasing 8.6%, supported by an expanding associate base growing 3.4% year-on-year and improved productivity. At the same time, profitability improved meaningfully, driven by disciplined cost management. Importantly, excluding extraordinary legal expenses, EBITDA would have been positive, with a margin of approximately 2.6%, showcasing the increasing strength and independence of our Jafra US business. Turning to slide 18, we are pleased to announce the launch of BetterWork Colombia. This marks an important milestone in our regional expansion, further strengthening our presence in the Andean region, building on the success we have seen in Ecuador. Turning to slide 19, our operations in the Andean region and Central America continued to show strong momentum. Both the Andean region and Guatemala remain on a sustained growth trajectory, supported by continued expansion of the associate base. In the Andean region, we have reached approximately 14,000 associates, reflecting solid progress in building scale in a relatively short period of time. In Guatemala, the associate base has also continued to expand, reaching approximately 2,200 associates, demonstrating strong traction and growing engagement in the market. While these markets continue to scale rapidly, they still represent a small portion of total revenue, accounting for 0.7% of the group’s revenue and 1.7% of the BetterWear brand. Turning to slide 20, we continue advancing on our strategy of incorporating new brands and categories that complement our portfolio. We announced the acquisition of Tupper on January 19, and we continue to await approval from the antitrust authority in Mexico, which we expect during 2026. We see significant potential in the Tupperware transaction, as it is highly accretive and strategically positions us to penetrate the far larger Brazilian market, while this iconic brand provides additional expansion opportunities across the region. Turning to slide 21, our digital transformation continues to be strategic and a key enabler across all our strategic growth pillars. Our main objective on this front remains accelerating growth through a digital platform that maximizes the sale opportunity of every person-to-person interaction. On slide 22, we outline our digital transformation across three main pillars. First, growing the business for our distributors and associates. We are focused on enhancing our associates’ and distributors’ digital capabilities, with the first phase of trials underway, to equip them to better leverage digital tools and drive performance with the use of our platforms. Second, digitizing Betterware de México, S.A.P.I. de C.V.’s core operations. This includes customer service automation and end-to-end automation of commercial processes by implementing a CRM with Salesforce and a new artificial intelligence committee. And third, leveraging our data with initiatives like our new BetterWordPlus analytics platform, which helps us improve all of our digital tools. Finally, our fifth pillar, financial discipline and control, which remains the backbone of our strategy. It continues to guide how we allocate capital and operate across the organization, enabling us to grow while preserving the strength of our balance sheet even in volatile operating environments. We remain firmly focused on tight cost management, efficient inventory control, and working capital execution, and on maintaining a prudent leverage profile. Financial discipline is not just a pillar of our strategy; it is embedded in how we operate every day. We are sure that with our CFO’s leadership and experience, we will continue to maintain and improve our strong financial discipline. With this in mind, we began 2026 with a solid performance, reflecting improving momentum across our business units and continued progress in strengthening our commercial and operational execution. While revenue growth at the group level remained modest due to a temporary slowdown in Jafra Mexico, all other business units delivered strong momentum. Additionally, profitability improved meaningfully, supported by better operating efficiencies and disciplined cost management, with all business units contributing to this improvement. At the same time, our expansion strategy continues to gain traction, with renewed momentum at Jafra US and sustained growth across our Andean and Central America operations, including the successful launch of BetterWork Colombia. Looking ahead, we continue to advance on the Tupperware transaction, actively preparing for its integration and achieving the value creation opportunities it represents while we await regulatory approval. Betterware de México, S.A.P.I. de C.V. today stands as a stronger, more diversified, and well-positioned group, with a clear roadmap for long-term value creation, and the start of 2026 reflects a solid footstep into that future. With that, I will pass the call back to our Operator for any questions you may have. Thank you. Operator: Thank you. We will now open the call for questions. To ask a question, dial in by phone and press star then 1 on your telephone keypad. Make sure your mute function is off. If you are using a speakerphone, please pick up your handset before pressing the star keys. To withdraw your question, press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Eric Beder with SCC Research. Please proceed. Eric Beder: Good afternoon. Andres Campos: Hi, Eric. How are you? Eric Beder: I am good. How are you doing? Good, thanks. Could we talk a little bit about the state of the Mexican consumer? I know that Q1 last year was a bit of a shock to them, and how are you seeing them now, and what are they looking out for right now in terms of their purchases going forward? Andres Campos: Sorry, Eric. We had a little bit of a problem there. Can you repeat the question really quickly? Eric Beder: Sure. So what is the state of the Mexican consumer right now? I know last Q1 it was affected by tariffs. What are we seeing now, and what is the Mexican consumer looking for, and how are you changing and shifting for that? Andres Campos: Thank you, Eric. That was clear. We are seeing a slight rebound in consumption in the first quarter. Consumption growth has been decreasing for the past three or four years, and we hit the lowest growth last year with about 1.1% growth in consumption. This year, the expectation is 1.6%, so it is a little rebound, and we are seeing in private consumption up to January and February a slight rebound. It is not a huge rebound; it is a slight rebound. But this helps to change the trajectory in the Mexican consumer and consumption in general. We think this is good news, and we hope to continue seeing this trajectory in the quarters to come. Eric Beder: You did a great job again with inventory, down a significant level, materially higher than the revenue change. When do you start to anniversary that, and what will be the goal after you get there? Andres Campos: Do you mean inventory? Eric Beder: Yes. Andres Campos: As we mentioned before, in inventory, we had already lowered it up to the fourth quarter of last year. It remained pretty stable at those levels at the end of this quarter. We do expect a slight decrease throughout the year. We were talking about a MXN $100 million more of a decrease, but we do not see inventory declining much further after that. We think that we have reached nearly our optimal levels and think it can remain stable from there. Eric Beder: Last question. You announced the acquisition of Tupperware Latin America. I know in the last few months you have met with a lot of people at that company. Are you more excited, less excited? How are you feeling about this acquisition now that it has been announced and you have gone out to the field to talk to people? And how do you look at the near- and longer-term opportunities here? Thank you. Andres Campos: Thank you, Eric. We are very excited about this acquisition. As we have mentioned before, we are still pending approval from the antitrust agency in Mexico, which we expect to happen during this second quarter. We think that Tupperware is a very well-positioned brand in customers’ minds across Latin America. It is not only well positioned, but a very valued brand throughout the years. There is a lot to do in terms of product innovation and of replicating Betterware de México, S.A.P.I. de C.V.’s model in Tupperware in terms of merchandising, innovation, and many things that we can really leverage on such a great brand. We are also very excited to tap into LATAM’s biggest market, Brazil, with a strong foothold when we start. It is already an approximately $100 million revenue company there, so it is a strong foothold to really take off in the Brazilian market. We are very excited and hope we get that approval in the coming weeks during this quarter, and then take off from there. Eric Beder: Great. Thank you, and good luck for the rest of the year. Operator: If you have a question, please press star then 1. Our next question is from Cristina Fernandez with Telsey Advisory Group. Please proceed. Cristina Fernandez: Hi. Good afternoon, Andres and Raul. Nice to meet you. I have a question on Jafra Mexico. When you look at the performance this past quarter, and we also started to see a little bit of a slowdown the quarter before, how much of that do you think is a slowdown in the broader beauty market, or is it just specific to Jafra Mexico and some of the points you talked about as it relates to the consultant recruiting and the innovation? Andres Campos: Thank you, and hi, Cristina. We definitely think it is more internal than external. We see the beauty market continue to grow and continue to expand in Mexico, and it is still a category that has a great tailwind. We expect that to continue. The internal factors that we think impacted the fourth quarter and the first quarter were mainly two. One is that last year we focused more on line renovations than on real innovation. When you are renovating your lines, there is not as much impact as when you are actually innovating into new categories, new concepts, and new lines. We think that had an effect. As we said, last year we finished all our renovations, and this year we are focusing again on real innovation. We are strengthening our partnership with Disney. We launched the Stitch Sunblock, which has been a great success. We launched many different products with Disney, and we are also launching new innovations that are going to impact positively this year. So that is one part, a refocus into innovation. The second part is that while we were trying to incentivize more productivity from our associate base, we think that affected bringing in new associates and also keeping our small, unproductive associate base active. That was an internal factor that made the associate base decrease, and we were not able to compensate with productivity, so growth slowed down. We have already detected everything there and reversed it, starting in March and more so in April, and in April we are back to where we need to be. We expect a rebound throughout the year, and we expect that rebound to start in the second quarter, to get an inflection point and then strengthen growth again throughout the year. We think it is a temporary internal situation that should reach its inflection point in Q2 and start strengthening growth again going forward. With that, we are very happy with our results in terms of profitability. As a group, and even in Jafra Mexico, we strengthened profitability. Across all our businesses, profitability is strengthening, free cash flow is strengthening, and our balance sheet is improving. All of our other business units are growing. Once this issue with Jafra Mexico that we expect to reverse comes back, we think we will have very strong results for the group going forward. Cristina Fernandez: Perhaps a follow-up would be based on the shape of the year you were talking about, because you kept your revenue growth guidance for the year at 4% to 8%, even though the first quarter came in a little bit lower. If I am understanding what you are saying, you expect the second quarter to be better from a growth perspective than the first quarter and then the back half to be the strongest of the year. Is that correct? Andres Campos: Yes, definitely. We expect BetterWorld Mexico’s growth to strengthen. We started the year at 2.6%. On a same-week basis, it was 3.3%, but we expect that growth for BetterWork to keep strengthening. BetterWare Mexico started rebounding in the second half of last year and now we are seeing incremental revenue versus the previous year. At the same time, we expect all of the LatAm expansion of BetterWork to continue contributing to growth. We also expect Jafra US to continue delivering great results. As you saw, we grew 8.6% in dollars, and we expect that to continue strengthening. With this inflection of Jafra Mexico, we think as a group we will start seeing strengthening in growth. We are positive about that, and that is why we are keeping our guidance as well. Cristina Fernandez: Thank you. And the last question I had is, you did a really good job of managing expenses this quarter. Are you seeing any pressure? Should we expect any pressure as the year progresses, either in freight—meaning supply chain or transportation costs—as a result of the volatility in oil prices, or are you contracted out for the year at stable rates? Andres Campos: Yeah. Thank you, Cristina. The volatility that has been happening in oil prices from the whole situation with the Hormuz Strait and all of that is definitely something we are not only keeping an eye on, but we are taking actions. We have seen some slight, temporary increases in freight costs from China because of petroleum. At the moment, we have not received too much pressure from our suppliers in terms of raw material costs. We are vigilant to what happens if this becomes a temporary thing or a more sustained issue, and we are preparing tactics and strategies, as we have done before when things like this happen, to counter these effects. We feel confident that we can react to any sustained pressures from this—not talking about product pricing, but strategies such as negotiations or redesigns or other strategies that can contain any cost increases. It is still early to tell, and we are ready to tackle any counter-effects if this becomes a more long-term pattern. Operator: Thank you, Andres. That does conclude our question. Operator: That does conclude our question-and-answer portion of today’s conference call. I would like to turn the call back over to management for closing remarks. Andres Campos: Thank you, everyone, once again, for your trust and continued support. We look forward to updating you next quarter. Thank you once again. Goodbye. Operator: Ladies and gentlemen, this concludes the first quarter 2026 earnings conference call. We would like to thank you again for your participation. You may now disconnect. Goodbye.
Operator: Good day, and welcome to the Enova International, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. 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, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Lindsay Savarese, Investor Relations for Enova International, Inc. Please go ahead. Lindsay Savarese: Thank you, operator, and good afternoon, everyone. Enova International, Inc. released results for the first quarter 2026, ended 03/31/2026, this afternoon after market close. If you did not receive a copy of our earnings press release, you may obtain it from the investor relations section of our website at ir.enova.com. With me on today's call are Steven Cunningham, Chief Executive Officer, and Scott Cornelis, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Steven, I would like to note that today's discussion will contain forward-looking statements and, as such, is subject to risks and uncertainties. Actual results may differ materially as a result of various important risk factors, including those discussed in our earnings press release and in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Please note that any forward-looking statements that are made on this call are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, Enova International, Inc. reports certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in today's press release. As noted in our earnings release, we have posted supplemental financial information on the IR portion of our website. And with that, I would like to turn the call over to Steven. Steven Cunningham: Thank you, Lindsay, and good afternoon, everyone. I appreciate you joining our call today. Our first quarter results marked a great start to the year. Strong originations growth and solid credit across our portfolio once again drove outstanding financial results that were in line with or better than our expectations and highlight the power of our balanced growth strategy and our experienced team's ability to drive differentiated and consistent performance by leveraging our diversified product offerings, scalable operating model, and advanced risk management capabilities. Our results also highlight the resiliency of our consumer and small business customers despite recent market volatility and concerns about potential impacts from geopolitical or domestic policy issues. First quarter originations increased a healthy 33% year over year to nearly 2.3 billion dollars. As a result of the strong originations growth, the portfolio increased 28% year over year to nearly 5.3 billion dollars, with small business products representing 70% of our portfolio at the end of the quarter and consumer products accounting for 30%. Strong demand and solid credit performance enabled us to be more aggressive, with revenue increasing 17% year over year to a record 875 million dollars in the first quarter. Profitability metrics grew even faster, as adjusted EPS increased 30% from 2025, driven by strong credit and our significant operating leverage. SMB revenue increased 37% year over year to [inaudible], and our consumer revenue increased 3% year over year to 446 million dollars, both quarterly records. In addition to our strong growth this quarter, credit metrics across the portfolio reflect stable or improving performance, with the consolidated net charge-off ratio for the first quarter falling both sequentially and year over year to 7.6%, our lowest consolidated quarterly net charge-off rate since 2023. Looking at our consumer business, year-over-year growth in originations accelerated to 10% as we continue to lean into the strong demand and stable credit that we discussed last quarter. As expected, credit metrics for the consumer portfolio were stable or improved both sequentially and year over year. Our SMB business continued to deliver remarkable growth and stable credit as our leading brand presence, scale, and strong competitive position drove 42% year-over-year growth in originations to a record 1.7 billion dollars. Our SMB portfolio has grown 37% over the past year and remains intentionally well diversified across geographies and industries. In addition, the SMB net charge-off ratio remained in a tight range consistent with the past two years. Our performance this quarter and external data reflect a stable and resilient macroeconomic environment despite recent concerns about rising energy costs as a result of the Iran war. The most recent Federal Reserve Beige Book released last week continued to highlight increases in economic activity across most districts. In addition, our most recent small business cash flow trend report released in conjunction with Oculus found that 93% of small businesses expect moderate to significant growth over the next year, which is consistent with prior surveys. Similarly, the most recent NFIB Small Business Economic Trends report indicated that the number of small business owners rating the health of their business as excellent or good is mostly steady. And the April ADP National Employment Report noted that small businesses have been the engine for hiring across the country for the second consecutive month. Supported by a stable labor market and growth in real wages, consumers continue to spend and participate in the economy. The March unemployment rate ticked down to 4.3%. New and continuing weekly unemployment claims remained relatively low and manageable, and March hourly earnings increased 3.5% compared to a year ago. While March consumer confidence remained stable, consumers as well as small businesses expressed concerns about the future impact of the recent spike in gasoline prices. During our more than twenty-year operating history, we have successfully managed our business during several energy price spikes, including as recently as 2022. During that energy shock, we observed that significant gas price spikes do not necessarily translate into higher spending, as today's consumers have more methods to manage gas price spikes than in the past with the advent of more fuel-efficient autos, electric vehicles, ride-sharing services, and on-demand delivery. A review of the electronic bank statement data we collect across our consumer businesses supports this. Prior to the start of the Iran war, our consumer borrowers were spending roughly 2% of income on gas, and even with a meaningful increase in gas prices, we have seen only a small increase in spending on gas relative to income as consumers adapt their behavior to higher costs at the pump. This trend is similar to what we observed during 2022 when geopolitical issues sparked an even sharper rise in gas prices that persisted for many months during a period of much higher overall inflation. Importantly, during that period in 2022, we did not observe material impacts to our consumer or SMB originations or credit performance as a direct result of the energy price spikes. Notably, historically, we have seen that demand for our products typically increases as customers look to bridge temporary cash flow gaps that could arise from spending due to transitory higher prices. Before I wrap up, I would like to spend a few moments discussing our strategy and key focus areas for the remainder of 2026. We have demonstrated a long track record of consistent and profitable lending while navigating a wide range of economic environments. We thoughtfully diversified and built our operating model to be resilient in any economic environment. We are confident in our ability to continue our success by following our focused growth strategy and by leveraging our diversified product offerings, advanced technology and analytics, and disciplined unit economics approach. One key to our success for many years has been the extensive application of machine learning models, automation, and other advanced technologies, including applied and generative AI, across our company to remain nimble, improve the customer experience, manage risk, and increase efficiency. This tech-forward and innovation mentality is ingrained in our culture; it is how we have approached our work every day for many, many years. While we have taken a more understated approach to highlighting our innovation compared to others, preferring to let the results speak for themselves, make no mistake that we have embraced the opportunities to apply generative AI across our business to defend and extend our competitive advantages and enable our teams to move faster with powerful insights while working smarter and more efficiently. Finally, we are excited about our combination with Grasshopper Bank later this year. Since our last update, we have continued to make great progress and remain engaged in a constructive dialogue with both the OCC and Federal Reserve as we progress through the typical application process. Internally, our teams are deep into integration planning, and we are highly encouraged by the readiness we are building to ensure we hit the ground running on day one to deliver on the significant synergies for geographic expansion of our existing products and lower funding costs from Grasshopper's deposit businesses. As a reminder, we expect net synergies to drive adjusted EPS accretion of more than 25% once the synergies are fully realized, in the first two years post closing. We continue to anticipate closing the transaction during the second half of this year. To wrap up, we are pleased with the strong start to the year and, based on what we are seeing today, are raising our outlook for the year, which Scott will describe in more detail. We believe our diversified product offerings, nimble machine learning credit risk management capabilities, talented team, and solid balance sheet position us well to continue to drive sustainable and profitable growth this year and beyond. With that, I would like to turn the call over to Scott Cornelis, our CFO, who will discuss our financial results and outlook in more detail. And following Scott's remarks, we will be happy to answer any questions you may have. Scott? Scott Cornelis: Thank you, and good afternoon, everyone. As Steven noted in his remarks, we are pleased to deliver another solid quarter of top- and bottom-line financial performance. We started 2026 with strong growth in originations, receivables, and revenue, along with solid credit, operating efficiency, and balance sheet flexibility. Turning to our first quarter results, total company revenue of 875 million dollars increased 17% from 2025, exceeding our expectations, driven by 28% year-over-year growth in total company combined loan and finance receivable balances on an amortized basis. Total company originations during the first quarter rose 33% from 2025 to 2.3 billion dollars. Revenue from small business lending increased 37% from 2025 to 418 million dollars, as small business receivables on an amortized basis ended the quarter at 3.7 billion dollars, or 39% higher than the end of 2025. Small business originations rose 42% year over year to 1.7 billion dollars. Revenue from our consumer businesses increased 3% from 2025 to 446 million dollars, as consumer receivables on an amortized basis ended the first quarter at 1.6 billion dollars, or approximately 8% higher than the end of 2025. Consumer originations grew 10% from 2025 to 559 million dollars. For the second quarter of 2026, we expect total company revenue to be 15% to 20% higher year over year. This expectation will depend on the level, timing, and mix of originations growth during the quarter. Now turning to credit, which is the most significant driver of net revenue and portfolio fair value. Consolidated credit performance for the first quarter was solid, with year-over-year improvement in the net charge-off rate and the 30-plus day delinquency rate, and a stable fair value premium. The consolidated net revenue margin of 60% for the first quarter was at the higher end of our expected range and reflects continued solid credit performance across our portfolios. The consolidated net charge-off ratio for the first quarter of 7.6% declined 100 basis points from the first quarter a year ago, as the consumer net charge-off ratio decreased to 14.3%, 90 basis points lower than the first quarter last year, while the small business net charge-off ratio remained stable at 4.6%. These results underscore the strength and consistency of our credit risk management and the quality of our originations. Importantly, we expect future credit performance to remain stable as demonstrated by the year-over-year stability in the consolidated 30-plus day delinquency rate and the consolidated fair value premium, which at 115% remained at levels we have seen over the past two years, indicating a stable risk-return profile and strong unit economics. Looking ahead, we expect the total company net revenue margin for the second quarter of 2026 to be in the 55% to 60% range. This expectation will depend upon portfolio payment performance and the level, timing, and mix of originations growth during the second quarter. Now turning to expenses. Total operating expenses for the first quarter, including marketing, were 36% of revenue compared to 33% of revenue in 2025. As Steven noted, our marketing spend continues to be efficient, driving strong originations growth. Marketing costs increased to 22% of revenue, or 189 million dollars, compared to 19% of revenue, or 139 million dollars, in 2025. We expect marketing expenses to be around 20% of revenue for the second quarter, which will depend upon the growth and mix of originations. Operations and technology expenses for the first quarter increased to 8.7% of revenue, or 76 million dollars, compared to 8.4% of revenue, or 62 million dollars, in 2025, driven by growth in receivables and originations over the past year. Given the significant variable component of this expense, sequential increases in O&T costs should be expected in an environment where originations and receivables are growing, and should be around 8% to 8.5% of total revenue going forward. Our fixed costs continue to scale as we focus on operating efficiency and thoughtful expense management. General and administrative expenses for the first quarter were 48 million dollars, or 5.5% of revenue, compared to 42 million dollars, or 5.7% of revenue, in 2025. The current quarter includes 2.7 million dollars of one-time deal-related expenses associated with the pending Grasshopper acquisition. Excluding these items, G&A expenses were 45 million dollars, or 5.2% of revenue, reflecting continued operating leverage and disciplined expense management. While there may be slight variations from quarter to quarter, we expect G&A expenses in the near term will be around 5% of total revenue excluding any one-time costs. Our balance sheet and liquidity position remain strong, giving us the financial flexibility to successfully navigate a range of operating environments while delivering on our commitment to drive long-term shareholder value through both continued investments in our business and opportunistic share repurchases. We ended the first quarter with approximately 1.1 billion dollars of liquidity, including 436 million dollars of cash and marketable securities and 654 million dollars of available capacity on our debt facilities. Continuing our track record of strong capital markets execution, during the first quarter we upsized four of our secured consumer and small business warehouse facilities by 377 million dollars at existing terms, providing additional capacity to support our growth. Our cost of funds for the first quarter was 8.2%, down from 8.3% in the fourth quarter, reflecting strong execution in recent financing transactions. During the first quarter, we acquired approximately 110 thousand shares at a cost of approximately 16 million dollars. We continue to believe there remains additional upside in our valuation given our track record of consistent growth in earnings, our expectations for 2026, and the significant future opportunities associated with the Grasshopper acquisition. With that in mind, we will continue stock repurchases opportunistically while ensuring we are prepared to close the Grasshopper Bank acquisition and transition to a bank holding company later this year. Finally, we continue to deliver solid profitability this quarter. Compared to 2025, adjusted EPS, a non-GAAP measure, increased 30% to 3.87 dollars per diluted share. To wrap up, let me summarize our near-term expectations. For the second quarter, we expect consolidated revenue to be 15% to 20% higher year over year, with a net revenue margin in the 55% to 60% range. Additionally, we expect marketing expenses to be around 20% of revenue, O&T costs of around 8% to 8.5% of revenue, and G&A costs around 5% of revenue. With a more normalized tax rate, these expectations should lead to adjusted EPS for 2026 that is 20% to 25% higher than 2025. For the full year, we expect growth in originations compared to the full year of 2025 of around 20%. We expect that the resulting growth in receivables, with stable credit and continued operating leverage, should result in full-year 2026 revenue growth similar to originations growth and adjusted EPS growth of at least 25%. Our second quarter and full-year 2026 expectations will depend upon the path of the macroeconomic environment and the resulting impact on demand, customer payment rates, and the level, timing, and mix of originations growth. As a reminder, our 2026 financial expectations do not assume any contribution from the pending acquisition of Grasshopper Bank, which, as Steven noted, we continue to expect to close in 2026. We are confident that the demonstrated ability of our talented team, combined with our world-class technology and analytics, has us well positioned to adapt to an evolving macro environment and continue to generate meaningful and consistent financial results. Our resilient online-only business model, diversified product offerings, nimble machine learning-powered credit risk management capabilities, and solid balance sheet support our ability to continue to drive profitable growth while also effectively managing risk. And with that, we would be happy to take your questions. Operator? Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. The first question will come from Moshe Orenbuch with TD Cowen. Please go ahead. Moshe Orenbuch: Sorry, I was on mute there. Thanks very much. I guess for starters, you have very strong results overall, but it has tilted a little bit, certainly from an asset growth standpoint, towards small business. Could you talk a little bit about your originations in both consumer and small business and relate it to the respective marketing costs—where were those higher marketing costs incurred, how did it drive the originations, and whether there is an outlook for that consumer or any reversal, if you will, of that kind of disparate growth between the two businesses? Steven Cunningham: Moshe, thanks for the questions. A couple of comments. Number one, our SMB business has been growing plus 20% every quarter over the past two years. Sometimes it is more than that, like we have seen over the past couple of quarters, or sometimes a little bit closer to that—so pretty consistent, pretty steady. There is nothing remarkable to call out as it relates to marketing. Our marketing remains very efficient, and we lean into that marketing where we see opportunities to drive really good growth with strong unit economics. On the consumer portfolio, if you look at the year-over-year trends, we have been reaccelerating growth as we have talked about over the past couple of quarters. If you recall, back in the middle of last year, we were making sure that we had credit where we wanted it. There was a product that we slowed that slowed our overall consumer growth down a bit, but that has been picking up. The pace has picked up. In particular, our consumer installment growth has been very healthy now for quite some time on a year-over-year basis, and the LOC product year-over-year growth has been accelerating over the past several quarters as we expected. You should expect to continue to see consumer year-over-year growth accelerate as we lap some of the quarters last year where we had purposely slowed down. I expect we will continue to see healthy SMB growth, but I also think we will continue to see that acceleration in consumer. So the disparity, all things being equal and with the strong operating backdrop, should diminish. Similar to SMB, on the consumer side our teams do a great job of identifying the channels that deliver the best marketing value for the growth that we can achieve against that unit economics framework. We feel very good about the quarter, the growth that we were able to deliver, and, as Scott highlighted, we nudged up our outlook based on what we see today. Moshe Orenbuch: Got it. Thanks. And clearly, you have one of the better lenses into repayment given the shorter term that you have. Just talk a little bit about what you are seeing both on consumer and small business side. We see the delinquency rates at the end of March, but has that continued into April, and what are you seeing on the repayment side? Steven Cunningham: The results speak for themselves. At the end of the quarter, credit looks really strong. SMB has been operating in a tight range for charge-offs for quite some time. Our consumer charge-offs are operating toward the lower end of the range that we typically would see for a first quarter. A few weeks into the second quarter, we are pleased with what we are seeing as it relates to portfolio performance and demand. Regardless of the volatility and the headlines out there, sometimes what people are actually doing versus the backdrop and the headlines is very different, and we are encouraged with what we are seeing as we move into the second quarter. Operator: The next question will come from David Scharf with Citizens Capital Markets. Please go ahead. David Scharf: Hi. Good afternoon. Thanks. Steven, maybe just following up on Moshe's comment about the mix of originations. Can you remind us, as we think about the unit economics between consumer and SMB, are we as investors basically indifferent as it relates to the asset mix? Are the unit-level returns, risk-adjusted, pretty much the same? Are you underwriting to similar economics still? Steven Cunningham: Our unit economics and ROE frameworks are designed to be mix-agnostic. We go where the demand is and where we can efficiently underwrite and market to drive volume. We have talked about this a lot over the years, and you have seen us do that. There are some slight differences between the two—yields are different, charge-off rates are different, which means net revenue margins are a bit different, and you can work your way down through financing intensity across the two—but ultimately you get back to a pretty similar ROA across the two portfolios. We feel really good that our approach to meeting demand works well whether SMB grows a bit faster, like we have seen over the past year or so, or consumers grow faster than SMB, which we have also seen at times. Most recently, the mix has been impacted by the reacceleration as we got consumer rolling again after the middle of last year. We feel really good about where we are headed and about the economics across both portfolios. David Scharf: Got it. That is helpful. Switching to credit, I have a question about gas prices and spending based on the bank data you started purchasing several years ago. I just wanted to make sure I heard what you said—that as a percentage of income, you are not seeing any noticeable change in how much your borrowers are allocating to gas or energy-related expenditures. And are they spending more in total when you look at bank account information and debit charges, or is gas spending pulling from other categories of spend? Steven Cunningham: Overall spending compared to income is about where it has been on average. The proportion spent on gas is pretty small—around 2%—and we saw only a slight increase, so it is not materially crowding out other categories of spending. That is also what we saw in 2022. Consumers and small businesses adapt to the environment and change their behaviors if it becomes a pressure for them. We have a track record, we have a handle on what we expect to see, and we will keep an eye on it and adapt if we see something different. Right now, we are not seeing anything that would cause concern about the recent gas price increases for our consumers. David Scharf: Okay. Got it, which is consistent with what pretty much all lenders have been saying thus far. If I could squeeze just one more in: there has been talk this reporting season about changes in digital commerce and search, particularly around integrating with AI platforms. How do you see your digital marketing evolving as traditional search transforms, and are there integration plans underway? How should we think about customer acquisition changing over the next few years? Steven Cunningham: Our marketing teams have been very active on this for quite some time, looking at shifts where users may leverage AI models for discovery versus traditional browsers. We use tools that allow us to understand where we stack up, similar to search. It is not dissimilar from the shift from traditional TV to social media and much more targeted marketing. Our teams are very good at understanding where our customers are trending to find products like those we offer, and we are making great progress migrating and leading in those channels so we can maintain our competitive advantage and continue to meet customers where they want to be met. Operator: The next question will come from William Ryan with Seaport Research Partners. Please go ahead. William Ryan: Good afternoon, Steven and Scott, and thanks for taking my questions. Just following up on the consumer loan origination side—specifically on the line of credit. It looks like it was up about 3% to 4% year over year on what was, arguably, a very difficult comp a year ago, up 22%. The comps are getting easier as the year progresses, but overall, what changes have you made that give you more confidence about stepping back into that market? Steven Cunningham: We have talked about this over the past couple of quarters. The line of credit segment you are referencing was impacted by our purposeful tightening in the middle of last year to slow growth and make sure we were calibrated correctly and meeting our unit economics. Then we started reaccelerating. We have reopened, and we are back to business the way we historically have been. I feel confident with what we are seeing thus far into the second quarter. We are making good progress getting back to business, very different from where we were in the second or third quarter of last year. A lot of it has to do with the demand we are seeing, the credit metrics we monitor every week, and the results we have been able to generate, not just this quarter but so far into the second quarter. William Ryan: Okay. Thanks for that. And just one follow-up on the consumer loan yield—not overly material—but it looked like a little bit of a dip in the yield, about 300 basis points quarter over quarter. Any specific callouts on that? Scott Cornelis: Bill, it is Scott. As Steven mentioned earlier, some of the mix on the consumer side—more installment, which has a lower yield than the line of credit—that is most of it. We expect that to flip back a little bit toward the norm as mix normalizes. William Ryan: Okay. Thank you. Operator: Again, if you have a question, please press star then 1. The next question will come from Vincent Caintic with BTIG. Please go ahead. Vincent Caintic: Hey, good afternoon. Thanks for taking my questions. First, going back to the origination volume and marketing discussion. Really strong origination growth, 33%. Marketing expense as a percent of revenues was a bit higher than your guidance, which is fine with the origination growth you were able to get. After you gave the guidance last call, what did you see that drove the incremental originations? Is the originations you are seeing a better margin business than what you typically plan for—maybe less competition—or where did the outsized growth come from? Steven Cunningham: Sometimes it is hard to pinpoint any one factor. The demand we saw reflects that our consumer and small business customers have been resilient as they navigated some market volatility and concerns about the future. The macro environment right now is actually in pretty good shape and really good for driving customer demand to us. Nothing really changed other than we saw healthy demand from those customer bases, and we were able to underwrite that with our unit economics approach. Regardless of headlines—and sometimes what customers say about the future can snap back quickly when things stabilize—their behaviors have been relatively stable over the past several quarters. Vincent Caintic: Great. That is helpful. Second question on the funding side. I know once you have Grasshopper this will be less of a concern, but can you talk about the funding appetite right now from your partners for small business loans or subprime consumer loans, given concerns in the quarter about private credit and funding appetite? How are your spreads and your funding partners? Scott Cornelis: You saw us increase four different warehouse facilities across both consumer and SMB. That is a testament to the performance and track record in those portfolios. We upsized those warehouses by 377 million dollars in total to give us room to grow. Spreads held firm, and we did that at existing terms with no widening like you may have seen in some other funding markets. We feel good about where we are. Vincent Caintic: Okay, great. And just sneaking one more in. Any update on the process for the Grasshopper Bank acquisition—regulatory or close process? I know you are still planning for a close later this year. Steven Cunningham: It is actually 2026, not the second quarter, Vincent. We were clear in our remarks on that. There is a process you go through when you file a formal application with the regulators; we are going through that process now. It is typical for applicants for a bank charter or to become a bank holding company. As I mentioned in my remarks, we are making progress and remain engaged in what I would call a typical application process. More importantly, our ability to work with the Grasshopper team—we have been really pleased with the progress we are making to be ready to go when we have approvals, close the deal, and hit the ground running to deliver on the significant opportunities we expect from the combination. Second half of the year is still our expectation. Vincent Caintic: Great. Thank you. Operator: The next question will come from John Hecht with Jefferies. Please go ahead. John Hecht: Afternoon, guys. Congrats on another good quarter. First, was the origination flow pretty consistent during the quarter, or was it back-weighted from a seasonal perspective? Did anything, like geopolitical events, accelerate or decelerate demand during the quarter? Steven Cunningham: I would describe our origination pattern as consistent with prior first quarters. SMB does not have the same type of quarterly seasonality that we see on the consumer side. There tend to be month-to-month variations, but in the quarter we did not see anything unusual relative to the typical January-to-March pattern. On the consumer side, as we mentioned last call, we saw some post-holiday strength into January, but that fades quickly into the tax refund season, and then you start to see some of that come back later in Q1 and more in earnest as you move into the second quarter. So pretty typical origination patterns, and we did not see any influence related to macro or geopolitical issues. John Hecht: On a similar topic, do you see any impact from higher fuel prices on small businesses, similar to consumers? Steven Cunningham: In 2022, the fuel spike was greater than where we are today and lasted quite a while. Both consumers and small businesses adapt to cost pressures if they have them. To the extent it impacts specific industries, we have talked before about industries like trucking, where input costs are a large part of the business. We have been careful there for quite some time. Our exposures are manageable, and we focus on high-quality operators that we believe can manage the credit we extend to them. John Hecht: Okay. Great. Thanks. Operator: The next question will come from Kyle Joseph with Stephens. Please go ahead. Kyle Joseph: Thanks for taking my questions. Most have been answered, but looking for an update on the SMB side in terms of the competitive environment—where you have been taking share, from whom, and, given the growth, your overall share in that market. Steven Cunningham: The SMB market is large, and new business formation over the past five or six years has been really strong if you look at new business applications. Those companies that are a couple of years into their life and have shown staying ability become potential customers. So the market is growing, probably a little faster than the overall consumer market. Regarding our presence, brand, scale, and capabilities, our set of competitors has not really changed much over time, and we believe we have a lot of advantages. It is a great setup: a large, growing market and competitive advantages that allow us to be selective and generate growth that creates strong returns for us and our shareholders. Kyle Joseph: Got it. Really helpful. Thanks, Steven. Operator: This concludes our question and answer session. I would like to turn the conference back over to Steven Cunningham, CEO, for any closing remarks. Steven Cunningham: We thank everyone for joining our call today, and have a good night. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and welcome to the Digital Realty Trust, Inc. first quarter 2026 earnings call. Please note this event is being recorded. During today's presentation, all parties will be in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Callers will be limited to one question, and we will aim to conclude at the top of the hour. I will now turn the call over to Jordan Sadler, Digital Realty Trust, Inc.'s Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead. Jordan Sadler: Thank you, operator, and welcome, everyone, to Digital Realty Trust, Inc.'s first quarter 2026 earnings conference call. Joining me on today's call are President and CEO, Andrew P. Power, and CFO, Matthew R. Mercier. Chief Investment Officer, Gregory S. Wright, Chief Technology Officer, Christopher Sharp, and Chief Revenue Officer, Colin McLean, are also on the call and will be available for Q&A. Management will be making forward-looking statements, including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, see our 10-Ks and subsequent filings with the SEC. This call will contain certain non-GAAP financial information. Reconciliations to the most directly comparable GAAP measure are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andrew, let me offer a few key takeaways from our first quarter results. First, we delivered the second-highest bookings quarter ever for Digital Realty Trust, Inc., underscoring the diversity and durability of demand across our platform. We signed the largest megawatt lease in company history, while simultaneously setting another quarterly record in the zero to one megawatt plus interconnection category. Second, the zero to one megawatt signings boosted our 2026 outlook, while the greater-than-a-megawatt leasing increased our total backlog to 1.8 billion, or 1.0 billion at Digital Realty Trust, Inc.'s share, providing strong visibility for our growth into 2027 and 2028. Third, our development pipeline increased by over 50% sequentially to 1.2 gigawatts under construction and is now 61% preleased at an 11.4% average expected yield, mainly driven by successful leasing and our continued efforts to position capacity to support our customers' growing requirements. And finally, we exceeded our earnings expectations, posting core FFO of 2.40 per share for the first quarter, delivering strong double-digit year-over-year growth. Given strong execution across our product offering, visibility from our backlog, and confidence in our operating outlook, we are raising our 2026 core FFO per share guidance range, implying 9% growth at the midpoint. With that, I would like to turn the call over to our President and CEO, Andrew P. Power. Andrew P. Power: Thanks, Jordan, and thanks to everyone for joining our call. Digital Realty Trust, Inc. got off to a record start in 2026, a clear continuation of the momentum we built throughout 2025. Demand for digital infrastructure remains robust, execution across PlatformDIGITAL remains crisp, and our strategy continues to resonate with customers who are navigating increasingly complex power, performance, and connectivity requirements, as well as mission-critical on-time delivery challenges. We continue to gain market share in our zero to one megawatt plus interconnection product category while providing needed hyperscale capacity in our greater-than-a-megawatt category on an expanding playing field. As the global economy continues to digitize, data center infrastructure has moved from being a supporting layer to being foundational. AI adoption is accelerating, compute intensity and cloud demand remain resilient, and enterprises are continuing to embrace technology to improve productivity and efficiency across their core operations. At the same time, power availability, labor and supply chain risks, and community concerns have become meaningful constraints on our industry, creating a widening gap between theoretical demand and deployable capacity. Against that backdrop, only a limited number of providers can deliver fit-for-purpose capacity, future scalability, and deep connectivity across multiple metros and regions with the certainty that customers require. Customers are coming to Digital Realty Trust, Inc. seeking capacity close to users and clouds, to interconnect within and across markets, and the ability to scale as requirements evolve, particularly as AI-driven workloads move from experimentation to production. This demand environment translated into strong leasing activity during the first quarter, reflecting both the breadth of customer needs and the value of our global platform. We signed over 700 million of new leases in the quarter, or 423 million at our share, representing our second-highest leasing quarter and nearly 70% above our next-highest quarter. Strength was broad-based in the quarter, with another record of 98 million of leasing within our zero to one megawatt plus interconnection product, where proximity, connectivity, and access to relevant enterprises and service providers matter most. Notably, a record 21% of zero to one megawatt bookings were AI-oriented requirements. We continue to increase our market share in this category while growing our customer base, with 116 new logos added in the quarter. During the first quarter, we saw both enterprises and hyperscalers continue to expand across PlatformDIGITAL. A few examples include: a global biotech company optimizing its AI infrastructure on PlatformDIGITAL to enable AI modeling, factory design, and diagnostics for safety and reliability; a global social and AI platform expanding on PlatformDIGITAL with a new AI inference node to serve a regional customer base and expanding edge capabilities across global metros while deploying a new subsea cable interconnection node; a multinational pharmaceutical company deploying its AI infrastructure on PlatformDIGITAL to meet growing R&D infrastructure and computing needs; a leading technology services company leveraging PlatformDIGITAL to create a distributed, inference AI-ready ecosystem to support advanced AI workloads for growing enterprise demand; a global cloud computing and content distribution provider expanding their footprint on PlatformDIGITAL by leveraging the market-leading connectivity available to support edge PoP expansions; and a technology services company choosing PlatformDIGITAL to enable cloud-based platforms by leveraging the available connectivity, security, and architecture to support future growth. These deployments highlight the strength of PlatformDIGITAL in supporting increasingly distributed, connectivity-intensive workloads, enabling customers to deploy, connect, and scale critical infrastructure across a global interconnected platform. The momentum in our interconnection-led product set is being reinforced by the continued expansion of our global connectivity footprint. In Europe, we expanded our footprint in the quarter by entering Sofia, Bulgaria through the acquisition of Telepoint, one of Southeast Europe's most important emerging interconnection hubs. This addition deepens our presence along the East Mediterranean connectivity corridor and complements our existing markets in Southern Europe. At the same time, recent land acquisitions in Portugal and Milan position us to extend this connectivity-rich capacity along critical subsea and terrestrial routes, complementing existing assets in Marseille, Athens, Crete, and our soon-to-be-opened facility in Barcelona, reinforcing our ability to serve customers that require low-latency access, geographic diversity, and scalable interconnection across the region. In APAC, we are taking a similar approach to expanding connectivity in strategically important markets. Our entry into Malaysia will add a highly network-dense facility in Cyberjaya that complements our established presence in Singapore, Jakarta, and other key regional hubs. This expands our customers' ability to deploy infrastructure close to end users while maintaining seamless connectivity across markets and provides a clear path for future scalability as requirements continue to evolve. Taken together, these investments reflect a consistent strategy globally: building interconnected campuses in the right locations to support customers as their IT architectures are infused with AI-oriented workloads and become more distributed, more latency sensitive, and increasingly connectivity driven. Switching gears to the greater-than-a-megawatt category, we signed the largest single lease in Digital Realty Trust, Inc. history this quarter: a 200 megawatt AI inference-oriented lease with a AA-rated hyperscaler in Charlotte. This was a milestone transaction for Digital Realty Trust, Inc., representing the largest lease in our history and our first hyperscale deployment in this market, validating our hub-and-spoke expansion strategy in Charlotte and complementing the connectivity hub we have long operated and are currently expanding in Uptown. The breadth of our greater-than-one-megawatt activity in the quarter was also notable, as signings in this category exceeded the level achieved in the prior three quarters even when excluding the record lease. We signed 10-plus megawatt leases in each of Dallas, São Paulo, and Tokyo during the quarter, highlighting the accelerating pace at which large AI workloads are moving into scaled production environments and the continued global appetite for compute. Given record-low vacancy in most of our existing data center markets, we continue to target land and power opportunities adjacent to our connected campuses, allowing us to support large-scale deployments while remaining connected to core cloud and connectivity networks. To meet those needs, we are expanding our ability to deliver hyperscale capacity where land, power, and certainty of execution matter most. In the first quarter, we demonstrated the ability and expertise necessary to source, position, and then lease hyperscale IT capacity for development in less than 18 months. Building on this success in Charlotte, we have a second 200 megawatt building that will follow Building One, and we launched construction on another 200 megawatt development site in Atlanta. We also have in position today, or are preparing, substantial capacity for development in Dallas, Northern Virginia, Hillsboro, São Paulo, Frankfurt, Paris, Tokyo, Osaka, and Seoul. Given the significant development starts in the first quarter, our development pipeline scaled by more than 60% to 16.5 billion at 100% share and strong double-digit unlevered returns. While this marks a historic ramp in our ongoing activity, we remain disciplined and well positioned to continue to meet this opportunity. As we think about our ability to support our customers' long-term growth needs, the combination of land holdings, power availability, supply chain execution, and capital all matter, and each must be sourced in a deliberate and scalable manner. Over the last several years, we have been strengthening each of these disciplines so that we can continue to deliver capacity reliably, particularly as projects become larger, more capital intensive, and thereby more complex to execute. That same discipline has guided the evolution of our capital strategy. In early 2023, we announced a plan to diversify our capital sources by utilizing more private capital, including joint ventures, in our plan. We then evolved that approach with our first U.S. hyperscale closed-end fund, significantly expanding the pool of capital available to support hyperscale development while preserving alignment through our retained ownership and management role. During the first quarter, we continued to scale our strategic private capital platform, shifting to broaden our foundation to support the capitalization of stabilized hyperscale data centers. The objective is straightforward: to align long-duration institutional capital with the long-lived nature of our assets and our customers' digital infrastructure needs. By continuing to diversify, evolve, and expand our capital sources, we are enhancing our ability to secure land, power, and equipment to scale development responsibly, and to deliver capacity when and where our customers need it, while continuing to drive attractive risk-adjusted returns for our shareholders. I will now turn the call over to our CFO, Matthew R. Mercier. Matthew R. Mercier: Thank you, Andrew. As Andrew outlined, the first quarter reflected strong demand across our platform combined with disciplined execution, resulting in record quarterly financial results. In the first quarter, Digital Realty Trust, Inc. again posted strong double-digit growth in revenue and adjusted EBITDA, reflecting continued momentum in our zero to one megawatt plus interconnection business, commencements from our growing backlog, healthy releasing spreads, modest churn, and a favorable FX environment. We achieved these strong results while maintaining significant dry powder to expand and invest in our now six gigawatt development pipeline and simultaneously reducing our leverage to a multiyear low of 4.7x at quarter end. Overall, the strong environment and our favorable positioning are translating into better-than-anticipated execution and results, and we are continuing to lean into the opportunity we are seeing with discipline. During the first quarter, we signed leases representing 707 million of annualized rent at 100% share, or 423 million at Digital Realty Trust, Inc.'s share. This represented the strongest leasing start to the year in Digital Realty Trust, Inc., and as Andrew noted, demand remains robust across our product categories. New leasing was particularly strong in the Americas, which represented over 75% of DLR share of bookings in the quarter, while we also posted a new quarterly leasing record in the APAC region. Our zero to one megawatt plus interconnection product set continued its strong momentum, posting 98 million of new signings, marking a third quarterly record in the past year and reflecting a 40%-plus increase in zero to one bookings versus first quarter 2025. The zero to one megawatt plus interconnection category was driven by a record pace in the Americas region and a meaningful step-up in the largest capacity band within the product category, reflecting an acceleration of larger enterprise deployments. Further highlighting this strength, we also saw a new record level of activity in the one to three megawatt leasing band in the quarter. Interconnection bookings remained strong at 186 million, 24% higher than a year ago. The APAC and North America regions led this growth, driven by demand for our bulk fiber and ServiceFabric products. The record lease signing in Charlotte was the biggest contributor to the 280 million of Americas leasing performance in our greater-than-a-megawatt category. Pricing in this product segment remained healthy, averaging 181 per kilowatt in the quarter, validating the expansion of our hyperscale product in this market. The total backlog at the end of the first quarter reached a new record of 1.8 billion, reflecting the robust data center fundamentals we are experiencing and our ability to capitalize on this demand. At Digital Realty Trust, Inc.'s share, the backlog reached a new record of 1.0 billion at quarter end, as 423 million of new bookings exceeded the strong 204 million of commencements in the quarter. Looking ahead, we have 44 million of leases scheduled to commence somewhat ratably throughout this year, with 247 million of leases to commence in 2027 and another 242 million commencing in 2028 and beyond. While the successful execution of our zero to one megawatt plus interconnection segment is helping to accelerate near-term growth, our scaling backlog is improving our visibility over the long term, helping to support strong, sustainable growth. During the first quarter, we signed 193 million of renewal leases at a blended 5% increase on a cash basis. Renewals were heavily weighted toward our shorter-term zero to one megawatt leases, which represented over 80% of our total renewal activity, with 157 million of colocation renewals at 4.3% uplift. Greater-than-a-megawatt renewals dipped to just 32 million in the quarter, at a 7.4% cash releasing spread, driven by deals in Vienna, London, and Silicon Valley. As for earnings, we reported core FFO of 2.04 per share for the first quarter, up 15% year over year, reflecting the ongoing benefit of strong data center leasing and development-related lease commencements, along with increased fee income associated with the growth in our strategic private capital platform. Same-capital cash NOI growth continued to be strong in the first quarter, increasing by 7.9% year over year. A strong data center rental revenue growth was balanced by elevated operating expense growth. On a constant currency basis, same-capital cash NOI rose 2.5% in the quarter, largely reflecting the above-trend operating expense growth versus the prior-year period. Given the conflict in the Middle East, energy costs and supply chain risks are once again in the spotlight. While Digital Realty Trust, Inc. does not maintain a meaningful presence in the Middle East and has limited direct economic exposure, we recognize that many of our customers may be directly or indirectly impacted by rising input costs. In terms of direct exposure, approximately 90% of our utility expense is reimbursed by customers, meaning fluctuations in energy prices largely flow through rather than directly impacting our bottom line. For the remaining 10%, primarily consisting of smaller colocation deployments, the large majority of our electricity is hedged forward through 2026 and beyond, while most of our contracts provide the ability to adjust pricing, giving us flexibility to respond to changing market conditions. As a result, while energy is critical operationally, Digital Realty Trust, Inc.'s direct earnings exposure remains limited and manageable. As we previewed on this call last quarter, we enhanced our supplemental report this quarter to align with how we manage the business. We have now fully transitioned the occupancy metrics of our operating portfolio toward power-based metrics, removing legacy metrics focused on square feet from our supplemental earnings disclosure. Now the operating portfolio KPIs are consistent with the metrics we use to report new leasing and data center development. We also made other enhancements to our quarterly supplemental by streamlining our debt reporting metrics, the new and renewal leasing pages, and the occupancy analysis page. The objective was to continue to provide industry-leading transparency while making our disclosures easier to digest. Moving on to our investment activity, we spent 910 million on development CapEx in the quarter, net of our partners' share. During the quarter, we delivered 63 megawatts of new capacity, 84% of which was preleased, while we started about 464 megawatts of new data center capacity that was nearly 50% preleased, increasing our total development to 1.2 gigawatts under construction. At quarter end, our gross data center pipeline under construction stood at approximately 16.5 billion, up more than 60% from year-end, reflecting the strong leasing activity executed by our team and the momentum we continue to see in our sales funnel. Consistent with last quarter, nearly 80% of this volume is situated in the Americas region, reflecting the demand for AI-oriented workloads from our largest customers. Notably, while Northern Virginia remains our largest development market for the moment, the Dallas and Chicago markets were eclipsed by both Charlotte and Atlanta, as we activated multi-100 megawatt developments in each of these markets. Accordingly, we continue to invest in our platform through organic new market entries that enhance our global connectivity offering, as well as meaningful existing market expansions designed to meet our customers' long-term capacity and connectivity requirements. Along these lines, in the first quarter, we bolstered our hyperscale capacity with the acquisition of an 873-acre strategic land parcel in the Greater Atlanta Metro that is expected to support a gigawatt data center campus and a 30-acre land parcel in Hillsboro that is expected to support 160 megawatts of IT capacity, adding to the 85 megawatt assemblage that we announced in this market last quarter. In addition, as we have previously announced, during the first quarter, we made three strategic market entrances in Milan, Italy; Sofia, Bulgaria; and Cyberjaya, Malaysia, each of which bolsters our global connectivity footprint. Year to date, we have also sold small non-core facilities in Boston and Atlanta. Turning to the balance sheet, the first quarter was highlighted by a multiyear low in our leverage. Debt to adjusted EBITDA dipped to 4.7x at quarter end, supported by meaningful adjusted EBITDA growth and a further ramp-up in retained capital as our AFFO payout ratio fell to 64%. This decline in leverage, despite the continued ramp in our development pipeline, is intentional and deliberate, consistent with our key strategic priority of bolstering and diversifying our capital sources that we laid out three years ago. In March, we put the finishing touches on our 3.25 billion U.S. hyperscale data center fund, leaving us with approximately 10 billion to support hyperscale data center development and investment. And we continue to bolster our strategic private capital platform as we build investment capacity to support the massive hyperscale data center opportunity that we continue to see before us. In addition, we maintain substantial incremental dry powder within our 8+ billion hyperscale development joint venture, which has been highly successful to date and remains ahead of plan. Our balance sheet is positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy. Let me conclude with guidance. We are raising our 2026 core FFO per share guidance range by 0.10 to 8.10 per share, principally reflecting better-than-expected execution across our data center portfolio early in the year. The midpoint of the updated guide represents 9% growth over 2025, reflecting underlying strength in our zero to one megawatt plus interconnection business balanced by the continued ramp in our investment spending that is geared towards supporting our hyperscale customers and extending our runway for growth. We also expect cash renewal spreads of 6.5% to 8.5%, up 50 basis points from last quarter, as stronger greater-than-a-megawatt renewal prospects are balanced by the larger contribution from zero to one megawatt leases renewing. Power-based occupancy is still expected to improve by 50 to 100 basis points from year-end 2025, same-capital cash NOI growth of 4% to 5% on a constant currency basis. CapEx, net of partner contributions, is poised to increase by another 250 million at the midpoint to a range of 3.5 billion to 4.0 billion. And we also continue to expect recycled capital, with 500 million to 1 billion of dispositions and JV capital slated for later this year. This concludes our prepared remarks. Now we will be pleased to take your questions. Operator, would you please begin the Q&A session? Operator: Thank you. We will now open up the call for questions. In the interest of time and to allow a large number of people to ask questions, callers will be limited to one question. As a reminder, to ask a question, you will need to press 11 on your telephone and wait to be announced. To withdraw your question, please press 11 again. One moment for our first question. Our first question will come from the line of Analyst from Stifel. Your line is open. Analyst: Yes, thanks, and congrats on the strong results, especially leasing. Maybe you could just comment on the economics that you are seeing with AI deals versus prior hyperscale deals, maybe comment on pricing, escalators, and, as AI demand continues to show strength, what the portfolio looks like with training versus inferencing, and at what point you think we might be at an inflection. Thanks. Andrew P. Power: Thanks. Speaking to economics, I do not think we are seeing a dramatic difference between the use cases, and that specifically goes to the markets where we are supporting these use cases that have cloud, hyperscale use cases for compute, or, more likely, AI inference than training, given the proximity to data, GDP, and population. The economics really are coming down to a robust and diverse demand backdrop in markets where it continues to be challenging to bring on supply. Fortunately, we have been very well positioned there, and you have seen those flow through to our results with robustness in rates. On the bigger end, our hyperscale contracts are, call it, 15 years, and escalators are certainly 3% or maybe even higher in certain scenarios. Going to your second question, maybe I will tag team this with Chris a little bit. We are obviously supporting hyperscale use cases for cloud computing. We had a large AI inference lease, our largest lease of the quarter for the hyperscaler, but we are also seeing budding use cases in the enterprise. Not only did we have a record quarter to start the year, off a second record at the end of last year, but AI ticked up to, call it, 21% in that zero to one megawatt category, and I honestly think we are just getting going here based on actual enterprise adoption and where this could take us on a broad base. I think our portfolio is well situated. Chris, do you want to speak to the inference inflection point? Christopher Sharp: Absolutely, appreciate the question. Demand has definitely converted from pilot to production. We have seen that both in Andrew's remarks and in the 200 megawatt build that is inference. In the enterprise segment, customers are migrating to larger committed capacity blocks. I think that is a key element to be successful in bringing that type of scaled inference to market. Our portfolio, as we have been talking about for some time now, is workload agnostic. We can provide low-latency metro proximity and dense interconnection, which is an absolute requirement for this inference inflection. One point to appreciate is that as agents come to market, it is a demand multiplier, representing roughly 5x to 30x more tokens per task, and that is the fundamental driver of what AI is delivering. That is going to drive another inflection point, not just on the training to inference shift, but also as agents and agent tech come into the market. We are very excited about that. The last piece I would add is the economics associated with private AI, where you really start to see a change in consumption by being able to own the infrastructure and then rent the spike, if you will. That will represent material savings similar to what we saw with cloud and cloud-hybrid connectivity and multi-cloud. We are at the inflection point of multiple trends coming into the market and are very excited about our portfolio supporting both the hyperscaler and large portions, as well as that enterprise demand. Operator: Thank you. One moment for our next question. Our next question will come from the line of Frank Garrett Louthan from Raymond James. Your line is open. Frank Garrett Louthan: Great, thank you. I wanted to talk to you about the expansion of the land bank. Can you give us an idea of the additional gigawatt that you have secured? How many locations is that, and what is the time frame that the power is available for it and the regions? That would be great. Thanks. Andrew P. Power: Thanks, Frank. I will have Greg walk you through the great work the team has been doing. To set the table, our under-development is up dramatically—call it up 60% to 16.5 billion—while maintaining the preleasing. We are bringing forth capacity for customers from the enterprise to the hyperscalers, and at the same time, we are now increasing our growth capacity up to six gigawatts. So we are activating near term and building for long-term growth. Greg, walk through some of the highlights. Gregory S. Wright: Yes, thanks, Frank. This asset is one contiguous parcel. It is large—call it north of 870 acres—but it is all contiguous and in the greater Atlanta metropolitan area. In terms of power, we are still working through things with the power company and will give you additional guidance later. We are looking at a couple of different alternatives on the power front, so I would say stay tuned. When we look at where it is located, we think it is a product-agnostic market where you are seeing availability in the zones heading that way. We feel very fortunate. We worked this site for quite some time, and we really think it is a rare large-scale parcel of land. We also, during the quarter, acquired land in Hillsboro, in Portland as well, to support hyperscale development. It was a very active quarter, as you can see. Operator: Thank you. One moment for our next question. Our next question comes from the line of Analyst from Truist Securities. Your line is open. Analyst: Hey, thanks so much for taking the question. Congrats on the quarter. I had a question about the commencement lags for new leases signed. It was about 19 months this quarter, a little over 2x what you have seen in recent periods. Is this primarily due to the record lease that was signed, or are you seeing extensions driven by utility power delivery delays in bigger markets? Are customers just booking capacity even more in advance? I am trying to get a better sense of what drove that. Thanks. Matthew R. Mercier: Thanks. I think you nailed it. This is driven by what was our largest lease this quarter—and our largest lease in company history. That project essentially just started, as you can see in our development lifecycle: over 200 megawatts that will be delivering over a phased period starting next year into 2028. We feel great about that project. Given that it just started, that is why you are seeing a slightly elongated period of time between sign and commence. Operator: Thank you. One moment for our next question. Next question will come from the line of Vikram L. Malhotra from Mizuho. Your line is open. Vikram L. Malhotra: Hi, thanks for taking the question. On the zero to one megawatt segment, you have had really strong strength. I remember at our conference last year, you had talked about a run rate in 90 million. Given the strength, is there a pathway now to 100 million, and can you extrapolate and remind us what that means for the interconnection business, the flow-through? Thank you. Andrew P. Power: Thanks, Vikram. I will tag team this with Colin. We are very pleased with the continued momentum to get out of the gates in the first quarter, which can have some seasonal lows given various activities, and we put up another quarter upon a prior quarter. This quarter was up 40% year over year, and we are coming off a record 2025 that in itself was up 35%. Interconnection was a major contributor. Not a top quarter contribution for interconnection, but a top five. There are a lot of good pieces to this. I will have Colin speak to what is next because we are not anywhere near done yet. Colin McLean: Thanks, Andy, and Vikram, thanks for the question and the acknowledgment. We are pleased with our execution and how this manifests in the enterprise space. Strong bookings—record three of the last four quarters—and that is really across our platform. Our resiliency in core markets continues to remain strong. We had a strong booking quarter in Silicon Valley, Chicago, and Frankfurt, and we are seeing industries show up across our portfolio. Our value proposition of being an open, neutral, global platform is taking shape in the enterprise space, both in the bookings, which you saw, and in the pipeline and use cases showing up consistently across the board: hybrid multi-cloud (the de facto standard for deployment), data localization and sovereignty, and AI. As Andy highlighted, AI is becoming an emerging part of our portfolio of conversations—north of 20% of bookings this quarter. We are getting to show that off in tangible ways, like the Digital Realty Trust, Inc. Innovation Lab, which we just launched another one in Japan. The success and the response we are getting from customers and partners alike—we are really pleased with. Operator: Thank you. One moment for our next question. Our next question comes from the line of Michael Elias from TD Securities. Your line is open. Michael Elias: Great, thanks for taking the question, and also congratulations on the quarter. This one is a bit of a two-parter: first for Andy and then for Chris. In the past, I believe, Andy, your commentary had been that while there were fixed-price renewal options in the larger contracts, if there was a change in design, the renewal option was less relevant. We are seeing some of the largest hyperscalers signaling intentions for a hybrid design—AI and cloud in a single data center. To the extent we see that, do you think that means we will see the existing set of cloud data centers go through a change in design? If that is the case, then for Andy, do you think that increases the long-term opportunity set to reprice contracts? Andrew P. Power: Thanks, Mike. As a refresher, when markets were not at this position of supply-demand dynamics, we essentially had contracts, some inherited, with provisions that prevented us from getting to the full mark-to-market potential upon renewal. We handicapped how many of those would actually be hit as we moved through those expiration schedules. Over time, the odds have continued to move in our favor on those caps. Often the customer is changing configurations or choosing different durations of renewal. In the backdrop of a rapidly changing design with a mix of GPUs and CPUs, the percentage of liquid cooling versus air cooling, and the pervasiveness of growth, more often than not we are seeing customers—even with an advantageous renewal option—not take advantage of that and say, “Let us work together.” That is an opportunity for us to bring those rates to market more and more often. This quarter, we had good results in that category—no question—but it was a small sample set. We raised the outlook a little bit for our cash mark-to-markets because we think we will see even stronger cash mark-to-markets, largely driven from that category, come through the back half of this year. Chris, do you want to add anything about what you are seeing on the forefront of design changes? Christopher Sharp: One hundred percent, and I appreciate the question, Michael. Your reference to silicon and the advancements of silicon is across the entire stack. It is not just about GPUs; it is about CPUs, and there is even new equipment coming to market for inference particularly. There is a broad spectrum of infrastructure driving demand. There are two key underlying things we have been watching for some time. Modularity allows us to densify power and cooling according to the workload. That is a key element we have been working with in our HD colo program and being able to retrofit and pre-engineer the ability to go up to 150 kilowatts per rack in a relatively quick period of time. Second, AI is additive to cloud today. Cloud is comprised of a lot of data assets, and AI absolutely requires that data. We are seeing a lot of additional demand with AI infrastructure trying to be proximate to those availability zones. That is where Greg’s expanded hub-and-spoke land banks come into play. A lot of that is being married together in a contiguous way. Lastly, it all has to be engineered from the start for bulk connectivity. Beyond the four walls of the data center, it is about the connected campus, which we pioneered in this industry for some time. That represents a unique footprint for our customers to get benefit out of the leases they have today and, as they renew, from some of the new designs we are bringing to market for them tomorrow. Operator: Thank you. One moment for our next question. Our next question will come from the line of Analyst from Jefferies. Your line is open. Analyst: Great, thank you, and congrats on the great leasing quarter. I wanted to talk about organic growth. The constant currency cash NOI growth was 2.5% this quarter. You mentioned operating expenses were a bit higher. People’s knee-jerk reaction is going to be energy costs, but you talked through that. Can you talk through what operating expense line items are pulling down organic growth to be a little slower than we might expect? Matthew R. Mercier: Sure. It was largely a result of a low operating expense comp in the prior-year same quarter, driven by R&M and labor. We expect that to smooth out as we go through the next three quarters, in line with what we were talking about on our renewals. Despite being at 2.5% in the first quarter, we are still guiding to 4% to 5% for the year. We have not moved that at all. The first quarter came in as expected per our budget, and we expect accelerating same-store growth over the next three quarters. Operator: Thank you. One moment for our next question. Our next question comes from the line of Eric Thomas Luebchow from Wells Fargo. Your line is open. Eric Thomas Luebchow: Great, thanks for taking the question, guys. There have been a lot of reports recently around data center delays and projects getting pushed out. Can you talk about any incremental constraints around the supply chain, whether it is utility power, equipment, labor availability, local community pushback—anything that is extending construction timelines? And second, how are these supply chain constraints translating into market rent growth? Are you still seeing positive momentum there, and do you still think market rents are growing above development cost inflation? Thank you. Andrew P. Power: Thanks, Eric. Taking it in reverse, the punch line is we are still seeing market rent growth outpacing inflationary pressure in build costs. We are at a point of incredible demand and competition over supply chain and labor. Certain parts of the country have shortages of skilled labor, particularly electricians. The industry is moving at an incredible pace to deliver critical digital infrastructure, and that puts pressure on costs, but we are seeing rates ahead of that. At the same time, these challenges make our value-add—having a 20-plus-year track record and consistency of building and operating in our markets—shine in the eyes of our customers and all constituents. Our execution, our say-do ratio, is something we pride ourselves on at Digital Realty Trust, Inc., and that shows through time and again. We are working through every step with all constituents—utility partners who may have delays, where we can get creative—and making sure we navigate when the stakes are incredibly high so that Digital Realty Trust, Inc.'s value proposition shines, flowing through to the value we deliver to our customers and ultimately shareholders. Operator: Thank you. One moment for our next question. Our next question will come from the line of Michael Ian Rollins from Citi. Your line is open. Michael Ian Rollins: I was thinking about some of the opening comments about the diversity of leasing. Of course, you have the 200 megawatt lease, but you said there were also multiple 10-plus megawatt leases and record one to three megawatt leases. As you look at the AI composition of the over one megawatt leasing, how far down the size level is AI going right now, and what does that mean for trying to fill any remaining capacity that is available in your portfolio now that you have the new disclosures on utilization on power versus square footage? And if I could squeeze in one other quick thing, just a clarification on the guidance. It looks like core FFO per share on a constant currency basis was 11% year over year, and given the commencements that you are planning for this year and the midpoint of guidance you mentioned at 9%, why does core FFO per share need to slow on average for the remaining nine months of the year versus what you did in the first quarter on a constant currency basis? Thanks. Matthew R. Mercier: Hey, Mike, thanks. First off, we have put ourselves in a great position coming out of an exceptional start to the year—record zero to one, and the second-highest signings in greater-than-a-megawatt—really putting us in place to improve our guidance this early in the year. As you noted, we are expecting a step down in the second quarter, starting to rebound in the third and ending on a high note, putting us in position to continue overall growth into 2027 and beyond. A couple of reasons. On same-store, our OpEx is expected to ramp in the second and third quarters. Second, we expect to continue our investments tied to our increase in development spend, as well as the potential for other land to continue our growth runway. We also have capital recycling planned, which is in our guidance. All of those impact the quarterly trend for core FFO. The punch line is we have increased guidance and expect close to 9% growth for the year. Andrew P. Power: On the diversity of demand, we put up total signings just shy of our prior record, north of 700 million, and that total is about 70% higher than our next-highest quarter. We were pleased to sign the largest lease in company history with a AA-rated hyperscaler for AI inference. Right behind that, we signed 10-plus megawatt leases in Dallas, São Paulo, and Tokyo, speaking to the diversity of demand. On the other end of the spectrum, we had a record zero to one megawatt plus interconnection quarter off a record prior quarter. Within that, AI contribution stepped up to, call it, 21%. So you are seeing AI in the tens to hundreds of megawatts, and you are seeing AI in the less-than-a-megawatt category. We are rapidly filling capacity in both vacant and under-construction sites. Not only did our development pipeline step up dramatically to 16.5 billion, but the preleasing remained roughly constant, which is quite a feat. Looking at the largest vacancy pockets in our stabilized portfolio, much of that vacancy is already preleased and has not commenced yet, hence it has not showed up in the reported occupancy just north of 90%. We are attacking this on both ends of the spectrum—raising the bar in 2026 and building that record backlog, now 1.8 billion, that will deliver in 2027 and even in 2028. Operator: Thank you. One moment for our next question. Our next question will come from the line of Irvin Liu from Evercore ISI. Your line is open. Irvin Liu: Hi, thank you for the question. I would also like to extend my congrats on the strong bookings. Andy, you brought up a second 200 megawatt building in Charlotte and another 200 megawatt facility in Atlanta. With these developments in mind, can you give us a sense of how you think your greater-than-one-megawatt bookings will trend for the balance of the year? Andrew P. Power: Thanks, Irvin. We are really excited about everything going on in Charlotte. It is a strategic move because we have long operated the interconnection hub supporting enterprise customers in Uptown Charlotte, and we have been expanding that. Astonishingly, 18 months ago or less, we announced what we just leased—200 megawatts in the first half of that campus, abutting the Charlotte airport. We have another 200 megawatts that I view as very attractive to customers under construction. In Atlanta, we have a larger project, but before that, we have another 200 megawatts targeting 2028 delivery in a great location. That campus will have an extension of our colo footprint and be prized for hyperscale customers looking to grow cloud availability zones and AI inference in that market. Those are just two snapshots. To the left of that development cycle—shells or land—there are numerous other markets where we are well positioned for incremental demand, even for large hyperscale use cases. As noted in prepared remarks—Northern Virginia (this was a light Northern Virginia leasing quarter; you can see that in the weighted average rates), with roughly 275 megawatts priced in the 2027–2028 timeframe—Dallas is a similar story. Outside the U.S.: Frankfurt, Paris, Amsterdam, Tokyo, Osaka, São Paulo, and Johannesburg—numerous markets with larger capacity blocks illustrated on the map in our slide deck. We think we will continue to build upon the record pipeline and continue to de-risk that growth algorithm for years to come. Thank you. Operator: One moment for our next question. Our next question will come from the line of Timothy Horan from Oppenheimer. Your line is open. Timothy Horan: Thanks, guys. A lot of moving parts. Can you give us what you think your total inventory of space and power is, both leased and what is under development? What do you think you can grow that at, or do you have a target where it will be five, ten years from now? Thank you. Andrew P. Power: Sure. Speaking in gigawatts, we are roughly at three gigawatts operating today. On top of that—not operating—we have another six gigawatts that we own today. Within that six gigawatts, under construction—from moving dirt to opening doors and commissioning—there is 1.2 gigawatts. That means, fairly near term, that is a 40% expansion (1.2 over three gigawatts) to our installed base today. That 1.2 just went up; it is highly preleased—around 60%. We are leasing to that and activating more development as we speak. There is a pretty good runway, and our investment team is busy adding along the way. Operator: Thank you. One moment for our next question. Our next question will come from the line of Ari Klein from BMO Capital Markets. Your line is open. Ari Klein: Thanks and good afternoon. It looks like the cost per megawatt in the Americas development pipeline increased to about 14 million from 12.5 million per megawatt. Can you talk about that? And there seems to be a lot more NIMBYism and local pushback. When you look at the six gigawatts of future capacity, is any of that in markets that may be tougher to deliver in? Or, in general, how are you approaching dealing with that? Andrew P. Power: Thanks, Ari. On cost per megawatt, you are seeing inflation in build costs—a product of rising land values, significant construction activity and tight supply chains—and design moving more toward higher-priced designs with more liquid cooling infrastructure. Those all influence the basis per megawatt. The good thing is, given the demand and supply backdrop, market rates exceed those inflationary pressures to at least maintain returns. You can see that even at a record level under development, we still have close to 11% unlevered returns on our investment. On broader community reaction to digital infrastructure and what Digital Realty Trust, Inc. is doing: it is a reality of the times. The burden is on us, as an industry leader, to make sure our value proposition to all stakeholders is well articulated, advanced, and that our doors are open to communities. I am proud of Digital Realty Trust, Inc.'s history as dedicated community members. We invest our own dollars to make the grid more reliable and sustainable—and on hot summer nights, we switch to backup generation to take pressure off the grid. We are long-time real estate taxpayers, contributing to strong local services. The new news is we are a big job driver too. As an industry, permanent jobs exceed those of the top 15 automakers in the U.S., plus the engineers and electricians building today’s facilities. Lastly, Digital Realty Trust, Inc. supports mission-critical workloads—keeping devices running, financial systems flowing, healthcare systems operating, research happening, and cloud computing and AI inference. We will continue to be a leading voice on this topic everywhere we operate. Operator: Thank you. That concludes the Q&A portion of today's call. I would now like to turn the call back over to President and CEO, Andrew P. Power, for closing remarks. Andrew, please go ahead. Andrew P. Power: Thank you, operator. Digital Realty Trust, Inc. saw a record start to 2026, with core FFO coming in better than we expected and translating into a full-year guidance raise. We posted record zero to one megawatt plus interconnection bookings combined with stronger greater-than-a-megawatt leasing, including our largest lease to date. This activity pushed our backlog to a new all-time high, improving our visibility for long-term growth. At the same time, we grew our footprint of highly connected assets in the Mediterranean and APAC regions while adding land for hyperscale development, underscoring our commitment to serve our customers' needs across our global, full-spectrum platform. We also scaled our development pipeline to new heights, and we have done all this while bringing our leverage down to multiyear lows. These outstanding results are a team effort, and I am incredibly proud of our talented and dedicated colleagues who continue to execute at a high level. I am excited by the opportunities that lie ahead, yet remain focused on delivering for our customers and shareholders. Thank you all for joining us today. Operator: The conference has now concluded. Thank you for joining today's presentation. You may now disconnect. Everyone, have a great day.
Operator: Good afternoon. My name is Colby, and I will be your conference operator today. At this time, I would like to welcome everyone to Carlisle Companies Incorporated’s First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, we will conduct a question-and-answer session. I would like to turn the call over to Mehul S. Patel, Carlisle Companies Incorporated’s Vice President of Investor Relations. Mehul, please go ahead. Mehul S. Patel: Thank you, and good afternoon, everyone. Welcome to Carlisle Companies Incorporated’s First Quarter 2026 Earnings Call. We released our first quarter financial results today, and you can find both our press release and the presentation for today’s call in the Investor Relations section of our website. On the call with me today are D. Christian Koch, our Board Chair, President, and CEO, along with Kevin P. Zdimal, our CFO. Today’s call will begin with Chris providing key highlights for the first quarter. Kevin will follow Chris and provide an overview of our Q1 financial performance and our reaffirmed outlook for the full year of 2026. Following our prepared remarks, we will open up the line for questions. Before we begin, please refer to slide two of our presentation. We note that comments today will include forward-looking statements based on our current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties discussed in our press release and SEC filings. As Carlisle Companies Incorporated provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Chris on slide three. D. Christian Koch: Thank you, Mehul, and good afternoon, everyone, and thank you for joining us today. Carlisle Companies Incorporated’s first quarter results exemplify the focus and execution our teams consistently deliver even in challenging operating environments. Revenue for the first quarter was $1.1 billion, down 4% year over year, driven primarily by two timing-related factors. First, winter weather delayed projects and shipments across many regions in North America. Second, last year’s first quarter benefited from approximately $15 million of tariff-related order pull-forward from Canadian customers, which did not repeat this year. Despite those headwinds, the underlying fundamentals of the business performed as expected and delivered better EBITDA margins in the quarter despite the sales challenges. As we reflected in our year-end 2025 call, improving profitability was a top priority for 2026. Q1 results reflected strong execution on that priority, with adjusted EPS rising to $3.63, up 1% versus last year, and adjusted EBITDA margin expanding by 50 basis points to 22.3%. It is important to underscore that margin expansion in the quarter was a result of our focused efforts, particularly worth noting in a quarter where volumes were pressured. The margin improvement reflects work that has been underway for several quarters. Our teams have been systematically driving productivity, improving manufacturing efficiency and execution across the network, tightening cost discipline, and simplifying, effectively using all parts of the Carlisle Operating System, or COS. Those actions will continue to compound over time and will drive our forecasted margin expansion under our Vision 2030 goals. This is another reminder that Carlisle Companies Incorporated is built to perform through cycles, not just at peaks, regardless of the environment. Q1 was a demanding quarter operationally, and the team responded exactly the right way. We stayed focused on the areas we can control: cost discipline, thoughtful pricing execution, and supporting customers through innovation and the Carlisle experience. That execution is clearly reflected in our results. Underlying demand trends in our end markets were consistent with the information from our Q1 outlook based on the Carlisle market survey, with weather being the key variable that caused a slight shortfall to projections for the quarter. Reroofing activity grew low single digits, continuing to provide the stable, recurring demand base that defines Carlisle Companies Incorporated’s resilience across economic cycles. Commercial reroofing remains our primary revenue engine, accounting for roughly 70% of CCM’s commercial roofing business, supported by an aging installed base with 20- to 25-year roof life cycles and increasing content per square foot driven by innovation that improves energy efficiency and reduces labor costs. We also understand that to protect and grow our position in the market, we must drive to be the leader in specifications, systems performance, comprehensive warranties, the Carlisle experience, and most importantly, trust with contractors, architects, and building owners—areas where Carlisle Companies Incorporated continues to lead. Importantly, orders improved as the quarter progressed, and we exited March with better momentum than we entered the year. April activity to date has been encouraging, with reroofing work in line with seasonal norms and backlog conversion improving as weather disruptions have subsided. Offsetting this is the continued uncertainty in new construction related to the issues we have discussed before, notably interest rates and economic and geopolitical uncertainty. While we remain early in the quarter, the level of order activity we are seeing gives us increased confidence in the trajectory of the business as we move into the second quarter and into the heart of the roofing season. However, at the same time, we remain cautious about the second half given the ongoing geopolitical volatility. New construction remains soft across both residential and nonresidential markets, as expected. Our full-year outlook does not assume a near-term recovery. A higher-for-longer interest rate environment continues to weigh on construction activity, and our plans appropriately reflect that reality. Turning to pricing and input costs, recent geopolitical escalation has materially increased uncertainty in global energy markets. Rising oil prices impacted our petrochemical-linked raw materials and freight. We acted quickly in mid-March, announcing price increases across both CCM and CWT effective mid-April, and implementing real-time freight surcharges to drive more immediate recovery. In addition, we announced a second round of price increases at CCM today to offset the additional cost pressures that disruptions in the petrochemical supply chain are driving. Those actions are beginning to work their way through the market, and we expect price-cost dynamics to improve sequentially through the remainder of 2026. It is also important to be clear that we are constantly evaluating the actions in the market by our suppliers and will act accordingly to address any misalignment. More specifically, heightened risks surrounding the Iran conflict and sustained disruption through the Strait of Hormuz introduce uncertainty, which we are monitoring very closely. If volatility persists and structural cost levels reset higher, we are prepared to take additional pricing actions as needed. Our approach remains disciplined and deliberate. We have seen this type of situation play out repeatedly during periods of significant disruption. Whether during the global financial crisis, the COVID-19 pandemic, or now amid elevated geopolitical risk, Carlisle Companies Incorporated has demonstrated exceptional margin sustainability. That durability is reinforced by the discipline embedded in Vision 2030, the depth and tenure of our team, our recurring reroofing revenue base, the fact that over 90% of our revenue is generated in North America, and our superior capital allocation approach. Another important contributor to that durability is the way Carlisle Companies Incorporated allocates capital. We view capital allocation as a core competency, not a byproduct of the business. Across cycles, we have consistently prioritized returns over growth for growth’s sake, investing organically where we have durable competitive advantage, pursuing acquisitions only when they meet our stated criteria, and returning excess capital to shareholders when that represents the highest and best use. This balanced and disciplined approach continues to differentiate Carlisle Companies Incorporated and supports our ability to compound value over time. Based on our execution and the actions already underway, we are reaffirming our full-year 2026 outlook of low single-digit revenue growth and approximately 50 basis points of adjusted EBITDA margin expansion. Kevin will now walk through the financials in detail. Kevin? Kevin P. Zdimal: Thank you, Chris, and good afternoon, everyone. I will review our first quarter financial results and then provide additional details on our full-year outlook for 2026, which is unchanged from the outlook we provided in our previous earnings call. Beginning with consolidated results on slide four, first quarter revenue of $1.1 billion was down 4% compared to last year. As Chris mentioned earlier, the two primary drivers of that decline were the adverse impact of this winter’s harsh weather limiting the number of days that roofing contractors were able to spend on the roof, and the absence of approximately $15 million of tariff-related pull-forward that benefited 2025. M&A contributions from our recent acquisition slightly offset the organic shortfall. Adjusted EBITDA was $235 million in the quarter, resulting in adjusted EBITDA margin of 22.3%, a 50 basis point improvement from 2025. The margin expansion on decreased revenue is the result of strong execution led by COS-driven productivity gains, procurement discipline, and efficient management of selling and administrative costs. Adjusted EPS was $3.63 for the quarter, up 1% year over year. This increase was driven by share repurchases, which more than offset lower organic earnings and higher interest expense. Our segment performance starts on slide five. CCM generated first quarter revenue of $758 million, a 5% decline year over year, reflecting lower volumes due to this winter’s weather and last year’s tariff-related pull-forward, along with continued softness in commercial new construction activity, partially offset by solid reroofing growth. CCM adjusted EBITDA was $208 million in the quarter, down 4% year over year. However, adjusted EBITDA margin increased 30 basis points to 27.4%. COS productivity gains, disciplined procurement, and selling and administrative cost controls all contributed to the improvement in the EBITDA margin. Moving to CWT on slide six, CWT reported Q1 revenue of $294 million, down 1% year over year. The slight decline reflects contributions from recent acquisitions, which mostly offset volume pressure from continued softness in both residential and nonresidential new construction activity. CWT adjusted EBITDA was $45 million, down 3% year over year. Adjusted EBITDA margin was 15.2%, a decrease of 40 basis points compared to the first quarter of last year. This margin decrease reflects the impact of lower volumes, partially offset by the benefits of internal initiatives, including footprint consolidation and the expansion of in-house production of expanded polystyrene resin from our Plasti-Fab acquisition. We continue to see a clear path to meaningful margin expansion at CWT over the balance of 2026 as these actions compound and integration synergies build. For your reference, slide seven provides our first quarter adjusted EPS bridge. Turning to slide eight, Carlisle Companies Incorporated’s financial position remains strong. As of 03/31/2026, we had $771 million in cash and cash equivalents and $1 billion available under our revolving credit facility. Our net debt to EBITDA ratio was 1.7 times, within our target range of 1 to 2 times. This financial strength continues to provide us with significant flexibility to invest in innovation and capital expenditures, pursue synergistic M&A, and consistently return cash to shareholders. Moving to our cash flow on slide nine, seasonally, Q1 is the quarter where we deploy cash to pay down year-end incentive and rebate liabilities and build working capital ahead of the construction season. Net cash used in operating activities was $45 million in the quarter, and free cash flow used in continuing operations was $73 million, reflecting a $125 million post year-end settlement of an accrued tax-related liability. Excluding this tax-related payment, operating cash flow improved year over year as we deployed less cash into working capital. During the quarter, we invested $28 million in capital expenditures. We also returned $296 million to shareholders through $250 million of share repurchases and $46 million of dividends, and we are maintaining our pace toward our annual repurchase target for 2026 of $1 billion. Now turning to our outlook on slide 10, oil cost volatility, interest rate uncertainty, and prolonged geopolitical conflicts are adding broader macro pressure to an already soft new construction market. However, based on our progress to date, we are reaffirming our 2026 outlook. We continue to expect full-year consolidated revenue growth in the low single-digit range, and with our recent price increase announcements, we now expect revenue growth at the higher end of that range, along with double-digit growth for EPS. Our consolidated full-year revenue outlook reflects CCM revenue growth in the low single digits driven by higher prices and continued strength in reroofing more than offsetting slower new construction, and CWT revenue also up low single digits as contributions from higher prices and share gain initiatives more than offset continued end market softness. Consistent with our guidance at the beginning of the year, we still expect consolidated adjusted EBITDA margins to expand by approximately 50 basis points for the full year, supported by price realization building through the year to offset raw material increases, continued COS-driven productivity gains across both segments, and the structural operational improvement actions underway at CWT. We will continue to execute the levers within our control while remaining mindful of the macro risk and limited visibility in this dynamic environment. We remain confident in Vision 2030 and our long-term financial targets of $40 of adjusted EPS and 25%+ ROIC. Our path to Vision 2030 is founded on organic growth anchored in steadily increasing reroofing demand and content per square foot, COS-led margin improvements in both segments, disciplined capital return through share buybacks, and targeted, synergistic M&A when the right opportunities are available at the right price. These are flexible, independent levers. Our strategy does not depend on all of them contributing in every year. As we showed under Vision 2025, the trajectory toward the target can accommodate choppy periods, and cumulative execution across these levers over time is what ultimately drives us to our destination. With that, I will turn the call back to Chris for closing remarks. D. Christian Koch: Thanks, Kevin. Overall, the first quarter was challenging, but the team delivered results with the kind of perseverance and disciplined execution that compounds over time and ultimately distinguishes Carlisle Companies Incorporated from its peers. While we are very cognizant of the volatility that continues in the markets, what we are targeting for 2026 is designed to place a minimal reliance on new construction from current levels or a broader macro tailwind. We remain an imperative business with a leading position in what we believe is the most attractive building products market in the world. The structural demand drivers in North America are secular and intact. Our balance sheet is strong. Our operational capabilities are advancing. And our capital allocation remains disciplined. We remain very confident in Carlisle Companies Incorporated’s position as we move further into 2026. Before I close, I want to acknowledge and thank the Carlisle Companies Incorporated employees who produced these results through their daily effort and commitment to excellence. Over the years, they have made the commitment to ensuring our success. Thank you all for your time and continued interest in Carlisle Companies Incorporated. We look forward to providing further updates as the year progresses. I will now turn the call over to the operator to open the line for questions. Operator: Thank you. Ladies and gentlemen, we will now open the call for questions. For the sake of time, we kindly request each person limit themselves to one question to give everyone the opportunity to participate in the question-and-answer session. If you would like to ask a question at this time, please press star then the number one on your telephone keypad to raise your hand and enter the queue. We will pause just for a moment to compile the roster. Our first question comes from Susan Marie Maklari with Goldman Sachs. Your line is open. Susan Marie Maklari: Thank you. Good afternoon, everyone. Good afternoon. My first question is about demand. Can you give us an update on the new products, how they are doing in the market, the path for further introductions that you expect this year, and within that, can you talk about how these product offerings and the service that Carlisle Companies Incorporated has for contractors help in terms of price elasticity? Do you think that is partially what you are seeing when you talk about the level of activity and the improvement you are getting into the spring season? D. Christian Koch: Good questions. On new products, we are forecasting to release just over 10 to 12 new products this year. Probably the biggest one is our ThermaThin R-7 insulation, which I am sure you have read about, what it is doing for R-value per square inch, and the implications for cold storage, for reduced inches on the roof in terms of insulation, or being able to put more inches of insulation on for a given vertical inch. It is significant. We have been out doing testing. We launched at IRE. We won two awards—one from specifiers and industry experts for a new product award, and the other was the show attendees voting it the best new product at IRE. That recognition from both specifiers and contractors is encouraging. The product is gathering momentum in terms of recognition and more testing. We do have test sites where people are using the product and giving feedback, not to determine whether it is good—it is—but to understand how it works and validate some marketing considerations. Deliveries will start around July, so it is creating enthusiasm but not really impacting any growth in Q1 or Q2. We also have a new gun for our foam adhesives that has come out, introduced and reflected more in Q2 as we start to sell it. So a lot of these new products are, I will say, second-half loaded in terms of growth. On how service and new products help, they really do differentiate us in the eyes of the contractor. We want to increase energy efficiency, which is important to specifiers and building owners, and we want to get labor off the roof. As we know, there are labor constraints in the industry. To grow as an industry, we must use the existing labor pool more efficiently. Products like ThermaThin, our new FAST-like scan, and solutions like Peel-and-Stick and Seam Shield are designed to help contractors install faster. Coupled with the Carlisle experience—having the right product in the right place at the right time—contractors are not standing around wondering where the shipment is. They can depend on us. That plays into growth, makes us stickier with customers and architects, and hopefully allows us to grow share while increasing profitability and sales dollars per square foot because we price to value. I hope that covers it. Susan Marie Maklari: That was perfect. And then my second question is on the CWT margins. Can you talk about the efforts coming through there, how we should think about the path of improvement, and your ability to realize some level of expansion this year despite the tough environment? D. Christian Koch: Profitability growth in CWT is a key focus for Frank Ready and his team. We set a goal this year of getting as close as we could to 20%. We want to return to those margins we expected when we bought Henry—into the 20s—and ultimately push to 30% over time. Volumes in resi have been tough, but the team has done a lot: automation, footprint consolidation, and insourcing have had sizable impacts. In Q1, we would have made more traction toward the 20% goal if the mix had been a little different. Sales had a heavier mix on the foam side, which is a lower margin than the retail side we had anticipated in our plan. That was a bit of a drag, but even with that, they are making good progress. We expect progress to play out linearly through Q2, Q3, and Q4, and hopefully a rebound in volume would make a big difference. Kevin P. Zdimal: Yes, we see improvement from quarter to quarter. Q2 might be around 19%, improving to 22% in Q3, and overall for the year, in our guidance, we are looking for at least 100 basis points of margin improvement year over year for CWT. Susan Marie Maklari: Okay. All right. Thank you both, and good luck with the quarter. D. Christian Koch: Thank you. Operator: Your next question comes from the line of Timothy Ronald Wojs with Baird. Your line is open. Timothy Ronald Wojs: Hey, guys. Good afternoon. Maybe just on the pricing piece, are you seeing anything you can share on stickiness? The first round has only been effective for a couple of weeks. Also, usually you need price because of demand-driven inflation, and this is more of a supply-side shock. Does that change how the industry deals with price or how contractors accept price? D. Christian Koch: I will start, and Kevin can jump in. We did have two price increases—one in March and one in April. The effective date of the first one was around April 15. As you know, we are protecting jobs that were already quoted; we did not retroactively increase those. We will see it move through into Q2 and then into Q3. I think the stickiness will be pretty good. There is clear line of sight to the driver. Contractors and distributors see what is happening with oil and petrochemical derivatives, and they understand diesel and freight impacts because they feel them on their own fleets. This is broad-based across the industry, not unique to one player, so I think industry resolve will be there. We will watch it play out in Q2. It is a bit different than a rising-demand situation, but for us, we will control what we can—continue to drive innovation and efficiency, take labor off the roof, and provide value with new products and service. Hopefully that results in share gains or maintenance through a difficult time. Our feeling is there could be resolution sooner than later compared to, say, the residential housing cycle. Kevin P. Zdimal: On CCM margins specifically, as we get into the second quarter, we think we will be approaching 31% EBITDA for Q2, slightly exceeding 31% in Q3, and around 28% in Q4. For the full year, about 50 basis points of improvement for CCM. Timothy Ronald Wojs: Great. I will hop back in the queue. Thanks. Operator: Your next question comes from the line of Bryan Francis Blair from Oppenheimer. Your line is open. Bryan Francis Blair: Thank you. Good afternoon. Somewhat of a follow-up to Tim’s first question. You are still expecting low single-digit revenue growth for 2026, but you have announced a fair amount of pricing since last quarter. In the revised, reaffirmed guide, what are you now baking in for volume versus price per CCM and CWT for the year? Kevin P. Zdimal: It is really the same for both CCM and CWT. As we went into the year, we had said low single digits and talked at the bottom of that range—probably 1%. Now we are talking at the top end of that low single-digit range—about 3%—and all of that improvement is price. We will see some price in Q2 and much more in Q3, so the second half is where more of the price realization comes through, but we will see some in Q2 as well. For the full year, it is hard to put the full number on it, so for now we have increased to 3% for the year, and we will update at the end of next quarter if needed. D. Christian Koch: One addition: we started the year expecting a bit of a favorable from raws, and now our forecast is more neutral as price offsets raw inflation. Operator: Your next question comes from the line of Analyst with JPMorgan. Your line is open. Analyst: Thank you for taking my questions. I would like to double click on distribution channel inventories. There has been industry-wide discussion about consolidation leading to inventory destocking and order volatility with distributors including QXO and other key channel partners. Are you seeing signs that distributor inventory levels and ordering patterns have returned to more normalized levels, and how would you characterize the current activities in your distribution channels? If you could also talk about consolidation dynamics for the short and medium term, please. D. Christian Koch: On inventory, we are moving into what we would think is a more normal inventory situation as we move into the construction season. There needs to be more out there to sustain increased activity and service levels. In Q4, we saw destocking—carrying less inventory with higher interest rates and a less favorable economic outlook. In Q1, we saw a continuation of Q4 levels. As we got into April and closer to the construction season, we saw a pickup in distributors’ willingness to carry inventory if they see building activity improving. The ABI at 49.8, getting close to 50, might support a bit more inventory, and we might also see some inventory picked up ahead of price increases. On distribution dynamics, the QXO situation we have talked about continues to improve, and we continue to have great conversations with them as integrations progress. We also have excellent relationships with other distributors—good programs and progress. The recent TopBuild acquisition activity in the industry is not as impactful to Carlisle Companies Incorporated. Much of that is resi fiberglass insulation where we do not play, and Beacon’s significant presence in shingles is also not a market we are in. So the direct effect is more limited. With QXO and Beacon, we are focused on the initiatives we started the year with to get back to historical levels with both. Operator: Your next question comes from the line of Analyst with William Blair. Your line is open. Analyst: Hey, everyone. Thanks for the question. I wanted to ask about 2Q revenue. Can we assume normal seasonality? And Chris, you mentioned March exited better. Did you see trends improve once the weather got better? D. Christian Koch: Yes, weather improved later in the quarter and activity picked up. We estimate weather impacted about three days in Q1, which we ballpark at around a $30–$35 million impact on the top line. As weather improved in March, momentum improved. ABI trends also looked a little better. Warehousing is improving; our outlook there is up around 2% this year after being down 5% last year. Educational buildings were down about 13% last year, and they are seeing some positive growth. That aligns with ABI improving. The price increase timing also pulled some activity forward into the transition, contributing to momentum exiting March and into April. Kevin P. Zdimal: On quarterly seasonality, we really look at it in buckets. It is a very seasonal business. For CWT, typically about 23% of revenue is in Q1, 27% in Q2, 27% in Q3, and 23% in Q4. CCM is a little different: about 20% in Q1, around 30% in Q2, Q3 a little lighter than Q2, and Q4 is the balance. Operator: Your next question comes from the line of David MacGregor with Longbow Research. Your line is open. David MacGregor: Thank you, and good afternoon, everyone. I wanted to go back to elasticity of demand and the extent to which the rapid onset of higher project costs could give rise to project deferrals or limit job scope. Also, is warranty expiration still a business driver, or are people approaching that differently? D. Christian Koch: We have seen some project delays, but we started seeing them around August–September last year as rate-cut expectations shifted. The current Middle East crisis can cause additional delays, but it has not been as impactful as we might have thought so far. If the crisis continues longer, recovery could take longer and have a bigger impact on prices. Another dynamic is supply availability—similar to labor constraints. If there is not enough supply, delaying a project risks not getting materials later, and labor could be reallocated, pushing work into next year. On warranties, they remain a driver, especially for larger projects. Building management teams value the warranty; they do not want exposure. When a warranty expires, they prioritize reroofing and a new warranty to avoid risk. So for us, availability and supply are bigger concerns than elasticity right now. Operator: Your next question comes from the line of Garik Simha Shmois with Loop Capital. Your line is open. Garik Simha Shmois: Thanks. On the CCM revenue guidance moving toward the higher end of low single digits, it seems driven by pricing. Any change to your volume expectations, especially given momentum in March and April? Is there some conservatism given the magnitude of the price increases? D. Christian Koch: It is largely price-driven at this point. With geopolitical uncertainty, we do not know how much that could impact demand, so as we enter Q2, we are guiding to low single digits at about 3%. Maybe it gets better in the second half, but for now, that is a conservative guide. Operator: Your next question comes from the line of Adam Baumgarten with Vertical Research Partners. Your line is open. Adam Baumgarten: Thanks for taking my question. On the price increases, the ones you announced in March/April were about 5% to 7% on membranes and polyiso. What is the magnitude of the incremental price increases you announced today? The change in guidance to the higher end of the low single-digit range implies realization is relatively low—maybe conservative. And what are you thinking about for price-cost in 2Q? Kevin P. Zdimal: For Q2 price-cost, we are looking to offset cost increases with price—neutral for Q2, and that is the same assumption for Q3 and Q4. It is hard to predict exactly how much pricing and raw inflation we will see. We are seeing raw increases now, which is why the second announcement came out. I would expect that pricing to stick in the marketplace. If it all goes through, you will see higher revenue, but EBITDA dollars will not be incremental from that pricing because it is offsetting raw inflation. The second price increase was approximately 5% to 8%, very similar to March. Operator: Your next question comes from the line of Analyst with Zelman & Associates. Your line is open. Analyst: Thanks. On the raw material piece, can you give us a sense of the magnitude of input cost inflation you are baking into your guidance? Mehul S. Patel: Overall, as Kevin mentioned, moving our revenue outlook from the low single-digit range to the higher end is basically a couple of points of price, and with a neutral price-cost assumption, that implies a similar level of raw material inflation. If you do the math, that implies about high single-digit raw material inflation as a percentage of raws for the full year. Operator: Your next question comes from the line of Keith Brian Hughes with Truist. Your line is open. Keith Brian Hughes: Hello? Can you hear me now? On the last answer, the high single-digit raw material inflation—some inputs are up more, some less. What is the range of inputs coming in year to date? Mehul S. Patel: Yes, Keith. MDI is our biggest raw material purchase. Walking down the top inputs: MDI is up double digits, impacted by supply-demand dynamics and benzene, which is up significantly and linked to petrochemicals. Our TPO resins, closely linked to propylene, are up double digits and tie closely to the propylene index. Polyols are also up, driven by supply-demand dynamics and diethylene glycol, running high single digits. Keith Brian Hughes: On polyols, there have been shortages with a plant outage. Is that causing any problem? Mehul S. Patel: For us, polyols for polyiso insulation in CCM and spray foam in CWT have a bigger impact on CWT given the types of polyols we use. We are in a pretty good position with options to get volume. Keith Brian Hughes: Okay. Thank you. D. Christian Koch: Thanks, Keith. Operator: Our last question comes from David MacGregor with Longbow Research. Your line is open. David MacGregor: Thanks for taking my follow-up. Could you talk about acquisitions made over the past couple of years, synergies captured versus your initial plans, and whether you could squeeze a little more out this year if needed to offset some of the price-cost dynamics? D. Christian Koch: Results vary by deal, as you would expect. At the top end, the MTL acquisition has been exceptional in every way. The management team has done a very good job managing through raw material volatility, taking share, and developing new products. Plasti-Fab has also been a great acquisition; the vertical integration around EPS bead has been valuable. The team continues to invest in automation and strengthen manufacturing in Canada. The fill-in EPS acquisitions are performing, building a North American-wide EPS network. They are meeting deal models. The bigger impact is volume, particularly in CWT, where end markets have been soft. The team’s work on margin expansion continues—footprint consolidation, insourcing, automation, technology, and new products. Could we squeeze more out? We can, but to really push back to the mid-20s, some volume increase would help. The improving ABI and a potential housing recovery would be the bigger drivers. David MacGregor: Got it. Thanks for that detailed answer. D. Christian Koch: Of course. Operator: There are no further questions at this time. I will hand the call over to Chris Koch for closing remarks. D. Christian Koch: Thanks, everybody. It is a very challenging time as we work through these issues. This concludes our first quarter call. We look forward to talking with you again on our second quarter call, and we will have more information about how pricing and everything else has played out by then. Thanks very much. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to World Kinect Corporation's First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Braulio Medrano, Senior Director of FP&A and Investor Relations. Braulio Medrano: Good afternoon, everyone, and welcome to World Kinect Corporation's First Quarter 2026 Earnings Conference Call, which will be presented alongside our live slide presentation. Today's presentation is also available via webcast on our Investor Relations website. I am Braulio Medrano, Senior Director of FP&A and Investor Relations. With me on the call today is Ira M. Birns, Chief Executive Officer; Michael J. Kasbar, Executive Vice President and Chief Financial Officer; and [inaudible], President. And now I would like to review our safe harbor statement. Certain statements made today, including comments about our expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause actual results to materially differ. Factors that could cause results to materially differ can be found in our most recent Form 10-K and other reports filed with the Securities and Exchange Commission. We assume no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. This presentation also includes certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in our press release and can be found on our website. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. At this time, I would like to introduce our Chief Executive Officer, Ira M. Birns. Ira M. Birns: Thank you very much, Braulio, and good afternoon, everyone. I want to start by saying how proud I am of our team. Despite a far more volatile and unpredictable environment than anyone could have expected, we delivered a strong start to 2026, driven by strong execution and the continued benefits of our focused portfolio strategy. As conditions shifted rapidly following the escalation of the conflict in the Middle East, driving sharp price movements and heightened uncertainty across global energy markets, our teams remained focused, disciplined, and deeply engaged with our customers and suppliers. They navigated real-world complexity, managing rapid price changes, logistical challenges, and tightening conditions while maintaining a clear and consistent focus on safely and efficiently serving our customers. That combination of execution, professionalism, and focus is a defining strength of our organization and one that continues to set us apart. Importantly, what you are seeing in these results is not just resilience in a volatile operating environment, but evidence of the successful execution of our portfolio optimization strategy. As we have discussed, our exits from noncore and lower-margin activities, particularly within land, have enhanced our financial flexibility and increased our ability to focus on investing in areas where we see more predictable, durable, and attractive returns. We announced today that World Kinect Corporation will serve as our unified corporate and commercial brand for substantially all internal and external purposes. This is the logical next step in our repositioning efforts and reflects our strategic clarity and conviction in our approach to value creation. Our customers around the world already know us as World Kinect Corporation. And this brand clearly reflects who we are today: a trusted provider of transportation fuels and complementary services. Just as importantly, this return to our roots reflects the progress we have made simplifying the business and allowing our teams to fully focus on the core activities that benefit from scale, generate solid returns, and offer meaningful opportunities for long-term growth. As noted in our earnings release, World Kinect Corporation will remain as our corporate legal name and our ticker symbol will remain as WKC. With that, I would like to provide an overview of each of our core operating segments before passing things over to Mike to walk through the financials for the quarter. Marine results were consistent with what we have long communicated. When prices rise materially and volatility increases, this business performs exceptionally well. It has happened before, and, well, it just happened again. It is important to note that this was not simply a quarter in which markets did the work for us. Performance was driven by teams executing under pressure, actively managing pricing, credit exposure, and operational risk in real time, while continuing to support customers despite challenging market conditions. We consider this a remarkable outcome and I want to recognize our entire marine team for their accomplishments in the first quarter. Aviation also exceeded expectations this quarter, as higher prices and increased volatility expanded opportunities in our core commercial business while also driving increased government-related activity. The integration of the Universal Trip Support Services business is well underway, and we are pleased with both its performance and how effectively the teams are coming together. Land core activities performed largely in line with expectations, with strong cardlock and retail results offset by modest softness in our natural gas business. As I mentioned earlier, we have made significant progress with our portfolio exits and expect the vast majority of that work to be completed by the end of the second quarter. Excluding these exit activities, land delivered an operating margin significantly above the prior year, reflecting continued momentum and the benefits of our portfolio optimization efforts. Across the enterprise, and more broadly across the markets we serve, customers increasingly rely on trustworthy counterparties with scale, financial strength, and execution capability. Our global platform, long-standing supplier relationships, and strong balance sheet position us to meet and exceed customers' expectations and to continue delivering when reliability matters most. Together, this reflects a simpler, more focused business with the scale, measured execution, and balance sheet to perform across a broad range of market conditions. From an earnings standpoint, we delivered incremental profitability in the first quarter, with results supported by the high price, high volatility environment we saw across the market. And while more upside is possible given day-to-day unpredictability, our core expectations for the balance of the year have not changed, and our full-year assumptions have only been adjusted to reflect the profitability already generated during the first quarter. Mike will walk through our updated guidance in a moment. This quarter's performance reinforces my confidence in our platform, the strength of our team, and the durability of our customer and supplier relationships. Our strong results demonstrate the consistency of our model across a wide range of market conditions and the discipline with which we operate. With that, I will turn the call over to Mike to walk through the financial results in more detail. Michael J. Kasbar: Thank you, Ira, and good afternoon, everyone. Before I discuss the results, I want to briefly address our use of non-GAAP measures. As we have stated previously, our GAAP results can include items that do not reflect our ongoing operating performance, such as restructuring and exit costs, impairments, operating results of noncore divestitures and business exits, and other nonrecurring items. We provide reconciliations on our Investor Relations website and today's webcast materials. Total non-GAAP adjustments in the first quarter were approximately $60 million, or $13 million after tax. Now on to our consolidated results, which exclude these non-GAAP adjustments. As Ira mentioned, we delivered a strong first quarter, benefiting from a dynamic market environment. While our results were grounded in our core businesses performing in line with the expectations we set last quarter, they were further enhanced by our team's strong execution and ability to capture additional upside from pricing- and volatility-driven opportunities. Our first quarter results were impacted by the conflict in the Middle East and the related market dynamics. In environments like these, we have demonstrated a proven ability to balance our role as a critical partner to our customers while leveraging our scale, supplier relationships, and the balance sheet to capture market-driven opportunities. That is a key strength of the World Kinect Corporation platform, one that affords us the flexibility to generate incremental value when opportunities arise. While these opportunities are not always predictable, they can be meaningful contributors to our overall performance, as we saw this quarter. On a consolidated basis, first quarter volume was 4 billion gallons, down 6% year-over-year, while first quarter gross profit was $254 million, up 10% year-over-year, which was above our expectations going into the quarter. Since marine was the principal driver of our strong performance this quarter, let us start there. Volumes were approximately 4 million metric tons in the first quarter, up 4% year-over-year, and gross profit was $66 million, up a significant 82% year-over-year. This strong performance marks our third-best quarter on record for marine. We ended the quarter expecting a low-price, lower-volatility environment. However, in March, conditions shifted quickly, with volatility increasing sharply and average bunker prices rising approximately 70% month-over-month. By leveraging our supplier relationships and strong balance sheet, the team did what they do best and executed extremely well, supporting our customers while capturing strong risk-adjusted returns in our core retail business and at our physical inventory locations. As we have discussed in the past, marine's baseline performance in low-price, lower-volatility environments delivers solid returns with minimal working capital requirements. However, when prices rise, credit availability tightens, and volatility increases, the spot nature of the business positions us well and enables us to continue to provide our customers with the products, services, and credit they require when they need those. Our marine business has a proven track record of executing in these environments while maintaining disciplined risk management, and this quarter was no exception. This performance is a testament to our team's capabilities and the optionality embedded in our model. We continue to view this as a major differentiator and a clear driver of value. Looking to the second quarter, we expect marine gross profit to be lower sequentially as price and volatility moderate, though gross profit should be meaningfully higher year-over-year. Now turning to aviation. For the first quarter, aviation volume was down 5%, as expected. However, gross profit was $138 million, up 20% year-over-year, and ahead of our expectations heading into the quarter. Base performance in our core offerings was in line with expectations, and the year-over-year increase was driven primarily by the Universal Trip Support acquisition, which we closed in November, and is performing as planned. Core aviation results exceeded our expectations, driven principally by favorable market conditions, which created some short-term opportunities to generate incremental returns in our core commercial business while also driving increased government-related activity. Looking ahead, we remain confident in aviation's outlook. We are closely monitoring the global supply landscape as we progress through the year. We recognize that if conflict in the Middle East continues for an extended period, it could begin to more broadly impact global supply and customer demand beyond what has so far been generally contained. From a baseline standpoint, and as we discussed last quarter, we expect the benefits of our expanded service capabilities and growing international activity to more than offset any competitive pressure. Heading into the second quarter, we expect our aviation gross profit to be up sequentially, driven in part by the typical seasonal increase in activity as well as some continued contribution from the current market environment, as well as up year-over-year with the inclusion of the Universal Trip Support acquisition. Our land business delivered results in line with our expectations in the first quarter, with volume and gross profit down 15% and 38% year-over-year, respectively, reflecting the impact of our portfolio actions and previously announced business exits. The remaining exit-related activities are progressing as planned and are expected to be materially complete by the end of the second quarter. While these lower-return businesses were a meaningful part of our portfolio in 2025, they are not part of our core growth strategy going forward. However, we continue to invest resources to support customers through a smooth transition. For the quarter, our cardlock and retail business performed well, benefiting from disciplined yield management that helped margins keep pace with higher working capital costs and credit requirements in a rising price environment. These results were offset by our natural gas business, which was negatively impacted by severe weather in the Midwest in January. We expect second quarter gross profit to be up sequentially, though down versus the prior year, principally due to the businesses we have exited or are in the process of exiting, and the resulting impact on the comparative period. That said, we continue to expect our core land businesses to further improve and drive meaningful year-over-year growth, with operating income still on track to nearly double, and operating margin improving significantly toward our 30% target for 2026. Next, I will cover operating expenses and net interest expense. Operating expenses in the first quarter were $181 million, up 2% year-over-year. The year-over-year increase reflects the inclusion of the Universal Trip Support business, as well as higher variable compensation costs driven in part by our strong results in the first quarter. These operating expense increases were mostly offset by lower costs in land from the simplification actions we have been executing. Net interest expense in the quarter was $26 million, up versus prior year, driven in part by a reduction in interest income as well as additional working capital requirements during the quarter as prices increased. With that backdrop, let us turn to our outlook and guidance framework. As a reminder, for 2026, we are providing full-year adjusted EPS guidance. We believe this approach better reflects how we manage the business, accounts for seasonality, and provides investors a clear framework for evaluating performance. For the second quarter, while we do not expect marine to repeat its exceptional first quarter performance, we do expect overall adjusted EPS to be higher year-over-year. For full-year 2026, we are updating our adjusted EPS guidance to $2.65 to $2.85 per share, up from the prior range of $2.20 to $2.40 per share. This reflects our overperformance to date, underpinned by baseline expectations that remain on track. Turning to cash flow. Driven mainly by a sharp increase in commodity prices, which impacted working capital, our first quarter operating cash flow was negative $46 million and free cash flow was negative $69 million. While we expect prices to normalize over the coming quarters, we are proactively managing our exposure, and we believe that we remain well positioned with strong liquidity to deliver positive free cash flow in 2026, consistent with prior years. And finally, a reminder that we returned $86 million of capital to shareholders through dividends and share repurchases in the first quarter. This includes the $75 million of share repurchases we completed in January and discussed in the February call. Moving to the remainder of the year, we remain disciplined in our capital allocation framework, with a key focus on returning capital and delivering long-term value to our shareholders. And to wrap up, I would like to leave you with some key takeaways. First, we delivered a very strong start to the year, with results well above expectations. While our core businesses executed on target, we captured additional upside in a higher price and more volatile market, especially in marine. While these conditions have persisted into April, our outlook assumes a return to a more normalized market environment. Importantly, periods such as these reinforce our role as a trusted partner to customers, driving value with market expertise and access to key supplier relationships, supported by a strong credit and liquidity position. Second, as we discussed, marine delivered extremely strong results in the volatile market, allowing us to capture attractive market-driven opportunities, underpinned by disciplined risk management. The strength of our team and market-leading position enabled us to significantly outperform our expectations for the quarter. Third, aviation outperformed our expectations this quarter, and we continue to benefit from our strong global network and expanding service capabilities. We remain focused on disciplined returns. Our integration of the Universal Trip Support business is on track, and we believe we are well positioned to deliver meaningful year-over-year growth. Fourth, land is progressing well through the exits and divestitures we discussed last quarter. With a simpler, more focused portfolio and improving operating leverage, we are starting to see a steadier, more predictable baseline contribution from our core offerings. We expect to build on this trend as we move forward with a focus on growth, and improved year-over-year operating income and operating margin. And finally, financial discipline remains essential to how we operate. From cost management to capital allocation, we remain focused on executing our strategy, maintaining a strong balance sheet, and delivering consistent core earnings growth and cash flow generation. We will now open the call for questions. Operator: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. Our first question comes from the line of Ken Hoexter of Bank of America. Your line is open, Ken. Kenneth Scott Hoexter: Great. Thank you, operator. Hey, good afternoon, good evening, Ira and Mike and team. Braulio, great job in a volatile environment. You beat by our estimates at least $0.44. For your full year, you are targeting about $0.45. So, Mike, maybe you answered this a little bit in the last part, but maybe you could delve into it. I guess you are expecting a pullback, right? If you have got, just based on your estimate, you have got what, $2 remaining for the rest of the year, so about $0.66 a quarter. So you are expecting a consistent pullback through the year. Maybe just walk us through how we should think about that. Michael J. Kasbar: Yes. Hey, Ken. Thanks for the question. What we are flowing through our guidance is a pickup from Q1. While we are taking some headwinds into April—obviously the market is pretty volatile—we are balancing it out. There is a lot of quarter left. So our guidance for the remainder of the year holds consistently. The increased guidance really is a reflection of the Q1 overperformance that we have already recorded. So we are maintaining where we were before for the balance of the year. Ira M. Birns: Said in a different way, considering where we informally guided to for the first quarter, that $2 that you are referring to for the rest of the year is pretty consistent with where we thought Q2 through Q4 would be going into the first quarter. There is obviously the opportunity for some additional upside, but as you see from what is going on today, we have a different story every day, and we are assuming that we generate the same level of profitability over the balance of the year that we expected going in. If there is some upside, we will talk about that next quarter. But we decided to play it safe. Kenneth Scott Hoexter: So to be clear, though, what you are saying now is it is not that it has pulled back to that level right now, it is just you are expecting the rollover and pullback in your forecast model. But right now, are we still seeing that volatility in pricing or profit per metric ton or gallon remaining elevated, or has it already backed down to a historical normalized level? Ira M. Birns: It is not back to where it was. It is still above where it was. The peak volatility was clearly when these conflicts happened—the craziness is always most severe at the very beginning, if you combine price and volatility and uncertainty. So there is still some of that. It is not the same degree that it was the first couple of weeks in March. But there is still volatility in the market that is greater than it was in February. No one knows how long that is going to last. It could last another week, another month, another quarter. It is very difficult to predict. If it lasts longer, in theory, there could be some additional upside. But I do not think any of us could predict that one. So again, for now, we are just assuming that the balance of the year comes through the way we forecast before the conflict began, and there is certainly the possibility for some additional upside, but we will wait until we have that in the books and closed before we report on it. Kenneth Scott Hoexter: If we look at bunker fuel—and, Ira, maybe tell me if that is a good read on how we should think about marine—you doubled your gross profit per gallon. What should we expect there? It looked like volumes were down, yet profitability obviously doubled. So maybe talk a little bit about the backdrop on the marine side. Given you said you really do take advantage of that volatile market, talk about the sustainability of that. Michael J. Kasbar: Ken, maybe just to add in, like Ira said, I think that the peak of the volatility we saw so far was in March. So April is definitely coming off that level of volatility, which is one of those areas where you could see some additional incremental contribution. Going off the average of the month, April is performing stronger because, obviously, January and February factored into that. Volatility and price are definitely elevated and higher. So for April, we definitely have some higher level of performance. But as Ira indicated, that can go away quickly. As we said on the last earnings call, we would not have forecasted or expected the increase in price and volatility that we saw throughout the month of March. So we are taking a cautiously optimistic view on the rest of the quarter and about the year kind of getting back to normalized levels. Ira M. Birns: Just some facts. Average prices for the various products in marine at the peak doubled in March versus February's average. They backed off about 20% from that max in April. But they are still well above February's average. So you could look at that number and read into it and say, if we stay at the level that we are even at today, even though it is off the high of March, that could be an opportunity for some incremental profitability—not the same level that we saw in March, but certainly a greater profit contribution than we saw in the first two months of the year. But that number could change dramatically overnight, or maybe it will not. So we are watching that very carefully, and the teams are out there trying to generate the best risk-adjusted returns they can without taking any undue risk in this uncertain environment. Kenneth Scott Hoexter: Ira, maybe that is a good one for you or Mike. Seasonality—how do we think about if you have got maybe a stabilized April and what you are talking about for 2Q through 4Q? We normally seasonally see a sizable uptick in 3Q. Do you think that goes away given this volatility? Or would you still see some seasonality there in terms of the bump? Ira M. Birns: That is really more of an aviation seasonality thing. That does not go away. And that seasonality was factored into our guidance at the beginning of the year. Conflict or no conflict, the third quarter seasonality is still there. The first quarter is generally our weakest quarter of the year—obviously that is not what happened this year. We generally pick up a bit in Q2 and peak in Q3, and then come back down in Q4. So the Q3 story should not change that much. Obviously, the delta between the first quarter and the third becomes a lot smaller than you thought it was going to be at the beginning of the year. We could add the fact that—John, do you want to talk a little bit about what some of the risks to that might be? Unknown Speaker: Well, we have seen a lot of the airlines announcing schedule [inaudible], so that could offset some of the growth that we should be seeing in the third quarter. So that is a possibility that we could see some reduction there. Ira M. Birns: So we will still have seasonality, but of course, we do not know what will happen. You heard, I think, Lufthansa announced that they were cutting back a whole bunch of flights to be precautious. So we could see some volume degradation if this drags on much longer. But even with that, the likelihood is it is still going to be a seasonally strong quarter. It may just not be as strong as we would have thought going into the year if those situations start materializing as the summer season carries on. Kenneth Scott Hoexter: And aviation—just to understand—we saw a nice bump in gross profit per gallon in aviation, not to the extreme we saw in marine. How much is tied to armed services? How much is tied to maybe changing flight patterns given the Middle East? Michael J. Kasbar: One thing to consider, Ken, when you look at our Q1 performance is Universal Trip Support. As a services business, there is no volume associated with that. So when you think about it on a gross margin basis, on a per-unit basis, it is going to show that we are stronger; we did have a good Q1. Kenneth Scott Hoexter: So there were some spot business activities and some government-related activity as well? Michael J. Kasbar: That is not a massive part of our business. That is something that we were able to see some opportunities in during Q1, and the team was able to take advantage of those. However, part of the margin that you are seeing is related to services. Kenneth Scott Hoexter: Okay. And then last one for me—appreciate the time—is thoughts on credit extension. Usually, when prices go up, you have got to extend a lot. We saw accounts receivable go up almost $800 million sequentially. Your payables did almost $900 million. But when you look at the receivables, is that something we should look at? I know you have historically been such good risk managers. Maybe just walk us through that process, because usually it decreases your cash flow, increases your opportunity. Maybe, Ira, just if you want to update on thoughts on that given we have not seen moves like this in a while. Ira M. Birns: Great question. First quarter was literally hand-to-hand combat, customer by customer. Obviously, if you have got a customer with an X-million-dollar credit line and they are pulling the same volume and the price of jet fuel doubles, you need to double their credit line to support that level of volume. You have to decide whether you want to do that. The team has historically done a phenomenal job looking at each and every customer, each and every situation, and determining where we have that room and where we might not, what our options are—and they are all different outcomes. I think we have worked through that. The team has done a phenomenal job of that to date. Obviously, we are spending more time focusing on credit-related risk—not that we do not do that all the time—but we have stepped up that game in this situation. The numbers, as you pointed out, have grown by several hundred million dollars in aggregate. But it is something we do very, very well—something that could always, God forbid, go wrong, but we manage that well. We monitor it on a day-to-day basis and stay as close as we can to our customers, especially the most sizable ones where the risk is greatest. Kenneth Scott Hoexter: That is it for me, Ira. Have a great weekend. Enjoy all the activities, and thanks for the time, guys. Appreciate it. Ira M. Birns: Thanks. Have a good quarter. Bye. Operator: Thank you. I would now like to turn the conference back to Ira M. Birns for closing remarks. Ira M. Birns: Thanks, everyone. I would like to close out by reiterating how proud I am of our team and the incredible effort they put forth in the first quarter—not that they do not do that every quarter—but this quarter I would use a lot of words: incredible, remarkable. John and Mike and I are extremely grateful for that effort. As we look ahead, we are entering the remainder of the year as a simpler, more focused business, built on scale, disciplined risk management, and a strong balance sheet, as I mentioned earlier, and of course supported by our extremely talented and experienced team, as I just mentioned. We will stay close to our customers, execute with the same rigor you saw this past quarter, and remain committed to delivering strong performance through all market environments. We know we have not always painted a clear picture with all the exits and transformation efforts that have almost been completed. I think our story is getting simpler. We are able to focus more on the core businesses that we have had years and years of experience managing, and those businesses are all generating solid returns, and they all have different levels of growth opportunities that we are 100% focused on now. We are moving in the right direction. We appreciate your time and continued interest in World Kinect Corporation, and we will talk to you again next quarter. Thank you very much. Operator: Today's conference call has concluded. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to Columbia Banking System, Inc.’s First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. 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 turn the conference over to Jacquelynne Bohlen, Investor Relations, to begin the call. You may begin. Jacquelynne Bohlen: Thank you, Didi. Good afternoon, everyone. Thank you for joining us as we review our first quarter results. The earnings release and corresponding presentation are available on our website at columbiabankingsystem.com. During today’s call, we will make forward-looking statements which are subject to risks and uncertainties and are intended to be covered by the safe harbor provisions of the federal securities laws. For a list of factors that may cause actual results to differ materially from expectations, please refer to the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures and I encourage you to review the non-GAAP reconciliations provided in our earnings materials. We will now hand the call over to Columbia’s Chair, Chief Executive Officer and President, Clint E. Stein. Clint E. Stein: Thank you, Jackie. Good afternoon, everyone. Our first quarter results reflected continued execution against the same core priorities we have previously outlined: delivering consistent, repeatable results, optimizing our balance sheet, and returning excess capital to shareholders. We also completed the Pacific Premier systems conversion and consolidated nine branches during the quarter, putting us on track for full realization of all acquisition-related cost savings by the end of this quarter. I want to thank our highly experienced team of associates for their months of meticulous planning and the seamless execution of this key integration milestone. Our operating results for the first quarter reflect the continuation of momentum established late last year, as solid C&I production offset a decline in below-market-rate transactional loan balances. We also reduced our reliance on wholesale funding as customer deposit balances expanded despite seasonal pressure typical during the first quarter. The resulting mix shift in both assets and liabilities fortifies and positions our balance sheet for sustained attractive returns over time. Our bankers’ proven ability to generate balanced, relationship-centric growth in deposits, loans, and quality fee income is driving sustainable earnings growth. We do not need to produce net balance sheet growth to achieve our EPS and ROTCE objectives. Columbia’s cost-conscious culture further enhances our top-quartile profitability profile. Beyond savings associated with the Pacific Premier acquisition, our expense base reflects continuous fine-tuning. We remain disciplined in identifying offsets that create reinvestment dollars for initiatives that drive revenue and enhance efficiency. AI is becoming an important tool for driving efficiency across Columbia. During our Pacific Premier core systems conversion, we used AI to automate work that traditionally would be completed manually. Historically time-consuming conversion tasks, such as reviewing and validating thousands of data fields, were automated and completed in a fraction of the time historically required. Instead of relying on manual checks and custom coding, AI helped us move faster and reduce complexity with shortened review timelines and improved execution. More broadly, AI is helping our technology teams work more efficiently. It allows our developers to move faster, test changes more quickly, and write software that is more secure. The result is higher productivity and better outcomes without adding incremental resources. We also enhanced our customer support experience with an AI-powered assistant. Our ratio of human calls to AI-powered agent chats moved from two to one in favor of humans to three to one in favor of AI agents, as many routine administrative questions are now handled by the virtual assistant. Macroeconomic headlines continue to dominate industry narrative, often driving outsized stock price reactions and unilaterally treating all banks as the same. We are not all the same, and Columbia’s fundamentals warrant differentiation. Over my tenure at Columbia Bank, we have repeatedly demonstrated the ability to withstand industry stress as we consistently turn disruption into opportunity. During the global financial crisis, Columbia delivered strong credit performance while leveraging FDIC-assisted transactions to grow and strengthen our franchise. Since then, we have continued to expand our customer base through both organic growth and strategic acquisitions. Our best-in-class, low-cost core deposit franchise consistently ranks in the top quartile when measured on both cost and mix of noninterest-bearing balances. More recently, we successfully navigated the banking sector volatility of March 2023—again, another point in time where many regional banks were treated as one. The Columbia team navigated this volatility without a discernible adverse impact to our business while simultaneously executing a successful systems conversion just three weeks after closing the Umpqua acquisition. Our credit fundamentals remain sound. Our office portfolio continues to perform. A modest uptick in our CRE exposure, which is attributable to acquired portfolios, continues to decline. Turning to another closely watched area, our NDFI exposure is minimal, well below peer averages, and underwritten with the same conservative and consistent rigor we apply across our broader loan portfolio. Our first quarter results marked the beginning of our third consecutive year of stable operational performance and strong organic capital creation. Given our current capital position and strong forward outlook, we increased our pace of buybacks during the first quarter, returning $200 million to our shareholders, underscoring our belief that the best investment we can make at this time is in the stock of our own company. Looking forward, we will continue to execute on our established priorities—optimizing performance, driving new business growth, supporting the evolving needs of existing customers, and consistently delivering superior returns to our shareholders. I will now turn the call over to Ivan. Ivan Seda: Thank you, Clint, and good afternoon, everyone. As Clint highlighted, our first quarter results reflect continued execution of our strategic priorities. Turning to slide 10, we reported earnings per share of $0.66 and operating earnings per share of $0.72 for the first quarter. On an operating basis, which excludes merger expense and other items detailed in our non-GAAP disclosure, first quarter pre-provision net revenue and operating net income increased 45% and 50%, respectively, compared to 2025 due to the addition of Pacific Premier, continued progress on our balance sheet optimization targets, and disciplined expense management. Turning to slide 11, average earning assets were $60.8 billion during the first quarter, coming in at the midpoint of the range that I outlined in January, as continued balance sheet optimization contributed to modest contraction relative to the prior quarter. We modestly reduced cash as planned during the first quarter, utilizing excess balances to reduce wholesale funding sources, which declined by $560 million from December 31. Although wholesale funding declined as of March 31, balances were higher on an average basis during the first quarter due to typical seasonal customer deposit flows. Overall, the results were as anticipated, reflecting a stable balance sheet outlook and a remix in our loan portfolio out of transactional into relationship-based lending. Following the modest earning asset contraction during the first quarter, we expect the balance sheet size to remain relatively stable, with commercial loan growth offset by contraction in the transactional portfolio. Slide 12 outlines contributors to the sequential quarter change in net interest margin. Net interest margin was 3.96% for the first quarter, right at the top end of the range that I outlined in our last call. While the headline net interest margin is down from 4.06% last quarter, recall that our net interest margin in Q4 benefited from an 11 basis point impact of the amortization of a premium on acquired time deposits and an accelerated loan repayment. Pro forma for those factors, we were roughly flat quarter over quarter. Relative to 2025, net interest margin has expanded by 36 basis points, reflecting the impact of our balance sheet optimization strategy. We exited the first quarter with an improved funding mix relative to the fourth quarter and expect ongoing balance sheet optimization to drive net interest income growth and net interest margin expansion, with the first quarter setting the low watermark for 2026. As I outlined in our last call, we anticipate our net interest margin to grow modestly in Q2, crossing over 4% at some point in the quarter. Our latest interest rate modeling continues to show that our balance sheet remains neutrally positioned to interest rates on slide 13, and you will note that we have over $6 billion in fixed and adjustable loans set to reprice over the next twelve months. Noninterest income in the first quarter was $83 million on a GAAP basis and $81 million on an operating basis, as detailed on slide 14, within our guided $80 million to $85 million range. The sequential quarter decrease was driven by lower swap syndication and international banking revenues following the strong performance in the prior quarter. Despite that, operating noninterest income is up $25 million, or 44%, relative to 2025, from the impact of Pacific Premier alongside strong growth in fee income streams, as Tory will highlight later. We continue to expect noninterest revenues in the low- to mid-$80 million range for Q2. Slide 15 outlines noninterest expense, which was $369 million on an operating basis. Excluding intangible amortization of $41 million, the first quarter’s $328 million run rate was below our guided range due to the earlier realization of cost savings following January’s system conversion as well as some planned investments which fell back into Q2. As of March 31, we achieved $102 million of the targeted $127 million in synergies, although these savings were not fully run-rated in the first quarter’s results. Excluding CDI amortization, we expect noninterest expense in the $335 million to $345 million range for the second quarter before declining in the third quarter as we realize all cost savings related to the transaction by June 30. CDI amortization will average around $40 million per quarter. Moving on to slide 16, provision expense was $28 million for the first quarter, reflecting loan portfolio runoff, credit migration trends, and changes in the economic forecast used in the credit models. A relationship in the agricultural industry drove a modest increase in net charge-offs and nonperforming assets relative to the fourth quarter, with our overall credit metrics remaining stable and healthy. Slide 17 details our allowance for credit losses by portfolio, with coverage of total loans at 1% at quarter end, and 1.28% when credit discount on acquired loans is included. Turning to capital, slide 18 highlights our regulatory ratios at quarter end. Our CET1 and total risk-based capital ratios declined modestly to 11.5% and 13.3%, respectively, down approximately 30 basis points from the prior quarter end as our regular dividend and increased buyback activity outpaced capital generation during the quarter. During the first quarter, we repurchased 6.5 million common shares, returning $200 million to our shareholders. As of March 31, our capital ratios remain comfortably above well-capitalized regulatory minimums and our long-term target ratios. We have excess capital of approximately $500 million, and $400 million remains in our current repurchase authorization. Tangible book value declined slightly to $19.03 from $19.11 as of December 31, reflecting a higher accumulated other comprehensive loss on our securities portfolio given interest rate changes between periods. We expect share repurchases to remain in the $150 million to $200 million range per quarter for our current authorization. Overall, we are very pleased with the financial results for the first quarter, driving a 1.3% ROAA and over 15% ROTCE. We feel well positioned to drive strong profitability through the remainder of 2026 as our balance sheet optimization activity and continued share repurchases enhance long-term value creation. With that, I will hand the call over to Tory. Torran B. Nixon: Thank you, Ivan. Our teams had another strong quarter of business generation, as new loan origination volume of $1.2 billion was up 38% from the year-ago quarter. As a result, Columbia’s commercial loan portfolio, inclusive of owner-occupied commercial real estate, increased 6% on an annualized basis, contributing to the continued remix of our loan portfolio toward higher return, relationship-based lending as transactional loan balances continue to decline. Although payoff and prepayment activity in the first quarter slowed relative to the fourth quarter’s elevated level, declining balances in the transactional portfolio contributed to slight overall loan portfolio contraction to $47.7 billion from $47.8 billion as of December 31. We continue to expect relatively stable net loan portfolio balances in 2026 as we optimize our balance sheet for sustainable profitability improvement. Turning to customer deposits, our team’s ability to generate new business and strong quarter-end inflows offset seasonal deposit pressure during the first quarter, resulting in a $110 million increase in customer balances as of March 31. Our small business and retail deposit campaigns continue to bolster our deposit generation, and our current campaign has generated nearly $450 million in new balances to Columbia through mid-April. Further, the HOA business we acquired from Pacific Premier provided a countercyclical benefit during the first quarter, as balances seasonally expanded, increasing nearly $160 million since year-end. Customer balance growth and the cash deployment Ivan discussed contributed to a $760 million reduction in brokered deposit balances as of quarter end, accounting for the decline in total deposits to $53.5 billion from $54.2 billion as of December 31. Although customer fee income decreased following our strong fourth quarter performance, our results highlight the notable progress we have made over the past year, driven by the addition of Pacific Premier and our continued efforts to expand the contribution of core fee income to total revenue. As Ivan discussed, operating noninterest income increased significantly between 2025 and 2026, with exceptional growth in financial services and trust revenue, treasury management, commercial card, merchant income, and other recurring customer fee business. Our core fee income pipeline remains healthy, as do our loan and deposit pipelines, and we remain outwardly focused on generating business in a disciplined manner. We will now hand the call back over to Clint. Clint E. Stein: Thanks, Tory. I want to take a moment to thank our team of talented associates for their hard work and contribution to our ninth consecutive quarter of solid financial performance and consistent results. Relationship-driven loan and deposit growth, and our balance sheet optimization efforts, are creating tangible earnings results, as evidenced by our net interest margin expansion over the past year. This concludes our prepared remarks. Chris, Tory, Ivan, and Frank are with me. We are happy to take your questions now. Didi, please open the call for Q&A. Operator: Thank you. To withdraw your question, please press 11 again. Our first question comes from Jon Arfstrom of RBC Capital Markets. Your line is open. Jon Arfstrom: Thanks. Good afternoon, everyone. This all looks good, but maybe on loans and margin: can you talk a little bit about the $1.2 billion-plus in originations—where that is coming from and general trends? It seems maybe a little better than a typical first quarter, but just give us an idea of what you are seeing there and what the drivers are. And then, Ivan, can you give us a little more on what you are thinking on the margin? It seems like the trajectory is higher—maybe a little better than you thought—but can you talk about medium-term expectations and also touch on what you are seeing in terms of deposit pricing competition? Torran B. Nixon: Sure, Jon. I would say it is quite a bit better than year-over-year Q1 2025. Of the $1.2 billion, the commercial space is about $1 billion, roughly 35% growth from Q1 2025. There has been a lot of progress made in the company in an outbound effort to deploy our resources to bring new relationships into the bank. We have been very successful. We watch pipelines all the time. It is not coming from one particular part of the company; it is spread throughout the organization. We are seeing growth in our historical Pacific Northwest markets, growth out of California, and nice growth in our de novo markets. It is spread throughout the company, and it is a combination of a significant effort on the part of our bankers to tell the story of Columbia Banking System, Inc., and it is a great story. We are having a lot of success with it. Ivan Seda: That sounds great. I will start on margin and then look to Chris to talk about what we are seeing in the marketplace regarding deposits. This quarter, we landed right at the top end of the range we provided last quarter. There are two counteracting effects we saw in Q1. The headwind in Q1—every year—is seasonality, in which we see deposit outflows and a heavier reliance on wholesale funding channels. While our ending wholesale funding point-to-point was down, on average we had about a 7% increase in average reliance on brokered and FHLB relative to Q4. What counteracted that and allowed us to stay stable relative to past years is the tailwind from continued optimization of the balance sheet and specifically the loan portfolio: repricing of low-coupon, low-duration transactional loans. In Q1, we saw an additional $230 million of that portfolio run down. Those balances are coming off in the low- to mid-4% range, and we continue to replace them with core relationship lending with a six handle. That is a very positive, continued engine we expect to continue. Ninety days ago, I hedged and said sometime in the spring or summer we would cross over the 4% level. We will be roughly at that 4% marker in Q2 of this year, and then continue to step up from there and move north of 4% into the second half of the year. From a deposit perspective, there was a bit of noise in Q4 associated with some one-time tail-event items with the PPBI deal on acquired deposits. Adjusting for that, our Q4 cost of interest-bearing was 2.20%. For Q1, it was 2.04%—so 16 basis points down spot-to-spot, and we saw an additional eight basis point decrease during the quarter without any Fed funds actions. That continues to point to the discipline we bring to back-book CD pricing, as well as evaluating deposits on a relationship basis. I was really pleased to see continued momentum there as well. I will hand it over to Chris. Christopher M. Merrywell: Thanks, Ivan. Jon, that disciplined approach Ivan outlined has always been there. Tory and I constantly look through exception requests and work with our bankers on each of them, monitoring the competition for rack rates. We like where we are positioned and continue to look for opportunities to trim a few basis points where we can. Our bankers have really grabbed hold of that and are moving forward. If we do get a Fed cut later in the year, we have shown a solid playbook and a system to deal with that at large volume. Tory and I are looking at this every single day as items come due. I think the results are speaking for themselves. Jon Arfstrom: Okay. Alright. Thank you very much, guys. Operator: Thank you. Our next question comes from David Pipkin Feaster of Raymond James. Your line is open. Clint E. Stein: Hey, David. David Pipkin Feaster: I wanted to start by following up on Pacific Premier. It sounds like the deal has gone pretty well so far, but specifically on the conversion and integration: how did that go relative to expectations? How was feedback from clients? Have you seen any attrition? And post-conversion, how is the team doing, and has their go-to-market focus shifted now that we are integrated and heading in the right direction? And then on hiring, how active have you been, your appetite for additional hires, and what geographies or segments are you looking to add to or business lines to expand? Lastly, on capital, with proposed regulatory relief, especially treatment of MSRs, have you done work around what that could mean for you? Does that change capital priorities, or are buybacks still the focus? Clint E. Stein: Great questions, David. I have said since the first set of town halls a year ago with the team at Pacific Premier that their reaction was different. The enthusiasm they showed for the combination and becoming part of Columbia Banking System, Inc. and our market position throughout the West carried through all the way to the systems conversion. It went so smoothly that I almost forgot we did a conversion in the first quarter because there was no drama typically associated with it—no customer disruption. Out of all the ones we have done, it was the best we have ever had. That is attributed to the talent at Columbia and the talent and experience Pacific Premier brought to the table as well. Since the January conversion, it has been business as usual. If anybody thought we got distracted, look at our performance during what is typically our seasonally weakest quarter—the momentum we had on the C&I side and actually growing customer deposits during the first quarter. Chris and Tory live this every day, so I will let them add color at the customer level. Torran B. Nixon: I am incredibly impressed and proud of the Pacific Premier folks and how excited they have been from day one to be a part of Columbia. The conversion went extraordinarily well. We have a ton of momentum in Southern California. Teams have folded in to become one very unified, strong presence. We have not really lost anyone of note from an associate standpoint—high retention of people and very high retention of customers. We continue to find opportunity in the existing Pacific Premier book to grow relationships. Momentum is very strong and they feel very good about being part of our company and the opportunity in front of them. Christopher M. Merrywell: On client feedback, during the conversion people could leave comments after using the contact center. We had numerous comments raving about the conversion—many had been through others and said this was the best and that they loved the bank. There were so many that I joked with the contact center about planting them, but they were real customers and it was phenomenal. Happy customers lead to happy bankers. With capabilities from both organizations together, our bankers are taking advantage of that, and we are starting to see bankers in our markets reaching out, asking what it is like and whether they can come on board. On hiring, we are always active. You never know when the best bankers will decide to make a move, so we always have oars in the water and are ready. If it is the right bankers and they can bring value, we will create a position. We are looking at expanding our wealth management operation, building out Southern California with trust folks, financial advisers, private bankers, and focusing on health care as well. Torran B. Nixon: Over the last six months, we have hired commercial bankers in Scottsdale, Denver, three or four in Utah, Eastern Washington, Seattle, Portland, Los Angeles, and Orange County. Bankers in the marketplace really appreciate and understand the Columbia story and our success, and they want to be a part of it. We are bringing them in and putting them to work, hitting the ground running. It is spread across business lines and geographies. Clint E. Stein: On capital priorities, the short answer is no change. We still firmly believe the best investment we can make is in our own company stock. We announced a big buyback last fall and we are almost halfway through that allotment. We are very serious about executing on the full amount. Ivan can address MSR treatment and the capital ratio implications. Ivan Seda: Like everyone else, we are still evaluating and putting a finer point on the exact impacts of the proposed rulemaking, and it is still in a comment period. What is clear is meaningful capital benefit under the proposed rules. Our back-of-the-napkin analysis on the NPR shows a potential benefit of up to roughly 100 basis points of CET1, which would provide interesting optionality going forward. More work to be done to fully unpack that. Operator: Thank you. Our next question comes from Jeffrey Allen Rulis of D.A. Davidson. Your line is open. Jeffrey Allen Rulis: Maybe for Frank on the credit side, could you provide more color on the nonaccrual adds and some of the net charge-offs within the ag book? And is this systemic or isolated? Also, any linkage between the nonaccrual and charge-offs? Frank Namdar: It was really centered in one customer relationship—a casualty of what is going on in the ag industry right now with input costs being extremely high and margins extremely tight. Those with higher leverage have a more difficult time. Inevitably there will be a casualty, and this is one of them. It is not systemic. This particular one was in the hop industry. Hops and grapes—beer, wine, spirits—are going through what I would call a generational shift in demand, and that compounded what was going on in this situation. The nonaccrual and the charge-off are interrelated. Jeffrey Allen Rulis: Thank you. And on loan growth, you guided to flattish balances for the year as transactional runs off versus core growth. Is that straight-line over the year? And thinking about 2027, could the back half of 2026 see an uptick, and could 2027 get back to low single-digit growth? Ivan Seda: Any given quarter, we could see some movement up or down. This quarter, we had about a $100 million reduction. Our general expectation for the next three or four quarters is relatively flat. In the last two quarters, we have seen almost $500 million of the transactional portfolio run down. We are actively replacing that with strong growth in C&I and owner-occupied real estate portfolios. Throughout 2026, we are expecting roughly flat overall. Torran B. Nixon: On pipeline, our combined commercial pipeline as of the end of March was about $3.3 billion, up about $600 million from year-end, even with the production we had in the quarter. It is up about 50% from a year ago. Lots of activity and good momentum. We feel very optimistic about generating C&I loan growth, owner-occupied loan growth, and relationship growth. As momentum picks up, 2027 should be a good year for us. Ivan Seda: Over the course of a year, out of that transactional book, we are expecting $1.0 billion to $1.25 billion to run down. For us to stay flat, it requires 4% to 5% loan growth out of the core relationship portfolio. That is very real in terms of the core loan growth we are seeing just to stay even on total portfolio size. Operator: Thank you. Our next question comes from Matthew Timothy Clark of Piper Sandler. Your line is open. Matthew Timothy Clark: A few cleanup credit questions. The uptick in 30–89 days past due—small in percentage terms—what drove that? Where did Finpack delinquency stand at quarter-end versus the fourth quarter? And classified balances this quarter versus year-end? And then on expenses, you maintained the adjusted expense run-rate guide of $335 million to $345 million for Q2 ex-CDI. With additional cost saves from PPBI, how should we think about core expenses for the year given Q1 tracked below? Frank Namdar: On the 31–89 day delinquencies, the uptick was centered in one commercial real estate loan that is in the process of being paid off. That accounted for the entire difference between fourth quarter and first quarter. Finpack is exactly where we thought they would be. Delinquencies and charge-offs are down from the fourth quarter. Looking forward, they have been bouncing along the bottom in terms of charge-offs at about a 3.4% to 3.45% net charge-off clip, which is a great number for that business. Nonperforming levels at quarter-end are where we expected; next quarter could be pretty close, maybe a little higher, but we will see. As mentioned on previous calls, about 80% of nonaccruals typically roll to net charge-offs. Classifieds held pretty flat quarter over quarter. Special mention improved significantly due to favorable resolutions and a couple of payoffs. Ivan Seda: On expenses, Q1 came in lower than planned. There are always a few smaller one-off items—business-as-usual—which amounted to $1 million or $2 million of benefit. Strategically, strong execution on synergies happened a little earlier than anticipated and was a meaningful factor. We also have investments you will see in future quarters—bankers across the footprint and expansion in markets like Colorado, Utah, and Nevada, as well as in our legacy markets. There is reinvestment happening over the next two quarters. All that said, we expect to come within the $1.5 billion full-year expense guide due to continued expense discipline as we execute on those items. Operator: Thank you. Our next question comes from Christopher Edward McGratty of KBW. Your line is open. Christopher Edward McGratty: Going back to Matt’s question on expenses: ex-CDI, $335 million to $345 million in Q2—do you stay in that range in Q3, or can you get below that once everything is fully in the run-rate? And then on capital, you do not have an official public target on CET1, but how important is the TCE ratio, and how do you balance the right levels as you consider buybacks after this authorization? Ivan Seda: We will come in below that range in the second half of the year. In Q3 and Q4, as we execute the remaining synergies, it is in the ballpark of $330 million to potentially $335 million. We are at $102 million executed out of the $127 million fully identified synergies. There is no question mark around timing, impact, or sizing of the remaining cost synergies—they are fully documented. That will start to flow through in Q3 and you will see a step-down into that range in the second half. Clint E. Stein: From a TCE standpoint, we want to be in the neighborhood of 8%. The reason is it gives us flexibility and comfort. Historically, when we back out current AOCI impacts of bond portfolios, 8% for our balance sheet ties to roughly 12% total risk-based capital, and that continues to be our binding constraint in terms of capital deployment. Christopher Edward McGratty: Two housekeeping items: tax rate to use, and on the ag loan that drove charge-offs and nonaccruals—has that been fully addressed provision-wise? Ivan Seda: Same as last quarter, use a 25% all-in effective tax rate. On the ag relationship, yes—we feel very comfortable with the level of allowance we have at 1%. Our process factors in a baseline economic scenario and incorporates elements of an S2 downside scenario. We have 100 basis points of loss content—over three and a half years of charge-off content on a run-rate basis relative to the last few quarters—and an additional 28 basis points of coverage from the credit discounts on the acquired portfolio. Fully contemplated. Operator: Thank you. Our next question comes from an Analyst of Jefferies. Your line is open. Analyst: On the deposit outlook, you had good success with roughly $450 million in new deposits from your recent small business and retail campaign. Do you have similar campaigns planned for spring or summer to continue the deposit momentum? And on noninterest-bearing deposits, period-end was up modestly sequentially while averages were down a bit. With fewer cuts in the forward curve, to what extent could that be a headwind on noninterest-bearing deposit growth? Christopher M. Merrywell: The current campaign will end in the next two weeks. We always take a brief break for cleanup and client follow-up, then relaunch. We will relaunch in June and then have another that goes into the fall—typically three per year. There are no special products or special pricing—this is all off-the-shelf. It is really a campaign around focusing our retail branches on going out and deepening and winning business. Ivan Seda: I do not think we will see a big headwind in terms of noninterest-bearing deposit growth relative to 90 or 180 days ago when we expected two rate cuts. It has been a competitive market since March 2023 and will continue to be. Our relationship-based strategies on the commercial side and the retail campaigns should continue to drive positive growth in the core deposit portfolio. More broadly, our balance sheet is positioned for interest rate neutrality by design. Whether we get one cut late in the year or not does not move the needle as much as our execution against strategy. Operator: Thank you. Our next question comes from Janet Lee of TD Cowen. Your line is open. Janet Lee: For the second quarter, on NII, can we assume flattish average earning assets and, with NIM getting to about 4%, roughly $605 million of NII for Q2? And on slide 12, you noted NIM outside of the two one-off impacts in Q4 was fairly stable. If you strip out the entire PAA on a core basis, how has that trended, and any change in PAA forecast? Ivan Seda: You are thinking about it correctly on NII given flattish average earning assets and the NIM crossover to 4% during Q2. Regarding PAA, we view the discount accretion on acquired loans, as well as on regular bond purchases, to be core. In unique circumstances, like in Q4 when a large credit with a large mark pays off early, there can be short-term volatility. We do not break out PAA separately. Operator: Thank you. Our next question comes from Anthony Elian of JPMorgan. Your line is open. Anthony Elian: You saw deposits contract in Q1 as expected. Can you give us some color on what you expect for Q2 deposits and the magnitude of the headwind from tax payments in April? And on slide 17, does the 1% ACL feel like a good level given your expectation for stable loan balances for the rest of this year? Ivan Seda: Generally, deposit contraction begins in the latter part of Q4 as we enter the holiday season—we disclosed that last quarter. That Q4 contraction resulted in about $500 million of FHLB draws in the latter days of December. As we go through tax season in April, we typically reach a low point in mid-to-late April and then rebound through May and June—so Q2 is often a bit of a V pattern. Q3 tends to be strong; Q4 reflects the usual holiday seasonality again. On the ACL, we feel very comfortable with 1% on loans, and when you include the credit discount on the acquired components, we are at almost 1.3%. We have reviewed it thoroughly and feel well reserved for the portfolio’s risk and the macroeconomic outlook. Operator: Thank you. Our next question comes from an Analyst of UBS. Your line is open. Analyst: Turning back to loan growth, payoffs in the traditional relationship-oriented portfolio still seem relatively elevated. Looking conceptually into 2027, do you need to see these payoffs moderate to start producing loan growth, or is production volume on its own able to push balances higher without payoff moderation? And do you have the retention rate on transactional loans that came due this quarter and stayed on balance sheet? Torran B. Nixon: Payoffs and paydowns in the commercial book are about where they would normally land. We had C&I production that far exceeded that, so we posted nice C&I growth this quarter. We feel really good about the pipeline and C&I growth in Q2 and beyond through 2026. On real estate, much of the payoffs are transactional loans we are letting roll off because they are not going to be full relationships. Where we can bring in deposits and core operating accounts and make them relationships, we are doing that. As we get into 2027 and 2028, you will likely see less transactional runoff and continued production-driven growth. Ivan Seda: We remain laser-focused on the transactional portfolio. As disclosed on slide 24, we have nearly $3 billion of transactional loans priced in the mid-4% range that will either mature or reprice over the next twelve months, and that volume slows meaningfully by mid-2027. That creates potential for elevated prepayments as those loans come back to the market at markedly different rates. Whether or not we fully replace 100% of that volume, we are confident in our ability to drive positive operating leverage and top-line revenue growth. As Clint mentioned earlier, we do not need net loan or balance sheet growth to drive positive operating leverage. Plan A is to replace with relationship-based volume. If we do not fully replace it, we have opportunity to continue optimizing our funding stack, which is also accretive to NIM. Torran B. Nixon: We do not have the precise retention number in front of us. With rates elevated, we are having a lot of success retaining loans that are moving from fixed to floating at a reprice, which is positive for the bank, and we are generating deposits and operating accounts from those transactional loans—turning them into full relationship customers. Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Jacquelynne Bohlen for closing remarks. Jacquelynne Bohlen: Thank you, Didi. Thank you for joining this afternoon’s call. Please contact me if you have any questions or would like to schedule a follow-up discussion with members of management. Have a good rest of the day. Operator: This concludes today’s conference call. Thank you for participating and you may now disconnect.
Operator: Hello and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the SES AI Corporation First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Kyle Pilkington. Kyle, please go ahead. Kyle Pilkington: Hello, everyone, and welcome to our conference call covering our first quarter 2026 results. Joining me today are Qichao Hu, Founder and Chief Executive Officer, and Jing Nealis, Chief Financial Officer. We issued our shareholder letter just after 4 PM today, which provides a business update as well as our financial results. You will find a press release with a link to our shareholder letter in today’s conference call webcast in the Investor Relations section of our website at scs.ai. Before we get started, this is a reminder that the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. These statements are based on our predictions and expectations as of today. Such statements involve certain risks, assumptions, and uncertainties, which may cause our actual or future results and performance to be materially different from those expressed or implied in these statements. Risks and uncertainties that could cause our results to differ materially from our current expectations include, but are not limited to, those detailed in our latest earnings release and in our SEC filings. On this call, we will discuss non-GAAP financial measures as a supplement to our GAAP results. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate alternative measures of the company’s operating performance that may be useful. These non-GAAP measures should not be considered in isolation or as a substitute for any GAAP measure; our definitions may differ from those used by other companies reporting similarly titled measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our latest earnings release. With that, I will pass it over to Qichao Hu. Qichao Hu: Thanks, Kyle. Thanks, everyone, for joining today. We had a strong start for 2026. The first quarter revenue came in at $6.7 million, a 47% increase over the fourth quarter and well above published consensus estimates. We are reaffirming our full-year 2026 revenue guidance of $30 million to $35 million, with contributions expected from all three of our revenue-generating business units. We are executing on plan, and we like the momentum we have heading into the rest of the year. Before I get into the business update, I want to take a moment to acknowledge Jing Nealis, who is on this call with us today. As we announced today, Jing will be transitioning from her role as Chief Financial Officer effective April 27. On behalf of the entire team and our board, I want to thank her for her contributions and wish her well. We have appointed Ray Liu as our new CFO, effective April 27. Ray is a seasoned finance executive with over 20 years of experience in FP&A, strategic finance, and SEC reporting at companies including AIG and MetLife Investment Management. He is a CFA charterholder and CPA. We are confident he will be an excellent partner as we scale the business. More details on this transition are in the separate press release we issued today. Now let me walk through each of our business units. Starting with energy storage systems. ESS remains our largest near-term revenue driver and was responsible for the majority of our first quarter revenue through UZ Energy. We continue to see growing demand for our commercial and industrial energy storage solutions, and our global footprint has expanded. Earlier this month, we provided a business update that highlighted our strong start to the year. Today, I want to add some additional context on the commercial traction we are seeing. We have now entered the North American market through our multiyear distribution agreement with ATGE Power, a leading North American distributor of renewable energy and energy storage solutions that has been operating in the clean energy sector since 2001. This contract, valued at approximately $20 million over three years, gives us immediate access to ATGE Power’s established distribution network across residential, commercial, and industrial customer segments. This new contract builds on UZ Energy’s existing customer base in Australia, the Middle East, and Europe, and reflects our strategy to grow the ESS business both geographically and through the on-premise integration of our Molecular Universe predictive capabilities into the hardware offering, an Edgebox. Energy storage systems are financial assets for our customers. The value depends on delivering consistent, long-term performance. Our ability to provide both the hardware and an intelligent operating system that predicts battery health and reduces maintenance cost is a key differentiator. Turning to drones. We made progress in our drone cell business during the first quarter that I want to walk through. I am pleased to report that we have completed the conversion of our manufacturing line at our Jeongju, South Korea facility from EV pouch cells to drone-format power cells. This facility, which produced the world’s first 100 m-power lithium metal cell back in 2021, has been NDA-compliant since 2021. Our plans are for the converted line to gradually ramp up to an annual capacity of over 1 million drone cells and incorporate our AI for manufacturing capabilities to ensure quality and cost effectiveness. Early this month, we began shipping NDA-compliant cells produced in our Chengdu factory to prospective defense and commercial drone customers for evaluation and qualification testing. Customer interest has been strong, and we are encouraged by the engagement we are seeing. The U.S. defense drone market in particular continues to be where we see the most consequential near-term opportunity, and our NDA-compliant manufacturing capability in Korea positions us well relative to competitors who lack NDA-compliant supply chains. We continue to explore additional NDA-compliant capacity in Southeast Asia and expect to have an update on this front later this year. On materials, our pipeline continues to build. Through the Molecular Universe platform, both SES AI Corporation and our customers have been discovering new electrolyte materials for applications beyond our current cell production. We now have approximately half a dozen customers who have progressed through second-phase testing of materials discovered through the platform, and the overall number of customers in our pipeline has increased. The progression of existing customers through the testing pipeline represents positive momentum. We remain on track with the Hyzon joint venture to leverage their 150 thousand-ton annual global capacity to produce these materials at commercial scale as demand materializes. And on the Molecular Universe, we recently introduced version 2.5 of the platform, which represents our fifth major iteration since we launched in 2024. Version 2.5 delivers upgraded capabilities across our six AI-powered workflows—search, formulate, design, predict, and manufacture—along with expanded enterprise on-premise deployment options and covering both lithium and our sodium chemistries. During the quarter, a major global battery manufacturer committed to a multiyear subscription of our Molecular Universe Search-in-a-Box product, which we view as a validation of the platform’s value to the world’s leading battery companies. While the direct on-premise revenue from the Molecular Universe continues to build and is expected to make a modest direct contribution in 2026, its biggest impact remains the IT and competitive advantages it drives across our ESS, drone, and materials businesses. We will continue to explore how best to demonstrate and unlock the Molecular Universe value over the course of the year. As we look to the remainder of 2026, our priorities remain clear: execute on the ESS opportunity through UZ Energy and our growing distribution network, advance our drone cell business to a commercial-scale customer engagement, deliver on the materials pipeline, and continue developing the Molecular Universe as both a revenue stream and a competitive advantage. I want to thank the team for their continued execution and thank all of you for your continued interest in SES AI Corporation. And now here is Jing for the financial update. Jing Nealis: Thank you, Qichao. I will walk through our financial results for 2026. Given that our current three-business-unit structure took shape in 2025 with the integration of UZ Energy and the launch of our drone cells and materials initiatives, we will present our first quarter results on a sequential basis compared to 2025, which we believe provides the most meaningful view of our operating trajectory. Revenue for 2026 was $6.7 million, representing a 47% increase over the $4.6 million in 2025. As a reminder, 2025 was impacted by approximately $1.5 million of revenue that was pushed into the first quarter, which benefited Q1 results. Our revenue growth reflects the continued growth from UZ Energy’s ESS product revenue, and early contributions from our drone cells and Molecular Universe subscription revenue. We are reaffirming our full-year 2026 revenue guidance of $30 million to $35 million. Our Q1 gross margin on a GAAP basis was 18.1%, compared to 11.3% in 2025. On a non-GAAP basis, which excludes stock-based compensation, as well as depreciation and amortization allocated to cost of revenue, our Q1 non-GAAP gross margin was 18.3%, compared to 11.7% in 2025. The sequential improvement from Q4 2025 reflects margin improvements from the UZ ESS business and higher margin from sample sales and Molecular Universe subscription revenue. Turning to operating expenses. Our GAAP operating expenses for 2026 were $19.1 million compared to $18.2 million for 2025. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization, first quarter operating expenses were $14.3 million compared to $13.5 million for 2025. Our GAAP net loss for the first quarter was $12.1 million, a $0.04 loss per share, compared to a GAAP net loss of $17.0 million, or a $0.05 loss per share, in 2025. I want to remind everyone that our GAAP net loss in any given quarter can be meaningfully impacted by noncash mark-to-market movements in the fair value of our sponsor earn-out liabilities, which are required to be remeasured each reporting period under GAAP. In Q1 2026, we recorded a $4.2 million noncash gain related to these liabilities. These noncash gains or losses are not reflective of our underlying operating performance, and we believe excluding them provides a clearer picture of the progress we are making in the business. Excluding stock-based compensation, depreciation, and amortization, change in fair value of sponsor earn-out liabilities, and including interest income, our non-GAAP net loss for the first quarter was $11.1 million, or a $0.03 loss per share, compared to a non-GAAP net loss of $11.8 million, or a $0.04 loss per share, in 2025. Adjusted EBITDA for 2026 was a loss of $12.8 million compared to a loss of $13.8 million in 2025. We believe this continued progress reflects the positive operating leverage beginning to emerge in our business as revenue scales, combined with our sustained focus on financial discipline and cost management across the organization. We remain on track to deliver the approximately 15% reduction in full-year operating expenses that we guided on our last call. A detailed reconciliation of GAAP net loss to adjusted EBITDA and non-GAAP net loss per share is included in the financial tables at the end of the shareholder letter. We utilized approximately $20 million in cash for operations during the first quarter, consistent with our operating plan. We exited the first quarter with a strong liquidity position of approximately $178 million. Our CapEx-light business model remains a core financial discipline, and we are confident our current liquidity provides a strong runway to fund operations and execute on our 2026 growth initiatives. On a housekeeping note, we expect to file a new S-3 shelf registration statement concurrent with our October filing, as our current shelf expires on April 28. This is a routine administrative filing to maintain our financial flexibility. We believe the first quarter demonstrates steady execution against the plan we laid out. Revenue is on plan, costs are coming down, our multi–revenue stream platform is taking shape. We are well capitalized, financially disciplined, and positioned to deliver on our full-year outlook. Lastly, on a personal note, this is my last earnings call with SES AI Corporation. I am grateful for the opportunity to have helped build SES AI Corporation’s financial foundation during the past five transformative years of the company. SES AI Corporation is well positioned to capitalize on the momentum it has built, and I look forward to seeing the growth story unfold. Thank you to Qichao, my colleagues, our board, and our shareholders for the trust and support along the way. Thank you. With that, I will hand the call back to the operator. Operator: At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star 1 again. Your first question comes from the line of Derek Soderberg with Cantor Fitzgerald. Please go ahead. Derek Soderberg: Yeah, hey, everyone. Thanks for taking the questions. And, Jing, it has been a pleasure working with you on this one. So just on the evaluation and qualification tests, can you talk about the typical timeline? How long might it take to transition those into firm purchase orders? Qichao Hu: Hey, Derek. Are you referring to drones qualification or electrolyte? Which one? Derek Soderberg: Drones. Qichao Hu: Drones. Drones qualification typically takes one to two quarters, and then we started those last year. So most of the qualifications actually have been completed, and now it is just making those in our Korea facility and having the customers come in and then do the supply chain audit, making sure all the cathode powder, the anode powder, the processing actually take place in Korea. Derek Soderberg: Got it. That is helpful. And then on the on-premise solution, I think you said you are going to have some contribution this year. Is there any chance you can quantify that for us at all? Qichao Hu: Probably in the next quarter. Until this last quarter, we did have one of the largest battery companies that actually signed up to the Molecular Universe Search-in-a-Box—so only one of the six features—and then we have a few more in the pipeline that are interested in Formulate-in-a-Box, Predict-in-a-Box, and also other features of the tool. Derek Soderberg: Got it. And then one final one for me. On the drones again, what is the split between defense and commercial interest? Can you maybe break that out for us at all? Thanks. Qichao Hu: It is mostly defense. Even though almost all the customers come to us and will say it is dual use—like, the same drones could be used for defense, police, commercial—in reality, the customers that come in, we focus a lot on customers that want NDA compliance, and then only the customers that actually want to get defense contracts would really push for NDA compliance. So we do not have a specific breakdown between defense and non-defense, and the customers do not tell us that, but we know it is predominantly defense. Derek Soderberg: Perfect. Thanks. Qichao Hu: Thanks. Operator: Your next question comes from the line of Winnie Dong with Deutsche Bank. Please go ahead. Winnie Dong: Hi. Thanks so much for taking my question. And, Jing, thank you so much. I mean, it was a great pleasure working with you. My first question is on the multiyear distribution agreement with ATGE Power. I was wondering if you can help us understand the relationship—if this is like a wholesale relationship—and of the $20 million order over three years, what kind of shipment cadence should we be thinking about? Qichao Hu: It is similar to what I just mentioned. It is a wholesale distribution, and then they help us bundle the UZ products with solar and then distribute that to their customers. Winnie Dong: Got it. So, essentially, once you ship it to them, you would be able to book revenue. That is how the setup is. Qichao Hu: In terms of revenue recognition, the timing—Jing, is that correct? Jing Nealis: Yes. So it is based on shipment. Yes. Once we ship it, based on the Incoterm, we will be able to recognize the product revenue. That is correct. Winnie Dong: Gotcha. Okay. And then on UZ, you know, you have achieved close to $7 million, and I think somewhere spilled over from Q4. What is the typical seasonality of this business? I understand that maybe it can be a little difficult since you are spreading across all different regions, but, holistically, is there a seasonality that we should be looking at for this business? Qichao Hu: Maybe I can address. I think overall, the energy storage business globally has some sort of seasonality depending on the region, and Q2, Q3 usually are higher than Q4. But it also depends on the local incentives available. Like, in Australia, everybody is trying to secure something to be installed before the incentives go away. And, in Europe, there are a lot of incentives going on before they go away. So there are certainly seasons based on the region. However, because UZ sells to many regions globally, it is not tied to a particular place. So I think for this year, at least, we see growth quarter over quarter, with some seasonality, but I would not put a lot of emphasis on that. Q2, Q3 are probably higher. Winnie Dong: Got it. And then maybe just a follow-up. I guess within the $30 million to $35 million, what is baked in in terms of contribution from materials and some of the other efforts that you guys have in place? Qichao Hu: What is the breakdown? Yeah. I think we expect this year to come predominantly from ESS, and then the rest split between drones and materials. Winnie Dong: Got it. Thank you. Operator: Your next question comes from the line of Dave Storms with Stonegate. Please go ahead. Dave Storms: Good evening, and thank you for taking my questions. I wanted to start maybe with ESS and your mention of the hardware offering Edgebox. Just hoping you could maybe take a little time to speak about how that plays into the sales cycle—maybe what some of the benefits are—or any updates. Qichao Hu: Can you ask the last part of the question again—the sales cycle and then the part after that? Dave Storms: Yeah, just maybe some of the benefits of adding Edgebox to your offerings, and how it may be helping the sales cycle. Qichao Hu: Yeah. So the hardware is pretty competitive, and it is basically you purchase cells, you integrate those into a container. And in the industry, the accuracy error is typically 7% or even as high as 10%, so not so accurate. As a result of that, for example, if your project only needs 10 kilowatt-hours, you will buy 14 kilowatt-hours to allow for the error. By having this Edgebox, it does two things. One is it can very accurately tell the state of charge, the state of health, safety, energy, power—basically, what we call SOX—there are six of them—and it can give a really accurate estimation of that. So instead of the error being 7% to 10%, now we are talking about 3% or even less. And then the other benefit is that instead of on the cloud, which a lot of customers do not like, it is totally secure. It is in a box we actually put on premise. So you also have data security. The main benefit is that now, instead of buying more capacity to allow for the inaccurate estimation, you can buy less. The customers can save cost. For some of the customers that want to participate in virtual power plants—basically, electricity trading and then sell electricity back to the grid—because you have a more accurate estimation than your peers, you can bid at a more competitive price. Also, when you make the decision of whether or not to participate and that trade-off versus sacrificing the battery health, you can have a more accurate estimation of that trade-off. Dave Storms: Understood. Very helpful. Thank you. And then maybe just turning to materials. It was mentioned that there are several companies completing their second phase. Maybe just thoughts around timing through this next step, this third phase, as they advance towards commercial-scale supply discussions. Qichao Hu: Typically, it is two to three rounds of testing, each round about one quarter. We are talking about six to nine months of testing. Towards the end of the last round of testing, the customer will go through what is called commercial qualification. Basically, they will check for the plant and also check for all the toxicity, the special chemical permits needed for any special materials inside this formulation, and then make sure it is compliant to all the necessary local environmental toxicity chemical regulations. Overall, the testing is six to nine months, and then another quarter for the commercial qualification. But, again, we started a lot of this last year, so now with a lot of these customers, we are towards the end of the second round of qualification. Dave Storms: Understood. And maybe just one more quick modeling one for me. You reiterated a 15% expense reduction throughout the year. Should we expect that to kind of go on a linear glide path throughout the year? Maybe just any thoughts around the cadence of those expense reductions? Jing Nealis: I will take that. So we are taking a lot of actions to further reduce our operating expenses starting from Q1. You should be able to see the full-quarter impact starting from Q3. There will be a little bit of a reduction in Q2, but not a full quarter. But starting Q3, the full-quarter impact should be coming in. Dave Storms: Understood. Thank you for all the commentary. Jing Nealis: Then Q4 may be slightly lower than Q3. Dave Storms: Thank you. Operator: Your next question comes from the line of Sean Milligan with Needham. Please go ahead. Sean Milligan: Hey. Thank you for taking the questions. In terms of the 1 million units that you are targeting for the drone cell business, can you talk to what that potentially represents from a revenue standpoint? And then the second question is you have mentioned that you have been testing or qualifying cells with potential customers there. Is there any context you can give us on the pipeline and maybe sizing of initial orders that you would expect to see? Qichao Hu: Sure. So the 1 million is still not the full capacity that the Korea factory could go up to—much higher. All that investment we made for EV, and then it turned out we accidentally built one of the largest drone power cell manufacturing factories outside of China. So we have a lot of customers that want NDA-compliant cells come to us. The market price for NDA-compliant cells—obviously depending on the specific cell format—ranges between $25 to $35 as the market price. So for 1 million units, it is about $25 million to $35 million. That is just at 1 million, and then we could, again, go much higher if needed. In terms of the qualification process, again, we started most of the testing last year. The performance and the product testing have been completed. Now a lot of that is actually supply chain audit and qualification. Sean Milligan: Okay. Is there any way to talk about the pipeline—like, number of customers that you are testing with? If you look at the revenue guidance this year, I think you said some of that comes from the drone business, but it obviously could be a much bigger piece of business. I am just trying to understand how the pipeline looks—number of customers—any stats that can help us gain some sense of potential momentum. Qichao Hu: We have a pipeline of a few dozen customers. Again, we focus on customers that want NDA-compliant cells. We actually had some shipment recently, so we expect revenue in Q2 for the NDA-compliant cells and then to start to pick up in Q3 and then Q4. Really, next year, 2027, is going to be a full year when we actually have the ability to deliver a full year of these NDA-compliant cells. Sean Milligan: Great. Thank you. Operator: There appear to be no further questions at this time. Ladies and gentlemen, this concludes the SES AI Corporation First Quarter 2026 Earnings Call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to Associated Banc-Corp's First Quarter 2026 Earnings Conference Call. My name is Kevin, and I'll be your operator today. [Operator Instructions] A copy of the slides that will be referred to during today's call are available on the company's website at investor.associatedbank.com. As a reminder, this conference call is being recorded. As outlined on Slide 2, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated actual results could differ materially from the results anticipated or projected in any such forward-looking statements. Additional detailed information concerning the important factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website and in the Risk Factors section of Associated's most recent Form 10-K and subsequent SEC filings. These factors are incorporated herein by reference. For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to Pages 28 and 29 of the slide presentation and to Page 9 of the press release financial tables. Following today's presentation, instructions will be given for the question-and-answer session. At this time, I'd like to turn the conference over to Andy Harmening, President and CEO, for opening remarks. Please go ahead, sir. Andrew Harmening: Well, good afternoon, and thank you for joining our first quarter earnings call. I'm Andy Harmening, and I am once again joined by our Chief Financial Officer, Derek Meyer; and our Chief Credit Officer, Pat Ahern. I'll start off with some highlights from the quarter. And then from there, Derek will cover the income statement and capital trends, and Pat will provide an update on asset quality. We entered 2026 with strong momentum as a company following a pivotal 2025 that advanced our growth strategy in several important ways, with relationship loan and deposit growth, record customer growth, and solid credit performance, combining to drive the strongest annual net income in our company's history. In the first quarter of 2026, we remain squarely focused on maintaining momentum with our growth strategy, and our first quarter results reflect that trend. We posted annualized first quarter checking household growth of 2.2%, an encouraging result in what is typically a slower season for checking acquisition. We delivered over $500 million of period end C&I loan growth, a 4.6% increase point-to-point versus December 31. We've also made meaningful progress on our commitment to accelerate our growth momentum in the major metropolitan markets over the remainder of '26 and into '27. Year-to-date, we've made several key hires across our revenue lines of business, increased marketing acquisition spend, launched our new C&I office in Dallas and launched a new national franchise banking vertical. To further complement and accelerate our growth momentum, we announced the closing of our acquisition of American National Bank on April 1. Upon conversion, the combined company will feature a proven relationship-focused strategy, a dynamic product suite, a modern digital experience and effective marketing acquisition engine and expanded commercial capabilities, all positioning us to grow and deepen relationships in growth markets, such as Omaha and the Twin Cities. Colleagues from both organizations continue to work closely together to facilitate a smooth and successful integration. And we expect to complete the conversion process late in the third quarter of this year. We're excited about our growth prospects at Associated over the remainder of the year and beyond. But as always, our intention is to grow in a disciplined way. Recent events have introduced volatility at the macro level, but we feel well positioned to navigate this uncertainty, thanks to our disciplined approach to risk management, our enhanced profitability profile, a solid capital position and the resilience and stability of our Midwestern markets. We look forward to providing additional updates on Associated Banc's growth journey along the way. With that, I'd like to walk through our financial highlights for the quarter on Slide 4. We reported earnings of $0.70 per share in Q1. Total loans grew by over $600 million or 2% versus the prior quarter. The growth was driven primarily by commercial with C&I balances growing $540 million versus the prior quarter. On the funding side, total deposits grew by $179 million, while core customer deposits grew by over $800 million versus Q4. As is typical this time of the year, the quarterly increase was impacted by strong seasonal inflows and a handful of accounts in Q1 that flow back out in Q2. With that said, Q1 core customer deposits were up $1.3 billion or 4.5% relative to the same period a year ago. Moving to the income statement. Q1 net interest income of $307 million dipped slightly from the record quarterly NII we posted in Q4, but increased 7% relative to Q1 of 2025. Similarly, total noninterest income of $76 million decreased by $4 million from Q4 that saw strong capital markets activity, but was up meaningfully versus the same period last year. Total noninterest expense of $219 million decreased slightly from the prior quarter, delivering positive operating leverage remains a primary objective as we continue to execute our plan. Shifting to credit. Credit asset quality trends remained strong in Q1. Total criticized loans decreased. We booked $11 million of provision and saw just 7 basis points of annualized charge-offs for the quarter after posting 12 basis points of charge-offs in 2025. As I mentioned previously, we've seen strong growth momentum in the early part of 2026, and Slide 5 lays that picture out in greater detail. After several years of investments to modernize our digital experience, enhance our product set and improve our marketing and acquisition capabilities, we now have a proven ability to grow our customer base sustainably over time. In the first quarter, we posted annualized household growth of 2.2%. This number gives us a strong start to the year as we continue to focus on attracting and deepening customer relationships as a means to decrease our reliance on higher cost wholesale funding sources. We've also made significant investments to grow relationships and take market share on the commercial side with a steady cadence of leadership hires, RM hires and expansion capabilities. In Q1, we posted over $500 million in C&I loan growth, nearly a 5% quarterly growth rate. Pipelines have remained strong on both loans and deposits, and we expect our momentum to carry throughout the year. And as mentioned, we closed our acquisition of American National Bank on April 1. This partnership provides opportunities to deepen relationships with existing American National customers through our expanded product set and capabilities, while also providing growth opportunities in major metro markets like Omaha and Twin Cities, which are both growing faster than the average Midwest. The investments we've made in prior years are driving results in 2026, but we also expect to sustain and accelerate our growth strategy into '27 and beyond. With that in mind, we executed on several investments here early in 2026 that are intended to drive additional momentum. First, we've leveraged our best-in-class value proposition and a proven marketing acquisition and to accelerate customer growth. As a reflection of these efforts, our marketing acquisition spend was up 23% in Q1 versus the same period a year ago. As we continue to attract and deepen the relationships, we're building a stronger pipeline into our Private Wealth business particularly in major metropolitan markets where we're underpenetrated. To capitalize on these opportunities, we hired Lisa Buto earlier this month as Director of Private Banking for major metropolitan markets. Based in the Twin Cities, Lisa brings more than 25 years of expertise and she most recently served as Managing Director and Private Wealth Banking Manager at Wells Fargo, where she led client-facing banking and lending teams across 11 states. We've also taken several steps to drive incremental growth in commercial, adding another wave of talented bankers and expanding our capabilities. After launching a new C&I office in Kansas City last year and seeing promising results, we expanded the team in Q1 with one additional RM and 2 additional professionals. Based in part on the successful model we've developed in Kansas City, we also officially launched a new C&I office in Dallas. The commercial market leader has been hired, and we expect RM hires to begin in May. And earlier this week, we announced a new nationally focused franchise banking vertical, led by Shaun Coard based in the Twin Cities, Shaun brings more than 30 years of experience with deep expertise in scaling specialty banking platforms and building high-performing teams. Most recently, she led the National Franchise Banking division for Bremer Bank. We also brought on a new RM and 3 other professionals to round out Shaun's team. As we work to accelerate growth across the company, the successful integration of American National is a key priority to position our combined company for long-term growth and success. On Slide 6, we provide a reminder of the expected benefits of the partnership and an updated timeline of the integration process. And 3 weeks post close, we are on track. In the days immediately following the close on April 1, we had over 40 legacy associated colleagues on the ground in Omaha. We've completed culture surveys, repositioned their securities portfolio, completed the colleague decisioning process and achieved several other integration milestones. Along the way, we've been impressed by the passion, enthusiasm and cultural fit. Our new colleagues have shown within the combined organization and the professionalism they've exhibited as a navigate change. Maintaining a strong local leadership presence in our newest market is a top priority. And last week, we announced Jason Hanson as a business segment leader for Commercial Banking and our new market president for Nebraska and Western Iowa. Jason most recently served as President of American National Bank and he's uniquely qualified to position our combined company for a long-term growth and success in Omaha and beyond, having joined American National Bank in 2000. Looking ahead, colleagues from both organizations continue to work closely to ensure a smooth integration process, and we are on track for conversion of accounts, systems and branches in late Q3 of this year. We expect to finalize purchase accounting adjustments later this quarter. On Slide 7, we recap our plan to drive sustainable growth in 2026 and beyond, and it starts right here in Wisconsin. We have a 165-year foundation of long-standing loyal relationships in the Badger State that provide us with strong funding base for growth. Looking forward, we see plenty of opportunities to grow and deepen relationships across the state. But we also see clear opportunities to accelerate our growth momentum with an expanded presence in major metro markets. We're already seeing the strategy pay off in legacy Upper Midwest metros like Milwaukee, Chicago and the Twin Cities, where we're growing households and driving relationship loan and deposit growth. We're seeing similar success stories emerge in newer markets like Kansas City, where we've already expanded a commercial team that launched just a year ago. And already in 2026, we're further expanding our presence in the strategic growth markets. through the American National deal, which provides entry into Omaha and deepens our presence in the Twin Cities and through the new C&I office we launched in Dallas. Based on the strong results we've seen through the first quarter, and the additional investments we've made in early 2026, we're on track to achieving our targets for household growth and C&I loan growth in 2026, and we expect our ongoing efforts to drive growth momentum sustainably over time. Shifting to our core financial results. We highlight our quarterly loan trends on Slide 8. We saw strong loan growth in Q1, particularly in the back half of the quarter, with total period-end loans up 2% or $635 million relative to Q4. As has been the case in the past several quarters, C&I loans led the way with nearly $540 million of period-end loan growth during the quarter. We also saw total CRE balances increased by $143 million as loan production outpaced lower-than-expected payoffs during the quarter. We continue to expect payoffs to materialize throughout the year. After including the impact of American National acquisition, we now expect 2026 period-end loan growth of 17% to 19% as compared to Associated stand-alone results for the year ended December 31, 2025. Shifting to Slide 9. Period-end deposits grew by $179 million during Q1, while core customer deposits grew by 3% or $820 million. As mentioned, the strength in some core customer balance flow was impacted by seasonal inflows we typically see towards the end of the quarter in a handful of accounts. With that said, Q1 core customer deposits were up 4.5% relative to the same period a year ago over the course of the quarter. We also saw balances shift away from brokered CDs and network transaction deposits and into customer deposits and wholesale sources, such as FHLB and other wholesale. We also accelerated our funding in Q1 to keep pace with strong loan growth we saw during the quarter. Over the remainder of 2026, we're bullish on our ability to drive incremental core customer deposit growth, thanks to the best-in-class consumer value proposition, household growth momentum supported by increased marketing acquisition spend in growth markets and significant momentum in our commercial deposit gathering capabilities. After including the impact of American National acquisition, we now expect 2026 period end total deposit growth of 17% to 19%, and period end customer deposit growth of 19% to 21% as compared to associated stand-alone results for the year ended December 31, 2025. With that, I'll pass it over to Derek to discuss our income statement and capital trends. Derek Meyer: Thanks, Andy. I'll start with yield trends on Slide 10. In Q1, the yields on our largely floating rate CRE and commercial books both decreased by 29 basis points during the quarter. We also saw an 11 basis point decrease in auto yields, but slight increases in the investment portfolio on resi mortgage. Total interest-bearing deposit costs decreased by 17 basis points in Q1 and were down 47 basis points since Q1 of last year. In Q1, total earning asset yields decreased 14 basis points to 5.2%, while interest-bearing liabilities decreased 15 basis points to 2.67%. The benefit in net free funds compressed by 5 basis points. Moving to Slide 11. I First quarter net interest income of $307 million decreased $3 million versus the prior quarter and increased $21 million versus Q1 of 2025. As Andy mentioned, the timing of our strong loan growth during the quarter outpaced the natural run rate of our deposit battery. As such, we accelerated our funding to match, which put some short-term downward pressure on both NII and margin. With this in mind, our net interest margin decreased 3 basis points to 3.03% for the quarter as compared to the same period a year ago, our NIM increased 6 basis points. Looking ahead, we continue to assess the balance sheet and income statement impacts from the acquisition of the American National Bank that closed at the beginning of the month. As it stands today, balances are generally in line with our due diligence assumptions. We expect to share an income growth of 8% to 10% in 2026 as compared to associated stand-alone results for the year ended December 31, 2025. Moving to Slide 15. Total noninterest expense came in at $219 million in Q1, slightly lower versus the prior quarter. During the quarter, we saw slight increases in FDIC assessment technology, legal and professional fees, offset by quarterly decreases in business development, equipment and other expenses. In Q1, our adjusted efficiency ratio increased slightly from 55.2% to 55.8%. Throughout the year, we continue to invest in the growth of our franchise, but we're anchored on delivering positive operating leverage. We expect to share an updated noninterest expense outlook for the next quarter following the finalization of purchase accounting adjustments tied to the acquisition of American National. On Slide 16, our CET1 ratio finished at 10.47% in Q1. This figure was up 36 basis points from Q1 of 2025, but decreased slightly quarter-over-quarter due in part to the strong loan growth we saw in the quarter. Our TCE ratio also decreased slightly from the prior quarter to 8.27%, down 2 basis points versus Q4, but up 31 basis points versus Q1 of 2025. We've continued to see our tangible book value per share expand on a quarterly basis with Q1 finishing at $22.23, up nearly $2 versus Q1 versus last year. I'll now hand it over to our Chief Credit Officer, Pat Ahern, to provide an update on asset quality. Patrick Ahern: Thanks, Derek. I'll start with an allowance update on Slide 17. Our CECL forward-looking assumptions utilized the Moody's February 2026 baseline forecast. The forecast remains consistent with a resilient economy containing a more optimistic GDP outlook despite the higher interest rate environment, higher levels of inflation and tariff negotiations. The Moody's forecast now contains less total rate cuts in the latter half of 2026 compared to prior quarter forecast. In Q1, our ACLL increased by $6 million to $425 million. The increase was primarily driven by commercial and business lending and CRE construction, which largely stemmed from a combination of loan growth, plus normal movement within risk rating categories. Our ACL ratio as a percentage of total loans has remained stable for the past several quarters. Here in Q1, the ratio decreased 1 basis point to 1.34%. On Slide 18, we continue to review our portfolios closely, amidst ongoing macro uncertainty, but we continue to see solid performance in Q1. Total delinquencies increased versus the prior quarter to $88 million with $43 million of the increase being driven by 2 managed credits, in which an extension process carried into Q2. We remain comfortable with benign delinquency trends we've seen over the past several quarters. Total criticized loans decreased by $29 million versus the prior quarter with decreases in the special mention and substandard accruing categories being partially offset by an increase in nonaccrual loans. Nonaccrual balances increased to $111 million in Q1, up $10 million versus Q4, but down $24 million from the same period a year ago. We remain confident there hasn't been a material shift in the credit profile of the portfolio that would result in a corresponding risk of loss. Finally, after booking just $2 million of net charge-offs in Q4, we booked $5 million in net charge-offs here in Q1. Our net charge-off ratio for the quarter was just 7 basis points. We also added a modest provision of $11 million during the quarter. Here in 2026, our teams remain diligent in reviewing our portfolios and staying in regular contact with customers to stay ahead of any emerging risks. We also remain diligent in monitoring credit stressors in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures, shifting labor markets, tariffs and other economic concerns. In addition, we continue to maintain specific attention to the effects of elevated interest rates on the portfolio, including ongoing interest rate sensitivity analysis bank-wide. We expect any further provision adjustments will reflect changes to risk rates, economic conditions, loan volumes and other indications of credit quality. With that, I will now pass it back to Andy for closing remarks. Andrew Harmening: Thanks, Pat. On Slide 19, we provide an initial update to our outlook following the close of American National acquisition. As we sit here 3 weeks post close, we haven't seen any major surprises, and our current expectations are largely in line with the assumptions provided when we announced the deal. This outlook does not assume any material incremental growth expectations for the American National business in 2026. We expect to update this 2026 outlook with estimates for the net interest income and noninterest expense categories following the finalization of purchase accounting adjustments, which are expected to be completed later this quarter. With that, I'll open it up to questions. Operator: [Operator Instructions] Our first question today is coming from Jared Shaw from Barclays. Jared David Shaw: Maybe you could just help us with how we should think about 2Q. I know you're still finalizing some of those marks. But I think you said in the commentary that you sold all the securities and reinvested. So I'm guessing that there's no real accretion coming from the securities book. But maybe just walk through a couple of the puts and takes on margin and as we're going into the second quarter, if you can? Andrew Harmening: Yes. The puts and takes on margin relative to the ANB acquisition will not be any different than what we have disclosed before because, as you know, we took over April 1. We haven't closed a month, and we need to get through the marks. However, we haven't seen anything that really surprises us to this point, and we had initially forecasted a potential increase of 5 to 10 basis points. That's where we would sit today, Jared, as the potential impact once we get through the marks in the second quarter. Jared David Shaw: Okay. All right. And then just sort of separately, looking at some of the new growth markets that you're talking about and the ability to hire RMs there. How competitive is it to find good people out in some of these markets? We're hearing from other people that they're targeting some of the same areas. Are you able to -- are you starting to see pricing run up there? And how much growth do you expect to get for those markets over this year? Andrew Harmening: No, I'd equate this to start in a 40-yard dash and we already had a running head start. So we've been in the acquisition of new colleagues for a little bit. And what happens is when you hire at the top and you get a really strong person which we did in Phil Trier, and then you get market leaders along the way over the course of the last 4 years that are very strong And then you start to get RMs underneath there. I'd say this long explanation because what's happening is we are able to get quality folks in each market. And so Kansas City, a great example of that, where we've not only grown, but we've doubled down on that bet because of the leader we got in that market. We have -- we just hired this week, Brandon White from the legacy middle market team with Comerica, who has a fantastic reputation personally, but also the banking for their middle market was significant. So the way I see this, Jared, outside of just the $500 million growth is, we started 2025, and we basically had 4 major metropolitan markets we're operating in Milwaukee, Chicago, Twin Cities and St. Louis. We added Kansas City in '25. We added Omaha in '26. We added Dallas in '26, and that just gives a tailwind to what we're doing, and then we expanded in Twin Cities. So the talent that we're able to bring in, there's a lot of word of mouth at this point, and that's good for us. And when somebody wants to find out what it's really like working here. What is the culture really like? What is the support to get a deal done? What is credit really like? Look, they'll interview with Pat Ahern, if they need to, our Chief Credit Officer, they'll interview with me, but mostly, they're taking care of that with the local hiring manager. So it's a very different game we're playing right now than one year ago, 2 years ago, or 3 years ago on the hiring front. We're in a really good position. I just spent time with our commercial team our top 60 leaders in the company and the energy in that room and the connectivity to our culture was palatable. Jared David Shaw: If I could just put one more in there. On the deposit funding side, some pretty good trends there, good data so far. Without any more rate cuts, how much more do you think you can squeeze from funding costs -- deposit funding costs? Andrew Harmening: Derek, do you want to take that? Derek Meyer: Yes. So I think there's still opportunity for remixing because we have most of our growth for the rest of the year coming from products like interest checking and savings, which are relationship-based and not as expensive as CDs, although we also have CD growth in there. But what we've seen based on our overall NII outlook at the legacy ASP part, given where our loan growth came in is probably some upside opportunity from -- on net interest income versus our original guidance. And so we don't think funding is going to stop that. Operator: Next question is coming from Casey Haire here from Autonomous Research. Casey Haire: Yes. Great. Thanks. Maybe taking the flip side of the deposits, the loan yields. Where do we expect those to trend going forward? And then in your expansion markets, how do the new money yields in your expansion markets compare to your core footprint? Derek Meyer: Yes. We don't give out the market by market yield. I think we look for where the best opportunities are, where we're going to get most of the household growth. I think if we punch through the loans, you're still going to see most of our growth, as we've outlined in our guidance coming from C&I and CRE, which are still higher yields than the rest of other loan categories. So that's favorable. And obviously, it's more favorable for us given the no cuts outlook and the fact that those are more closely tied to the short end of the yield curve. We don't expect yields to go up in auto. Those are trickling around the areas we've seen. They took a step down, but we've seen that happen before, and that should moderate. So if we do get rate cuts, that will still help us as a hedge and we still expect resi to continue to trickle upwards a few basis points a quarter. So net-net, given the outlook on rate cuts, it's very favorable compared to what we thought about at the beginning of the year. Casey Haire: Okay. Great. And then on the capital front, apologies if I missed this, the Basel III impact from the proposal and then any updated thoughts about share buyback appetite with ANB now closed. Andrew Harmening: Yes. ANB is closed, but we're working through the marks, which is the important part of understanding the balance sheet. So that hasn't really changed as a result of the close, but it will be very informed over the course of this quarter. I'm very bullish on where we are if we just looked at our forecast for the year relative to the legacy stand-alone ASP and what that means is we would be forecasting net interest income likely above the range that we have today. Well, when you start to do that and you start to get a return that puts you in a positive position to free capital and grow at the same time, which is why we got the original $100 million authorization. I fully expect that we'll use that this year. Casey Haire: With regards to the regulatory changes, you want to touch on that? I mean it's in the comment period. Derek Meyer: Yes. It's in the comment period. There's -- obviously there's 2 ways you can go on that, depending on whether we opt in or opt out on the methodology. So we'll see which one makes sense given the cost. We expect that to go to be favorable for us. We need a scenario, but we don't think that's going to change the near-term outlook on the repurchase. Andrew Harmening: And then the reality is we're very comfortable with the guidance we gave with CET1 in the 10% to 7.5% range. When we get to the comment period, we only see that would likely have an upside for us to comment on the specific number on that would be premature because we don't have final guidance, but if you think about the fact we're bullish on our NII and our return profile and if there is a regulatory change, that could only be good for us. I think that puts us in a great position to have flexibility with capital. Operator: The next question is coming from Brandon Rud from Stephens. Brandon Rud: If I could touch quickly on the C&I growth. I'm just curious how much of that was seasonality. And I ask, I think on Page 22, it looks like a little over $100 million came from the mortgage warehouse business. So I'm just curious how much of that is based on seasonality and how much should stay on the balance sheet a bit longer? Andrew Harmening: Yes. I mean the mortgage warehouse business has become a fairly small part of the balance sheet, but seasonality on that piece is there is a benefit there. I would say the rest of it you don't typically see getting out of the gate this fast in commercial. So I'm very bullish on C&I growth for the year. I think we've forecast is 9% to 10%. And I would tell you, I would put us at the high end of that range today. Because when you get done with a quarter where you grow 540-ish million, I think, is the number you get through that quarter and then you look at your pipeline. And we have a pipeline after getting through that where the same period prior year, we're up 20%. So -- from a pipeline standpoint. So I feel very, very good about that. We we've hired a team on the Franchise business that I expect will start to add to that during the year. And that's a pipeline we don't even have yet. And we expect that because of their knowledge of the marketplace, we'll have some good benefit there. And getting opened in the Dallas market. It will take time in 90 days, but I would expect in 90 days, we'll start to have a pipeline there that's not even part of the increase. So we have tailwinds there, and we're seeing pull-through of pipeline, and I'm very bullish on our ability to meet the high end of the guidance on C&I loan growth for the year. Casey Haire: Got it. And maybe just one more. The 2.2% annualized checking household growth, is that primarily still coming from the legacy markets and as the marketing spend hits the newer markets. Would that -- would you anticipate that number continues to accelerate? Andrew Harmening: I feel like I wrote that question, Brandon. Thank you. The answer is, it has nothing from the new market. It has nothing from Omaha. Obviously, we're in the Twin Cities, but it doesn't have anything from those new branches. The time that you turn on that [ spig ] is when you get done with systems conversion typically on the marketing side. So as we -- assuming a late third quarter integration, you start the marketing in the fourth quarter. And so when we think about the efficacy of our company and what that means to things like fee income, debit card fee income, credit card fee income, we're actually experiencing a tailwind right now for the first time in probably 20 years. When we get done with that, we have a major growth market in Omaha that we will market heavily into. So I think this is where we say, hey, can we get above 2% this year in our legacy markets and then go into 2027, challenge the team to get to 2.5%. As we start to get to 2.5%, I think we'll be in the top quartile or decile of the peer group in that category. So when I think about our ability to continue to grow, I'm pretty optimistic based on what we've put together so far and then putting that out into the Omaha market. Operator: Your next question is coming from Daniel Tamayo from Raymond James. Daniel Tamayo: I'll take a swing at the expenses. I completely understand that you guys don't have a number out there yet for the all-in. But a lot of good revenue opportunities and trends you're talking about here, Andy. Is it fair to say the stand-alone expense numbers are drifting up off the original guidance as well? Andrew Harmening: No. Actually, it's probably one of the things I'm most proud of. I mean we went from fourth quarter to first quarter and we're almost flat as a pancake. I mean we could say we went down, but it's $300,000. So let's say, flat in the first quarter. And our legacy stand-alone ASB business because we made difficult decisions at the end of each year, we are in a position to meet the expense number, while we are seeing NII forecast creeping up and noninterest income forecast at the high end of the range or above as well. So no, I believe the legacy business will manage to that 3% number. Daniel Tamayo: Great. And then I guess as we think about the expansion markets here, you talk a lot about the loan growth. Still no branches, I think, in Dallas or Kansas City how should we think about the infrastructure build that's planned over the next couple of years there? And if you're -- I'm assuming going to attempt to capture perhaps some retail deposits as well. Andrew Harmening: Yes. Yes, maybe we will, maybe we won't. I mean, really, what's on my mind and stop me if you've heard this I want organic growth, first and foremost. And we did these deals because we thought very strongly that in Twin Cities by getting a little bit bigger, that actually advances our marketing capabilities in that market. So it increases our exposure, our visibility, the places we can drive business into. So that's the first thing. The second thing is Omaha is an incredible market. It is the fastest-growing major metropolitan market outside of Dallas, where we have branches, it's the fastest growth market of any major metro we have. And so our ability to grow that we think is going to be significant for us. With regards to adding infrastructure, really, what I want to do is execute on this integration. We've executed on Phase 1 and Phase 2 of our plan, and it's driving a profitability profile that helps the bank significantly in capital accretion and return. We believe once we close on the -- once we finish the integration on the ANB deal, because we have such similar cultures, we actually think we'll start the growth on that one in a significant way, and it will accelerate our organic growth. Beyond that, really, to me, organic growth is the #1 question as opposed to building out expensive infrastructure that's difficult to pay for. Daniel Tamayo: Understood. And probably the last most important question here who are the Packers going to take tonight? Andrew Harmening: I don't think we have a first round pick. I'm going to punt on -- that's almost a jab, an unintended jab at the end of the questions. Operator: Next questions coming from Scott Siefers from Piper Sandler. Robert Siefers: Andy you actually already answered my question on sort of disaggregating the underlying loan growth versus what's coming from the American National transaction. It's obviously really good there. I was hoping you might please just sort of share your thoughts on the same thing on the deposit side sort of legacy Associated -- how those expectations might have change if we weren't layering in A and B? And then maybe as you think about the mix of deposits going forward through the remainder of the year, how do you see sort of noninterest-bearing levels sort of trending as a percentage of the total? Andrew Harmening: Yes. I mean a couple of good questions in there. So the way that I think about ASP overall, if I just think about the stand-alone, which we don't -- we debated whether we have the stand-alone because we're not stand-alone anymore, and we don't want to act like we are. However, we want to be transparent. So on loans, we're at the high end of our guidance. On deposits, we are the same as when we started the year. We're tracking exactly to where we expected to be. net interest income, we're above the range that we had. Noninterest income, we're at the high end of the range or above that range and expenses we are at that -- we're at our 3% number. So what you probably can take out of that is the change in the view on rate cuts that helps our company. Our loan growth momentum, that helps our company. The accelerated deposit growth in the second half of the year, that helps our company. The short-term nature of our contractual liability obligations puts us in a really good position to navigate the rate environment. So that foundationally is where the legacy Associated Banc is right now. You asked a second question. Sorry, I forgot that one. Robert Siefers: No problem. And by the way, that was very good color on the first one. And it was just sort of mix of deposits as you look through the remainder of the year, especially if you can talk to the noninterest-bearing. Andrew Harmening: Yes. So I mean, everyone would love to have noninterest-bearing grow like a weed. It's just not the way it works in banking. And so what I would say is a couple of things and Derek and I discussed this all the time, I'm really, really pleased with the direction of our household growth. I mean I really think we're moving towards ultimately a best-in-class. And that helps your demand deposit growth over time. If somebody is growing at 2.5% and the market is growing at 0, where you're growing at 2% and the market is growing up 0. Over time, you're going to inch up in that category. So the goal is that you are not moving backwards in demand deposits as we saw the market do for a long time. We've stabilized and now we have a faster growing customer base. But I would expect the interest-bearing would dominate that category. And right now, the thing that's probably most interesting to me is we have HSA business that is one of the fastest organic growth -- HSA businesses in the country. And it's being fueled largely by our retail and commercial teams. We have an HOA title business that is launched right now and has a pipeline that we can actually execute because we did the technology already. We have a platform on consumer that is adding growing at a 2.2% annualized pace and maintaining the quality of the customer. And so we're not adding customers just to add them. And frankly, our attrition is one of the lowest in the business because we have products out there that keep them and deepen them. So as we head into the second quarter and the second half of the year, I expect to have a good deposit growth and acquisition in the second half of the year with modest increase from demand deposits as you would expect. Operator: Our next question is coming from Chris McGratty from KBW. Christopher O'Connell: This is Chris O'Connell filling in for Chris. Yes, no problem. So I just wanted to touch on the balance sheet and interest rate positioning following the close of the American National deal. Just any updates there as to how it impacted the balance sheet? And then was the securities repositioning, I guess, a part of bringing you back to -- towards the stand-alone positioning? Andrew Harmening: Derek, I'll have you take that. Derek Meyer: Yes. So you're going to get a little bit, and then we'll probably give you the rest in when we closed the books for second quarter. So the easiest thing to say without the marks is that the loans and deposit balances came in, unmarked came in right where we expected during due diligence. That gives us comfort in the first step telling us that we're materially on track from a balance sheet standpoint with what we expected during due diligence. Now the impact of the rate changes since then and how those affect the marks on capital and then the accretion of earnings after that. We're going to wait until we actually do work through the market process and then report it, and then we'll give you the -- how that accretion that we expect to impact NII and NIE going forward when you look at CDI also. So that's probably the best I can tell you because we have done the securities repositioning, but that's only one part of it, and you really can't get a grip on the whole impact, but we still think we're materially on track. Christopher O'Connell: Okay. Got it. And then just as a follow-up on the same vein as you guys have closed the acquisition taking a look at the overall loan portfolio. Is there any areas that are contemplated in terms of further balance sheet runoff or pockets of the portfolio that you guys might shy away from? Andrew Harmening: No, the portfolios that they're in and the business that they do largely looks like what we do. Pat Ahern has commented on the strong kind of credit write-up and process that they had. The fact is that their Chief Credit Officer, we were keeping him, he's staying on board because he's good, and their approach to credit is good. And so there have been no surprises on that front. We got through a lot of those credits during due diligence and felt like we knew the portfolio very well. And frankly, since close, there has been no change to that. Operator: The next question is coming from John Arfstrom from RBC Capital Markets. Jon Arfstrom: Just a few follow-ups. One on the commercial growth in the pipelines, Andy, I don't know if there's a way to separate this, but in your mind, what would you say the kind of the legacy associated client utilization looks like. I know you've got a lot of new hires that are driving the pipelines higher. But for the clients that have been around for a long time and associated. What is the pipeline like for clients like that? Andrew Harmening: Are you asking about the individual RM productivity or I'm not -- if you could just clarify that, Jon. Jon Arfstrom: No, I'm just asking for how much of your pipeline growth is driven by the new hires and the new RMs versus the people that have been there for a while. And I'm just trying to get a gut check on like utilization from the typical metal vendor of Oshkosh or something like that. Does that make sense? Does that make sense, what I'm asking? Andrew Harmening: Yes. I mean it's a little bit hard to answer at this point because they are becoming us so quickly now. And so what I mean by that is we're up 44% in RM since I started. So there are a lot of new folks in what we do, and some are 1 year, 2 year, 3 year, 4 year. What I would say is that the legacy, if you want to call something over 2 years or 3 years legacy, they are driving more of the pipeline. They should. They're more of those folks. However, the gap is being bridged on the productivity per person. So we are seeing, whether it goes from 50% to 75%. And now as we head into the year, we have absolutely no non-solicitation agreements which we have very strictly lived up to. And so we have a team that there is upside from what we are doing today with the existing team, which is why I think we've seen another bump in what we see in the pipeline now versus 12 months ago. And that's what gives me a lot of confidence as we get through the rest of this year that we are at the high end of that we're at the high end of that forecast. But more of it has been done by legacy colleagues, but the -- just on a per person basis, we're bridging the gap and they're getting closer and closer to 100% productivity. Jon Arfstrom: Okay. So broad and deep, you would say, the pipeline increases? Andrew Harmening: No, absolutely yes, yes. Jon Arfstrom: Yes. Okay. Derek, one for you. Slide 9, customer CD increase. I understand that you have deposits that ebb and flow in the first quarter, but kind of what's the strategy behind that? And it looks like there was more of kind of a period-end increase. Derek Meyer: Yes. I mean that's where you saw -- when we saw during the quarter, I think we came into this quarter with a 41% increase in the pipeline on the C&I loan side. And we started to see that pipeline come through, and we were a little bit below market on CD rates. We decided to raise our rates and try and make sure that we weren't looking into funding all of that growth that started to look like it was going to hit this quarter, which is well above our annual run rate, which is pretty high guidance anyways. And so we decided to go ahead and front load that production. And the easiest way to do that in this market with these rates, I want to do it with the CDs. Now those CDs are all 7 months that's the promo rate and we still stay very short on all our contractual fundings, which you'll see later in the deck. So we thought it was a good move. Ended up, we were right because the spot balance loan growth was very strong. And so we feel pretty good about it, but we'll have a chance to reprice all of that before the year end. Jon Arfstrom: Yes. Okay. Makes sense. And then just last one, Slide 19, the guidance. I'm assuming this is the case. But any material changes to like the core guidance that you gave last quarter. Is there any puts and takes there if you take American National off that slide? Derek Meyer: I think the biggest one is net interest income. Our guidance was 5.5% to 6.5%. If you look at where our balances ended this quarter. And if you recognize the fact we're asset sensitive, we don't have 2 rate cuts our guidance would be more like 7% to 8%. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Andy for any further closing comments. Andrew Harmening: Yes. I'll just make a couple of quick comments. One, if you try to separate this into 2 pieces and hopefully, very soon, we won't anymore. It will be one company. But the legacy guidance on ASB basically improved from last quarter, if we break that out in the specific categories. And I'm very bullish on the trends that I'm seeing that back that up. With regards to ANB there are a lot of questions in a lot of different ways. And I just want to give a quick summary on that. One is we have a strong reinforcement that we have cultural alignment. That is a big deal. We have detailed plans to achieve our noninterest expense takeout that is right on track. There's an ability at some point here to advance growth and it's becoming more clear based on FX, wealth, syndications, balance sheet size, common credit background, consumer products at digital platform and marketing acquisition capabilities. That's a long list, which gives me confidence that we will hit in some or many of those and that will be impactful. We're on track on systems integration and the timeline there. We will work through our purchase accounting marks in the second quarter. And most importantly, I saying all that is the ANB deal is what we had hoped it would be. So that's our story. We appreciate your interest, and we look forward to continuing to provide updates throughout the year. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good afternoon. Thank you for standing by, and welcome to AppFolio, Inc. First Quarter 2026 Financial Results Conference Call. Please be advised, today's conference is being recorded, and a replay will be available on AppFolio, Inc.'s Investor Relations website. I would now like to hand the conference over to Lori Barker, Investor Relations. Lori Barker: Thank you, operator. Good afternoon, everyone. I am Lori Barker, Investor Relations for AppFolio, Inc. I would like to thank you for joining us today as we report AppFolio, Inc.'s First Quarter 2026 Financial Results. With me on the call today are Shane Trigg, AppFolio, Inc.'s President and CEO, and Timothy Eaton, AppFolio, Inc.'s CFO. This call is simultaneously being webcast on the Investor section of our website at ffolioinc.com. Additionally, an audio replay of the call and a transcript of the prepared comments will be posted to the website. Before we get started, I would like to remind everyone about AppFolio, Inc.'s safe harbor policy. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections, or other characterizations of future events, financial projections, future market conditions, business performance, or future product enhancements or development, is a forward-looking statement. AppFolio, Inc.'s actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. AppFolio, Inc. assumes no obligation to update any such forward-looking statements except as required by law. For greater detail about risks and uncertainties, please see our SEC filings, including our Form 10-K for the fiscal year ended 12/31/2025, which was filed with the SEC on 02/05/2026. In addition, this call includes non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in our first quarter earnings release posted on the Investor Relations section of our website. With that, I will turn the call over to Shane Trigg. Shane, please go ahead. Shane Trigg: Thanks, Lori, and welcome to everyone joining us today. AppFolio, Inc. is off to a strong start in 2026. First quarter revenue reached $262 million, a 20% year-over-year increase and up from the 16% year-over-year increase we delivered in Q1 2025. Non-GAAP operating income grew 36% and was 27.3% of revenue, and GAAP operating income increased 50% and was 19.4% of revenue. We had the best first quarter in company history for residential new business unit acquisition, and units on platform grew to 9.5 million in line with our expectations and typical seasonality. This is an exciting time for our business and our industry. AI is powerful, and we are putting it to work across every dimension of our business, accelerating performance for our customers while driving greater efficiencies across our own operations. At our annual FUTURE conference last year, we introduced Real Estate Performance Management, what we call RPM, a new way of thinking about value creation in real estate. RPM represents a fundamental shift from reactive, task-oriented property management to a holistic practice of delivering value across the entire real estate ecosystem: residents that love where they live, investors that see consistent strong returns, property management businesses that grow, serving communities that thrive. Achieving that requires a performance platform that provides the harness for intelligent AI orchestration in real estate, with an AI-native architecture of three interconnected systems: a system of record, a system of action, and a system of growth, all accessible through one unified experience. There is a unique advantage in operating a mission-critical platform in a vertical market, sitting at the center of how our customers operate their business. Compliance is embedded in how our platform works, not layered on after the fact, and the domain knowledge we have encoded across residential real estate is sharpened by tens of thousands of customers. Our RealmX Performers are fully operational AI agents built directly into the platform, taking ownership of entire workflows and doing the work with and for our customers. And by reimagining the resident experience with the services renters demand, we turn AppFolio, Inc. from a cost center into a growth driver—one whose value deepens with every customer we serve. The RPM discipline we have introduced and the performance platform we have built are redefining what it means to win in real estate. It is gratifying to see the market embracing RPM and our customers turning it into daily practice. Dan Rubenstein puts it well. He is the CEO of Hampton Management Associates, a 3,000-unit Bay Area property management company that this quarter signed a three-year renewal on our Max plan. I quote, “AppFolio, Inc. is attacking the friction in our business by consolidating our tech stack into a single platform. By integrating Realmex performers to automate core workflows, we have transitioned our team from manual administrative tasks to high-value resident engagement. Partnering with AppFolio, Inc. allows us to spend less time on system maintenance and compliance and reallocate resources towards scaling. It provides one source of truth where everything is simplified, so we can stop reinventing the wheel and get back to the business of bettering our properties.” End quote. Dan’s experience reflects the type of customer outcomes we pursue through the pillars of our company strategy. Our first strategic pillar is differentiate to win. Starting with our system of action, our AI strategy is producing measurable commercial outcomes at scale. More than 99% of our nearly 23,000 customers are now using some form of our AI-powered Realm suite. AI actions are up 7x year over year, and Performer adoption has grown almost 500% quarter over quarter. The Business Intelligence Group has recognized this momentum, naming AppFolio, Inc. a 2026 Artificial Intelligence Excellence Award winner in the agentic AI category. Maintenance Performer is a good example, since it tackles a workflow that is universal in property management. Resident issues do not stop at 5 PM and neither does AppFolio, Inc. Over half of all work orders are submitted after hours, and RealmX Maintenance Performer is there to respond to residents in an average of six seconds, triaging and troubleshooting the issue and automatically creating a work order when needed. This quarter, we enhanced the Maintenance Performer with new vendor follow-up capabilities. It now proactively contacts vendors, monitors open work orders, confirms completion, and logs every interaction automatically. Turning to our system of record, AppFolio, Inc. Stack is deepening what customers can do directly within AppFolio, Inc. while continuously expanding the categories it covers, most recently adding cloud communications through SimpleVoIP. We have surpassed 5 million units connected on Stack, creating a powerful network whose value grows with every connection. The depth of these integrations is what sets them apart. Through our partnership with AvidXchange, Plus and Max customers can now manage their entire accounts payable life cycle—bill payment, real-time status tracking, reconciliation, and fraud protection—directly within AppFolio, Inc. This is not just a data handoff between systems; it is the full workflow inside our platform. In our system of growth, we start with one conviction: the resident is at the center of the real estate ecosystem. When they thrive, so does everyone in the industry. And the data is clear on what that means for business performance. Our national study of more than 3,000 renters confirms that a modern resident experience is a strong driver of satisfaction. The research shows satisfied residents are 72% more likely to renew and 34% less likely to plan a move, directly impacting NOI and property performance. But we are measuring something deeper than satisfaction—the impact on the daily lives of renters. Residents on our platform with access to resident services score 14% higher on the Cantril ladder for life satisfaction. The highest-leverage moment to deliver that value is at move-in. It sets the tone for the entire resident journey. It is where offering easy access to the right services becomes a differentiator for property managers. Resident Onboarding Lift transforms that moment. Rather than a checklist of manual tasks, move-in becomes a streamlined, transparent, digital experience covering renters insurance, utility setup, and other essential services. The result is a 95% attach rate at move-in compared to 64% without it, and more renters with insurance coverage that protects their personal property. Our recent addition of group-rate Internet to Resident Onboarding Lift gives residents convenient, affordable connectivity from the moment they move in. And in the same rental research I mentioned a moment ago, 97% of group-rate Internet users say it saves them money and improves their financial well-being. Brad Randall, the President of Welsh Randall and a nearly 6,000-unit AppFolio, Inc. customer headquartered in Ogden, Utah, explains it this way, and I quote, “Residents complete the entire move-in on their phone. It walks them through each step clearly so they understand exactly what they are signing up for and why. The result is faster lease execution, fewer questions, and residents who feel confident and set up for success from day one.” End quote. Our second strategic pillar is deliver performance efficiently. Let us start with how we are delivering for our customers. As the industry shifts towards RPM, ambitious operators are choosing AppFolio, Inc. to drive increased performance. Mandy Management, a New Haven, Connecticut-based operator managing more than 3,000 units, is one of our newest customers. They selected AppFolio, Inc. to consolidate their disparate systems into one unified platform. By replacing clunky interfaces and manual accounting with integrated AI workflows and real-time reporting, they are streamlining everything from maintenance coordination to resident communications to accelerate performance. New customer momentum is one measure of our success. Equally important is the retention and growth we are driving within our own customer base. Since 2017, West Des Moines, Iowa-based Newbury Living has grown its portfolio to 2,300 units on AppFolio, Inc. They continue to consolidate new acquisitions under our platform, driven by our high-performance AI tools. Rich Overhaull, Technology Implementation Coordinator at Newbury Living, explained, and I quote, “We evaluated a specialized AI leasing solution alongside RealmX Leasing Performer and chose AppFolio, Inc. What won us over was how much AppFolio, Inc. already understood about how we operate. Other solutions required us to bring all that context to them. With AppFolio, Inc., it was already there. Since deploying Leasing Performer, our inquiry-to-completed-showing conversion rate has increased 20%, and Leasing Performer is now driving 57% of all completed showings, freeing our on-site team to stay focused on closing high-intent tours.” End quote. We are successfully attaching AI products when customers sign, expand, or renew with us, reflecting the growing value they see in our platform and continuing to drive growth for AppFolio, Inc. That value is rooted in how AppFolio, Inc. is built. A unified platform that tightly connects the system of record and the system of action provides the harness for intelligent AI orchestration. Our AI agents operate directly on governed real-time data and transaction workflows, reducing latency, avoiding connector fragility, and improving accuracy and security. AppFolio, Inc.'s AI data architecture gives agentic capabilities native access to the underlying data model and execution layer, enabling more reliable automation, better orchestration, and faster results. The same discipline we bring to our customers’ performance we apply to our own. AI-native engineering is changing how we build. We are compressing the time from concept to deployment, enabling our teams to design, code, test, and refine products with greater speed and precision. That means more value in the hands of our customers faster. This shift is freeing our engineers to pursue the work that compounds long-term platform value, including market and customer opportunities that otherwise may have taken us longer to address. Our growing efficiency is reflected in our financial performance as we reduced R&D as a percentage of revenue year over year, which Tim will speak to shortly. Our third strategic pillar is great people and culture. I am consistently inspired by our team’s ability to innovate at an exceptional pace and make a real difference for our customers. It is their dedication that makes our vision to power the future of real estate a reality. I am pleased to share that AppFolio, Inc. has been recertified as a Great Place to Work for 2026. That recognition is a reflection of the people at the heart of this company, AppFolians who exemplify our values, live the AppFolio, Inc. way, and deeply care about our customers. On that note, I am delighted to announce that Kyle Triplett has been promoted to Chief Product Officer. Many of you know Kyle from his leadership across our product organization, where he has been instrumental in delivering the AppFolio, Inc. performance platform and our RealmX AI capabilities. In this expanded role, Kyle will continue to lead our product strategy and design, advancing AppFolio, Inc.'s innovation leadership and ensuring our platform continues to set the standard for our industry. The RPM discipline we have introduced and the platform we have built are turning property managers into performance managers. And when they win, everyone in the real estate ecosystem does as well. With that, I will hand it over to Tim to share more about AppFolio, Inc.'s Q1 financial results. Timothy Eaton: Thank you, Shane. I am pleased with our first quarter results and strong start to 2026, which demonstrate how our performance platform continues to deliver outcomes for our customers, and that customer value is increasingly visible in our financial results. In the first quarter, we delivered revenue of $262 million, growing 20% year over year, compared to $218 million in Q1 2025. Subscription services revenue, previously called core revenue, grew 18% year over year to $58 million, compared to $49.5 million in Q1 2025. This growth was driven by winning new customers, growth in total units under management, and an increasing number of customers upgrading to our Plus and Max premium tiers. This tier-upgrade trend reflects the growing value customers are finding in RealmX Flows, our AI-powered workflow automation engine currently available in premium tiers, our expanding Stack partner ecosystem, and mixed product, mixed portfolio capabilities, such as student and affordable housing. First quarter revenue from value-added services grew 22% year over year, to $201 million, driven by increased adoption of our FolioGuard risk mitigation services, FolioScreen offerings, and online payments, as well as growth in units under management. Resident Onboarding Lift and Realmex Performers—comprising our Leasing, Maintenance, and Resident Messenger AI agents—are also increasing their contribution to value-added services revenue. We continue to be pleased with our acquisition and retention of customers and units. At the end of the quarter, we managed approximately 9.5 million units, compared to 8.8 million units a year ago, representing an 8% increase. Customers grew to 22,520 from 21,105, a growth rate of 7%. Customer and unit retention continues to be strong and in line with historical averages. In summary, first quarter revenue of $262 million, growing 20% year over year, reflects our continued strength in winning new business and driving adoption of our products and services. Turning to margin, in the first quarter, GAAP operating income, which includes stock-based compensation expense, grew 50% year over year to $51 million, or 19.4% of revenue, compared to $34 million, or 15.5% of revenue, last year. Non-GAAP operating income grew 35% to $72 million, or 27.3% of revenue, compared to $53 million, or 24.3% of revenue, in 2025. Continuing with non-GAAP measures, cost of revenue exclusive of depreciation and amortization was flat year over year at 36% of revenue. Efficiencies in our operations were offset by our payments product mix and additional data center spend to support our customers’ growing usage of our AI product capabilities. As a percent of revenue in the first quarter, sales and marketing was consistent with 2025 at 13%, as we continue to invest in additional sales capacity and go-to-market initiatives to drive new unit acquisition, premium-tier upgrades, and value-added services adoption. R&D spending declined as a percentage of revenue to 16% from 17% in the prior year. The use of AI tools and systems is increasing the velocity of our innovation and the productivity of our engineering teams, particularly in areas such as the resident experience and AI product capabilities. G&A expense declined to 7% from 8% as a percentage of revenue, reflecting the benefits of scale and continued operational efficiencies. We exited the quarter with 1,721 employees, an increase of 4% from 2025, primarily reflecting growth in sales capacity, as we continue to invest to win new business, drive premium-tier upgrades, and increase adoption of value-added services such as Resident Onboarding Lift and Performers. In the first quarter, we deployed $125 million to repurchase 702,500 shares. Our opportunistic share repurchase strategy is one component of how we are driving long-term shareholder value. In 2025 and 2026 to date, we have repurchased nearly 1.4 million shares and have another $125 million remaining of our existing share repurchase program. Our balance sheet remains healthy, providing financial flexibility as we continue on our mission to build the platform where real estate comes to do business. Now turning to our 2026 financial outlook. We are raising our guidance for annual revenue to a range of $1.11 billion to $1.125 billion, for a full-year midpoint growth rate of 17.5%, fueled by adoption of our premium-tier offerings, growth in new business units, and increasing adoption of our products and services, including agentic AI Performers and new resident services. We continue to anticipate 2026 revenue seasonality to be mostly consistent with 2025. We are also raising our guidance for non-GAAP operating margin and expect to deliver between 26% and 28%, compared to 2025 at 24.7%. Cost of revenue exclusive of depreciation and amortization is expected to be relatively flat as a percentage of revenue compared to 2025. While we expect to continue hiring in areas including sales, operating expenses as a percent of revenue are projected to decline modestly as we scale and leverage AI to drive efficiency across our internal operations. Diluted weighted average shares outstanding is now anticipated to be approximately 36 million for the full year. To close, Q1 reflects continued long-term shareholder value creation through revenue growth, margin expansion, and disciplined capital allocation. Together, these priorities are designed to grow operating cash flow over time, manage dilution, and drive durable customer performance. We are pleased with our results and remain focused on executing on our vision to power the future of real estate. Thanks to all of you for your support and interest in AppFolio, Inc. Operator, this concludes today’s call. Operator: Thank you. Ladies and gentlemen, that concludes today’s conference call. You may now disconnect. Goodbye.