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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.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please standby. Your program is about to begin. Welcome to the SLM Corporation First Quarter 2026 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode for the prepared remarks. If you should require operator assistance, please press 0. I would now like to turn the call over to Melissa Bernat, Managing Vice President, Strategic Finance. Please go ahead. Melissa Bernat: Thank you, Erica. Good evening and welcome to SLM Corporation’s first quarter 2026 earnings call. It is my pleasure to be here today with Jonathan W. Witter, our CEO, and Peter M. Graham, our CFO. After the prepared remarks, we will open the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations, and forward-looking statements. Actual results in the future may be materially different from those discussed here due to a variety of factors. Listeners should refer to the discussion of those factors in the company’s Form 10-Q and other filings with the SEC. For SLM Corporation, these factors include, among others, results of operations, financial condition, and cash flows as well as any potential impacts of various external factors on our business. We undertake no obligation to update or revise any predictions, expectations, or forward-looking statements to reflect events or circumstances that occur after today, Thursday, 04/23/2026. Thank you. And now I will turn the call over to Jonathan. Jonathan W. Witter: Thank you, Melissa and Erica. Good evening, everyone. Thank you for joining us to discuss SLM Corporation’s first quarter 2026 results. Our performance in the quarter was strong as we continue to reap the benefits of the strategy we have been pursuing for the last several years. Diluted EPS in the first quarter was $1.54 per share, as compared to $1.40 in the year-ago quarter. Loan originations were $2.9 billion, up 5% from the prior-year quarter. These results were driven by strength in our loan disbursement funnel. Importantly, this performance precedes the expected multiyear growth in both undergrad and graduate lending tied to federal reforms, which we believe could increase our originations by up to 70% over the next several years. We have been actively preparing for this opportunity, driving improvements across our full delivery system—from products and features to enhanced client acquisition strategies and improved servicing and fulfillment capabilities. We have already rolled out several of these enhancements, including our new medical and dental school offerings, with more to come. Our goal is to serve as many students, families, and university partners as possible as the higher education sector navigates this time of change. Net charge-offs and delinquencies were consistent with or slightly better than our expectations. Net charge-offs were $89 million, driven by continued underwriting discipline and the ongoing optimization of our loss mitigation, collections, and recovery strategies. In 2025, the granting of disaster-related forbearance tied to the California wildfires and the North Carolina floods temporarily suppressed both net charge-offs and delinquencies, creating tougher year-over-year comparisons. Shifting gears, you will remember customers started exiting our new loan program at the end of 2025. I am happy to report that their performance has been slightly better than what we assumed in our loss outlook, although we will need to see several more months of data to develop full confidence in these trends. These results support our belief that we have built a business and are executing a strategy that is capable of performing in almost any environment. We have sharpened our customer acquisition strategies to extend our market-leading position. We have enhanced our underwriting practices and strengthened our credit and collections capabilities to better support borrowers during times of financial distress. We have built an efficient cost structure with diversified, efficient funding sources that continues to support strong net interest margins. We have developed a strong capital allocation framework by adding strategic partnerships to our existing portfolio loan sale capabilities, giving us greater ability to grow recurring earnings and return capital. Our belief in our strategy, coupled with the desire to act nimbly and decisively when market opportunities arise, led us to accelerate our already robust capital return program. We executed a $2 billion seasoned loan portfolio sale during the quarter, coupled with a planned 10b5-1 share repurchase plan, and also launched a $200 million ASR—all to take advantage of what we believe to be the disconnect between the premium from our whole loan sales and our equity valuation. Peter will now take you through some additional details. Peter? Peter M. Graham: Thank you, Jonathan. Good evening, everyone. During the first quarter, we executed $3.3 billion in loan sales, generating $146 million in gains at attractive economics. This included $1.3 billion of planned new origination sales through our strategic partnerships business as well as a $2 billion seasoned loan portfolio sale executed at gains in the mid- to high-single-digit range. As we have done in the past when our equity valuation disconnected from the market value of our loans, we deliberately leaned into our capital flexibility to advance shareholder value. Following the loan sale, we entered into a $200 million accelerated share repurchase program, and year to date, we have repurchased approximately 12 million shares, 6% of the outstanding shares at year-end 2025, at an average price of $21.50 per share. Since 2020, we have reduced shares outstanding by approximately 58% at an average price of $17.15 per share, underscoring our disciplined approach to long-term value creation. We expect to fully utilize our $500 million share repurchase authorization during calendar year 2026. Strong ongoing investor demand in the structured finance markets continues to support capacity for both seasoned portfolio sales and our strategic partnerships business. We have already completed meaningful groundwork for our next strategic partnership, which we expect to launch before the end of this year. Turning to earnings, net interest income for the first quarter was $375 million, consistent with the prior-year period. Net interest margin of 5.29% increased both sequentially and year over year, reflecting the benefit of lower funding costs and continued discipline in balance sheet management. As we progress through this year, we expect NIM to moderate modestly, reflecting the higher liquidity we are carrying following the loan sale we executed in March. We recorded an $11 million negative provision in the first quarter, driven primarily by a $131 million release of reserves associated with loan sales and loans held for sale, partially offset by growth in loan commitments and updates to our economic assumptions. Our reserve rate was 6.05% at the end of the quarter, modestly higher than the prior quarter and reflective of seasonal origination patterns rather than changes in underlying credit performance. Credit quality across new originations remained strong, with cosigner rates increasing to 95% and average FICO approval rising modestly to 754. It is interesting to note that just five years ago, our cosigner rate was 86% and our average FICO approval was 750. The change reflects a deliberate multiyear and persistent focus on enhancing credit quality. Across the portfolio, delinquency trends were stable. Loans delinquent 30 days or more were 3.98% of loans in repayment at the end of the quarter, modestly lower than at the end of 2025, with later-stage delinquency buckets remaining steady at 1%. Net charge-offs for the quarter were $89 million, modestly ahead of our expectation. First-quarter noninterest expenses were $171 million compared to $155 million in the year-ago period. This increase primarily reflects targeted investments to support growth, particularly across our graduate lending programs, while maintaining a strong efficiency ratio of 30.6% for the quarter. Finally, our liquidity and capital positions remain solid. We ended the quarter with liquidity of 21.2% of total assets. Total risk-based capital was 13.7% and common equity Tier 1 capital was 12.4%. We continue to believe we are well positioned to grow our business and return capital to shareholders. I will now turn the call back to Jonathan. Jonathan W. Witter: Thanks, Peter. We are pleased with our first-quarter performance and the momentum it provides for the year ahead. Let me conclude with a few thoughts about the higher education environment and an update on our guidance. We believe students and families continue to see strong value in higher education. Our upcoming How America Plans for College report will show that nearly 90% of those surveyed view higher education as an investment, over 80% believe it is worth the cost, and nearly three-quarters would rather borrow than forgo college. This sentiment is also reflected in improving recent college enrollment trends and FAFSA completion rates that are up almost 20% from this time last year. Colleges, universities, and other higher education institutions are continuing to innovate to ensure that their students have the skills to compete in the future economy. We see schools integrating AI-related coursework into new and traditional programs. Students are also responding by better aligning their majors and skill sets with those likely needed in an AI-enabled future. The employment picture for recent college grads remains resilient even during times of economic uncertainty. While unemployment among recent graduates temporarily rose last summer, the gap versus historical norms closed in March. Reflecting this confidence, a recent National Association of Colleges and Employers survey indicated employers expect to increase new graduate hiring this academic year by 5.6%. With this backdrop, we feel well positioned as we look ahead to the balance of the year and beyond. Let me now turn to our 2026 guidance. We expect our diluted earnings per common share for 2026 to be between $3.10 and $3.20. This revised outlook assumes the full utilization of our $500 million share repurchase authorization and roughly $1 billion of incremental loan sales beyond our initial plan. At the same time, we are reaffirming all other elements of our 2026 outlook, including originations growth, net charge-offs, and net interest expense metrics. With that, let us open the call for questions. Thank you. Operator: Thank you. The floor is now open for questions. We will start our questions today with Terry Ma from Barclays. Please go ahead. Terry Ma: Hey, thank you. Good evening. So you mentioned we should expect another partnership by year-end. Any kind of early color on how we should think about it? And then as we kind of take a step back with an additional partner, and I think you just mentioned an incremental $1 billion of loan sales, are you transitioning more to a capital-light model and should we expect the balance sheet to shrink a little bit more this year? Jonathan W. Witter: Yes. Thanks for the question, Terry. On the first part of that, when we launched the inaugural partnership with KKR last year, we indicated that it was our intention to build this into a business. So that has been part of our plan all along. We have started discussions with some of the folks that were involved in our process last year and were not the final partner that we went with. Those are early days but well underway, and we are confident that we will get something done by the end of this year. In the context of growing the partnerships, I will remind you that the initial KKR partnership was really sized and scoped to deal with our traditional undergrad student loan product. We always knew that we were going to need to expand and grow that to be at scale for the grad opportunity, and we are working on getting ahead of that so that we have something in place well in advance of when the major increase in volume from grad comes online. Terry Ma: Got it. And then maybe just on credit, it sounds like the borrowers exiting mod are performing a little bit better than expected. Any color on new mods thus far this year—whether or not that is in line with your expectations? And then as we look forward, should we expect the percentage of borrowers in mod to start to come down this year? Any way to think about that? Jonathan W. Witter: Yes. In the context of the exits, as we said, we are pleased with the early performance and in line with the outlook that we had when we set that charge-off guidance for the year. The absolute value of increased demand will fluctuate as the payment waves come through and depending on the overall size of those payment waves. Nothing really out of the ordinary in that regard for this, and the overall level of mods we believe will begin to stabilize as we move through this year and into next. Operator: Thank you. Our next question will come from Moshe Ari Orenbuch from TD Cowen. Please go ahead. Moshe Ari Orenbuch: Great. Thanks. Jonathan, could you talk a little bit about how you see the developing competitive environment in the Grad PLUS market? Saw some announcements this week from one of your major competitors but have not seen that many across the board. Maybe you could add a little finer point on that? Jonathan W. Witter: Yes, Moshe, happy to. Obviously, I think everyone understands the opportunity that the PLUS reform provides. Different competitors certainly look at the market opportunity and the segments of the market opportunity differently. There are some who have expressed more interest for certain segments than for others. We certainly do expect there to be a heightened level of competition as a new kind of market normal shakes out over the next couple of years. We see a little bit of early evidence of that in things like some of the digital marketing spend. We can see some activity from some players and begin to understand a little bit of the testing and the programs that they are looking to develop. More importantly, we have tremendous confidence in our incoming position and in the work that we are doing to prepare for this opportunity. The credit models, the relationships with schools, the organic marketing channels that we have really pioneered here over the last five years serve as a really important foundation. All of those will need to be enhanced, grown, and expanded in particular to get after the grad opportunity. While there are a lot of similarities, there are differences. As you heard in my prepared remarks, we are leaving no stone unturned in preparing to compete rigorously. Whether it is a lot more competitive, modestly more competitive, or not more competitive at all, we feel really great about what we are doing, how we are going to show up, and, most importantly, our ability to serve students, families, and our important university partners, because we know every loan we do is enabling someone’s higher education. Moshe Ari Orenbuch: Got it. Thanks. Maybe as a follow-up, just on the loan sale process—kudos to you and the team for recognizing to do a loan sale and take advantage of that arbitrage. How do you think about the outlook and balancing the various types of loan sale opportunities as you go forward, probably adding in the potential for an incremental partner that you talked about? Peter M. Graham: Yes, thanks, Moshe. That is a good question. Just a reminder, the KKR structure—again focused on traditional undergrad product—was sized at a $2 billion per academic year commitment. As we think about this next partnership, we are looking to build upon that to create capacity for loan sales of grad originations and start to build capacity for the real growth in the grad space that will come in 2027–2028. As we get that started, I would expect that we will do it similar to how we did the first transaction, which is enter into a flow agreement but also start the process with some sort of a seasoned portfolio sale. That is within our expectation for the latter part of this year. In terms of overall balance sheet size, our original guidance and initial plan was a flattish balance sheet. With the shift in our approach on accelerating capital return, as Jonathan said in his prepared remarks, it is probably an incremental $1 billion of loan sales over our original plan. So that would be flat to down-ish overall balance sheet. We will fine-tune that as we see the origination levels coming in during peak and we have a better line of sight to overall levels of growth in the business. Operator: Thank you. We will go next to Jeffrey David Adelson with Morgan Stanley. Please go ahead. Jeffrey David Adelson: Hey, good evening, Jonathan and team. I am curious—you made the comment on the recent college graduate unemployment trends headed in the right direction once again, and you brought up the survey of employers intending to increase hiring by about 5.6% this year. How do you think about the benefit of that flowing through to SLM Corporation? Is that something you think can really start to flatten out your delinquency trends, which look like they kind of continue to uptick a little bit at these levels? Jonathan W. Witter: Maybe a couple of thoughts here, and Peter, jump in if you want to add anything. I am not sure we yet see the unemployment trends and the hiring as a tailwind. What we are really describing is that the slight air pocket that we saw in employment through the course of last summer has normalized. We have talked for a couple of calls now about the resiliency of students and the fungibility of the skills that are afforded by higher education and their ability to figure out a changing employment landscape, and we have seen the evidence of that. But I am not sure we are in a positive enough territory versus historical norms that I would classify it as a tailwind. In terms of delinquency trends, we are very comfortable with the delinquency rates where they are. As I said in my comments, they are in line with and slightly better than expectations. If you look at the stability of the later-stage delinquency trends, they are where we thought we would be. You always have to be a little bit careful looking at any ratio because there is both a numerator and a denominator. When you sell a couple of billion dollars of loans earlier in the year than you expected, that can have a denominator effect. Prudence would suggest that be considered in interpreting the results. We feel very solid about where we are from a delinquency perspective. Jeffrey David Adelson: Okay, great. Thank you. And maybe just a quick follow-up on Grad PLUS. Obviously you are looking for that to start kicking into gear come July. You spoke a lot about how you are preparing for that and your ties to the schools. Maybe just a quick update on what you are seeing on the ground and how you think those expectations are going to play out as you hit the back half of the year, recognizing that it is still pretty early? Jonathan W. Witter: Yes, Jeff. It is very early; the season really has not started at all yet in the grad segments we are talking about. A couple of thoughts. Our conversations with schools have been extremely positive. As you can appreciate, their number one concern post-PLUS reform was what this would mean for their ability to fill their classrooms and support their students. The work we have done around product design, underwriting, and terms and conditions—as we have gone through that with schools—has been well received. They have been impressed by the customer-back thoughtfulness that we have brought to really thinking about these as new products and new businesses deserving of a fresh set of eyes. As we have implemented—grad has been a part of our portfolio for a long time, but a small part—we are starting to see impressive and meaningful percentage increases in our performance. Those are super leading indicators and trends based on small sample sizes, but we are seeing it flow through in early origination numbers and the like. We feel good about the guidance we have put out around originations. We have not seen anything that leads us to believe it is not achievable. We are going to continue to soldier away and put ourselves in the best position to win. Operator: Thank you. We would like to take our next question from Donald Fandetti with Wells Fargo. Please go ahead. Donald Fandetti: Hi, good evening. I know it is early, but I was wondering if you could talk a little bit about 2027. I think last quarter you provided some thoughts. Obviously you are going to have a higher base here in 2026. Jonathan W. Witter: I think the only thing I am really prepared to talk about with regard to 2027 is the opportunity that we see from grad. We have sized that as roughly a $5 billion incremental opportunity over time. The way that will size in will be modest this year and then grow more exponentially as we go to 2027 and into 2028. In terms of overall guidance around earnings or anything like that, I would not feel comfortable this early giving any reads on that. Donald Fandetti: Okay. And I heard the comments on the potential new partner. Obviously there has been a lot of dislocation in private credit. It sounds like you are not seeing any hesitancy or different terms. Is that maybe just because it is a consumer product, or what are your thoughts on the future demand from private credit? Peter M. Graham: Yes, I think there have been pockets of private credit that have been challenged. Even within the structured finance or ABF part of private credit, there have been areas where there have been frauds or other issues. That has really caused more of a flight to quality, and we have a very high-quality asset type that still has very strong demand, particularly in the consumer space, given the ability for us to provide duration as well as high yield and low losses. We have continued to see strong demand both for our own funding securitizations and for the securitizations that we do on behalf of the loan buyers. They have been well subscribed and well priced, and we expect that to continue. In the context of beginning the dialogue for setting up next partnerships, we have had great engagement from interested parties and feel like the market demand is still really there for our product. Operator: We will take our next question from Sanjay Harkishin Sakhrani. Please go ahead. Sanjay Harkishin Sakhrani: Thank you. Jonathan, maybe put a finer point on some of the initiatives you have and the step-up in expenses in 2026. It sounds like you feel pretty good about it. How do we see it unfold and measure it as we look across this year and next? I know Peter talked about a step-up in originations next year from the opportunity, but how do we see it unfold, and do we get leverage off of that into next year? Jonathan W. Witter: Sanjay, thanks, and great question. I would refer back to comments I made during the fourth-quarter earnings call. Our view is, yes, expenses are elevated this year—both marketing, as we start to go after the expanded opportunity, and fixed costs around products, systems, customer experience, and the like. What we have committed to and still believe is that the rate of expense growth will moderate this year. We may see a slight uptick in our efficiency ratio, but we actually expect at the end of the growth period for our efficiency ratio to be better than it was at the starting point. To put rough justice math to it, if we were at a mid-30s efficiency ratio historically, during this time of growth we may get up to the high 30s, which is still a compelling efficiency ratio. If the market evolves the way we think it is going to and if our share evolves the way we think it is going to, by the end of the growth period we would hope to be back down in the low 30s. That is the very definition of operating leverage. We recognize the need to invest against what we think is both a great market opportunity for us and a real need for students and university partners. We think that is a relatively short invest-ahead-of-the-curve with real leverage coming not very many years after that. Sanjay Harkishin Sakhrani: Got it. And then, Peter, just so I have the numbers correct in terms of the guidance raise and the fact that you are selling another $1 billion—if you use the 6% or so gain and then the reserve release, it sounds like most of that raise is just the mechanics of the $1 billion being sold at some point in the rest of the year. Any idea on timing? Thanks. Peter M. Graham: Sure. In the context of the full-year guidance, the increase in the EPS guidance for the full year is roughly split half and half between share count reduction and incremental gain from the incremental loan sale. If you think about the mechanics of what has happened in the first quarter, we really accelerated that through the actions we have taken and have a much lower share count for a longer period during the year. We have not updated any other elements of our original guidance. The impact is really just the incremental loan sale gain and the share count reduction—roughly half and half for the full year. Operator: Thank you. We will take our next question from Mark Christian DeVries with Deutsche Bank. Please go ahead. Mark Christian DeVries: Thanks. Jonathan, I believe you indicated that the FAFSA completion rates are up almost 20% from this time last year. Have a sense for what is behind that? Is this a reflection of a significant increase in demand for higher education? Is there something wonky behind that? And if it is demand, what does it say for your conviction around your origination guidance? Jonathan W. Witter: Yes, Mark, I think it is probably too early to know exactly all the different factors that are driving that rate. If you exclude two years ago when the Department of Education rolled out a new FAFSA form and had a few implementation hiccups along the way, I think what this reflects is a continued steady drumbeat of growth, which matches well with what we have seen around general trends in the percentage of eligible high school seniors who are choosing to go to college. A lot has been made around demographic trends, but the “batting average” of how many people actually go has also been a nice contributor to the growth in enrollment over a period of time. If I broaden it out and look at our soon-to-be-released survey, because that gives a little more detailed insight, it shows the promise and dream of higher education continues to be key for many students and families. There has been a lot of talk about the changing cost of higher education and whether it is worth it; our survey says pretty conclusively that the vast majority of American families see that it is—understanding the key to job creation, skills, and economic mobility, and the role higher education has played historically and will play going forward. I look forward to the survey coming out—likely next week—with a lot of great data that will give you even more insight into your question. Operator: Thank you. We will take our next question from Caroline Latta from Bank of America. Please go ahead. Caroline Latta: Hi, guys. I think you mentioned last quarter that you expect after 2026 that the private education portfolio will impact up to 1% to 2% growth. Has that expectation changed if you were to add another private credit partner, or did that comment contemplate another potential partner? Peter M. Graham: Thanks, Caroline. In our original low-range planning that formed the basis of our original guidance for this year, we assumed a flattish balance sheet this year and that kind of 1% to 2% growth going into 2027 and getting up to mid-single digits over time. With the change in approach around acceleration of the share repurchase this year, we will probably be a little down this year—call it $1 billion lower than flattish—and we would look to step back into growth over time. I do not think the creation of a new partnership really changes that dynamic. We still have a broad opportunity around originations growth that would, if we did not do those partnerships or other types of loan sales, drive a much higher rate of balance sheet growth than that. We have lots of different levers we can use to optimize. What it will impact is the mix of seasoned sale versus new origination sale as we step into 2027 and beyond. That is purposeful because the grad opportunity—for which we do not currently have a flow arrangement—will become a much larger portion of our originations as we move into 2027 and then again into 2028. We want to make sure we have a good complement of funding capabilities to meet that need. Caroline Latta: Great. Thank you. And then, given the buyback this year—if you complete the plan it will be a pretty big step-up—should we be thinking about the cadence of buybacks and capital return further out into 2027 and 2028? Peter M. Graham: If you look at our original plan, we were targeting roughly 5% to 6% of outstanding share count as part of the buyback within a year. As we start to normalize, that is probably a reasonable benchmark going forward. As always, as market conditions change, if there is an opportunity to do more than that, we would do what we did in the first quarter—accelerate some loan sales and take advantage of that market dislocation. Operator: Okay. Thank you. We will take our next question from John Hecht with Jefferies. Please go ahead. John Hecht: Yes, thanks, guys. Maybe relative to our forecast, there was upside EPS and lower OpEx. Can you talk about the cadence on investments in the PLUS program over the year? Peter M. Graham: Sure. We are getting ready for peak season, which starts in the summer. If you think about the comments we made at year-end when we talked about expenses for this year, of the increase year over year we said roughly a third was an increase around marketing and customer acquisition, and roughly a third was preparation for the opportunity in terms of the things Jonathan talked about around program design, customer experience, and some of the tech changes we will need to enable. That readiness will be more front-loaded before peak, and the marketing spend will be more in the moment in that peak season. Our staging of expenses and our plan for expenses—we were modestly ahead of plan for the first quarter, but we still feel comfortable with our overall guidance range for the full year. John Hecht: Okay. And then second question is the evolution of the program management and servicing fees. Was there anything in this quarter with that, and how do we think that grows over the course of this year? Peter M. Graham: The inaugural partnership that we linked with KKR in the fourth quarter of last year has the program management fee built into it. As we have completed sales of assets into that, those program management fees will start to earn on the AUM, if you will, under management. We did another $1 billion of sales to that partnership in the quarter, and we will continue to build on that. As we grow the next partnership, our anticipation is that something akin to those program management fees will be part of the economics of those deals as well. Our intent is to continue to build more recurring fee-based revenue over time and give ourselves a different capital allocation capability with these forward flow sales. Operator: Thank you. We will go next to the line of Richard Barry Shane with JPMorgan. Please go ahead. Richard Barry Shane: Hey, guys. Thanks for taking my questions this afternoon. I would like to talk a little bit about credit. You provided an update on your net charge-off guidance for the year and reiterated your prior guide. I am curious, when you think about the credit performance of the portfolio, whether it is where it is in your targeted range. Is it within the range? Above? Below? Long term? And to the extent it is varying from the range, is there anything you are doing on the underwriting side to either tighten or widen the credit bucket in order to meet that efficient frontier? Jonathan W. Witter: Rick, a couple of thoughts—tell me if this gets to your question. We are operating within the long-term credit range that we talked about. We said a couple of years ago we thought the right destination was high 1s to low 2s. We spent time in the fourth-quarter earnings call, when we laid out guidance, doing a crosswalk around that percentage to the charge-off guidance that we have given for this year. The wildcard there was the shift in strategy to sell new originations versus seasoned portfolios and a bit of the distortive effect that had on our legacy ratio. We believe we are operating within that range and feel good about the guidance. It is important to remember how we got there. Three or four years ago, we started a persistent, purposeful program to look at and adjust the credit buy box to make sure we felt great about originations. The changes had a meaningful impact on origination volume, and one of our great sources of pride was our ability to grow both nominal levels of originations and share while still tightening the credit box during that time. There is still a tail to come—we still have people who took loans as freshmen and sophomores under the old underwriting regime who have not entered full P&I yet and are still coming into their maximum stress period. In some respects, the full effect has yet to be felt in the portfolio. We feel great about the underwriting changes we have made and how our loss mitigation programs are performing, and we think we are generating the loss profile we would hope for during a time that has been relatively stressed for some borrowers, with the elevated unemployment rate I talked about over the last six months. All in all, we feel really good about these results and look forward to the portfolio continuing to season. Richard Barry Shane: I appreciate that. Do you provide an average loan-in-repayment number anywhere in the disclosures? The reason I ask is, this quarter when we calculate a net charge-off rate as a function of loans in repayment, I am trying to understand how much that might be distorted by loan sales. Are there seasoned loans in repayment that are part of the pools that you are selling, or should we assume it is predominantly new originations that are less than 12 months seasoned? Peter M. Graham: All of our portfolio sales are representative samples of the book. The only exclusions are loans that are in later stages of delinquency, which are typically excluded from those pools. As we make portfolio sales, as Jonathan said, that can have an impact depending on when in the quarter or year we make those sales, because it does impact the denominator of some of those ratio calculations. I would also highlight commentary we made in the fourth quarter surrounding our disclosures in the 10-Ks. Because we calculate most of our loan disclosures on loans held for investment, and we are moving loans to a held-for-sale status in association with these forward flow agreements, that also has a nominal impact on some of the calculations. Jonathan W. Witter: Just for avoidance of any confusion, Peter laid out in his talking points the new origination sales, which were $1.3 billion. Those are, as the name suggests, new originations. We try to break it out separately and understand the importance of continuing to do that, both for understanding credit metric impacts and premium impacts. Operator: Thank you. This concludes the Q&A portion of today’s call. I would now like to turn the floor over to Mr. Jonathan W. Witter for closing remarks. Jonathan W. Witter: Erica, thank you, and thank you to everyone who joined this evening. We appreciate your interest in SLM Corporation and look forward to updating you again when we get together in three months for our second quarter earnings call. With that, Melissa, I will turn it back to you for some closing business. Melissa Bernat: Thank you all for your time and questions today. A replay of this call and the presentation will be available on the Investors page at salliemae.com. If you have any further questions, feel free to contact me directly. This concludes today’s call. Operator: Thank you. This concludes the SLM Corporation first quarter 2026 Earnings Conference Call and Webcast. Please disconnect your line at this time, and have a wonderful evening.
Operator: Thank you for standing by, and welcome to the Intel Corporation First Quarter 2026 Earnings Conference Call. To ask a question during the session, you will need to press 11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press 11 again. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, John Pitzer, Corporate Vice President of Investor Relations. Please go ahead, sir. John Pitzer: Thank you, and good afternoon to everyone joining us today. By now, you should have received a copy of the Q1 earnings release and earnings presentation, both of which are available on our Investor Relations website intc.com. For those joining us online today, the earnings presentation is also available in our webcast window. I am joined today by our CEO, Lip Bu Tan, and by our CFO, David Zinsner. Lip Bu will open with comments on first quarter results, as well as provide an update on the progress we are making on our strategic priorities. Dave will then discuss our overall financial results, including second quarter guidance, before we transition to answer your questions. Before we begin, please note that today's discussion does contain forward-looking statements based on the environment as we currently see it and, as such, are subject to various risks and uncertainties. It also contains references to non-GAAP financial measures that we believe provide useful information to our investors. Our earnings release, most recent annual report on Form 10-K, and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations. They also provide additional information on our non-GAAP financial measures including reconciliations, where appropriate, to our corresponding GAAP financial measures. With that, let me turn things over to Lip Bu. Lip Bu Tan: Thank you, John, and good afternoon, everyone. Q1 results demonstrate continued and steady progress across the business, reflecting strong demand for our products and disciplined execution to expand available supply. Revenue, gross margin, and earnings per share were all above the high end of guidance, marking our sixth consecutive quarter of exceeding financial expectations. Even as we improve factory output, demand continues to run ahead of supply for all our businesses, especially for Xeon server CPUs where we expect sustained momentum this year and next. Intel 3–based Xeon 6 and Intel 18A–based Core Series 3 products are now in full volume production ramp, and each represents the fastest new product ramp in five years. We are maximizing and optimizing our factory output to meet customer needs. It is our top priority. Intel is now a very different company than when I first joined over a year ago. We have taken, and continue to take, deliberate steps to rebuild Intel into a more competitive and more profitable company. Our cultural transformation is well underway, and we are embracing our roots as a data-driven, paranoid, and engineering-centric company. We are also listening closely to our customers and putting them at the center of everything we do. Intel processors are some of the most vital assets necessary to be successful and to flourish in this era of extraordinary opportunity for the semiconductor industry. With a stronger balance sheet, a new leadership team, a rejuvenated and motivated workforce, and a renewed focus on engineering execution, we are turning our attention squarely towards innovation to capture opportunities in the near term and to position the company for robust growth in the long term. Driven by tremendous demand for AI, the semiconductor industry TAM is now approaching $1 trillion. Intel is well positioned to benefit from this demand with three strategically important assets: our x86 CPU franchise, our advanced packaging technology, and our vast manufacturing network. Artificial intelligence is now moving into the real world towards more distributed inference and reinforcement learning workloads, like agentic, physical AI, robots, and edge AI. This shift is now beginning to show up in our results, and I want to spend some time on this today. For the last few years, the story around high performance computing was almost exclusively about GPUs and other accelerators. In recent months, we have seen clear signs that the CPU is reinserting itself as the indispensable foundation of the AI era. The CPU now serves as the orchestration layer and critical control plane for the entire AI stack. This is not just our wishful thinking; it is what we hear from our customers, and it is evident in the demand profile for our products. Xeon server demand is seeing strong and sustained momentum. Customers are deploying server CPUs alongside accelerators in a ratio that is moving back towards CPU. The accelerator remains central to frontier AI, and we will continue to participate, innovate, and partner in that category. Our recent announcement with SambaNova Systems is an example of such partnership on heterogeneous compute architectures. But the backbone of AI computing in production remains a CPU-anchored architecture. That is good news for the x86 ecosystem. It is great news for Intel Corporation. And it is a structural reason I am confident that the CPU franchise will continue to be a meaningful growth engine for the company in the years ahead, not just the quarters ahead. Turning to Intel Foundry, the accelerating deployment of AI infrastructures creates a meaningful opportunity for us as we continue to build our foundry business. I am pleased with the progress we have made in foundry technology development over the last year, even though I will continue to remind you this will be a long journey for us. We have made steady progress with Intel 4 and Intel 3, and 18A wafers are now running ahead of internal projections, representing a meaningful inflection in our execution and our factory finished-good output. We also continue to make steady progress on our advanced packaging technologies, including additional growth in customer backlog in the quarter. On Intel 18AP and Intel 14A, we continue to be encouraged by our external engagements. Intel 14A maturity, yield, and performance are outpacing Intel 18A at a similar point in time, and we continue to develop PDKs with multiple customers actively evaluating the technology. Their partnership has been critical, and their feedback is continuing to help us define the technology so that we can cater to their needs. We expect to see earlier design commitments emerge beginning in 2026 and expanding into 2027. I am particularly pleased that our progress to date has driven us to land more of our own future product tape-outs on Intel 14A as well. At a time when advanced wafer capacity is in short supply, this enables us to have better control over our supply chain. Intel has pioneered nearly every major innovation that has enabled dimensional scaling and high-volume manufacturing of silicon transistors over the last six decades. We have always been willing to take measured risks that have eventually paved the way for step-function improvements in transistor density, cost, power, and performance. As we look to continue challenging the status quo, I can think of no better partner than Elon Musk. We recently announced our partnership with SpaceX, xAI, and Tesla to support TeraFab. Elon and I share a strong conviction that global semiconductor supply is not keeping pace with the rapid acceleration in demand. We are excited to explore innovative ways to refactor silicon process technology, looking for unconventional ways to improve manufacturing efficiency that will eventually lead to a dynamic improvement in the economics of semiconductor manufacturing. A year ago, the conversation about Intel Corporation was about whether we could survive. Today, it is about how quickly we can add manufacturing capacity and scale our supply to meet enormous demand for our products. This is a fundamentally different company today, and we still have a lot of work ahead. I would like to take this opportunity to thank our many customers, partners, and our hardworking employees across the world for their contributions towards building a new Intel. I remain firmly convinced of, and focused on, the opportunity ahead for Intel Corporation. With that, I will pass it to Dave. David Zinsner: Thank you, Lip Bu. We delivered robust Q1 results reflecting strong demand and better-than-expected available supply. We also benefited from improved product mix and pricing actions, in part to offset higher costs. First-quarter revenue was $13.6 billion, $1.4 billion above the midpoint of our guide. Q1 revenue would have been meaningfully higher, but demand continues to outpace our growing supply. Our collective AI-driven businesses now represent 60% of revenue and grew 40% year-over-year. These results reflect real and deliberate changes we have made to be more responsive and accountable. This quarter, our teams worked directly and diligently with customers to reach mutually beneficial outcomes in weeks, not months. We value the partnership and support shown by our customers, partners, and suppliers as we work to navigate this environment together. Non-GAAP gross margin came in at 41%, approximately 650 basis points ahead of guidance due to the combination of higher volume, which included previously reserved inventory, mix, and pricing. In addition, better yields on Intel 18A offset some of the higher costs we always incur in the early part of ramping a new node. We delivered first-quarter non-GAAP earnings per share of $0.29 versus our guidance of breakeven on higher revenue, stronger gross margins, and continued spending discipline. Q1 EPS included a roughly $0.06 one-time gain in interest and other. Q1 operating cash flow was $1.1 billion with gross CapEx of $5 billion in the quarter and adjusted free cash flow of minus $2 billion. Moving to segment results. CCG revenue was $7.7 billion, down 6% sequentially and better than our expectations. Even with improved factory output, demand outstrips supply against a client TAM that remains resilient despite industry-wide component shortages and inflationary pressures. Our AIPC revenue grew 8% sequentially and now represents greater than 60% of our client CPU mix. Operating profit for CCG was $2.5 billion, 33% of revenue, and up approximately $300 million quarter-over-quarter on improved mix and product margins, sales of previously reserved inventory, better 18A yields, and lower operating expenses. Within the quarter, CCG launched Core Ultra Series 3 and expanded our offerings across consumer, commercial, and edge. This has proven to be our strongest product launch in five years, delivering better performance-per-watt, stronger integrated graphics, and more capable on-device AI features, all while maintaining our broad ecosystem of compatibility that partners and customers value. In Q1, CCG also expanded the reach of our Core family by launching the Intel Core Series 3 processor, which brings the latest IP, modern features, and all-day battery life to the mainstream for the first time. We are enabling a new class of mainstream systems that once again set the standard for everyday computing. DCAI revenue was $5.1 billion, an increase of 7% sequentially and 22% year-over-year, well above expectations and reinforcing the strong year of growth for DCAI we signaled 90 days ago. Strength continued across all segments and customers, as investments in CPUs are accelerating to support the evolution of AI from foundational training to inference and from inference to agentic. We also saw strong ASIC growth with revenue up more than 30% sequentially and nearly doubling year-over-year. Operating profit for DCAI was $1.5 billion, 31% of revenue, and up approximately $292 million quarter-over-quarter on improved product margins, better cycle times and yields, especially on Intel 3, and lower operating expenses. Within the quarter, DCAI signed multiple long-term agreements, including Google, supporting our view that the current business momentum is sustainable. In addition, Xeon 6 was selected as the host CPU for NVIDIA’s DGX Rubin NVL8 systems, and Xeon remains the most deployed host CPU due to its industry-leading memory, security, and networking orchestration. Lastly, DCAI also established a multiyear collaboration with SambaNova to design a next-generation heterogeneous AI inference architecture combining SambaNova’s RDUs and Intel Xeon 6 processors. Intel Foundry delivered revenue of $5.4 billion, up 20% sequentially, on increased EUV wafer mix driven by Intel 3, and significant growth in advanced packaging. External foundry revenue was $174 million in the quarter. Intel Foundry operating loss in Q1 was $2.4 billion, improved $72 million quarter-over-quarter as better yields across Intel 4, Intel 3, and 18A drove higher gross margins. This was mostly offset by increased operating expenses associated with an intentional step-up in Intel 14A investments to support both internal and external customer evaluations. As a reminder, Intel Foundry carries the bulk of the cost associated with the early ramp of Intel 18A, and we expect Intel Foundry’s operating loss to improve through the year as 18A continues to ramp into volume and yields improve further. Within the quarter, Intel Foundry delivered output above our expectations, drove steady improvements in yields, and met key 14A milestones. Intel Foundry also added to its backlog of advanced packaging services and announced a multiyear expansion of our back-end facilities in Malaysia. This expansion will help support the committed demand that will begin to convert to revenue in 2027. Turning to All Other. Revenue came in at $628 million and was up 9% sequentially due to a strong quarter for Mobileye. Collectively, the category delivered an operating profit of $102 million. Now turning to guidance. As we look ahead, we remain mindful that the macroeconomic and geopolitical environments are dynamic. Views on global growth, policy, and trade continue to shape customer behavior and investment decisions. In addition, constraints and rising prices around key components like memory, wafers, and substrates are driving higher costs that could impact demand for our product at some point in the year. We are prudently planning for PC demand to weaken in the second half of the year and expect the full-year PC unit TAM to be down low double-digit percent, in line with industry peers and experts. Offsetting this, near-term customer order patterns remain very robust across all of our businesses. In addition, our confidence in the sustained growth of CPUs, driven by the AI infrastructure buildout, is growing. Our outlook for server CPU demand has improved over the last 90 days, and we expect a strong year of double-digit unit growth for the industry and for us, with momentum extending into 2027. Combining all of these factors, we are guiding Q2 to a range of $13.8 to $14.8 billion, up 2% to 9% sequentially. As we work hard to support the needs of all of our customers, we expect sequential revenue growth in both CCG and DCAI on improved supply and a full quarter of pricing actions, with DCAI up double digits. At the midpoint of $14.3 billion, we forecast a gross margin of 39%, a tax rate of 11%, and EPS of $0.20, all on a non-GAAP basis. Our Q2 gross margin guide declines modestly from Q1 due to a meaningfully larger contribution from Intel 18A, still early in its ramp, and some inventory benefits in Q1 that are not expected to repeat in Q2. On the full year, we expect our factory network to continue increasing available supply in the third and fourth quarters at a more measured pace than we anticipated 90 days ago, reflecting the base effect of much stronger-than-expected first-half output. We also expect 2026 revenue on a half-on-half basis to follow the seasonal trends experienced over the last ten years, with servers above and PCs below. We were very pleased with Q1 gross margins, and we will continue to push for gross margin expansion. It is my top priority. Our foundry team is delivering consistent yield and throughput improvements across all process nodes, which will help gross margins. With that said, Intel 18A is still early in its ramp, and rising input costs, especially in memory, present growing headwinds in the second half that we need to overcome. For OpEx in 2026, we had been directionally targeting $16 billion but are likely to be higher due to inflationary pressures, variable compensation, and targeted investments we are making to capture the opportunities ahead. The drive for efficiency is core to the new culture Lip Bu is creating, and we will remain laser focused on finding additional operational improvements and maximizing ROI on all of our investing activities. We forecast capital expenditures in 2026 to be flat to last year versus our prior expectation of flat to down, reflecting increased capacity investments to support committed demand and a continued emphasis on improving fab productivity and output. We now expect expenditures to be roughly equal across the year and still to be heavily weighted towards the equipment that directly grows wafer outs to support growth this year and next. We recently closed the transaction to repurchase the 49% equity interest in the joint investment in Fab 34 in Ireland, a highly accretive deal allowing our shareholders to participate in the full economic benefits from a fab just now hitting its stride. As a result, we now expect noncontrolling interest, or NCI, to net to approximately $250 million in each of Q2, Q3, and Q4 of this year, and be approximately $1.1 billion for 2027 and 2028, on a GAAP basis. Lastly, excluding the buyout of the Fab 34 joint investment, we still expect positive adjusted free cash flow for the full year. As a reminder, we funded our purchase with approximately $7.7 billion in cash and $6.5 billion in new debt. We remain committed to retiring all $2.5 billion of maturities as they come due this year and all $3.8 billion in 2027. In closing, Q1 was a strong quarter financially and operationally. All demand signals continue to emphasize the growing and essential role of the CPU in the AI era and the unprecedented demand for leading-edge wafers and advanced packaging to realize the vision of driving silicon-based intelligence to the edge efficiently and at scale. Our confidence is growing. We have the right team and the broad IP portfolio needed to solve our customers' most pressing economic challenges and drive long-term value for our shareholders. With that, I will turn it over to John to start the Q&A. John Pitzer: Thank you, Dave. As a reminder, please ask one question and a brief follow-up in order to allow us to accommodate as many callers as possible. We will now open the call for questions. Jonathan, can we please take the first question? Operator: Certainly. Our first question comes from the line of Ben Reitzes from Melius. Your question, please. Benjamin Reitzes: Hey, guys. Thanks a lot, and congrats on the quarter, and this is good news for the country too. Regarding my questions, the first one is on LTAs. Could you just talk about the Google deal, and then there was a comment in the release that you signed other LTAs. How are these structured, and how do they get better for you in the long term in the next phase? Lip Bu Tan: Yeah. Good question, Ben. Let me describe Google as one of the multiple long-term contract agreements in Q1, and this is significant. With Google, we have the Xeon in production, and we are building a long-term, trusted partnership. It is very important for us. It is evidence of strong demand for our CPU and some of the ASIC business. That is important for us, and this is a good example of how we win in the AI infrastructure buildout. Stay tuned. At the right time, we will announce other contracts. Dave, anything to add? David Zinsner: Maybe just to add, most of these agreements are structured with volume and pricing, and they are usually somewhere between three and five years. The Google one, I think both parties wanted to see an announcement. In some cases, customers want to keep that confidential, and we respect their desire to maintain confidentiality, so some of them we just did not announce. It is a win-win in a lot of ways. We get a good understanding of the volumes that we can then build into our assumptions around supply. It is good for the customer because they know where the supply is coming from, and they get a good sense of what pricing they can expect. John Pitzer: Ben, do you have a brief follow-up? Benjamin Reitzes: Yes, thanks, John. With regard to CapEx, is there anything in there with regard to investing in foundry customers? Or is that still not in there? And when do you think we will hear more about that in the CapEx figure? David Zinsner: Let me unpack CapEx just for a minute. We are now calling it flat year-over-year. Initial thinking was that it was going to be down. I think we moved it last quarter to flat to down, and now I think we are looking at flat. That is really a function of the current demand environment we are seeing. One thing to keep in mind: in the last few years, a lot of our CapEx spending was space, and I think we are actually in a pretty good position in space. We wanted to have white space available to move into when needed, and I think Lip Bu and I both feel like we are in a good place. So we will be bringing the space spend down pretty materially, even though the total is flat. What that means is the tool spend is actually increasing pretty significantly. In fact, tool spending will be up year-over-year ~25% or so. That is a function of the fact that we see a lot of demand, and we want to make sure we are catching up on the supply front. As we get into next year, we will have a better sense of what CapEx looks like. As it relates to external customers on the foundry side, our expectation—which we have been pretty consistent on for about a year—is that customer signals would be more concrete in the back half of this year and into early next year. As we pull that information together, combined with our own requirements, which are growing over time, that will give us a good sense of what supply we need over the next few years, and we will put the spend in place. Lastly, our relationship with the equipment vendors is quite strong, so I think we have a pretty good ability to flex as needed. Naga and Lip Bu are in regular engagement with all of the CEOs of the equipment suppliers, so we will be able to manage and course correct as necessary as we get a better sense of the supply dynamics for us, both internal and external, and move our capacity accordingly. John Pitzer: Thank you, Ben. Jonathan, I think we have the next caller. Operator: Certainly. Our next question comes from the line of Ross Seymore from Deutsche Bank. Ross Seymore: Hi, guys. Thanks for letting me ask a couple of questions. First, on the server CPU side, can you talk about how Intel Corporation is positioned competitively? Is the strength that you are seeing more that the market demand is just that high, or do you believe that your product line actually has some competitive differentiations versus either other x86 competitors or ARM offerings? Lip Bu Tan: Yeah, Ross, good question. First, the feedback from the customer is that CPU is very important when you move from training to inference. On the inference side, in terms of orchestration, control plane, and also managing all the different agents with data, CPU is much more efficient. The ratio of CPU to GPUs used to be 1-to-8, and now it is 1-to-4, and I think it could move towards parity or even better. So I think that demand is very strong. On your competitive question, we continue to refine our roadmap—at the end of the day, the best product wins. We have made a lot of changes in terms of CPU architecture to optimize for different workloads. We also have a big advantage: we do not just have the CPU; we have advanced packaging and foundry. We can drive changes more quickly to serve the customer for their different workloads. It is an exciting time—we call it XPU. Besides CPU, we are also quietly building up the GPU with new hires, and we are moving into accelerators so that we can serve the customer from the edge to physical AI and drive new initiatives to stay competitive. David Zinsner: Ross, maybe one other thing to add is that it is obviously early in the Granite Rapids life cycle here, but so far, the early traction has been quite good. We see it as a positive step for the data center CPU business. John Pitzer: Ross, do you have a follow-up question? Ross Seymore: Yeah, I do. You said a year ago Intel Corporation was trying to survive and now it is trying to scale supply—that is a very positive change year-over-year. How does the business model and the spending behavior strategically change in that environment? Dave talked about increasing CapEx a relatively small amount, maybe $17 billion up to $18 billion this year. But if you are scaling supply and supply is under demand across the board, is that something that you can handle with just improving yields, or does CapEx need to go up and maybe call into question the thesis that you are not going to spend on 14A until you actually get customers? Lip Bu Tan: Yeah, good question. In terms of spending, like Dave mentioned earlier, over the last year we have driven a lot of efficiency, flattening layers of management. Now we are really focused on customers and engineering. I spend a lot of time meeting with customers and customers’ customers, understanding the workloads and how we can drive improvements in the architecture, execution, tape-outs, and design to drive efficiency. On the foundry side, we have driven yield improvements—we see very nice yield improvement on 18A. On 14A, we already have the 0.5 PDK available and we are aiming for the 0.9 PDK. That is where customers start to decide which products, how much volume, and capacity we need. Besides driving yield, we are also driving improvement in cycle time so we can meet customer demand and timing and really optimize for them. Operator: Certainly. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question, please. Stacy Rasgon: Hi, guys. Thanks for taking my questions. I wanted to dig into the segment outlook and the implications for gross margin. You said data center is up double digits, which puts it up roughly 40% year-over-year. Assuming PC is similar, maybe up low single digits, I am just surprised. I understand the inventory benefit in Q1, but it feels like gross margins are probably flat excluding that inventory benefit, maybe even down a little bit. I am surprised given the magnitude of the server growth, especially given the 18A yields are supposed to be improving. Are they still low enough that the 18A mix is completely offsetting that? Any color on the gross margin drivers in the near term would be really helpful. I am a little confused. David Zinsner: I obviously do not have your model in front of me, but if I unpack Q2, we will see some benefit from pricing. We got a little bit of pricing benefit in the first quarter, but I would expect to see some more meaningful improvement in the second quarter—that is certainly going to help. Mix will be plus or minus in the zip code; data center is going to grow faster, but I am not sure mix drives much. 18A is going to be a pretty decent headwind to our gross margins. If you look at Panther Lake volume increases, it is going to be up six or seven times in the second quarter relative to the first quarter. While the gross margins are improving in Panther Lake quarter to quarter, it is still below the corporate average. When you have that big a shift in the mix, with gross margins below the corporate average, it weighs down on the gross margins. But we are roughly in the zip code of what Q1 was like anyway, so I am not too concerned. In the back half of the year, we will have some dynamics helping us. The one cautionary concern I have on gross margin in the back half is some of the materials cost increases—substrates are going up, glass substrates, memory is going up. Those things offset some of the improvements that we are having through the year. Longer term, I am still hyper-focused on gross margins. We have elements of the roadmap in the right place in terms of cost structure—certainly on client, definitely seeing improvement on the foundry side. We have more work to do on the data center front, but our goal is to get the gross margins up clearly. John Pitzer: Stacy, do you have a follow-up question? Stacy Rasgon: I do, thanks. I want to push on the PC a little bit. You said industry volume is probably down double digits, so it is going to be even worse in the second half given you are running pretty strong in the first half. Do you expect your full-year client revenues to be down consistent with that industry outlook, or is pricing helping you or hurting you? Is share helping or hurting? How should we think about the shape of your client business in the wake of that industry forecast? David Zinsner: Good question. One thing you have to separate is when we talk about the industry, we are generally talking about consumption, and that is different than our billings because of inventory movement to customers. We are not going to be as impacted as the industry TAM because we expect, partly because of pricing a little bit, but also because of inventory replenishment at the customer level. From a modeling perspective, whatever we get to in February is probably what we run the rest of the year roughly. So it is going to be kind of flattish from Q2 onward from a revenue perspective—at least that is how we are modeling it. Operator: Certainly. Our next question comes from the line of Timothy Arcuri from UBS. Your question, please. Timothy Arcuri: Thanks a lot. Lip Bu, I wanted to ask about the evolution of your foundry model. You are of course pursuing typical foundry customers, but it seems like TeraFab is a little bit of a different deal and maybe even like a process licensing agreement. I would not normally ask about one particular customer, but he did talk about it yesterday. Is that going to be a typical foundry arrangement, or are you possibly going to turn the keys over on an entire fab to them? Lip Bu Tan: Yeah, Timothy, thanks for the question. On 14A, we are making great progress in terms of yield and cycle time, and we are engaging heavily with multiple customers. My style is under-promise, over-deliver, so we have no plan to announce the customer unless the customer wants to announce it, and we support that. Back to TeraFab, clearly Elon and I believe that global supply is not keeping pace with the rapid acceleration in demand. We both share the vision that we are going to learn a lot together, exploring innovative ways in process and manufacturing. It is a very broad relationship, and we will update you as we go. Clearly, this is a very exciting customer to work with, and we have multiple other customers we are engaging. Stay tuned. Do you have a follow-up? Timothy Arcuri: I do. Dave, is there a way to quantify how much demand you are missing out on? How much are you undershipping the market still in Q2? Is it as much as 10%—so if you were unconstrained, revenue would be like 10% higher? Is that a reasonable number? David Zinsner: I probably do not want to put a specific number on it. Let us just say it starts with a “b.” So it is meaningful. Operator: Certainly. Our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please. Vivek Arya: For the first one, I wanted to understand the server CPU TAM growth this year. Dave, I think you mentioned up double digit. Can you help tighten that—10%, 15%, 20%? And then how much ASP expansion do you expect this year also? What I am really curious to understand is the new server TAM growth that you have—how does this compare versus what you thought six months ago, just so that we can get a better sense for what this agentic CPU workload means in terms of incremental unit and ASP growth? David Zinsner: When we are talking about the market, we are generally talking about units. Six months ago, we probably were thinking it would be up instead of down from a units perspective; now it is going to be up meaningfully. I will leave it to industry analysts to pinpoint the exact number. ASPs—we have moved pricing to offset some of the cost increases we have seen over the last couple of quarters, but it is not the biggest driver of our revenue outlook. Unit volume is going to be the biggest driver. That is on an ASP-per-core basis. Obviously, core count is increasing significantly in the data center CPU space, so we get a lift as core count increases, and that is meaningful. John Pitzer: Vivek, do you have a follow-up question? Vivek Arya: Yes, thank you, John. Lip Bu, on server CPU competition—near term versus AMD in x86, do you think you are gaining share and expect to gain share? And then medium to longer term against ARM—NVIDIA is planning to launch a standalone CPU, Amazon has Graviton, Google said they would launch Axion. How do you see competition versus AMD near term and versus ARM longer term? Lip Bu Tan: Good question, Vivek. First, CPU demand is great right now—we all benefit from that. On our product roadmap, we have been fine-tuning. A typical new chip takes about 12 to 18 months. We are laser focused on execution. We are putting simultaneous multithreading into the roadmap—so we are going to have it in Coral Rapids so we can compete effectively with AMD, and we are trying to accelerate Coral Rapids. We are also looking at CPU and GPU architecture and have been recruiting top talent to refine new products to compete effectively. On ARM, clearly we know ARM well. Rene is a good friend of mine. They have a licensing model and have been effective; of course they continue to raise license fees. They also have a silicon team building reference silicon. Amazon and Google are using ARM—that is not news. The good news is we have OEM customers working with us and long-term visions with important customers. The roadmap from Granite Rapids to Diamond Rapids and then to Coral Rapids is coming on strong. We like our portfolio. On the server side, besides x86, we also have the SambaNova partnership for dataflow architecture—we already have some success there. We also recruited top talent—Kavault, who used to run ARM data center server chips, and Srini, who worked with me at Cadence on optimization. All in all, we have the team and the technology roadmap. Over time, we are going to be very competitive. David Zinsner: Keep in mind, Vivek, that beyond the product side, we have another bite at the apple, or maybe multiple bites, on the foundry side. We can provide customers with advanced packaging and wafers. We have a strong breadth of offerings to support their CPU or AI needs in the marketplace. Operator: Certainly. Our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Your question, please. C.J. Muse: Good afternoon. Thank you for taking the question. Could you walk through how you are planning to drive increased output through the second half of the year? How much of it is yields? How much of it is cycle times? How much is incremental wafer fab equipment, as well as outsourcing to TSMC? David Zinsner: First and foremost, we are increasing wafer starts in all three of our nodes—Intel 10/7, Intel 3, and 18A. More meaningfully on the EUV nodes, of course, but even Intel 10/7 will be increasing wafer starts this year. That is a key component of our ability to meet demand. That said, Lip Bu has pushed the team really hard to provide more supply the old-fashioned way with better yields and better throughput, and that is largely how we got it in the first quarter. We can expect him to do that through the year, and I think that will be a meaningful contributor to our output. Of course, we use outside foundries as well, and we flex them as needed. Lip Bu has great relationships with the external foundries, and he is able to leverage that to help us in that area as well. There will certainly be a component of that as we move through the year. Lip Bu Tan: Just to add, TSMC is a very important partner for us. Morris and C.C. and I have decades of friendship. Our product groups will decide which is the best foundry. We are going to use a multi-foundry approach—our own internal and external—so we can benefit customers. C.J. Muse: I do. Thanks, John. I would love to level set where we are on the advanced packaging front. You talked about rising backlog. Anything you can share—what that number looks like, revenue targets this year or next, number of customers? David Zinsner: I have said this in the past—we have been really pleased with our traction there. Maybe naively I thought these opportunities would come in the hundreds of millions of dollars level, but so far what we are seeing is demand in the billions of dollars per year kind of level. This is going to be a big part of the foundry revenue as we get through this decade. The good news is advanced packaging really is a differentiated offering for us and does a lot for the customer, including allowing them to use larger reticles. There is real value to the customer, and as a result we get very attractive pricing relative to some other areas of the foundry business. We would expect this to be at least at foundry average gross margins over time. Operator: Certainly. Our next question comes from the line of Suneet Pajjuri from RBC. Your question, please. Suneet Pajjuri: Thank you. My first question is on 18A yields. Dave, you said the yields are better than you expected and look like they are improving further, but at the same time, it is still a headwind to your gross margin. Can you give us some context as to how much better they are? And as we go through the year, when do you expect that headwind to gross margin to become at least neutral? David Zinsner: 18A yields are a closely guarded proprietary piece of information for us, so we do not typically disclose specifics. I would just say Lip Bu had a target as we came into the year for the end of this year, and we are probably going to hit that around the middle of this year. He has done a very good job working the team to drive a better response there, and of course that carries on to next year’s expectations around yields. As we get towards the end of the year, on a combined product-plus-foundry basis, we will be in a relatively decent place in terms of the gross margins at Panther Lake. We have more work to do at the foundry level to drive gross margins to where we want to be—that is going to be multiple quarters before we get those to be foundry-average gross margins—but it is tracking better than we expected, which is good. We have focused a lot on yields. Lip Bu has brought in a lot of talent into that space, and we have brought in external partners that are particularly good at metrology, which has helped us execute better. We are starting to see the benefits this quarter. John Pitzer: Do you have a follow-up question? Suneet Pajjuri: Yes, thank you. On the ASIC business, Dave, I think you said it doubled year-on-year. Could you help us with what is included in that? I believe it is IPUs? I just want to get a better sense of how big it is, and as we look out to the next few years, what is the strategy for that business to grow? Are you going after the classic ASICs in terms of XPUs, or is this more adjacencies? Lip Bu Tan: Thank you. It is a good question. This ASIC business is sometimes purpose-built silicon optimized for specific workloads that customers want, and that is very important. Besides running and focusing on engineering improvement, we are spending a lot of time with customers. It is important to understand the workload and then tailor for their requirement. It is important to have the right, strong IP portfolio to do that. We have a unique position—we have CPU/XPU and advanced packaging and advanced processing so that we can optimize for the customer. It is a very exciting opportunity and a fast-growing area. We already are engaging with a couple of customers; the feedback is very positive. Stay tuned—over the next five years this is going to be fast growing for us. David Zinsner: One thing that people have been surprised about is how big the business already is—it is at a run rate that is north of a billion dollars already. I think Lip Bu and his partner, Srini, have barely gotten started in terms of what we can make from that, so it has a really strong base from which to grow meaningfully. Operator: Certainly. Our next question comes from the line of Joshua Buchalter from TD Cowen. Your question, please. Joshua Buchalter: Hey, guys. Thanks for taking my question, and congrats on the very strong numbers. I wanted to follow up on Vivek’s question from earlier. You gave some metrics on the near-term CPU TAM, but investors are struggling with how to model CPU demand for agentic workloads. Any help you can provide longer term about how we should think about growth—in units, cores, gigawatts, CapEx? Put bluntly, is the $100 billion number that ARM gave reasonable in your view? David Zinsner: One statistic we look at is the ratio of CPUs to GPUs. If you look at training solutions, they are generally running seven to eight GPUs to one CPU. As we look into inference, it is probably three to four to one. As you get into agentic and multi-agent, it is potentially even flipping the other direction a little bit. That is one way to think about it. As you think about the growth rate going forward, it is going to become a significant part of the AI TAM. Keep in mind, data center is where we are focusing a lot of our conversation, but there is going to be AI—and particularly CPU—opportunities in a lot of different areas: the client space migrating toward AIPC, edge computing, and physical AI specifically. All of those can benefit a lot from CPUs because of the nature of the power consumption relative to performance. Those areas could have even more explosive growth than the data center space. Lip Bu Tan: Just to add, think about the full stack. For agentic AI and later physical AI, how the CPU optimizes working together with foundation models, using data to drive the massive opportunity in agentic AI. Inference is going to be a much bigger market. Physical AI is another big market. It is hard to quantify, but as we go, we will update you. John Pitzer: Josh, do you have a quick follow-up? Joshua Buchalter: Sure, thank you. As we think about your capacity tightness, the leading-edge foundries are also quite tight. Has this driven any near- to medium-term share gains? And longer term, how important is your captive capacity to winning business with customers on a multiyear basis? David Zinsner: Obviously, all the supply right now—or the lion’s share—is internal. We do expect to win external customers over time. Our captive capacity and advanced packaging are important differentiators as customers think multiyear. Operator: Certainly. Our final question for today comes from the line of Aaron Rakers from Wells Fargo. Your question, please. Aaron Rakers: Yes, thanks for taking the question. On the supply side, I think in prior quarters you suggested you were reallocating some supply of wafers from client to data center, and the notion was that Q1 would be the peak degree of constraint. As you rolled out your guidance for this current quarter, how would you frame the level of constraints you see in the guidance this quarter, and does the back half improve dramatically? David Zinsner: Supply will go up in the second quarter. It is going to go up every quarter now going forward. We were certainly at our lowest point in terms of supply in the first quarter relative to the rest of the year. What we were able to do in the first quarter was go through finished goods inventory and find opportunities to sell product we did not think we would be able to move. It was either de-spec product or legacy product we had shelved, and then we worked with customers and found opportunities for them to leverage that technology in their systems. That helped a lot. I am not sure we have that benefit in the second quarter. We will scrutinize finished goods inventory to see if we can find some opportunities, but for the most part, what we are relying on for volume growth Q2 versus Q1 is increasing supply. John Pitzer: Do you have a quick follow-up? Aaron Rakers: I do. As a follow-up, on the progression of your server CPU roadmap—Xeon to Diamond Rapids to Coral Rapids—and really closing the gap with simultaneous multithreading, any color on the cadence of the roadmap would be helpful. Lip Bu Tan: Clearly, demand is strong, and we have fine-tuned the roadmap. We highlight Diamond Rapids after Granite Rapids, and then Coral Rapids is the next one where we have multithreading. That is our roadmap, and we are laser focused on execution. Meanwhile, we will use our ASIC business to drive some customer requirements with purpose-built silicon in the short term. That is a huge opportunity for us—we have unique assets we can provide. 2026 is the year of execution—we are improving yield, productivity, and cycle time to make sure we can catch up with demand. I would like to thank everyone again for joining us today. It has been an eventful first year for me at Intel Corporation. It is gratifying to see our progress, even as we know we have a lot more to do. I am looking forward to seeing many of you at the JPMorgan conference in May and at Computex in June. 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: Welcome to today's event. The call will begin in one minute. Welcome to the Q1 2026 Earnings Call. My name is JL, and I will be your conference operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press 1 on your touch-tone phone. As a reminder, the conference is being recorded. I will now turn the call over to Stephanie Rabe. Stephanie, you may begin. Stephanie Rabe: Welcome to Ameriprise Financial, Inc.'s first quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO, and Walter Berman, Chief Financial Officer. Following their remarks, we would be happy to take your questions. Turning to our earnings presentation materials that are available on our website, on Slide 2 you will see a discussion of forward-looking statements. Specifically, during the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliations of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website at ir.ameriprise.com. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and overall operating plans and performance. These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our first quarter 2026 earnings release, our 2025 annual report to shareholders, and our 2025 10-K report. We have no obligation to publicly update or revise these forward-looking statements. On Slide 3, you see our GAAP financial results at the top of the page for the first quarter. Below that, you see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results. And with that, I will turn it over to Jim. Jim Cracchiolo: Good afternoon, and thank you for joining us. As you saw in our earnings release, Ameriprise Financial, Inc. delivered a strong start to the year, driven by our disciplined execution and the benefits of our diversified business. While the first quarter was marked by ongoing market volatility and economic uncertainty, contributing to more cautious client behavior, our value proposition continued to clearly differentiate us. Across the firm, we remain deeply engaged with clients and delivered excellent financial performance. We are focused on maintaining a high-quality, well-positioned business while continuing to invest and innovate to support deep long-term client relationships. Our business generates consistent earnings across market cycles. Equally important, we maintain a disciplined approach to capital allocation that enables Ameriprise Financial, Inc. to deliver strong value to shareholders. For the quarter, adjusted operating revenues were up 11% to $4.8 billion. Earnings and EPS were also up double digits, with EPS up 19% to a record $11.26. And we continue to deliver best-in-class ROE, which increased to more than 54%. In addition, our assets under management, administration, and advisement grew 12% to $1.7 trillion, driven by our client net inflows and positive markets. The consistency of these results reflects the strength of our integrated business and the benefits of our approach. Very clearly, Ameriprise Financial, Inc. is distinguished by the compelling experience we deliver to both clients and advisers. Across the firm, we remain focused on serving client needs and best interests exceptionally well. That differentiation is reflected in consistently earning excellent client satisfaction, which continues to be 4.9 out of 5, and also by the recognition our firm receives year after year. On the adviser side, our distinctive value proposition drives sustainable practice growth, higher productivity, and recurring revenue over time. Turning to our results, total client assets grew 12% to $1.1 trillion, with wrap assets growing 16% to $664 billion. In the quarter, we were lighter on flows based on more cautious client behavior and some lumpiness in recruiting and terminations. We ended the quarter with $6 billion of wrap net inflows. Importantly, underlying activity was good. For the quarter, we kept clients closely engaged and delivered strong transactional activity, up 10%. Our cash business remains stable with nearly $30 billion in sweep balances. As you saw, our advisers again generated meaningful productivity and revenue growth, with productivity increasing another 10% in the quarter to a record $1.2 million per adviser. Our strategy remains grounded in organic growth—built, not bought. Advisers consistently value Ameriprise Financial, Inc. for the depth of our value proposition and the strength of our partnership. We continue to prioritize our core adviser team productivity, and we complement it by recruiting high-quality advisers who view us as a strategic partner supporting strong client outcomes and practice growth. Sixty-one advisers joined during the quarter, and we are seeing a pickup of activity in the second quarter. And in AFIG, we continue to expand this channel as a premier platform for banks and credit unions. During the quarter, we signed a multiyear agreement to become the retail investment program provider for Huntington Bank. This relationship is expected to add approximately 260 advisers and $28 billion in assets, with onboarding beginning later this year. Huntington selected Ameriprise Financial, Inc. for our leadership in advice, strong culture, and capabilities. As we shared, we consistently invest across the firm to meet client needs today and further strengthen the business for the future. These are intentional multiyear investments across technology, systems, and new capabilities. We are focused on clear, high-impact outcomes that deepen engagement and deliver relevant and actionable information while enabling highly personalized, quality experiences. In particular, we have designed our tech platform around how advisers work, not individual tools. It connects multiple capabilities like our CRM platform, eMeeting, Advice Insights, and practice workflows into an intelligent ecosystem enhanced with embedded AI and automation. To that end, we feel good about the progress we are making at scale. Our focus is on using AI and intelligent automation capabilities that help advisers deliver a consistent, high-quality client experience while improving how they operate day to day. In terms of investments and solutions, after the initial launch of Signature Wealth UMA mid last year, we are now expanding the product capabilities and seeing positive early asset movement and engagement. There is meaningful upside as we continue to add capabilities, including the introduction of SMAs and as we broaden the strategy set over time. With regard to our bank solutions, which complement our overall offering, bank assets now exceed $25 billion, with continued strength in pledge lending. With the recent introduction of products including HELOCs and checking accounts, we now offer a complete suite. As we reach more of our advisers and clients, we expect this will present opportunities to bring additional assets to the firm. To close out AWM, we received new recognition in the quarter. For the 2026 J.D. Power U.S. investor satisfaction study, Ameriprise Financial, Inc. ranked third out of 23 firms overall—a terrific result that underscores the quality of the experience we deliver. Turning to our Retirement & Protection business, as advisers deliver more comprehensive advice, they are thoughtfully incorporating annuity and insurance solutions to address clients' increasingly complex needs. Sales were solid in the quarter, supported by continued demand across annuities and B-UL. In addition to meeting client needs, this business continues to generate attractive margins and consistent earnings over time, with RiverSource again recognized as one of the most profitable insurers in the industry. Moving to Asset Management, assets under management and advisement increased 8% year over year to $706 billion in the quarter. Investment performance remains a strength. More than 70% of our funds are performing above the peer median over the 1-, 3-, and 5-year periods, and 85% are above the median over 10 years. This sustained performance continues to be recognized externally. In the most recent Barron's Best Fund Family rankings, Columbia Threadneedle placed in the top 10 across all time periods. And our U.S. fixed income team recently earned four 2026 Lipper Awards. Importantly, net outflows improved significantly year over year to $5.9 billion, reflecting better trends across both retail and institutional channels. Gross retail sales in North America continued to improve, up 26% even in a volatile market environment, and we are seeing nice sales within Ameriprise Financial, Inc. from good initial sales in Signature Wealth. Retail flows in EMEA also improved; however, they were impacted by headwinds from geopolitical volatility during the quarter. On the product side, we continue to advance our strategy across ETFs, SMAs, and alternatives, with a clear focus on scale, consistency, and performance. Our ETF platform surpassed $10 billion in assets under management, supported by a differentiated offering across North America and EMEA. In SMAs, we benefit from longstanding track records and remain a top 10 provider with continued positive flows. In alternatives, our technology and healthcare hedge fund strategies delivered strong performance and sales momentum, and we see good opportunities ahead. Consistent with our approach in wealth management, we are applying advanced analytics and technology within asset management, including in investment research where these capabilities are contributing real value. At the same time, we are transforming how we leverage our global platform. We are driving greater efficiency across the front, middle, and back office while continuing to strengthen our data foundation. We are also making good progress on back-office outsourcing, with a substantial portion of the conversion expected to be completed later this year. These initiatives complement our broader efforts to streamline systems and support operating leverage over time. Now for Ameriprise Financial, Inc. overall, our focus is having a premium, branded, client-focused business that delivers strong financial performance and attractive returns. Over the past year, we have achieved record earnings and generated best-in-class return on equity now exceeding 54%, as I mentioned. Given this performance and our current valuation, we continue to view our shares as an attractive buying opportunity. As a result, as you know, we increased our share repurchases in the fourth quarter and continued our strong return to shareholders with 88% returned in the first quarter. And our board just approved another 6% increase in our dividend. Ameriprise Financial, Inc. is built to perform across market cycles. We are well positioned to deliver meaningful value over time, manage risk responsibly, and generate resilient performance. Before I close, I want to highlight that the iconic Ameriprise Financial, Inc. reputation remains an important competitive advantage. We are proud to have a company that continues to be widely recognized in the marketplace for who we are and how we operate. In the minds of consumers, employees, and investors, Ameriprise Financial, Inc. has been named one of America's Most Trustworthy Companies in 2026 by Newsweek. And from Fortune, Ameriprise Financial, Inc. is also one of America's Most Innovative Companies for 2026, affirming our leadership in technology and driving transformational change. In closing, Ameriprise Financial, Inc. offers a differentiated combination of an excellent client and adviser value proposition, sustainable, profitable growth, and an attractive capital return. With that, I will turn it over to Walter to discuss our financials in more detail. Walter Berman: Thank you, Jim. Ameriprise Financial, Inc. delivered strong financial results in the quarter, with adjusted operating earnings per share up 19% to $11.26 and an operating margin of 28%. These results reflected the strength of our diversified earnings profile and the operating leverage embedded in our businesses as well as the return from significant investments we have continued to make. Our ability to generate attractive growth and margins across cycles underscores the durability of our platform and the discipline we bring to execution. Total assets under management, administration, and advisement increased 12% to $1.7 trillion, which, coupled with strong client engagement, drove an 11% increase in revenues to $4.8 billion. In the quarter, we returned 88% of operating earnings to shareholders through share repurchases and dividends. Our balance sheet remains exceptionally strong, with $2.3 billion of both excess capital and holding company available liquidity. Let us turn to Wealth Management financials on Slide 6. Adjusted operating net revenues increased 14% to $3.2 billion. The core distribution business is performing well given the value of our planning model and the multiple touch points we have with the client to meet their needs holistically. Our fee-based and transaction revenues remain quite strong, increasing 17%, benefiting from growth in client assets and higher activity levels. In addition, our bank revenues increased 6% from business growth, including the expansion of our lending products, while revenues from cash sweep and certificates declined. Adjusted operating expenses in the quarter increased 12%, with distribution expenses up 14%. I will note that adviser compensation within distribution expenses increased in line with the revenues advisers generate. G&A expenses were up 4%, primarily driven by volume and growth-related expenses, including investments in Signature Wealth and banking products. This level was consistent with our expectations. Pretax adjusted operating earnings increased 20% to $951 million, with continued strong contribution from core distribution and core cash earnings. In the quarter, Comerica exercised their option for early termination of their relationship with us. This resulted in a one-time $25 million make-whole payment for onboarding cost and future earnings, which finalized all payments that were due to us for this termination. Excluding this benefit, earnings increased 17%. Our core distribution earnings grew in the mid-30% range, benefiting from higher client assets and advisory fees as well as strong activity levels. The strong level of core distribution earnings that we generate is unique relative to other independent wealth managers and demonstrates our focus on ensuring that our growth is profitable. Bank earnings grew 6% in the quarter, while certificate earnings declined. In total, core cash earnings were essentially flat from a year ago. We continue to take actions to build the bank portfolio in a way that supports stable earnings contributions going forward. The overall bank has a yield of 4.6% with a four-year duration, with now only 7% of the portfolio in floating-rate securities. In the quarter, new purchases at the bank were $1.9 billion at a yield of 5% with a 4.1-year duration. Lastly, our aggregate margins remained excellent at 30%, up from 28% a year ago. Underlying that, our core distribution margin is over 20%, with a solid contribution from cash. Let us turn to Slide 7. Advice & Wealth Management generated solid asset growth in the quarter. Client assets grew 12% to $1.1 trillion, and wrap assets increased 16% to $664 billion, driven by solid organic growth, strong adviser productivity, and equity market appreciation. Our new Signature Wealth program continues to gain momentum; a significant portion of the assets are new money to Ameriprise Financial, Inc. Client flows were $4.2 billion, and wrap flows were $6 billion in the quarter. This reflected several moving pieces that I will explain. Same-store sales levels remain strong and consistent aside from the normal seasonal impacts and client caution resulting from volatility in the quarter. However, in the quarter, we had some lumpiness in our flows caused by a combination of the aggressive recruiting environment, which drove higher adviser departures, as well as the acceleration of Comerica advisers departing as a result of their acquisition. We anticipate the higher pace of outflows related to Comerica will continue in the second and third quarters, culminating with the conversion occurring near the end of the third quarter. While we have significant capacity to recruit, the recruiting deals we are seeing today in this perceived risk-on environment exceed what we believe is a balanced risk-return approach, given the long cash paybacks and marginal P&L benefits over the extended life of these arrangements. We will continue to evaluate the facts and circumstances—whether for recruiting or retention—to assess the trade-offs between sustained profitability versus flows and associated risk. This approach will ensure decisions are driving sustained shareholder value creation. Lastly, I will note that in the latter part of the quarter, we have seen improving trends. As we look ahead, the addition of Huntington Bank is anticipated in the fourth quarter and will bring approximately 260 advisers and $28 billion of client assets onto our platform. Separately, we are further enhancing our adviser succession strategies for both internal and external advisers, including expanding and leveraging Ameriprise’s Personal Wealth Group, our centralized adviser group, as a potential succession option. Let us turn to Slide 8. Advice & Wealth Management generated solid productivity growth. Our adviser productivity continues to grow, reaching a new high of $1.2 million, up 10% year over year, driven by strong growth in wrap assets and related fees as well as enhancements to adviser efficiency from the integrated tools, technology, and support we provide. In addition, transactional activity remains strong, increasing 10% compared to the prior year. This is primarily from nice growth in annuity products and brokerage transactions. Total client cash of $86 billion was essentially flat year over year and sequentially. Bank assets increased 6% year over year to $25.5 billion, with the bank representing a stable source of earnings going forward. Cash sweep balances decreased slightly to $29.4 billion compared to $29.9 billion in the prior quarter, which is consistent with the seasonal tax pattern we would expect to see. Certificate balances declined to $7.6 billion from $8.2 billion in the prior quarter, given the interest rate environment. We continue to have elevated cash balances in third-party money market funds at nearly $48 billion. We had seen that decline for the first time in January and February, but with the volatility later in the quarter, we saw cash levels build modestly again. This remains an important opportunity, when rates decline, to see these cash balances deployed into other products on the platform. Turning to Asset Management on Slide 9. Financial results were strong in the quarter. Operating earnings increased 13% to $273 million. Results reflected asset growth and the positive impact from transformation initiatives. Total assets under management and advisement increased to $706 billion, up 8% year over year from higher ending market levels. As Jim mentioned, net outflows improved in the quarter. Revenues increased 8% to $910 million, and the underlying fee rate remained stable at approximately 47 basis points. Expenses increased 5% in total. In the quarter, general and administrative expenses were up 4%, driven by volume-related expenses and unfavorable foreign exchange translation. Margin reached 44% in the quarter, which is above our targeted range of 35% to 39%. Let us turn to Slide 10. Retirement & Protection Solutions continued to deliver strong earnings and free cash flow generation, reflecting the high quality of the business that was built over a long period of time. Pretax adjusted operating earnings were $190 million, which reflected higher distribution expenses associated with strong sales levels and continued outflows from variable annuities with living benefits partially offset by higher equity market levels. However, we continue to expect earnings over time to be in the $800 million range per year. This business has excellent risk-adjusted returns and continues to be an important part of AWM's client value proposition. Turning to the balance sheet on Slide 11. Balance sheet fundamentals and free cash flow generation remain strong, which is core to our ability to invest for growth on a sustainable basis while also continuing to return capital to shareholders. We have an excellent excess capital position of $2.3 billion. We have $2.3 billion of available liquidity. Our asset and liabilities are well matched. And our investment portfolio is diversified and high quality. We have no exposure to middle market lending directly or through funds and BDCs in our owned assets. Similarly, we have limited direct exposure to broadly syndicated loans in our owned assets. Our disciplined capital return is a key element of our ability to consistently generate strong long-term shareholder value. In the quarter, we returned $936 million of capital to shareholders, which was 88% of operating earnings. This included the opportunistic repurchase of 1.6 million shares to take advantage of the decline in our P/E multiple in the quarter. We also raised the quarterly dividend by 6%. These actions are a demonstration of the confidence we have in our continued free cash flow generation and commitment to return capital to shareholders. As we go through 2026, our strong foundation, coupled with our capabilities and decisioning framework, positions us well to continue investing for growth in a targeted way and return capital to shareholders at a differentiated pace. In summary on Slide 12, Ameriprise Financial, Inc. delivered solid results in the first quarter. Over the last twelve months, revenues grew 8%, adjusted EPS increased 12%, return on equity grew 140 basis points, and we returned $3.6 billion of capital to shareholders. We had similar growth trends over the past five years, with 9% compounded annual revenue growth, 20% compounded annual EPS growth, return on equity improving over 17 percentage points, and we returned $14 billion of capital to shareholders. These trends are consistent over the long term as well. We have an excellent foundation and capacity moving forward that enables consistent and sustained profitable growth. With that, we will take your questions. Operator: Thank you. We will now open the call for questions. We will now begin the question-and-answer session. If you wish to be removed from the queue, simply press 1 again. If you are using a speakerphone, you may need to pick up your handset first before pressing the numbers. Once again, if you have a question, please press 1 on your touch-tone phone. Your first question comes from the line of Wilma Burdis of Raymond James. Your line is open. Wilma Burdis: Hey, good afternoon. First question, why did not Ameriprise Financial, Inc. lean in more—return more than 88% of operating earnings in 1Q 2026? Especially given the stock was back to kind of Liberation Day levels at certain points? And should we expect 2Q 2026 capital return levels more in line with 4Q 2025 if the stock stays at the current level? Thanks. Walter Berman: As we indicated, we will be buying back 85% to 90%. Certainly, looking at the P/E ratio and where we are right now, it is a reasonable expectation that we would take advantage of that and be approaching us up to a higher number, and then evaluate it, because we certainly have the capacity to do that and invest in the business continually. Wilma Burdis: Okay. Thank you. And could you quantify the outflows from the Comerica advisers just to help us arrive at a more normalized net flow number for 1Q 2026? And along similar lines, if you could talk about the remainder of the year, should we expect additional outflows from Comerica and talk a little bit about the Huntington Bank inflow expectations? Thanks. Walter Berman: The Comerica outflows started as it relates to the acquisition in the fourth quarter and certainly continued in the first. They were a reasonable portion of the outflows that we had. We are seeing, because of the acquisition, a more accelerated pattern. We expect that pattern to continue and accelerate in the second and third quarter. And as I indicated, based on our current plans, we should finalize the contract by the end of the third quarter. We are seeing that activity. Jim Cracchiolo: The contract was executed and finalized, and so any financial impact from that is already in what we collect. We booked the $20-some-odd million in the quarter for a make-whole. And so it will come through the flows, but the impact financially to us is immaterial. We cannot give exactly how they will transfer it, but when we are mentioning it, it is the flow. Maybe as we go forward, we will try to break things to be a little clearer on it. But assume that all of it will be out by the end of the third quarter. And then Huntington will come in in the fourth quarter, and that will be moved in in the fourth quarter, and that would be, as I indicated in my remarks, about $28 billion. Wilma Burdis: Okay. Thank you. Operator: Your next question comes from the line of Brennan Hawken of BMO Capital Markets. Your line is open. Brennan Hawken: Hey. Good afternoon, Jim and Walter. Thanks for taking my question. I would like to follow up on that last one. I would like to get a mark-to-market on Comerica. I believe it was $18 billion of assets. I think you said that it started to come out in the fourth quarter. You saw a little this quarter, and you expect some the next two. I know you chose not to quantify, but is it reasonable just to take that $18 billion and allocate it across four quarters and call it a day? Or will there be some lumpiness and concentration in particular quarters? Thanks. Jim Cracchiolo: It is hard to know exactly what that trend line is. This is Fifth Third that has taken over the activity. The deal was concluded; we received what we needed to receive back and the reimbursements, etc. We booked the $20-some million in the quarter for a make-whole. It will come through the flows, but the impact financially to us is immaterial. We cannot predict exactly how they will transfer it, but we understand the need for clarity, and we will try to be clearer as we go forward. You should assume that all of it will be out by the end of the third quarter. Walter Berman: We are getting advisers giving us notice on terminations. That is why I say it has built up. We cannot really predict the amount, but we are seeing heavier activity take place in the first and starting now in the second quarter. Brennan Hawken: Okay. But is my $18 billion at least right? Jim Cracchiolo: $18 billion is right in total. Correct. Absolutely. Brennan Hawken: Okay. Cool. And then there is a lot of focus within the wealth space on the cash and whether or not these AI tools are going to allow for optimization of cash. It is not a huge central feature for you guys in your business model. But how are you thinking about that as you move forward? I know you have the bank as part of the strategy now. Have you considered looking at some of these tools within your own network, and how are you considering that development that is likely to come down the pike? Jim Cracchiolo: Good question. First and foremost, as Walter outlined, the cash contribution this quarter adds a certain amount to our margin, but the bulk of our earnings and profitability is from the real wealth management part of our business with the fees and the transactions we conduct on behalf of clients. Our revenue from the sweep is a very small part—only a few percent. From our perspective, it is not the bulk of our earnings. We have developed the bank in a way that we can add value from both lending activities and savings programs, including checking. The amount of cash that will still be in transactional balances, whether AI-assisted or not, will be so low that money will be moving in and out, just like a basic checking account. We already provide significant capability and ease for our advisers and clients to move cash efficiently. That is why our cash levels that we maintain in transactional accounts are, on average, about $100 per account. We are not as concerned. If there are other capabilities that come about that make sense, we will look at them, but we are not looking at that as a major change to what is being held there. Walter Berman: Our average transactional balance now is about $6,000. As Jim said, it is very active and at transactional levels that meet the minimum standards in the account. The percentage of our earnings that come from cash is lower than most of our peers and therefore certainly manageable. Brennan Hawken: All fair. Thanks very much for taking my question. Operator: Your next question comes from the line of Michael J. Cyprys of Morgan Stanley. Your line is open. Michael J. Cyprys: Great. Thanks for taking the question. I wanted to ask about the bank with the new initiatives that you have across lending and savings. Hoping you could elaborate on how those are contributing today—I realize it is early days. Could you talk about the steps you are taking to drive broader engagement, how you see that ramping, and what are some of the other initiatives you are thinking about in the coming quarters? Jim Cracchiolo: Thank you for the question. The one that we had launched previously that is growing nicely, and there is still a very large opportunity for us, is pledge lending. As more of our advisers get familiar with it and activate their activities around it, that continues to grow, and compared to some peers, there is a lot more opportunity for us there. We just completed the launch of the checking account, which is a core component of banking, and, in complement with HELOCs, mortgages, and savings programs, we are starting to ramp that up as we get it out to advisers and make information available for clients. This is at the early stages of what we think we can do. We see some early signs from initial launches, and advisers like what we are providing and the benefits. We hope this becomes a stronger contribution as we go, but we are at the early stages. Michael J. Cyprys: Great. And then as a follow-up on AI, could you update us on the AI tools that you have available for advisers today, how you see that evolving over the next year or so, and where you see some of the biggest opportunities? How meaningful could this be as you think about adviser productivity and, ultimately, efficiency savings for Ameriprise Financial, Inc.? Jim Cracchiolo: We view AI as an extension of our total technology strategy that we have been building for many years. It is not a standalone initiative. What differentiates what we are doing is that these capabilities are embedded in an integrated platform built around how advisers work, supported by the data foundation—which is critical in a highly regulated business—and the governance for it. The integration allows us to deploy AI directly into everyday workflow across advice, operations, and service, rather than layering it as a tool in a fragmented system. The result is greater efficiency, better insights, and more time that advisers can spend on client relationships, which drives the outcomes you are looking for. In the near term, we see productivity gains and selective automation. Longer term, we see capabilities supporting growth by enabling advisers to serve more clients with a higher standard of advice. This is embedded into many of the tools we have: client acquisition, meeting planning and scheduling, meeting preparation, goal-based advice, products and solutions, meeting follow-up and summarization, and business planning. Our eMeeting capability, for example, is already integrated and can pull all the data from adviser engagement with the client, past cases, and the opportunities that we get from Advice Insights to suggest next best actions based on the client's financial situation. Over time, we will introduce more AI agents to do some of the actual adviser work where appropriate to increase productivity rather than adding staff. We are also embedding capabilities at the company level. Michael J. Cyprys: That is helpful. Just curious if you are able to quantify any of the productivity gains that you have seen so far. Jim Cracchiolo: We see clear productivity where advisers have enabled it. For example, our eMeeting takes away hours of work within an adviser practice every week. We have not extrapolated what advisers then do with that, but those are things we will try to quantify as appropriate. Operator: Your next question comes from the line of Suneet Kamath of Jefferies. Your line is open. Suneet Kamath: I wanted to come back to AWM organic growth. If I remember correctly, last quarter you expressed some confidence in the 4% to 5% target for the year. I think three quarters now we have been talking about increased competition—you are talking about it again now. Based on what you are seeing, do you still think you can achieve that 4% to 5% this year, or is the increase in competition taking you off that glide path? Thanks. Walter Berman: When we talk about the organic, the same-store, we are seeing good growth. The area that deviates is on the attrition side. Certainly, in this quarter, Comerica contributed toward that. That is the variable that affects when you look at these arrangements that are being offered at this stage—both on the retention side and on the recruiting side. But the solid core of our growth is there, and we feel very comfortable with it. Then managing the net on the inorganic is the element that deviates. Last quarter, we were up. This quarter, it was down. It will be lumpy as we manage through it, depending on how aggressive we see the environment and how we gauge the appropriateness of responding. Our objective remains, because we think that is a good objective—the core is solid. Now it is a matter of the environment as it relates to aggressive bidding on recruiting or on retention. Jim Cracchiolo: People over-index to one metric sometimes. Our core assets grew strongly over the year. We generated the revenue that translated into real profitability we brought to the bottom line. You can always add growth—be an acquirer—but we would never pay way more on an acquisition just to grow size if we do not see an appropriate return over time. Advisers who take a big check may not stay after that check is up. We want to recruit people who know we can help add value and give them strong practice support and a strong client value proposition. Our firm stands out in that regard—client satisfaction, trust. We have a lot of capital, but we do not look at buying firms as the best way to deliver strong premium value and culture. Some advisers will take a big check, but our pipeline is ramping up again for the second quarter. Underneath, our focus on productivity growth across 10 thousand advisers is what will drive true profitability. Suneet Kamath: That makes sense. People sometimes over-index to one number in one quarter. My other question: I wanted to drill into this AFIG opportunity. It seems like the cost of being in this business is going to go up. If you have banks that want to be in wealth management but do not want to make the required investments, it seems like that plays into your hand in terms of AFIG opportunities. Will we likely see more of these? Jim Cracchiolo: You are 100% correct. Huntington Bank kicked the tires and looked for the best provider. Their goal is excellent banking complemented by wealth, and they wanted a partner who could provide the support, capabilities, culture, and environment to deliver great outcomes for their clients. They clearly chose us for those reasons. We think we will have a great partnership. Comerica was working fabulously for the bank—their executives would attest to that. Advisers loved us and would love to stay. We did not lose the business; Fifth Third purchased them and kept it with their operating platform. There will be more opportunity for us. Walter Berman: One of those is really the deepening of the relationship—what we do with our clients. They recognize our capability to do that with their bank clients. Operator: Your next question comes from the line of Analyst of Piper Sandler. Your line is open. Analyst: Thank you. Good afternoon. I appreciate you taking my questions. First, the operating margin in the asset management business was very strong at 44% in the quarter. Are the expense management actions from that segment complete or still ongoing? And any other key callouts for the margin strength? Is that level sustainable, or would you expect it to trend back to your 35% to 39% targeted range? Walter Berman: The transformation is working its way through, and the back-office transformation has not taken hold yet. You will see it as it goes through. As part of the way we operate, you will see continual transformation and streamlining. Operating expenses will also go up with volume and other related items. We are committed to the transformation and improvement of our processes and getting the benefit of that. The biggest one right now—back office—has not worked its way through the numbers yet. Jim Cracchiolo: We are advancing—extending our product line in ETFs and SMAs, adding capabilities. We will continue to drive progress on leveraging our global platform with a strong backbone, while investing. We will keep the expense base in check and aim to maintain good margins. Analyst: Thank you. And then on the Huntington Bank win you announced earlier in the quarter, can you give more color? Was this a competitive takeaway? An overview on the process or competition to get this win, and how long did it take to get over the finish line? Jim Cracchiolo: This was actually Huntington Bank running their own activities—broker-dealer, etc. They were very cautious because they did not want to give that up unless they had someone who would really provide what they were looking for and take it to another level for them. We love clients that really care about their clients. Walter Berman: The process was over a year, by the way. Analyst: Great. Thank you. I appreciate you taking my questions. Operator: Your next question comes from the line of Steven Chubak of Wolfe Research. Your line is open. Steven Chubak: Hi. Good evening, Jim and Walter, and thanks for taking my questions. I wanted to double click into the discussion around M&A and appreciate the disciplined approach to recruitment, the reluctance to chase given the more aggressive packages in the market. Our channel checks indicate that TA rates have been and should remain relatively sticky. I want to better understand, one, how that informs your outlook for core NNA over the course of the year, ex the noise related to Comerica, but also the interplay with the distribution expense, which surprised positively and declined about 100 bps year on year. Walter Berman: We have been fairly stable on that rate, as you saw. We will continue to compete where appropriate and move up within our tolerances. You should see that number pretty much stay in that range as we go through the year. We will participate where appropriate, including compensation. It is pretty much going to be in that range. Steven Chubak: Thank you. And then on the interplay around M&A expectations? Walter Berman: As I said, on the NNA, the core is there. Comerica will play through that. Recruitment should marginally affect it going up, but it should be aligned with our objective set as it relates to NNA and that correlation to that rate. Jim Cracchiolo: The bulk of our activity is organic, so it should be pretty stable. Steven Chubak: Got it. And for my follow-up on Signature Wealth, you highlighted strong momentum. Could you provide some KPIs—the level of penetration across the platform, the pace of adoption, attachment rate—and how we should think about the incremental fee opportunity as adoption builds? Jim Cracchiolo: We initially launched in the second half of last year, and with rollout and getting advisers initially engaged, it is starting to really take hold. Any new platform takes time. Advisers who activate it like it and are moving more assets in. A lot of the money going in includes new money. Some comes from other platforms, but repositioning takes time. We are adding capabilities like SMAs. My team says that versus previous wrap launches, this is one of the quickest, and it is progressing nicely against expectations. As we get further along, we will provide more information. Steven Chubak: That is helpful. Thanks so much for taking my questions. Operator: Your next question comes from the line of Thomas George Gallagher of Evercore ISI. Your line is open. Thomas George Gallagher: Hi. First question is on the competition and how you are approaching it. If there are irrational deals being offered in the market and you are holding the line, what is the scale of this activity? Is it limited enough where you are not that worried, or is there a risk that this becomes bigger and could meaningfully impact the size of your adviser base? How broad is this right now, and is it still limited enough that you think you can achieve your objectives, or is it something you will have to react to more forcefully? Jim Cracchiolo: You could have an RIA where a team thinks that is where they want to move based on what they are being offered. You get a few of those. Then you have competitors offering big checks and promising what they have. When we bring in advisers from some of those platforms, they look at our technology and capability compared to what they had, and it is night and day. What people sell as a story with a big check sounds wonderful, but that is what will occur. We talk to our advisers, explain the reality, and most of them stay. People dangle big checks; some jump, some listen. It is not large in scale. Our net recruiting, less what we lost last year, was still very positive. This happens in cycles; aggressive packages can blow up later. Some are getting credit for top-line growth, but whether it pays back in a number of years, I do not know. We focus on core profitability, not just cash earnings that the market might overvalue. Walter Berman: Looking at client growth in client assets—very strong—based on organic growth. When you evaluate growth coming from new assets via aggressive packages and you look at the differential on payback, you almost have to be twice as much to get marginally close to what we are doing organically. The impact factor must be considered given our size and the growth and profitability we have from organic. Turnover in the industry shows when someone leaves for a big check, they most likely leave again. If they leave for a better environment, culture, support that they and their clients relate to, they usually stay. Thomas George Gallagher: That is helpful perspective, Jim. Level-setting this: if I exclude the Comerica attrition in the quarter, are the advisers that left outside of that under 100? Can you dimension that? Jim Cracchiolo: There were not a lot of advisers. There were some adviser practices that left, and with that, you get a couple of billion dollars of flows—just like when we brought people in in the fourth quarter, you get a couple billion the other way. It was not a large movement of advisers; that is why Walter said it is lumpy. What you should be looking at is our growth of total asset base and total revenue base, and that translated to very strong bottom line—consistent with that. That is what I would pay for if I am investing. If I have a lot of top-line growth but it is not translating after expenses, amortization, financing, etc., that is different. Thomas George Gallagher: Got it. And then for my quick follow-up, how should I compare the Huntington deal with a normal 10- to 20-person adviser practice that you would hire and the type of package you give them? Is it comparable? I assume with more scale, you can offer better terms to Huntington. How would you compare the IRR on that deal versus a normal smaller deal? Walter Berman: It is a 10-year deal—a growing deal with a strong adviser base. The paybacks are within our ranges and make sense for both of us. This is a large transaction that will stay with us and grow with us, with stability. You cannot compare it to a one-off. The IRRs are very good and appropriate, with strong stability and growth potential. Operator: Your next question comes from the line of Kenneth Lee of RBC Capital. Your line is open. Kenneth Lee: Hey, good evening. Thanks for taking my question. One follow-up on the Huntington deal: just for completeness, fair to say that the $28 billion in AUM is going to materialize in either client inflows or wrap inflows after the fourth quarter and throughout the next couple of quarters? Walter Berman: Most of that will occur in the fourth quarter. Kenneth Lee: Okay. Great. And one follow-up, if I may, in terms of the G&A expense, recognizing the back-office optimizations still ongoing within Asset Management. Any updated outlook around overall G&A expenses there? Walter Berman: In Asset Management, G&A should track in the range of neutral to a small negative. We are getting momentum, and as I mentioned, we have the back office coming through. So it is in that range. Kenneth Lee: Got it. Very helpful. Operator: Next question comes from the line of Alexander Blostein of Goldman Sachs. Your line is open. Alexander Blostein: Hey, good afternoon. This is Anthony on for Alex. To follow up on the recruiting discussion, what channels are you seeing the most aggressive recruiting packages? I appreciate you holding the line there, but at what point would you need to revise your payout packages if the industry continues to trend in that direction? Walter Berman: You are seeing it in both the W-2 and the franchise channels—both have gotten extremely aggressive on fronts and commitment levels. It is across the board. We gauge payback and the risk-return of it. We rely on organic growth. Any adjustments must make sense with payback across all factors, not just trying to get volume. Alexander Blostein: That is helpful. For my follow-up, certificate balances continue to trend downward. How are you thinking about the trajectory of balances from here? Walter Berman: That is strictly a spread play. We will probably see it stabilize and stay in this range or increase a little more—again, strictly spread depending on where rates are going. Operator: Thank you. We have no further questions at this time. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good afternoon, participants. We will be starting at 2:01 Pacific Time as our speakers are still preparing for the conference. Thank you for your patience. Good afternoon. David Straub: And welcome to Boyd Gaming Corporation First Quarter 2026 Earnings Conference Call. This is David Straub, Vice President of Corporate Communications for Boyd Gaming Corporation. I will be the moderator for today's call, which we are hosting on Thursday, April 23, 2026. At this time, all lines are in listen-only mode. Following our remarks, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star then 0 for the operator. Our speakers for today's call are Keith Smith, President and Chief Executive Officer, and Josh Hirsberg, Chief Financial Officer. Comments today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC, that may impact our results. During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-Ks furnished to the SEC today, both of which are available at investors.boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses. Today's call is being webcast live at boygaming.com, and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. With that, I would now like to turn the call over to Keith Smith. Keith? Keith Smith: Thank you, David, and good afternoon, everyone. Our first quarter results once again demonstrated the benefits of our diversified business, our continued focus on operating efficiencies, and our ongoing capital investment program. Overall, company-wide revenues reached nearly $1 billion while EBITDAR was $317 million. On a property-level basis, first quarter revenues and EBITDAR grew year over year, led by continued growth in gaming revenues. We successfully maintained operating efficiencies throughout our business, with property margins again exceeding 39%. These results were driven by broad-based strength in our Midwest and South segment, partially offset by the continued impact of softer destination business in Las Vegas and construction disruption at Suncoast. On a company-wide basis, play from both core customers and retail customers continued to grow during the first quarter, consistent with the trends we saw in 2025, and we are encouraged that the customer trends from the first quarter have continued into April. Now turning to segment results. Starting with our largest segment, our Midwest and South business achieved broad-based revenue and EBITDAR growth during the quarter. Overall, revenues grew 4% in the quarter, while EBITDAR grew 5%, and margins improved to nearly 37%. We also delivered continued growth in gaming revenues in the quarter, driven by increased play from both core and retail customers. These positive results were supported by the ongoing trend of customers staying closer to home, as well as benefits from milder winter weather this year and strong returns from our capital investments throughout the segment. These investments include our recent hotel remodels at IP Biloxi and Valley Forge, our new convention space at Ameristar St. Charles, and additional food and beverage enhancements across the segment. In addition, our Treasure Chest property continues to deliver year-over-year growth. We plan to build on this strong performance with the addition of a new high limit room, which we expect to open early next year. Moving to our Nevada operations, results in our Las Vegas Locals segment reflected continued softness in destination business, with the largest impact at the Orleans. We also experienced more significant construction disruption at the Suncoast during the quarter related to the modernization project currently underway. While the Suncoast management team has done a great job mitigating construction disruption thus far, our renovation work moved into the most popular part of our casino floor during the quarter, creating a more material impact from disruption. We anticipate this disruption will continue until we complete our renovation project late in the third quarter. Excluding Orleans and Suncoast, revenues and EBITDAR for the remainder of the segment were in line with the prior year and operating margins exceeded 50%. Even with the impacts from Orleans and Suncoast, play from our core customers during the quarter was in line with the prior year in our Las Vegas Locals segment. Similar to our Midwest and South segment, we are actively investing in our Las Vegas Locals portfolio to drive continued growth. These investments include the recent opening of our newest Locals property, Cadence Crossing Casino, on March 25. While it is still early, this property has received an enthusiastic response from our guests. Another example of our investments is the modernization of our Suncoast property. This project includes a complete transformation of our casino floor, enhanced food and beverage offerings, and updated meeting and public spaces, and remains on track for completion towards the end of the third quarter. We are also continuing to enhance our non-gaming amenities throughout the Las Vegas Valley. Our hotel room renovation at the Orleans is on track for completion later this year, and we plan to begin a similar project at the Suncoast Hotel this summer. Additionally, we opened several new restaurant concepts at the Gold Coast during the first quarter, with additional restaurant concepts now under development at Fremont, Aliante, and Sam's Town. In 2027, we plan to begin a modernization project at the Orleans similar to our current project at the Suncoast. Given the strong response from our guests to our recent enhancements, we are confident these capital investments will contribute to long-term growth in our Locals segment. Additionally, we remain confident in the underlying strength of the Las Vegas economy. Last year, Southern Nevada's population reached 2.4 million people, up 16% over the last decade, a growth rate of more than twice the national average. At the same time, the local economy is more diversified, with approximately 90% of the jobs created in Southern Nevada over the last ten years coming from outside the hospitality industry. Over the same ten-year period, per capita income has grown more than 5% on an average annual basis, and total personal income in Southern Nevada has nearly doubled. Southern Nevada's cost of living remains below the national average, ranking among the most affordable of the nation's 30 largest metro areas. All in all, the long-term fundamentals of the Southern Nevada economy remain strong. Moving next to Downtown Las Vegas. Trends were similar to recent quarters, with play from our Hawaiian guests and our core customers remaining stable during the quarter. Similar to the fourth quarter, these trends were offset by weaker destination business throughout Las Vegas, as illustrated by an 11% year-over-year decline in pedestrian traffic on the Fremont Street Experience during the quarter. Next, in our online segment, Boyd Interactive continued to grow, while contribution from our third-party market access agreements was consistent with the second half of last year. As a result, we reiterate our previous guidance of $30 million to $35 million in EBITDAR for the online segment this year. Finally, our Managed and Other segment achieved another quarter of revenue and EBITDAR growth. Sky River Casino opened its casino floor expansion in late February, followed by the opening of a 1,600-space parking garage in March, and we are encouraged by Sky River's continued growth since the opening of this expansion. With the first phase now complete, we are underway with the development of a 300-room hotel, three new food and beverage outlets, a full-service spa, and an entertainment and event center. Once complete in early 2028, we are confident this expansion will further strengthen Sky River's position as one of Northern California's most popular and successful gaming resorts. With a solid start to the year, we continue to expect our Managed and Other business to generate $110 million to $114 million in EBITDAR for the full year. In all, our first quarter performance is driven by our diversified portfolio, our strong operating efficiencies, and contributions from our capital investments throughout our portfolio. In addition to the property investments we are making to enhance our operations, we are continuing to build our development pipeline. Most significant of our development projects is our $750 million resort in Virginia, which remains on track for a late 2027 opening. With foundation work now complete, work has begun on the resort's first floor and construction is starting to go vertical. Once complete, this upscale resort will be a true market leader with a 65,000-square-foot casino, a 200-room hotel, eight food and beverage outlets, live entertainment, and an outdoor amenity deck. We will also offer the most convenient gaming destination for much of the 1.8 million residents of the Hampton Roads region, as well as the 15 million tourists who visit nearby Virginia Beach each year. Next, in late February, we received final approval from the Illinois Gaming Board for a proposed expansion and modernization of the Paradise Casino. Once complete in late 2028, this project will transform Paradise into a single-level entertainment facility with a modern casino floor and enhanced amenities, positioning this property for growth well into the future. In Southern Nevada, we have additional growth opportunities at Cadence Crossing where we have significant land still available for development. Directly adjacent to our property is the master-planned community of Cadence, one of the fastest growing master-planned communities in the country with plans for more than 12,000 homes upon full build-out. Our Cadence Crossing property is designed to capitalize on the growing demand in the area, with plans for a future hotel, additional casino space, and more non-gaming amenities. As we continue to invest in our properties and build our development pipeline, we are successfully balancing these investments with a robust program of returning capital to our shareholders. We returned nearly $170 million to our shareholders during the first quarter: $155 million in share repurchases and $14 million in dividends. Going forward, we intend to continue repurchases at a $150 million per quarter pace, supplemented by our quarterly dividend. With our strong balance sheet, diversified property portfolio, balanced approach to capital allocation, and experienced management team, we remain confident in our ability to continue creating long-term value for our shareholders. I would like to thank our team members for their contributions to our company. Their dedication to delivering memorable service is at the heart of our entertainment experience and drives our continued success. Thank you for your time this afternoon. I would now like to turn the call over to Josh. Josh Hirsberg: Thank you, Keith. During the first quarter, we continued to deliver consistent results supported by growth in property-level revenues and EBITDAR. This growth, along with our continued focus on operating efficiencies, resulted in property-level margins of more than 39%. Gaming revenue also continued to grow, with increased play from both our core and retail customers. Strength in property results during the quarter was driven by our Midwest and South segment, and as Keith mentioned, our online and managed segments also contributed to our results during the quarter, with both segments continuing to show growth on a comparable year-over-year basis. We are also maintaining a balanced approach to capital allocation as we invest in our properties, pursue attractive growth opportunities, and return capital to shareholders, all while maintaining a very strong balance sheet. In terms of capital expenditures, during the quarter, we invested $155 million and expect to spend $650 million to $700 million in capital expenditures for the full year. This amount includes approximately $250 million in recurring maintenance capital, $75 million in incremental hotel capital focused on the Orleans hotel remodel, which is expected to be completed by the end of this year, $50 million in growth capital primarily related to completing Cadence Crossing as well as the design and preconstruction activities for the Paradise modernization project, and finally, $300 million related to our Virginia project. We are continuing to balance our capital investments with returning substantial capital to our shareholders. During the first quarter, we paid $14 million in dividends and repurchased $155 million in stock, representing 1.8 million shares at an average price of $83.94 per share. Our actual share count at the end of the first quarter was 74.8 million shares. We currently have approximately $700 million under our share repurchase authorizations, which includes an additional $500 million authorized by our board earlier this month. Over the last four and a half years, we have returned $2.9 billion to our shareholders, reducing our share count by more than 33%. We expect to maintain repurchases of $150 million per quarter, supplemented by our regular quarterly dividend. This equates to more than $650 million per year, or approximately $9 per share in value for our shareholders in 2026. We have the strongest balance sheet in our company's history. We finished the first quarter with traditional leverage of 1.8x and lease-adjusted leverage of 2.4x. We also have ample available capacity under our credit facility. Our next debt maturity is in December 2027, which we intend to refinance later this year or in 2027. In terms of our debt balances, you may recall from our last earnings call that we had expected to pay approximately $340 million during the first quarter for tax credits related to the FanDuel transaction. We paid for a portion of these credits in the first quarter, and we now expect to pay the remaining $290 million during the second quarter. During the first quarter, corporate expense was higher than usual due to one-time items, including the timing of charitable contributions. In conclusion, our first quarter results demonstrated the benefits of our business, our continued focus on operating efficiencies, and our ongoing capital investment program. We remain confident in our ability to drive growth in play from our core customers while making investments that elevate our product offerings and enhance our growth prospects. Our strong balance sheet, coupled with our consistent operating performance and robust free cash flow, position us well to continue creating long-term value for our shareholders. This concludes our remarks, and we are now ready to take any questions you may have. Operator: Thank you, Josh. We will now begin our question and answer session. If you would like to ask a question, please press star then 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to withdraw your request, please press star then 2. If you are using a speakerphone, please use your handset when asking your question. We will pause for a moment while we compile our list of questioners. Our first question comes from Steve Wieczynski of Stifel. Steve, please go ahead. Steve Wieczynski: Hey, guys. Good afternoon. So, Keith or Josh, I know this might be a tough question to answer, but with the destination traffic still somewhat soft in the Locals market as well as Downtown, I am wondering when you think that might inflect, given we now have a pretty significant headwind as well with fuel prices, which can impact whether that is driving traffic or flying traffic. How are you thinking about the destination business and when we might see that start to bottom out? Thanks. Keith Smith: Sure. As we think about the destination business, a couple of things. One, the primary impact is at the Orleans, where we have almost 1,900 hotel rooms. That is the single biggest impact in our Locals portfolio. Two, with respect to the increase in gas prices, trends we saw in the first quarter, as we highlighted, were in line with last year. It is hard to discern the impact of gas prices when you have higher tax refunds coming out through the last several months and probably over the next several months. When does it turn? When we get to the second half of this year, we start to run into easier comparisons because this impact of destination travel to Las Vegas started to occur in the second half of last year in a big way. So we get to easier comparisons. When does it fully turn back up? Hard to tell. Those are the high-level comments on the topic. I will see if Josh has anything he would like to add. Josh Hirsberg: Yes. The only thing I would add is, as Keith alluded to, we started to see the visible impact of destination business on our performance in Q3 of last year. Since then, it has been a pretty consistent level of impact. It has been about $5 million to $6 million of EBITDAR each quarter since then. It was that way in Q3, Q4, and then again this quarter as well. We are expecting a similar impact in Q2. Then, as we anniversary it, I do not think we expect it to flip on a dime and start to become positive all of a sudden, but we think it would continue to be down, less bad but down, year over year in Q3, gradually improve in Q4, and then maybe in the first half of next year start to see some overall growth out of that segment. That is based on what we are seeing today and the fact that it has been so consistent to date. Steve Wieczynski: Okay. Got it. Thanks for that. If we flip to the Midwest and South, those results looked really solid and probably better than what we were looking for. For that whole portfolio, were the trends broad-based, or were there markets or pockets of strength versus other markets that you might call out? Keith Smith: They generally were broad-based across the Midwest as well as the South and the East. We are very pleased with the level of performance, the growth in revenues, the level of flow-through, and, in particular, the margins. We had a very strong quarter there. We saw growth across all the demographics and all the ADT segments. In most places where numbers are published and you can discern the numbers, we gained market share. The business continues to grow. The capital investments we are making are having an impact and providing a return. It was a very strong quarter in the Midwest and South for us. Steve Wieczynski: Okay. Got it. Thanks, guys. Appreciate it. Operator: Yep. Operator: Thank you. Our next question comes from Barry Jonas of Truist. Barry, please go ahead. Barry Jonas: Hey, guys. Josh, I think I missed this. Did you talk about why corporate was up so meaningfully? If you could isolate if there is a one-timer? And then maybe how to think about that line item going forward? Josh Hirsberg: Yes. There was about $6 million of one-time items and, by their nature, they will not continue going forward. One of them, the most prominent one, had to do with charitable contributions. Last year, and this is a timing difference, we accounted for it spread out over the entire year. This year, it was recorded in the period we actually made the contribution. That is the standout largely. Barry Jonas: Got it. And then, you clearly have development projects in the pipeline, but I am curious to get your thoughts on M&A. There is plenty of speculation all around about M&A in the space. I am curious to get your thoughts on opportunities for Boyd. Thank you. Keith Smith: Our comments on M&A are consistent with what we have said in the past. We have grown a lot through M&A. We are always looking at things. We have our eyes open and understand what is going on in the market and what is available or may be becoming available. We have a disciplined process and set of filters to work through. We will continue to look. If the right opportunity presents itself that is strategic and has the right return profile, you would see us execute. Absent that, we have a great company, a strong balance sheet, and good earnings, producing great EBITDA, and we will continue to stick to our knitting until we find the right opportunity. Josh Hirsberg: And, Barry, jumping back to your first question, I looked at consensus for corporate expense for Q2, Q3, and Q4, and that is generally a good expectation of what to expect for the remaining quarters of the year. Barry Jonas: I got you, Josh. Thank you so much, guys. Operator: Thank you. Our next question comes from Shaun Kelley of Bank of America. Shaun, please go ahead. Shaun Kelley: Hi, good afternoon, everyone. Thanks for taking my questions. Josh or Keith, two questions, one macro and then one detailed. On a detailed question, I think I caught in the prepared remarks you said foot traffic on the Fremont Street Experience was down 11%. If I caught that correctly, and if not, please correct it. I feel like we saw a bit of an inflection on Strip visitation that we get from broader LVCVA data, and that actually looked a lot closer to flat, and it was down a lot last year. In Q1, it looked a lot closer to flat. Any thoughts as to why that might be a slightly different pattern than the broader Strip? Keith Smith: We did quote that it was down 11%. That number represents traffic under the canopy, under the Fremont Street Experience itself. It was down a similar amount in Q4. I cannot comment on foot traffic on the Strip. I do know the convention calendar was stronger in the first quarter, with CONEXPO in town that was not there last year. I am sure that drove some of the increased traffic on the Strip. We did not see it make its way Downtown. The good news is the decline in visitation is similar; it did not accelerate. It was stable. No other explanation as to why some of that increased visitation did not make its way Downtown. We are not overly concerned at this point. Las Vegas has a long history of seeing roughly 50% to 55% of all visitors to Las Vegas making their way Downtown, and I suspect that will continue over time. Shaun Kelley: Got it. Thanks for that, Keith. Maybe just another high-level one. If we zoom out, it feels like the macro backdrop, plus tax refunds and no tax on tips, should be a great setup for Las Vegas Locals. Even if we strip out destination, which is a little idiosyncratic, it feels like Locals are flat and Regionals are up. Conceptually, any KPI you are pointing to as to why the Locals may not be participating quite the same way the Regions are? Keith Smith: When we think about our out-of-state or non-Nevada properties, we commented that for several quarters now people are simply staying closer to home and spending their money closer to home. We are a beneficiary of that, having properties spread across 10 states. In Nevada, our Locals properties are not 100% Locals; there is a certain amount of destination and regional business that is part of that. We have commented in the past that our pure Local business—people with ZIP codes in and around our properties—is actually quite good, mostly for the same reason. They are staying close to home and spending money closer to home. When you dig into the weeds, the pure Locals are actually performing well. Shaun Kelley: Perfect. Thank you. Operator: Thank you. Next question comes from Benjamin Nicolas Chaiken of Mizuho. Ben, please go ahead. Benjamin Nicolas Chaiken: Hey, thanks for taking my questions. Josh, back to some of the earlier Q&A regarding your back-half expectations in Vegas. If the impact from the destination customer has been constant, which you quoted at around $5 million or $6 million, how do I bridge that with your response to an earlier question suggesting that 2H would be down, juxtaposed against Keith's comments earlier where you said that ex-Orleans and Suncoast things were flat? Maybe I misheard you, but could you clarify the moving parts in the back half and how you are thinking about it? Josh Hirsberg: I will try to give you an answer. From the perspective of destination, assuming no change in consumer behavior, we would expect destination to have a similar level of impact in the first half and then just get less bad. If it was down five, maybe it is down a little bit less in Q3 and a little bit less in Q4, maybe approaching flat. You then have to recognize the two other factors we spoke about. One is Suncoast disruption. We only had a partial first-quarter impact from that disruption, so that will be a full quarter in Q2 and a full quarter in Q3 before that project is complete. You will start to see some benefit from Suncoast’s complete renovation and modernization of its floor beginning in Q4. The other element is Cadence. Cadence opened with great top-line performance. Like any other new opening, we have to let it settle in at a revenue level and then adjust the expense structure. Q1 had only a couple of days, so we did not get any EBITDA contribution, but a lot of revenue from it. We expect it to trend up and start hitting full stride maybe later in Q3, certainly by Q4. In Q3, you are going to have two pressures: destination and Suncoast disruption still going on, with Cadence not yet hitting full stride. In Q4, you should have much less destination impact, Suncoast in the rearview mirror, and Cadence hitting full stride. Hopefully, that triangulates to what you interpreted from our comments. Benjamin Nicolas Chaiken: Very helpful. I appreciate it. One other quick one. In Virginia, you have been clear that the temporary casino in Norfolk is more of a placeholder with little or no expected profit. However, there is a temporary casino out there that recently opened that is generating around $10 million to $15 million a month. Is this something you would consider doing—i.e., increasing the size and scale of your temporary asset after seeing that response? Keith Smith: The size and scale of our temporary asset is based on the limitations of the site that we are building on. There is no ability to make it any larger. We certainly would have done that from day one. It was not a cost or capital allocation issue. To build a permanent project on that site, we did not have the square footage to allow for anything larger. It is a breakeven and it is what it is for the next year and a half until we open in November 2027. It is not about desire; it is about constraints. Josh Hirsberg: We have to get the permanent open in a certain time frame, and we have limited space for a temporary. Benjamin Nicolas Chaiken: Yep. Appreciate it. Josh Hirsberg: Thank you. Operator: Thank you. Our next question comes from Daniel Brian Politzer of JPMorgan. Dan, please go ahead. Daniel Brian Politzer: Hey, good afternoon. Thanks for taking my question. In terms of the fundamentals and cadence of the quarter, can you talk about how you see it come in? The beginning of the quarter looked very strong. March looked a little soft. It sounds like April has stabilized. Any way to unpack how the quarter progressed? Keith Smith: In the Locals market or overall? Daniel Brian Politzer: Both—Locals and Midwest and South. I think. Keith Smith: Thank you. On the cadence of the quarter—January, February, March—January had milder weather this year versus last year, as well as a better calendar. February was pretty normal, and March was a calendar issue, but nothing unusual we would call out. In Nevada, it is largely the same. We saw some benefits from the large convention in Las Vegas earlier in the quarter. January had an extra weekend day. February was pretty normal. March was maybe a little soft, but nothing unusual we would call out. Josh Hirsberg: What was unique for us in March was that it was when we started to see the largest impact on Suncoast from disruption. That is the only difference really. Daniel Brian Politzer: Got it. Thanks. More of a housekeeping follow-up. In terms of cash taxes, can you remind us what the expectation is for 2026 and if there is a benefit from the one big bill? Josh Hirsberg: We are currently estimating a tax benefit of about $45 million to $50 million. Daniel Brian Politzer: Got it. Thanks so much. Operator: Thank you. Our next question comes from David Brian Katz of Jefferies. David, please go ahead. David Brian Katz: Appreciate all the commentary so far. I wanted to ask a different question, not an M&A are-you-or-aren’t-you, but can you talk about the boundaries you have set for yourself, which I imagine are likely the same? Are there any changes in the kinds of things you are seeing or in the credit support for things that may come up, or any difference in what that market brings in front of you on a regular basis? Keith Smith: I will try to address it. Over the last three to five years post-COVID, we have a strong balance sheet and a large, strong business. Anything we look at has to be significant and able to move the needle. It has to be in stable tax and regulatory environments, and it has to be an asset that strategically makes sense to add to the portfolio. There are things out there that make sense. We are not afraid, because of our strong balance sheet and strong cash flow profile, to do larger transactions. We look at small, medium, and large transactions. We look at a lot of things over the course of a year and will continue to do that until something makes sense to us. We have been fairly consistent. I do not think much has changed in how we view it. Josh, anything you would like to add? Josh Hirsberg: A couple of thoughts. We are in the best position we have ever been in to make an acquisition, but that does not mean we will find one that makes sense to execute upon. Ultimately, it is basic capital allocation—where can we get the best returns versus buying back our own stock or making investments internally in our own portfolio. That is working quite well at this point. Whenever an opportunity comes along, we have to evaluate it in the context of what we are doing today. That is a fundamental philosophy of how we think about transactions and growing the company. David Brian Katz: Perfect. If I can lay out one more hypothetical. Virginia was gesturing at the notion of iGaming this year, and if one day it gets there, how would you envision your participation? Would you participate? Keith Smith: You could envision us participating. Through Boyd Interactive, we have a small online gaming business that has grown nicely. We are live in New Jersey and Pennsylvania. We are supportive of iGaming rollout across the U.S. If it happens in Virginia, we will be supportive there, and you will see us participate. We think it is additive and complementary to what we do, and we would be supportive if and when that opportunity presents itself. Operator: Thank you. Our next question comes from John G. DeCree of CBRE. John, please go ahead. John G. DeCree: Hey, guys. I know we have not talked too much about Cadence Crossing yet—it has been a little less than a month. Could you give us any anecdotes from the opening and first couple of weeks—visitation levels, new customer sign-ups—anything you could share? Keith Smith: I do not have specific data in front of me, John, but we had a great opening. The place was full and continued to have great customer response through the first couple of weeks. I am sure it has leveled off a little bit. As Josh indicated earlier, you open these buildings and you focus on driving revenues, and over the next several months we will focus on refining the cost structure. We are very happy with the opening, the level of participation, and new customer sign-ups. I just do not have the data sitting here today. John G. DeCree: That is fair. Thanks, Keith. Maybe broader promotional environment in Las Vegas—true Locals versus Orleans, which is more destination. As that market lacks some visitation, have you seen any material change in the promotional competitiveness in the last quarter as it relates to Locals and destination? Keith Smith: In the traditional Locals market, it remains fairly rational. Those properties or companies that have tended to be a little aggressive continue to be aggressive, and those of us who have remained more rational have maintained that profile. Nothing much has changed in the traditional Locals environment. At the Orleans and the destination market, the Strip is getting a little more aggressive, whether in room pricing, room products, or some all-inclusive packages trying to entice people into their buildings. We have not seen any impact from that, but from our vantage point they have probably gotten a little more aggressive. Operator: Thanks, everyone. Keith Smith: Yep. Operator: Our next question comes from Brandt Antoine Montour of Barclays. Brandt, please go ahead. Brandt Antoine Montour: Hi, everybody. I think we have covered a lot of ground. One question on the Locals business. Some of the things that you called out, Josh, on how to think about impacts throughout the year—setting those aside and looking at the underlying business—seasonality from the first quarter to second quarter has been a little different over the last couple of years. Consensus is looking for stronger Q2 versus Q1 seasonality, but if you go back a couple years, it was maybe more flat to down. Can you help us think about, before the impacts, what the underlying business typically looks like from the first to second quarter, all else equal? Josh Hirsberg: You bring up a good point. Early coming out of 2020, there was limited seasonality given the strength of the consumer and stimulus. As we moved through time—around 2023, I believe—seasonality started to return. Q2 tends to be a little better than Q1 in the Locals business. Q4 really depends on how the holidays fall, in particular New Year’s. Typically, Q4 will be as strong, if not better, than Q1. Despite the challenges with destination business and the Suncoast disruption, we look through those to some extent because we can see the end of Suncoast disruption, and destination will not always be a pressure point. When we separate those impacts and look at the fundamental Las Vegas Locals business, it continues to be a good business that is just temporarily affected by these items. Keith Smith: It is important to note that the Suncoast renovation and modernization project has been going on for more than a year. Through the first year, the management team did a great job managing through the disruption. It is only in the last several months, as we moved into a more impactful area, that we have seen some real disruption. Operator: Thanks, everyone. Keith Smith: Yep. Operator: Our next question comes from Chad C. Beynon of Macquarie. Chad, please go ahead. Chad C. Beynon: Good afternoon. Thanks for taking my question. Really good results in the Midwest and South, your biggest business. I wanted to ask about the flow-through. That was pretty strong, almost close to 50%. If you are generating the revenues you put up in this quarter, can you continue to see flow-through that high, or is there anything else we should think about—like inflation on OpEx or other expenses—that would dampen that a bit? Thank you. Josh Hirsberg: The challenge for us last year was really driven by benefits. We did not talk a lot about it at the time, but it impacted results. We have tried to address that coming into 2026. It is still early. We think we have it under control, but we will not know until we see participation and usage of the programs as we move throughout the year. Looking at our expense structure last year versus this year, the biggest categories are what you would expect. Marketing as a percent of revenue is essentially the same. Wages are going up 2% to 2.5%, but the bigger increase was around benefits last year. So far this year, we have not seen that level of increase. It is early, and we have taken steps to mitigate it. This is how the segment should perform generally. Chad C. Beynon: Okay. Thank you. Then on the Downtown business, can you talk about forward bookings or longer-haul flight prices? Are there ways to package in more perks to help when flight prices are higher? Keith Smith: A large part of our Hawaiian business comes through packages. It has been a standard part of the Downtown product for decades. We have seen airline prices start to go up recently. Hawaiian business in the first quarter was stable, and the first couple of weeks of April remained stable. We are monitoring airfares coming out of Hawaii because we know that could impact our customers, but to date everything is stable. We have a 50-year history with our customers coming out of the Hawaiian Islands, as well as local Hawaiians from California and those that live here in Las Vegas. We will continue to treat them right and do what we have to do to maintain their loyalty. Josh Hirsberg: Keith, I think you covered it. Chad C. Beynon: Sounds great. Thanks, guys. Operator: Yep. Operator: Next question comes from Analyst of Wells Fargo. Please go ahead. Analyst: Hey, guys. Thanks for the question. A lot of what I would ask has already been asked, so a bigger-picture one. There is lots of disruption right now between you and your peers in the Locals market. Once we come out the other side and look out for the next few years, what would you deem a healthy level of Las Vegas Locals gaming revenue growth—both at GGR and post-promotional levels—to think about continuing to add additional assets into the market as well? Josh Hirsberg: Traditionally, the Locals market has grown at 3% to 5%, a little higher than what we have seen in traditional regional riverboat markets or Midwest and South markets. Coming out of COVID, the customer we are catering to is a much higher quality core customer, and there is potential for higher growth as we invest more and upgrade our products. But that is theoretical at this point. I would be more comfortable relying on that 3% to 5% growth out of the Locals business, and that is what we would expect. Analyst: Would you say 2027 would be a good year to really look for that—a clearing event for the amount of disruption happening in the market? Josh Hirsberg: I think our disruption is really isolated. You will be able to see that. For us to hit those numbers, it is more about having destination business come back. We are being thoughtful about not having too many properties disrupted at once. We need a stable operating environment in Las Vegas, similar to what you are seeing in the Midwest and South. That segment is performing like we would expect it to perform. Customers are staying close to home and not traveling. We just need a clearing, stable operating environment in Las Vegas. In our case, it is not as much driven by our CapEx and disruption. Analyst: Okay. Thanks so much. Operator: Our next question comes from Jordan Maxwell Bender of Citizen. Jordan, please go ahead. Jordan Maxwell Bender: Hey. Good afternoon. We have not seen a ton of M&A post-COVID to give us evidence, but after properties have run much more efficiently, when you look at M&A are you finding it harder to underwrite synergies with a lot of the costs stripped out compared to prior to 2020? Keith Smith: Post-COVID, it is probably more the expectation of the sellers than our ability to underwrite synergies. Sellers now have a very high expectation of getting a part of those synergies as part of any purchase price, even though we have to do all the work to achieve them and take the risk. That is the bigger dynamic. It is less about operations being more efficient today. That would be my answer. Jordan Maxwell Bender: Okay. And then on Sam's Town—you mentioned it was a small property. What was the rationale behind that sale? Looking across your entire portfolio, are there assets that fit similar criteria that you could look to divest? Keith Smith: You are referencing Sam’s Town Tunica or the sale of Shreveport? Jordan Maxwell Bender: The sale of Shreveport. Keith Smith: The Sam’s Town Tunica and Shreveport properties are in the same general category. They are very small properties from an EBITDA production standpoint and no longer critical to the success of the portfolio. There was a point in time when Sam’s Town Tunica, being our first property outside Nevada, and Shreveport were important as we had our early growth spurt. Given the profile today, the competitive landscape, and where we are going as a company, they did not make sense for us to continue. Are there more? I do not think so. We are pretty happy with the portfolio absent those two properties. They were very small, not significant producers to the overall EBITDA of the company. Jordan Maxwell Bender: Great. Thank you very much. Operator: Our next question comes from Analyst of Citi. Please go ahead. Analyst: Hey, good afternoon, evening at this point. Thanks for fitting me in. Is there any way to quantify the Suncoast disruption to the Locals market in the first quarter and for the year? As I think about the roughly $7 million shortfall versus a year ago in the Locals market, that was bigger than where the Street was. Is the Suncoast disruption bigger than previously thought or just earlier than previously thought? Ultimately, what portion of that delta was Suncoast versus the destination shortfall, which you have outlined at $5 million to $6 million, and then the underlying Locals customer? Josh Hirsberg: The Locals business was off year over year by about $6.5 million. I would attribute probably $5 million to destination and about $1.5 million to Suncoast disruption, recognizing that it was not a full quarter. We will get a full quarter impact in Q2 and part of Q3 as well. We have been very pleased with the management team at Suncoast in terms of how they have managed through construction disruption, to the point where we did not really see it before. The property was performing on par with prior year, in some cases exceeding prior year. We basically said we would let you know when we see it, and now we are seeing it. It became a big bite in terms of the area of the casino being affected. Keith Smith: We will continue to see this in Q2 and partway through Q3 until we get open. It is temporary. It is a combination of fewer slot devices on the floor and having hit our most popular area of the floor as part of the process. Analyst: Got it. Two clarifications. The $1.5 million impact in the first quarter—what does a full quarter look like? Is that a $3 million impact for both Q2 and Q3? And cutting to the chase, whereas previously we were holding out hope that the Locals segment could eke out a little bit of growth this year, it does not sound like we should be assuming that anymore. Is it still possible, likely, or unlikely that Locals can eke out a little bit of growth based on that fourth-quarter improvement? Josh Hirsberg: We have given you enough information to take your own projections and figure it out. For your first part, Suncoast’s impact of $1.5 million implies $2.5 million to $3 million for Q2 and $2 million to $2.5 million for Q3 is a reasonable expectation. Then Suncoast should start contributing to results. As I said earlier, you will get benefit from Cadence. Keith Smith: Then some easier comparisons as we get through the second half of the year. We do not typically provide guidance. We are getting close to the line. As Josh said, I think there is enough information out there to figure it out from there. Analyst: That is helpful color. Thank you. Operator: The last question comes from Steven Donald Pizzella of Deutsche Bank. Steve, please go ahead. Steven Donald Pizzella: Hey, good afternoon and thanks for taking my question. On Paradise, post the approval of the expansion and modernization, given the success you have had at Treasure Chest, how would you compare the build and returns of this project to Treasure Chest? Keith Smith: It is not a fair comparison. We are confident we will get a return on the investment; otherwise, we would not proceed. But Treasure Chest is a completely different market than New Orleans, and different than East Peoria. East Peoria has a significant number of VGTs, which are legal in Illinois—six at every bar/tavern in the area—a significant quantity that compete with our product. That is not the case in the New Orleans market. We will get a reasonable return on our investment, but I would not compare it to Treasure Chest. Josh Hirsberg: You have to realize the Treasure Chest returns after tax are probably over 25%. It was a good investment. Steven Donald Pizzella: Okay. Thanks. And on the cash taxes, did you say a $45 million to $50 million benefit for this year? Josh Hirsberg: Not a refund; it is a timing difference. We get accelerated depreciation that makes you depreciate quicker and then end up owing taxes on it three years from now instead of five years from now. The benefit of the accelerated depreciation yields about a $45 million to $50 million incremental tax benefit to us for this year. Steven Donald Pizzella: Okay. Thank you. Operator: This concludes our question and answer session. I would now like to turn the call over to Josh for concluding remarks. Josh Hirsberg: Thanks, and thanks to everyone joining the call today. Should you have any follow-up questions or need any clarifications, feel free to give us a call. Thank you.
Operator: Good morning, everyone, and welcome to the Horizon Bancorp conference call to discuss the financial results for the first quarter of 2026. [Operator Instructions] Now, I will turn the call over to Mr. Todd Etzler, Executive Vice President, Corporate Secretary and General Counsel, for the opening introduction. Please go ahead. Todd Etzler: Good morning, and welcome to our conference call to review Horizon's first quarter results. Please remember that today's call may contain statements that are forward-looking in nature. These statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those discussed, including those factors noted in the slide presentation. Additional information about factors that could cause actual results to differ materially is contained in Horizon's most recent Form 10-K and its later filings with the Securities and Exchange Commission. In addition, management may refer to certain non-GAAP financial measures that are intended to help investors understand Horizon's business. Reconciliations for these measures are contained in the presentation. The company assumes no obligation to update any forward-looking statements made during the call. For anyone who does not already have a copy of the press release and supplemental presentation issued by Horizon yesterday, they may be accessed at the company's website, horizonbank.com. Representing Horizon today are Executive Vice President and Senior Operations Officer, Kathie DeRuiter; Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber; Executive Vice President and Chief Legal and Risk Officer, Todd Etzler; Executive Vice President and Chief Financial Officer, John Stewart; and Chief Executive Officer and President, Thomas Prame. At this time, I will turn the call over to Thomas Prame. Thomas? Thomas Prame: Thank you, Todd. Good morning, and we appreciate you joining us. Horizon's first quarter results demonstrate the core strength of our community banking model and our commitment to shareholders to deliver a top-performing organization through durable peer-leading performance metrics and top quartile shareholder returns. We are very pleased with the quarter's results, displaying an annualized return on average assets above 1.60%, return on average tangible common equity above 19% and continued durability in our net interest margin at 4.29%. These results drove a meaningful increase in our CET1 by 40 basis points to 10.82% and improved total risk-based capital of 14.77% in the quarter. Specific highlights within the quarter were led by the team's excellent deposit gathering efforts with over $147 million in growth or 11% annualized. These results were further enhanced by approximately $61 million of growth within the noninterest-bearing segments of the consumer and commercial portfolios. Our commercial lending team had a solid performance with $34 million in growth within the quarter with elevated pipelines that we believe will continue to fuel solid balance sheet growth throughout 2026. The positive momentum in the commercial was counterbalanced by episodic mortgage refinance activity in early Q1, where management elected not to chase lower-yielding mortgages onto the balance sheet and remain steadfast on its disciplined pricing. We feel confident in this decision. We have seen loan balances quickly align with full year growth estimates in early Q2. This momentum, combined with our strong deposit balances, positions the organization well for solid organic growth on both sides of the balance sheet in 2026. Additionally, our fee income efforts continue to make solid progress with year-over-year growth in our core relationship banking segments of service charges, interchange fees and fiduciary services. Complementing these efforts, we continue to display excellent credit metrics with low charge-offs and nonperforming loans below historical norms. As I mentioned at the beginning of my comments, we're very pleased with the first quarter results for our shareholders. Additionally, we are confident in our full year outlook heading into Q2 with strong lending pipelines, positive deposit trends, fee income verticals gaining stride and expenses well managed. It was a good start to the year on many fronts. Let me transition the presentation over to Horizon's Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber, who will share our lending highlights for the quarter and our continued excellent credit performance. Lynn? Lynn Kerber: Good morning. This quarter reflected steady disciplined commercial growth despite a competitive lending landscape and a dynamic rate environment. We continue to prioritize high-quality commercial lending, a well-balanced portfolio mix and continued pricing discipline. Our credit metrics remain stable, and we are exiting the first quarter with solid momentum. Total loans held for investment ended the quarter at $4.87 billion, driven by a $34.2 million increase in commercial loans. As Thomas mentioned previously, residential and consumer loans were down in the quarter by $32 million as the leadership team elected not to leverage the balance sheet for lower-yielding mortgages in the first quarter. Residential mortgage lending remains an important offering, and we expect growth in subsequent quarters as the rate environment stabilizes and yields are more attractive. Commercial loan growth was concentrated in the Grand Rapids, Indianapolis and Northwest Indiana market. We continue to diversify the portfolio with 37% of the net quarterly increase attributable to commercial and industrial loans compared to their 30% share of the overall commercial portfolio. This mix reinforced the strength of our commercial franchise. Credit performance remains satisfactory and within historical ranges. Substandard loans were $63.4 million, representing 1.3% of total loans, which is consistent with the 1.22% to 1.36% range over the past year and down from $66.7 million or 1.36% in Q1 of last year. Nonperforming loans are $37 million, representing 0.76% of total loans, consisting of $16.7 million in commercial loans, $10.6 million in residential real estate loans and $8.4 million in consumer loans. While nonperforming loans have increased modestly over recent quarters, levels remain manageable and consistent with a well-diversified portfolio. We anticipate improvement in the subsequent quarters of 2026 as we are forecasting several loans returning to performing status, payoff or completion of the collection efforts. These loans are well secured and/or appropriately reserved, and we do not expect an impact on losses. Net charge-offs were $626,000 or 5 basis points annualized, aligned with our historically low loss experience and favorable compared to the 15 basis points reported by our UBPR peer group for 2025. The allowance for credit losses remained stable at $51.3 million or 1.05% of loans held for investment. The $391,000 provision reflects replenishment of charge-offs and a reduction in reserve for unfunded commitments. Going forward, provision levels will continue to be influenced by loan growth, portfolio composition and economic conditions. Overall, we delivered a solid first quarter of commercial loan growth while maintaining our credit profile. We expect continued momentum in 2026, supported by positive trends in lending activity early in Q2, increased residential mortgage and consumer origination activity. We remain well positioned to serve high-quality clients across our markets, and our disciplined approach continues to support balanced sustainable growth and strong shareholder returns. I'll now turn the commentary back to Thomas for an overview of our positive deposit trends. Thomas Prame: Thank you, Lynn. Moving on to our deposit portfolio displayed on Slide 8. Horizon's deposit portfolio had a very positive first quarter in terms of growth, portfolio mix and cost. As mentioned previously, the portfolio growth of approximately $147 million comprised a good mix across both the consumer and commercial segments. The quarter was highlighted by $61 million in noninterest-bearing growth, reflective of the organization's continued efforts to expand sticky primary banking relationships within its attractive markets throughout Indiana and Michigan. Even with the excellent growth in balances, the team was successfully able to reduce overall interest-bearing costs by 7 basis points in the quarter through consistent portfolio reviews with local leadership and an agile approach to local market pricing. The franchise has found good rhythm in its deposit gathering efforts, and we believe our deposit portfolio continues to be well positioned to meet the growth and margin expectations of the organization with its granular composition and long-standing relationships in our local markets. Let me hand the presentation over to our Executive Vice President and Chief Financial Officer, John Stewart, who will walk through additional first quarter financial highlights and the continued positive momentum we see for the remainder of 2026. John? John Stewart: Thank you, Thomas. Turning to Slide 9. Consistent with our original outlook for the year, the net interest margin in Q1 was unchanged from the prior quarter at 4.29%. The objective all along was to build a balance sheet with a level of profitability that was durable and largely inoculated from changes in rates. Though one quarter does not necessarily make a trend, we feel good about the performance in Q1 and would note that our net interest margin and net interest income outlook is unchanged from our original guidance despite going from the assumption of 2 rate cuts previously to none today. Specific to the first quarter, I would note that average interest-earning cash balances did exceed our internal projections by about $60 million. You will recall the Q1 guidance called for average earning asset balances to decline from Q4 related to lower cash balances at year-end. This did not happen primarily because deposit growth was stronger than expected in the quarter, which we were pleased to see. However, these higher cash balances did negatively impact the margin percentage by about 4 basis points in Q1. Away from cash, underlying margin trends remain supportive. New loan production in the quarter exceeded 6.6% compared with average loan yields in the quarter of 6.28% and roll-off yields just below 6%. In the investment portfolio, we are anticipating another $75 million to $100 million of principal cash flows over the balance of the year at about 4.7%. Reinvestment rates in Q1 approximated 4.8%. These earning asset trends should largely be supportive of the net interest margin, even with the expectation that our interest-bearing deposit costs may be flat to up over the balance of the year with no further rate cuts. As you can see on Slide 10, noninterest income got off to a nice start in Q1. Excluding the $7 million warehouse gain and modest securities losses in the first quarter a year ago, fees were up about 13% year-over-year. This result was driven by strong year-over-year gains in service charges and fiduciary activities. While mortgage gain on sale was flat year-over-year, the team is off to a nice start in the second quarter, such that we would still anticipate full year results to reflect solid progress in this business. On Slide 11, expenses came in at $40.7 million, in line with expectations, particularly considering the seasonal headwinds in benefits and occupancy expense. These areas were partially offset by lower levels of spend on outside business services and the timing of marketing spend. Looking ahead, we would anticipate a modest increase in quarterly expense run rate in Q2 related to the full impact of annual merit increases and planned marketing spend for specific growth initiatives. That said, there is no change to our outlook for full year expenses in the mid-$160 million range. Turning to capital on Slide 12. Once again, capital ratios improved quite strongly in the quarter with CET1 up 40 basis points to 10.82%. This result was driven by strong profitability levels and a modest sequential decline in risk-weighted assets as we continue to proactively manage the deployment of risk capital across the balance sheet. As we have previously communicated, we are very comfortable with the company's capital position, particularly in light of the derisked balance sheet we now have and as our 2026 outlook suggests the expectation that we will continue to accrete capital quickly, which you will see over the course of the year. Turning to Slide 13. Our guidance for 2026 has not changed. Period-end loan and deposit balances are still expected to grow mid-single digits, which continues to infer deposit growth modestly more than loan growth in dollars. As we have consistently noted, ultimately, balance sheet growth will be driven by deposit growth going forward, and this strategy has not changed. Non-FTE net interest income is still expected to grow in the low teens year-over-year with the FTE net interest margin in the range of 4.25% to 4.35%. Average earning asset balances are still expected to modestly exceed $6 billion for the full year. This outlook previously included the assumption for two 25 basis point rate cuts in April and October, which have now been removed. This change in assumption did not impact the outlook. Fee income is still expected to be in the mid-$40 million range for the year with results generally consistent quarter-to-quarter. Expenses in the mid-$160 million range is also unchanged. As noted in my prior remarks, for the reasons noted, we would anticipate a modest uptick in the quarterly run rate from the level seen in Q1. The effective tax rate is still anticipated to land in the range of 18% to 20%. Overall, we are pleased with the start to the year in 2026. And as the guidance suggests, it should be a strong year for Horizon, steady growth with durable peer-leading returns on assets, returns on tangible common equity and top quartile internal capital generation. With that, I will turn the call back over to Thomas. Thomas Prame: Thank you, John, and I appreciate the summary of the quarter and the updated outlook for 2026. As we look ahead, our thesis will remain consistent with management focused on creating sustainable long-term value for our shareholders through our disciplined operating model, consistent profitable growth and peer-leading capital generation. As you can see from our financial results, we continue to build significant shareholder value and optionality with a durable top-tier financial earnings profile, excellent capital generation and a premier community banking franchise located in some of the best markets in the Midwest. We're confident in what we believe will be a positive outlook for our shareholders in 2026, and we look forward to sharing our second quarter results in July. At this time, I'd like to turn the presentation back over to our moderator to open up the line for questions for the management team. Thank you. Operator: [Operator Instructions] And our first question for today will come from Brendan Nosal with the Hovde Group. Brendan Nosal: Maybe just starting off here on kind of deposit growth and the margin. Obviously, exceptional deposit growth this quarter, but there's a bit of a drag on the net interest margin just given that elevated cash position. As you look towards loan pipelines, how quickly do you think you can deploy that excess cash and then tie that into how you see the margin trending in the near term? John Stewart: Having extra cash from good strong deposit growth in the quarter is not a bad thing, didn't impact net interest income, but had a modest impact on the net interest margin, as you noted. Looking forward, in the second quarter, we would anticipate being a modest net user of cash, so possibly see loan growth slightly exceed deposit growth for the second quarter. But as you look over the balance of the year, as the guidance would infer cash was 3-ish percent of earning assets in the first quarter. If it's between 2% and 3% over the balance of the year, that's within the realm of our expectations. So not really worried about having to deploy it quickly here. We'll continue with our strategic objectives on the liability side of the balance sheet, most notably. Brendan Nosal: Okay. All right. Maybe one more for me, just kind of at a broader top level, relatively nice in-line quarter from a PPNR perspective. Reiterated the guide for 2026 kind of up and down the expectations set, but the environment does continue to evolve here. So I'm curious if there are any areas in the outlook where you feel incrementally better or worse versus 3 months ago? Or is it as simple as progress according to plan? Thomas Prame: Thanks for the call. This is Thomas. Appreciate the question. No, I go with your second part of your response there about as expected, the outlook looks very similar, very strong first quarter and look forward to the next subsequent quarters. Operator: The next question will come from Brandon Rud with Stephens. Brandon Rud: Maybe the first question to kind of continue on the deposit growth topic. Are you seeing these client wins coming from M&A disruption in your markets? Or is this coming from more similar sized peers? Thomas Prame: And thanks for the question. For us, this deposit strategy started last year around how we organize weekly, daily as a team and just the expectations we're putting out across all positions, client-facing positions about growing both sides of the balance sheet. And so it's not a strategy targeted at one specific institution and/or geography area. I'd say it's an elevated lift across the entire portfolio. As we talked about in some of our comments, the growth we saw was both in consumer and commercial, equally distributed and also is distributed across both sides of the franchise in Indiana and Michigan. So for us, we really see this more of just a true step-up in our organic efforts and really not a specific target of a disruption in the marketplace and/or a specific institution. Brandon Rud: Got it. Okay. And then maybe on the loan growth side, how much did payoff activity affect the commercial balances last quarter? There's a -- growth slowed a little bit. I'm just curious, I think for the full year, correct me if I'm wrong, but I think the mid-single-digit guide kind of implies maybe a bit above that for commercial loan growth. So I'm just curious if 1Q is maybe outsized payoffs. Lynn Kerber: This is Lynn, and thank you for your question. Payoff activity actually was very consistent with our long-term averages. I would attribute it your question really more to just a little bit of seasonality in the first quarter, also being selective in where we're lending. So I don't really see payoffs as contributing to that in the first quarter, really just kind of looking at seasonality as the organic run rate. Operator: The next question will come from Damon DelMonte with KBW. Pardon me. It seems that Mr. DelMonte is back in the queue. We will move on to our next question with Mr. Nathan Race with Piper Sandler. Nathan Race: Thomas, I was wondering or maybe, Lynn, if you could update us just on the equipment leasing team build-out, what you're seeing from a production standpoint. And I believe in the past, you've talked about the leasing build-out could be a benefit to fee income going forward. So we're just curious if you could touch on that unit in particular. Lynn Kerber: Sure. When we first launched the Equipment Finance division, our business plan had certain assumptions to it. And we're in effectively year 2 of that plan, and the team has been running volume-wise, income-wise, a little bit between our year 2 and year 3 of the plan. So it's been going really well. The team has been built out. We have capacity there. So it's going as expected. Nathan Race: Okay. Great. And then maybe for Thomas or John, just going back to the earlier question. When you think about the outlook and the guidance that you laid out, I mean, as you look at the macro landscape, and I appreciate the margin is pretty neutral to rate changes along the curve, but we just kind of think about what would it take to drive upside to that outlook? Would it just be greater certainty from a macro perspective, some additional commercial hires? Or just kind of any thoughts on kind of what could be some sources to drive some outperformance to those expectations? Thomas Prame: I think it would be right down the line of what you just spoke to. As we talked about before, a bit of our governance around our balance sheet around deposit growth and core deposit growth. We have a very strong lending team that also has shown some incredible discipline, not just on credit, but also on spreads. So accelerating our deposits and keeping that pace would give us some capacity to continue to grow the balance sheet. From a perspective of talent, let's see -- I think we'd like to see some more talent adds in some of our key markets in Grand Rapids, Lansing, Detroit down in Indianapolis, which could give us some accelerated growth. But overall, I think we have a great franchise to drive 2026 and any type of additional adds just being added to that. Nathan Race: Okay. Got it. That's helpful. And just one last one on capital management priorities going forward. To the earlier point, you guys are building capital at really strong clips and absent a buyback or an increase in dividend or some acquisitions, it seems like you guys are going to be operating with some significant excess capital levels. So we're just curious to maybe hear some updated thoughts on how you're thinking about managing that excess capital inflow just to kind of optimize the return on tangible as well. Thomas Prame: I appreciate the question. And also thanks for the acknowledgment around the capital generation of the new profile of the balance sheet. It's exactly what we wanted to do for our shareholder value proposition heading in 2026 and beyond. As we have discussed before, our positive level of capital generation really does give optionality for our shareholder value proposition and whether that's going to be deploying it in accretive profitability, expanding our existing business model, buyback of shares or reinvesting some of the expanding some of our teams. These are all tools that are in our toolkit right now as we look forward into '26. As you mentioned, we are very comfortable right now with our current capital levels and also the additional growth in capital. It's really not going to burn a hole in our pocket. We'll be continuing very disciplined in the approach on that and making sure we make sound decisions going forward around shareholder value. But again, very pleased with what the balance sheet is producing and also the outlook for our levels going forward. Operator: The next question will come from Damon DelMonte with KBW. Damon Del Monte: Hopefully, you can hear me this time. Just had a question about the commercial loan outlook. Thomas, could you just kind of -- or maybe, Lynn, just give us a little bit of color as to what areas of the footprint and segments are driving the optimism? Lynn Kerber: As you can see from our historical performance, we've been pretty balanced in our overall portfolio mix and our originations. I don't anticipate that to change. As I noted in my comments, we are looking to add some additional C&I and just diversify the overall portfolio, and we've been seeing the results of that over the last several quarters. So I don't expect our business model to change substantially. We're just balancing the right mix in the portfolio, pricing discipline and credit quality, of course. So no substantial changes. As far as the outlook, I think it remains really unchanged at this point. We had communicated single-digit loan growth or mid-single-digit loan growth for the year. I think we're on track for that. So we're just really sticking to our knitting at this point in time. Damon Del Monte: Great. And then kind of with regards to market disruption, particularly in Michigan, are you seeing any opportunities to maybe add lending teams or target any potential additional hires? Lynn Kerber: We added to our team substantially over the last few years, and we feel like we have capacity with our existing team, very talented group of bankers, a lot of experience. So I feel good about that. That being said, we always have an eye for talent, and we'll look at that opportunist. Operator: [Operator Instructions] our next question will come from Brian Martin with Brean Capital. Brian Martin: I wanted to just see if you could talk about just the -- it sounds like the pickup on the roll-off of the securities is maybe 10 basis points at this point. Can you talk about where the pickup is on the loan portfolio? And then just in particular, what yields you're getting on the new commercial product? And then also just in terms of growth, whether it be Lynn or somebody else, just obviously, the residential and consumer were down this quarter. I guess, can you talk about where is the appetite on the consumer and residential side? And just remind us what your growth outlook is for those components over the balance of the year? John Stewart: Brian, it's John. I'll take the first part of that question and then pass it off to my teammates here on the loan growth discussion there. So yes, we had some comments in the prepared remarks around the roll-on, roll-off dynamics in the loan portfolio. So new production coupon rate production in the quarter was just above 6.6%. The roll-off was just under 6% as you kind of roll that forward for the balance of the year, about $150 million a quarter in amortization and payoff activity, absent any prepayment activity. That's coming off at about 6.1%. So there is still some favorability between new production yields and what is coming off the balance sheet on the loan side. be true, maybe to a lesser extent, as you noted, on the securities portfolio. So as we look forward there for the balance of the year, it's a pretty consistent profile from what we saw in the first quarter in terms of anticipated cash flows. And then if the environment were to look like it does, plus or minus today, we would still be kind of in line to roll-off yields or maybe slightly favorable. I wouldn't anticipate there being a lot of changes there. I'll pass the call to Thomas or Lynn on the loan side. Lynn Kerber: I know in the past, there's been some questions about our maturities. As far as 2026, we've got about $380 million in our commercial portfolio that's going to roll off. It's about 12%. Those have a weighted average rate of about 6% right now. And then '27, it's about $318 million, about 10% of the portfolio that has a weighted average rate of just under 6%. So with origination rates on average in 7 plus, we've got 100 to 150 basis point pickup opportunity based on the current rate environment. Brian Martin: Got you. That's helpful. And then just in terms of the appetite on the consumer side and the residential, given they were down this quarter and with kind of a commentary about rates not being appropriate. Thomas Prame: Yes. Thank you for the question. We still have appetite for both those products. We feel it's core in our overall community banking model. There is just some episodic pricing that happened at the end of 2025 and early 2026, specifically with the 10-year dipping down near 4% in our marketplace. There is some pricing sub-6% on some longer duration fixed assets that we elected not to play and a small refinance buying there. Again, we don't see this as a long-term issue. We've already seen in April, the overall loan portfolio is performing extremely well on its growth aspects, aligning with John's earlier comments for the full year. So we believe the consumer side was more of just an episodic piece on the mortgage. We don't expect mortgage consumer to have a hockey stick growth this year to be relatively flat, maybe mildly up, mildly down, but again, relatively consistent overall performance. Brian Martin: Got you. Okay. And just to be clear, I think John said maybe a 660 was kind of -- I thought that was new production yield and from Lynn, it sounded though it was 7. Is that just commercial for Lynn and maybe 660 for the aggregate loan book? Is that what you... Lynn Kerber: Yes. John was looking at a blend, and I was looking at specific coupon rates for the first quarter. Yes. Brian Martin: Got you. Okay. I want to make sure that. And then just last one for me was just on the capital priorities. Can you talk about -- I think when you -- through the balance sheet restructuring, I think you talked about maybe waiting a couple of quarters, proving yourself out. It seems like that's kind of -- that's working well here. Just in terms of the opportunities on the M&A side, can you remind us, is M&A something you guys are considering at this point? Or is it still a ways off? And then just remind us of what your parameters are on potential M&A in terms of size or pricing or just anything that you can offer there, what the intent would be? Thomas Prame: I appreciate the question. As we talked about earlier, for us with our capital deployment, it's all tools in the toolbox for us, whether that's M&A, whether that's doing buybacks or perhaps even expanding and up to also including just lending capital continue to grow. When you look at our capital levels, I wouldn't say we screen higher than peers. I would say we're right in the range. As John mentioned earlier, we have a bit of a derisked balance sheet, which allows us some flexibility on how much capital we need to hold. But overall, we're just -- we're very pleased with our capital generation. We do not have a specific plan right now of going out and saying that we're going out the M&A environment. Again, we'll continue to look at all options going forward for our shareholders and evaluate them with a long-term view to make sure that we're making right decisions and a very consistent and prudent decisions on capital deployment. Brian Martin: Okay. And then in the payback period, I guess, in terms of where it needs to be on an M&A deal or even on share repurchases, I guess, is that kind of sub 3 years? Is that kind of what you're thinking about in terms of where that payback is? John Stewart: Brian, I think the market has made their own determination as to kind of where payback periods need to be, and if it's plus or minus 3 years. I wouldn't say we feel terribly differently about that. If you're willing to accept that on an acquisition, which comes with a certain level of risk, execution risk, integration risk and so on and so forth. I think it would probably be our view that we would be willing to accept something longer than that for a risk-free transaction like stock repurchases, but we don't have any specific targets out there for that matter. Operator: This will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Thomas Prame for any closing remarks. Please go ahead. Thomas Prame: Again, thank you for joining us today on our earnings call. We appreciate your time and your interest in Horizon. And also, we look forward to sharing our second quarter results in July. Thank you very much, and hope you have a fantastic week. 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 Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Univest Financial Corporation First Quarter 2026 Earnings Call [Operator Instructions] I will now turn the call over to Jeff Schweitzer, Chairman, President and CEO of Univest Financial Corporation. Please go ahead. Jeff Schweitzer: Thank you, Rebecca, and good morning, and thank you to all of our listeners for joining us. Joining me on the call this morning is Mike Keim, our Chief Operating Officer and President of Univest Bank and Trust; and Brian Richardson, our Chief Financial Officer. Before we begin, I would like to remind everyone of the forward-looking statements disclaimer. Please be advised that during the course of this conference call, management may make forward-looking statements that express management's intentions, beliefs or expectations within the meaning of the federal securities laws. Univest's actual results may differ materially from those contemplated by these forward-looking statements. I will refer you to the forward-looking cautionary statements in our earnings release and in our SEC filings. Hopefully, everyone had a chance to review our earnings release from yesterday. If not, it can be found on our website at univest.net under the Investor Relations tab. We had a strong start to the year as we reported net income for the first quarter of $27.1 million or $0.96 per share, which was a 24.7% increase compared to earnings per share in Q1 of 2025. Results were solid across our lines of business, resulting in our ROAA improving to 1.33% for the quarter. Additionally, we continue to execute on our initiatives to lower our loan-to-deposit ratio, which on average was 280 basis points lower than Q1 of 2025 and our efficiency ratio, which declined 190 basis points from Q1 of 2025, showing improved operating leverage as we continue to see results from our investments in technology over the past few years. Our strong results for the quarter also resulted in our rewarding our shareholders by increasing our quarterly dividend 4.5% to $0.23 per share and buying back 351,138 shares of our stock during the quarter. Before I pass it over to Brian, I would like to thank the entire Univest family for the great work they do every day and for their continued efforts serving our customers, communities and each other. I'll now turn it over to Brian for further discussion on our results. Brian Richardson: Thank you, Jeff, and thank you to everyone for joining us this morning. I would like to start by touching on 4 items from the earnings release. First, we saw a solid NIM expansion during the quarter with reported NIM increasing 23 basis points to 3.33%. Additionally, core NIM, which excludes excess liquidity of 3.44% increased 7 basis points compared to the fourth quarter. Second, during the quarter, credit quality remained strong, and we recorded a provision for credit losses of $1.3 million. At March 31, nonperforming loans and leases represented approximately 0.25% of total loans, and our allowance for credit losses remained steady at 1.28% of loans held for investments. Net charge-offs for the quarter totaled $1.3 million or 7 basis points annualized. Third, noninterest income increased $1.7 million or 7.5% compared to the first quarter of 2025. When excluding BOLI death benefits, noninterest income increased $2.3 million or 11% compared to the first quarter of 2025. This growth was driven by continued strength in investment advisory, insurance and servicing-related fee income as well as increased risk participation and swap-related fee income. Mortgage banking revenue increased modestly from the prior period, reflecting higher saleable volume during the quarter. Fourth, noninterest expense increased $3.3 million or 6.8% compared to the first quarter of 2025. This included $427,000 of restructuring charges and an increase of $753,000 or 48.8% in medical claims expense. The corporation maintains a self-funded or self-insured medical plan and is responsible for claim costs up to the stop-loss limit. This results in expense volatility based on the timing and magnitude of claims. Excluding the restructuring charges and increased medical costs, expenses increased $2.2 million or 4.4% compared to the first quarter of 2025, which is in line with the guidance that I had provided on January's call. Turning briefly to our outlook for the remainder of 2026. Based on the first quarter performance and current assumptions, we are maintaining our outlook for loan growth of approximately 2% to 3%, provisioning of $11 million to $13 million, noninterest expense growth of approximately 6% to 8%, excluding BOLI debt benefits and noninterest expense growth of 3% to 5%. We are updating our full year net interest income growth outlook to the range of 5% to 7%, reflecting the strength of the first quarter results continued with margin momentum. Our effective tax rate is expected to remain in the 20% to 21% range. That concludes my prepared remarks. Rebecca, would you please begin the question-and-answer session? Operator: [Operator Instructions] Your first question comes from the line of Jacob Morton with Stephens. Jacob Morton: This is Jacob Morton on for Matt Breese. First, I want to start out with deposit cost reductions from this quarter. I'm curious about the spot rate at the end of the quarter. And can you also talk about how much more room you see to lower deposit costs? Brian Richardson: So we're starting to get to a little bit of a point of equilibrium. Don't expect there to be too much based on the stable interest rate environment, don't expect there to be too much movement in the cost of funds in the near term. If we look at spot overall, the book, we were down 10 basis points on a spot basis compared to 12/31 to 3/31. We do have inherently churning of CDs that are coming off tend to put replacement dollars on at a little bit lower cost. But as we're looking to grow deposits and decrease our loan-to-deposit ratio, that inherently puts a little bit of pressure on cost of funds. So that's why we don't see potentially more upside, but looking for relative stability there in the near term. Jacob Morton: Got it. I appreciate the color there. And moving on, so cash balances came down quite a bit this quarter. Do you feel liquidity is where you want it or more to deploy? And if so, how do you intend to do so over time? And what is the time frame for that deployment? Brian Richardson: Yes. So the decrease we saw in cash and excess liquidity during the quarter was consistent with what we normally see from a seasonality perspective with the runoff of public funds and then you inherently have the deployment into loans we'd expect that runoff of public fund dollars to continue at a similar rate here into the second quarter. And we normally hit the trough at the end of the second quarter based on the tax collection cycles in Pennsylvania. And then we would look for that to continue to build. Again, that's just the normal seasonality of public funds outside of any of our deposit initiatives and other things we're looking to do to grow core deposits. Jacob Morton: Got it. Great. And last one for me. Can you talk about the loan pipeline, expectations for growth over the next few quarters and competitive conditions? And then last, what are incremental yields? Mike Keim: So it's Mike Keim. In terms of pipeline, pipeline is solid for the second quarter. And the biggest thing that we're starting to see is somewhat of a normalization of our prepayment activity. That's actually what saw some of our commercial growth. We actually did a lower number of commitments in the first quarter than we did prior year, but still did an additional $23 million worth of net growth on the commercial side. So pipelines are solid. From a competitive perspective, and I would also mention that typically and historically, our quarters, the second quarter and the fourth quarter have been our best quarters from a loan growth perspective. And I don't see anything in the current picture that would change that. From a competitive perspective, it continues -- actually has gotten more competitive, especially on the CRE side. The good news with that from our perspective is we are playing more on the construction side, which margins are still strong there. But on the permit takeout side and obviously, on the strong C&I credits, you are starting to see this get even more competitive than it was. So we're still able to play in the niches that we want to and still see strong pricing with where we're originating and funding loans at. Brian can give you the specifics with regard to pricing. Brian Richardson: Yes. We tend to be in the -- it's really consistent with the fourth quarter, what we saw in the first quarter in that kind of mid-6 range is where we were on new commercial loan rates. Operator: Your next question comes from the line of Emily Lee with KBW. Emily Noelle Lee: This is Emily Lee stepping in for Tim Switzer. Congrats on a great quarter. Yes, no problem. So my first question is, how many Fed rate cuts are baked into your expectations? And if we have a flat rate environment, where do you anticipate the NIM shaking out? And then what would the impact of 125 bps Fed rate cut have on the NIM? Brian Richardson: So when we came into the year in my initial guidance and our initial guidance was based on 2 rate cuts in the year. But as I had indicated at that time, the first couple of rate cuts really is not impactful to our over -- exclusive of short-term timing within any given quarter and just the timing of how things reprice, not overly impactful to our NII or NIM in the near term. So therefore, with the fact that now if there's an expectation of lower or reduced rate cuts, not really expecting that to have an impact on our guidance. So call it, whether there's 2 cuts or no cuts, we're kind of in the same range as the guidance that I provided. Emily Noelle Lee: Great. And then kind of switching to capital. On capital deployment, you continue to be active on the buyback front with about $12 million of repurchases this quarter. So how should we think about the buyback story going forward given your current capital position? And do you kind of anticipate you sticking around the $10 million plus range quarterly? Or would you guys pull back at all? Jeff Schweitzer: Emily, this is Jeff. No, I don't anticipate us pulling back on buybacks. It's a balance between loan growth, timing of loan growth where you might see a slight increase in our ratios compared to what we're targeting. But overall, we don't anticipate pulling back on buybacks in any time in the near future. Brian Richardson: Yes. And this is Brian. Just to elaborate a little bit further. As we have indicated in the past, we really do not -- the metric we most closely monitor is CET1. We do not look for that to materially grow or really grow at all. During the quarter, that didn't -- we came into the year at 11.22%. We finished the first quarter here at 11.32%. We do not look for that to continue, and we actually look to ratchet that back down to that 11.22% or lower range here. So we would be ramping up buybacks accordingly to target that. Emily Noelle Lee: Understood. And then outside of buybacks, you increased the dividend this quarter. Are there any -- are you exploring any other capital priorities? And I guess, has your update for M&A changed at all? Or is it mainly buybacks? Jeff Schweitzer: So right now, I mean, we want to -- we've always wanted to keep some dry powder out there in case there are opportunities on the M&A front, whether it be in bank M&A, wealth M&A, insurance M&A. Right now, the best use of our capital appears to be on buying back shares. Obviously, there's no real execution risk there. Our earn-back period is still pretty short. So we're going to continue to be somewhat aggressive on the buyback front, but be opportunistic if something of interest were out there. We are open to looking at M&A opportunities that may arise more so than we probably were the last few years. given that we've done a lot of things internally that we've gotten projects behind us that we think we're probably in a lot better place to be able to look at M&A opportunities. So we're looking at them. We -- we'd be open to an opportunistic strategic opportunity. But in the meantime, we will continue to be heavier in the buyback arena. Emily Noelle Lee: Definitely makes sense. And then I guess just on the credit front, credit remained stable. I guess, is there anything you've been kind of looking out for from borrowers that you're kind of keeping an eye on? Jeff Schweitzer: First, there's no trends that we're seeing in our portfolio that are concerning. And I think that what we would look at is similar to what everybody else is looking at in terms of what is the impact of higher fuel costs and energy costs. And then we have a large ag book. So what is the impact of shortfalls and then obviously, increases in fertilizer costs. At the present time, those customers that are in either the shipping/distribution business are putting surcharges in. So they're not impacted it and are in discussion with our kind of ag clients, most of them have bought and gotten their fertilizer in advance. So it will be a next year consideration and one we'll have to evaluate in terms of how long the conflict remains and what the impact is on fertilizer prices as we move forward here. Emily Noelle Lee: Got it. And then just lastly for me. Can you just remind us what portion of the loan book is floating rate? Brian Richardson: About 1/3 of the book is purely floating, about 30% is fixed, and then we have the remainder, which is adjustable with a little bit longer reset dates. Operator: [Operator Instructions] And at this time, there are no -- my apologies. And at this time, we have a question from the line of Chris Reynolds with Neuberger Berman. Chris Reynolds: Yes, that was just a terrific quarter. My questions have been answered, but I just wanted to provide an observation that Neuberger became investors in your company back in 2009 when you raised cash, selling shares around $17. And Jeff, you and your management team have just done a superb job. Taking a look at where your earnings are right now, you may be approximating a $4 per share normalized earnings rate. And in that '08, '09 period, you were in the $1.60, $1.75 range. So there's been a tremendous increase in the earnings production and your market cap during that period has gone from about $270 million to $950 million. And so there's been a tremendous performance. And I think your stock does look undervalued, and I support the comments that you made about stock repurchase because if you look back during that period that I just referenced, your stock has topped out around $30 a share, 4x despite this increase in the earnings power of the company. So my thought is it looks like your stock is broken out and likely continue to move higher and the stock repurchase program really makes a lot of sense. So I just wanted to provide those comments and congratulate you on the performance. Jeff Schweitzer: Thanks, Chris. We really appreciate it. It's good to hear your voice. I know it's been a little bit of a while, but I appreciate you as a shareholder and all of our shareholders. We're excited about the first quarter. We're excited about the year. Obviously, there's a lot of uncertainty in the world, but I think we're in a good spot, and we're looking forward to having a really successful 2026. Operator: I will now turn the call back over to Jeff Schweitzer for closing remarks. Jeff Schweitzer: Thank you, Rebecca, and thank you, everyone, for joining us today. We have our shareholders' meeting this afternoon at 11:30 later this morning. So if anybody participates in that, we look forward to talking to you again at that point. Otherwise, just really appreciate everybody's support. And as I said a few seconds ago, we're really excited about the first quarter results and the year ahead of us and look forward to continue to perform at a high level. Have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the West Bancorporation, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jane Funk, Chief Financial Officer. Please go ahead. Jane Funk: Thank you. Good afternoon, everyone. I'm Jane Funk, the CFO of West Bancorporation, Inc. and I'd like to welcome the participants on our call today, and thank you for joining us. With me today are Dave Nelson, our CEO; Harlee Olafson, Chief Risk Officer; Brad Winterbottom, Bank President; and Brad Peters, our Minnesota Group President. I'll start out by reading our fair disclosure statement. During today's conference call, we may make projections or other forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward-looking statement disclosure in our 2026 first quarter earnings release for more information about risks and uncertainties, which may affect us. The information we provide today is accurate as of March 31, 2026, and we undertake no duty to update the information. And with that, I'll turn it over to Dave Nelson. David Nelson: Thank you, Jane. Welcome, everyone, and thank you for joining us this afternoon. I have a few general comments and then others will provide additional detail. We had a very strong quarter and look forward to continued earnings growth. As the COVID era 5-year duration assets reprice, our margin is expected to continue to improve. Our loan balances have been flat, but we have had growth in our deposits. When loan demand increases, we will definitely find it. We have several attractive credit opportunities in our pipeline. Once again, at quarter end, March 31 of this year, our credit quality remains pristine, and we did not have a single loan past due 30 days. West Bank continues to make investments in technology to better serve our customers and to create efficiencies in our operations. Our Board of Directors declared a $0.25 quarterly dividend with a May 20 payment date to shareholders of record as of May 6. Those are the extent of my prepared remarks, and I would now turn the call over to our Chief Risk Officer, Mr. Harlee Olafson. Harlee Olafson: Thank you, Dave. For the quarter end March 31, '26, credit quality is very strong. As Dave mentioned, we had no past dues over 30 days, no OREO, no nonaccruals, no substandard loans. Our watch list is down 20% from year-end and is at a very low 1.4% of total loans. 90% of our watch list is related to the trucking industry. The trucking industry continues to suffer through low freight, excess capacity and high price of diesel. The industry has a history of going through cyclical times. Our portfolio is well secured, and we believe the businesses in our portfolio are making good decisions to remain viable. We expect resolution of a large credit within that group before the end of the second quarter. Our commercial real estate portfolio continues to perform very well. We are diversified in both the type of commercial real estate we have and by location. Our stress test continues to show lower loan to values and good strong cash flow on a majority of the credit. Our commitment to strong underwriting is the foundation of our credit quality. Customer relationships with multiple sources of repayment and liquidity are sought after. Our credit pipeline consists of numerous strong relationships and the total pipeline volume has increased substantially in the last 2 months. Our portfolio is strong because we have chosen good customers that have the financial characteristics that align with our underwriting. After all prepared remarks, I'm available for questions. I now turn it over to Brad Winterbottom, our Bank President. Brad Winterbottom: Thanks, Harlee. For the quarter ended, our loan portfolio was flat compared to the year-end 12/31/25. At the end of the first quarter, we were at $3 billion in outstandings. We continue to experience notable loan payoffs as a result of secondary market refinancings and asset sales. The change in loan mix primarily due to reclassifications resulting from completed construction projects moving to permanent financing and commercial loan restructuring adding real estate as collateral. As we enter the second quarter, this trend will continue. However, we continue to backfill these payoffs with new opportunities at better interest rates. And we are not losing customers. Rather, they are restructuring their asset portfolios with longer-term interest rates through the secondary markets. We still believe the new activity is mild due to economic and political issues we face, but we are still finding new and good opportunities due to our calling activities. Deposit gathering sales efforts continue to be an emphasis in the markets we serve, a very competitive market today. We remain selective in obtaining new loan opportunities, looking for relationships versus transactional or participation opportunities. We remain confident in our ability to create and maintain positive relationships with our customers and prospects that we are pursuing in this highly competitive markets we serve. That ends my comments. I would now like to turn it over to Brad Peters. David Nelson: Thanks, Brad. Good afternoon, everyone. I'm going to provide you a brief update on our Minnesota banks. Our expansion into Minnesota began with our full-service bank in Rochester opening in 2016. We added the St. Cloud, Mankato and Owatonna markets early in 2019 with our final building being completed last year in Owatonna. Although it has been over 7 years since our expansion, we are still relatively new to the marketplace and continue to introduce West Bank to our communities. Our relationship-based model with a business banking focus has allowed us to efficiently grow while maintaining a small number of employees. We also have strategically invested in unique facilities, offering our teams the opportunity to entertain and engage in quality conversations with our clients and prospects. The disruption in our markets due to the recent M&A activity has provided ample targets to pursue. Our disciplined calling approach has driven results. Our business banking focus and our seasoned group of bankers set us apart from the competition. We are also capturing the personal business of our business owners and key executives, along with high-value retail deposit opportunities in our communities. We expect to see continued core deposit and loan growth and are well positioned to grow our business banking market share as the economy improves. Those are the end of my comments. I will now turn the call back over to Jane. Jane Funk: Thanks, Brad. Just a couple of comments about the financial performance, and then we'll open it up for questions. Our net income for the quarter was $10.6 million compared to $7.8 million in the first quarter of 2025, representing a 35% increase in net income. Net interest income continues to improve through improvement in our net interest margin. Net interest income increased $3.5 million or 17% compared to first quarter of last year. Our margin has increased 12 basis points compared to the previous quarter and 31 basis points compared to the first quarter of last year. Cost of deposits has declined 14 basis points compared to the previous quarter and 40 basis points compared to the first quarter of last year. As described earlier, credit quality remains pristine, and there was no provision for credit losses recorded this quarter. Noninterest expenses remained well controlled with a 3% increase from first quarter of last year and no unusual items to identify in this quarter. Our core deposit balances were down a little bit this quarter compared to year-end, primarily as a result of just normal fluctuations that we experienced through our customers' normal cash flow fluctuations. So a little bit of seasonality there. So that's the primary driver of the deposit fluctuations. And we've talked about the loan portfolio already. So those are the completion of our comments, and we would open it up for questions. Operator: [Operator Instructions] And your first question comes from the line of Brendan Nosal with Hovde Group. Brendan Nosal: Just starting off here on funding, specifically that municipal depositor from last year that put $243 million of bond proceeds on your balance sheet. Just kind of curious where those outstanding balances sit today. Jane Funk: Yes. There's probably 75% remaining, I think, in our deposits on the balance sheet, somewhere around 75% of that. So still a fair amount that's still sitting there. Brendan Nosal: Okay. Okay. That's helpful. Maybe pivoting to loan growth. I appreciate all the comments that you all made in the prepared remarks. Just kind of curious, what do you think takes it to get loan demand in your markets higher and then translate that into your own near-term loan growth expectations? Brad Winterbottom: Well, I would say that we've had a very active new business opportunity, but we've had a lot of customers, and it's going to continue into the second quarter that we have some loan payoffs, and they are coming because they're moving them to the secondary market. We still have in those customers. So we're backfilling those, and we have a very nice -- we have a very large prospect list that we're chasing with opportunities. And so that's the balance. It's pretty hard to tell you when we think that that's going to stop and we're going to grow the portfolio. But we've been adding new assets to our loan portfolio. Harlee Olafson: I think just a little bit of additional color to that is that when rates were relatively high, like over 1% higher than they are right now, new construction projects for different types of property came close to a standstill. So what has happened during that period of time is that new construction projects haven't ramped up and provided new dollars on to the loan balances, while other projects got completed and then stabilized and then the investor borrower is able to take it to nonrecourse financing or sell. So there is a little bit of a gap area there that I think is starting to see some signs of borrowers and developers starting to fill in that gap again with new projects. Brendan Nosal: Okay. All right. I appreciate the color on that topic. Maybe sticking with the theme of the balance sheet. Just on capital ratio saw a nice bump this quarter as the balance sheet contracted a little bit. Just kind of curious for your updated thoughts on how you think about capital needs versus deployment opportunities over the course of the year. Jane Funk: Yes. I think capital is kind of something that you're always talking about and always planning for. I think our earnings improvement in 2025 and the continuation of that earnings improvement will help us with our capital as we have a little bit of lag in loan growth. So we're just trying to manage what our expectations are for loan growth with our income and our retention of earnings. So nothing different than the way you would manage it over a normal course of business. Brad Winterbottom: And I'd just add, when business picks up, our bankers are out busy. They are out busy talking to folks. And so when the new opportunities come, we're going to be in the front row. Brendan Nosal: Perfect. I'm going to try and sneak one more in here before I step back. Just turning to the net interest margin, a lot of nice margin expansion this quarter. Can you just update us on the outlook for the NIM if the Fed is on hold here for the rest of the year? Jane Funk: Yes. If the Fed rates don't change, we've still got a pretty fair amount of cash flow coming off the fixed rate portfolio that will mature in 2026 and 2027 that are at rates that are still in the 4s, some in the 3s. So we've got a fair amount of opportunity with asset repricing. We'll have about -- I think it's projected about $38 million rolling off of the investment portfolio over the next 12 months, and that's 2% or sub-2% rate that that's rolling off of. So we believe if rates are steady and deposit and funding costs are steady, we've got plenty of opportunity on the asset side in repricing to improve margin. Operator: [Operator Instructions] And your next question comes from the line of Nathan Race with Piper Sandler. Nathan Race: Just going back to the margin discussion, Jane, I wonder if you could maybe help just kind of triangulate kind of where maybe the margin could shake out over the next few quarters, assuming the Fed on pause and just based on that repricing -- I'm sorry, the fixed rate loan repricing that you mentioned. I mean, are we talking something in like the 270 range? Or do you think that's too aggressive at this point? Jane Funk: Well, I would say that over -- over the next 12 months, we've probably got between loans and investments that will be repricing, there's probably $250 million, somewhere around there that will be repricing. And again, those are at a blended rate, maybe below 4%. So that's where we're getting our confidence in the net interest margin improving, but I have -- we don't have a specific number or target. Nathan Race: Got you. Okay. And then just going back to some of the balance sheet dynamics. I appreciate the cash flow coming off the bond book in terms of kind of what the yield pickup could be there. But just curious, as you're thinking about kind of hopefully some stronger loan growth coming through later this year as payoffs hopefully moderate. Is the expectation that you'll have some excess liquidity that you can fund that loan growth? Or do you think kind of deposit growth can keep up with kind of the pace of loan growth that you will -- that will hopefully develop as 2026 progresses? Jane Funk: Yes. We'll certainly allocate investment cash flows to the loan portfolio as needed. We haven't been purchasing securities the last few years. And so a lot of the liquidity that we're building as the short-term liquidity is really for that anticipation of loan activity. Nathan Race: Got you. Okay. Great. And then one last one. Expenses were really well managed in the quarter as they typically are with you guys. Just curious if you're still kind of budgeting for kind of similar expense growth than what we saw last year in that kind of 4% to 5% range or if there's any initiatives or any kind of de novo plans or opportunities to add some additional commercial bankers, particularly in Minnesota in light of the M&A-related disruption there that could cause some expenses to be front-loaded as you may be investing for growth? Jane Funk: Our expectation at this time is expense management will be kind of ordinary course of business, and we're not expecting any anomalies or additional items. David Nelson: Yes. Nate, I would always -- I mean, we're always on the lookout for opportunities in the marketplace. And we know the individuals that we would like to potentially bring on board and those conversations are ongoing, but the timing of that is not, I would say, has not been established. Nathan Race: Got you. And Brad, if I could just sneak one more in for you. Just curious as you're on the ground there in those markets where there's that disruption going on, I mean, any sense or how long of a tail some of these opportunities could present in terms of bringing over clients or potentially some relationship managers? Is this like a 1-year process? Or do you think it's going to unfold over the next maybe 2 or 3 years? David Nelson: I think it's several years. I mean just looking at sales cycles, all of this takes time. I think our focus now is to work to get in second place and position ourselves to win the business, and that's kind of what we've been doing all along. So I see that continuing. And I think the ramp-up, I mean, it's over a course of years. Operator: There are no further questions at this time. I will now turn the call back over to Jane Funk for closing remarks. Jane Funk: All right. Thank you. We appreciate everyone's interest in our company today. Thank you for joining us, and have a good day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the KKR Real Estate Finance Trust, Inc. First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jack Switala. Please go ahead. Jack Switala: Great. Thanks, operator, and welcome to the KKR Real Estate Finance Trust earnings call for the first quarter of 2026. As the operator mentioned, this is Jack Switala. This morning, I'm joined on the call by our CEO, Matt Salem; our President and COO, Patrick Mattson; and our CFO, Kendra Decious. I'd like to remind everyone that we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the Investor Relations portion of our website. This call will also contain certain forward-looking statements, which do not guarantee future events or performance. Please refer to our most recently filed 10-Q for cautionary factors related to these statements. Before I turn the call over to Matt, I will go through our results. For the first quarter of 2026, we reported a GAAP net loss of $62 million or negative $0.96 per share. Book value as of March 31, 2026, is $11.87 per share. We reported a distributable loss of $4 million or negative $0.06 per share. Distributable earnings before realized losses was $13 million or $0.20 per share. Finally, we paid a $0.25 cash dividend in April with respect to the first quarter. With that, I'd now like to turn the call over to Matt. Matthew Salem: Thanks, Jack. Good morning, everyone, and thank you for joining us. As we outlined last quarter, 2026 represents a transition year for the company. With the goal of narrowing the gap between share price and book value per share, our focus is on 2 key priorities: first, executing an aggressive resolution strategy across our watch list assets and certain legacy office exposures; and second, positioning a portion of our REO portfolio for liquidity. We have significant liquidity sitting at $653 million today and extensive capabilities across KKR to execute both our asset management and REO strategies. Today, I want to provide additional detail on our progress against those objectives and what you should expect over the course of the year. This quarter, book value declined by 9% as we position our watch list loans for resolution. Our action plan is designed to reposition the portfolio to optimize medium- and long-term performance. However, as we execute, we may choose to incur book value declines as we seek liquidity on legacy assets to create a higher quality portfolio. As we complete this transition, we see a clear path to redeploy capital in newer vintage, higher quality investments, which we believe will support a return to book value per share stability and over time, drive earnings and book value accretion. Overall, our specific goals for 2026, as outlined on Page 8 of the supplemental, are to reduce our watch list and legacy office exposure, rotate the portfolio into newer vintage, higher-quality assets and reduce our REO footprint. With that, I want to walk through our action plan for 2026 in further detail. First, reduce legacy office exposure from 21% to under 10%. We expect over half of this reduction to come from par repayments with the remaining driven by resolution of our watch list loans. We have already begun to action both prongs. Our largest office loan and $225 million loan in Bellevue was refinanced in the first quarter at par with the CMBS single asset, single borrower transaction. And the property securing our largest watch list office loan is currently being marketed for sale. Second, we plan to resolve all of our current watch list loans by year-end by positioning these assets for sale or modification and accelerating their resolution. Third, address our life science exposure. Our goal is to have 100% of this exposure modified. We already have made progress here, having modified 19% and when including our Cambridge asset this quarter, we have modified 30% of our life science exposure. We also took a material increase in reserves for our Seaport loan in anticipation of a potential modification. Finally, we are continuing to originate new investments as we reposition the portfolio. As a result of this activity, loans originated between 2024 and 2026 are expected to represent approximately 50% of the portfolio by year-end. This highlights the significant turnover into newer vintage assets, which we believe will have improved earnings potential. Let me turn to liquidity and capital allocation, which is another priority for us as a management team for 2026. We announced a dividend reduction to $0.10 per share per quarter payable on July 15. This decision is not driven by liquidity constraints. In fact, as we look ahead through the year, we expect to have over $500 million of capital to invest, largely driven by over $2 billion of expected repayments in 2026. Rather, the dividend decision reflects a disciplined approach to capital allocation. At this stage, we see more attractive opportunities, including repurchasing our stock and funding new originations. While we have ample liquidity to pay dividends at the current level, the new dividend level has the added benefit of being aligned with our expectations for distributable earnings per share before realized losses as we work through repositioning our portfolio. While we expect $0.40 per year of dividends to be covered by earnings, excluding losses, quarterly results may vary in the near term with earnings expected to trough in the second half of 2026 into the first half of 2027. Once we get through this period, we expect distributable earnings per share to increase. Regarding capital allocation, given our current trading levels relative to book value, we believe share repurchases represent an attractive opportunity to drive accretion to book value per share while also providing greater strategic flexibility. We were largely inactive with respect to share buybacks this past quarter due to trading restrictions while we were actively evaluating our dividend policy. With that process now complete and our dividend framework established, those constraints have been lifted. On April 14, our Board authorized a new $75 million share repurchase program, providing us with meaningful flexibility to deploy capital. As a management team, together with our Board of Directors, we have not taken this dividend decision lightly. But given where the stock is trading, we believe the dividend cut and meaningful share buybacks are in the best interest of shareholder value creation. With that, I will turn the call over to Patrick. W. Mattson: Thanks, Matt. Good morning, everyone. Let me start with a few changes to the watch list. This quarter, we downgraded our Philadelphia office assets with 2 smaller Texas multifamily loans from risk rated 3 to 4. As previously previewed on last quarter's earnings call, we also downgraded our Boston Life Science asset from risk rated 3 to 5. We upgraded our Cambridge Life Science from risk rated 5 to 3 following the loan restructuring that includes new sponsor equity commitment and a loan paydown. As a result, we recorded CECL provisions of $74 million, bringing our total allowance to $260 million. These actions are part of our broader action plan to proactively reposition the portfolio. Turning next to our REO portfolio. We are actively managing these assets with a clear focus on monetization and value realization. To help frame it, we grouped these assets into near, medium and longer-term monetization buckets. Starting with the near-term bucket, West Hollywood, condos, where units are currently listed and actively being marketed with proceeds returning equity as closings occur. Raleigh, North Carolina, multifamily, where we're completing targeted upgrades to common areas and expect to list the asset for sale by year-end. Philadelphia office, where our business plan is largely complete, the asset is now approximately 85% leased, and we plan to sell the property this year. In the medium-term bucket, we have Mountain View, California office, where our platform, market positioning and patience have driven meaningful value creation. As we announced in March, we signed a long-term full property lease with OpenAI. We expect to bring this asset to market within the next 12 to 16 months as we complete the remaining work and the tenant takes occupancy. Portland redevelopment, where we've executed on our plan and are near final entitlement on over 4 million square feet of mixed-use space and expect to begin our monetization strategy over the course of the year. And finally, in the longer-term bucket, Seattle, life science, where our focus is on leasing and stabilizing the asset, and we expect to hold it longer given current market conditions. Boston Life Science, currently a risk-rated 5 loan, which we expect to transition to REO in the second quarter. This is expected to result in a realized loss of approximately $37 million, though we are adequately reserved as of the first quarter. Similar to Seattle, we plan to stabilize the asset and hold the property until market conditions improve. As we monetize these assets and redeploy the capital into new investments, we estimate the potential to generate more than $0.15 per share of incremental quarterly earnings over time, nearly half of that being driven by our Mountain View REO asset. This reinforces our focus to convert these assets into liquidity and redeploy that capital into higher earning opportunities. Turning to financing and liquidity. At quarter end, we had $653 million of liquidity, including $135 million of cash on hand and $500 million of undrawn capacity on our corporate revolver. Additionally, we had over $500 million of unencumbered assets on the balance sheet. Total financing availability was $7.2 billion, including $2.6 billion of undrawn capacity. Originations totaled $184 million for the first quarter, while repayments were $415 million, with approximately 75% of the repayments driven by legacy office. Looking ahead, in the first 3 weeks of the second quarter, we've already closed or circled over $400 million of new loans. We continue to benefit from our connectivity with KKR Capital Markets and 77% of our financing remains non-mark-to-market, providing stability across market environments. We believe we remain well capitalized and positioned to manage the portfolio. Importantly, we have no final facility maturities until 2027 and no corporate debt due until 2030. Our debt-to-equity ratio was 2.2x, and our total leverage was 4x, consistent with our target range. As we move through this transition year, we believe we are well positioned. Our focus remains on executing our resolution strategy and redeploying capital into high-quality opportunities, including share repurchases. With a clear path to improving and rebuilding earnings power. We believe the actions we're taking today position the company for long-term value creation. With that, we're happy to take your questions. Operator: [Operator Instructions] First question is from Tom Catherwood, BTIG. William Catherwood: Maybe starting with the portfolio target of 50% newer vintage loans by year-end. By our math, that implies something in the neighborhood of $1 billion to $1.2 billion of origination activity over the coming quarters. Are we in the ballpark with that? Matthew Salem: Tom, thanks for the question. It's Matt. I can take that, and thanks for joining the call. That's certainly in the ballpark of what we're looking at. Obviously, certainly it will depend a little bit on the share buyback amount, but that's a good projection for now. William Catherwood: Perfect. Perfect. And actually, you did fair point on the share buyback, and it's kind of the use of liquidity is something we're thinking of with leverage ticking up to kind of the top end of the range in Q1, will those originations and the $75 million allocation for buybacks, will those be tied to REO asset sales? Or are you comfortable using liquidity on your balance sheet and then just kind of back funding that as you sell assets? Matthew Salem: Yes, I can start. It's Matt again. Let me start off a little bit. I think most of that liquidity, as we commented on the prepared remarks, is really coming from just natural loan repayments. So over the course of the year, we think we're going to have $2 billion of repayments. We got about $400 million or so in the first quarter. Second quarter -- and to be clear, it's always a little bit hard to predict these things quarter-to-quarter. But we look at the second quarter right now and from what we can see, it could be close to half of that total repayment for the year could come through the second quarter. So I'd say most of this liquidity that we're looking at, which translates into like $500 million of investable capital, if you will. And then we can talk about the sources to your point, is really going to come from that -- from the just loan repayments and natural velocity within the loan portfolio. William Catherwood: Okay. So you don't need to line up the timing of REO sales in order to achieve that 50% new loan target? Matthew Salem: No. William Catherwood: Got it. Perfect. And then last one for me on the watch list, roughly 6 assets on there when you account for the Boston life science loan in 2Q or that it's going to go REO. You obviously mentioned Minneapolis office is on the market. For the remaining 6, what are your expectations as far as the amount that are repaid versus those you expect to modify or bring on balance sheet? Matthew Salem: Yes. Let me jump in again. Maybe just looking on Page 12 here, the goal is to try to monetize the vast majority of these. I think on the life science piece of it, we mentioned we will be taking title to one of those over the course of time here. But outside of that, I think a lot of this will be some combination of modifications, note sales as well. But I think the goal really is to clear all this up by the end of the year. And things like the multifamily component here, I'm sure we'll get questions on this later, so I could just address it now. These are just coming up on maturity, and these are in the process of getting sold. So sponsors are out selling these assets. We downgraded these just because the sales price is going to be close to the debt, and we may take small losses or not on those loans. We want to make sure we identify those. We don't think that's really indicative of the rest of multifamily. We've always been on these calls saying there can be noise in multifamily, but we don't think there's like material losses in that -- in the loan portfolio on the multifamily side. And this is probably a good example of what we're looking at of like there's going to be a little bit of noise here. We do take small losses as they sell these assets into the market and it trades right around the debt. But some of these will just be sales from sponsors, if you will. Operator: Next question is from Chris Muller, Citizens Capital Markets. Christopher Muller: So I just wanted to start with the dividend and just make sure I heard you guys right. So the new $0.10 dividend is well below the $0.20 ex loss that you guys put up in the quarter. I also heard the comments on both the new buybacks and also near-term pressure as you guys get more aggressive on resolutions. So I guess the question is, do you guys expect earnings ex losses to be around that $0.10 level? Or does that just give you some optionality? I think I just missed that what you guys said in the prepared remarks. Matthew Salem: Yes, it's Matt. Let me jump in. We think earnings are going to trough towards back half of this year into next year. And a lot of that, we start to come out of it as we think about liquidating more of the REO portfolio, especially as you think about Mountain View, where we've obviously signed the lease there and that will be positioned for liquidity over the next, call it, 12 to 18 months. So that's -- when you think about the light at the end of the tunnel, that's a little bit of a timing as if we can build back up earnings. When we mentioned the $0.10 here, part of this is just capital allocation, right? Like look at -- think about where the stock trades today, we've got pretty good uses of capital right now in terms of just share repurchases. So obviously, it ties into some just overall capital allocation discussions. But when we think about it just versus earnings, we expect to cover that on kind of an annualized intermediate basis, but there certainly could be a little bit of noise in certain quarters where we're not fully covering that as we continue to push through and reposition the portfolio. Christopher Muller: Got it. And then I guess on the $42 million CMBS investment, was that a more attractive investment than deploying into bridge loans? Or was it more just a place to park some cash until it can be redeployed? And should we expect to see more of this going forward? Matthew Salem: Yes. So we've been -- that number sounds fine. Let me double check the amount for the quarter. We've been evaluating different options for portfolio diversification, whether that's expanding into Europe and leveraging the platform that KKR has built in that market or just duration as well and just access to like different investing markets like CMBS. So from a relative value perspective, we thought that was a particularly unique opportunity for us. And I think you're right in terms of the $42 million. I just want to double check that. But yes, I mean, we're evaluating everything on a relative value basis. The CMBS is providing a little bit duration. I think in this case, it was a little bit more single asset, single borrower, so solving more of the relative value component of it. Operator: Next question is from Jade Rahmani, KBW. Jade Rahmani: Yes. Have you seen any green shoots in leasing in life science? Matthew Salem: Jade, thank you for joining today. We are. I think it's a little bit market dependent. They're all in a little bit different stages of recovery. I think in South San Francisco, you're seeing 2 things happening. One, you're seeing a revitalization of office, particularly as it relates to AI tenants and growth, which is creating tension in the overall market. And as you well know, some of these assets, including some that we have, can be leased as office. So there's some pretty tight pockets of office there. And then we're also starting to see life science companies turn back on as well. When we think about our other exposure, our larger exposures in Boston, and I'd say there, it's probably a little bit behind what we're seeing in South San Francisco, but we are seeing tenants in the market. Most of the assets that we have there are oriented to big pharma, and there are tenants in the market today like actively engaged trying to lease space, including one of the assets that we have. So we are seeing tenants starting to come back, but it still feels early and -- but at least you're having some sense of recovery starting. Jade Rahmani: And in terms of your REO expectations, from your standpoint today, is it your view that there will be just one additional life science REO? Matthew Salem: That's the current expectation, yes. Jade Rahmani: And then can you discuss some of your approach to credit risk management because I have seen migration from risk-free loans to 5 as maturity approaches. And usually, what we see is a risk 3 to a risk 4 then to a risk 5. So the skipping ahead makes me a little worried about the risk 3 loans in the portfolio. I know it's multifamily and you don't expect material losses there. But just generally speaking, how are you thinking about that? Matthew Salem: Yes. That's a great question. I would say the normal progression for us and obviously, the peers as well is you go 3, 4, 5. And I'd say the vast majority of cases, that's what's happened. And by the way, we do analysis every quarter evaluating, okay, what's happened with our 4 loans. And that's obviously a dynamic number. But up to this point, roughly half have gone to 5 and half have gone to 3, which is I think what a 4 is supposed to be, right? It's not just an indicator that it goes to 5. Obviously, depending on the property type, it may be more heavily weighted to that over time. But in terms of -- I think we've had a couple go from 3 to 5. The only one we had this quarter was really the life science deal, which we flagged last quarter as going to get downgraded depending on what these modification discussions look like. It would be a 4 or 5. We weren't exactly sure at the time, and we had moved over to a 5. So I'd say it's unusual. The multifamily we put into the 4 buckets just because, one, it's not material, we don't think. And two, we're not exactly sure what's going to happen now as these sales processes play out. But I think you're right in the sense that vast majority of time, you're going to have these natural linear progressions. But sometimes there's jump risk around a maturity date or around a modification discussion, and we obviously need to just reflect our best case scenario at the time or best guess at the time. Jade Rahmani: And then on the Minneapolis office, it's a risk 5 loan. So I believe there should be something around 23% loss assumption there, reserve that you currently have. And I think that your slides show that the price per square foot at your basis is $182, but that's before CECL. So if we stress that for a 25% severity assumption, I'm just curious if you think that is where the market is or if based on the sale process, there might be some further loss? W. Mattson: Jade, it's Patrick. I'll take that one. So yes, I think the number you're kind of backing into is a blend, is an average. Obviously, as we've seen in the office segment, some of those loss numbers have been higher than average, right? If you think about what's also in that bucket, we've got multifamily as an example. So it's just a proxy. Clearly, that's an asset that we've been working for some time here, and we think it's appropriately reserved for, but the number that you're quoting is just an average. Operator: [Operator Instructions] Next question is from Gabe Poggi, Raymond James. Gabriel Poggi: I've got a couple of questions. On capital allocation, capital management, as you guys think about the buyback versus making new loans to kind of keep a DE run rate going, how do you manage that relative to leverage, right? If your total capital right now to equity is around 4x and your leverage to common is 5x plus, how much of that buyback? How do you think about leverage relative to that buyback? That's question one. Matthew Salem: It's Matt. Let me start out and try to answer that. I would say we're not changing our leverage targets. I think that's the first thing we're kind of solving for, right? We want to kind of stay in that 3.5 to 4x range. So I think we ended this quarter around 4 at the higher end of our range. If we didn't originate any loans, we could bring that leverage way down because we have so many repayments coming in. So we have a lot of flexibility on that, but that's probably the first thing we're solving for, which is like, okay, let's make sure we stay kind of leverage neutral, if you will. And then we're looking at excess capital beyond that. And then we're trying to think about, okay, what's the appropriate amount of share buybacks first. I would say, just given where the stock price trades, how much should we be buying back. The Board authorized $75 million. you put that in context, that's a lot of firepower, right? We have a lot of. We have $500 million of liquidity. So what are we going to do with it? $75 million we authorized for buybacks. I mean that's roughly 25% of the public float, right? So it's a lot of buyback. So that's probably what we're looking at next. And then we have excess capital, right? And that's like, okay, what else should we be doing and thinking about? And that's why we obviously want to think about the ongoing business supporting a dividend and not shrinking the company too much. And that's where the final piece of it, I think, comes in, which is the loan origination side. So hopefully, that gives you some context and kind of how we're from a decision tree perspective going through it. Gabriel Poggi: Yes. No, that's helpful. Second question is, is there any contemplation from KKR, the manager during this transition period regarding a fee cut, fee waiver, just as you guys get from point A to point B, call it, mid-2027? Matthew Salem: Yes. Thanks. Listen, I think we're evaluating everything, all options, I think, are on the table at the KKR level as manager, at the KKR level as the largest shareholder in this company. And then obviously, the KREF level and the Board. So I wouldn't -- we're looking at a number of different -- obviously, a number of different options. Gabriel Poggi: Yes. And I've asked that just in the context of obviously getting from point A to point B, knowing KKR is a large shareholder and thinking about just kind of getting more to the bottom line during the transition. There was nothing pointed in that question, just so you guys know. Last question is, is there any more detail you can provide around the Mountain View lease? Just any term details, things of that nature to give folks some granularity on how you're thinking about the potential value there as you think about monetization over the next 12 to 18 months? Matthew Salem: Yes. We're subject to a pretty tight NDA. So we'd love to provide more, but obviously, we have a contractual agreement with our tenant. What I can say is that it's a long-term lease that we think will trade like a net lease, so we can effectively sell it to net lease type of buyers, right, on a long-term lease basis. So that's really what we're looking at. We think that -- let's just take a step back, right? I mean where the stock is trading today, there's a lot of uncertainty in the world, clearly. And so it's hard to like project -- kind of project forward what happens, whether it's in -- with the war around in the oil prices and inflation, whether it's AI and impact on jobs or growth or GDP. So there's just a lot out there, I would say, right now. But when we look at book value, and we're willing to -- I think you saw it this quarter, unfortunately, and we're willing to pay some bid offer to find liquidity, to clean up the portfolio. It is putting pressure on book value. And like we said, we're going to -- we've got a little bit of ways to go here. We're going to choose to do that going forward to get to a spot where we can feel good about it and have a portfolio that's earning well and give the all clear. But like when we're -- it's not like we're sitting here and like looking at this portfolio and our book value and saying, oh, this is going to -- we can get down to like a single-digit type of book value per share. So like -- we're not exactly sure what the market is pricing, and that doesn't include like back to this discussion around 350 Ellis, where we think we've got a big gain in that asset, right? We marked that down significantly. Now we have a tenant. We've got a good lease. It's a long-term lease. We feel like we can sell that and liquidate that asset over time, and that will be accretive to book value. So we can actually start building this back up a little bit. And then, of course, with share buybacks, we can do the same. So that's a little bit of how we're thinking about it. And I know we've been pressed on this a number of times on Mountain View is timing. Listen, we'll sell this as soon as we feel like we can optimize value. But we're giving the 12 to 18 months because that's kind of the stabilized moment. And if we have options before that, of course, we'll look at those very, very carefully. But we want to be, I think, conservative and judicious as we think about the timing and what's realistic. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jack Switala for any closing remarks. Jack Switala: Well, great. Thanks, operator, and thanks, everyone, for joining today. Please reach out to me or the team here if you have any more questions. Take care. 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 J.L, and I will be your conference operator today. At this time, I would like to welcome everyone to the Colony Bank First Quarter 2026 Conference Call. [Operator Instructions] I would now like to turn the conference over to Brantley Collins, Communications Manager. You may begin. Brantley Collins: Thanks, J.L. Before we get started, I would like to go through our standard disclosures. Certain statements we make on this call could be constituted as forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Current and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance but involve known and unknown risks and uncertainties. Factors that could cause these differences include, but are not limited to, pandemics, variations of the company's assets, businesses, cash flows, financial condition, prospects and other results of operations. I would also like to add that during our call today, we will reference our first quarter earnings release and investor presentation, which were both filed yesterday, so please have those available to reference. And with that, I will turn the call over to our Chief Executive Officer, Heath Fountain. T. Fountain: Thanks, Brantley, and thank you to everyone for joining our first quarter earnings call today. We're pleased to report a solid start to the year with our first quarter operating performance. This quarter marked a pivotal operational milestone as we successfully finalized our core systems conversion and completed the customer integration following the TC Federal merger. We're proud of our team's execution and are now fully positioned to deliver a premier service experience to our new Colony customers. Operating income increased $580,000 from the prior quarter as we begin to see the impacts of the combined company post merger. We expect to see this continue to improve post conversion as we begin to realize operational efficiencies and additional cost savings moving into next quarter. With the primary integration milestones behind us, we're confident in our ability to scale toward a 1.20% ROA benchmark in Q2. Margin continues to expand, and we ended the quarter at 3.48%, which was a little better than our internal projections. This was driven by an acceleration of accretion income on acquired loans from the TC Federal merger. This acceleration was driven by early payoff of loans, several of which were participations that we acquired in the merger. Core margin continues to steadily increase, and Derek will talk more about the projections, but we do expect that margin may be a few basis points lower next quarter without the additional lift of the pull-forward loan accretion. Loan growth in the first quarter was lower than what we realized in 2025. And we mentioned last quarter that we expected 2026 to trend closer to the 8% end of our 8% to 12% growth target. The payoffs in the first quarter impacted loan growth along with lighter demand, which was driven partially by the volatile rate environment driven by the conflict in the Middle East. We are starting to see more activity in our loan pipeline and are having more discussions with customers about loan opportunities. We still feel that a good growth number for 2026 is around that 8% mark. Turning to credit quality. We observed a quarter-over-quarter contraction in NPLs and the decline in criticized loans. Our credit team continues to demonstrate efficiency in resolving identified issues, preventing any buildup or stagnant criticized or classified loans. We provided an overview of our credit migration activity on Slide 33, which shows that we are actively resolving problem loans. The first quarter was a strong quarter for many of our complementary business lines. These are highlighted on Slide 17, and you can see the past quarter showed meaningful improvement on a combined pretax basis compared to the first quarter of last year. Loan production and sales were higher in our mortgage division compared to the same period last year. Pretax income was significantly higher than Q1 2025, driven by more volume and slightly better margins. We believe this sets mortgage up to have a good year, although interest rate fluctuations and housing inventory continue to be challenges that will likely impact mortgage throughout 2026. Marine and RV lending and merchant services continue to show progress, and we expect that to continue, particularly in marine and RV lending as we head into a period of higher seasonal activity. This past quarter was the best quarter to date for Colony Financial Advisors, and we are proud of the progress the division continues to make. Recruiting has been strong with the addition of several new advisers over the past few quarters. These additions, along with the transition of our broker-dealer relationship from a managed to a dual program where we get a larger revenue share, but also bear the expenses has led to meaningful improvement. This has allowed for higher profitability that will continue to scale as we increase assets under management. Slide 20 illustrates that growth in AUM, showing us at $555 million at the end of the quarter, up from $198 million at the end of the first quarter in 2025. This represents significant growth since the formation of Colony Financial Advisors in late 2022. Colony Insurance also had their best quarter to date in Q1 for pretax income. Referrals to insurance from the bank were strong in the first quarter, and we feel we have a lot of opportunity to capture more. Items in force and premiums in force are shown on Slide 21. The premium rate increases in 2025 presented some challenges last year, but there have been recent rate reductions that we think will drive additional policy volume as we go throughout this year. Our SBSL division had a lighter quarter driven by lower sales revenue and variability in charge-offs. The loan pipeline has shown positive improvement and with a shift towards real estate secured loans versus the small dollar loans, we see this as an opportunity for steady volume and improved revenues. Past dues for SBSL were down about 30% and nonaccruals were down around 24% during the quarter. We're likely to see more variability in charge-offs this year. And while some quarters could be around these same levels, we are not seeing anything to indicate significant increases. Also during the quarter, we added a National Sales Manager, John Kay in SBSL and look forward to seeing the expertise he will bring to the division. We've been without a person in that role for a little while, and we believe we found the right person to help us lead our sales team. Last month, we announced that the Kroll Bond Rating Agency affirmed the credit ratings for both the company and the bank with a stable outlook. This independent validation reflects the disciplined execution of our long-term strategy. We believe these ratings serve as a confirmation of our capital strength and the overall stability of our platform. As industry consolidation accelerates, we are seeing significant M&A-related disruptions across our footprint. This environment creates a unique tailwind for us, and our team is focused on capturing high-quality customer relationships that are seeking the stability and high-touch service that our model provides. We are well positioned to capitalize on these market shifts to drive organic growth, and we are seeing positive growth tied directly to this disruption. We remain encouraged by the M&A landscape. Our recent integration success has enhanced our capacity at scale, and we are actively evaluating opportunities that align with our strategic and cultural criteria. We feel very good about our current position and are confident in our ability to execute another accretive transaction as the right opportunities emerge. We're proud of our overall performance in the quarter, and our team has done a great job through our post-merger systems conversion as well as continuing to execute on many of our strategic objectives. We believe this leaves us well positioned to provide consistent execution as we continue on the path of building a sustainable, high-performing independent bank. With that, I'll turn it over to Derek to go over the financials in more detail. Derek Shelnutt: Thank you, Heath. Operating net income increased to $9.5 million in the first quarter and operating pre-provision net revenue increased approximately $1.3 million to $13.9 million in the quarter. Net interest income increased approximately $3.3 million during the quarter and is reflective of a full quarter post-merger, and that's in addition to continued repricing benefits from both sides of the balance sheet. Net interest margin increased 16 basis points to 3.48% with the interest-earning assets component increasing 13 basis points to 5.33% and interest-bearing liabilities decreasing 3 basis points to 2.28%. Our overall cost of funds remained relatively stable, decreasing 2 basis points quarter-over-quarter to 1.94% and we expect that our cost of funds will remain around this level unless we see changes to short-term interest rates. Heath mentioned the accelerated accretion income in the first quarter, and that drove margin above our initial forecast. From a core margin perspective, so excluding the accelerated accretion, we are around 3.41%. Our projections indicate modest increases in margin of a few basis points each quarter and we should see margin trend closer to the core margin in the second quarter under our base case assumptions, which means we are likely to see margin a few basis points lower in the second quarter. Operating noninterest income in the first quarter was $10.7 million. The first quarter is shorter in the number of days and is seasonally lighter for us in terms of activity in our complementary business lines. Compared to the same quarter last year, operating noninterest income increased $1.7 million from $9 million in the first quarter of '25. On Slide 17, we illustrate pretax income by business line. Mortgage pretax income was $222,000 compared with $31,000 in the first quarter of last year. Slide 19 overviews production and sales volume by quarter with the first quarter of 2026 showing meaningful increases in both production and sales compared to Q1 of last year. We're seeing a good start to the year and expect a better mortgage trend this year compared to what we saw in 2025. Over the past several quarters, we've recruited MLOs in key markets and adjusted our products to meet customers' needs and drive increased profitability. Heath mentioned the growth in Colony Financial Advisors and on a pretax income basis, this was their best quarter to date. The AUM growth has been solid, and we see lots of potential to grow that organically in several key markets, and that's in addition to also recruiting new advisers. Colony Insurance had a great start to the year in the first quarter. Heath mentioned challenges on pricing last year and how those have recently been scaled back. We believe these changes will help both customer retention and new customer acquisition and in turn, drive better profitability for that division. SBSL pretax income decreased to $95,000 in the quarter. This was driven by lower revenue and higher charge-offs. Slide 18 shows the production and sales volume by quarter. Seasonally, the first quarter is lighter, but we're starting to see a stronger loan pipeline in both volume and credit quality. Charge-offs with SBSL have variability, and we may see similar levels next quarter with a trend toward improvement in the following quarters. Also during the quarter, approximately $30 million of portfolio mortgages were sold for a gain of about $110,000. We mentioned this on last quarter's call and noted the increase in the held-for-sale classification at the end of the year. We do not anticipate any other pool sales in the near term. Operating noninterest expenses were $26 million in the quarter. This includes the cost and personnel expenses that were needed to get us through the systems conversion and customer integration following the merger. Now we are positioned to begin seeing additional cost savings beginning in the second quarter. However, this is expected to be offset by seasonally higher activity in our business lines that will drive some higher variable expenses. But we expect that to be outpaced by additional revenue, which should generate positive operating leverage across our business lines. Operating net noninterest expense to average assets was 1.68% for the quarter, and this is reflective of seasonally lower activity in our business line as well as the additional expenses through systems conversion. We expect this to trend towards our target of 1.45% over the next several quarters. And merger-related expenses in the quarter were approximately $1.6 million. Provision expense totaled $1.75 million and was a slight increase of $100,000 for the prior quarter. Net charge-offs by type on Slide 32. And while there was a slight increase in core bank loan charge-offs, it only represents $315,000 or about 5 basis points of average loans. Both nonperforming loans and classified loans decreased quarter-over-quarter. The allowance for credit losses was 0.90% of total loans and 122% of nonperforming loans. As you may remember from last quarter call, a large percentage of the increase in classified and criticized loans starting in the fourth quarter was a result of the TC Federal merger. Loans held for investment increased $32.2 million or around 5.4% annualized. There were early payoffs on acquired TC Federal loans and a portion of those were related to legacy participation loans. And then the weighted average rate on new and renewed loans is shown on Slide 34, and that was 7.11% for the quarter. Total deposits declined slightly during the quarter by $19 million and was a result of repositioning of municipal funds after year-end tax collection. Municipal deposit balances declined approximately $30 million in the first quarter. Our deposit pipeline still see many opportunities to develop strong customer deposit relationships across our footprint. We've developed a deposit strategy to target customer relationships as well as take advantage of M&A disruption in our markets. Deposits remain a key focus in our strategic growth plan. Total share repurchases during the quarter were about 89,000 at an average price of $19.78. This week, the Board also declared a quarterly cash dividend of $0.12 per share. Our AOCI slightly improved quarter-over-quarter despite an increase to interest rates along the curve. This reflects the continued strengthening of our balance sheet health. TCE at the end of the quarter was 8.49%, an increase from 8.30% in the prior quarter and tangible book value per share also increased to $14.65, up from $14.31 at the end of the year and $13.46 a year ago. That concludes my overview. And now I will turn it back over to Heath before we take questions. T. Fountain: Thanks, Derek, and thanks again, everyone, for being on the call today. We're very pleased with our performance this quarter. That wraps up our prepared comments. And with that, I will call on J.L. to open up the line for any questions we have. Operator: [Operator Instructions] Your first question comes from the line of David Bishop of Hovde Group. David Bishop: I'm just curious from the Small Business SBSL segment, is that sort of the key driver of this sort of recent uptick in the loan loss provisioning level this quarter and last? And is this something we should maybe get used to a run rate close to -- closer to $2 million per quarter? You see -- I think you said last quarter, you're trying to migrate away from maybe the Express and Lightning type credits. Do you see maybe some of the credit headwinds sort of abating the latter half of the year as we sort of roll off the books? T. Fountain: Yes, Dave, I think what I would expect to see is volumes pick back up and the overall profitability of that division and revenues get back closer to levels we saw in the middle of last year. On the provisioning and charge-off levels, I think going forward, where our allowance is, we're going to generally see backfilling any charge-offs. And then I think in future quarters, we should see a little more loan growth than we saw this quarter. So we'll keep up with that. So somewhere around the current level, maybe down a little, up a little, just depending on the charge-off activity. So even though it's small in relative dollars, we're replenishing those reserves. David Bishop: Got it. And then I think I heard you say, Heath, at the start of the call, I feel good about the loan pipeline replenishing here. Still talking about 8% loan growth rate. I'm just curious where you're seeing the best opportunity to grow the portfolio and where you're seeing current pricing? T. Fountain: Yes. No. So Derek mentioned, start off with pricing, we were around 7 -- a little over 7% for the quarter. Of course, prime around 6.75%. It's looking like that will be stable. We are seeing more competitive pricing out there. And so I would expect our yields to come down a little bit as volume goes up there. We are committed to good solid pricing. We think that's important. Relationship pricing, we will look to be as competitive as we can be there, but just kind of measuring and monitoring that growth versus pricing because we like what we're seeing in terms of continuing to improve our margin and our asset yields. So -- but it is competitive out there. I think we're seeing it geographically across the board. And I would say there's -- it would look like our current portfolio. So obviously, commercial real estate, we're seeing good opportunities there, but also on the commercial business side, C&I, we're seeing good opportunities there as well. So I think we'd see it track similar to the breakdown of our portfolio today, and we are seeing it pretty good across our footprint. David Bishop: Got it. And then one final question, I guess, I'll before I hop in the queue. The insurance group, you recognize their contribution here. Do you think pricing and conditions can improve that market, you can continue to see an uptick in pretax profitability there this year? T. Fountain: Yes. I do think we will -- last year, we've added the LOB agency to that team. And we got through that integration at a time where we were seeing rate increases and it was a tougher environment. We're now starting to see some rate decreases. Plus we also had the time to integrate a better sales platform, better sales training, better integration of working with the bankers to get referrals. So we've seen a big uptick in those referrals, and we expect to continue to see that grow. So I think we'll continue to see good things out of the insurance group. Operator: Your next question comes from the line of Christopher Marinac of Brean Research. Christopher Marinac: Can you talk a little bit about the Merchant Services business and how that can not only further grow, but also impact deposits and pricing for the overall spread business going forward? T. Fountain: Yes, Chris, that's a great question. And we see this as a really good deposit acquisition part of our business. So we have taken our Merchant, our Treasury and our Credit Card group and moved that all into what we call banking solutions. And because of doing that, we've made it simpler for how we interact with the customers. We made it simpler for how we interact with the bankers. And there's a ton of opportunity to lead with the right product. And so we find Merchant Services to be one where in that field, there's a lot of turnover with other companies. There's a lot of ambiguity into the rates charged. So we find that customers really are happy to meet with us on our first call and turn over their merchant statements to us and give us an opportunity. And of course, when we do that, if we're able to win that business, we establish a deposit relationship for settling there, and then we just continue to work on that relationship to bring over deposit business. So it's really a great customer acquisition tool to bring in core commercial small business deposit relationships, and we're seeing really good success. And then as you see that just incrementally grow, that's very much a recurring revenue business. So we just keep building that, and we don't really have to add much level of expense there as we grow. So we're excited about that business. They're doing a great job in the banking solutions team altogether, how that's integrated and made it simpler for us. It leads to a quicker time to win a relationship. And so we're very pleased with how that group has performed. Christopher Marinac: Great. And my follow-up was about just loan pricing in general. With the loan yields this quarter, I know TC impacted that to some extent. But is there opportunity for that loan yield to rise with the repricing and the details that you had repeated again this morning? T. Fountain: Yes, I think so. I mean if you look at our new and renewed loan rate in the past quarter at 7.11% relative to where our overall loan yields are, I think that we could see some incremental increases there. I don't expect anything drastic. I mean, obviously, that depends on the level of growth that we see. And as Heath mentioned earlier, we're starting to see some competition there on loan pricing. So that will have some impact there as well. But I do think that we have the possibility to see that continue to kind of chug along and increase over time outside of the impact of any accelerated accretion that will see the impact overall loan yield. And Chris, if you think about it, even if we pull back a little bit on our new and renewed rate yield, there's still a delta there between where our portfolio yields. I think for the quarter, it was 6.35%. Now some of that is some of that accelerated accretion. But even if we pull back some, there's opportunity to be originating new and renewed above our current yield and then plus the amortization that's running off any payoffs that we get that are at those lower yields that were -- previously that are starting to renew and amortize. So we feel like that place on the asset side, there's really -- we should see continued improvement there. Christopher Marinac: Great. And last one for me just has to do with the overall expense efficiency in general. I mean, should we continue to see that progress as this year plays out? And any, I guess, just general goals on next year? T. Fountain: Yes. Very much so. We're very focused on that. And again, we look at that from the standpoint of our net NIE, which was 1.68%, and we should start seeing that trend towards that 1.45%. We'll have merger expenses or additional staffing and contract expenses from TC that were in Q1 that will have rolled off many of them, the staffing side is done and most of the contract expenses are done now or will be done during the quarter. And so you'll see improvement there. Where we will see -- we expect some of the variable expenses in our business lines to increase a little bit as we go through Q2 and Q3, which are seasonally higher plus the return of SBSL. And I just point out, we saw year-over-year increases in our complementary lines really in the quarter that our SBSL was down a little bit, and it's a significant driver. So as it returns, to a higher level of revenues, mortgage improvement for seasonality. You can look on our mortgage slide and see how that Q1 is always a light quarter, but a much more profitable this quarter. So we'll see that net NIE start to improve in the second quarter, both from the revenue side on the complementary lines, but also from the expense side in the core bank. Operator: And we have a follow-up question from David Bishop of Hovde Group. David Bishop: Maybe just curious, now that you have TC Federal behind. From an acquisition perspective, just curious what might be in your target sights here? There's been a lot of consolidation within your markets. Just curious where you're focusing your efforts these days on potential acquisitions? T. Fountain: Yes. Thanks, Dave. Good question. And we do believe we're in a place we've gotten the TC Federal integration complete, and we are actively having conversations. It's an area of focus for our team, but particularly for me. And so we're out being very active throughout our footprint. On Slide 14, we laid out kind of our target area, which is really Georgia and the contiguous states. So we're out in -- both in Georgia and in these other states actively having conversations with other management teams that we think will be a good fit. The TC merger, I think, just shows how a good cultural fit is important. It made the integration much easier both from the team member side, but also from the customer side. And so our focus is really on strategic deals where we can have alignment with the other bank's management team, and they view it as an opportunity to continue their investment and see that the combined company can be more profitable, have more scale and also have additional products and services and larger lending limit to be able to grow better as a combined company than either could on their own. And we think those opportunities are out there. It takes time in developing relationships and it's something that we're spending our time on and particularly my time. And we are at the place now where we feel good about being able to start the process with another one. So hopefully, we'll keep having good success there like we have with this last one and just keep the momentum going forward. Operator: There are no further questions at this time. That's concluding our Q&A session. I will now turn the conference back over to Heath Fountain, CEO, for closing remarks. T. Fountain: Thanks, J.L., and thanks again, everyone, for being on the call today and for your support of Colony Bancorp. We're excited about the opportunities ahead and appreciate you being on the call today. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and welcome to West's First Quarter Earnings Conference Call. [Operator Instructions] Please note, today's call is being recorded. I would now like to turn the call over to John Sweeney, Vice President of Investor Relations. Please go ahead. John Sweeney: Good morning, and welcome to West's First Quarter 2026 Earnings Conference Call, which has been webcast live. With me today on the call are West's President, CEO and Chairman; Eric Green, and West's Senior Vice President and CFO Bob McMahon. Earlier today, we issued our first quarter financial results. A copy of the press release, along with today's slide presentation containing supplemental information for your reference has been posted in the Investors section of the company's website at investor.westpharma.com. Later today, a replay of the webcast will also be available in the Investors section of our website. Before we begin, we'd like to remind you that statements made by management during this call and the accompanying presentation contain forward-looking statements within the meaning of U.S. federal securities law. Please refer to the accompanying safe harbor statements in today's press release and in addition to other disclosures made by the company such as our 10-K and 10-Q regarding the risks to which the company is subject. During the call, management will also report on certain non-GAAP financial measures including organic net sales, adjusted operating profit, adjusted operating profit margin, free cash flow and adjusted diluted earnings per share. The accompanying disclosure statement as well as reconciliations of these non-GAAP financial measures to the most comparable financial results prepared in conformity with U.S. GAAP are provided in this morning's press release, and in today's presentation materials. I will now turn the call over to our CEO, Eric Green. Eric? Eric Green: Thank you, John, and good morning, everyone. Thanks for joining us today. I am pleased to report the year is off to a strong start with outstanding performance in the first quarter revenues and adjusted EPS, with both metrics coming in well above our expectations. It is clear our growth strategy is delivering. First quarter revenues of $845 million were up 21% on a reported basis and 15% on an organic basis. Adjusted operating margins in the quarter were 21.4%, expanding 350 basis points as compared to prior year, and adjusted EPS came in at $2.13, up 47% compared to prior year. As announced in the press release today, due to our strong first quarter performance and the expected ongoing momentum in our business, we are increasing our revenue and adjusted EPS guidance for full year 2026. We now anticipate full year organic revenue growth back to our long-term construct of 7% to 9%, up from our previous guide of 5% to 7%, and adjusted EPS increased to the range of $8.40 to $8.75. Bob will go into more detail shortly. Now let's take a closer review of each of the businesses. Starting with HVP components in our proprietary Products segment, which represents 48% of our company's total net sales and continues to be the key growth driver for West. HVP components grew 23% on an organic basis in the first quarter. This growth was led by strong performance in both GLP-1 and non-GP-1 revenues. HVP components GLP-1 revenues grew significantly and contributed 10% of total company sales consistent with the previous quarter. While it is still early days in the adoption of orals, the trend is playing out as we expected and have previously communicated. That is orals are expanding the market. Our view remains unchanged for long-term growth in both injectable and oral GLP-1 markets as overall adoption of these products continues to increase. We continue to believe there are a number of factors that leave us optimistic about the prospects for our GLP-1 elastomers in the future. These include the expansion of insurance coverage, FDA regulatory decisions on compounded GLP-1s, reduced drug prices and the introduction of GLP-1s for new indications, as well as next-generation products. In addition, the launch of generics in several countries outside the U.S. should drive additional demand in the coming years. Non-GLP 1 HVP components revenues increased in the high teens in the quarter. This growth was driven by durable growth drivers, including biologics, HVP upgrades, including Annex 1, and underlying core customer demand growth. The better-than-expected HVP components performance in the quarter can be attributed to market growth and tremendous execution of our operating unit strategy, and scaling up production, particularly in Europe. Recently, I met with our team [indiscernible], Germany to see firsthand the operational improvements that we are leveraging across our HVP components manufacturing sites. There are 3 key aspects to this operational excellence initiative. First, we accelerated the process of onboarding new employees in the second half of 2025, which benefited production this quarter, and further increased output by temporarily redeploying our team members from other European sites. Second, we continue to optimize our global network. This includes working with our customers to qualify second sites, enabling us to increase production output. And third, a significant benefit of this initiative is the transfer of knowledge and implementation of best practices, which will result in ongoing enhancements throughout our global manufacturing network. Turning to our largest market, biologics. This business continues to be a strong growth driver for our HVP components business and delivered 26% organic growth. We continue to have strong win rates for biologics entering the market with solid growth at NovaPure, which is increasingly being selected for its attributes and quality by customers who are bringing new biologics to market. We're also benefiting from many biosimilar launches. Growth in this market is being increased by easing regulations and reduced testing requirements. When a biosimilar is introduced, [ it is usually ] results in expansion of therapy use. This generally allows us to maintain or even increase overall volume demand after biosimilars are commercialized. And we see a continued ramp in HVP conversion in Annex 1. We are experiencing strong conversion of standard products into HVP components, and this mix shift is improving revenue and margin performance. We continue to have strong growth in Annex 1 related projects, which increased sequentially and is up 66% as compared to this time last year. Annex 1 is anticipated to be a multiyear tailwind to our business with an expected revenue growth contribution of 200 basis points in 2026 from Annex 1 and HVP conversion. Moving on to our HVP delivery devices, which comprises 15% of company revenues. We delivered strong organic growth in the quarter, up 28% compared to prior year. This was driven by increase of SmartDose 3.5 revenues, which were requested in advance of the transaction, which we continue to expect to close midyear. The non SmartDose parts of the business represent more than half of the revenues and were up double digits in the quarter, led by SelfDose and Crystal Zenith. Standard Products, which represents 19% of our business, were up 0.5% on an organic basis during the first quarter. Standard products are an important funnel as they convert to HVP components over time, which provides value to our customers and generates incremental revenue for us. Turning now to West Vantage, the new brand name for our Contract Manufacturing segment, which represents 18% of our business. Revenues increased 6% organically in the first quarter. I was in Ireland a couple of weeks ago to participate in the official opening of our new Dublin West Vantage site, which is now fully operational and producing commercial product. This milestone marks a significant step forward in strengthening our global capabilities. This site incorporates our drug handling business, which is more profitable and less capital-intensive than our legacy contract manufacturing. While we are in the early stages in building our drug handling business, 2 days [indiscernible] business is meeting our expectations. The site also supports growing customer demand for high-volume injectable therapies, including treatments for diabetes and obesity. These aspects reinforce West's role as a critical partner in helping to secure patient accents to these essential medicines. Now I'd like to turn the call over to Bob to discuss the financials and guidance in more detail. Bob? Robert McMahon: Thanks, Eric, and good morning, everyone. This morning, I'll provide some additional details on Q1 revenue and take you through the income statement and some other key financial metrics. I'll then cover our updated full year and second quarter guidance. As Eric mentioned, we had a great start to the year as revenues of $845 million increased 21% on a reported basis and grew 15.3% organically, exceeding our expectations. And the performance was broad-based as all segments were better than expected and price contributed 3.5 percentage points of growth in the quarter. Our HVP components business was a standout, delivering $409 million in revenue and growing 22.6% organically. This was driven by robust growth in GLP-1s, HVP upgrades, including Annex 1 and overall continued improving performance in biologic revenues. As Eric mentioned, our team is executing at a high level and ramping capacity faster than planned while demand continues to be strong. Our GLP-1 HVP components business had another very good quarter of growth, and we expect continued growth throughout the rest of the year for all the reasons that we've previously talked about. And the HVP components business outside of GLP-1s accelerated nicely, growing in the high teens in the quarter and contributed over 2/3 of the HVP outperformance in the quarter. In HVP delivery devices, revenues were $124 million in the quarter and up 27.5% year-on-year organically. This was driven by growth in SmartDose 3.5 as revenues increased in anticipation of the expected midyear closing of the transaction, as well as good performance in [indiscernible] and SelfDose. In Standard Products, revenues of $161 million were up 0.5% on an organic basis, partially driven by [ NX-1 ] related inversion to HVP components. And our West Vantage segment delivered $151 million in revenue, growing 6.2% on an organic basis. Segment performance in the quarter was driven by an increase in sales of self-injected devices for obesity and diabetes. Now let's take a closer look at the rest of the P&L. Total company gross margin was 35.1% in the quarter, up 190 basis points year-over-year. The year-on-year increase is primarily driven by the positive mix shift of HVP components and price contribution. We did not see commodity costs have a material impact on our Q1 results. I also wanted to highlight that our West Vantage gross margin, while down slightly year-over-year as we ramp our Dublin facility, recovered sequentially as expected. Adjusted operating margins of 21.4% were 350 basis points up compared to the prior year, driven by the gross margin expansion and leveraging our SG&A and R&D across a higher revenue base. And below the line, net interest income was in line with our expectations, while our tax rate was a better-than-expected 18.3% for the quarter, and we had 72.4 million diluted shares outstanding. Now adding it all up, Q1 adjusted earnings per share were $2.13, up 47% versus last year, and up 45% above the midpoint of the guidance we gave on the last earnings call. Now before moving into our updated 2026 guidance, I did want to highlight a few other additional financial metrics. In the quarter, we delivered operating cash flow of $90 million. While down year-on-year due to the increase in AR related to our strong sales performance and the 2025 bonus payout, it was ahead of our expectations. Capital expenditures were $43 million, down from $71 million in the prior year as we continue to drive a focus on increased capital spending efficiency. And we remain on track with our expectations of $250 million to $275 million for the year, even as we increase our revenue guidance, which I'll talk about shortly. In addition, during the quarter, the Board of Directors authorized a new $1 billion share repurchase program given our strong financial position. In Q1, we repurchased 1.2 million shares for $298 million, paid out $16 million in dividends as an additional means of returning capital to shareholders. Our cash flow and strong balance sheet position well as we look to deploy capital for growth and deliver value to shareholders. And we ended the first quarter with $521 million in cash on our balance sheet. In summary, we had a very good first quarter that exceeded our expectations, and the momentum we saw coming into the year is continuing. And now let me turn to our updated guidance. And before getting into the numbers, I want to highlight a few important factors driving our outlook. The macro environment continues to be dynamic, and so we will remain prudent with our forecasting, given we have 3 quarters to go in the year. Most importantly, we've increased our growth expectations for the injectable market driven by the underlying trends Eric talked about earlier. HVP components, both GLP-1 and non-GLP-1s are the primary driver for our increased outlook. Our assumptions around the GLP-1 market continue to hold and the non-GLP-1 market continues to improve. We've also incorporated rising oil and commodity prices into our updated thinking and are working to offset these costs through various means as we have with tariffs and other inflationary costs. We expect to have a net impact of single-digit millions after the mitigation efforts. Importantly, our operations and supply chain have not been affected. We continue to expect to close the SmartDose transaction midyear. As a reminder, we generated $55 million in SmartDose sales in the second half of 2025 and have adjusted our full year 2026 expected organic growth rate to account for these revenues. For the year, we now anticipate revenue to be in the range of $3.295 billion to $3.35 billion, up $78 million at the midpoint. This reflects an increased organic revenue growth range of 7% to 9% for the year. Reported growth is 7.2% to 9.0%, with our assumptions around FX and the SmartDose divestiture unchanged and roughly offsetting. The increase reflects strong Q1 performance and an improving demand environment for the remainder of the year. In the Proprietary segment, we expect HVP components to continue to be the primary driver of revenue growth. We now anticipate this business to grow low to mid-teens organically for the year, accounting for about 7 points of the total company growth at the midpoint of guidance. This is up from our previous expectation of roughly 5 points of total company with at the midpoint. Importantly, both GLP-1 and non-GLP-1s are contributing. Non-GLP-1 HVP components are expected to grow low double digits and make up just over 5 points of total company growth, while GLP-1 HVP components is expected to be in the mid- to high teens. We also expect better performance in our HVP delivery devices, while our expectations for standard products in West Vantage are consistent with our previous guidance. The positive revenue mix is helping us to further expand our margins even as we see increased costs, and we have incorporated some below-the-line contributions in the updated guidance. To help with your models, we are now projecting $7 million in net interest income, a 19% tax rate for the full year and roughly 71.5 million diluted shares outstanding for the full year. This results in an adjusted earnings per share to be between $8.40 to $8.75 for the year, up 15% to 20% year-on-year. Now for the second quarter, we expect revenue to be in the range of $830 million to $850 million. This is a reported increase of 8.3% to 10.9%, and an organic increase of 7.0% to 9.6%. And we expect second quarter adjusted diluted earnings per share in the range of $2.05 to $2.12, up 11.4% to 15.2% year-on-year. In summary, we're very pleased with how our business is performing, driven by our key growth drivers and are optimistic about the future. Now I'd like to turn the call back over to Eric for some closing comments. Eric? Eric Green: Thank you, Bob. To summarize, the broad-based nature of the results we reported today continues to reaffirm that our growth strategy is working as expected. We have a strong, resilient business which delivers unique value to our customers. We remain focused on our critical growth drivers of biologics, GLP-1s, Annex 1 and other HVP conversion and leveraging our global infrastructure. The long term, many durable macro trends underpin West's growth trajectory as the global market leader in the injectable medicine space. Finally, I want to thank our team members for their commitment and reluctance focus to serving our customers, which allowed us to achieve these strong results. Operator, we're ready to take questions. Thank you. Operator: [Operator Instructions] Our first question comes from Patrick Donnelly with Citi. Patrick Donnelly: Maybe one on the non-GLP, nice results there in particular. Can you talk about the acceleration you saw there? It sounds like, Bob, I think you were talking about low double digits for the rest of the year on [indiscernible] Can you just talk about what you're seeing? Is it [indiscernible]? Is it biosimilars, biologics? Would love if you just break that down a bit more because the growth there was pretty notable. Eric Green: Yes, Patrick, thank you for the question. I think as we look at the HVP non-GLP-1 area of our business [indiscernible] the components, we're really pleased in how the market is starting to -- market demands continue to increase, particularly in biologics and biosimilars. We mentioned that we grew 26%. We believe -- for the balance of the year, we'll have very strong double digits in that area. And this is mostly on already commercialized drugs in the marketplace. While we do continue to have a very high win rate on new launches and new molecules being approved, most of the growth is coming from the commercialized drugs. Annex 1, as you asked about that particular area that continues to meet our expectations. We have -- we've seen a sequential improvement over the prior quarter, and it's up 66% over the first quarter of last year of a number of projects that we have taken on. And this is actually -- as you think about volume doesn't change, but the ASC and the margins do improve, it will continue to focus on that area. That is actually expanding as we think about -- it's not just [ E-regulations ]. We're starting to hear more about the expectations outside of Europe, particularly in the United States and also in Asia. I think the last area I want to just comment on, and that's why we have confidence in our guidance is really unleashing some of our operational excellence in our HVP manufacturing sites. The work that we're doing in Europe is fungible, transferable to other sites, which will give us the ability to leverage the existing capacity, higher throughput, higher output, [indiscernible] need a rise in demand of our customers. Bob, would you like to add? Robert McMahon: Yes, I would just say, Patrick, and thank you for the question. As you see, this is a continuation of what we saw in the second half of the year of this real continued momentum in the HVP non-GLP-1 components business. And to Eric's point, what we've seen is a real combination of not only demand, the benefit of the positive mix associated with upgrading to [indiscernible], and we expect both of those things to continue as well as the continued market development of the biologics business. And so feel very, very good about where that direction is going. If you recall, in Q4, we talked about demand outstripping supply. We're continuing to ramp and feel good about the team's ability to continue to meet that demand for the rest of the year. Patrick Donnelly: Okay. That's helpful. And then, Bob, maybe on the margin side, obviously, when AUPs are growing 23%, it helps on the mix side. Can you just talk about how we should think about the margins for the rest of the year between the mix shift piece? You mentioned the manufacturing excellence there. I know the footprint is an area for help. It doesn't sound like the commodity side is going to be much of a negative offset. So maybe just talk about the moving pieces there. And then obviously, the mix shift is helping quite a bit here. Robert McMahon: Yes. What I would say is mix shift certainly does help, but we're also being benefited from the great operational execution by the team, which helps absorb the plant costs and so forth. And so if we think about where we were in Q1 at 21.4% margin, that was a significant improvement over last year. Q2 will probably be roughly in that line and then second half will [indiscernible] despite increased cost, our expectation is that we... [Technical Difficulty] Operator: Ladies and gentlemen, please standby. Your conference call will resume momentarily. Again please standby. Your conference call will resume momentarily. Robert McMahon: Patrick this is Bob. Sorry, we got disconnected. Let me finish my thought. As I was saying... Eric Green: I think [indiscernible] when you drop there. Robert McMahon: Yes, yes, exactly. That wasn't a dramatic pause. So I apologize to the folks on the call. What we're expecting actually in the second half of the year is an extension, or an expansion of our margins despite the incremental costs associated with higher fuel and logistics costs. And so if we look at the full -- some of that's a benefit of continued margin mix and strong performance on the revenue side. If we look at our full year from last guide to this guide, probably another 50 basis points improvement year-on-year. So a very nice expansion. Operator: Our next question comes from Michael Ryskin with Bank of America. Michael Ryskin: Great I'm just -- and obviously, congrats on the quarter on the guide, I'm just curious, did you notice anything unusual in terms of ordering patterns, or acceptance from customers? We are just wondering maybe as a result of the Middle East crisis and the spike in oil, if any of your customers did any prebuying or stocking ahead of time. Just [indiscernible] of price increase or maybe supply [indiscernible] in the second half. Just wondering if you saw any weird dynamics in March once the conflict broke out? Robert McMahon: Yes, Mike, this is Bob. Thanks for that question. I'm glad you brought that up because we've actually done a lot of analysis on our results, and we did not see any pull-forward associated with the conflict in the Middle East. As we mentioned in the call, we did have greater-than-expected revenue associated with SmartDose 3.5, but that's a result of in anticipation of the transaction. But there was no pull forward associated with the conflict. Michael Ryskin: All right. That's very straightforward. And I guess kind of just staying on the same topic. You mentioned some of the offsets and some of the mitigation you're putting in as a result of that. I was wondering if you could talk through that, like whether it's price increases? I know you guys have a hedge on oil. You called that out in the Q. Could you talk about that? Could you talk about -- I think that's only a couple of months' worth, but anticipation of price increases in the second half, maybe some supplies [indiscernible] moving around sort of like how you're adjusting to that and how that's going to play out? And related to that you can... Robert McMahon: Yes. Thanks, Mike. Yes, what I would say, we have multiple tools at our disposal. Certainly, we do hedge a portion of our costs associated with that, but that certainly is not going to be the only way that we have the ability to mitigate. And similar to what we have done with tariffs and so forth, we'll look at multiple tools. Probably it's premature to kind of explain all the details there, but we feel good about our ability to recover a portion of those costs. Operator: Our next question comes from Paul Knight with KeyBanc. Paul Knight: Eric, a lot of this quarter sounds like capacity coming on line for West. So my question is around are there any bottlenecks that you see right now? And second, how easy is it for customers to move from one site, or use another site's capacity does it take a month, a year to get that qualification done? Eric Green: Yes. Paul, it's a multistep process. So first of all, on the capacity expansion, the teams have done a great job on additional capacity utilization of the existing facilities. And this initiative we launched in the second half of last year, but we're seeing -- we saw the benefits in Q1 and we'll continue to see that throughout the year. So higher throughput on existing capacity. We will always continue to layer in new capital equipment to be able to continue to expand basically around HVP finishing processing, which really is being fueled by the Annex 1 transition. You're absolutely correct. The second lever that we're working with certain customers is qualifying multi-sites. That process does take time. So it could be anywhere between 6 to 12 months for a transfer to occur effectively and another site to be validated. But that's on ongoing, and we'll continue to leverage that across our network, so we can level load more effectively. And I would say that that's additional benefit we will see throughout 2026, going into 2027. Robert McMahon: Paul, this is Bob. Just the other thing that Eric mentioned that I want to reiterate is around taking the learnings and the application of what we're doing in Europe and applying it to other plants, particularly our HVP plant, to be able to get ahead of some of that continued demand. And so not only are we doing the things, Eric was just talking about, which will help us not only in the mid and -- in the far term. In the near term, we're being able to leverage the existing assets that we have. So really nice work by the team. Operator: Our next question comes from Matt Larew William Blair. [Operator Instructions] Okay. We'll go to our next question, which comes from Kallum Titchmarsh with Morgan Stanley. Kallum Titchmarsh: Maybe just following up a bit more on Annex 1, just checking in on the flow of new customer conversations and conversions there. Any refreshed view on the duration of this tailwind? Whether customers are maybe facing issues not upgrading their components? And just how to think about what can be relatively captured from the TAM you framed up before? Eric Green: Yes, Kallum, it's -- this area of opportunity for us is actually very attractive, and we're gaining momentum. What we're seeing right now is the number of projects our customers we're engaged with, has increased and continues to increase. We're able to convert from a project status to commercialize product going into the market. I'm very pleased on the progress that we're making on [indiscernible] fronts. The conversations are actually more -- I would say, it's increasing because the regulations and our customers are looking beyond just Europe. And so therefore, there's more of a pull effect and having us participate on upgrading certain products in market today and commercialize drugs really run our HVP finishing processes. Which, again, going back to what Bob mentioned earlier about unlocking or unleashing the opportunities to expand our capacity capabilities in our HVP plants. That's going to enable us to continue to grow nicely. The growth that we believe that we will continue to deliver on 200 basis points per annum for multiple years. So we're early innings, I would say, we've identified at least 6 billion units that are targeted to be converted, and we're early in that stage. So we do think this is a very long-term growth opportunity. Robert McMahon: Kallum, just to add to what Eric is saying and to emphasize a couple of points. The regulatory environment does continue to increase across the globe, particularly focused on contamination. And I think we are uniquely positioned to be able to take advantage of this given our market position on existing products. So we're very optimistic about this. Kallum Titchmarsh: Appreciate it. And then I realize it's kind of less than 10% of the group. I would love to hear a bit more about the underlying demand environment in APAC. Pretty strong 29% growth in Q1. So just wondering if that's being underpinned by anything notably different than your U.S. and European growth drivers? And how we should think about investment into that region in the future? Eric Green: Yes. No, we continue to look at Asia Pacific as an attractive market for us. Geographically, we support that region in twofold. One, local for local consumption, but also export that is going to the global markets. So we rely heavily in other locations, [indiscernible] feed finished products into that region. I would say that we are seeing an increase, particularly in the biologics of the biosimilar space, which we have a very -- we continue to have a very attractive participation rate. And that's actually very attractive for us as you think about leveraging our higher end over HVP portfolio. So more to come, but we're pleased with the team's execution in region to support customers. But we are seeing an increase of CDMOs, small biotech firms looking to build a branch out into the Western markets. Operator: Our next question comes from Justin Bowers with Deutsche Bank. Justin Bowers: Eric, can you provide us with an update on the demand profile for some of the manufacturing space that you now have available in Dublin and in the West Coast? And then two, just also an update on the GLP-1 market. What are you seeing in terms of other indications outside of diabetes and obesity? Is there -- are there programs growing in that part of the market as well? Eric Green: Yes. Justin, you're right. At least for the first question you asked about the CGM business in Dublin that will be finishing up at the end of second quarter of this year. We're pleased with the progress we're making with new customers and contracts, to be able to backfill once the equipment processing lines are extracted from that facility. We are going to be installing new equipment from our customers to support them on their own new commercial launches, particularly around drug handling in the non-GLP 1 area. That's an area being attracted by our customers with the less Vantage strategy and the value proposition we're bringing. So I'm very pleased on the progress, more to come, but we do need to close out and finish on the current customer by the end of the second quarter, and then we'll do the transition in the second half with new customers. With regards to the GLP-1s, other indications other than [indiscernible] and diabetes, those are full projects in the pipeline that we're supporting. Actually, if you think about not just other indications, but other types of molecules that are being targeted for that market. We are obviously a very strong player -- and in the pipeline, it's very attractive. As you know, they're looking in combination molecules, or looking at other types of biologics. So we're very well positioned, and we do think that will be an extension of growth in that particular area for a number of years to come. Justin Bowers: Got it. I appreciate that. And then just a quick follow-up. On the drug delivery device strength that you saw and the transition there. Was that mostly volume driven? Or was there any incentive payments there? What were, sort of, the contributors to the strength there? Robert McMahon: Justin, this is Bob. Yes, the good news is it was all volume. There weren't any incentive payments associated with that [indiscernible] if you look at it, was roughly split evenly between SmartDose and the non SmartDose business. And so we feel really good about kind of the performance going forward. Operator: Our next question comes from Matt Larew with William Blair. [Operator Instructions] Robert McMahon: Yes. Let's move on to the next caller, please. Thank you, operator. Operator: Our next question comes from Daniel Markowitz with Evercore ISI. Daniel Markowitz: The first thing I wanted to ask on the [indiscernible] called out NovaPure as a positive for the first time in a while. And backing up, I think mix shift is such an awesome part of the story and NovaPure sort of stands out as being at the high end of the high-value components segment. So really nice to see that. I just wanted to ask what sort of drove the strength there specifically? Eric Green: Yes, Daniel, that's driven by market demand of commercialized molecules in market already. While we are continuing to see a number of new approvals in the pipeline we're feeding it with NovaPure. But that particular growth that you're seeing, and we expect biologics continue to grow quite nicely throughout 2026 is being fueled by NovaPure. Robert McMahon: Yes. It was one of the several highlights in the quarter, Daniel, and I feel good about the ongoing momentum there going forward. And so we had very nice growth in NovaPure year-on-year. Daniel Markowitz: Great. And then just a follow-up. As I look at the full year guide after a really strong quarter and a nice 2Q guide, the full year now looks more first half weighted versus what's typical. Is there anything to call out that's causing a decel in the back half? Or is this more conservatism? Robert McMahon: Yes. I'm glad you brought that up, Daniel. A couple of things. One is we are at the beginning of the year. So we are prudent. We're kind of taking it 1 quarter at a time. But we do have the roll-off of the CGM contract in the back half of the year. That is, as a reminder, is about a $40 million headwind in the second half of the year. That's no change from the original guidance that we had provided. And that also comes into play. But what I would say is we're prudent with our guidance and feel good about the ongoing momentum of the business. Operator: Our next question comes from David Windley with Jefferies. David Windley: I wanted to ask Eric about, or maybe Bob too, about incremental margin as good as margin expansion is year-over-year, I guess I would come at it from the standpoint of it still seems like there's quite a bit of opportunity there. Looking back in the model, revenue look to be at a record level, you're rebalancing capacity to open some new capacity, the NovaPure call out by Daniel. There's a number of factors that being positive margin was better year-over-year but down sequentially. I'm wondering if there were issues like labor ramp-up that you mentioned burden from commodity costs or perhaps the way of the SmartDose volume that came through in the quarter that might have shaded what would have otherwise been even better margin. Can you flesh that out for us? Eric Green: Yes, David, that's a good question. Let me start, and then I'm going to turn it over to Bob. But I think you've hit on the key points. We believe the HVP components business will continue to drive margin expansion. As we think about the biologics business continue to grow, you're absolutely correct by pointing out NovaPure and its strength of that particular business, which drives very attractive margin expansion. We also have the continuation of the Annex 1, and that's a multiyear journey. And as you know, we're basically moving an existing product in the market from a standard core level to a HVP, which brings very attractive margin expansion. And then I don't want to underestimate the impact of the leveraging our HVP sites more effectively with operational excellence. We've learned a lot in the first quarter. There's more to be done and also spread to our other sites, which we've actually seen as we went to those sites a few weeks ago. And we're very optimistic that we will be able to get more out of the existing capital that's in place today to produce HVP. So I do agree that there is opportunity for further margin expansion based on the HVP components Bob, do you want to add? Robert McMahon: Yes. And David, just a couple of other pieces of data. You're right. If we think about Q1, we were ramping throughout the course of the year. So that March had a much better performance than January, and that will continue to expand as we go through the rest of the year as those individuals were ramping up from a capacity standpoint. We did have a very good incremental, but I think it can be better. SmartDose did have some impact on that. And obviously, if -- to the earlier question around quarterly cadence. That's one of the reasons the second half of the year, we, in fact, on an operating margin basis to be pretty heavily above where we are in the first half of the year. And so a number of, I would say, positive opportunities for us to continue to expand margin not only this year but going into next year as well. David Windley: Great. And if I could just quickly follow up, Eric, I'd like to believe, based on my own age that you're still a pretty young chicken. You've made the decision to retire. Could you talk to us about that, please? Eric Green: Thanks for that. I'm pleased that you recognize that I'm still young. I feel it. No, I -- look, I think this is an outstanding organization. A lot of legacy, but a great future ahead of us, and I'm very proud of how the team is operating. I'm extremely proud of the executive team that we put in place, one of [indiscernible] next to me right now. And I do think this team is performing at a very high level, and will continue to do so. The business is operating very well. The strategy is very clear. the global leadership team is aligned and executing. And I think as I think about the successor coming in, when appointed, we'll be in a very good position to continue to take this business forward. So I'm excited about where we are at West, but I'm more excited about the future. And I couldn't be more proud about the team across the globe on how they are executing today, but more important in the future of this business. Operator: Our next question comes from Larry Solow with CJS Securities. Lawrence Solow: Congrats on the quarter as well. And just a follow-up on Dave's question there. Eric, we're going to miss you. It sounds like nothing imminent, but just curious how the search is going? Any kind of high-level time lines you can share with us or any thoughts there? Eric Green: Yes, Larry, thank you. So we are active in the market as we speak, and we anticipate that my successor will be appointed in the second half of this year. So [indiscernible] be informed as we make progress. But again, as I mentioned earlier, to David's question, this is an [ unbelievable ] company. And I think it's going to be -- once we have somebody appointed, we'll be in a very good position. Lawrence Solow: Yes, absolutely. You've done a great job enhancing the company's outlook. Just a couple of follow-up questions. You mentioned NovaPure. Most of the growth there has been driven by [ current products ] in the market. Just curious on the Annex 1 what folks are kind of shifting towards? Is it more towards the lower end of the curve there, like the [indiscernible] and then maybe [indiscernible] could go up a little more on the [indiscernible] side? Or do you see some of those -- of the $6 billion potential components, some of them eventually even inverting to some of the higher level -- high value services there? Eric Green: Larry, it's going to be a mixed answer for you. It really depends on the customer and the molecule itself. We have -- you're right, I would say, if you look at a weighted average more around the [ Westar ] and then leveraging [ Envision ], pharmaceutical washing, sterilization. We do have a few cases where they're going all the up to the high end of the spectrum of HVP. But it is more about the midpoint of that portfolio. And as a reminder, we're starting up -- many of them are starting off at the standard legacy products. So again, either case is very positive. We do also have some shift from the lower end of HVP going to the higher end. So it's a combination of both. So I gave you, kind of, a widespread of answer there, but it's -- that's why it's exciting. It's -- it's leveraging our global HVP finishing processes. Lawrence Solow: Got you. And then just quickly, I may just one last one. Just on the West Vantage. I guess you're calling that now. So I guess the cadence, should we expect for the rest of the year, do we expect a little bit of a dip? You had obviously a really nice strong quarter towards the [ middle back ] half of the year as the rest of the continuous [indiscernible] next piece comes out. And then sort of a rebuild in '27. And along those lines, does the more -- how should we view the margin profile of this segment as we go out the next couple of years? Robert McMahon: Yes, Larry, I'll take that question. And you're right. There is a kind of front half weighting associated with that just given what we were talking about before with the CGM contract exiting. So we -- our forecast for the year remains unchanged at roughly flat. It will be up in the first half and then maybe slightly down. Q3, I would expect to be the trough because if you remember, the drug handling is kind [indiscernible] up throughout the course of the -- throughout the year, as Eric mentioned, is on track. That's $20 million of incremental revenue. Most of that will be in the back half of the year. And as we've talked about the benefit of that drug handling is that's a higher-margin business than what it's replacing. And so from a margin profile, I would expect margin profile to be roughly consistent across the year. Lawrence Solow: Got it. Okay. And then eventually, does the drug handling have higher margin as you build that out? Robert McMahon: Yes. The drug handle margin -- and it's important, two other things. The drug handling business, while it has $20 million this year, that is certainly not at ramp at peak. It's probably 3x that much, which we'll continue to see ramp throughout 2027. And from a margin perspective, it's well at least twice as much on a gross margin basis as our current business. Operator: Our next question comes from Brendan Smith with TD Cowen. Brendan Smith: In terms of the 200 basis point contribution related to [indiscernible] is most of that baking in Europe-based upgrades? Are you seeing any customers upgrade, you mentioned the U.S. and Asia as next logical geographies? But are you seeing customers upgrade in parallel? And could that present any upside to that current expectation? [Technical Difficulty] Operator: Please stand by. Eric Green: [indiscernible] can you hear us? Operator: Yes. Brendan Smith: Yes, in terms of the 200 basis point growth contribution related to [ NX1 ], you mentioned the U.S. and Asia as next, sort of, subsequent geography seeing upgrades. Is the current expectation baking in pretty much just Europe? Or are you seeing any customers upgrade in parallel across geographies? And could that represent some upside opportunity there? Eric Green: Yes. There's two factors that have happened, Brendan. I mean, good question. And one is, our customers that are looking to upgrade for the European market are also looking at their portfolio and making more global decisions and being consistent. So we are -- we are seeing that as one factor. Another factor we are seeing, we're being brought into conversations with our customers even in the United States with the FDA making observations around sterility and the strategy around of their manufacturing processes. And therefore, there's opportunity to upgrade even in the U.S. market. So we're seeing a factor of both. And we'll see how this plays out in the near term, and that might be a potential opportunity. Robert McMahon: Brendan, I think the other thing to think about is a potential accelerant here is, as we think about all the work that's happening from the [indiscernible] standpoint. That's actually -- a lot of that is actually coming from Europe into the U.S. and what our pharma customers are wanting to do is standardize on a consistent product and process. And so that hasn't been fully baked in because a lot of that work is still ongoing. But that has the potential to kind of accelerate and expand our Annex 1 opportunities well beyond Europe. Brendan Smith: That's great. And in terms of the operational excellence plan. Can you speak to maybe like a cadence of executing that across sites or some time lines? And are those improvements baked into the [ raised ] guidance? Eric Green: Yes, the cadence is -- we're live right now. We're actually transferring some of the [ learnings and knowledge ] into other sites and particularly in [ Kinston ] and Jersey Shore, outside of our [indiscernible] and Waterford plant. So that is in process, and that will continue to occur throughout the year. As Bob alluded that, we were -- we saw a nice margin expansion within the quarter because of these efforts. So we are still in the buildup mode. We should see the expectations of additional benefits throughout the next several quarters. Robert McMahon: Yes, and we have baked some of that operational improvement in the forecast. Operator: Our next question comes from Tom DeBourcy with Nephron Research. Tom DeBourcy: I was just wondering on the HVP delivery devices and I guess you host the divestiture of SmartDose [indiscernible]. Just how you think about that business? I know you have the secrete platform and how you think about, I guess, adding to that portfolio and whether that's still, obviously, I guess, a core part of your offering to customers? Eric Green: Yes. No, absolutely. So within that portfolio, we have administrative systems, which is a very attractive market that continues to expand and grow, particularly in the hospital market. We have the Crystal Zenith, which is container alternative to glass that is really targeted to the highest end of biologics in cell and gene therapy. And then also you have the other alternative delivery devices like SelfDose that the demand and volumes are continuing to increase. And we have other versions and volume doses that we're able to offer our market. So we believe delivery devices is natural in this area as primary container as a natural extension from our elastomer business. We'll continue to invest around new product development and manufacturing capacity expansion because it's a very attractive growth profile and a margin opportunity. Operator: I'm showing no further questions at this time. I'd like to turn the call back over to John Sweeney for closing remarks. John Sweeney: Thank you very much for joining us today on our First Quarter 2026 Earnings Conference Call, and we look forward to updating you as we move through the year. Thanks very much, and have a good day. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Ladies and gentlemen, good day. Thank you for standing by. Welcome to TAL Education Group's fourth quarter and fiscal year 2026 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please be informed today's conference is being recorded. I would like to hand the conference over to Ms. Fang Liu, Investor Relations Director. Thank you. Please go ahead. Fang Liu: Thank you all for joining us today for TAL Education Group's fourth quarter and fiscal year 2026 earnings conference call. The earnings release was distributed earlier today and you may find a copy on the company's IR website or through the newswires. During this call, we will hear from Mr. Alex Peng, President and Chief Financial Officer, and Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Mr. Peng and Mr. Ding will be available to answer your questions. Before we continue, please note that today's discussions will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. For more information about these risks and uncertainties, please refer to our filings with the SEC. Also, our earnings release and this call include the discussions of certain non-GAAP financial measures. Please refer to our earnings release which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures. I would like to turn the call over to Mr. Alex Peng. Alex, please go ahead. Alex Peng: Thank you, Fang, and thanks to all of you for joining today's conference call. As we reflect on fiscal year 2026, it is worth stepping back to consider the progress we have made over the past several years. That progress has been built on more than two decades of experience in education along with continued investment in our capabilities and innovation. Together, these efforts have enabled us to continuously refine our offerings and better serve the evolving needs of students and society. So with that context in mind, let me now turn to our learning services business. Learning services remains our largest revenue contributor. We are committed to delivering quality learning service experiences to our user base. We are also building our content solutions business, including learning devices. These products significantly expand the accessibility and customer reach of our proprietary and third-party content. They work alongside our learning services to create a more integrated learning experience, driving longer, deeper, and stronger user engagement. Beyond our domestic operations, we also expanded into select international markets, leveraging our R&D capabilities and operational know-how to serve educational needs globally. While our businesses are at different stages of maturity, we are beginning to see meaningful improvement in company-level profitability. This underscores our ability to optimize core operations and build a more efficient operating model, further strengthening our foundation for sustainable growth and long-term value creation. So with that overview, let me walk you through our business progress for the fourth fiscal quarter and full year 2026. Our offline Peiyou enrichment programs demonstrated continued year-over-year growth in both the fourth quarter and the full fiscal year. Throughout the past year, we maintained a disciplined and consistent approach to expanding our offline learning center network, with a strong focus on service quality, operational health, and sustainable growth. Our expansion decisions are guided by a holistic assessment of factors including local market demand, receptivity to our offerings, our operational capabilities, and our commitment to maintaining high service quality. This approach supported solid growth and healthy operating performance throughout fiscal year 2026. In our online enrichment learning business, we continue to enhance user experience and service quality through technology. During the fourth quarter and throughout fiscal year 2026, we upgraded key products with richer content and technology-enabled features, creating a more engaging learning experience. Together, these efforts strengthen the value proposition of our online enrichment offerings and supported sustained user growth and engagement over time. Our learning device business achieved year-over-year revenue growth this quarter. In the last couple of quarters, this business has transitioned from its rapid expansion phase toward more moderate growth. We believe product quality and go-to-market capabilities will be critical to this business' long-term success. In March 2026, we introduced the X5 Ultra Classic, a device incorporating enriched content and upgraded AI capabilities. With the X5 Ultra now integrated into our learning devices portfolio, we are positioned to address a broader spectrum of at-home, self-directed learning needs. As we expand our installed base, our key user engagement metrics remain strong, with around 80% weekly active users and an average daily active usage time of about one hour per device. This allows us to serve customers beyond our physical presence and enhance at-home engagement. Next, let me turn to our financial performance for the quarter. In the fourth quarter, our net revenues were $802.4 million, or RMB 5.59 billion, representing a year-over-year increase of 31.5% and 25.8% in U.S. dollar and RMB terms, respectively. Our non-GAAP income from operations was $82.2 million and non-GAAP net income attributable to TAL reached $254.5 million for the quarter. I will now hand the call over to Jackson, who will provide an update on the operational developments across our four business lines and a review of our financial results for the fiscal fourth quarter. Jackson, over to you. Jackson Ding: Thank you, Alex. I am pleased to update you on our progress during the fourth fiscal quarter and full year across all core business lines. For Peiyou small class enrichment programs, we continued our operational momentum during this quarter. As we grow, we continue to uphold our service quality and operational efficiency. In terms of physical footprint, we expanded our learning center network at a measured pace. Our operational discipline is reflected in our key performance indicators, with Peiyou small class maintaining a generally stable retention rate of around 80% across fiscal year 2026, with certain quarters exceeding that level. Turning to our online enrichment learning business, we focus on student engagement to drive meaningful learning outcomes. To that end, we have driven engagement through interactive formats such as immersive online classrooms and role-playing activities. By offering both offline and online enrichment programs, we aim to address the evolving needs of students and support their holistic development. Next, our learning devices business delivered year-over-year growth in the fourth quarter as well as the full fiscal year. This reflects our progress in product development and go-to-market execution. Over the past year, we have also broadened our content library and incorporated AI-driven features to support a more engaging and effective self-directed learning experience. As Alex mentioned, last month we launched the X5 Ultra. This device expands our pricing points while offering more content, a unified learning interface, and improved AI tools, among them the upgraded AI ThinkE 101 tooling feature. To complement these upgrades, we have also improved the hardware. The X5 Ultra includes a faster processor and a 13.2-inch eye-comfort display, ensuring solid performance across different learning activities. While technology itself is important, we believe the true value lies in how it integrates curriculum-aligned content, scenario-based AI, and seamless hardware into a cohesive learning system—one that is intended to be more intuitive and practical for students. By organizing fragmented learning materials and tools into a clear, structured progression, it helps students monitor their progress and identify next steps. With these efforts, we aim to gradually evolve our learning device into a personalized learning companion designed to foster independent learning over time. I would now like to walk you through our financial results for the fourth fiscal quarter. Our net revenues were $802.4 million, or RMB 5.59 billion, an increase of 31.5% and 25.8% year over year, respectively. Cost of revenues increased by 28.2% to $375.2 million from $292.6 million for the same period last year. Non-GAAP cost of revenues, which excludes share-based compensation expenses, increased by 28.5% to $374.8 million from $291.7 million for the same period last year. Gross profit increased by 34.5% to $427.2 million from $317.6 million in 2025. The gross margin for the fourth quarter of fiscal year 2026 was 53.2% compared to 52.0% in the same period of the prior year. Turning to operating expenses, selling and marketing expenses for the quarter were $220.9 million, representing an increase of 1.4% from $218.0 million for the same period last year. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, increased by 2.0% to $218.5 million from $214.3 million for the same period last year. Non-GAAP selling and marketing expenses as a percentage of total net revenues decreased from 35.1% to 27.2% year over year. General and administrative expenses increased by 15.7% to $133.8 million, from $115.6 million in 2025. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, increased by 19.7% to [inaudible] from $106.0 million in 2025. Non-GAAP general and administrative expenses as a percentage of total net revenues decreased from 17.4% to 15.8% year over year. Total share-based compensation expenses allocated to related operating costs and expenses decreased by 31.9% to [inaudible] in 2026 from $14.3 million in the same period of fiscal 2025. Income from operations was $72.5 million in 2026, compared to [inaudible] in 2025. Non-GAAP income from operations, which excluded share-based compensation expenses, was [inaudible] compared to non-GAAP loss from operations of $1.7 million in the same period of the prior year. Other income was [inaudible] for 2026, compared to other income of $13.0 million in 2025. The change in other income for the fourth quarter was mainly driven by fluctuations in the fair value of certain investments. Net income attributable to TAL was $244.8 million in 2026, compared to net loss attributable to TAL of $7.3 million in 2025. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, was $254.5 million compared to non-GAAP net income attributable to TAL of $7.0 million in 2025. Moving on to our balance sheet, as of 02/28/2026, the company had $523.0 million of cash and cash equivalents, $1.0 billion of short-term investments, and $260.0 million in current and non-current restricted cash. Our deferred revenue balance was $882.2 million as of the end of the fourth fiscal quarter. Now turning to our cash flows, net cash used in operating activities for the fourth quarter in fiscal year 2026 was $215.0 million. Finally, I would like to briefly address our share repurchase program. On 07/28/2025, the company's Board of Directors authorized a share repurchase program under which the company may purchase up to $600 million of the company's common shares over the next twelve months. Between 01/29/2026 and 04/22/2026, the company has repurchased 101 thousand 371 common shares for an aggregate consideration of approximately $3.3 million. That concludes the financial section. I will now hand the call back to Alex to briefly update you on our business outlook. Alex, please go ahead. Alex Peng: Thanks, Jackson. Before turning to fiscal 2027, I want to take a moment to speak to the responsibility and mission we carry in serving students and families, particularly in the K–12 sector. At TAL Education Group, this is not a peripheral consideration. It is at the heart of how we think about our products, our services, and the standards to which we hold ourselves. It shapes not only what we build, but also how we grow. As we move into fiscal 2027, our strategy is centered on three priorities. First, we aim to drive quality growth across our businesses. We expect learning services to remain our largest revenue contributor, and we will continue emphasizing quality across both digital and in-person offerings so that we can serve more users effectively while preserving a strong user experience. In content solutions, we will focus on expanding through stronger product capabilities, richer content offerings, and more effective go-to-market execution. Second, AI remains key to our long-term strategy, and we are approaching it with a clear sense of focus and discipline. Our approach is application-first. Rather than pursuing foundation models ourselves, we are focused on deploying AI in ways that meaningfully enhance the user experience, improve operational efficiency, and strengthen our products and services. In learning, that means helping students find the right content more effectively, stay engaged more deeply, and learn more efficiently. Across the company, it also means applying AI to improve how we operate—from customer service and content production to software development—enabling us to grow with greater leverage over time. Finally, we remain focused on disciplined execution as we scale. By continuing to strengthen execution across content, product, operations, and go-to-market, we can further improve efficiency and enhance profitability over time. So that concludes my prepared remarks. Operator, we are ready to open the call for questions. Operator: We will now open the call for questions. If at any time your question has been addressed and you would like to withdraw your question, please follow the prompts from your phone system. Alex Peng: Before we take the first question, we would like to make one correction. We just mentioned we have repurchased at an aggregate consideration of approximately $3.3 million. This occurred between 01/29/2026 and 04/22/2026. That is the correction we would like to make. Now, please open the line to analysts. Thank you. Operator: The first question comes from the line of Jenny Wong with UBS. Please go ahead. Analyst: Thank you for taking my question, and first of all, congrats on another solid quarter. My question is related to other income. We noticed a significant increase in other income in the fourth quarter. Could you please provide more color on what drove this? Thank you. Jackson Ding: Jenny, thank you for the question. This is Jackson. Let me take this one. From time to time, we make financial strategic investments to either generate capital returns for shareholders or to accelerate business growth. These investment targets vary from classic wealth management products to minority equity investments to, sometimes, outright full-on mergers and acquisitions, all of which we have seen over the last few years. Specifically, what happened in this quarter is that a couple of our investments in our portfolio experienced an increase in valuation, and this resulted in an investment gain on our financial statements, which is booked under other income. I would also like to mention that this is a one-time event. Therefore, we do not recommend using this quarter's other income as a baseline for future performance projections. Jenny, I hope that answers your question. Analyst: Thank you, Jackson. Sounds good. Thank you. Operator: The next question comes from the line of Timothy Zhao with Goldman Sachs. Please go ahead. Analyst: Great. Good evening. Thank you for taking my question, and congratulations on the solid quarter. My question is related to the offline Peiyou small class business. Could management share some color on the most recent developments of this business in the fourth quarter of last year? What did the growth rate look like on the revenue side? And looking forward into fiscal year 2027, what is your strategic approach to expanding the learning center network, and what kind of capacity growth can we expect? Thank you. Alex Peng: Thanks, Timothy. This is Alex. I will first talk about our fourth-quarter performance and then share our approach to expanding the learning center network in the new fiscal year. In the fourth quarter, the Peiyou small class enrichment business, as we mentioned earlier on the call, delivered steady growth. Revenue increased year over year, primarily driven by higher enrollment, which reflects both our learning center network expansion and continued efforts to enhance the learning experience for our students. We talked earlier about key operational metrics; they remain healthy in the fourth quarter. For example, retention was over 80%, which underscores the trust our students and families place in our programs and the consistent high quality we maintain in our service delivery. From our day-to-day offline operations, we continue to see steady demand for enrichment learning, driven by the evolving parental and educational priorities of a new generation of parents. To align with these changing needs, we are increasing capacity and refining our offerings, both of which we believe will support the business's long-term growth trajectory. Regarding network expansion, in the fourth quarter we stuck to the disciplined approach that we have followed throughout the year and the past several years. For the full year, we entered five new cities, which brings our total coverage to over 40 cities across China. Looking ahead to the new fiscal year, we will continue to prioritize the business’s long-term health and sustainability. Our expansion strategy will remain disciplined, focusing primarily on consolidating our presence in existing cities rather than pursuing aggressive geographical coverage expansion. Operating from a higher baseline, we need to prioritize sustainable development over expansion in 2026. We expect revenue growth for this business to gradually taper in fiscal 2027 relative to its rate of growth in fiscal 2026. Timothy, I hope that answered your question. Operator: The next question comes from the line of Eddie Huang with Morgan Stanley. Please go ahead. Analyst: Hi, Alex and Jackson. Thank you for taking my questions and congratulations on a very strong quarter. My question is regarding the learning devices. Could you give some color on the performance of the learning device business in this quarter, and how did you mitigate the memory cost upcycle? Also, how do you view the current competitive landscape in the learning device sector, and what is your strategy to navigate and strengthen your position? Thank you. Alex Peng: Thanks, Eddie. This is Alex. Let me first share some color on our learning device performance in the fourth quarter and then our views on the competitive landscape. Our learning device business achieved year-over-year revenue growth in the fourth quarter. This reflects the consistent execution of our strategy, which has always prioritized improving product capabilities and refining our go-to-market approach. Sales volume also increased compared to the same period last year, supported by an expanded and more diversified product portfolio that meets a broader range of customer segments and needs. We also saw that the blended average selling price was [inaudible], which is consistent with our current product mix. Regarding memory cost pressures, this is an industry-wide challenge that many consumer electronics companies are facing. The sector has extensive experience managing these kinds of cycles through operational adjustments, and we are applying those lessons alongside strategies tailored to our business model. Our key initiatives include optimizing inventory turnover and stock management for greater efficiency, as well as refining our product portfolio by streamlining SKUs and adjusting our product mix where appropriate. These steps are helping us mitigate the impact of the rising cost cycle while maintaining our focus on long-term competitiveness. On competition, the learning devices sector remains highly dynamic, with competitors advancing in hardware, content offerings, and AI-driven features. In this environment, our strategy is to focus on continued innovation across our own product and user experience while staying responsive to shifting market conditions. Over the past year, we have expanded our lineup to serve different user segments. We talked about the recent launch of the X5 Ultra. We continue to enrich our content offering to enhance the learning experience. We have also maintained a solid cadence of software updates; we delivered approximately 19 major operating system upgrades and introduced nearly 300 new features over the last fiscal year. Together, these efforts help us reinforce our integrated approach, combining hardware, software, and distribution to create a cohesive at-home learning solution. We believe building innovation and product capability is the key to navigating the competitive landscape. Our progress to date in market share aligns with our expectations and the approach we have adopted. Beyond devices, we also see solutions as a strategic initiative that extends learning beyond the classroom and deepens and lengthens engagement for our users at home. We believe this can build together as an integrated learning experience for our students across learning services and content solutions. Our long-term goal is to make quality learning resources more accessible while supporting students’ holistic development along their learning journey. I hope that answers your question. Operator: The next question comes from the line of Jean Wang with CICC. Please go ahead. Analyst: Good evening, Alex and Jackson. Thanks for taking my question and congratulations on the strong quarter. My question is about the bottom-line profitability. Could you walk us through the primary drivers behind this quarter's bottom-line growth, and what were the key factors contributing to the improved profitability? Thanks. Jackson Ding: Thank you for the question. This is Jackson. Profitability is a priority for us, and we continue to take measures to drive profitability improvement. We see profitability as a manifestation of the value we create for customers and society as a whole, combined with our operating efficiency. Therefore, our measures focus both on value creation and on operating efficiency. Breaking down the drivers, there are several contributing factors to profitability momentum this past quarter. First, as Peiyou small class continued to grow, its margin profile remained steady and it generated more absolute profit dollars. Other business lines, including online enrichment learning programs and learning devices, showed varying degrees of profitability improvement as well. In addition to business-unit-level profitability improvement, the overall company also benefited from operating leverage, which has been a contributing factor to overall profitability improvement. On the overall trend, if we look at non-GAAP operating income margin for the last few quarters, in every single quarter this past fiscal year our non-GAAP operating margin improved compared to the same period last year. We see this as a result of the profitability improvement measures discussed above. I hope that answers your question. Operator: The next question comes from the line of Candace Chan with Daiwa. Please go ahead. Analyst: Hi, Jackson and Alex and Fang, thanks for taking my question and congrats on a very strong set of results. Can you provide us a breakdown of the top-line growth performance across the major business lines this quarter? Additionally, what is the outlook for growth for these business lines in the coming fiscal year? And one more question, if I may: we observed a very solid margin expansion for three consecutive quarters at about 10%. What is the potential for further margin improvement going forward? Thank you. Alex Peng: Thanks, Candace. This is Alex. Let me unpack that. First, on the breakdown of top-line growth across our major business lines this quarter. Starting with the Peiyou offline enrichment business, which remains our largest revenue driver, it continued its solid growth this quarter. This was supported by ongoing expansion of our learning center network and consistent improvements to service quality. Moving into fiscal year 2027, the expansion strategy remains disciplined. We are going to focus on increasing center density within existing cities to ensure we maintain high operational standards. We anticipate this business will continue to grow at a healthy rate. As operations grow larger and the baseline becomes larger, we have seen the year-over-year revenue growth rate moderate naturally, which is a trend we expect to continue into the next fiscal year. Second, in the online enrichment learning business, we remain committed to delivering high-quality, interactive learning experiences. We continue to enhance the user experience by introducing more interactive features and leveraging AI in both content production and our internal workflows. This product- and user-centric approach supports user engagement over time. In terms of channel strategies for the online enrichment learning business, we balance between growth objectives and return on investment to build long-term operational capabilities. Next, the learning device business delivered year-over-year revenue growth this quarter, driven by increased sales volume and a higher contribution from deferred revenue recognition. The market is evolving toward a more sustainable growth path, and we are focused on strengthening our long-term competitiveness through investment in product innovation and channel development. Our product strategy focuses on creating integrated learning solutions that combine hardware, proprietary software, content, and AI-enhanced experiences. In channel development, the plan is to further diversify distribution by balancing investment across both online and offline channels to effectively reach and serve our users. Putting it all together, when we look at the company holistically, as our operations scale within an increasingly larger baseline, we anticipate that our year-over-year growth rate will gradually moderate. With growing maturity, we also expect operational efficiency to improve, and we will remain focused on driving profitability. We may see some quarterly fluctuations, but improving overall profitability remains a top priority for fiscal year 2027. Looking ahead, we will continue advancing our strategic initiatives and strengthening core capabilities to support sustainable margin improvement over time. Candace, I hope that answered your question. Operator: This concludes our question and answer session. I would like to turn the call back over to management for any closing remarks. Alex Peng: Thanks again for joining us today. We look forward to speaking with all of you next quarter. Thank you. Bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to Molina Healthcare's First Quarter 2026 earnings call. [Operator Instructions] Please note this event is being recorded. [Operator Instructions]. I would now like to turn the conference over to Jeffrey Geyer, Vice President, Investor Relations at Molina Healthcare. Please go ahead. Jeffrey Geyer: Good morning, and welcome to Molina Healthcare's First Quarter 2026 Earnings Call. Joining me today are Molina's President and CEO, Joseph Zubretsky; and our CFO, Mark Keim. A press release announcing our first quarter 2026 earnings was distributed after the market closed yesterday and is available on our Investor Relations website. Shortly after the conclusion of this call, a replay will be available for 30 days. The numbers to access the replay are in the earnings release. For those of you who listen to the rebroadcast of this presentation, we remind you that all of the remarks are made as of today, Thursday, April 23, 2026, and have not been updated subsequent to the initial earnings call. On this call, we will refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in the earnings release. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2026 guidance, the medical cost and utilization trend during the year, the political, legislative and regulatory landscape, the impact of Medicaid work requirements and redeterminations, our expected growth and margin expansion, the estimated amount of our embedded earnings power and future earnings realization, Medicaid rate adjustments and updates, our RFP awards and our acquisitions and M&A activity. Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC as well as our risk factors listed in our Form 10-Q and Form 8-K filings with the SEC. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joe Zubretsky. Joe? Joseph Zubretsky: Thank you, Jeff, and good morning. Today, I will discuss several topics. Our reported financial results for the first quarter, our full year 2026 guidance, which we reaffirm at approximately $42 billion of premium revenue and at least $5 in adjusted earnings per share, the political and regulatory landscape and a brief glimpse of our Investor Day agenda and growth outlook. Let me start with our first quarter performance. Last night, we reported adjusted earnings per share of $2.35 on $10.2 billion of premium revenue. We would characterize the results as solid under the circumstances but that characterization is against the backdrop of current modest expectations. Our 91.1% consolidated MCR reflects strong operating performance as we continue to navigate a challenging medical cost environment. We produced a 1.6% adjusted pretax margin in the quarter. In Medicaid in the first quarter, the business produced an MCR of 92%. While the January 1 rate updates came in as expected, our medical cost trend was modestly favorable to our expectations. We continue to work to enhance our medical cost management protocols to address the areas of high cost trend we observed in 2025. Last year, we observed a 7.5% medical cost trend that included 250 basis points of acuity shift related to the post-pandemic redetermination process. However, the acuity shift in core utilization impacts diminished as the year progressed. Our expectation that the acuity shift trend that we had experienced in 2025 was behind us and would not recur is holding up. We feel confident in our 5% medical cost trend assumption for 2026. In Medicare, we reported a first quarter MCR of 89.8%. At the beginning of the year, we successfully completed the transition of MMP members to the new integrated products. Our Duals business is the strategic focus for us in Medicare. As previously mentioned, we will exit the MAPD product for 2027. In Marketplace, the first quarter MCR was 84%. Membership stands at 305,000 and is slightly higher than our prior guidance, but the profile of our membership is as expected, following our decision to reduce our exposure in this highly volatile segment. The majority of our members are renewal members, and we remain concentrated in the silver tier, which leads to greater stability and predictability in our membership base. Turning now to our 2026 guidance. Although the quarter was strong when compared to internal and external expectations, we are merely reaffirming our full year 2026 adjusted earnings per share guidance of at least $5. Our full year 2026 premium revenue guidance remains at approximately $42 billion. We note that our forecast for Medicaid membership attrition increased slightly, but the associated revenue loss is projected to be offset by higher revenue in marketplace. We remain optimistic that states may provide off-cycle and retro rate updates throughout the year as they did last year. We are keenly aware that medical cost trend and earnings came in modestly favorable to expectations in the quarter. That being said, merely reaffirming our prior full year guidance is a prudent approach at this early point in the year and in this current environment. When we report second quarter results, we will update our full year 2026 guidance to reflect the first and second quarter results, which will provide a time-tested base off of which to project the second half of the year. Turning now to the political and legislative landscape. In Medicaid, States continue to evaluate their processes and how to implement work requirements and biannual redeterminations. The guidance from CMS affords States some flexibility on how to proceed with these requirements, particularly as it relates to the timing of these reviews. We are working closely with our state partners on the administrative requirements needed to implement these new policies. We continue to believe that membership impact will be minor and emerge gradually through 2027 and 2028 and therefore, any impact due to changes in the risk pool will be small. In Medicare, we are pleased with the improvement in the CMS final rate notice compared to the preliminary notice. In addition, the continued progress of States promoting the integration of Medicaid and Medicare supports the long-term competitive position of our duals products. In Marketplace, as we approach the 2027 pricing cycle, we will likely remain cautious as it is still possible for disruptive regulatory changes to occur. We look forward to updating you on our 3-year outlook at our Investor Day event on Friday, May 8. We see a clear path to margin expansion to the correction of the rate and trended balance that exists today and the revenue growth opportunities continue to be attractive in our businesses. We will provide a detailed financial outlook for premium revenue and earnings per share through 2029 and demonstrate how we will again realize the intrinsic value of the franchise we have built over the past 8 years. We will do so with the same level of detail and specificity that has been our hallmark. In summary, we are pleased with our solid first quarter results and continued disciplined approach to medical cost management. Our reaffirmed full year 2026 guidance reflects a prudent view of full year results at this early point in the year. With that, I will turn the call over to Mark for some additional color on the financials. Mark? Mark Keim: Thanks, Joe, and good morning, everyone. Today, I'll discuss additional details on our first quarter performance, the balance sheet and our 2026 guidance. Beginning with our first quarter results. For the quarter, we reported approximately $10.2 billion of premium revenue with adjusted EPS of $2.35. Our first quarter consolidated MCR was 91.1% and reflects continued disciplined medical cost medicine. In Medicaid, our first quarter reported MCR was 92%. The January 1 rate update came in as expected, while medical cost trend was modestly favorable to our expectations. In Medicare, our first quarter reported MCR was 89.8%, in line with our expectations. We remain confident in the pricing and benefit adjustments we implemented for 2026. In particular, our duals products, which now include last year's MMP members are off to a good start. In Marketplace, our first quarter reported MCR was 84%. Adjusted for prior year risk adjustment and program integrity impacts reduces that metric to approximately 79.5%. Given the pricing actions we took in our Marketplace segment this year, we have reduced our exposure and prioritized margin improvement. Our adjusted G&A ratio for the quarter was 6.9% and reflects the timing of certain operating expenses with no change to our full year outlook. Turning to the balance sheet. Our capital foundation remains strong. In the quarter, we harvested approximately $35 million of subsidiary dividends and our parent company cash balance was approximately $213 million at the end of the quarter. Our operating cash flow for the quarter was $1.1 billion and driven by the timing of government payments in Medicaid and Marketplace. Debt at the end of the quarter was 6.1x trailing 12-month EBITDA, and our debt-to-cap ratio was about 48 we continue to have ample cash and access to capital to fuel our growth initiatives. Days in claims payable at the end of the quarter was 44, modestly lower than is typical due to the timing of payments at quarter end. We remain confident in the strength and consistency of our actuarial process and our reserve position. Next, a few comments on our 2026 guidance. As Joe mentioned, we continue to expect full year premium revenue to be approximately $42 billion. Within that number are a few moving pieces. We now expect same-store membership in Medicaid to decline 6% this year, up from previous guidance of a 2% decline. We expect to end the year with approximately 4.5 million members. Meanwhile, Marketplace sold moderately higher paid renewals, ending the first quarter at 305,000. With normal market attrition, we expect membership in our Marketplace segment to end the year at approximately 250,000. Renewing members now represent 70% of our book. Lower membership in Medicaid and higher membership in marketplace results in our premium guidance remaining at approximately $42 billion. With low and no utilizers now at the lowest level we have seen, we do not expect any acuity shift from additional Medicaid membership declines. Our full year consolidated MCR and each of our segment MCRs are unchanged. In Medicaid, the full year MCR of 92.9% includes rate increases of 4% and medical cost trend at 5%. States continue to update their actuarial data to reflect higher observed trends. We remain optimistic States may provide off-cycle and retro rate updates throughout the year as they did last year. Several of our States have already provided off-cycle rate increases, and these would represent upside to our guidance. Full year medical cost trend guidance remains in line with our previous expectations. States continue to evaluate program design and benefit changes to address medical cost categories with the highest observed trends. Our MCR guidance on Medicare is 94%. We remain confident in the performance of our Medicare duals and integrated product business. In Marketplace, our full year MCR guidance is 85.5% and includes the normal expected seasonality. We continue to expect the full year G&A ratio to be approximately 6.4% as we drive efficiencies in our operations. The higher ratio reported in the first quarter with simply timing of a few items within the year. We reaffirm our full year EPS guidance of at least $5. We continue to expect earnings seasonality to be front-end loaded this year, reflecting the January 1 Medicaid rate cycle in the first half of the year and implementation of the Florida CMS contract in the second half. Turning to embedded earnings. Recall that our definition of embedded earnings is the future incremental contribution of our new contract wins and acquisitions. Recall that $2.50 a share of embedded earnings is the combination of 2026 MAPD losses and Florida CMS first year implementation costs. Both are certain to be positive impacts to our 2027 performance. Embedded earnings will remain a driver of value in the future. We look forward to providing you with an updated view of this important measure at our Investor Day. This concludes our prepared remarks. Operator, we are now ready to take questions. Operator: [Operator Instructions] The first question comes from Andrew Mok with Barclays. Andrew Mok: I appreciate the updated comments around lower Medicaid membership. Can you help us understand which states are driving that incremental pressure and how that impacts the MLR outlook and cadence for the balance of the year? Joseph Zubretsky: Sure, Andrew. I'll frame it and I'll kick it to Mark. We are pretty spot on with our membership forecast in Medicaid for about 15 or 17 of our states at about 2%. We underestimated the impact in California, Illinois and New York and somewhat in Texas. And in California, it was certainly influenced by the undocumented immigrant population. I'll kick it to Mark to talk about why we don't expect a continued acuity shift here. And it has to do with what we call low and no utilizers and the fact that, that's a much smaller component of our population today than it was in the past. Mark? Mark Keim: Yes. Absolutely. Andrew. Yes, so the States that Joe mentioned are driving why we're looking for a little bit higher attrition this year, California, Illinois, New York, Texas, Joe mentioned in California, it's the UIS, the undocumented immigration status members that are probably very disproportionately driving that State. Now our guidance has -- membership attrition was 2% for the year. In our new guidance, it's now 6%. So certainly on volume, that's down. In our prepared remarks, we said the revenue would be offset by marketplace. But to Joe's point, the acuity impact, potential acuity impact on a higher attrition assumption for Medicaid, we're really not seeing it. When we look at the low and no users, most of them came out over the last 1.5 years or 2 years since the start of redetermination after the pandemic. Right now, we're seeing a lower percentage of low users and no users in our Medicaid population than we ever have, at least since we've been recording it. The other point I'd mention is when we look at our stairs, levers analysis, on Medicaid, the people that are staying with us versus the people that are leaving us, the levers at this point are leaving very close to portfolio averages, which is just one more data point that suggests to us that any of this pent-up acuity shift is largely behind us. So yes, lower on Medicaid membership, but we don't really see an acuity impact here. Operator: The next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: Just to kind of follow up on that. I hear your point that low and no utilizers are at the lowest point you've seen. But I guess enrollment is also being more tightly managed, I think, probably at any time in the recent history of the Medicaid program. So I guess, can you talk a little bit about your confidence level that, that actually is kind of the reasonable baseline for looking at this. And then I hear you on the kind of the acuity narrowing and the lever stayer narrowing as you got through the second half of the year. But do you think you're actually at the point now where it is truly 0, and there is no difference. I hope you'd just be able to expand a little bit more on this assumption. Joseph Zubretsky: A couple of data points. I'll [indiscernible] it and hand it to Mark again. Our definition of low and no utilizes, we don't actually talk about exactly what it is, but it's a good metric to figure out whether there's large SKUs of MCRs in your population. That right now is very tight. In fact, in our definition, the percentage of total membership that are low and no users is 7.5 percentage points higher -- lower, sorry, than it was at the peak of the pandemic, and it's actually below pre-pandemic levels. So we're really confident that the post-pandemic redetermination process eliminated a lot of people who weren't using the system and eliminated them from the Medicaid roles. Now with respect to membership, yes, the whole eligibility verification process has gotten tighter in States. Right now, we're comfortable with our 6% membership attrition assumption for 2026. And when we talk to you at Investor Day on May 8, we'll give you a longer-term view of what that might look like for our Medicaid business over a 3-year period. Operator: The next question comes from Ann Hynes with Mizuho Securities. Ann Hynes: Can we talk about free cash flow. Your free cash flow was strong in the quarter. after a couple of years that weren't great. What are you expecting for 2026? And then on your debt to cap, I know it's right now 48%. What is the goal? What's the ultimate goal to get that to and maybe the timing? Mark Keim: Ann, it's Mark. Thanks a lot for that. I get questions on operating cash flow all the time. And as you know, in a regulated business like Molina, what's more important than total company operating cash flow is cash flow at the parent, right? Operating cash flow swings a lot as we do accruals for risk adjustment for corridors, we hold those accruals. Maybe we don't pay them down for a year or two. Then if we're not accruing new liabilities, you see those operating cash flows, but they aren't meaningful for the company because, again, the cash flow stays in the subs. . What is meaningful is the cash flow at the parent. We continue to have a lot of success with dividends moving from our subsidiaries to the parent. We moved cash to the parent once again in the first quarter and our outlook for the rest of the year is pretty good. My cash at the parent is a little over $200 million in the first quarter. It will be more than $600 million at the end of the year based on the dividends I expect to take throughout the rest of the year. So very good cash flow to the parent, and that's where we can actually use it to redeploy. That's what's really important. So on debt to cap, we are a little higher than we've been, but still at a very comfortable level, 47%, 48% depending on how you measure it. Typically, we target something in the low 40s as the more sustaining and enduring level. But with normal net income and the outlook we have for the business, I'm very comfortable with where we are in debt to cap. Operator: The next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: Great. I understand the desire to kind of reaffirm this early in the year. I think we usually expect a lot more clarity for companies with Q2 results, so that makes sense. But just trying to understand a little bit whether this is that type of normal assumption around always kind of wait for Q2 to kind of raise guidance or whether you believe that there is still meaningful unknowns that aren't quantifiable at this point? And if there are, where you think that those things that could push the numbers in either direction that are still unknown? Joseph Zubretsky: Our prudent move to not increase guidance at the first quarter, even though the indicators are all positive for all 3 businesses are for vastly different reasons. In Medicaid, the volatility of the network cost inflection we experienced in late 2025, we had a very good trend result. In fact, the annualized trend result in the first quarter would indicate we might even come in less than 5% for the year, but we're not yet calling that. In Marketplace, we want to wait to see the June [indiscernible] before truing up our estimate for the full year. And we had a very, very good start in our new integrated products, our FIDE and HIDE in Medicare, but it's 1 quarter. It's a brand-new product, existing members, but a brand-new product. We want to see that develop for another quarter. We use the term time tested because I think it is prudent to see 6 months of results before updating our guidance, particularly coming off a highly volatile medical cost inflection environment in 2025, bearing in mind in Medicaid with a 92% result in the first quarter a 92.9% indication in our guidance for the full year, we can actually produce loss ratios north of 93% and still hit our guidance for the rest of the year. So cautious perhaps, but in this environment, we think it's entirely prudent to do so. Operator: The next question comes from Justin Lake with Wolfe Research. Justin Lake: Medicaid cost trend last year, you said 7.5%, this year, you're saying around 5%, appreciate the company's transparency and giving quarterly Medicaid trend? I think you said 1.2% in the first quarter last year and 1.6% in the second. Can you give us the Q3 and Q4 trends that you saw quarterly coming out, what are you seeing in the first quarter? And can you give us the split between trend and acuity each quarter? And maybe also tell us what's driving the lower trend, what cost categories driving lower trend this year? Joseph Zubretsky: Sure, Justin. I'll frame it and hand it to Mark. The framing remarks that I'll make is that in 2025 on a reported basis, the trend appeared to be accelerating. But as normalized and viewed on a pure period basis, it was actually declining throughout the year. Now the real key point is all of that 2025 information is trying to be used by observers to predict what's going to happen in 2026. In 2026 for 1 quarter only, the 2.5% acuity shift component of trend for 2025 did not recur. And the trend observed in the first quarter annualized, would put us at better than 5% for the full year. . So despite what it was doing in 2025, it looks like, at least for 1 quarter, our trend pick for 2026 is holding. Mark, do you want to discuss the quarter? Mark Keim: Sure. Justin, I appreciate your question. And the 1.2% to 1.6% you cited, I certainly recall. The way we look at our medical cost expenses is at the time what we report is what we know at the time. The other way we look at medical cost is on a pure period basis. we go back and we look at the full development of medical costs, and we put them in the periods of their dates of service. Those dates of service on a pure period basis in retrospect, can look different than what we reported at the time. So the 7.5% that we looked at for last year is certainly the number we saw. The evolution of it is a little bit different than we reported at the time. So what we saw is higher trends in the first and second quarters, declining when we put the cost into their appropriate time periods, which we call a pure period basis. Within that declining overall medical cost PMPM, the component of the acuity shift that we've talked about declined very meaningfully, such that by the end of the year, it was de minimis, almost gone. And as what Joe said, what gives us great confidence is here in the first quarter, we're seeing exactly that bear out. We're seeing the run rate of the 5% we saw last year of the core, but we're not seeing the acuity shift. In fact, as Joe said, we're seeing just a little bit better than that run rate of 5%. But at this point, it's too early to really lay that out. I always am reluctant to talk about trends on a quarterly basis because there's seasonality and there's noise. It's a much better annual concept, but I certainly appreciate the question. Operator: The next question comes from Sarah James with Cantor Fitzgerald.. Sarah James: Days came in at 44, which is below the 46 to 47 range in the prior 3 quarters. I know you're attributing that to timing, but is there any way that you can give us look at normalized DCP ex the timing items and then help us understand how you're thinking about reserve funding for Florida Kids, given the scale of the contract and typical pressure in the beginning of new contracts? And then second, in your assumption that the sub dividend bring parent cash up to $600 million by the end of the year. Would that be possible while your company-wide RBC still remain similar to the 305% that you exited '25 with? Joseph Zubretsky: I'll take the floor to -- I think your second question is about Florida Kids. Let me frame that. And we'll be talking about this on May 8 as a proof point of the significant amount of new business wins we've had over the last 5 or 6 years. The Florida Kids program, Florida CMS, the official name. We believe that total run rate is a $6 billion revenue program. We are in full implementation mode currently. We are experts at managing high-acuity lives, which is what this is. And we also have an unparalleled platform in our opinion, of managing behavioral costs, both from a clinical and cost perspective, which is a very large component of this program. We're really proud of the RFP proposal that we put forward in one. We have good visibility into the economics of the program now that we're in implementation mode. We have all the cost and claim data from our customer, our state regulator, and we have visibility on the '25, '26 program rates. So all that being said, we believe and we've seen that the financial profile of this program is attractive, and we believe will provide for a meaningful -- it already has provided for a meaningful addition to our embedded earnings to be harvested over a 2-year period. Mark, do you want to address the reserve stat? Mark Keim: Absolutely. Sarah, there was a lot in that question. Let me start with DCP. We were at 44 in the first quarter. Now that was down 1.5 days from our recent average. And what we said on the prepared remarks, it was entirely the timing of payments. Now if you wanted to poke on that, you would look at what we call the roll forward of our reserves that was in the earnings release, you'll see it again in the [ queue ]. But if you look at it on a kind of per member per month basis, what you would see is that our medical expenses were tracking like average incurred. But on a paid basis, we just paid faster, and that will stick out in the PMPMs, if you do the math. Now the other thing you guys do a lot of times to test our reserves is you look at the growth of premium versus the growth of claims payable. And our premium revenue was actually slightly negative year-over-year and our claims payable was actually meaningfully positive year-over-year, which would certainly give you comfort. Now on top of this, these are just testing balance sheet liabilities, underlying this are true actuarial [ tics ], which remain standard like they always are. I think the last part of your question was, can the dividends that I talked about still be possible in the presence of the RBC ratio? Absolutely. We only take dividends when they are above the RBC target of $300 million. So we would never dividend to get below 300. If that was the point of your question, we'll finish the year well above $300 million RBC even with those forecasted dividends. Operator: The next question comes from A.J. Rice with UBS. Albert Rice: Maybe just to clarify something on the quarterly trend and then ask about the marketplace. You were nicely ahead on MCR relative to consensus. I wonder how that compared to your internal expectation? And is any of your hesitancy on rolling that forward and updating guidance related to unusual items that might have impacted the quarter? I know some of the other companies have called out weather and flu being favorable. I don't know whether that had any impact on the trend you saw. And then my question on the exchanges, you're probably the only one that's saying you're seeing silver level continue to be the predominant one. Others are talking about move to bronze, someone even said they had some backup into gold. Is that pretty much benefit design that's driving that? Or are you seeing something different in the market than perhaps others are seeing? And then finally, just to comment your 305,000 current membership down to 250,000. Is that just evenly spread over the back half of the year? Do you sort of expect a more material drop at some point? Joseph Zubretsky: Let me take in the reverse order. So I can remember the about 305,000, think of it as going down to 250,000. Think of it as 40,000 terminations per quarter and 20,000 SAP adds. So 20,000 decline per quarter to 3 quarters. That's the easy one. On HICS product mix, we are still predominantly silver at 50%. But yes, we are in bronze where States allow a pricing regime that bronze can be profitable. And yes, there was a slight shift to gold during the year and I'll let Mark take that and put some color on that in a minute. And on your question about the Medicaid MCR. We use the word time tested for a very specific reason. There was nothing unusual about the first quarter. Yes, the flu season, what we call ILI is coming in slightly better than last year but within expectations. The weather had an effect here and there in various states, but for a few days here and there. No impact. The quarter was clean. Coming off of the unprecedented inflection of 2025, we want to see 2 quarters of information before we declare that the 5% trend is coming down and the 4% rates are going up, it's as simple as that. Mark, anything to add on HICS. Mark Keim: Yes, absolutely. On the point of the metallic mixes, the market is certainly up on bronze, a lot of what people call buy-downs as the subsidies declined. And certainly, we have a little bit more. We reported about 20% of our mix was bronze this year, which is up a little bit since last year. We're at silver, 50% and gold, almost 30%. What's interesting about gold is a lot of states have shifted their metallics such that gold becomes just as attractive as silver. As a result, we have a lot of gold and silver. Now why maybe do we have less buydowns than the market? Remember, our renewal rate is 70%. So we're keeping a lot of the same people. And very often, they're staying in the same metallic. Operator: [Operator Instructions] Next question comes from Scott Fidel with Goldman Sachs. . Scott Fidel: I was hoping you could maybe just on the Medicare MLR, just because you have the dynamic of exiting, MAPD plan for next year. Would you be able to parse out what the sort of continuing operations in Medicare, which I guess, would be more of the duals versus the MAPD MLR was in the quarter? And maybe any thoughts around maybe sort of giving us at those metrics, each of this quarter just as we try to think about sort of the run rate on Medicare MLR heading into next year? Joseph Zubretsky: You're right to point out that the Medicare story is a little more complicated than most Medicare story because it's a combination of our D-SNP product, which has been in force for many, many years. Our MMP members who are now converted to commercial-based HIDE and FIDE and then our MAPD product, which is going to be -- we're going to eliminate that product for 2027. We cited a drag on this year's earnings due to the MAPD product. I think we cited as producing $1 earnings per share drag that won't repeat next year. And it is tracking to plan. D-SNPs have always produced a modest profit, and they continue to the surprise, if there was one, a positive surprise was that we took a very cautious approach to converting 80,000 members and over $2 billion of revenue to HIDE and FIDE that are highly competitive new product, new rating regime. It performed a lot better out of the gate than we had anticipated. But it's 1 quarter, and we're going to be cautious in terms of updating guidance for the full year on that product. So in 2027 and beyond, we'll only be talking about duals. We'll be talking about D-SNP and we'll be talking about HIDE and FIDE, which will become a dual segment, and it will be a lot easier to follow. Those are the 3 pieces, and they will have different dynamics for different reasons. Mark, anything to add? Mark Keim: Yes. I'll just put some numbers around that. For our guidance for Medicare, we have about $6.6 billion in revenue, $6.6 billion, and a loss of $1.25. As Joe mentioned, the MAPD component of that is $1 loss on $1.2 billion of revenue. That goes away next year. So with next year just being the duals, the D-SNPs, the FIDEs, the HIDEs. The current run rate is about $5.5 billion, about a 94% MLR and we see that only getting better over time. In fact, our Stars profile for payment year 2027 has improved. So the outlook for 2027, but that should give you the jumping off point. Joseph Zubretsky: We'll give you a good 3-year outlook for our duals business in a couple of weeks at our Investor Day. We're pretty excited about it. As you know, the regulatory regime is favoring the integration of Medicaid and Medicare. And since we have a very deep and wide footprint in Medicaid and a Medicare business is quite robust. We're quite enthusiastic about the prospects for our duals business. . Operator: The next question comes from John Stansel with JPMorgan. John Stansel: Over the last few quarters, usually in the prepared remarks, you spent time talking about an actionable M&A pipeline. A little bit last commentary on that today. I just want to understand, we've seen some Medicaid plans announced that they're exiting either in '26 or '27. How are you seeing the pipeline? Has anything changed or anything that's kind of making that more or less actionable right now? Joseph Zubretsky: John, really, the only reason, very practical reason why we didn't talk about growth this quarter was because we have an Investor Day coming up in 2 weeks. What we'll talk about on this. And you're right to cite that as you plumb the depths of what goes on around the country in various states, there are plans that are reportedly in trouble, distressed. We know where they are. We know who they are. We've probably talked to them. And the pipeline, the M&A pipeline is quite replete with actionable opportunities -. We are going to remain disciplined, stick to our knitting on properties that fit into our core strategy. And I'll tell you, Mark and I have this debate with ourselves all the time. While we only paid 22%, 23% of revenue in the past, book value seems to be the best benchmark that one can look at now. And if you're putting -- if you're only paying for regulatory capital, an M&A opportunity is as good, if not better, than a new contract win. So we'll talk more about that in 2 weeks' time. The only reason we didn't talk about here is not because it's less important. We're not actionable. We'll be talking about it in great detail in 2 weeks' time. Operator: The next question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: So you mentioned several of those moving pieces a lot throughout the call in terms of the various different books of business where you want better clarity -- you mentioned, for instance, June Wakely data, but what are the latest weekly data. How did that inform you? And then as we think about all those variables, can you kind of rank them on the level of clarity or how comfortable or vulnerable you are across those segments? And then just as we think about you give long-term growth aspirations or targets on May 8, how do we get comfortable with the baseline if -- could you give us any incremental clarity on the near term on May 8 at all? Joseph Zubretsky: Erin, we are encouraged by the start to the new year. The data points we laid out are real, as someone suggested before, is there anything in the first quarter of an unusual nature that is creating the caution that you're exhibiting. And the answer is no. We use the board time tested because in this environment, we think it is entirely reasonable, if not prudent, to have 2 full quarters of information, let the first quarter develop and become fully seasoned. [ Look ] in the second quarter, particularly on businesses where you have new membership, in order to update our forecast. So no, there is nothing in the first quarter result that is causing this caution. It is the test of time coming off this unprecedented inflection we experienced last year. Now when we get to Investor Day in 2 weeks' time, all you're going to have at the baseline is our current guidance for 2026 at $5, but we're going to give you a really good view of what this looks like in 2029. We'll show you the building blocks of growth. We'll show you how we expect margins to recover and to what extent. Obviously, we'll give you the numbers then. But you will see block by block, brick by brick, how we're building a story for 2029 in all 3 of our businesses. And the 2026 baseline of $42 billion of revenue and $5 is going to be the baseline. We're not updating it at Investor Day. Operator: The next question comes from Ryan Langston with TD Cowen. Ryan Langston: Sorry if I missed this, but can you elaborate a little bit more on the commentary of timing for operating expenses and G&A. Is that for incentive comp or something else? And then on the MAPD business, exit. You said in the past that you might have an opportunity to monetize that. Can you give us an update where you're at in that process? Joseph Zubretsky: Sure. I'll comment on the second question, Ryan, first and tag it to Mark on the timing of operating expenses. Yes, on the MAPD business, which is mostly in -- here in the Northeast and in California, we are still working with potential counterparties to transfer that business. We'd rather transfer to a strategic partner. We're still working with various counterparties to that end. . If we feel we won't be successful doing that, we will terminate the business and terminate the product for next year. So either way, we will be out of the -- the traditional MAPD product for 2027. We prefer the one transfer to a strategic partner. But if we're not able to do that, and we're still in the process of exploring that, we will wind it down. Mark, timing of expenses? Mark Keim: Yes. Ryan, full year guidance unchanged, as I said in my prepared remarks, 6.4%. We booked a 6.9% in the first quarter, which is entirely timing. There's some IT projects. And separately, as you know, we're gearing up for that very large contract in Florida, the Florida CMS Kids contract, which is $6 billion of run rate. You can imagine that's a big lift as we think about that. So it's just some lumpy expenses quarter-to-quarter. The emphasis here is that full year is unchanged at 6.4%. It's just the lumpiness of how we recognize expense. . Operator: Next question comes from Michael Ha with Baird. . Hua Ha: Just wanted to follow up on Steve's question about low and no utilizers. I understand you have a lot at you've seen. You don't expect additional acuity shifts Medicaid declines and that your low utilizes, I think you said 7.5% below peak. And I know, Joe, you mentioned you won't provide a definition on that, but is there any way you could provide a bit more color around perhaps what buckets of MLR you consider low utilized? Or is that 0 to 20%, 20% to 40% MLR higher, for example, would a 70% MLR number be considered that because the 70% MLR number dropping off is still like a 20% delta basically where your book is running at today. So curious if you had more color there, what percent of your members fit in those buckets, how those cohorts change over the past couple of years? Also, how do they compare versus your expansion book? Joseph Zubretsky: I'm not sure we actually -- I'll respect your question and try to answer as best as I can without. I think we're going to stop short of giving detailed numbers. So let me frame it this way. First of all, over what time period, if somebody doesn't use a service in a 90-day period is that no utilizer. Many people don't get a service for 3 months at a time. So the way I'll frame it is we didn't lock in on the definition, we tested all definitions. We tested time periods. We tested 0 utilizers very clear, no claims. What's a low utilizer? Is it a PMPM number? Is it a medical loss ratio number. . We tested definitions and centered in on one. And to be honest, the fact that low and no utilizers are down substantially, even below pre-pandemic levels. It almost matters not -- it doesn't matter what definition you use, it's down. So we're not giving absolute numbers, and we're not giving the model that we're using. But I absolutely assure you that making up a definition to make yourself feel good about is not what we do here. We tested the definition across a wide range of time frames and PMPM medical costs for that time frame to test whether it matters or not. And I will tell you it doesn't matter all that much. It is markedly down and therefore, we're not anticipating an acuity shift. Mark, you the architect of all this, do you have anything to add? Mark Keim: Yes. What's important is this is a directional statistic. As Joe mentioned, we've taken a lot of different approaches. And directionally, the number of low users and no users by all approaches is much lower. The specific numbers, in this case, are less relevant. The other statistic that I use, which just gives us great comfort in what we're seeing is the stayers, levers analysis. A year or two ago, levers would have left at much lower PMPM or MLRs, whereas now they're leaving at those ratios being much closer to the average, which again, is one more data point supporting our view on this. . Operator: The next question comes from Lance Wilkes with Bernstein. . Lance Wilkes: Can you talk a little bit about the state behaviors you're observing as we're going through this. And what I'm interested in, obviously, you commented a little bit on off-cycle rate increases. And maybe if you can talk about maybe what are the characteristics that help to drive that. But interested in kind of comments on pipeline, how states are approaching implementation, new processes, what types of products, if any, they're looking at kind of given the backdrop? And then just as a cleanup, if you could make any comments on the trend favorability in the first quarter. If there is any aspects of trend beyond acuity shift you're seeing some positive favorability in 1Q, that would be helpful. Joseph Zubretsky: Sure, Lance. On State behaviors, it's hard to -- you can draw some themes across the various states, but they're all different. But generally speaking, we're seeing states step up to the reality that a cost inflection has occurred and they are catching up to it. What do they need to catch up to? If you look at the trends we've experienced over the past 3 years, 4.5, 6.5 and 7.5 the cost baseline is 20% higher than it was 3 years ago. That's what they need to catch up to. Now we believe we're operating 300 basis points -- 300 to 400 basis points better than the average market. So as they catch up, we should be going back into a much more positive territory than we already are. Bearing in mind, our guidance in Medicaid is for a 1.5% pretax margin this year, eliminating the impact of Florida Kids. So we're in good shape there. So states are stepping up on rates. They are also, obviously, due to the indirect impacts of OB3, they're looking at eligibility. They're looking at carbons and carve-outs. They're wrestling with provider and MCO taxes. They're dealing with all the effects of that. They're looking at helping MCOs reintroduce UM on behavioral, for instance, during the pandemic, a lot of that was relaxed because people weren't using services. So you can go state by state, but those are the general themes focusing on eligibility a lot, focusing on program features, supplemental benefits that maybe don't need to be funded and trying to deal with the residual impacts of OB3, that's what we're seeing. On first quarter trend, I think your question was, is there any more color to put around it? From a medical cost perspective, we're seeing good controls over inpatient in Medicaid. The inpatient trend is flattening in Medicaid. That's pretty obvious. Pharmacy is actually behaving favorably. High-cost drugs are still a pressure point. But number of script volume per 1,000 and unit cost is actually leveling as well. And BH, which has been a trend inflection over the past 2 or 3 years, is more favorable this year, at least in the early stages than it was in the past due to state controls, client controls and company controls. So those are a few but it's certainly good news and encouraging news in the first quarter that the first quarter trend in Medicaid annualized would have us slightly better than the 5% trend assumption for the year. Mark, did I miss anything? Mark Keim: No, Joe, I think that's well summarized. The only thing I'd add on [indiscernible] is comments that Joe made, obviously, very appropriate. There's always questions about ILI or flu, whatever you want to call it, pretty much a normal season for us, and we're now coming out of that. So I think that's behind us. Thanks, Lance. . Operator: The next question comes from George Hill with Deutsche Bank. . George Hill: Two quick ones. Mark, I think you talked about -- I want to follow up on Michael's question. You talked about the decline in 0 or low utilizers down to the lowest level. It seems like it moves a lot sequentially from Q4 to Q1. I would love to have you talk a little bit about what drove that? And Joe, as we talked to state administrators on the Medicaid side, we're hearing a lot of worry about the community engagement requirements as we go into 2027. I would love to hear any early thoughts that you guys have had. We know work requirements are an issue, but a lot of states are worried about how to administer the community engagement requirements. Would love to hear what you think about that. Joseph Zubretsky: I'll take the second one first, and then we'll go back to low and no mark. Acuity engagement. Every state is different. We're actually fortunate in a way where we have a business in Nebraska, which is a state that has declared it's going early on work requirements. So we have some insights. And I'll tell you, they're going to move and they're going to move for the middle of this year. But it is very clear that the rules around what information you need to terminate Comex Part procedurally, how does it work? What's the definition of medical frailty that's going to be used. So we are working with each of our states in different ways. Various states allow different levels of intervention with MCOs in terms of whether you can help people find work, whether you control it performs, every state is different. But our community engagement teams nationally, property-by-property are extremely engaged with each of our state clients on working through these requirements. But I will tell you that it is still a bit unclear given the very general guidance CMS has given, what information is going to be required to terminate someone or allow them on ex parte and what the -- what are the exceptions, particularly with medical frailty. Mark, do you want to take the lower now user question? Mark Keim: Absolutely. So George, the market is down. Medicaid membership market is down about 20% since its peak in 2023 when redetermination began. As those 20% of the people came out, a lot of them were 0 and low utilizers. That is what drove the acuity shift, right? As they come out, the remaining population is on a weighted average, slightly higher cost per member. So what we saw in '24 and '25 was a component of our trend attributed to that mix shift, which we call acuity shift across '24 into '25. Across '25 we saw the percentage of low utilizers and utilizers fall to the lowest level with a little higher at the beginning of '25 and by the end of '25, it was at its very low level. which gave us confidence that, that acuity shift is largely behind us. So again, the component of low and no utilizers falling '24 and '25, that's what contributes to the acuity shift. And our data shows us that's largely behind us, if not totally behind us. Operator: Our last question comes from Jason Cassorla with Guggenheim. . Jason Cassorla: Most of my questions have been asked. Maybe just a quick 1 on earnings seasonality. You talked about the majority of earnings in the first half -- you've got an updated Medicaid enrollment expectation, higher exchange enrollment at the start of the year. I know this prudence in your outlook, given the unknowns and some timing nuances with the G&A and the ramp-up of the Florida CMS, maybe just you could step back, is there anything more or anything else on the seasonality side are you willing to give for us as we sit here today ahead of your Investor Day would be helpful. . Joseph Zubretsky: Mark, do you want to take what we expect for seasonality this year. Mark Keim: Absolutely. .What we had said previously was about 2/3 in the first half, 1/3 in the second half. I'm not going to update that now because if I did, I'd effectively be giving you second quarter earnings. But proportionately, we're in the same place. We had a nice first quarter, but I think proportionately, we would be in the same front half, second half. What drives that while the Medicaid rate cycle, remember, we get -- we're a little bit front-end loaded on the Medicaid rate cycle. Remember, seasonality on marketplace means always the first half of the year is a little better than second half. That's baked into our full year guidance. And then lastly, fourth quarter, Florida Kids, as Joe mentioned earlier on this Q&A session, Florida Kids will come in pretty high MOR in its first quarter, which is typical for new business. That will be some weight on the fourth quarter, no doubt. But those are the major components and proportionately higher in the first half, lower in the second half, as we said. Operator: This concludes our question-and-answer session and Molina Healthcare's First Quarter 2026 Earnings Call. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Old Republic International Corporation First Quarter 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. Thank you. I would now like to turn the call over to Joe Calabrese with the Financial Relations Board. You may begin. Joe Calabrese: Thank you, Rob. Good afternoon, everyone, and thank you for joining us for the Old Republic International Corporation conference call to discuss first quarter 2026 results. This morning, we distributed a copy of the press release and posted a separate financial supplement. Both documents are available on Old Republic International Corporation’s website at oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release dated 04/23/2026. Assumptions, uncertainties, and risks exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these assumptions, uncertainties, and risks, please refer to the forward-looking statements discussion in the press release and the company’s other recent SEC filings and the risk factors discussed in the company’s most recent Form 10-Ks and other recent SEC filings. We may also include references to net income excluding net investment gains, or net operating income, a non-GAAP financial measure, in our remarks or in response to questions. GAAP reconciliations are included in the press release. Presenting on today’s conference call will be Craig Richard Smiddy, President and CEO; Francis Joseph Sodaro, Chief Financial Officer; and Carolyn Jean Monroe, President and CEO of Old Republic National Title Insurance Group. Management will make some opening remarks and then we will open the line for your questions. At this time, I would like to turn the call over to Craig. Please go ahead, sir. Craig Richard Smiddy: Okay, Joe. Thank you very much. Good afternoon, everyone, and welcome again to Old Republic International Corporation’s First Quarter 2026 earnings call. In the quarter, we produced $211.5 million of consolidated pretax operating income compared to $252.7 million, and our consolidated combined ratio was 96.6% compared to 93.7%. For the quarter, our operating return on beginning equity was 11.5%, and growth in book value per share including dividends was 2.6%. Specialty Insurance grew net premiums earned by 4.7% over 2025 and produced $209 million of pretax operating income compared to $260 million. Specialty’s combined ratio was 94.8% compared to 89.8%. Title Insurance grew premiums and fees by 12% over 2025 and produced $16.7 million of pretax operating income compared to $4.3 million. Title’s combined ratio was 100% compared to 102%. Our conservative reserving practices continue to produce favorable prior year loss development in both Specialty Insurance and Title Insurance, and Frank will provide more details on that topic. So with that, Frank, I will turn the discussion over to you, and then you can turn it back to me to cover Specialty Insurance, and then we will have Carolyn cover Title Insurance. Francis Joseph Sodaro: Thank you, Craig, and good afternoon, everyone. In this morning’s release, we reported net operating income of $171 million for the quarter compared to $[inaudible] last year. On a per share basis, comparable quarter-over-quarter results were $0.68 compared to $0.81. Starting with investments, net investment income increased just over 4% in the quarter, primarily as a result of a larger investment base and higher yields on the bond portfolio. While our average rate on corporate bonds acquired during the quarter was 4.7% compared to the average yield rolling off of about 3.8%, the total bond portfolio book yield held fairly steady with year-end at about 4.75%. With the current interest rate environment, we expect net investment income growth to remain in the low- to mid-single digits throughout the rest of 2026. Turning now to loss reserves, both Specialty and Title Insurance recognized favorable development in the quarter, leading to a 1.5 percentage point benefit in the consolidated loss ratio compared to 2.6 points of benefit last year. While this level of favorable development was lower than we had experienced in recent years, it is within our expectations. For Specialty Insurance, Property continued to have favorable development and led the way this quarter, with a slightly higher level than last year. Commercial Auto and Workers’ Comp had solid favorable development in the quarter; however, both were at lower levels than last year. General Liability had a moderate amount of unfavorable development that spanned several more recent accident years; it was partially offset by favorable development in older years. We ended the quarter with book value per share of $24.53, which inclusive of the regular dividend equated to an increase of 2.6% since year-end, resulting primarily from our operating earnings. In the quarter, we paid nearly $77 million in dividends and repurchased $161 million worth of our shares. Since the end of the quarter, we repurchased another $52 million worth of shares, which leaves us with about $640 million remaining in our current repurchase program. I will now turn the call back over to Craig for a discussion of Specialty Insurance. Thanks, Craig. Craig Richard Smiddy: Thanks, Fran. Specialty Insurance net premiums written were up 3.4% in the quarter, coming from strong rate increases on Commercial Auto and General Liability, some new business writings, and increasing premium in our newer Specialty operating companies, partially offset by a decline in our renewal retention ratios as we continue to prioritize rate in certain lines of coverage within our portfolio. We appear to be leading the market, specifically within Commercial Auto, by driving mid-teens rate increases. As mentioned in my opening remarks, in the quarter, Specialty Insurance pretax operating income was $209 million, while the combined ratio was 94.8%. The loss ratio for the quarter was 63.6%, and that included 1.6 percentage points of favorable prior year reserve development, and that compares to a 61.7% loss ratio in the first quarter last year that included 3.3 points of favorable development. The expense ratio for the quarter was 31.2%, and that compares to 28.1% in the first quarter last year. Our continued investments in new Specialty operating companies, technology modernization, data and analytics, and AI placed some strain on the expense ratio this quarter, but we remain confident that all of these investments will provide significant long-term upside. Turning to Commercial Auto, net premiums written were up just over 1% in the quarter, while the loss ratio came in relatively flat with the first quarter of last year at 70.4%. As I referred earlier, rate increases remained steady with the fourth quarter that we reported, and that is at a 16% rate increase level, which is in line with [inaudible]. Workers’ Comp, on the other hand, net premiums written were also up just over 1% in the quarter, while the loss ratio came in at 62.3% compared to 58.7% in the first quarter last year, and most of that difference is due to the difference in the level of favorable prior year loss reserve development. Rate decreases for Workers’ Comp were about 2%, and here too, that is in line with loss trends, with severity remaining relatively consistent and frequency continuing its downward trends. So while we are seeing some top-line pressure along with some pressure on the expense ratio, we remain confident that our underwriting approach to focus on risk-adequate rates will continue to produce profitable combined ratios, which is the foremost priority for us. We also expect to see continuing growth in top-line contributions from our newer Specialty operating companies. Additionally, in the quarter, we announced the formation of another new operating company, Old Republic Property, led by Patrick Hagerty, who has assembled a highly respected team of underwriters that will specialize in very selective property placements. Just this week, the executive team here at the holding company in Chicago met with Patrick and his team, and they are currently focused on building out their operating platform. Ultimately, we expect this new venture to produce solid underwriting profits, very similar to what Old Republic Inland Marine has delivered over the last couple of years. We also announced the rebranding of Lodestar Claims and Risk Services, which is now set up as a separate stand-alone operating company focused on growing fee income for our portfolio. And finally, as we mentioned in the release, we expect to close on the ECM acquisition around July 1, which will also contribute to the top line and bottom line in the second half of this year. That concludes my comments for Specialty, and I will now turn the discussion over to Carolyn to report on Title. Carolyn Jean Monroe: Thank you, Craig, and good afternoon. Title Insurance reported premium and fee revenue for the quarter of $678 million. This represents an increase of 12% from the first quarter of last year. So far in 2026, we have seen continued strong commercial activity. Consistent with prior years, the first quarter is seasonally slow in the residential market. The start of the 2026 home-buying season was marked by higher inventory levels, lower interest rates, and moderating price growth compared to 2025. While interest rates spiked during the last month of the quarter due to uncertainty and inflation concerns, they did ease slightly in April. The premiums produced in our direct title operations were up 6% from this time last year. Our agency-produced premiums were up 14% and made up nearly 80% of our revenues during the quarter, which is up from 78% in the first quarter of last year. Commercial premiums increased this quarter and were 27% of our earned premiums compared to 24% in the first quarter of last year. During the quarter, we entered into a new excess-of-loss reinsurance agreement that will expand our capacity to underwrite large commercial deals. Investment income was also up this quarter by 4% compared to 2025, driven by a higher invested asset base and higher investment yields. Our loss ratio improved to 2.6% this quarter, including 1.1 percentage points of favorable prior year loss reserve development, compared to 2.7% in 2025 that included 0.8 percentage points of favorable development. Our expense ratio improved nearly two percentage points to 97.5% from 99.4% in 2025. While our combined ratio of 100% is still elevated, the improvement reflects increased revenues and the margin expansion efforts we have been working on. Our pretax operating income increased to $16.7 million this quarter compared to $4.3 million in 2025. As we look forward to some long-awaited improvement in residential housing, we remain focused on operational efficiency and efforts to expand our margins. We are committed to equipping our agents with the latest fraud prevention tools and other technological solutions to help them succeed in all market conditions. Internally, we are busy continuing to execute on the rollout of our new operating platform across the title operations. We are also progressing with ongoing enhancements to our commercial structure and enhancing our ability to service the elevated level of commercial transactions taking place in the market. With that, I will give it back to Craig. Craig Richard Smiddy: Okay, Carolyn. Thank you. That concludes our prepared remarks. While we are seeing some top-line pressure along with some expense pressure in Specialty Insurance, the fundamentals in Specialty remain very strong, and the investments we are making will contribute to continued profitable growth. In Title, we are well positioned for a turn in the residential real estate market while we continue to reduce expenses in the short term. We will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Paul Newsome from Piper Sandler. Please go ahead. Paul Newsome: Maybe just a little bit more color on the expense drag. Do you have any thoughts about when some of these new efforts will be able to directionally impact the expense ratio in a positive way? Is it something that we should expect to happen very gradually, or is there some sort of moment when you think some of this stuff will kick in in a meaningful way that we will see in the results? Craig Richard Smiddy: Yeah, Paul. Hello, and thanks for the question. I am happy to respond. Really, there are two main drivers that we referenced in the release, and that is the start-up operating company expenses, and then what I will throw into a second category even though there are three subsets, and that is information technology with systems modernization coupled with data and analytics coupled with AI. I will speak first to the new start-up operating companies. We have about eight of the companies that we would put into the category of new, three of which are at a maturity level that we consider to be at scale. On the other end of the spectrum, we have three new companies that have yet to produce premium. The nature of these start-up businesses, of course, is that the initial people you are hiring are the new leaders of those companies, and with that comes a higher level of compensation. Therefore, it is a matter of time for all of the companies to get to scale. Some in the middle will be reaching scale in the next year to two years, and then the latter three that have not produced any premium yet are still two to three years out before they get to scale. That is the dynamic around the start-up company expenses. It is a matter of where we will be at the end of the day, and again, we think profitable businesses will be the end result. When it comes to information technology, data analytics, and AI, to give you some feel for that, about half of our 20 companies within the Specialty Insurance group are in the process of core system modernization. As you may know, accounting rules are such that initial expenses need to be expensed immediately. We are at the beginning stages in a lot of these core system modernization efforts, so a lot of the costs are falling directly to expense. Then in the midterm, we will hit a point where we are able to capitalize certain costs, and that happens when the system is ready for production. At that point, we will capitalize those costs and amortize them over a period of, Frank, ten years? Francis Joseph Sodaro: Ten years, usually, on the core systems. Craig Richard Smiddy: Yeah. So that is what is happening there. On data analytics, we have built out a pretty significant team. I think we have most of the staff in place. For AI, we are still building out that team, and there will be more cost there to come. There are a lot of moving pieces. I know it is hard to put it all together, but it will take a little bit of time for it all to get to what I would call a run rate that will be an expense ratio less than 30%. Paul Newsome: I guess pulling this all together, you had almost a 35% expense ratio in the first quarter, I think—well, 31% as you adjust it. Is that a good starting point for the following quarters, and then we should see some of these other efforts kick in over time and it kind of goes away? Or is there anything one-time in there that we should consider? Craig Richard Smiddy: I follow your question, Paul. Unfortunately, it is a hard one to answer because so much is also dependent on what is happening with premium. If we had a crystal ball, we could give a much more firm answer if we knew what exactly was going to happen with premium. As you saw, and as I mentioned a couple of times in my comments, while we still have some growth, if you look at net premiums written, they are coming in a bit lower than net premiums earned, which is, of course, a leading indicator. If you compare those growth rates to last year, the growth rates are lower than the robust growth rates we have had over the last couple of years. Premium is the wildcard here. With respect to just thinking about the expense ratio, if we can continue to grow at, say, a 3% to 5% clip for the rest of the year, I would think that an expense ratio that is at or below where we came in the first quarter is reasonable. Paul Newsome: Well, that is great. Thank you. Much appreciate the help as always. I will let some other folks ask questions. Operator: Your next question comes from the line of David Smart from Citizens. Your line is open. David Smart: Hi. Thank you for taking my question. This is David on for Matt. Just a question on the accident-year ratio. It looks like what was booked in Q1 was a couple of points lower. Can you help us understand how you got to that? Any pieces to think about within that? Craig Richard Smiddy: David, just so that I make sure I understand your question correctly, you are looking at the current accident-year loss ratio for Specialty? I am looking at page two of the supplement. We are at a 65.2% compared to a 65% last year. So the current quarter was— David Smart: Last quarter or last year? Craig Richard Smiddy: Right. Okay. Are you comparing it to the full year? David Smart: Yes. Craig Richard Smiddy: Okay. Thank you. I now understand your question. Sorry about that. It makes perfect sense. It is a bit lower in the first quarter than it was for the full year of 2025. But as you can tell by comparing first quarter to first quarter, it is actually 0.2 points up. As we get through the year, it could be closer to where the full year 2025 was. But starting where it is at, even if we were to assume it stays at a 65.2% for the rest of the year, coming in at about a point and a half better than where we were in the last couple of years would be the rationale. We have had cumulative compounded rate increases in numerous lines of business. On Workers’ Comp, we have given up, frankly, less rate than trends would suggest we could give up. Sticking to our underwriting discipline, we are willing to give up top line to maintain loss ratios. We are going out and pushing rate, particularly on Commercial Auto and General Liability where we know we need it, even though a lot of others in the marketplace are still looking in the rearview mirror and not obtaining the rate that we know is necessary. We are going to continue to get the rate we need relative to the trends that we are observing in order to maintain the loss ratios that we have been able to get to through our compounded rate increases, or on Workers’ Comp through our very measured level of rate decreases. David Smart: Great. That is helpful. Thank you very much. Operator: Your next question comes from the line of Greg Peters from Raymond James. Your line is open. Greg Peters: Good afternoon. I am going to focus on the Commercial Auto segment for my first question. Specifically, you talked about the continuing progress on rate increases in that line of business being in the double-digit range, and if I look at the written growth and the earned growth on a quarter-over-quarter basis, it does not seem to square with what seems to be strong pricing conditions for that line. Maybe you could give some perspective on what is going on on the competitive front. Are you losing business? We hear anecdotally stories about MGAs getting more active in the space. We hear other carriers becoming more interested in the space. Just curious about how you see your top-line results in Commercial Auto and how you see the competitive outlook going forward. Craig Richard Smiddy: Yeah, Greg. Great question. In my comments and in the release itself, we talked about the challenges we are having with our retention ratios. For us, what we call a challenge is probably, for others, routine, but we have been able to maintain 85% to 90% retention ratios. That has slipped this quarter for sure. Growing net written by only about 1% in Commercial Auto is a reflection of that lower retention ratio, and that also ties to my comments that our approach is to require the rate increases needed to keep up with the severity trends we are seeing, be disciplined underwriters, and focus on the bottom line—focus on loss ratio. If top line is more muted, then so be it. We think there are competitors that, as I mentioned a little bit ago, are looking in the rearview mirror and are not looking forward as best as you can look forward. If you observe, where we saw severity trends last quarter and where we see them this quarter are almost identical, in the 15% range, and we are going out and we have to get rate increases that are in that same range. With competitors, MGAs are not who we are competing with so much, so I would not say that MGAs are a reason for our lower retention ratio. But there are a lot of other competitors, and I know I have talked about this on previous earnings calls—we pride ourselves on pricing precision and making sure we are on top of trends and reacting quickly, and others just frankly are not as good at that, especially if they are relying on ISO data. ISO is not going to be as current as we are. There are competitors out there that we think are willing to write Commercial Auto at levels that will ultimately be unprofitable. The proof is in the pudding. We have prided ourselves on being an outlier for the last three years or so, putting up favorable development on Commercial Auto while a lot of our competitors are putting up unfavorable development. If you then take what I am saying about where we sit today in the competitive environment, they are going to continue to put up unfavorable development because they are not getting the rates they need to keep up with the trend. It is competitive. It does not help that the trucking industry has been under pressure for the last several years when it comes to their margins. They are under pressure, and the continued need for rate is difficult for them. At the end of the day, it is all about legal system abuse, which we have talked about on prior calls. The industry is very focused on it. We are working with the Triple-I and the Chamber of Commerce to educate the public that plaintiff attorneys and litigation system abuse are costing everybody at the end of the day. But we have to deal with it, and we have to get the rate that is needed to pay for that abuse. Greg Peters: Thanks for that color. As I think about what you are talking about, two things come to mind. You talk about profitability pressures for the trucking business. I am curious if you have a perspective, given the recent jump up in gasoline and diesel prices—if there is any spillover consequence to your company? And then, secondly, on the competition side, is it your risk management business that is being affected where you are losing share, or is it the traditional risk transfer when speaking on the Commercial Auto piece? Craig Richard Smiddy: I will answer the last part first. It is not our risk management—Old Republic Risk Management—business. The majority of it is coming from where we write most of our Commercial Auto, which is Great West. We do write Commercial Auto in several of our other businesses as well, and similarly, they have challenges as well trying to get the rate they need relative to the trend. With regard to trucking, we are very closely aligned with the trucking associations and industry, and there were some reports that spot rates were improving—maybe some indication that, for them as an industry, they had bottomed out. But then, as you pointed out, add on top of that increased costs for them relative to higher diesel fuel and gasoline costs. I do not know enough to tell you if the better rates they might be getting are offsetting the higher fuel costs they have or not. There are some indications that maybe that industry will be better, but as I said earlier, it is not helpful when our clients are under pressures of their own and we have to get more for our product as well. It does create a challenge on the top line. Greg Peters: Thanks for that detail. I will pivot just for a second—I have taken up more than my fair share of time. But, Carolyn, I want to ask you about your comments on commercial, and you highlighted the excess-of-loss reinsurance arrangement and the opportunity set for writing larger commercial accounts. Can you size that up for us as we think about the growth of your commercial business over the next twelve months? Or provide some ideas of what you are thinking about when you talk about larger account opportunities? Craig Richard Smiddy: Carolyn, I will be happy to kick it off and then let you fill in. We are seeing a large amount of opportunity on data centers, energy production facilities—large accounts that actually require more than one title insurance company to coinsure the risk. We wanted to be in a position to comfortably deploy limits that made us a significant participant on those placements. That was a good reason behind why we decided to put in place a reinsurance treaty to give us “sleep at night” coverage, so to speak, to go ahead and write more large-limit accounts, because the frequency at which we were seeing these opportunities has continued to grow over the last two years. Carolyn, I will turn it over to you to provide details on what is happening there. Carolyn Jean Monroe: Sure. Greg, there are some states that tell us what our limit can be, but in a lot of states it is really just up to us. That was a lot of the discussion behind getting this—just feeling a little more comfortable. We have spent a number of years growing our commercial presence, and it just became a time that it would really help us elevate what we are able to do in the commercial market. We really see commercial continuing to grow because, if you think about it, there was not a lot of commercial during the pandemic years and for about a year and a half coming out of that. Commercial properties—something has to happen with them over five to seven years. We are starting to see a lot of portfolio projects come through, not just the data centers like Craig talked about, but a lot of other large projects that we are a lot more comfortable taking on now, knowing that we have the reinsurance. Greg Peters: Fair enough. Thanks for the answers. Operator: There are no further questions. I will now turn the call back over to management for closing remarks. Craig Richard Smiddy: We are happy to have provided these comments and updates relative to the first quarter. We have three more quarters to go for the year, so we are optimistic that things will continue to progress along as planned, and we will continue to deliver solid profitability to our shareholders. We look forward to seeing you at the end of the second quarter, giving you another update, and having another discussion. Thank you all very much. Have a good day. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Origin Bancorp, Inc. First Quarter Earnings Conference Call. My name is Jen, and I will be your Evercall coordinator. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Chris Reigelman, Director of Investor Relations. Please go ahead. Chris Reigelman: Good morning, and thank you for joining us today. We issued our earnings press release yesterday afternoon, a copy of which is available on our website, along with a slide presentation that we will refer to during this call. Please refer to Page 2 of our slide presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those joining by phone, please note the slide presentation is available on our website at ir.origin.bank. Please also note that our safe harbor statements are available on Page 6 of our earnings release filed with the SEC yesterday. All comments made during today's call are subject to safe harbor statements in our slide presentation and our earnings release. I'm joined this morning by Origin Bancorp's Chairman, President and CEO, Drake Mills; President and CEO of Origin Bank, Lance Hall; our Chief Financial Officer, Wally Wallace; Chief Risk Officer, Jim Crotwell; our Chief Accounting Officer, Steve Brolly; and our Chief Credit and Banking Officer, Preston Moore. After the presentation, we'll be happy to address any questions you may have. Drake, the call is yours. Drake Mills: Thanks, Chris, and thanks for being with us this morning. While I'm pleased with the results of this quarter, I'm even more encouraged by the momentum we're building as we focus on developing a high-performing organization through Optimize Origin. Our ROA in the past 2 quarters highlights the level of focus we have in strategically improving performance for all of our stakeholders. In Q1, our ROA was 1.11%, and we are on pace to achieve our target run rate by year-end. The momentum we spoke about last quarter has only accelerated as we've started the new year. We saw very positive loan and deposit growth for the quarter, which has been disciplined and strategic. I remain encouraged with what I'm seeing and hearing throughout our markets. The growth we saw in Texas and in the Southeast is a reflection of both the strength within those dynamic markets and the generational dislocation that is occurring. This dislocation is creating valuable opportunities to add new relationships, expand on existing ones and add new bankers to our already impressive team. Lance will provide more detail on this, but we are receiving calls from bankers within our current markets as well as in new markets who have an interest in joining our team. The volume of activity being created by disruption is even greater than we anticipated. Momentum is strong at Origin and is based on our award-winning culture and our drive for elite financial performance through Optimize Origin. Again, I'm proud of our results this quarter, and I'm optimistic about what we can accomplish. Now I'll turn it over to Lance and the team. Martin Hall: Thanks, Drake, and good morning. It's an exciting time for Origin. Across our company, Optimize Origin has clearly become the operating system driving more consistent, higher-quality performance. We are seeing Optimize translate into stronger execution, disciplined growth and increased operating leverage. In Q1, we delivered strong loan and deposit growth. Loans held for investment, excluding mortgage warehouse, increased $200 million or 2.8% quarter-over-quarter. Total deposits, adjusting for deposits sold at the end of 2025 grew $234 million or 2.8%. As expected, this production is being driven out of our Houston, DFW and the Southeast markets. This growth reflects disciplined execution, not opportunistic volume. We remain fully focused on full relationship profitability, balancing loan growth with core deposit generation, pricing discipline and long-term client value. This consistency is critical as we continue to build a more durable and high-performing balance sheet. As Drake mentioned, the interest we are receiving from high-quality bankers who desire stability, opportunity and a vision for the future has been exceptional. Since the beginning of this year, we have added 15 bankers to our production teams. While our loan growth in the first quarter was strong, it doesn't capture what our new bankers will add throughout the remainder of the year. I'm confident that we will continue to strategically enhance our teams across our footprint during this time of disruption. Our footprint, geographic model and talented bankers create an environment where I feel confident we will capture our desired growth without needing to take any unreasonable credit or interest rate risk. We have the luxury of not needing to stretch or deviate from our standards or credit culture in any way. At the same time, we are continuing to invest in the capabilities that will define our next phase of performance. During the first quarter, we hired Brad Waldhoff as Chief Technology and Innovation Officer. Brad has more than 20 years of success leading digital innovation for high-growth companies. He is already partnering with our teams across the organization to align technology, data and AI more directly with business outcomes. This focus on enterprise architecture and innovation strategy is directly connected to driving measurable improvements in productivity, decision speed and quality and enhanced client experiences. Over time, we expect this alignment to enhance our ability to scale effectively, strengthen revenue and risk management and drive better overall returns. As we continue to Optimize Origin, we are hyper-focused on revenue creation, process improvement, speed of delivery, scaling with discipline and driving elite financial performance. This unique position of a dynamic footprint and ability to take advantage of market disruption through talent acquisition and award-winning culture as well as a commitment to AI, technology and automation is why we are so confident and optimistic on Origin's strategic path. As other financial institutions are consolidating, we are investing in our independent future. Now I'll turn it over to Jim. Jim Crotwell: Thanks, Lance. I'm pleased to report continued sound credit metrics for the first quarter of 2026. Total past dues 30 to 89 days increased to 0.22% and compared favorably to an average of 0.25% over the previous 4 quarters. Net charge-offs for the quarter were $2.8 million, down from $3.2 million, and represent an annualized charge-off rate of 0.15% for the quarter. Nonperforming assets increased $6.4 million, increasing moderately from 1.07% of loans to 1.12% and remain below the level of 1.18% reported at Q3 2025. Classified assets also increased moderately from 1.93% of total loans to 1.97%, an increase of $6.3 million, driven primarily by the downgrade of 9 relationships, partially offset by balance reductions in 6 relationships. For the quarter, our allowance for credit losses increased $2.2 million to $99 million. On a percentage basis, our allowance remained stable at 1.34% of total loans net of mortgage warehouse. As in recent quarters, we did not experience any significant changes in our CECL model assumptions. As to total ADC and CRE and as we have shared on previous calls, we continue to have ample capacity to meet the needs of our clients and grow this segment of our portfolio, reflecting funding to total risk-based capital of 48% for ADC and 233% for CRE. We continue to be pleased with the sound credit performance of our portfolio. I'll now turn it over to Wally. William Wallace: Thanks, Jim, and good morning, everyone. Turning to the financial highlights. In Q1, we reported diluted earnings per share of $0.89. As you can see on Slide 25, the combined financial impact of notable items during the quarter equated to net expense of $577,000, equivalent to $0.01 of EPS pressure. On a pretax pre-provision basis, we reported $40.2 million in Q1. Excluding notable items, pretax pre-provision earnings were $40.8 million and annualized pretax pre-provision ROA was 1.61%. On the balance sheet side, loans grew 2.5% sequentially and 2.8% when excluding mortgage warehouse. Total deposits grew 5.4% during the quarter. However, on the last day of the year, we sold $215 million in interest-bearing deposits. These deposits were repurchased 2 days later. Excluding this sale, deposits would have increased 2.8% during the quarter. Noninterest-bearing deposits grew 4.2% sequentially and ended the quarter at 23.6% of total deposits. Moving forward, we continue to target loan and deposit growth in the mid- to high single digits for the year, though we are clearly tracking towards the higher end after Q1. Turning to the income statement. Net interest margin contracted 2 basis points during the quarter to 3.71%, in line with our guidance of slight compression. Moving forward, we expect margin will bounce back in Q2 by about 10 basis points, plus or minus, as excess liquidity from seasonal balances in our public funds customer accounts runs back off, leaving average earning asset balances roughly flat. By Q4, we continue to anticipate NIM in the 3.7% to 3.8% range with current bias remaining at the higher end. Our outlook now includes 25 basis point Fed rate cuts in July and December. Combined with our balance sheet growth expectations, we continue to expect net interest income growth in the mid- to high single digits for both the full year and Q4 over Q4. Shifting to noninterest income. We reported $16.8 million in Q1. Excluding $438,000 in net benefits from notable items in Q1 and $483,000 in net benefits in Q4, noninterest income increased slightly to $16.4 million from $16.3 million in Q4 as $3.3 million in net losses on limited partnership investments offset the seasonal strength in our insurance business. We are maintaining our outlook for full year noninterest income growth in the mid- to high single digits with Q4-over-Q4 growth in the low to mid-single digits when excluding notable items, though we are currently tracking on the lower end. We reported noninterest expense of $63.8 million in Q1. Excluding $1 million in expense from notable items in Q1 and $1.3 million in Q4, noninterest expense increased to $62.8 million from $61.5 million in Q4. Our expense growth outlook remains for mid-single-digit growth for both the full year and on a Q4-over-Q4 basis after excluding notable items. Notably, we are maintaining our run rate ROA expectation of at least 1.15% in Q4 and a pretax pre-provision run rate ROA in excess of 1.72%. Lastly, turning to capital. We note that Q1 tangible book value grew sequentially to $35.61, the 14th consecutive quarter of growth, and the TCE ratio ended the quarter at 11%. During Q1, we repurchased 165,500 shares while maintaining all regulatory capital ratios above levels considered well capitalized, as shown on Slide 24 of our investor presentation. Furthermore, we announced yesterday the Board's approval of an increase in our quarterly dividend from $0.15 to $0.25. We believe this decision, combined with our continued share repurchases is a reflection of both the strength in our capital levels and a more consistent earnings stream to support dividend payout levels closer to peers. With that, I'll now turn it back to Drake. Drake Mills: Wally, thank you. Optimize Origin continues to shape how we operate, how we allocate capital and how we think about long-term value creation. Over the past few years, we've invested in top-tier talent, infrastructure, technology while strengthening our culture. My optimism is based on our focus and our ability to execute. We will remain strategic and deliberate in how we drive value for our stakeholders. Thanks for being on the call today. We'll open it up for questions. Operator: Thank you, Drake. [Operator Instructions] Our first question is from Matt at Stephens. Matt Olney: I have a few questions around loan growth. Just looking for more color around the drivers of what we saw in the first quarter. It looks like it was a lot of CNI, I think, mostly in Texas. Just any more color on what you saw there and kind of how the pipelines look today? And then secondly, we've heard a few of your peers in Texas mentioned that loan pricing continues to tighten for a handful of the CNI segments in Texas. Just would love to know kind of what you're seeing there. Martin Hall: This is Lance. Thanks for the question. Really excited about what we produced in the first quarter and what we see from a pipeline and a forecast perspective for the rest of the year and going forward. You were right. It's exactly what we would hope it would be. I think $184 million of the growth was in CNI, Texas and the Southeast, where we've been making our big investments, were the huge drivers of that. Houston did a great job. We're really seeing the increase now from Nate and his team in the Southeast as well as that's really coming through. We are seeing competitive pressures on pricing. I will say, for the first quarter, I thought we did a really good job of being disciplined. We were seeing new loan pricing come in between about 6.3% and 6.5%, which I feel is really good. As I said in our commentary, I feel like our footprint, our investment in bankers, gives us a little bit of luxury that we don't have to reach as much. So I'm proud of our teams. I'm proud of our credit officers for the discipline that they're driving. The mix of the loans as far as industries was really spread out, pretty granular, pretty typical to what you would see from us. There were some industrial services, transportation, construction, construction equipment, a little bit of clean energy, renewable stuff that we saw, so a little bit across the board that we feel good about. I think we had talked about $190 million pipeline in Q1. So we were kind of right at that level. We're seeing about $150 million to $160 million pipeline for Q2. We've had good success kind of through the first part of the quarter, and I think that, that's really going to pay dividends. And as we talked about, I'm going to say that the growth that we've seen so far is organic completely, not a function of new hires or disruption yet. And so that investment for us is going to really pay dividends in the back half of the year and for the next couple of years, as that investment continues to pay off. Matt Olney: Okay. I appreciate the color there, Lance. And if I could switch gears over to the capital side. I think Drake noted some good capital actions during the quarter, the Board approved the dividend that we'll see here and also bought back some shares in the first quarter. Just would love to hear updated thoughts around capital priorities. Are there certain capital levels you're targeting? And at what point does M&A come back into play? Drake Mills: Yes, Matt, thank you. Our capital deployment outlook is pretty much as it has been. I mean we are -- we feel like we're first in a position of luxury from the standpoint of strength of capital. But obviously, growth is our major emphasis on capital deployment. But on the second -- on the other hand, we have to become more peer-like in how we utilize capital, especially excess capital. We're very pleased with the approval, the increase of dividend. That will give us an opportunity to continue in the next several years to be peer plus like in how we manage capital return. But from a buyback activity standpoint, we are focused on, as we always have been, not just ROA, but ROE and how do we manage capital from a perspective of shareholder return, but yet at the same time, get this ROE number up. And so our deployment is going to be the same. We're very pleased with the levels of growth that we're seeing in all markets, and we'll continue to focus on that. But at this point, we're in a, like I said, a position of strength. We have significant confidence in our earnings durability, which gives us the opportunity to move forward with increased dividends. And ultimately, as I said, there's going to be a desire to continue to deploy this through organic growth, and we're seeing some significant opportunities on markets. Martin Hall: And Drake, the last part of that, can you address M&A for the bank? Drake Mills: Yes. For us, I think the best plan is for us to grow -- we've got a nice opportunity to grow organically. M&A is just not on the table at this point. We've got too much opportunity to maintain awesome culture, strong credit quality. The growth we're seeing is high quality. So we're going to take advantage of this organic growth, this lift-out opportunity, really do the things that we've done for years that's made us who we are, but focus on a disciplined approach of return and profitable growth. And I think that's going to be the driver that keeps us out of the M&A game. Operator: Our next question is from Michael at Raymond James. Michael Rose: I was trying to write down some of the commentary, Wally, that you provided around NII and fees. I think what I'm hearing is that the margin should maybe be towards the upper end. Does that imply that the NII should also be kind of towards the upper end of the range? And then I think I heard that fee income would maybe be tracking towards the lower end of the range, but the full year revenue should kind of balance out. Is that broadly kind of the way to think about it? William Wallace: Generally, I would say, yes, Michael. The NII would certainly be tracking towards the higher end, especially if loan growth and NIM is tracking towards the higher end of guidance. On the fee income side or the total revenue side, NII is obviously going to be the biggest driver of our total revenue growth. So even with our fee income tracking towards the lower end, primarily a result of the losses on the LP investments in the first quarter, that's still -- the total revenue still looks stronger due to the NII strength. Michael Rose: Okay. Helpful. I appreciate that clarification. And then Drake, maybe for you, obviously, the Optimize Origin efforts, I know it's been a lot of work to kind of get where you are, but it seems like the momentum is really beginning to build here, and I think you'll have more progress as you move into next year. Just as you think about some of those efforts and maybe finishing kind of the job, kind of where do you see the company over the next 2 to 3 years? I know you've talked about prior getting back to kind of a top quartile performance. What needs to happen from here to really kind of get there because it does seem like the bar has certainly moved higher? So just trying to balance what you've laid out already with kind of what's to come and how we get back to that top quartile profitability. Drake Mills: Well, thanks to Lance and his team, Optimize Origin, and I love how Lance refers to it as our operating system. And it's not a project. It's not a point in time. It is literally how we look at this company moving forward. And I think to answer the bulk of your question, organic growth at the levels we're seeing today, maybe a little less, have to continue for us to be able to get to the point of a top quartile performer, and we are very confident in that. That's why we're seeing a significant balance in the opportunities we have at this point for teams that are contacting us. We are looking at what is the impact to our financial model and our ability to hit these targets from an ROA standpoint in the next couple of years, but yet balance bringing these teams in. And so we're looking at teams that have significant CNI focus, that have funding capabilities themselves, that have longevity in their relationships with significant credit quality because ultimately, a derailer, if we have the growth is the credit quality aspect of it. So we are so focused on high-quality growth. We're focused, as Lance said, on discipline, pricing and profitability. And so if we can continue managing Optimize Origin as, say, our operating system and our entire organization buys into that, then we'll see high credit quality. We'll see pricing discipline that will allow us to stay in the game, and we'll see growth that matters. So I would rather take a 6%, 7% growth that's high quality, high profit versus just throwing up a 10%, 12% growth. So I see a company that's growing at this 8% to 10% level in the next couple of years with significant discipline, high-quality credit and earnings power that continues to grow. So with those factors, I've got a lot of confidence in our ability to be an upper quartile earner in the next 3 years and continue with being a disciplined performance company. Martin Hall: Yes. I might want to add to that. That was a great answer, Drake. The back end of it, through the lens of Optimize, is really trying to continue to identify lower returning sections, markets, bankers, clients, products, understanding where our expenses are, how we can take advantage of the market and move expenses into what I'm going to call future revenue streams. And so right now, with the emphasis on artificial intelligence, we have taken advantage of a window to really dig into contract renegotiations with technology vendors and are having a tremendous amount of success. And that in the moment, not just for the -- not just to cut costs, but then to be able to reinvest those dollars into future automation as well as future investments in banking teams that are going to drive revenue. They're going to push us forward. I mean the hire of our new Chief Technology and Innovation Officer points to that, the real emphasis on data and how decisions are made through automation, through speed of delivery, process improvement. We are doing a deep dive inside the organization on all things along this journey and personalization for the clients so that we're delivering in a cheaper manner and we're driving this that's really pushing ROA significantly. Operator: Our next question comes from Stephen at Piper Sandler. Stephen Scouten: I wanted to dig into some of the guide a little bit more, just particularly around the deposit growth. Does that kind of guidance account for the movement we saw around year-end and the beginning of the year, with managing around the $10 billion in assets? William Wallace: Yes. So just to kind of give you some thoughts around maybe how the deposit growth will trend, the first quarter is always a seasonally strong quarter for us. Our public funds customers, especially in Louisiana, have a lot of inflows from tax receipts. Those deposits then run off in the second quarter. So the second quarter is typically down slightly, and then we build back up in the third and fourth quarters. So yes, if you look at the guide, that mid-single -- mid- to high single-digit guide would be on the higher end if you don't add back the deposits that we sold at the end of 2025. Stephen Scouten: Got it. And then, Wally, I think I heard you say that the NIM guide currently assumes 2 cuts in July and December. Would there be any material change to the path for the NIM if we do not get any cuts this year? William Wallace: So we have about $350 million or so of loans that are maturing for the rest of this year. Those loans on average are priced around 5%. As Lance said, we're pricing -- in the first quarter, we were pricing new loans in the 630 to 650 range. So if the Fed doesn't cut and we don't see meaningful spread pressures, then we'll pick up an extra 25 basis points or so on those loans that are repricing. We've moved cuts from March and June to July and December. And so that's -- that would be in the guide. So the December cut is not going to impact the guide that much. So if the July cut comes out of our guidance, then we'd have a little bit of extra boost from those $350 million or so of loans that are repricing. Not hugely material. Stephen Scouten: Yes. Makes sense. Okay. And then just last thing for me. Obviously, Texas clearly represents the lion's share of loans today. And can you give us any kind of color into what you're seeing in DFW, Houston markets in terms of demand and maybe impacts from continued dislocation with deals in those markets and kind of how you would expect that concentration of loans to the Texas markets to continue as we move forward? Martin Hall: Yes, you're 100% right. Our teams are doing a great job. As we talked about, think $160 million of the CNI growth came out of the Texas market in Q1, and the pipeline would look very similar to that as far as the mix. But also on the deposit side, I mean, we grew $200 million in deposits in Texas. And the exciting part of that is because of the CNI focus we have in those markets with our operating companies, the NIB percentage in Dallas and Houston is clearly higher than other markets across our corporation. So they've actually worked and done a great job now that their total deposit costs in Dallas and Houston are the cheapest that we have, which is crazy to think about. They've done such a good job. A lot of TM revenue that's flowing through there. From a dislocation perspective, you're right. I think Drake used the term generational. I can tell you that we're feeling it in a significant way. A year ago, I was spending all of my time around Optimize and sort of resetting, thinking through cost reductions. I can tell you right now, I'm spending all my time recruiting. We're having significant and meaningful conversations across our footprint, literally in every market. Of the 15 new production hires that we had in Q1, I think it's lined out exactly like you would hope it would be. It was 6 in Houston and 6 in North Texas. The opportunities we're seeing, and think hopefully, we'll be announcing very soon, are going to really move this company forward. I would also say that we see significant opportunity in the Southeast market. That they're maturing and coming into their own, conversations that are being had. So while Texas clearly is the driver for us, the Southeast is going to pick up dramatically. Operator: [Operator Instructions] Our next question comes from Gary at D.A. Davidson. Gary Tenner: I had just another question about the CNI growth in the quarter. Do you have a sense of kind of how much was new customer generated versus increased utilization among your existing customer base? Is there any sense that there's a pickup in company investment to take advantage of the tax bill and accelerated depreciation or anything along those lines? Martin Hall: Yes. I don't have an exact number for you, but I will tell you kind of going through loan committee and going through pipelines, looking at that, I think you're right. I do think the vast majority of it was more business from existing customers. I mean we are actively working with our business development officers and TMOs and bankers to make calls and bring in new customers, and that will pick up even greater with these new hires that we're bringing on new clients. But the vast majority of this is additional business in Texas. And I think you're right. I think there's incentives to drive new business from this administration that's paying off. Gary Tenner: Okay. I appreciate that. And then just another kind of NIM-related question. In terms of the deposit cost side of things right now. You've got obviously some CDs repricing in the second quarter. Just hoping to get a sense of where you -- how much opportunity you think there still is in terms of deposit repricing, let's say, in the absence of rate cuts from here? Or are we pretty near a bottom? William Wallace: I would tell you that with the last cut that we got, our markets worked very hard to improve pricing. We looked at what we thought were opportunity with some higher cost deposits across the franchise. And I would tell you that absent another cut, I don't see that we have more opportunity to improve those costs. And our goal, part of our ethos, as Drake mentioned, was that to be disciplined around pricing. And as loan growth accelerates, we need to fund that loan growth with new deposit growth. So I would suspect that we are near bottom on deposits as we have to make sure that we're funding new loans with deposits. New deposits tend to come in a little bit more expensive than your existing deposit base. So yes, I don't think -- I wouldn't model that we have a lot of opportunity on the deposit side from a net interest margin perspective. The greater opportunity is really coming from the repricing of loans, where I mentioned, we're picking up today 125 to 150 basis points of spread. Gary Tenner: Appreciate that. And just kind of one more deposit-related question. Have you seen a significant shift in competition around deposit pricing, whether Louisiana or Texas or otherwise? Martin Hall: Yes, it's leaking in. As a matter of fact, I had -- I've got two mailers sitting on my desk right now from competitor banks here in North Louisiana. One was a 3.8% CD, and one was about a 3.55% money market. And so we're fortunate here that we have such a competitive advantage in North Louisiana. I mean obviously, the pricing does matter, but we're being very disciplined on that. We have long-term relationships with these clients. But you are right, as these banks are trying to get growth, they're going to have to fund it somehow. And so the competition is going to be fierce. Operator: And ladies and gentlemen, this concludes the Q&A session. Handing it back to Drake Mills for any final remarks. Drake Mills: Yes. As I mentioned earlier, we have just a deep commitment throughout our company to deliver on Optimize Origin. We have significant momentum in all of our markets, and we're seeing an acceleration of high-quality production, as I said earlier. As we're blessed to be a part of these dynamic markets that are truly experiencing generational dislocation, it has given us opportunities that I just didn't see it as an opportunity in my career. So as we move forward, we are going to be highly disciplined and not only our growth, our pricing, our quality and the decisions that we make that balance growth and earnings momentum. So I appreciate everybody being on the call. Appreciate your confidence in us, and look forward to seeing most of you on the road in the month of May. Thank you. Operator: Thank you. This concludes today's call. A replay will be made available shortly after today's call. Thank you, and have a great day.
Operator: Greetings. Welcome to the NewMarket Corporation call and webcast to review first quarter 2026 financial results. At this time, all participants are in a listen-only mode. Please note this conference is being recorded. I will now turn the conference over to your host, Timothy K. Fitzgerald. You may begin. Timothy K. Fitzgerald: Thank you, and thanks to everyone for joining me this afternoon. As a reminder, some of the statements made during this conference call may be forward-looking. Relevant factors that could cause actual results to differ materially from those forward-looking are contained in our earnings release and in our SEC filings, including our most recent Form 10[inaudible]. During this call, we will also discuss the non-GAAP financial measures included in our earnings release, which can be found on our website and includes a reconciliation of the non-GAAP financial measures to the comparable GAAP financial measures. We filed our 10-Q for 2026 today, and it contains significantly more details on the operations and performance of our company. Today, I will be referring to the data that was included in last night's press release. Net income for the first quarter of 2026 was $118 million, or $12.62 per share, compared to net income of $126 million, or $13.26 per share, for the first quarter of 2025. Petroleum additives sales for the first quarter of 2026 were $610 million, compared to $646 million for the same period in 2025. Petroleum additives operating profit for the first quarter of 2026 was $135 million, compared to operating profit of $142 million in 2025. The decrease in operating profit was mainly due to the decline in shipments of 7% due to softening in the market and our strategic decision to reduce low-margin business. However, we are encouraged by the increase in shipments we observed in the latter part of the quarter. Despite the decline in shipments in the first quarter, our operating profit margin remained strong. We are very pleased with the performance of our petroleum additives business during the first quarter of 2026 and the work done by our team to operate within a rapidly changing environment due to the conflict in the Middle East. We have implemented price adjustments to account for the escalating cost of raw materials, utilities, and logistics, and we have rebalanced our global production to make sure we are meeting customer demands in a dynamically evolving market. Despite these challenges, we remain committed to improving efficiency and managing operating costs. Our focus continues to be on investing in technology and our supply network to meet customer demands, enhancing our operational efficiency, and improving our portfolio profitability. We report the financial results of our Ampak business and our newly acquired Calco Solutions business in our Specialty Materials segment. Specialty Materials sales for the first quarter of 2026 were $58 million, compared to $54 million for the same period in 2025. The increase in sales was mainly due to the inclusion of the Calco business, which was acquired on 10/01/2025, offset by a shift in shipment mix at Ampak versus the first quarter of last year. Specialty Materials operating profit for the first quarter of 2026 was $12 million, compared to $23 million for the first quarter of 2025. The decline in operating profit was mainly due to the change in quarterly shipment mix at Ampak compared to last year. As previously stated, we will see substantial variation in quarterly results for the Specialty Materials segment on an ongoing basis due to the nature of the business. The company generated solid cash flows throughout the first quarter, which allowed us to return $104 million to our shareholders through share repurchases of $126 million and dividends of $28 million. As of 03/31/2026, our net debt to EBITDA ratio was 1.2 times. As we look ahead to 2026, we are committed to making decisions that promote long-term value for our shareholders and customers while staying focused on our long-term objectives. We believe that the core principles guiding our business—a long-term perspective, a safety-first culture, customer-focused solutions, technology-driven products, and a world-class supply chain—will continue to benefit all of our stakeholders. That concludes our planned comments. We are available for questions via email or by phone, so please feel free to contact me directly. Thank you all again, and we will talk to you next quarter. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the SkyWest, Inc. First Quarter 2026 Results 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, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. You may begin. Robert J. Simmons: Thanks, Abby, and thanks, everyone, for joining us on the call today. As Abby indicated, this is Rob Simmons, SkyWest’s Chief Financial Officer. On the call with me today are Russell A. Childs, President and Chief Executive Officer; Wade Steele, Chief Commercial Officer; and Eric J. Woodward, Chief Accounting Officer. I would like to start today by asking Eric to read the safe harbor, then I will turn the time over to Russell A. Childs for some comments. Following Russell A. Childs, I will take us through the financial results, then Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our sell-side analysts. Eric? Eric J. Woodward: We assume no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. Actual results will likely vary and may vary materially from those anticipated, estimated, or projected for a number of reasons. Some of the factors that may cause such differences are included in our most recent Form 10-K and other reports and filings with the Securities and Exchange Commission. I will now turn the call over to Russell A. Childs. Russell A. Childs: Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. Today, SkyWest reported net income of $102 million or $2.50 per diluted share for 2026. This is slightly better than the same quarter last year and reflects increased production and fleet utilization. During the quarter, we received delivery of one E175, with eight more expected this year. We are also excited to share a prototype of the new CRJ450 product, a reimagined premium 41-seat CRJ200. This aircraft will include first class, overhead bins large enough for all roll-aboard luggage, and Starlink Wi-Fi. SkyWest is very excited to launch this new product for United this fall, and we look forward to ultimately operating an all dual-class fleet. The first quarter is always difficult with winter weather. Our people rose to the challenge despite two back-to-back storms in March affecting several of our hubs. During the first quarter, the Department of Transportation shared their full-year 2025 on-time performance statistics with SkyWest Airlines placing third in on-time performance. That is outstanding, and I want to thank our people for working together to deliver such an exceptional product. The industry is extremely dynamic, and our model is built for durability. With uncertainty impacting fuel costs and production, we still anticipate 2026 will be more profitable than 2025. SkyWest’s strategic business decisions have kept us strong and agile to the industry’s volatility, and the steps we have taken in the past several years have only enhanced the strength and stability of our model. Our ongoing investments in the diversity of our fleet ensure we are well positioned to adapt to market demands. We continue executing our fleet initiatives and advancing our unparalleled fleet flexibility. That flexibility has never been more important. And while our E175 flying agreements are further solidified, we continue to leverage our extensive CRJ assets. The contract extensions we announced with United and Delta last quarter deliver ongoing revenue stability. And with our dual-class fleet, both CRJ and ERJ now under contract, we have no major E175 contract expirations until late 2028. We continue accepting delivery of new E175s and CRJ700s to CRJ550s for United and are proud to be launching the CRJ450 with United this fall. Additionally, we continue to reduce our debt; we now have $1 billion less debt than we did at the end of 2022. The free cash flow that we continue to generate is still being directed toward fleet growth initiatives, debt reduction, and share repurchase. Our steadfast commitment to maintaining a strong balance sheet and liquidity benefits our employees, our partners, and our shareholders. All of this work sets us up well for 2027 and places us in a solid position of long-term strength. SkyWest continues to lead our industry in service and in the value of our diverse assets. We remain disciplined and steady as we execute on our growth by delivering on significant prorate demand, investing in and fully utilizing our existing fleet, and preparing to receive our deliveries in the coming years for a total of nearly 300 E175 by 2028. SkyWest is built to perform through the industry’s cycles. Disciplined strategic choices and continued execution in recent years have strengthened our model, and we remain well positioned to adapt quickly and to respond to market demands better than anyone else in the industry. Rob will now take us through the financial information. Robert J. Simmons: Today, we reported a first-quarter GAAP net income of $102 million, or $2.50 earnings per share. Q1 pretax income was $108 million. Our weighted average share count for Q1 was 40.7 million, and our effective tax rate was 6%. This GAAP EPS included a $0.29 impact from this unusually low effective tax rate from a discrete benefit in the quarter compared to the Q1 rate last year. Let us start with revenue. Total Q1 revenue of $101.01 billion is down slightly from $1.02 billion in Q4 2025, and up 7% from $948 million in Q1 2025. Q1 revenue includes contract revenue of $810 million, up from $803 million in Q4 2025, and up from $785 million in Q1 2025. Prorate and charter revenue was $168 million in Q1, up $1 million from Q4 2025 and up $37 million from Q1 2025. Leasing and other revenue was $35 million in Q1, down from $54 million and up from $32 million in Q1 2025. The sequential decrease in leasing and other revenue from Q4 related to discrete maintenance services provided to third parties in Q4 that was not expected to repeat in Q1. Additionally, these Q1 GAAP results include the effect of $24 million of previously deferred revenue this quarter, up from the $5 million recognized in Q4 2025, and $13 million recognized in Q1 2025. As of the end of Q1, we have $241 million of cumulative deferred revenue that will be recognized in future periods. Now let us discuss the balance sheet. We ended the quarter with cash of $627 million, down from $707 million last quarter and down from $751 million at Q1 2025. The ending cash balance for the quarter included the effects from repaying $116 million in debt, issuing $118 million of new debt, investing $102 million in CapEx, including the purchase of one E175, and buying back 783 thousand shares of SkyWest stock in Q1 for $75 million. As of March 31, we had $138 million remaining under our current share repurchase authorization. Cash flow is obviously an important driver of our capital deployment strategy. Over the last two years, we generated nearly $1 billion in free cash flow and deployed it primarily to delever and de-risk the balance sheet to the benefit of our partners, our employees, and our shareholders. We expect to continue to deploy our ongoing generation of free cash flow by investing in our fleet, including financing the addition of 28 new E175s by 2028, reducing our debt, and executing opportunistically on our share repurchase program as you saw us do in Q1. As we remain focused on improving our return on invested capital, we would like to highlight the following. Both our debt net of cash and leverage ratios continue at favorable levels and are at their lowest point in over a decade. Our total debt level is $1 billion lower today than it was in 2022, in spite of acquiring and debt financing 15 E175s during that time. The total 2025 capital expenditures funding our growth initiatives was approximately $580 million, including the purchase of seven new E175s, CRJ900 airframes, and aircraft and engines supporting our CRJ550 opportunity. We expect to take nine new E175s during 2026 and anticipate our total CapEx in 2026 will be about flat with 2025, including two incremental 175 deliveries. Consistent with our practice, let me update you on some commentary on 2026 that we gave last quarter. For 2026, we now expect to see block hour production slightly lower this summer than we modeled last quarter. We continue to work with our partners on production schedules over the rest of 2026. Wade will talk more about this in a minute. We also anticipate our GAAP EPS for 2026 will be in the $11 area, slightly down from the color we gave last quarter, reflecting our expectation of ongoing elevated fuel costs. Although the future cost of fuel is obviously uncertain, we are exposed to fuel costs only on roughly 10% of our flying, or 40 million gallons needed in our prorate business over the remainder of the year. We also believe, however, that higher fuel costs will come with some favorable prorate pricing offsets in that business, along with ongoing strength in our core model. In terms of how to think of quarterly EPS modeling for the rest of 2026, there are several potential puts and takes over the remaining quarters, including seasonality, fuel cost, production, and so on, that have various levels of uncertainty. But to keep it simple, on a GAAP EPS basis, we anticipate directionally that Q2 could be up slightly from Q1 GAAP results of $2.50. Q3, seasonally the strongest quarter of the year, could be up over Q2, and Q4 could be down modestly from Q3. For other modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at 2025 levels as we invest in bringing more aircraft back into service. We also anticipate our effective tax rate will be approximately 23% to 24% for the full year 2026, flat to slightly down from 2025, including the unusually low rate of 6% in Q1. This is expected to translate to an effective tax rate of approximately 27% to 28% for the remaining quarters of 2026. We are optimistic about our ongoing growth possibilities in 2026 and 2027, including the following three focus areas. First, growth in our ability to increase service to underserved communities, driven partially by the redeployment of approximately 20 dual-class CRJ aircraft expected for scheduled service later this year and strong utilization of the existing fleet. Second, good demand for our prorate product. And third, placing nine new E175s into service for United and Alaska by 2026 and sixteen new E175s for Delta in 2027 and 2028. We are also very pleased with the success of our CRJ550 and CRJ450 initiatives, and I will hand the mic to Wade, who will talk more about that next. We believe that we are positioned to drive long-term shareholder returns by deploying our strong balance sheet and free cash flow generation against a variety of accretive opportunities. Wade? Wade Steele: During the quarter, United announced the launch of the CRJ450, a reimagined CRJ200 featuring 41 seats. This aircraft will offer seven first-class seats and 34 economy seats, including Economy Plus. With a large luggage closet and no overhead bins in the first-class cabin, passengers will enjoy a premium experience. We are also excited to introduce Starlink connectivity onboard the CRJ450. Operations with United will begin this fall. Last year, we announced an extension covering 40 CRJ200s with United, and we are committed to retrofitting these aircraft into CRJ450s. We also plan to retrofit our prorate fleet and anticipate that our total CRJ450 fleet will reach approximately 100 aircraft. Turning to our E175 fleet, last quarter, we secured multiyear extensions for 40 E175s with United and 13 with Delta, further solidifying our partnerships through the end of the decade. We now have no contract expirations on E175s until 2028. During the quarter, we took delivery of a new E175 for Alaska and currently have 68 E175s on firm order with Embraer, including 16 for Delta and eight for United. We expect to receive eight additional E175s this year. Of the 68 aircraft on order, 24 are allocated to major partners, with 44 remaining unassigned, allowing flexibility in our long-term fleet strategy. Delivery slots are secured from 2027 to 2032, and the structure of the order allows us to terminate if we do not secure partners. Following the completion of the Delta deliveries expected in 2028, our E175 fleet will total nearly 300 aircraft, reinforcing SkyWest’s status as the world’s largest E175 operator. We recently acquired five E170s and reached an agreement with United to operate these as we expedite the conversion of our CRJ700s to CRJ550s. As previously discussed, we have a multiyear agreement to fly 50 CRJ550s with United. As of March 31, 29 CRJ550s are in service, and we expect the remaining 21 to enter service this year. We have also initiated a prorate agreement with American, currently operating six aircraft under this arrangement, with up to nine expected by year-end 2026. We look forward to expanding our relationship with American. Reviewing our production, Q1 2026 block hours increased 3% compared to Q1 2025. For 2026, we anticipate production slightly lower this summer than we modeled last quarter. This year, we expect to take delivery of nine new E175s, place 23 CRJ550s into service, capitalize on strong prorate demand, and increase fleet utilization. These gains are partially offset by the gradual return of approximately 19 Delta-owned CRJ900s to Delta over the next couple of years, at a slower pace than previously anticipated. Our revenue seasonality has normalized. With improved utilization during the strong summer months, we still have approximately 10 dual-class CRJ aircraft currently undergoing heavy maintenance after transitioning from long-term storage. These aircraft are set to return to service in 2026 under existing flying agreements. Additionally, there are over 30 parked CRJ200s that could potentially transition to the CRJ450 and further enhance our fleet flexibility. We have continued to face challenges in our third-party MRO network, including labor and part shortages. We expect maintenance expenses in 2026 to remain consistent with 2025 as we bring aircraft out of long-term storage and support growing production. As expected, maintenance expenses are incurred before aircraft return to service. Demand for our prorate business remains extremely strong, supported by great community engagement. We are seeing opportunities to restore SkyWest service to several communities, and we will continue to work with airports to expand our reach. As discussed last quarter, growth in our prorate business contributes to a more seasonal model. We remain confident in our ongoing efforts to reduce risk and enhance fleet flexibility, and we are committed to collaborating with our major partners to deliver innovative solutions that meet the continued demand for our products. Operator: Okay. We will now open the call for questions. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your questions. Again, it is 1 to join the queue. Our first question comes from the line of Catherine O’Brien with Goldman Sachs. Your line is open. Catherine Maureen O'Brien: Hey. Good afternoon, everyone. Thanks for the time. So we have had a couple of capacity cutdowns in some of your partners this earnings season, and you just shared that your summer schedule is lower than you originally expected. Do you think those mainline carrier cuts are now fully reflected in your schedule? How far in advance are you typically warned about any potential schedule changes? Wade Steele: Yeah, Catherine, this is Wade. As I said on our call, we do expect our block hours to be slightly less than what we talked about last quarter. Our schedules—we have good schedules through the summertime for sure. We think those schedules will hold, and we anticipate a strong fall as well. So we do expect a little bit less than what we talked about last quarter, but we have pretty good visibility to what is going to happen over the next quarter for sure. Catherine Maureen O'Brien: And I apologize if I missed it. Did you give us—usually, you will give us some type of sequential compare on the block hours for the one quarter out versus the current quarter or year over year. Did you share that guidance? Wade Steele: We did not, but it will be seasonally high. If you compare it to Q1 2026, Q2 will be seasonally higher than what we just did in Q1. Catherine Maureen O'Brien: And maybe just—this might be another one for you, Wade. But last quarter, you spoke about having 60 CRJ200s going through maintenance to return to service. I think there were 20 of those that are already under contract. We now know you are going to be converting a number of those into CRJ450s to put into service with United starting as early as this fall. Can you help us understand what portion of those 60 CRJs you already had in maintenance were slated to become CRJ450s, and are there any incremental shells left from that pool still looking for homes that could potentially be incremental 2026 block hours? Wade Steele: Yeah, that is a great question. As I talked a little bit in my script, there are still about 30 CRJ200s that are parked, and we are working with our major partners to bring those back. As we look at it, if we do bring them back now, it would be late in 2026 and rolling into 2027. We are still working on those. We are optimistic that we will be able to find a home for those, so we are working through that right now. Operator: Great. Thanks so much for the time. Our next question comes from the line of Savi Syth with Raymond James. Your line is open. Savanthi Nipunika Prelis-Syth: Hey. Good afternoon, everyone. Just building on Katie’s questions on the CRJ450, what is the conversion time around that and how are the cost and the CapEx handled in terms of what you spend versus what your partner might cover? Wade Steele: Yeah, Savi, this is Wade. That is a great question. We anticipate starting to transition these in the fall. The transition time will be a couple of weeks to convert from a CRJ200 to a CRJ450. We anticipate doing a couple of lines at a time. All of the economics are included in the rates with our major partner, and so they will be included in the economics that we receive from the partner. Savanthi Nipunika Prelis-Syth: Got it. And, Wade, just to clarify—I think you mentioned this, but I am not sure. I know the E175 by year-end ’28 wording went from “nearly 300” to “more than 300.” Is that a reflection that the rest before year-end ’28 have been extended, or what was the reason for that wording change? Wade Steele: No. We still anticipate around 300 airplanes. We continue to take delivery of those. We have eight more for United and 16 more for Delta, and so it is still right around that 300 number. It is pretty consistent with last quarter. We did take a delivery for Alaska in Q1, but we are continuing to work to place the remainder of those airplanes, and we are having very interesting conversations. Savanthi Nipunika Prelis-Syth: Got it. And just lastly, I am not sure if I missed it, but did you say what the prorate revenue was this quarter? Wade Steele: We did not, but it is $168 million—our prorate and SkyWest Charter business. Operator: Perfect. Thank you. Our next question comes from the line of Mike Linenberg with Deutsche Bank. Your line is open. Michael Linenberg: Yes. Hey, Chip, I know you talked about these airplanes—these CRJ450s—being great airplanes for these underserved communities. What is the status on—I know out of Chicago, you are going to launch a whole bunch of service to a lot of underserved cities. What is the status on that? And are you going to have to—because of the FAA order—are you going to have to withdraw that service? Russell A. Childs: Mike, that is a great question. From our perspective, nothing has necessarily changed in our intent. The cities Wade mentioned in the script all take a long time to get to the timeframe where they are open to go back to. I can tell you that sometimes it is up to even a year process. So the timing of most of what you are talking about does not necessarily perfectly correlate to some of the things happening in Chicago for the remainder of 2026. And some of the cities—if it does not work in Chicago—the bids could go to one of our other hubs. It does not change the interest of us going back to these communities. If there is a network problem between some of our partners in some of these locations, we have some flexibility that DOT is willing to work with to go to a different hub to make sure that we ensure that service. From that perspective, our intent is still to do what we do best, and that is to serve and develop these small communities like we have done for 53 years. There is still a very good market for that, and we will be flexible, as we mentioned in our script before, on how we do that with these communities and with our partners. Michael Linenberg: Okay. Great. And just to Wade—I apologize if you said this number; I did get on late. Just the new block hour rate for the year, because I think you said you were planning to fly a little bit less this summer. What should we be modeling for block hours for the full year? Wade Steele: Last quarter, we talked about low- or mid-single digits. It is slightly less than that from what we anticipate. We are still finalizing all of our block hours through the back end, but we still do expect to be up year over year; we are just working through that at the moment. Michael Linenberg: Okay. And then in that regard, though, you are still up, and the reason for the reduction—is it because of the higher fuel prices and a cut to prorate, or is it Chicago? Is it both? How do we parse that out? Wade Steele: It really has nothing to do with our prorate. We are still very optimistic with our prorate. The demand—just like our major partners talk about—the pricing is still there. The demand is still really strong. So we have not cut any of our prorate flying. There is a little bit in Chicago, like you talked about, and then some of our other CPAs just have some cleanups with utilization. Those are the main drivers. Michael Linenberg: Okay. And then just my last point. If fuel prices stay high, in the past there was always this arbitrage between mainline and regional—in the sense that if the majors had to cut but wanted to maintain frequency and maintain the integrity of their hubs with the number of banks—that parking an inefficient 25-year-old A319 or A320, or maybe utilizing it less and backfilling it with one of your airplanes, was far more profitable for the full ecosystem. Does that still hold? And does that potentially create opportunities if—I do not know—the Strait of Hormuz remains closed for longer than what we thought? Robert J. Simmons: Michael, that is a fantastic question. We evaluate that data—you can go back several decades and look at some of these events from 9/11 to the financial crisis to oil at $150 and COVID and all that stuff. The data is actually pretty clear. Each partner might look at it a little differently depending upon where their fleet is. To the extent that we own the less seats and can be cost competitive, there is a very strong trend of network preservation and even predatorial initiatives that can happen with a smaller fleet in somewhat difficult times, particularly if you try to estimate how long this may last and what the net effect of this is, which we are not going to speculate on. To the extent that we have a good model and can take care of the right dynamics of the industry, we are pretty comfortable where we are and are going to be very fluid with the needs of what our partners want. Russell A. Childs: Have we had any conversations along those lines? Our conversations with our partners—our conversations are a little bit more, I would not say dynamic, maybe even simplistic. We continue to have conversations about the network supply that we provide, the economics at which we do it, and what long-term initiatives are. The good news you have seen throughout the script is all of our conversations are sort of wait and see. Depending upon how this plays out, we are extremely well prepared for however turn this takes. Outside of the global issue you talked about, our relationships with our partners are extremely good, and our fleet flexibility gives us an enormous amount of ability to help meet their demand. We talk more about fleet flexibility, performance, and all that kind of stuff that really helps drive more of that conversation. If this goes on for a very long time and things get worse, there is no doubt that we will have conversations with them for sure. Michael Linenberg: Great. Thanks, Chip. Thanks, everyone. Wade Steele: Thanks, Mike. Operator: Our next question comes from the line of Tom Fitzgerald with TD Cowen. Your line is open. Thomas John Fitzgerald: Hi, everyone. Thanks very much for the time. I am just kind of curious on unit cost and how you are thinking about—to the extent that you are making cuts in the rest of the year—how much you can variabilize and how we should think about maybe unit labor costs moving around from here? Wade Steele: There are a lot of our costs where we do have some flexibility, especially when you look at direct labor costs. We have some levers on training and hiring—some of those things we can definitely make more variable. On the maintenance side, a lot of our maintenance costs are variable based on the number of cycles or hours that we do fly. There is a nice chunk of maintenance costs that are also variable. Our revenue models reflect that, and so do our cost models. Thomas John Fitzgerald: Okay. That is really helpful. And then just an accounting question on the discrete tax benefit. Should we think about it stacking on top of the benefit from 1Q ’25—so the $0.29 plus the $0.24? Or was that just a one-off, so it goes from $2.50 GAAP to $2.21? I just want to make sure I was following that correctly. Robert J. Simmons: Yeah, Tom, you have got it. It is typically a Q1 thing. I would just again point out that for the full year, the 2026 tax rate is basically flat to maybe slightly down from where we were last year. The quarters are just spread out a little bit. Thomas John Fitzgerald: Okay. Then a question—more of a broader risk. To the extent one of your partners were to be able to operate their own regional subsidiary, how do you think about managing through the pricing risk? You have a very unique fleet and attractive assets, and you have been proven to be good stewards and adapt quickly. How are you thinking about the competitive landscape and maybe longer-term pricing power? Wade Steele: That is a great question. Obviously, our major partners—many have wholly owned subsidiaries. We have been able to work with them very closely, and we are fine competing with them as well. SkyWest has a very competitive structure. We are very nimble. A lot of how we do business is unique. We have great relationships with our labor group, which makes it such that we bring a very unique proposition to each of our partners. We will continue to work with them. We are aware of what could possibly happen in the industry, and we are happy to work with our major partners. Operator: Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is open. Duane Thomas Pfennigwerth: Hey. Thank you. With this slight change in utilization, I wonder—are your pilot hiring plans changing at all? Are you dialing that down? And if so, is there an opportunity to maybe better match the new production with your staffing in the second half? Or is it just too early to make that call? Robert J. Simmons: Duane, that is a great question. To be candid, we are very sophisticated and very attentive in how we manage that. Part of our labor cost increase this year compared to last year has been more attrition and more hiring and training costs that we have had in ’26 than ’25. It is going to be very dependent upon what our partners are doing with their hiring. That is the number one driver. We have seen some slowdown in some hiring, particularly since the first quarter and even April. Major carriers are getting ready for the summer schedule and hiring, but that is tapering off. Some of the most sophisticated analysis we do is managing flight attendants and pilots and mechanics given the production timeline. We are seeing very good things throughout the rest of the year—stuff that is very easily managed. As of today, the overall model—we are proceeding full steam ahead with the deliveries we have and with the demand that is out there for our product. We also can pivot relatively quickly and do that evaluation relative to what may happen, and we will be prepared to do that. We are seeing a very stable process and environment for pilot hiring today. The pipeline is extremely full. There are a lot of employees that want to work at SkyWest at all levels. We continue to monitor that, especially during times like this when you could have some variables go one way or the other within the next couple of months. Duane Thomas Pfennigwerth: Maybe just to put a finer point on it—the investment that you were planning to make this year to support the growth, it sounds like that investment has not changed. Is that fair? Wade Steele: That is absolutely correct. Yes. Duane Thomas Pfennigwerth: And then just for my follow-up on the buyback—the pacing of the buyback—it stepped up in the first quarter. How do you think about that pacing going forward, accelerating it or dialing it back? What are the circumstances where you might maintain this? Thank you for taking the questions. Robert J. Simmons: Thanks, Duane. The buyback for the quarter of $75 million was again something that falls well within what we have always said—that we like to be opportunistic about the way that we do that—and we were very comfortable buying a little more stock this quarter at the price we were able to get given the volatility. Going forward, we will continue to do the same thing. We will continue to be opportunistic, and we will continue to have a balanced approach to how we deploy our capital across our fleet, strengthening our balance sheet, and share repurchase. Operator: Our next question comes from the line of John with Citigroup. Analyst: First, I would like to get your perspective on Essential Air Service. The proposed budget came out not long ago, and there were some jitters about Essential Air Service. I know that can happen regularly and it does not normally get cut, but I would love to get your perspective on things or historical perspective and how you think about planning for what the budget is requesting. Robert J. Simmons: That is a great question, and we appreciate it. In 53 years of SkyWest’s history, this has been something that has been discussed a lot. From the perspective of small community service, we are the very best at it. From the perspective of Essential Air Service, we are the best steward of the program. We have seen—certainly with the captain shortage—a lot of abuse from other carriers within this program that has caused people to ask about the validity and strength of what the program actually does. I can assure you that this is a program that is very well managed by the Department of Transportation. We take it very seriously, and our initiative is to make sure that it is efficient and works well not just for the communities, but also for the federal government as well. We take that very seriously and think that we are a very strong steward of this program. We have a tremendous amount of studies and economics that show these dollars massively support a very strong tax base and development of a tax base within these small communities, and we can have our folks share some of those studies with you. We are very comfortable about how we handle the program. We take it very seriously, making sure we do it the right way and serve the communities the right way, and think that it has a good future moving forward. We are happy to help work in ways that can evolve it if need be, but the program is fantastic and delivers a very strong economic tax base wherever we do it. Analyst: Got it. And can you remind us of your exposure to the program—just help us think through SkyWest’s exposure? Wade Steele: That is a great question. We serve currently about 40 different communities. We work with these communities over the long term, and as Russell said, we take the responsibility very seriously and will continue to serve those markets. Analyst: Got it. If I could ask a completely different topic—consolidation has been a theme in the industry in the news the last few months and very recently. Maybe use this opportunity to remind us what opportunities and risks consolidation could present. On the opportunity side, I could see a situation where if capacity is cut under certain scenarios, that might be an opportunity for you or for some of the airlines who are your major customers. On the other hand, I could see a situation where certain pairings might impact your business negatively. Maybe remind us historically how consolidation has affected you, how you think about it, and if there are any protections in contracts worth thinking through? Russell A. Childs: That is a great question. Let me start by saying we have no interest in acquiring anybody, so you can take us off the table from that. We fundamentally believe for our purposes that organic growth is best for our shareholders as well as our employees, which is why we never really consider those things. We do have several offers for us to be involved in this stuff; we are not interested in it for sure at this time. To the extent that our partners participate in it, we are probably in a position where we should not have any comment on that. But I will give you some feedback relative to what has happened—we have a history with the Continental-United combination and those types of things. To the extent that there are opportunities for us to support any of our partners that go through that or want to go through that, we tend to become a very dynamic participant and stakeholder in those things. It has in the past worked out pretty well for us, but that does not mean it would work out well for us in the future. It does make for an interesting conversation we have with our partners. Again, we continue to beat the drum of financial stability and fleet flexibility. If anything ever starts to get any type of legs, then I would remember just what our capacities are in those situations, and obviously top priority is taking care of our partners. Operator: Our next question comes from the line of Catherine O’Brien with Goldman Sachs. Your line is open. Catherine Maureen O'Brien: Just two quick ones, if I may. When you introduced the mid-$11 EPS guidance last quarter, were you incorporating the $0.29 tax benefit in 1Q or not? I am trying to get a sense of the quantum of the change in your outlook driven by block hours. If that is mid-$11 back in January plus $0.29, and then less the block hour hit to get to the $11 range—just trying to understand what the block hours thing is in there. Robert J. Simmons: Yeah, Katie, this is Rob. No. I would tell you that the change in our color—our EPS color—had nothing to do with tax rate. Year over year, we would expect that the full year ’26 is going to be very similar to ’25, maybe flat to slightly down. The unusual benefit in the first quarter was just deduction timing differences that are generated from various comp models that we have. But overall, the tax rate for the year is flat and had nothing to do with our color guide. The guide in our color was almost entirely related to prorate fuel. That is why we tried to be helpful by giving you that we have 40 million gallons that are exposed to fuel price over the next three quarters. We wanted to be as helpful as we could for your models. Catherine Maureen O'Brien: That is very clear. Thanks for that. And then just a final question. If your partners were to cut your schedule this summer, could you pivot aircraft into charter operations? I know you said there is more demand than you can fill. Or are there logistical challenges to moving planes and people back and forth? If it is possible, how do the margins on charter flying compare to scheduled service? Russell A. Childs: Thanks. This is Chip. Real quick on that dynamic—look, we treat both of those certificates completely separately. It is not like you could, in a very fluid basis, go back and forth. I would also reiterate we are clearly not seeing anything that would warrant that. It would take a pretty big lift of an issue for us before we started to do something dramatic like that. Plus, the timing—our charter operation does very well in the winter months with college sports, and it is very slow in the summer months. Some of that timing does not necessarily work out. Overall, the margin on a charter flight is certainly better than what a normal commercial flight is, but you have the seasonality and all the other stuff that weighs against that significantly when the airplane is not flying. We are very comfortable with what the summer schedules are today. I think there is some expectation out there that this could last longer than anticipated, which is also driving those schedules, and we will continue to monitor the situation very carefully. Operator: With no further questions, we will conclude our question-and-answer session. I will now turn the call back over to Russell A. Childs for closing remarks. Russell A. Childs: Thank you, Abby. And again, thanks, everybody, for joining us on the call today. I think the quarter was very good for us, particularly under the circumstances. I really appreciate how amazing our 15 thousand professionals have been this last quarter. Together, we have built a model that is built for interesting times, with stability and flexibility in the coming months. We look forward to our second-quarter call in about three months from now. Thank you. Operator: Ladies and gentlemen, this concludes today’s call, and we thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the MaxLinear, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Leslie Green, Investor Relations. Thank you. You may begin. Leslie Green: Thank you, Maria. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear, Inc.'s first quarter 2026 financial results. Today's call is being hosted by Kishore Seendripu, CEO, and Steven Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions. Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for 2026 including revenue, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, GAAP and non-GAAP interest and other expense, GAAP and non-GAAP income taxes, and GAAP and non-GAAP diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities, execution of our business plan, and potential growth and uncertainties in various product and geographic markets, including without limitation statements concerning future financial and operating results, opportunities for revenue and market share across our target markets, new products, including the timing of production and launches of such products, demand for and adoption of certain technologies, and our total addressable market. These forward-looking statements involve risks and uncertainties, including risks outlined in the Risk Factors section of our recent SEC filings, including our 10-Q for the quarter ended 03/31/2026, which we filed today. Any forward-looking statements are made as of today, and MaxLinear, Inc. has no obligation to update or revise any forward-looking statements. The first quarter 2026 earnings release is available in the Investor section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including but not limited to gross margin, income or loss from operations, operating expenses, interest and other expense, and income tax on both a GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website. We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future changes, including stock-based compensation and its related tax effects as well as potential impairment. Non-GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures. We are providing this information because management believes it is useful to investors as it reflects how management measures our business. Lastly, this call is also being webcast and the replay will be available on our website for two weeks. And now let me turn the call over to Kishore Seendripu, CEO of MaxLinear, Inc. Kishore? Kishore Seendripu: Thank you, and good afternoon, everyone. Q1 was a strong and important start to the year, and we believe it marks the beginning of a multiyear growth phase for MaxLinear, Inc. led by our optical data center business. Revenue grew 43% year over year, reflecting strong execution, accelerating adoption of our newest products, improving visibility in bookings, and sustained momentum across our infrastructure programs. Infrastructure is now our largest revenue category, growing 136% year over year in Q1, driven by robust production ramps in optical data center–oriented platforms. We see this momentum continuing to build as hyperscalers rapidly scale AI-centric architectures. Based on customer orders and rising visibility of the program ramps, we are increasing our expectations for 2026 optical data center revenue to a $150 million to $170 million range. We also expect a step-function data center revenue increase beginning in Q2 with expected strong run rates expanding into 2027. At the center of this data center momentum is our Keystone PAM4 DSP optical transceiver platform. Keystone is now ramping at multiple major hyperscale customers across both the U.S. and Asia, supporting 400G and 800G PAM4 deployments for scale-up and scale-out applications. These ramps validate our differentiation in performance, power efficiency, and integration. At OFC this year, we showcased our 1.6 terabit data center platform featuring Rushmore, our 200 gigabit-per-lane PAM4 DSP; Washington, our matching 200 gigabit-per-lane TIA; and Annapurna, which is our 1.6 terabit AEC and 3.2 terabit onboard electrical retimer platform for scale-up applications. Rushmore and Annapurna are foundational to the next wave of data center optical architectures, including LPO, LRO, AECs, XPO, and co-packaged optics. With Keystone validating our ability to execute at scale, customer engagement in our Rushmore platform has accelerated faster than expected. We anticipate production ramps beginning in late 2026 with revenue growth expected to continue strong through 2027 as the next-generation speed and bandwidth cycle unfolds. We are also expanding our footprint beyond PAM4-based optical and electrical interconnects. We have secured our first XGS PON design win at a U.S. hyperscale data center through a tier-one OEM partner as cloud operators deploy resilient, dedicated, PON-based control plane architectures spanning multiple data centers. Adjacent to compute, we have also won USB bridge controller designs with two major hyperscalers to support rack-level AI system management, which opens the door to increasing content per rack over time. Our Panther hardware storage accelerator SoC family continues to build momentum with growing design win activity among tier-one network appliance and cloud service providers. Persistent memory constraints are highlighting Panther advantages in hardware-accelerated compression, high throughput, and ultra-low latency memory access. We are actively sampling next-generation Panther 5 with key customers, and based on current engagement, we expect storage accelerator revenue to at least double in 2026 compared to 2025. Beyond data centers, wireless infrastructure momentum is improving as carriers increase investment in 5G RAN, access, and backhaul to support cloud-connected and edge AI functionality. Our Sierra single-chip radio SoCs are now deployed with multiple North American operators, with expanding opportunities as 5G networks continue to evolve. In broadband and connectivity, we are executing large-scale deployments of our single-chip fiber PON and Wi-Fi 7 gateway platforms with a second major tier-one service provider in North America, with additional ramps expected later in the year in Europe. These long-cycle deployments provide a stable foundation and leverage the same integration and power efficiency that clearly differentiate MaxLinear, Inc.'s data center portfolio. In summary, we are very pleased with the strong start to 2026 and are especially excited by the momentum accelerating in our optical data center business. With multiple customers entering meaningful ramps of our 800G Keystone family and broader engagement across our 1.6 terabit Rushmore and Annapurna product families across scale-out and scale-up AI architectures, we believe MaxLinear, Inc. is exceptionally well positioned for sustained transformative growth. Our disciplined focus on execution and innovation gives us confidence that 2026 will be a pivotal year as we continue to evolve our strategy and deliver long-term value for customers and shareholders. With that, let me now turn the call over to Steven Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer. Steven Litchfield: Thanks, Kishore. Total revenue for the first quarter was $137.2 million, up from $136.4 million in the previous quarter and up 43% from $95.5 million in 2025. Infrastructure revenue for Q1 2026 was approximately $63 million. Broadband revenue was approximately $44 million. Connectivity revenue was approximately $19 million, and Industrial & Multimarket revenue was approximately $12 million. GAAP and non-GAAP gross margins for the first quarter were 57.5% and 59.5% of revenue. The delta between GAAP and non-GAAP gross margin in the first quarter was primarily driven by $2.6 million of acquisition-related intangible asset amortization. First quarter GAAP operating expenses were $96.1 million, and non-GAAP operating expenses were $59.9 million. The delta between GAAP and non-GAAP operating expenses was primarily due to stock-based compensation and performance-based equity accruals of $28.5 million combined, and acquisition-related costs and other costs of $6.5 million. GAAP loss from operations in Q1 2026 was 13% of revenue, and non-GAAP income from operations in Q1 was 16% of revenue. GAAP and non-GAAP interest and other expense during the quarter were $1.4 million and $1.3 million, respectively. In Q1, net cash flow used in operating activities was approximately $8.9 million. We exited Q1 2026 with approximately $89.9 million in cash, cash equivalents, and restricted cash. The primary use of cash was due to substantial prepayment for wafers supporting rising demand for our data center low-geometry products for which we have increasing order backlog in the second half of the year. Our days sales outstanding was down in Q1 to approximately 27 days. Our inventory was up by approximately $8 million versus the previous quarter, with days of inventory improving to approximately 128 days. This concludes the discussion of our Q1 financial results. With that, let us turn to our guidance for Q2. We currently expect Q2 2026 revenue to be between $160 million and $170 million. Looking at Q2 by end market, we expect to see growth from all four of our business segments with particular strength in Infrastructure, driven by data center optical interconnects. We expect second quarter GAAP gross margin to be approximately 56% to 59% and non-GAAP gross margin to be in the range of 58% to 61% of revenue. We expect Q2 2026 GAAP operating expenses to be in the range of $91 million to $97 million. We expect Q2 2026 non-GAAP operating expenses to be in the range of $61 million to $66 million. We expect our Q2 GAAP interest and other expense to be in the range of approximately $1.8 million to $2.2 million. We expect our Q2 non-GAAP interest and other expense to be in the range of $1.8 million to $2.2 million, with FX volatility being the primary risk. We expect a $2 million tax benefit on a GAAP basis and a non-GAAP tax provision of approximately $1 million. We expect our GAAP and non-GAAP diluted share count in Q2 to be approximately 95 million each. In summary, with strong growth in our data center optical business and several additional high-value products still early in their market ramp, we have transformed MaxLinear, Inc. into an infrastructure-focused company. Our investments over the past several years have brought us to this point where we are well positioned to deliver sustained growth, operating leverage, and increasing shareholder value. We are excited about the opportunities ahead and confident in our ability to execute. With that, I would like to open up the call for questions. Operator? Operator: Thank you. We will now open the call for questions. We ask that analysts limit themselves to one question and a follow-up so that others may have an opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from Tore Svanberg with Stifel. Please proceed with your question. Tore Svanberg: Yes. Thank you, and congrats on the momentum here. Kishore, you mentioned optical DSP revenue now tracking to $150 million to $170 million. That is about $30 million to $40 million higher than what you had expected before. Just wondering what transpired in the quarter to see such a steep increase. Is there new customers? Are you basically just seeing steeper ramps at existing customers? Any more color you can add on that additional revenue would be great. Thank you. Kishore Seendripu: Thank you, Tore. Yes. At the time when we set the guidance, we were looking at a number of ramps and a number of customers, and we were being conservative. At the same time, we were also fairly optimistic internally that we should be seeing strong growth coming in the latter half of this year. Now, with all the visibility and the lead times that are necessary for providing the product, we have very good visibility, and the ramps are setting in very nicely both across 400G and 800G solutions. So I think it is all about timing of the ramps and the scale of the cohorts and their ability to scale up to meet the surging demand we are seeing now. Tore Svanberg: Very good. And as a follow-up for you, Steve: you mentioned the prepayment for wafer capacity. Are you sort of done with that now, or should we expect more cash outflows in the coming quarters? And I also noticed you increased the revolver by $30 million. Anything you can say here on the balance sheet and cash position going forward? Steven Litchfield: Yes, sure, Tore. Consistent with what we raised back in Q4 of last year, we knew we would have some working capital needs going into Q4 as well as Q1, and that certainly played out the way that we expected. Are we through it entirely? To some degree, it depends on how much demand continues to improve. As demand improves, we may continue to see some prepayments, but you will start to see this inflect as revenues increase. On the revolver, we did have a revolver that was expiring in June, so we renewed the revolver and took it up slightly—a pretty minor move for the size and direction of the company. Operator: Our next question comes from Joseph Quatrochi with Wells Fargo & Co. Please proceed with your question. Joseph Quatrochi: Yes, thanks for taking the question. Maybe just a follow-up on that. Can you talk about your supply chain and capacity to support the growth that you are seeing? Clearly, the mix of your growth is a bit different than previously when you were at similar revenue levels. Steven Litchfield: Yes, Joe, I will take this. It is no surprise there are some supply constraints out there, but we planned well for this and worked really closely with partners. We have seen really good support and expect to continue to see that going forward. Joseph Quatrochi: And then as a follow-up, can you talk about the puts and takes in the gross margin guidance? Why would we not see a little bit more leverage on the sequential revenue step-up that is pretty significant here? Steven Litchfield: Obvious question. This is consistent with what we have been seeing. You have heard my caution on this, Joe, and it is a little bit of the input cost—wafer cost, packaging, etc.—moving up. In a lot of cases, the industry, ourselves included, has been able to pass along these costs, and we expect that to be the case. But given the uncertainty, we want to remain cautious. You are absolutely right that Infrastructure typically drives a higher gross margin. We are very optimistic as we look at the rest of this year and into next year, with Infrastructure being a positive influence on gross margins. Operator: Our next question comes from Timothy Savageaux with Northland Capital Markets. Please proceed with your question. Timothy Savageaux: Hi, and congrats on the results and especially the guidance. Question on the Infrastructure side—I know that is mostly data center driven—but it looks like you grew something mid-30s sequentially in Q1, and I imagine data center was a big driver there. Given what you are guiding to, do you expect similar sequential growth in Q2 in Infrastructure? Steven Litchfield: Thanks, Tim. We do not typically guide end markets in that level of detail. We did say that Infrastructure was going up, and we emphasized in our prepared remarks that, as we look at this year, Infrastructure has much bigger growth drivers. We have a lot of new products ramping with some new customers, so we would certainly expect Infrastructure to be a much bigger driver of growth in the coming year. Timothy Savageaux: And to follow up, given the step-up we are seeing in Q2, do you have any comments about overall revenue growth expectations for 2026? It looks like we could be tracking, I do not know, 35% to 40%, but any comment from the company? Steven Litchfield: We have only guided one quarter, and we are not going to change that here today. We are very excited about the growth potential that we have and the new customers and product ramps, and with the visibility we have, we start to roll into 2027 as well. We are excited to see the growth in 2026 and even backlog starting to build into 2027. Operator: Our next question comes from Ananda Baruah with Loop Capital Markets. Please proceed with your question. Ananda Baruah: Yes, good afternoon, guys. Really appreciate the question, and congrats on doing all the work to get to this place with DSP. It is cool to see it play out. Kishore, you mentioned to one of the prior questions, around the magnitude of the step-up in guide, that you had baked in some conservatism around program starts and ramps. Can you tell if the market ramp feels bigger than what you had originally anticipated, as distinct from conservatism? Do you have any sense if the market TAM feels bigger? And then I have a quick follow-up as well. Kishore Seendripu: On the first question, the TAM expansion is real—or the SAM expansion even more so. The PAM4 DSP expansion is very real as both U.S. and China hyperscalers are deploying very rapidly. Depending on the architecture implementation, the amount of PAM4 DSP used can vary based on the GPU configurations, and scale-up and scale-out are both growing strongly. Our conservatism is a general positioning as a company. Do we expect more upside? Absolutely. We do expect more upside as all the programs reach full run rates. Your second question, please. Ananda Baruah: On Panther, you mentioned Panther is benefiting from memory dynamics. Can you walk us through the ways Panther is holistically benefiting? Is it as simple as memory is short and Panther provides performance, or are there more nuanced reasons as well? Kishore Seendripu: There is nuance to Panther. Sixty percent of data center spend is in memory, but all memory is not equal. As the AI engine accelerates, low-latency, high-capacity memory access is super important. The big benefit of Panther is it is an accelerator, so it reduces latency dramatically and improves power efficiency. It enables much more capability than just memory compression. Thus far, our use of Panther has been at the enterprise appliance level, but these enterprise storage appliances are increasingly deployed into mainstream cloud centers. There is much more to come with Panther 5 and Panther 6. We expect this year the revenues to double, and hopefully next year as well, based on the visibility we have. Ananda Baruah: With all that said, do you feel bigger about the ultimate TAM potential for Panther, big picture? Kishore Seendripu: In the big picture, absolutely, Panther has a lot of potential. But Panther as it is today would not be sufficient as deployment models evolve. There will be more investment required, but the TAM is huge, and we will keep converting more of the TAM into our SAM, and that will drive our roadmap. Operator: Our next question comes from Christopher Rolland with Susquehanna International Group. Please proceed with your question. Christopher Rolland: Hey, guys. Thanks for the question. Congrats on the strong results. In your prepared remarks or the press release, you talked about optical at multiple hyperscalers, and previously I think your messaging around optical was very broad based across module vendors. This seems like a change and might be changing customer concentration. Are you now diversifying around these key hyperscaler opportunities? Is it one or two or all of them? If you could elaborate, that would be great. Kishore Seendripu: Thank you, Chris. It is pretty broad based. We have design wins across essentially all of the module vendors. It has taken a while to map the module vendors’ victories to various end data centers, while we did the business development work to create pull at the end customer. Even at the end customers, it is broad based. Obviously, we will be concentrated with a few during the initial ramps, and as we ramp into 2027, other data centers will come online. There is more work to do to expand further—we are only halfway there to full end data center diversification across all hyperscalers. Keystone provides an affirmative statement of MaxLinear, Inc.’s ability to successfully get through interop, supply product at scale, and establishes our credibility as a world-class chip supplier. Christopher Rolland: Thank you for that, Kishore. Maybe a quick follow-up. If you could talk about 1.6T—do you think design wins and the ramp will go there? Is 800G just the beginning, where they qualify you at 800G and then have plans to use you at 1.6T? And you also mentioned scale-up optical; I do not think there is a huge transceiver usage for scale-up right now, mostly scale-out. Can you talk about that and what it means for you? Kishore Seendripu: There will be different deployment models for scale-up. Today, about 30% of optical transceiver TAM is for scale-up and 70% is for scale-out. Our participation in scale-up derives from optical transceivers as well as our 1.6 terabit electrical retimers—onboard retimers and active electrical cables. On 1.6T, there is enormous confidence out there from shipping Keystone to major data centers, and they are ramping strongly in 2026. We have rolled out our 1.6 terabit Rushmore and Annapurna family for electrical applications. This execution, plus success with module partnerships and interop completion, is creating far more pull for our 1.6T participation than I would have guessed at this point. We hope that by the end of the year, we will have completed key 1.6T milestones and start transitioning into volume; 800G and 1.6T will likely be among the most long-lasting interconnect applications in data centers, and 1.6T will expand our ability to garner more revenue and market share. Operator: Our next question comes from Richard Shannon with Craig-Hallum Capital Markets. Please proceed with your question. Richard Shannon: Thanks for taking my question. Following up on DSP, your 400G and 800G with Keystone are going very well, and I heard positive comments about Rushmore. Since you seem to be gaining nice share with Keystone, to what degree does this convey directly to success in Rushmore? How do you view the potential revenue trajectory over time relative to Keystone? Kishore Seendripu: Thank goodness for Keystone. Everything valuable takes time. It has been a long journey of investment, and now we are into Rushmore. The success of Keystone makes us an incumbent. The power of incumbency brings relationships with cloud customers and module makers, confidence in supply capability, and product quality. On the 1.6 terabit solution, I would say we are in the top tier on performance, and customers acknowledge that. They are readily developing solutions that can quickly move to the next phase of evaluations with data center folks. We are not the first with 1.6 terabit relative to two incumbent competitors, but it bodes very well. With 1.6 terabit, ASPs increase, and as the mix becomes more 1.6 terabit, I believe that will have an uplifting effect on our revenues and gross margins, even as our market share expands. Richard Shannon: Thank you. My following question is on cable and broadband. Last call you talked about a soft first half and calendar 2026 being down, and wondering about any update on that and whether you have visibility into when DOCSIS 4.0 starts to have an impact. Kishore Seendripu: We had a spectacular growth year in 2025 for broadband—about 75%—so we had a pullback in Q1 with some seasonality. Looking forward, all our businesses are growing, which is a tailwind alongside Infrastructure. We expect our Broadband business to start growing from Q2 and into 2027. DOCSIS 4.0 certification happened, but some operators are still delayed on network readiness. A big growth is coming with Ultra-3.1 and 4.0 into 2027. Post-COVID, during the down period, we won market share in broadband, which bodes well for our fiber play. Our Fiber PON business continues to grow through Q1 and Q2, and we started major deployment with a tier-one operator in North America in the second half of the year with preshipments already done, and later we have European deployments. It is all growing, and we feel very good about that recovery. Operator: Our next question comes from Karl Ackerman with BNP Paribas Asset Management. Please proceed with your question. Karl Ackerman: Thank you. I have two clarifications. Kishore, going back to cable and broadband, could you be more specific with respect to the June guide? It seems like most of the growth is coming from Infrastructure, but can you talk about your outlook for Broadband, Connectivity, and Multimarket—whether they can all grow sequentially in Q2? And I have a follow-up, please. Steven Litchfield: Hey, Karl, it is Steve. Yes, all four end markets will be up. We do expect a lot of that growth to be from Infrastructure, particularly some of the data center products, but all four segments are expected to grow sequentially. Karl Ackerman: Got it. And then just to follow up on Chris’s earlier question, is much of your optical DSP growth coming from hyper-owned designs such that you are qualifying with them directly, or is your hyperscaler exposure predominantly through module vendors providing a merchant solution? Kishore Seendripu: Both. Operator: Our next question comes from Quinn Bolton with Needham & Co. Please proceed with your question. Quinn Bolton: Hey, guys, congratulations on the nice results and outlook. Kishore, I wanted to follow up on Tim’s question about the breadth of growth in Infrastructure. In Q1, was it predominantly from optical DSP, or did you see good contribution from Panther and the wireless access products as well? Steven Litchfield: Quinn, I will jump in. Really across the board—we saw good growth from all of the products within Infrastructure. From here, data center will really break out. The other product lines absolutely contribute. Kishore mentioned Panther; Panther is going extremely well. Wireless Infrastructure, which was pretty soft last year, is improving, and we expect to see more of that this year. Those are probably the top contributors. Quinn Bolton: Thanks. And then I know sometimes gross margin takes a couple of quarters to reflect product mix because of inventory. You had about a 30% increase in Infrastructure in the quarter and maybe a 25% decrease in Broadband quarter on quarter; I would have thought that would be a nice tailwind. Gross margins were relatively flat. Was there anything that held back gross margin given the mix shift, or do you think it is just a timing issue? The go-forward mix of Infrastructure sounds like a nice tailwind; when might we start to see it show up? Steven Lictchfield: We came in right at our guidance. The mix is definitely continuing to improve. As I mentioned earlier, input costs are rising, and we are trying to be cautious as we look forward. But yes, it is a tailwind, especially as we move into 800G and 1.6T—those have higher gross margins. We will continue to see nice benefits on gross margin as Infrastructure grows as a percentage of our business. Operator: Our next question comes from Suji Desilva with ROTH Capital Partners. Please proceed with your question. Suji Desilva: Hi, Kishore and Steve. Congratulations on the progress here. You talked about 2Q optical stepping up. Are the programs all commencing ramp now, or are other programs phasing in and starting in 3Q/4Q? Just to give us a sense of layers across the year—are we off and ramping for all key programs already? Kishore Seendripu: There are different product cycles with different drivers, and they are all kicking in now, with more catching up later in the year. It took a while for them to start deploying with the required evaluations complete. We are seeing strength in each of these layers based on the bookings we have. Suji Desilva: Thank you. And, Kishore, you mentioned in the prepared remarks wireless infrastructure having a part in data center connectivity—perhaps interconnect or backhaul. Can you help us understand that opportunity and how big it is? Can it become a mainstream opportunity? Kishore Seendripu: In my prepared remarks, I talked about 5G access and transport. There are a number of announced investments where there is a lot of AI at the edge and AI-enabled network infrastructure. We see telecom infrastructure players in wireless gathering momentum in deployments, which changes transport/backhaul and certain elements of access. This should provide a tailwind for wireless infrastructure. The rates of ramps will never match data centers, but you now see interest to move toward AI in the DU side of the network at the edge on the wireless side as well. We should benefit as one of the top two players in the wireless infrastructure space. Operator: Our next question comes from Tore Svanberg with Stifel. Please proceed with your question. Tore Svanberg: Just two quick follow-ups on your new products. Kishore, first on Annapurna—this starts with 1.6T, but can you talk about MaxLinear, Inc.’s positioning there? Are you going to go after all the standards? There are Ethernet standards, there is UALink; are you going to participate with some NVLink/Fusion protocols? Just trying to understand where you are intersecting the market with Annapurna, especially in retimers. There is a lot of hoopla about AECs because of the success of one very successful company in AECs, but what about the retimer market? Kishore Seendripu: The market size opportunity for a silicon player in electrical retimers inside the compute server is humongous as speeds increase. You are going to see a lot of retimers. Currently, our retimer offering is Ethernet-based, naturally. However, the fundamental physics and challenges of doing a very demanding PHY for the retimer application are done now. With regard to adding various standards, that is primarily an interface game. This also lends itself to other links and stories. We are laying the framework for a platform with optionality to chase where the SAM and TAM go. At this point, we are in the electrical retimer market for Ethernet-based solutions. Tore Svanberg: Very helpful. And on Washington, I assume that gets sold with either Keystone or Rushmore. Are you seeing designs where your TIAs are participating on other people’s DSP platforms? Kishore Seendripu: Rushmore and Washington are sampling now. Customers are very excited about the performance. The TIA is a fundamental block not only for Rushmore-based modules but also for LPO and LRO strategies. MaxLinear, Inc. is very well known for its great RF/analog skills. For CPO, if they go bare-bones, the TIA and driver are a natural fit; if they go more sophisticated DSP-based, we already have the platform offering. As you go toward XPO/CPOs and various manifestations, the full offering is important. Washington is the first step in building a fundamental platform that will have multiple derivatives. Operator: Our next question comes from Timothy Savageaux with Northland Capital Markets. Please proceed with your question. Timothy Savageaux: Thanks. Quick follow-up from me on the hyperscale win for PON—the data center control/management application. Can you talk a bit more about the timing and how significant this opportunity could be? When would you expect this design win to ramp, and could it be a needle mover? Kishore Seendripu: We just secured the win, and we expect the ramp—after qualifications—to start sometime in 2027. It is one of the first of its kind, where data centers see the value of a dedicated, reliable link to control the entire data center network. We expect this TAM to be in the hundreds of millions of dollars. Our expectation is that it can be quite a needle mover even next year in the second half on a run-rate basis. Operator: Our next question comes from Richard Shannon with Craig-Hallum Capital Markets. Please proceed with your question. Richard Shannon: Just one follow-up to dig in on the DSP side. How big could the other applications outside duplex optical DSP be—LRO, LPO, CPO, AEC, retimers, etc.—in a year or two? Could that be 10% or even 20% of the total portfolio? Kishore Seendripu: We are still in the early innings of how this market plays out—CPOs and others are likely three years out from determining broader adoption. At this point, it is a very small share of the market from a silicon units point of view. I do not expect it to be a huge part of our revenues near term. From a TAM perspective, I would rank optical transceiver PAM4 DSPs as number one, substantially outweighing the rest; second would be electrical retimers as that happens; and third would be AECs. AECs are more point-in-time application–driven and will evolve. Near term, revenues will be massively outweighed by optical transceiver PAM4 DSP. Operator: We have reached the end of our question and answer session. There are no further questions at this time. I would now like to turn the floor back over to Leslie Green for closing comments. Leslie Green: Thank you all. This quarter, we will be presenting at several financial conferences, and the details will be posted on our Investor Relations page. Thank you for joining us today, and we look forward to speaking with you again soon. Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
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