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Operator: Good morning, and welcome to Kelly Services First Quarter Earnings Conference Call. [Operator Instructions] Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Mr. Scott Thomas, Kelly's Head of Investor Relations. Please go ahead. Scott Thomas: Good morning, and welcome to Kelly's first quarter conference call. With me today are Kelly's Chief Executive Officer; Chris Layden; and our Chief Financial Officer, Troy Anderson. Before we begin, I'll remind you that the comments made during today's call, including the Q&A session, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments. We do not assume any obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance. In addition, we'll discuss certain data on a reported and on an adjusted basis. Discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations. For more information regarding non-GAAP measures and other required disclosures, please refer to our earnings press release, presentation and once filed, Form 10-Q. All of which can be accessed through our Investor Relations website at ir.kellyservices.com. With that, I'll turn the call over to Chris. Chris Layden: Thank you, Scott. Good morning, everyone. I'll begin with highlights from the first quarter. The macroeconomic environment remained dynamic over the first 3 months of 2026. Against this familiar backdrop, employers continue to take a cautious approach to hiring, contributing to a mixed labor market. That said, conditions through the quarter were stable, consistent with our expectations. This stability was reflected in our results as we executed on our strategic priorities. Total company revenue exceeded our expectations and adjusted EBITDA margin was in line with our expectations. In ETM, staffing and overall revenue trends improved sequentially from the fourth quarter, including growth in talent solutions across our technology-enabled and AI-powered MSP, RPO and PPO offerings. In SET, we delivered another quarter of year-over-year growth, our Telecom specialty and life sciences and engineering performance improved sequentially. In Education, we continue to experience pressure from delayed contract decisions and enrollment declines and to a lesser extent, weather-related closings. Across all 3 segments, we continue to align resources with demand and maintain a disciplined approach to expense management as part of our ongoing focus on efficiency. Contributing to stabilizing trends in our results, for new customer wins that were implemented and came online during the quarter. Among them is a significant MSP program with a leading global oil and gas company across its North American operations. Kelly was selected based on the differentiated value of our technology-enabled capabilities. This includes our Helix analytics platform and AI-enabled rate intelligence which provides the visibility benchmarking and cost optimization, large enterprise customers require of a contingent talent management program. With the initial implementation of this new MSP program complete, we have clear line of sight to additional expansion opportunities. This win underscores where our 1 Kelly go-to-market approach is capable of delivering. Leveraging technology in our experience, serving global customers to win in the market and grow. With momentum building across the enterprise, we remain focused on returning to organic growth and margin expansion. Paving the way towards this next horizon is our newly formed growth office. Since it was established in February, the growth office has been collaborating across the enterprise to lay the foundation for an integrated commercial operating framework. This framework will serve as the foundation of a unified 1 Kelly enterprise strategy that brings the full breadth of our portfolio to Kelly's current customers and prospects. Central to this effort is the migration of all commercial teams onto a new unified CRM system, a key component of our modernized tech stack, the CRM will provide enterprise-wide pipeline visibility, enable high conviction forecasting and support cross-selling across business units. We expect the migration to be complete by mid-year as part of our ongoing technology modernization initiatives. Reflecting more broadly on our technology modernization journey, we remain on track with our multi-phase approach. In the first quarter, our team was successful in ensuring a smooth transition following the cutover of our acquisitions in SET from their legacy technology stack to the modernized platform, Kelly acquired through our acquisition of MRP. Armed with the key learnings we gathered from the initial cutover, we're well positioned to execute on subsequent phases and realize the benefits of deeper data and insights, AI and automation and scale and enhanced productivity. As we executed on our strategic priorities through the quarter, we continue to evolve our leadership team. In March, we welcomed Joel Leege as President of SET. Joel is a proven industry leader with broad-based sector experience, having spent nearly 3 decades in staffing, talent solutions and managed services across technology, engineering and life sciences. He brings extensive experience leading complex transformations and integrations, enabling exceptional service delivery for customers and driving above-market growth. This experience is uniquely suited to further enhance SET's competitive positioning and take the business to the next level. I'm pleased to have him as part of Kelly, and I look forward to Joel leading the SET business to new heights of growth and profitability. I'm also reevaluating the leadership structure within the ETM business. This business is core to our strategy. And with this in mind, I'm taking time to assess what we need longer term to ensure we deliver on our growth objectives. In the interim, I will be closely involved in the management of ETM. I have great confidence in the team who have consistently demonstrated their commitment to customer centricity, visibility and accountability. These cultural pillars remain fundamental to how we'll achieve our ambitions and win in the market, both in ETM and across the enterprise. I was pleased to have the opportunity to see the strength of our culture on full display at our recent Impact 2026 Leadership Summit in March. This immersive experience brought together 200 of our leaders for 2 days of dialogue and collaboration focused on transforming Kelly into a more customer-centric, visible and accountable enterprise. Impact reflects our commitment to building on the strength of Kelly's culture from the leadership level down, positioning the company to execute more consistently as we target a return to revenue growth and margin expansion in the second half of the year. In a moment, I'll share more about our pathway toward a return to growth. First, I'll turn it over to Troy to provide more details on the results in the quarter. Troy? Troy Anderson: Thank you, Chris, and good morning, everybody. I'm pleased to report that we started the year with solid execution and results on a number of fronts. For the first quarter of 2026, revenue totaled $1 billion, which was down 10.7% overall versus Q1 of last year, is favorable to our guidance. Excluding the previously disclosed discrete impacts, driven by reduced demand from the federal government and 3 top ETM customers, revenue was down 3.3% on an underlying basis, which was improved 60 basis points versus last quarter. As a reminder, a brief update regarding these impacts. Federal government demand largely stabilized in Q3 of last year with a slight sequential increase this quarter mainly from the government shutdown and seasonal impacts in Q4. For the 3 top ETM customers, 1 stabilized at the current reduced demand levels beginning in Q3, 1 fully ran off in Q3, and the largest 1 remains one of our top customers and has stabilized across Q4 and Q1. At the segment level, underlying ETM declined 0.4% versus the prior year quarter, which is measurably improved versus last quarter and exceeded our expectations. Each Talent Solutions specialty grew versus the prior year quarter. In staffing, we saw a net underlying decline of just 1.2% in the quarter and year-over-year growth across February and March. Overall underlying ETM revenue has been relatively stable across the last 5 quarters. Education decreased 4.8% year-over-year in the quarter, reflecting the prior year delayed new contract decisions, elevated weather-related school closures, and overall reduced demand in key markets due to enrollment declines. We expect education to deliver sequential year-over-year improvement throughout the remainder of 2026 and a return to growth in the second half of the year as a result of new business wins, successfully defending several key renewals and continued penetration of our therapy offering into new and existing clients. SET's underlying revenue declined 6% in the quarter led primarily by near-term demand pressure within the technology specialty. Consistent with ETM and education, we are confident we will see sequential year-over-year improvement each quarter in 2026 with science, engineering and technology contributing most strongly in Q2. Reported gross profit was $196.4 million, down 17% versus the prior year quarter reflecting the lower revenue volume, along with employee-related costs and business mix changes. The gross profit rate was 18.9%, a decrease of 140 basis points compared to the prior year quarter. Approximately 50 basis points of the decline is timing related, which we expect to normalize over the course of the year. Our overall gross profit rate improved 10 basis points relative to Q4 and the year-over-year decline improved similarly. Versus Q4, both ETM and SET saw improvement in their gross profit rates and year-over-year declines. While Education saw rate pressure in light of the revenue decline, cost timing and mix. We expect to see gross profit rate improvement overall and in each BU in Q2 and over the remainder of the year. We continue to make significant progress improving our SG&A expense profile with reported SG&A expenses of $199.3 million, a decrease of 11.7%. On an adjusted basis, SG&A expenses decreased 10.3% year-over-year, reflecting the continued momentum with our structural and volume-related cost optimization efforts. Over the last 3 quarters, the year-over-year decline has averaged over 10%. Additionally, core adjusted SG&A expenses, which exclude depreciation and amortization and incentives, have declined sequentially each quarter since Q1 of 2025. In the quarter, adjusted SG&A expenses decreased across all the segments as we continue to drive durable and sustainable efficiencies in our operating model, through technology enhancements and process efficiencies, including leveraging AI. We also continue seeing benefits from realignments within the ETM segment and integration of MRP and other acquisitions within SET. All of which are progressing well. For the year, we're projecting a net year-over-year decline of approximately $25 million in core SG&A expenses despite investments being made in technology to growth office in other areas. The structural and durable changes we are making will allow us to scale more efficiently as we pivot to growth, thus supporting our expected return to margin expansion in the second half of the year and beyond. Our reported loss per share was $0.17 for the quarter. On an adjusted basis, we delivered earnings per share of $0.03 compared to $0.39 in the prior year. For our adjusted results, in connection with our various efforts. We recognized $9.2 million of charges in the quarter. Integration, technology modernization, organizational realignment and restructuring drove $5.2 million of the charges. The balance is related to costs associated with our controlling shareholder change, executive transitions and initial steps we have taken in our real estate rationalization efforts. We expect to continue incurring various charges throughout 2026 and as we progress on our technology modernization journey, reduce our fixed cost structure, including real estate costs and expand upon our various optimization efforts. Adjusted EBITDA was $15.8 million, with an adjusted EBITDA margin of 1.5%, which was down 150 basis points versus the prior year quarter and in line with our expectations. The year-over-year decline improved 20 basis points relative to Q4. The revenue and gross profit declines drove the decrease versus the prior year with the significant SG&A reductions partially offsetting. At a segment level, similar to the gross profit rate, both ETM and SET improved their margins and year-over-year performance versus Q4, while Education saw pressure in light of the revenue and gross profit declines. We expect each BU to show sequential improvement in their adjusted SG&A margins in Q2 and on a year-over-year basis as we progress through the year. Moving to the balance sheet and cash flow. We utilized $25.4 million of cash from operations this quarter due to the timing of working capital requirements. Total available liquidity as of the end of the quarter was $252 million, comprising $26 million in cash and $226 million available on our credit facilities, providing us with ample capital allocation flexibility. Total borrowings of $130.5 million increased versus the prior year-end, reflecting the working capital needs during the quarter. Our debt-to-EBITDA leverage remained near 1 at the end of the fiscal quarter. During Q1, we maintained our quarterly dividend of $0.075 per share. We remain confident in Kelly's strategy and cash flow generation capabilities and are committed to opportunistically deploying capital in pursuit of attractive returns for shareholders. As we turn to the outlook for the remainder of 2026, our expectations are unchanged relative to the initial view we established in February. Our expectations assume no material change in the macroeconomic or industry dynamics in the coming quarters. For Q2, we expect to show year-over-year improvement relative to Q1 with an overall revenue decline of 7% to 9%, which includes at least 100 basis points of improvement in the underlying decline. For adjusted EBITDA margin, we expect at least 2.5% representing at least 100 basis points improvement relative to Q1 and a significant reduction in the year-over-year decline relative to the past 2 quarters. As we progress through the balance of the year, assuming no new material impacts, we expect to see relative improvement in our year-over-year performance, each successive quarter for both revenue and adjusted EBITDA margin. That should translate to modest revenue growth in the second half of the year in a roughly mid-single-digit decline on a full year basis. For adjusted EBITDA margin, we expect to see measurable year-over-year margin expansion in the second half of the year and a modest increase on a full year basis. We are excited about the momentum we are building and the opportunities that lie ahead in 2026. I'm grateful to all the Kelly team members for their unwavering commitment and resilience as we position the company for growth and enhance profitability over the long-term. I'll now turn the call back to Chris for his closing remarks. Chris Layden: Thank you, Troy. As we look ahead, we remain firmly committed to executing on the priorities we outlined in February. Rooted in the strategic pillars I shared shortly after joining Kelly, these priorities will continue to guide our actions and progress on the pathway toward an inflection point in our results. Growth remains our top priority. The growth office is taking shape and beginning to enhance how we go to market as 1 Kelly enterprise. With the leadership transition in SET complete and organic growth drivers gaining traction in each of our businesses. We have a clear path to improve top line performance as we move through the year. The strength of our pipeline and the steady stream of new wins coming online reinforce our confidence that our go-to-market approach is working, that our ability to convert opportunities is accelerating. On efficiency, we'll continue to align resources with demand while reengineering our cost base to drive structural efficiencies and enhance profitability. Our technology modernization initiative remains on track and our enterprise AI strategy continues to unlock productivity across the business. In our culture, the energy and alignment our team demonstrated at our recent Impact Leadership Summit reinforce what I've known since I joined Kelly. Our people are deeply committed to the success of our company, our clients and the talent we place. We'll continue to build on the momentum with an emphasis on customer centricity, visibility and accountability across everything that we do. We remain on track to deliver our commitments and achieve revenue growth and margin expansion in the second half of the year. There's much work ahead, but I'm confident in our plan, our team and our ability to execute. We look forward to capitalizing on the positive momentum we're building together and unlocking Kelly's full potential for the benefit of all of our stakeholders. Operator, you can now open the call to questions. Operator: [Operator Instructions] Our first question is going to come from the line of Marc Riddick with Sidoti. Marc Riddick: So I wanted to start with some of the cost improvements that you've been working on? And maybe you could talk a little bit about the -- the -- I believe it was $25 million in core SG&A reduction is expected. Maybe you could sort of touch a little bit about some of those efforts and maybe the timing that we might expect there? Chris Layden: Yes. Thanks, Marc. Look, I'm really pleased with the progress that you're seeing as we really look at driving expense reductions across the enterprise. This is one of the priorities that I outlined right as I joined Kelly, our focus on reengineering our cost base, matching resources with demand. And you're seeing us come through and really delivering on that commitment in the first quarter through that disciplined execution. We saw that in the 1.5% margin -- EBITDA margin as well, which was in line with our expectations. It improved 20 basis points year-over-year in comparison to our Q4 trajectory. And as you've heard us talk about and Troy reemphasize, we're going to continue to see that sequential incremental improvement on the EBITDA margin side as we go throughout the rest of the year. Maybe ask Troy, if you want to comment any further on the specific $25 million impact for the rest of the year. Troy Anderson: Yes, sure. Thanks for the question, Marc. We began taking actions, as Chris noted, throughout last year and really accelerated in the latter part of the year in response to some of the elevated revenue pressure but also just with the integration efforts that really with the acquisitions, the cutover to the new technology platform, where we consolidated all the acquisitions in December. So it's really the manifestation of some of the realignments that we did last year and then the integration efforts as we progress into this year and just continue looking at both durable structural changes as well as volume-related changes so that as we pivot to growth, we can scale much more efficiently and really drive that EBITDA margin expansion. Marc Riddick: Great. And then actually, I guess, maybe picking up on that part of the commentary there. Can you talk a little bit about the -- I guess, the timing and milestones that you're looking for, for the remainder of the year on the technology activity as well as, I guess, maybe timing of ERP that we might see going forward? Troy Anderson: Yes. We have another phase expected in the beginning of the fourth quarter of this year, where we'll migrate the platform now to sort of a broader enterprise platform. Right now, again, we have the acquisitions, MRP and the prior SET acquisitions all consolidated on the platform. But that was designed really for those smaller entities. And so we've made some foundational changes in the platform that, then we'll migrate all of those onto that, that now, we'll call it the enterprise platform. We're migrating our enterprise human capital management. So all of our FTEs will now be on the platform and we have some other smaller changes, migrating some customers on a prototype sample basis, just to go through some of the Kelly platform migrations and then -- and we're going to continue working on some of our solutions billing capabilities. So that's some of the more complex, right, non-staffing related capabilities and then work that we're going to be doing to bring the majority of the SET business onto the platform early in '27. Chris Layden: Yes. And Marc, just maybe 1 thing to add on our CRM. The most important near-term milestone in the second quarter which is on track, is the deployment of our HubSpot CRM. It's the consolidation of our CRMs across the business units. We're going to migrate all of our commercial sellers onto the CRM by mid-year. And now having the growth office and Pat's leadership to be able to go and drive that, it gives us the enterprise-wide pipeline visibility and allows us to go and do some of the go-to-market and growth objectives we've been outlining since we started. Marc Riddick: That's very helpful. And then last one for me, just maybe touch a little bit on the demand drivers that you're seeing from customers, particularly the technology demands. Maybe you could talk a little bit about sort of how that sort of pace through the quarter and maybe just what you're seeing overall as far as whether the data center impacts, AI impacts, things like that, what you're seeing now versus maybe the beginning of the year and sort of how that's been progressing? Chris Layden: Yes, sure. I mean, first, some of the near-term pressures you're seeing do reflect some difficulty in our year-over-year comps particularly within SET, as we look at 2025, which is why, as we've talked about across the business, we continue to make sure we've got resources aligned with demand and now under Joel's leadership, we'll be very focused on getting back to market growth. Now that being said, we're actually seeing some encouraging signals, including a net positive consultant count improvement in March. As we exited the quarter, we also are seeing that April is tracking quite similarly. So some positive momentum there. And we also saw some sequential improvement in some of the businesses that we mentioned in our prepared remarks, we're really pleased with the progress we're making in the telecom space. That is being driven by outsized demand in the data center space that we have differentiated capability and we are going to continue to see that demand play out in the market where we have customers across the supply chain who need total talent management solution and the technical solution to support the investment that's happening in the United States and around the world. Troy Anderson: Yes. Marc, this is Troy. I would just add, across the business, we saw improvement as we progressed through the quarter. Again, in Education, we had some weather-related impact that was largely concentrated in January. That was maybe half the decline in the quarter specific to that. And in an ETM, I commented in the prepared remarks about pivoting to growth in the underlying staffing business as we exited the quarter. So we feel good about the trends heading into Q2, which is reflected in the expectation there where we'll see our call for down 7% to 9% overall and at least 100 basis points improvement in the underlying decline. Operator: [Operator Instructions]. Our next question will come from the line of Kartik Mehta with Northcoast Research. Kartik Mehta: Maybe taking a bigger picture look at Kelly today versus prior downturns. Can you just discuss maybe how you think structurally, the company is different today than it was before? Maybe in terms of customer mix, customer relationships? And obviously, in terms of how the company has changed in terms of business mix as you've gone more into SET and higher-margin businesses? Chris Layden: Yes. Sure, Kartik. Good to have you with us. I guess, as I step back and think a little bit about what differentiates Kelly in the market and maybe how that's evolved, all of the steps we took over the last few years to get scale and to get capability in higher specialized areas were all the right steps to take. We have the scale and the breadth of capability to go and compete now in all of the end segments that we're in. We didn't have that a few years ago in areas like technology, as an example, in that we do. We also have a much more robust RPO offering through the -- through some of the inorganic activity with our acquisition of Sevenstep. And we have a leading total talent management solution with the combination of the strength of our MSP offering and RPO offering together. As I think though about what needs to differentiate, Kelly, going forward, it really is, it has to be our focus on our customer and making sure that we're bringing all of that capability to our customer. And we're doing that in large part through better execution, the operating framework that we outlined right away focusing on not only our go-to-market, but also the way that we show up more holistically as an enterprise, Kelly enterprise to all of our customers. The establishment in the first quarter of the growth office was the next step in that journey, driving the operating framework within account management, within how we sell and within how we deliver across these large customers is really important. That is an area of focus that we're going to continue to come back. And we're seeing the roots of that already playing out with some large customer wins, and that focus is going to continue to be what will differentiate Kelly, for many years to come. Kartik Mehta: Maybe Troy, just on that point, you've done a good job of taking cost out. The company seems more efficient. And I'm wondering how you think about the incremental earnings power when we get back to kind of -- to a growth in this industry? Troy Anderson: Yes. It's a good question. And that cost reduction from the earlier question, and I noted this in the prepared remarks, was net even of some investments that we're making in the growth office and some other areas. So you'll see some of that cost moderate -- declines moderate as we go through the year and pivot to growth, but we'll be able to scale more efficiently. Look, we're expecting to achieve our expectations for the year. Margins would be back above 3% in the back half of the year, which is where we were in the last half of '24 and the first half '25. And then, of course, as we continue to grow more, we would expect to expand further from there in a very efficient and effective way. Operator: [Operator Instructions] Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Kevin Steinke: Great. I wanted to just follow up on the discussion about the core SG&A expenses to make sure I'm understanding correctly, I guess with core SG&A, I believe you're equating that with the adjusted SG&A. And if it's down $25 million year-over-year in 2026, if I'm doing my math correctly, it appears that the adjusted SG&A expense on a quarterly basis will kind of flatten out for the rest of the year at about that $192 million level that you saw in the first quarter. Is that -- am I thinking about that correctly? Troy Anderson: Yes. So that's right, that's total -- yes, so $192 million, yes, roughly flatten out. And the reason why I went to this core, which is not something that we've talked about really previously was just, we had a lot of movement with incentives last year with the challenging environment we were operating in. Of course, there was a reduction to performance incentives throughout the year. And of course, this year, we're expecting to perform measurably better and we would expect to return to some of those incentives. So if you strip that out and really just focus on that underlying wages and facilities and some of those things that are more stable and some of those things that we're focused on from the durable and structural reduction perspective, that should flatten out as we progress through the year and we get the year-over-year benefit of the actions taken both last year and this year. And again, that's net of investments that we'll be making as we pivot to growth. Kevin Steinke: Okay. Right. How material is the change in incentive comp that you're expecting in 2026 versus 2025? Troy Anderson: It's probably $20 million to $25 million swing in total SG&A between the years, something in that ballpark. Again, it will be subject to ultimate performance. And of course, each business unit has different -- has incentives tied to their specific performance so you can get some variability in that just based on how individual business units perform. Kevin Steinke: Right. Okay. That makes sense. Yes. So just following up on that, then I think you commented that you expect gross margin improvement throughout the year, I believe. And what would be driving that? And it sounds like a lot of the adjusted EBITDA margin improvement that you're expecting would kind of hinge on the improved gross margins. Is that correct? Troy Anderson: Yes, that's generally correct. I mean, again, we'll continue driving -- I mean, with the -- as we pivot to growth, we'll get some lift there on a relatively, again, flattish expense base on a run rate basis and then with the gross margin improvement. A little bit of timing, I commented on that, just how some of the expenses we're seeing, how they'll play out this year versus how they played out last year particularly in the employee-related expenses, which we saw some pressure on exiting last year. And then we were again up 10 basis points quarter-over-quarter on gross margin despite some of that timing pressure. And then as we benefit from mix, again, as we grow, pivot to growth and some of the areas that we're expecting growth are the higher-margin areas that will benefit us as we get into the back half of the year. We are also, by the way, again, back to an earlier comment about just growth and where we're seeing opportunities. We are seeing a little bit of movement on perm fees. I mean it's still 1% of revenue, but we did see a little bit of benefit from that and particularly in SET in the first quarter. And of course, that helps gross margins and ultimately EBITDA as well. Kevin Steinke: Okay. Yes, that's helpful. Just a couple more. You called out lower student enrollment in the Education segment. Just wondering how meaningful that is or how broad based that is as you look across your various school district clients? Chris Layden: Yes. Thanks. Well, we -- first, I mean we remain really confident in this Education business. It has really significant differentiation. We're #1 in the market. And we continue to see really historic fill rates across the U.S. where we're serving 9,000 schools. Some of the impact, the convergence of factors that really came together are temporary in nature. And so we don't see these as structural as we mentioned in the prepared remarks, there were some weather-related closures. We also saw some budget constraints stemming from enrollment declines. And where that had the biggest impact for us was in Florida, we serve some of the largest school districts in the United States, some larger school districts in Florida. And that concentration was a onetime hit and that demand has now stabilized. And so where we're focused is the 70% of the market that is still not benefiting from an outsourced K-12 substitute management relationship with Kelly. And we are selling around the country. We're very -- as we hinted that, we feel very good about some of the large renewals that have been opened this year, and we're going to continue to sell more districts around the United States. And we're also going to continue focus on bringing in more therapy, more therapy services across that K-12 footprint, not only in Florida but around the United States. So we feel really good about where that business -- what the opportunity is in the Education business and where that business is going to be as we go throughout the rest of the year. Kevin Steinke: Okay. That's helpful commentary. And just lastly, I want to ask about the organic growth drivers. You mentioned organic growth drivers gaining traction. If you could provide a little more color on that? And then related to that. You mentioned the strength of the pipeline. And can you maybe talk about how broad-based that strength is across your various businesses? Chris Layden: Yes, sure. So first, the growth office has been moving quickly. And it's a foundational quarter for us as we begin to put in this integrated commercial operating framework. There is some work we've been doing aligning incentives, obviously, the commercial team, some of the account management teams, putting more rigor around our pipeline management and account planning is all in motion. We will move, as I mentioned earlier, all of our commercial teams to this new CRM platform. And that will give us the visibility that we need to continue to drive the business forward and make sure we've got resources in the right places, not only to go close deals, but also to go and make sure that we're delivering and providing excellent service. The strength in the pipeline continues -- we continue to see a lot of demand for customers looking for total talent management solutions, the robustness of our MSP pipeline is very strong right now. You saw that in the big oil and gas win we had in the quarter. And interestingly, that was not a price-based win. This was a differentiation around our tech stack, our reach and the differentiation of our core -- of our core offering. And we continue to see more and more large global customers coming to Kelly for those total talent management solutions. We hinted earlier our telecom and engineering pipelines continue to be very strong in SET, and we're going to likely continue to see that. We have an opportunity to continue to drive more pipe in our technology business. In our K-12 staffing pipeline continues to be very strong for net new -- net new school districts, and we've seen a nice jump in the amount of therapy opportunities that we're seeing tied to some of our larger school districts. So at a high level, that's how I'd characterize some of the momentum that we're seeing, and Pat in the growth office are going to continue to drive as we go through the remainder of the year. Kevin Steinke: Okay. That's good to hear. Thank you for the comments. Chris Layden: Thanks Kevin. Operator: [Operator Instructions] Our next question is going to come from the line of Joe Gomes with NOBLE Capital. Unknown Analyst: This is George [ Pres. ] I'm filling in for Joe Gomes this morning. So first question I have for you. What have the Hunt companies brought to the table so far? Chris Layden: Yes. Great. Well, as you would have seen a few weeks ago in our filing, we -- later today, we'll be in our annual meeting. The Board has nominated 11 individuals for election to the Board, 3 new members will be joining. Really excited about the extensive experience that the Board brings. Some of our new Board members are bringing to really help with our strategic execution, our long-term value creation, and I'm personally really excited to work with the new Board. As the Hunt's have shared, they continue to express their support of our management team, the strategic direction that we've outlined. And there's been no change, right, to our business strategy, our client relationships, our operational approach, and we're all focused on driving shareholder value. And that's -- and we're excited to bring in this new slate of directors later today. Unknown Analyst: All right. Great. And the early days of your new Chief Growth Officer, Pat McCall, how have they been? Chris Layden: You know really well. And we talked a little bit about this in terms of setting some of the foundation for the commercial operating framework. There's a lot of opportunity for Kelly to show up as one global enterprise. 1 Kelly enterprise to all of our large customers. And so we're putting in the foundation right now, stronger account planning, more rigorous pipeline management, all of the things that will contribute to our growth, and we're really excited about what this will mean to our future. Operator: Thank you. And I'm showing no further questions. And I would like to hand the conference back over to Chris Layden for closing remarks. Chris Layden: Great. Thank you all. We'll see you next quarter. Operator: This concludes today's teleconference. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Fredrik Ruden: Good morning. Welcome, everyone, to EG7's First Quarter Earnings Release. My name is Fredrik Ruden, Deputy CEO and CFO. And with me, I have my colleague and the company's CEO, Ji Ham. We will start with the presentation and then end with a Q&A session. And if you have any questions, please e-mail our Investor Relations e-mail address. By that, I hand it over to you, Ji. Ji Ham: Thanks, Fredrik. Good morning, everyone. Thank you for joining us this morning. And let's go to the first slide. We'll start off with our first quarter key performance figures here. For the first quarter, we came in with SEK 345 million of net revenues. That's down 24% in SE year-over-year, 13% organic in local currencies. Adjusted EBITDA came in at SEK 51 million, down 31% compared to last year, and EBITDA margin came in at 14.8%. That's 140 basis points lower than last year's numbers. Net profit-wise, we're returning to profitability with SEK 21 million of net profit compared to a loss of SEK 18.5 million last year and operating cash flow is strong with 5x the multiple compared to last year, coming in at close to SEK 90 million and EPS on a diluted basis of SEK 24 -- SEK 0.24. Next slide, please. So here, we showcase the net revenue bridge from last year to this year. So we wanted to demonstrate some of the key components that contributed to that decline. Underlying business is stable, but there's two major components that reduced our revenue for year-over-year. The first part of it being a significant FX impact. We had SEK 50 million of impact, about 11% of our net revenue contributing to our decline. And also Fireshine. So Fireshine, one of our publishing businesses last year in Q1 2025 had three physical titles that it released, which contributed SEK 96 million. That revenue is not present for this quarter as their revenue pipeline is more backloaded this quarter as well as this year. As a result, this missing revenue is also contributing to a revenue decline for this year, but that's timing related, not structural related. Otherwise, the organic growth for the other business units, including Daybreak, Big Blue Bubble as well as Piranha all showed positive growth, resulting in about SEK 40 million of growth year-over-year. When you account for all that, we end up at SEK 345 million of net revenue for Q1. But once again, two major components, one is FX. The other one is the backloaded revenue for Fireshine with timing that contributed to this decline versus any kind of structural issues with their business. Next slide, please. Some of the key strategic actions that we took this quarter. The first one is cost discipline. We continue to look at our business that may be underperforming, and we're actively looking to optimize in order to sustain our profitability in the long term. So we had restructuring with Petrol where we reduced about SEK 13 million of annual cost. Piranha, the same, we reduced about SEK 15 million of additional costs given their revenue level in order to get to sustainable profitability. Also contributing to a lower cost going forward would be reducing for remuneration by about SEK 4 million in total, about SEK 32 million of annualized run rate savings going forward. Additionally, we had a reduction in a liability to Daybreak earnout about USD 11 million that was paid in the first quarter. We had this tax receivables obligation that Daybreak earnout to the sellers that's been on the balance sheet for some time. We wanted to clean up our balance sheet. This should be resulting in about $1 million to $3 million of annual cash flow retention going forward for the next 12 years or so. And this generated about $16 million of profit onetime gain for our P&L as the -- what was booked on the balance sheet versus the purchase price resulted in this positive gain. And thirdly, we have the Proposed Cold Iron acquisition M&A. This is restructuring of the existing deal largely. We have a publishing deal in place where Daybreak is investing and publishing the new title that we disclosed earlier today, Aliens: Fireteam Elite set to release third quarter of this year. So we have the structuring change namely where we're shifting the publishing deal into an acquisition to really clean up this related party issue. So with that said, the structure remains largely the same where Daybreak would be fully recouping all the investment that it made, including any expenses that are going in for publishing prior to any kind of profit share that happens. There is an upfront payment that's going to be made along with this transaction, and that is tied primarily to the back catalog revenue that Cold Iron receives for the first title, Aliens: Fireteam Elite, and we expect that investment upfront purchase price to generate a positive yield with the remaining term for that particular title and continuing performance from that back catalog revenue going forward. Next slide, please. On the live-service side, we have continuing momentum here. We have 91% of our group net revenues coming from what we consider to be more predictable service revenues. So you have live-service revenue as well as back catalog revenue that contribute about SEK 314 million of net revenue for first quarter. And this declined only about 1.5%. So we have continuing very good sustainability of this revenue base and contributing to that with Daybreak, where we actually saw very strong growth year-over-year, 16.8% local currency growth from last year. And Daybreak represents 55% of group net revenues, which is significant. And this particular growth was driven largely by EverQuest, DC Universe Online as well as Palia from Daybreak's portfolio. Palia once again, doing well in terms of revenue growth. We saw 160% growth year-over-year, local currency. and it just celebrated 10 million lifetime players just last month. And we have a significant update coming up in next week, Royal Highlands expansion that's happening on May 12, which we expect to see another step-up in terms of user engagement growth going forward. Big Blue Bubble returned to growth again. So it's been about seven quarters since we saw year-over-year growth with Big Blue Bubble with My Singing Monsters strong performance in Q4 with the viral uptick again with their new influencer strategy, Clubbox, which has been doing really well, and they're continuing to see that sustained momentum around their business and the game. And that we saw a 3.6% increase in their net revenue year-over-year for Big Blue Bubble. Piranha also had a nice quarter, about 26% of local currency-based net revenue growth year-over-year. MechWarrior 5: Mercenaries DLC 8 also coming up later this month and EBITDA margin at 39% for Q1, which was a nice profitability for them. Next slide, please. So 2026 is shaping up to be one of our most robust pipeline in terms of our product slate in our history. We have Far, Far West from Fireshine that just released last week on April 28 as early access, 96% positive -- overwhelmingly positive rating on Steam as an early access title, which is amazing, together with that they shipped 700,000 units in the first week. We're seeing a nice momentum with this title. It's early access. It's only on PC, but we expect this game to continue to grow and sustain not only the sales, but being able to eventually bring this product out to multiple platforms, including consoles. We're very excited for that prospect going forward. So in Q2, we additionally have Palia: Royal Highlands, as we talked about from Daybreak, that's coming out next week, and we have MechWarrior 5: Mercenaries DLC 8 coming out later in May. And additionally, going forward, we have Fireshine, another title, Denshattack! mid-June time frame, which has a nice following on the wish list as well as. We're excited for that title also. Q3, the biggest release will be Aliens: Fireteam Elite 2, which we disclosed earlier today. And then we have an announcement with the reveal of the trailer that's going to be happening in about 8 hours tomorrow morning or tomorrow morning, California time. So we're very excited to finally bring this game, reveal gameplay and the trailer, et cetera. We're partnering with IGN who have an exclusive announcement relating to this title for the first 24 hours before we take it global. And in July, we have EverQuest Legends that's coming out from Daybreak as a more casual, more approachable type of gameplay that EverQuest team is being able to bring, which we're very excited about, and we're targeting that release for July. And we have My Singing Monsters anniversary, more collaborations with influencers, Clubbox strategy that we're going to be leveraging there as well to continue to drive engagement and user growth as well. And Fireshine has a couple of additional products that are coming out in Q3. And for the remainder of 2026, we have Fireshines with unannounced titles, six of them -- and we had live-service updates, expansion tax, et cetera, that we're very excited about that we continue to do year after year. So when you look at this overall slate for 2026, it is our biggest slate in EG7's history. We're very excited to be executing against this for the remainder of the year. Next slide, please. Fredrik, over to you. Fredrik Ruden: Thank you, Yi. In the first quarter, net -- sorry, next slide, please. In the first quarter, net revenue was SEK 345 million, down from SEK 455 million, representing a 13% FX-neutral decline. As I already mentioned, Daybreak, Big Blue Bubble, Piranha delivered growth in local currencies, but the unfavorable comparison is attributable to product release timing differences in Fireshine. The headwind currency effect in the quarter was SEK 50 million. LTM net revenue was SEK 1.5 billion and adjusted EBITDA margin was 15%. Both these KPIs are lower than historic average. Given our exciting release pipeline and cost optimization measures, the company is well positioned for solid potential growth in both top and bottom lines for the remainder of the year. Next slide, please. More predictable revenue comes from the live-service and back-catalog titles. Revenue from this portfolio was SEK 314 million. Of the last 12 months, net revenue amounted to SEK 1.5 billion, of which SEK 1.3 billion derives from the more predictable revenue base. This portfolio has delivered a stable, highly predictable cash generation for many years. In 2025, 69% of this portfolio was Big Blue Bubble and Daybreak, excluding Palia, the 2 most cash-generative businesses who generated 22% EBITDA margin in the full year 2025. And you can assume that to have grown a little bit in local currencies given the organic growth that we have in those businesses. Next slide, please. Daybreak is the largest contributor to the net revenue, generating SEK 190 million. This is flat in Swedish krona compared with last year, but the strong 17% organic growth in local currencies. The underlying operational growth in Q1 comes from 122% growth in Palia. And as I mentioned, the growth in local currencies was 160%, which is an increase from the 70% that we had second half of 2025 compared to 2024, which was the first period after we consolidated Singularity 6 where Palia is included. And it was also a strong performance from both DC Universe and EverQuest. The adjusted EBITDA came in at SEK 30 million, corresponding to 16% EBITDA margin. Big Blue Bubble delivered net revenue of SEK 61 million, corresponding to a 4% organic growth in local currency. After implementing a new influencer strategy, we had an activity peak in December and a more stable performance throughout Q1. This gave an adjusted EBITDA at SEK 30 million, which means first time in the past 12 months back at Daybreak's level of contribution. Next slide, please. As already mentioned, Fireshine had a soft quarter and challenging comparable figures, which is explained by release timing effects. Net revenue was SEK 45 million and the comparable figure last year was SEK 145 million, of which SEK 96 million came from three specific physical releases: Sniper Elite, The First Berserker and Atomfall. Given the low level of revenue, Fireshine did not reach profitability this quarter, but the start of Q2 is promising following the successful digital release of Far Far West, which over the first weekend reached over 500,000 units and now is up at 700,000. Petrol generated SEK 28 million in net revenue with yet another negative EBITDA. Based on this, we have executed a cost optimization restructuring in that business unit with the aim to deliver profitability from Q2 and on. Next slide, please. Piranha delivered a net revenue of SEK 21 million, corresponding to 12% growth of 12.5%. Adjusted EBITDA was SEK 8 million, corresponding to a 39% margin, up from 17% Q1 last year. And to strengthen Piranha 's long-term profitability further, cost-saving measures were executed in the beginning of the year, aiming to save approximately SEK 50 million on an annual basis would start Q2 2026. Next slide, please. Our financial situation remains solid. Operational cash flow increased to SEK 89 million from SEK 80 million last year. And the main difference is attributable to the increase is attributable to timing effects of collecting sales money from quarters with high sales. And Fireshine had a good sales in Q1 2025, as mentioned, but the cash did not flow through until Q2. We see an similar adverse similar effect, but smaller this year following the release of Jurassic in December 2025. We invested SEK 174 million, where SEK 101 million is the accelerated settlement of the earn-out to the seller of Daybreak and SEK 48 million represents investments in Palia and Cold Iron. The level of investment in the more predictable revenue base remained low. By accelerating the settlement of the earnout to the sellers of Daybreak to improve the next 12 years cash generation by USD 1 million to USD 3 million per year, we also drained the cash to the level where we reached a net debt of SEK 55 million. The cash [ box ] was SEK 293 million. And together with the unutilized rolling credit facility of SEK 100 million and a bond frame of SEK 1 billion, EG7 has plenty of financial strength going forward. And that's all from the financial discussion. So over to you, Ji. Ji Ham: All right. Let's go to the next slide, the last slide, key takeaways. All right. To summarize. So I think the first thing is that our underlying business continues to be very resilient. 91% of our net revenues is what we consider to be very predictable with live-service games and also that catalog sales and the decline of that year-over-year slight at 1.5% and some of the decline in terms of our net revenues where we had 24% decline in [ SEK ] is clearly explained by really two components here which is the FX related as well as Fireshine release slate more backloaded this year compared to last year. So we feel very good about our underlying business with nice foundation of our live-service games. Momentum is strong. Secondly, with our live-service games where Daybreak showed very nice growth for the quarter, close to 70%. Palia, one of the newer games that is continuing to build momentum around new players with 160% growth year-over-year. And Big Blue Bubble was back to growth, and we're seeing those trends that could be sustainable on the local currency organically growing, which we feel very good about for 2026 and beyond. And we continue to evaluate our business in a very disciplined way operationally, continuing to make sure that a lot of the business units that we have are operating well and maintaining sustained profitability and cleaning up balance sheet and simplifying things where it makes sense, earn-out where they break being settled, which should be increasing our cash flow generation for the next 12 years by $1 million to $3 million a year. And Q2 is off to a great start, Far Far West, really kicking it off with the released last week, 700,000 units 1 week is an amazing start. So we're very excited for this title and what it could achieve going forward. And Palia up next week with this big annual expansion coming out. And following that, we have multiple additional titles that are releasing throughout the year, including Aliens: Fireteam Elite 2, which we're very glad to finally reveal coming in late Q3 alongside a number of the other titles like EverQuest Legends that we're very excited for. So 2026 is going to be one of our most the strongest pipeline in our history and combining that with the additional, I would say, simplification of the overall structure with Cold Iron, which used to be owned by Daybreak, -- now we get to bring it back. And I think the deal structure that we're proposing is quite disciplined and clean in terms of maintaining the economics where EG7 Daybreak does have that first recoup priority over the investment that is making. So that's not changing and any funding upfront that we're making for the transaction. Relatively small, that is meant to really purchase the back catalog revenue from the first title, which we think would also generate a positive return for that investment here. So overall, net revenue top line number was down. But quarterly, we feel pretty good about the Q1 performance and looking forward to Q2 and beyond for the rest of the year. So that's the end of the presentation, and then we'll switch over to Q&A. Fredrik Ruden: Yes. So here is the question from [ Ilya ]. When will the Steam page for Aliens: Fireteam Elite 2 go live to enable wish list tracking? Ji Ham: It should be happening along with the games trailer release, which is happening at 8:30 a.m. Pacific Time or I guess -- yes, tomorrow morning, Pacific Time. So it's happening in less than 8 hours. Fredrik Ruden: Yes. And also a question from Ilya about marketing. When will the active marketing campaign begin for Aliens: Fireteam Elite 2 not just press announcements on outlets like IGN, but paid user acquisition, trailers, [ influencer ] activations and platform features. Ji Ham: Yes. So I mean that there's a full go-to-market plan relating to the games release. So tomorrow morning, once again, Pacific Time, we're revealing the trailer exclusive with IGN for 24 hours. And after that, it's going to be going broad with some media spend behind it in order to push and broaden the awareness relating to the titles announcement. And over the next number of months, we will continue to invest in awareness and marketing that builds up to the eventual release in Q3. So more to come on that front. But yes, we have a robust marketing plan going forward to support its release. Fredrik Ruden: Also one question from Ilya about the Cold Iron acquisition rationale. since EG7 hold the economic rights to Aliens. So what is being purchased with additional consideration? Ji Ham: Yes. So once again, in terms of the economics of the deal, there's really two components to it. One is the upfront $3 million payment. And as I mentioned before, that's largely tied to the acquisition of the back catalog revenue from the first title that Cold Iron continues to monetize. So that's the first component. Second component is related to really this title and the studio itself. The economics that we have for the transaction itself is very much the same as what the publishing deal is, but we get to bring it in. This related party situation with this particular studio and the game has been, I think, a confusion for the market, investor base, et cetera. But without changing the economics, being able to bring this in where Daybreak EG7 would be owning the studio, being able to have full control over this project on top of that, bringing in the talent to be able to utilize a lot of the technology, a lot of the investment that went into building Aliens: Fireteam Elite, the first game as well as the second game, that expertise around third-person action shooter, being able to bring that in-house for other types of games in this big genre that we could be investing and making going forward is also very attractive. So I think from an overall structure and overall economics perspective, not a lot of change other than really bringing this in the -- under the same umbrella as it used to be, where Cold Iron used to be owned by Daybreak and being able to also price out the transaction in a way that upfront consideration is meant to generate a positive return against the back catalog revenues that Aliens: Fireteam Elite continues to generate, we think it's structured quite nicely for the benefit of all the shareholders and ultimately, with potential upside from what we could do with Cold Iron going forward beyond just the Aliens: Fireteam Elite 2. Fredrik Ruden: I can take this one. What explains the high other revenue in Q1? So normally, we have items that is not related specifically to selling games that are accounted for in other revenue. And in this quarter, specifically, it's -- the amount is close to SEK 20 million or around SEK 20 million, which is higher than it normally is. And the explanation for that increase in Q1 is the accelerated earnout to the sellers of Daybreak because we had a book value of that liability, which was approximately SEK 60 million higher than what we paid. So we have a profit of SEK 60 million, and that is what is included in other revenue. Here is one question from. Could you elaborate a little on Fireshine 6 unannounced games? Is it digital only? Ji Ham: So the games that are unannounced are smaller digital games that they will be disclosing over the number of months going forward, yes. But we can't provide much more information on those at this time. Fredrik Ruden: So here is some questions from Hjalmar at Redeye. What potential do you see for Far Far West from here? Is the strong sales trend continuing? Do you expect it to be a game with a long tail revenue? And how large is the potential audience? Ji Ham: Yes. I mean it's difficult to say ultimately what the ceiling is for the particular title, but I think certain data points that we already have in the first week are very, very encouraging. So prior to the game's release, you had over 700,000 wish list. On top of that, in the first week, we sold 700,000 units, and it's a 96% overwhelmingly positive rating on Steam, which is highly unusual for an early access title. So I think the combination of how well it's received by the community, which speaks to the quality and the type of game that it is, it's a Co-Op Shooter, which also has elements of what made Deep Rock Galactics of the world really popular. So the overall combination that makes this game not only high quality but unique in terms of its gameplay as well as having certain tried and true gameplay elements that a lot of the community already very much enjoy from other popular games. The overall combination has resulted in this great success. And we're really excited for it. It's only on PC so far on Steam. It's only been a week. We think there's a nice runway for this popular -- this title to continue to generate popularity and continue to attract users as a Co-Op game that there should be also word of mouth as people talk to their friends about picking up and play this game. So a lot more to come. I think very exciting once again, just the first week, but we do have to see how the trend unfolds from here on out. But a lot of the data points point to a sustained success going forward, not only on PC, but being able to go multi-platform. Fredrik Ruden: All right. And another question for Hjalmar is what we can expect financially from Far Far West. Should we expect profitability in line with the historical digital publishing levels? And the answer to that is yes. And obviously, digital releases, they are also scalable. So depending on the success and the number of units, it could be higher margins, but it's -- you can assume same as historical profitability more or less. Here is a question also from Hjalmar. What should we expect for EverQuest Legends? Any notable impact on financials in Q3? Ji Ham: Yes. I mean we don't know. We expect that it's something obviously brand new that we haven't tried. It is a more casual version of EverQuest, also very much solo, meaning you don't have to play and you don't have to have a lot of other people playing with you, which is very different from EverQuest. So we do think that it sits next to EverQuest live currently, where that's the traditional tried and true. We know exactly how that game plays and so many people love and continue to play the game. But we also wanted to make this EverQuest Legends available to more casual players, players that do not have the time commitment required to play the EverQuest live as it is today. So we're really extending the audience where we get to hopefully recapture some of the labs players that may have left because they just don't have the time and they can't get a lot of their friends to pick up the game and play together. So now or you could play it on your own. So we're very excited for that, and there's nice momentum around the beta, lots of people, a lot of community activity and support on [ Discord ]. So we're seeing a nice momentum around it. So we're looking forward to bringing this out to the community in the next couple of months. But as to ultimately how we could do, we're optimistic. We're not investing heavily into it. It's a relatively small investment. So we expect that this is going to be a positive outcome. But as to how big and how long the runway is, I think that's something that we need to see before we could provide any further, I would say, guidance around it. Fredrik Ruden: All right. Another question from Hjalmar. Do you see potential growth in the My Singing Monster revenue from now? Based on the new initiatives? Or is it more likely to remain stable? Ji Ham: We're excited for its return to growth, right? So Q1, we're seeing positive year-over-year growth for the first time in seven quarters. So it's been some time. We saw that huge uptick back in 2022, 2023 and now being able to get back to growth again from last year with the successful rollout of this Clubbox strategy that really took a hold up sort of their future going forward in terms of what they want to do starting in Q4 last year. We had [ Pain ] also collaboration that just happened last week, and we're seeing nice response from that. And I think Big Blue Bubble has been quite successful being able to attract influencers that really like the game and being able to work with them to bring out fresh and attractive content for a lot of the audience where we get to collaborate with influencers, a broader audience as well. So there's more collaborations to come. And I think that Blue Bubble feels very good about the momentum they have and the expectation is that there's a shot being able to show additional growth going forward. Fredrik Ruden: There's a question how we should market [indiscernible], but it's an angle more to do we get any support from the IP owner with regards to marketing? Ji Ham: Yes. I mean, look, I think in terms of how a lot of these work would be -- you're working in partnership with the franchise owner. And the benefit of working on titles with well-known IP like in Aliens IP is that Disney and 20th Century, they continue to invest, right? So whether it's a TV show or movies or et cetera, even other video game titles, we do think that all boats rise as Disney and 20th Century continuing to invest, which they have been for the last couple of years. So we're looking forward to that type of support. And of course, from Disney's perspective, they want this to be successful, and they're going to be pushing on their side as well to get the awareness up and for us to be able to collaborate partner really pushing the game and get the awareness out and getting this in players' hands for them to really enjoy. Fredrik Ruden: How firm is the release window in late Q3? Could it also be Q4? Ji Ham: We have a very high degree of confidence at this point, not to say that it couldn't slip because this is game development. It could always happen, but at the same time, based on our current trajectory, we're feeling quite confident. Fredrik Ruden: What are your expectations for investments after the release of Aliens: Fireteam Elite 2? Ji Ham: Yes, I think a combination, right? So we continue to look at various opportunities, both on the M&A side as organic investments in our projects. So we do think that market has interesting opportunities. We haven't announced anything. There's nothing, I would say, that's very actionable at the moment, but we're looking at a lot of transactions. So it's going to be the same strategy, a combination of looking for good value with significant upside that those types of deals we like to do in the marketplace together with that, looking for opportunities to invest in our own projects. EverQuest Legend, smaller investment, but that's our own project or it's our own IP that we get to grow. We see upside from a number of Daybreak existing portfolio of titles that are older. But nonetheless, we're demonstrating that there's still growth left to do because our view is that ultimately, no one else will make another DC Universe online. No one else will ever make another Lord of Rings online, meaning these are one-of-a-kind unique properties that Daybreak EG7 currently control and continue to service, and we want to be able to continue to expand. So those types of investments are what we continue to consider. Palia, we're very happy about where it's trending and more to come in terms of where else we're going to be specifically investing in. but our strategy will largely remain very similar. Fireshine continuing to invest in cool products like Far Far West. So we like the opportunities that are out there. And I think a number of our business units are doing a great job investing smartly and yielding positive returns with those investments being made. Fredrik Ruden: I think we have a couple of more questions. How big is the Palia: Royal Highlands expansion? Do you expect to increase the player count? And what is the potential for incremental monetization following that update? Ji Ham: Yes. I mean I think the expectation is that with this particular update, just as we experienced last year with the big expansion update, -- we'll see a nice influx of new players and then also bringing back reactivating a lot of the lapsed players. So we expect to see a nice uptick in our user base and engagement. And there are new content and new features that are rolling out with this update next week that is meant to really provide additional ways for players to be able to engage and enjoy the game. But alongside that, there will be additional options for people to also spend. So there's mounts coming and there's a number of other very cool gameplay-related enhancements that I think players will really enjoy. And combination of all that is what -- what we're looking for, not only an increased overall active user base, but also monetization that goes alongside that. Fredrik Ruden: What should we expect from Petrol going forward? Will it be profitable following the latest cost optimization? Ji Ham: That's the expectation. I think, unfortunately, we've been saying this for the last few years. But at the same time, gaming market on the sort of lower to middle sort of tier has been more challenged versus the big guys, right? So on the marketing side, it tends to be where a lot of the gaming spend first gets pulled back. But nonetheless, we're seeing positive signs. They're continuing to lock up additional contracts with some of the big publishers. They tend to focus heavily on AAA guys, whether it's Activision or Take-Twos of the world. And they're seeing good results there. So in terms of revenue uptick, additional opportunities on contracts, et cetera, those are becoming more firm and growing. And along with that cost cut that we just recently implemented, we expect them to be at a profitable level and then be able to sustain that going forward. Fredrik Ruden: Thank you, Ji. I think by that, we close the Q&A session. And if you have any further questions, you can continue to e-mail the Investor Relations e-mail address, and then we will answer you in due time. And with that, I think this presentation is over. So we thank you all for listening in. Ji Ham: Great. Thank you, everyone.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Datadog Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Yuka Broderick, Senior Vice President of Investor Relations. Please go ahead. Yuka Broderick: Thank you, Lisa. Good morning, and thank you all for joining us to review Datadog's first quarter 2026 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's Co-Founder and CEO; and David Obstler, Datadog's CFO. During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the second quarter and the fiscal year 2026 and related notes and assumptions, our product capabilities and our ability to capitalize on market opportunities. The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements and similar indications of future expectations. These statements reflect our views today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31, 2025. Additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ending March 31, 2026, and other filings with the SEC. This information is also available on the Investor Relations section of our website, along with a replay of this call. We will discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors.data.hq.com. With that, I'd like to turn the call over to Olivier. Olivier Pomel: Thanks, Yuka and thank you all for joining us to go over a very strong start to 2026. Let me begin with this quarter's business drivers. I'm very pleased to say that our teams executed very well and delivered revenue growth of 32% year-over-year, accelerating from 29% last quarter and 25% in the year ago quarter. We showed broad-based acceleration of revenue growth across cohorts, including both our AI and non-AI customers. Our AI native customers cohort continue to grow and diversify rapidly both in the number of customers we serve and the scale of those customers. In this quarter, including new land deals with 2 of the world's biggest AI research teams, helping them improve and optimize their training workflows. I'll talk more about that in a bit. Even more impressive was the growth in our non-AI customers. non-AI customer revenue growth accelerated again this quarter to mid-20% year-over-year up from 23% last quarter and 19% in the year ago quarter. We think this is a sign of strong continued cloud migration, greater adoption of our products, and customers have all kinds accelerating their use of AI. Finally, churn has remained low, with gross revenue retention stable in the mid- to high 90s, highlighting the mission-critical nature of our platform for our customers. Regarding our Q1 financial performance and key metrics. Revenue was $9.1 billion, an increase of 32% year-over-year and above the high end of our guidance range. We ended Q1 with about 33,200 customers from about $3,500 a year ago. We also ended with about 4,550 customers with an ARR of $100,000 or more, up from about $3,770 a year ago. These customers generated about 90% of our ARR. And we generated free cash flow of $289 million with a free cash flow margin of 29%. Turning to product adoption. Our platform strategy continues to resonate in the market. For example, 56% of our customers now use for or more products, up from 51% a year ago. 35% of our customers used 6 or more products, up from 28% a year ago, and 20% of our customers use 8 or more products, up from 13% a year ago. So we are learning more customers and delivering value across more products. And our business continues to grow. Our total ARR now exceeds $4 billion, and our quarterly revenue exceeded $1 billion for the first time. This is a big achievement for all of us at Datadog and is a product of years of investment in building, innovating for our customers. But we are still just getting started. Of our 26 products, 5 are over $100 million in ARR and another 3 are between $50 million and $100 million ARR. We're working hard to build and deliver further growth in those products. And this leaves 18 other products, which are earlier in their life cycles. We believe each has a potential to grow to more than $100 million over time. Moving on to R&D. Our engineers enabled with the latest AI coding tools are building rapidly to help our customers confidently and securely deploy their applications. So let me speak to a few of our product launches this quarter. Let's start with AI. As a reminder, we're talking about our AI efforts in 2 buckets: AI for Datadog and Datadog for AI. So first, AI for Datadog. These are AI products and capabilities that make the Datadog platform better and more useful for our customers. In March, we launched our MCP server for general availability. With MCP Server, developers access live production data to debug their applications directly in their AI coding agent or IDE. We delivered this AI security agent, which autonomously triages Datadog Cloud SIEM signals, conduct in-depth investigations of potential threats, and delivers actionable recommendations. We've seen Bits AI security agent reduce investigations that could take hours to as little as 30 seconds. We also shipped Bit Assistant now in Preview, which helps customers search and act across Datadog using natural language [indiscernible] . Moving on to Datadog for AI. This includes Datadog capabilities that deliver end-to-end Observability and security across the AI stack. We launched GPU monitoring, enabling teams to understand GPU fleet utilization, workload efficiency, thermal and power behavior and interconnect performance. This drives higher GPU ROI and operational reliability. Our customers continue to move forward with their AI activities, and we can see that in their usage of the data platform. We now have over 6,500 customers sending data for 1 or more of AI integrations. Though this is only 20% of total customers, they represent about 80% of our ARR. And our customers usage of AI within that platform continues to grow rapidly. SRE agent investigations have more than doubled from December to March. The number of spans sent to our LLM Obeservability product nearly tripled quarter-over-quarter. The number of Datadog MCP server to calls, quadrupled quarter-over-quarter and the number of beef assistant messages increased by a factor of 1 in that period. While we are aggressively building weed, we also continue to expand the Datadog platform to deliver against our customers' increasingly complex needs to speak to a few of these efforts. Last month, we launched experiments for general availability. Experiments work hand-in-hand with our feature flagging product and combine best-in-class statistical methods with real time obeservability guardrail among alternatives so companies can test for impact, choose among alterbatives quickly and ship with confidence. In addition, our customers now benefit from APM recommendations by analyzing telemetry data from application performance monitoring, reader monitoring, profiler and database monitoring recommendations, APM automatically identified performance and reliability issues and most importantly, explain H2. And we announced our plans to launch our next data center in the U.K. We see a large opportunity to serve our British customers as cloud adoption accelerates in regulated industries. Last but not least, we are pleased to have received federal high certification from the U.S. federal government. With this certification, we can now move forward with federal agency customers that require FedRAMP High to handle sensitive workloads. Meanwhile, we continue to expand our product offerings, go-to-market teams and channel partnerships for public sector customers, both in the U.S. and internationally. So our teams were hard at work again. and we're looking forward to sharing many new products and future announcements at our DASH conference on June 9 and 10 in New York City. Now let's move on to sales and marketing and highlight some of the deals we closed this quarter. First, we landed 2 large deals, a 7 figure and an 8-figure annualized deals with the AI research divisions at 2 of the world's largest technology companies. These organizations are building and training the most advanced AI models in the world. It is critical for them to reduce engineering friction and increase selling velocity. But fragmented internal and protocol that it's harder to identify and solve issues and reduce engineering and research productivity. By using Datadog, both companies are accelerating their past of innovation on their hyperscale AI training workload. And this includes optimizing their workflows using GPU monitoring on large power GPU grades. Next, we signed a 7-figure annualized expansion for an 8-figure annualized deal with a leading online recruiting platform. This customer is centralizing on Datadog to reduce complexity, drive developer velocity and improve efficiency. With this expansion, they will replace a stand-alone tool with Datadog LLM Observability to correlate LLM signals with APM and user experience data. This customer will grow to 16 Datadog products, including Datadog and CP server. Next, we signed a 7-figure annualized expansion for an 8-figure annualized deal with a Fortune 500 bank. With this expansion, this customer will migrate the remaining log data into Datadog, fully replacing their legacy log vendor. Most notably, our Flex logs give them granular control over costs while meeting strict compliance requirements. This customer uses 10 Datadog products, including Bits AI [indiscernible] to accelerate incident response with AI. Next, we signed a 7-figure analyzed expansion with a leading global hedge fund. This customer operates thousands of on-prem host and network devices. At that scale, their open source monitoring stack has become operationally and sustainable impacting portfolio managers and investment analysts. With this expansion, they will replace their entire on-prem Obeservability layer with Datadog infrastructure monitoring and network device monitoring, and will have unified visibility across their cloud and on-prem environment. This customer will expand to 11 Datadog products. Next, we landed a 6-figure annualized deal with a Fortune 500 insurance company. This company's fragmented Obeservability stack led to long outages with incident supported first by their customers instead of their tooling. By using Datadog and consolidating 3 legacy APM tools, they expect to move from reactive responses to proactive incident detection. They will adopt 10 Datadog products to start, including all 3 pillars in LLM adorability. Next, we signed a 7-year annualized expansion with one of the world's largest travel groups in APAC. This customer was using Datadog on one business unit, but in 2 others, they were juggling multiple tools and lacked actionable insights. By consolidating 6 legacy open source and cloud monitoring tools, the customers save money and improve platform resiliency and performance. This multiyear commitment positions Datadog's strategic observative provider. And finally, we landed a 6-figure annualized deal with a leading Latin American fintech company. This customer serves tens of millions users across critical financial flows. Their rapid growth outpaced their fragmented front-end monitoring setup and outages exposed them to financial, operational and reputational risks. By adopting our digital experience monitoring suite including RUM, Synthetics and product analytics, they now have full visibility of our user activity with the cost control, they also previously act. This customer will start with 5 Datadog products. And that's it for our wins. Congratulations again to our entire go-to-market organization for upgrade Q1. Before I turn it over to David for a financial review, I want to say a few words on our longer-term outlook. We are pleased with the way we started 2026 as we support our customers inflection in AI usage and application development and as they lean into our AI innovations, including Bits AI SRE Agent, Bits AI Security analyst Bits Assistant, Datadog IT server, GPU monitoring and many more. There is no change to our overall view that digital transformation and cloud migration are long-term secular growth drivers for our business. But we now have an additional secular growth driver with AI as we help our customers deliver more value with this transformative new technology. Now more than ever, we feel ideally positioned to help customers of every size and every industry as well as all types of users, whether humans or AI agents so they can transform, innovate and drive value through AI and cloud adoption. And with that, I will turn it over to our CFO, David. David Obstler: Thanks, Olivier. This was a very strong quarter for Datadog. Our Q1 revenue was $1.01 billion, up 32% year-over-year. Our 6% quarter-over-quarter revenue growth is the highest for Q1 and since 2022. And our $53 million quarter-over-quarter revenue added is the highest ever for Q1. That included the strongest quarter of sequential usage growth from existing customers since the first quarter of 2022. We also delivered an all-time record for sequential ARR added to the quarter. ARR growth accelerated in each month of Q1, and we see a continuation of these healthy growth trends in April. We also achieved strong new logo bookings. New logo annualized bookings set a new all-time record by a significant margin and more than doubled versus a year ago quarter. These included wins in observability and included some of our newer products like security, data observability and Flex logs. And our new logo average land size also set a record and more than doubled year-over-year as we continue to land larger deals. Revenue growth accelerated with our broad base of customers, excluding the AI natives to mid-20s percent year-over-year, up from 23% last quarter and 19% in the year ago quarter. We saw robust growth across our customer base with broad-based strength across customer size, spending bands and industries. Meanwhile, our AI native customer growth continues to significantly outpace the rest of the business. This group continues to diversify and grow including 22 customers spending more than $1 million annually, and five, spending more than $10 million annually. This group includes the leading companies in foundational models, cogen tools and vertical-specific AI solutions. Next, regarding our retention metrics. Our trailing 12-month net revenue retention percentage was in the low 120%, up from about 120 last quarter and our trailing 12-month gross retention percentage remains in the mid- to high 90s. Now moving on to our financial results. Billings were $1.03 billion, up 37% year-over-year and remaining performance obligations, or RPO, was $3.48 billion, up 51% year-over-year, with current RPO growing in the mid-40s percent year-over-year. RPO duration increased year-over-year as the mix of multiyear deals increased in Q1. As a reminder, we continue to believe revenue is a better indicator of our business trends than billings and RPO given their variability. Now let's review some of the key income statement results. Unless otherwise noted, all metrics are non-GAAP, we have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. First, Q1 gross profit was $807 million, with a gross margin of 80.2%. This compares to a gross margin of 81.4% last quarter and 80.3% in the year ago quarter. As we've discussed in the past, our gross margin varies from quarter-to-quarter with investments into innovations for our customers, offset by efficiency efforts. Our Q1 OpEx grew 31% year-over-year versus 29% last quarter and 29% in the year ago quarter. As a reminder, we continue to grow our investments to pursue our long-term growth opportunities, and this OpEx growth is an indication of our execution of our hiring plans. Q1 operating income was $223 million or a 22% operating margin compared to 24% last quarter, and 22% in the year ago quarter. Turning to the balance sheet and cash flow statements. We ended the quarter with $4.8 billion in cash, cash equivalents and marketable securities. Our cash flow from operations was $335 million in the quarter. After taking into consideration capital expenditures and capitalized software, free cash flow was $289 million and free cash flow margin was 29%. And now for our outlook for the second quarter and for the fiscal year 2026. First, our guidance philosophy overall remains unchanged. As a reminder, we base our guidance on trends observed in recent months, and apply conservatism on these growth trends. In addition, as with last quarter, we are applying a higher degree of conservatism to our largest customer. So for the second quarter, we expect revenues to be in the range of $1.07 billion to $1.08 billion, which represents a 29% to 31% year-over-year growth. This guidance implies sequential revenue growth of $64 million to $74 million or 6% to 7%, due to the strong growth of revenue in Q1 and into April. Non-GAAP operating income is expected to be in the range of $225 million to $235 million, which implies an operating margin of 21% to 22%. As a reminder, in Q2, we will be holding our DASH user conference which we estimate to cost about $15 million in which we have reflected in our operating income guidance. Non-GAAP net income per share is expected to be $0.57 to $0.59 per share based on approximately 369 million weighted average diluted shares outstanding. And for fiscal 2026, we expect revenues to be in the range of $4.3 billion to $4.34 billion, which represents 25% to 27% year-over-year growth. Non-GAAP operating income is expected to be in the range of $940 million to $980 million, which implies an operating margin of 22% to 23%. And non-GAAP net income per share is expected to be in the range of $2.36 to $2.44 -- $2.36 to $2.44 per share based on approximately 372 million weighted average diluted shares outstanding. Finally, some additional notes on the guidance. We expect net interest and other income for fiscal 2026 to be approximately $170 million. We expect cash taxes for 2026 to be approximately $30 million to $40 million. We continue to apply a 21% non-GAAP tax rate for 2026 and going forward. And we expect capital expenditures and capitalized software together to be 4% to 5% of revenue in fiscal 2026. To summarize, we are very pleased with our execution in Q1. We are well positioned to help our existing and prospective customers with their cloud migration, digital transformation, and AI adoption journeys. And I want to thank Datadog's worldwide for their efforts. With that, we'll open the call for questions. Operator, let's begin the Q&A. Thanks. Operator: [Operator Instructions] Our first question today is coming from the line of Mark Murphy of JPMorgan. Mark Murphy: Congratulations on an amazing performance. Olivier, is there any way to conceptualize the growth in the sheer raw volume of, code is being produced in the world today due to adoption of code generators such as Quad code and Codex and cursor, because they seem to be developing the capability to take on full projects and some of the charts are showing these capabilities are just exponentially exploding upward in a straight line. I'm wondering how much of that code is going into production and therefore, driving activity for Datadog. Olivier Pomel: Well, we definitely think and see that the there's many more applications being created. There's going to be way more complexity in production. We see some of that happening already today. Some of those new applications are getting into production, they're finding users. We see some signs of that at every layer of our platform. We quoted a few stats on the increasing data volumes. We see AI products that's definitely a reflection of that. So we see an inflection point there in consumption from customers. We see a move to production that is very real, and we see that across both AI native and non-AI companies. Mark Murphy: Okay. And as just a quick related follow-up. If we click down one layer, and I'm wondering how you might view the increasing heterogeneity of the environment at the silicon level, because the -- when you look across the Amazon with Trinium and Graviton and Google with TVs, Microsoft has launched the myosilicon. It looks like that is starting to explode. In our understanding is that trying to monitor the mixed environment is a lot more difficult than if you just have a uniform fleet of Intel and AMD chips, and we keep hearing all the traditional monitoring tools, they really fail on the custom silicon and Datadog handles it well. The -- and then all this new telemetry, including high-bandwidth memory and that type of thing. Can you speak to whether that trend is giving you some tailwinds? Olivier Pomel: Yes. I mean, look, broader market that's interesting here is if it's training, training used to be something only 2 or 3 companies were doing or maybe 4, 5 at a large scale. And it looks like training actually might democratize quite a bit more, and many companies will train models on a regular basis. So it becomes more of a viable category for service providers -- selling provider like us basically. I think the heterogeneity of the silicon is definitely a trend that plays in our favor there. The more heterogeneous, the more you need someone else to make sense of everything for you and title together and also title with the non-GPU aspects and the rest of the infrastructure, and the application, and the users, and the developers like basically everything we do for. There's only -- when you think of who is actually -- who actually has heterogeneous environment today, that is still a very small number of companies, Google barely just started selling their TPUs to the outside. So I think it's still a small number of companies that are there, but we see a growing opportunity there. Interestingly, last year, when we reported earnings, we said we're mostly interested in inference workloads and training is not a real market for us yet. Now we actually see training becoming a market. We started lending customers that are actually hyperscalers that have a whole host of homegrown technologies and that are using us specifically in their super intelligence labs to help monitor their workloads, accelerate the training runs, monitor the GPUs also. So we see that as a point of validation that there's going to be a fit for us Mark Murphy: That's amazing to think there's a whole need to mention, if you can move from inferencing into the training side. And I caught the reference in the prepared remarks of how you landed a couple of those very large labs. So congrats on everything. Operator: And our next question will be coming from the line of Sanjit Singh of Morgan Stanley. Sanjit Singh: I want to spin off with David on this guide to start the year is probably the best we've seen in several years, David, and laid out the underlying assumptions quite well. Just wanted to do a sanity check just on the sort of overall backdrop macro backup, we do have some geopolitical tensions and those types of things when we think about. Your Mid-East Base business and any impact from like in your e-commerce or retail business, where there may be some consumer discretionary impacts. I just want to get like how you're thinking about those parts of the business. And then I had a follow-up for Oli. David Obstler: Yes. We had a very strong quarter across the board. We have a multi-industry multi-geography type of quarter, and SMB was very strong. And that -- the source of our guidance and our raises are at the core, that type of performance. We haven't seen particular effect in the consumer businesses or e-commerce businesses yet. We basically have a continuation of trends in those businesses, travels and things like that. that are very similar to the other industry. So we haven't seen it yet. We obviously watch it and look at analytics, but we haven't seen it. In terms of our overall guidance, the trends that we have in organic, we discount across the board, and I think we mentioned our particular treatment of our largest customer. Sanjit Singh: That's very clear. And then Olivier, for you. I think we -- when we talk to investors about the debate in this category longer term is just what does this what does the category look like when agents are doing the triaging investigating versus human engineers and human SREs. And so -- what is your sort of vision of that -- how that evolves for Datadog, both from a product standpoint and an experience standpoint from a UI perspective, but also like is there going to be immune modalities in terms of pricing when agents are consuming the Datadog platform to a higher degree than engineers do today? Olivier Pomel: Yes. Look, I think one thing I'd say is it's hard to tell where we're going to be in 4 or 5 years. If you had told me 2 years ago that most engineers would go back to coating in the console. I wouldn't have believed you. And yet, that's one of the winning modalities today. Look, as far as we're concerned, we don't care whether most of the usage is humans, most of usages agents. Our business model lends itself to do pretty well like we are usage-based it doesn't really matter where the is coming from that perspective. The way we see trends up right now is, we see both stratospheric increase of agent usage. So we have a ton of usage on our MCP server. We see customers spending to automate a lot with their own agency using our agent combination of those. But we also see an increase of usage of the web interface is by humans. So right now, the 2 work hand-in-hand and we keep developing and pushing on those fronts. Operator: Next question is coming from the line of Raimo Lenschow of Barclays. Raimo Lenschow: One for Olivier, one for David. Olivier, if I listen to you in your prepared remarks, there's a lot of like consolidation that people try to do open source tooling and then realize they kind of needed to come to you and come back. On the other hand, in the industry, we still have a lot of like noise around that level. How do you see it in real life. To me, it seems a little bit like optionability is just very hot. And then there's different categories where you use certain items -- certain vendors and some open source, can you speak what you see in real life there? Olivier Pomel: I mean, in real life, most companies have open source in some capacity somewhere. When it comes to having a platform that unifies everything telecare everything does more of the problem solving for you, that's typically what customers use us. And the motion we see pretty much everywhere, these customers have 4 or 6, 7, 15, and 25 different things, and different pockets in the organization, and different business units, and it's a huge mass. And they come to us, they can unify all that. They get better results because all of the data is in one place, the workflows can be automated from time to end. [indiscernible] can get end-to-end visibility, you don't have blind spots. And also they save money because they don't have all these pockets in efficiency everywhere. So it's a win for everyone. The thing that's also interesting in particular this quarter is that we also landed some large parts of hyperscalers. And hyperscalers typically have a culture of building everything themselves. And the certainly have the balance sheet and the human capital to support some of that build-out. Like if there was ever a set of companies for whom it makes sense to do it themselves, and we do those companies. And yet, we see that they have the same issue. When it comes to going as fast as they can, being as efficient as they can with their resources, like they come to us to replace some of the things that we're using before. David Obstler: Two things, 2 metrics to look at that to make the points Oli, you're making, if you look at our platform adoption, and you see both the growth of the different categories and the extension of the categories out to lots of products that shows you that the consolidation on the Datadog platform has continued, and there's a very strong trend. And part of that is the movement solutions, as Oli mentioned, that are both open source, but also the competitive point solutions onto the platform. That's been a significant driver of the revenue growth for some time now, and that continued certainly in Q1. Raimo Lenschow: Okay. Perfect. And then, David, for you, last year, and we did a lot of investments around go-to-market, especially on sales capacity. If you think about now the non-AI category doing better, how much of that is like people like the cloud migrations again. So that's like an industry trend and how much of that is like you guys actually being broader positioned? David Obstler: Yes. It's a number of things, including one is the expansion of the platform, the consolidation, the successful ramping of sales capacity, which is while not jeopardizing productivity, which has resulted in ARR increasing and a good environment as well. And I think that's what we said last time, there are a number of factors. And certainly, what we're proving out here is the investments we've made in go-to-market and are continuing are paying off and we're the right decision. Oli, anything to add? Olivier Pomel: Yes. And look, we, at the end of the day, there's clearly some market tailwinds with the adoption of AI and -- but also, we are outperforming all of our competitors at scale, and we're taking share, and that relates to the structural platform to where we expand with new products, the way these products are maturing and starting to win in their respective categories in the way we've successfully grown the SES capacity. David Obstler: Certainly, the AI involvement trend has helped we're trying to do a separate that. So -- and AI investment is probably helping the overall as well. But when you really take that out, you still -- you see a very pronounced acceleration here. And that has to do with the factors that I mentioned and Oli talked about. Operator: Our next question is coming from the line of Gabriela Borges of Goldman Sachs. Gabriela Borges: Olivier, I find your comments on train versus inference, so interesting. Maybe just crystallize for us. Why do you think the training opportunity it's happening now or inflecting now? And then I had a[indiscernible] for yourself for David, -- how do we think about the attach rate on trading versus inference of observability? Is there a way to benchmark observability spend as a percentage of inference spend, does that number change given the new data that you're seeing on the training site as well. Olivier Pomel: So on the training side, training was very new a couple of years ago. It was something that was only done by very few companies, and it was in a way, very artisanal, like it was not a production workload. It was something that researchers were building, and that was very one-off and ongoing in ways. And now it's turning into production. It's turning into something that many more companies are doing. It's scaling by orders of magnitude, and it's becoming something that has to be on all the time, reliable and every minute you lose is or whether every fellow you have in your training around is a week you give away to the competition. And so as a result, it becomes way more interesting as the market for a company like us. And we see some signs of that. Again, we didn't have a lot of it. We didn't see a lot of it last year. Now all of a sudden, we're starting to see quite a bit of activity there and demand, then we have success landing with large customers with those products. David Obstler: Yes. I think going back to the metrics that Oli talked about in terms of attach, we said that 6,500 customers are using our integrations and 20% of the customers and 80% of the ARR. So there is attach. I think it's earlier days for the training. That looks like it will be a contributor. But I think we -- that's early, and I would sort of look at the larger attachment at this point as the evidence of inference, but also some training. Operator: Our next question is coming from the line of Karl Keirstead UBS. Karl Keirstead: Okay. Great. I wanted to start to Olivier and David, and you congratulating all of you and the team on reaching that $1 billion milestone well done. David, maybe the question is for you and to hone in specifically on the 2Q guide. Even if you put up a modest beat on that guide, it's going to be by order of magnitude, the largest sequential dollar at I think, in the company's history. And I just wanted to unpack what's giving you that confidence? And in particular, is there anything interesting to call out, David, in terms of the ramp of a couple of the larger research labs, one of which renewed with you guys in the fourth quarter, another one just landed. I presume they're ramping nicely in 2Q, but would love any color. David Obstler: Yes. Let me unpack this in a couple of ways. As you know, we're recurring revenue model. So the biggest indication of in the near term of the next quarter is the ARR growth in the previous quarter. And when we said we had a record. So essentially, at the bedrock of this is sort of the run forward of ARR that we've already signed. The ARR add was very broad-based and was not very concentrated. So whereas we pointed out some very significant adds I would say that the first quarter and that ARR add was really diversified and from lots of different places. So the -- and I think Oli will come in here, but the confidence that we have is you're right, we essentially take what we already have. We discount the growth trends that we've seen. And that produces what you exactly said, which is whatever your assumptions are on beat a very impressive sequential really due to what happened in Q1 and the rate of business accumulation by Datadog. Oli, do you want to add? Olivier Pomel: Yes. I mean if you want to dive on what David just said, ads we are broad-based. I mean look, when you look at why do we have a great Q1, we also let get customers in Q4. We had talked about it a quarter ago. But even if you take out the customer we land in Q4 that added the most revenue in Q1, we still had a record quarter in terms of ARR add. So this is really broad-based. And we landed a few more customers in Q1 that don't contribute any revenue yet, but we expect to be big contributors in the future. So when you put all that together, we feel very confident about Q2, hence the numbers you've seen. Operator: And our next question will be coming from the line of Fatima Boolani of Citi. Fatima Boolani: Oli, I wanted to double back on a question that was asked earlier with respect to telemetry volumes essentially going parabolic, and you are accessing a brand-new demand in the foray into training and monitoring and observing training model environment inside some of the world's largest frontier labs. And so I wanted to ask you about the structural changes to the capital intensity of the business. I mean your CapEx levels are still pretty respectable and pretty muted. So I wanted to get a better understanding of what sort of extrinsic or intrinsic engineering efforts you're undertaking to keep a very efficient CapEx envelope in spite of the fact that it seems like that would increase because of the torrent of telemetry we're seeing on the platform. And then as a related matter, we've seen a rise of sovereign data and data residency requirements kind of ramp as AI models move into the territory of national security and things like that. So just wondering if you can kind of talk to some of the engineering horsepower internally that you're leveraging to be able to keep a really tight command on capital intensity, and frankly, your gross margins? Olivier Pomel: Yes, I mean, look, sort of the investments we're making right now, you we run most of our workloads on cloud, meaning you'll see all of that in OpEx, nothing CapEx. So we have low CapEx. If it changes, we'll tell you, like if for some reason, we decide to make different kinds of investments and some of it more front some it more CapEx, we'll tell you, but that's not the case today. We are definitely ramping up our investments in particular in R&D and in the scale of the models, we train ourselves and things like that. But right now, there's nothing that you can actually see in the numbers that move any needle but if that changes, also we'll tell you. We don't expect any change to [indiscernible] So that's on the CapEx side. We are very different businesses in that way from the AI lab. On the subject of data residency and sovereignty of AI and things like that. We definitely see more push for that more demand for that in the customer base. And for us, that means investment into areas One is in deploying into more geographies and having more certifications to sell to the public sector and to the highest level of the public sector. So we mentioned today data center in the U.K., for example, and our [indiscernible] certification, we're not stopping there in terms of the certification we're going after with a sell government. So that's an area of investment. Another area of investment is our bring you on cloud products and where we can actually run on our customers' infrastructure. And so we announced that, we read some products there, and we have heavy investment in that area. So we can support customers that want to operate in a slightly separate way from the rest of our customer base. Operator: And our next question is coming from the line of Curt of Evercore. Unknown Analyst: Congrats nice start. Oli, I was wondering if you could just give some thoughts on the idea of sort of security for agents. I think one of the big issues in terms of getting agents into production is sort of the security aspect of that? And how do you see Datadog plugging into that opportunity? And then just a quick one for David. Congrats on the FedRAMP reaching a milestone. Are your partner relationships in place to take advantage of this? I realize it will be a long-term opportunity, but just kind of curious how well established you are down there to start seeing some maybe bookings in that area. Olivier Pomel: Yes. So on the security of agents, we interfere with that in 2 ways. So first, there's the agents will build ourselves because we are building a lot of automation inside of our products for our customers and agents that automatically identify but also resolve issues without you having to do anything. And there -- a lot of it has to do with understanding what permissions to apply, what kind of guardrails to apply, what kind of put to interface with the humans and how to make that the trust worthy and visible in the right way. And so that's pretty much the whole product surfaces to during data. The automation itself actually can work already. So you should expect to hear more about that at our conference. This is definitely one big area of investment for us. On the security aspects of our agents. Look, we believe in securities that you need to integrate, you can't just have point solutions that look at one sliver of the whole security posture. You need to look at everything all together. And that's one of the areas that we are also covering with our security efforts. So that's part of the whole platform action. David Obstler: On the FedRAMP, we've been working on both the different certifications, but at the same time, we've been investing in the go-to-market function, both in terms of reps and channel partners for a number of years. Certainly, there's more investment to be done, but we invested ahead of the certifications because in this sector, building pipeline, et cetera, it takes time. And certainly, the channel partner relationships are a very important part of this. and we have been investing, but also have more investment to do. Operator: Our next question is coming from the line of Patrick Colville of Scotiabank. Patrick Edwin Colville: I guess, Olivier and David, you guys are very deliberate in your messaging on the prepared remarks. And I guess, I want to double check the kind of wording of one of the comments. I think, David, you had a higher degree of conservatism to the largest customer. I guess, did I hear that right? And then does the higher degree of conservatism reference versus the other customer cohorts? Or does it reference versus your guidance philosophy in prior quarters vis-a-vis this customer? David Obstler: It's both. It's the same guidance we used, and we're being very explicit. For all the business, except for the largest customers, we've always taken the drivers and discounting them. We -- for this particular customer, we took a higher degree of conservatism than the other part of the customer base. and discounted it more. And we were, I think, in the remarks and you interpret it correct, very explicit, and you're correct. Olivier Pomel: I wouldn't give that much weight to do a very specific word. We deliberate but not all that deliberate. Similarly, both David and I have a rusty voice today, but there's a man. David Obstler: But I will remind everybody we did not change. So if the question also, I think you asked, is did we change? Or is this a different methodology of both the overall and the large customer, then the guidance the last quarter or the previous. The answer is no. It's the same methodology and that we've had. So no change, but that's has been what we've always been doing. Patrick Edwin Colville: Okay. And Olivier, can I ask about your comments about the hyperscalers because I thought that was particularly interesting. And the reason why is, I don't think you called them out previously before, and they are so prevalent in the modern tech stack. To your point, they could do this themselves. So I guess how are they using Datadog? Is it for more kind of traditional obeservability? Or is it for these newer areas like GPU monitoring that Datadog has performed so well of late. Olivier Pomel: Well, it's both actually. When you look in general at large AI customers, they use Datadog at the way other companies are largely with a fairly broad set of our products to cover the full circuit of liability. What's new is we now have a product for GPU monitor. It's a very new product. And we see the hyperscaters that are coming to us for training workloads in particular being very interested in that. So again, it's too early in the product life cycle and the customer life cycle for these specific customers to go definitive victory there, but we see that as a very encouraging sign of where the market might go in the future. Because we think this might be a bellwether of what the next 10, 100, 500 companies that are going to start training workloads are going to want to do. We have some signs that go beyond the customers we signed this quarter that point that way too. Operator: And our next question is coming from the line of Peter Weed of Bernstein Research. Peter Weed: And I'll echo others on the momentum. Great to see One of, I think, the great successes you talked about was landing a couple of the AI labs for the hyperscalers. Although I think on the other hand, you've talked in the past around hyperscalers are typically building observability in-house. What is it really about the AI workloads that are making it more attractive for them to use Datadog? And what might give you confidence that Datadog might be more persistent with them in these types of workloads and that's kind of a signal for maybe how other customers might use Datadog around AI differentiated from things that they might be able to bring in house to other places? Olivier Pomel: The December all of our customers, it's high stakes, high complexity and not core. They have to be most differentiated. They're going afford to be late, and it's a really hard job to do to do that. So what we built our whole business on, and it's also very true for -- at the highest level for the largest companies. Peter Weed: Yes. No, I was just going to say it. But I guess, the point is you've emphasized that those largest customers have been able to go in-house on some other things. Is there something unique about AI that prevents them from doing that here? Olivier Pomel: Well, I think the urgency of the their development efforts focuses the mines. That's what I would put it. I would say, it forces you to figure out what's core and what's not core and what's the -- who you want to get to the -- what you need to do to maximize your chances of success. And again, it's is the same thinking all of our customers have all the time. I think the equation for hyperscalers has often been say different because they have, let's call it, unlimited access to staffing. And they sort of set their own time horizons for the developments they wanted to make. I think the situation is a little bit different with the ARRs maybe. Operator: The line of Gregg Moskowitz of Mizuho. Gregg Moskowitz: And I'll add my congratulations on a terrific quarter. Just one for me. Oli, I know it's not GA yet, but curious if you have any early feedback on your new cloud prem offering. As you noted earlier, providing the ability of potato to run on customer infrastructure. Could this be another yet another, I should say, incremental growth opportunity for Datadog? What are your expectations for this? Olivier Pomel: Well, definitely, we think -- I think there was a question earlier on data residency and leaving customers environment, we definitely see a great opportunity there. It is chance that a good portion of the market means this way in the future. Today, it's not the largest part of the market, but we definitely see a potential for that. So we're investing heavily in that sort of our product. We're trying to see some interesting customer traction there. So we think this can be another growth lever differently. We also think that it can help us getting into some extremely large-scale workload where customers would not have considered SaaS offering before, where we can be in the running. So that's very exciting. All right. And I think that was our last question. So I want to thank you all for attending the call. And I remind you that we have our conference in just a bit more than a month, and I hope to see many of you there. So thank you all. Operator: This concludes today's program. You may all disconnect.
Operator: Welcome to the Primo Brands 2026 First Quarter Earnings Conference Call. I will now turn the call over to Traci Mangini, Vice President, Investor Relations. Traci Mangini: Thank you, operator, and hello, everyone. With me on the call today are Eric Foss, Chairman and Chief Executive Officer; and David Hass, Chief Financial Officer. Our discussion today includes forward-looking statements within the meaning of U.S. federal securities laws, which are subject to risks and uncertainties that may cause actual results to differ materially. For more information, please refer to the forward-looking statements disclosure in our earnings release. In addition, the definition of an applicable reconciliations for any non-U.S. GAAP measures are included in our earnings release and the supplemental earnings slides, which were made available earlier today on the Investor Relations section of our website. With that, I'll pass it to you, Eric. Eric Foss: Thanks, Traci. Good morning, and thank you all for joining us. This morning, I'll provide a high-level review of our 2026 first quarter results. I'll share with you an update on our progress on our direct delivery customer experience, and discuss the current operating environment and our key growth priorities. David will then take you through our financial results and our updated 2026 guidance. Let me begin by stating how encouraged we are by the strong start to 2026 and the momentum building broadly across the business. First quarter net sales of $1.63 billion were up 1.7% on a comparable basis versus prior year. Marketing a return to growth for Primo Brands. Top line performance was broad-based, driven by both price mix and volume. It was fueled by the strength of our brands in retail, particularly premium and another quarter of sequential improvement for direct delivery with service levels exceeding our expectations. Our comparable adjusted EBITDA was $306 million, down 10.4%. This was driven by increased investments in the business discussed during our last earnings call to improve service and direct delivery, which have yielded operational improvements, higher on-time in full and an improved customer experience as well as incremental cost incurred attributable to the winter storms and incremental freight and logistics costs year-over-year. Based on our strong first quarter top line growth, we're raising our 2026 comparable organic net sales growth guidance to 1% to 3% from flat to 1% previously. At the same time, given recent geopolitical events and the dynamic cost landscape, while we believe we're well equipped with multiple levers to help mitigate oil-related commodities inflation, we are prudently widening our adjusted EBITDA range. As a result, we're updating the low end to $1.465 billion while maintaining the high end at $1.515 billion. This implies a revised adjusted EBITDA margin midpoint of 22%, which would be up 20 basis points versus prior year. Despite the macro environment, we are executing with pace and purpose so we are fit to win. We believe we are well positioned in an attractive growing category, supported by our differentiated portfolio of leading brands and our advantaged to market. On our fourth quarter earnings call in February, we outlined 2 critical near-term priorities. First was improving the customer experience in direct delivery and second was returning the company to balance growth. Our actions in the quarter drove meaningful progress across both of these priorities. First, on direct delivery, we achieved another quarter of improvement in key leading indicators and more importantly, sequential improvement in financial performance. Top of the funnel demand remains strong and customer quits continue to decline, leading to a sequential improvement in customer nets, which approached a net breakeven customer position in March. Customer call volume declined and our respond and recover solved by send-out initiative resulted in an accelerated pace of customer issue resolutions. Notably, one of our most important success metrics on-time in full reached over 90% in March. While pleased with our progress, there's more to do. So we're taking some additional actions. We're implementing a new warehouse management system to support superior supply chain execution from product supply to in-branch inventory to help satisfy customer demand. With the final wave of our U.S. integration behind us and those delivery customers now on one enterprise management system, we're focusing on harmonizing data enhancing analytics and insights and strengthening management tools to better serve our customers. We're reimagining and optimizing the end-to-end customer journey from customer sign-up and delivery, through billing and issue resolution. By enhancing the digital and mobile app experience, strengthening our win-back initiatives and designing a more efficient customer contact center. This ongoing work is grounded in 3 principles that we believe matter most to our customers: transparency, convenience and trust. And with that in mind, our current initiatives are focused on streamlining and improving communications across every stage of the customer experience. Our second priority was to get the overall business growing again. First quarter results put us firmly on that path led by retail, where we expanded our leadership position in branded bottled water, gaining both dollar and volume share in the category. We plan to build on this momentum through multiple growth vectors going forward, including brand building and innovation, improving our in-store presence, leveraging the momentum behind our leading premium brands and a comprehensive development approach to revenue growth management and pricing. Our summer plans around brand building include building on our successful partnership with Major League Baseball for our regional spring waters. This marks the first time our entire regional spring water portfolio is under one creative campaign. In addition, we'll have a significant presence in Philadelphia this July as we celebrate this year's All-Star game. As part of our multiyear partnership with Disney, we're launching a limited edition Pure Life bottle series this summer, featuring Toy Story 5. We are also focused on extending our retail presence by driving new points of distribution getting more display inventory and expanding our exchange and refill footprint. Expanding our presence extends beyond physical footprints to e-commerce. In April, for the first time, our regional spring waters became available through Amazon Grocery, providing an opportunity to increase household penetration, further accelerate brand awareness increase our share of virtual shelf at this important marketplace and add new customers. Another growth vector is prioritizing premium. Saratoga and Mountain Valley continues to be incredible contributors to growth, growing an impressive 43% in the first quarter. Both brands showed momentum via new points of distribution and grew volume and dollar share of category in the quarter. Going forward, we'll be amplifying awareness of our new Saratoga collection, 4 sparkling flavors in a slim can with the highly recognizable Saratoga's signature blue color. Also for the second year, Mountain Valley is the proud sponsor of the Academy of Country Music Awards in May. We believe these brands are early in their growth trajectory with expanding distribution, strong brand equity, and investments in additional capacity coming online to drive continued momentum. Saratoga capacity in Texas became operational in May and adding the second production location supports lower distribution costs. We expect to complete the Mountain Valley new greenfield facility in mid-summer. Our final growth priority is the development and execution of a more strategic and holistic revenue growth management approach across price points, package types and channels. Our pricing strategy begins and ends with the consumer, understanding how they define value and how that perception shapes their purchase and usage behaviors. At the same time, we assess our competitive position across our brands and products, while attempting to make sure our decisions reflect both our cost structure and margin goals as well as the economics of our retail partners. As we navigate today's dynamic macro environment, pricing, along with productivity initiatives, are levers we can use to help offset commodity headwinds. In closing, I want to extend my thanks to our associates for their pride and commitment to ensure we sell and serve our customers with passion each and every day. Let me also reiterate that the investment thesis behind the merger that created Primo Brands, the U.S. bottled water leader remains intact. We compete in an attractive category and continue to benefit from strong tailwinds in health and wellness and hydration. It's highly penetrated, frequently purchased and among the fastest-growing categories within liquid refreshment beverages. We are a clear leader in branded water and healthy hydration and a major player across the liquid refreshment beverage category. As a leader in a structurally advantaged category with consumer and customer-first culture, we're investing to capitalize on the category momentum and the power of our brands. By ensuring we elevate service and execution, we're positioned for sustained growth, margin expansion, stronger free cash flow and long-term stakeholder value. With that, let me turn the call over to David. David Hass: Thank you, Eric. For 2026, reported financials include Primo Brands results for both 2026 and 2025 as we're now past the anniversary of our first quarter as a merged company. For greater comparability on our continuing operations, we focus on comparable results, which exclude the Eastern Canadian operations, which we exited in the first quarter of 2025 and our Office Coffee services business, which we exited across 2025. Reconciliations of this information is available in our earnings supplemental deck available on our website. For the first quarter, comparable net sales increased 1.7% versus the prior year, driven by a 1.3% price or mix contribution increase and a 0.4% volume contribution increase. These results reflect an earlier-than-expected positive inflection in the business and validate that our actions are driving measurable top line progress ahead of plan. Simply put, we had a priority of returning to growth, and we delivered that with a fairly balanced first quarter top line performance. Volume, which we define as case goods equivalents measured in 12 liters, was driven by an increase in retail channels, partially offset by a decline in direct delivery. In retail, net sales growth was driven across multiple channels, particularly mass, club and away-from-home, pack sizes driven by occasion and case packs and brands led by Primo. As Eric mentioned, Saratoga and Mountain Valley, combined net sales were up 43% in the quarter, continuing their incredible momentum. While direct delivery net sales declined in the quarter, it reflected lower volume from a smaller customer base and a tough comparison to prior year, which was just prior to the main integration activities. That said, customer net adds trend continued to improve approaching breakeven. On a comparable basis, direct delivery sales declined 3% with sequential improvement each month within the quarter. The performance also reflects sequential improvement over the last couple of quarters, a trend we expect to continue over the balance of 2026. Comparable adjusted EBITDA decreased $35.5 million to $306 million with comparable adjusted EBITDA margin, down 260 basis points to 18.8% versus the prior year. Margins were affected by our decision to continue to operate with a higher route count than typical in order to strengthen our direct delivery service levels, an investment that we -- that contributed to better-than-expected net sales and customer retention. We expect these costs to begin to normalize in the second half of the year as we realign the cost structure under the improved operating model, which should improve the overall margin profile. This approach also helped us navigate the temporary disruptions caused by severe weather across many of our markets during the quarter. Leading indicators such as OTIF and customer volume trends validate these actions. Additionally, margins were pressured by higher transportation costs in retail tied to severe weather and a tighter freight market. Moving to our balance sheet and cash flows. Underscoring our commitment to a disciplined capital structure, on March 31, 2026, we proactively refinanced our $3.1 billion term loan at SOFR plus 275 basis points, extending the largest and nearest maturity in our debt stack to 2031 from 2028. Our liquidity remained strong with $874 million of availability between our cash balance and our unused line of credit. At quarter end, our net leverage ratio was 3.52x, reflecting expected seasonal working capital dynamics in the first quarter. We believe we remain well positioned to generate leverage ratio improvement as cash flow strengthens throughout the year. We generated $103.8 million of cash flow from operations for the quarter, adjusting for significant items, most notably our integration and merger activities cash flow from operations would have been $191.6 million. Adjusted free cash flow, which excludes integration-related capital expenditures, was $128.6 million representing a $73.9 million improvement versus prior year. Our strong financial flexibility allows us to reinvest in the business while returning cash to stockholders. First quarter total capital expenditures were $118.1 million, while $47.2 million were related to integration capital expenditures, the majority supported growth initiatives and maintenance. We also continued to execute our share repurchase program, repurchasing $29 million or approximately 1.5 million shares under the $300 million program announced last November. Before we move to our financial guidance, we believe it's important given the macro environment to outline our oil-related commodities exposure and how we manage that risk. We do not speculate on the market. Instead, we hedge key input costs to create predictability around our input costs and to strengthen our ability to forecast. Our risk management program blends fixed price and forward contracts where those instruments are available. The strategy is intentionally balanced and programmatic in structure and opportunistic when conditions allow. It's guided by guardrails and typically include coverage that extends 12 to 24 months. Our primary oil-related commodities include plastic resins, virgin PET or VPET, recycled PET or RPET, high-density polyethylene or HDPE and low-density polyethylene or LDPE which are used across our product portfolio as well as diesel and propane. Within our delivery fleet, about 40% of our trucks run on propane and given elevated industry inventory levels, propane markets have been relatively stable. For the diesel-powered portion of the fleet, we have significant hedge coverage in 2026, and we are extending some of that margin protection into 2027 through longer-term derivative contracts that lock in prices well below current spot levels. At present oil futures in 2027 remain significantly below today's levels, which, in our view, provides visibility and confidence to navigate the current situation. That said, the recent unexpected volatility in these oil-related input costs occurred shortly after providing our full year 2026 guidance in February. While this will likely result in some added headwinds, we are actively managing our cost outlook and believe our financial risk management program is one of the multiple levers to help mitigate the impact. Moving to our financial outlook. We are raising our comparable organic net sales guidance for the year. As a reminder, in 2026, we cycled the exit of our Office Coffee Services business, which accounted for $25.5 million in our reported 2025 net sales. This puts our comparable 2025 net sales at $6.635 billion. This is the base for our full year 2026 guidance and growth rate. With that in mind, we now expect comparable organic net sales growth in the range of 1% to 3% as compared to flat to 1% as provided in February. The increase is driven by not only the broad-based better-than-expected first quarter top line, but also a trajectory change in direct delivery. We now expect direct delivery to transition from the down 3% in the first quarter to closer to breakeven in the second quarter and to modest growth in the second half of the year. We also expect continued strength in our consolidated retail channels behind our brands and premium momentum. Our revenue growth management capabilities intend to fully leverage the power of our brands and should also help mitigate some of the commodity cost pressures. Turning to adjusted EBITDA. We are widening our previous range to include an updated low end of $1.465 billion and maintaining the $1.515 billion on the high end. While we are confident in the guidance provided in February, the macro and commodity environment meaningfully change shortly after. Despite the shift, we believe we have multiple levers, including pricing actions, growth initiatives, ongoing supply chain cost initiatives and our financial risk management program to help mitigate the impact. We expect to benefit from productivity improvements in direct delivery in the second half of the year as we realigned the cost structure under the improved operating model. At the same time, we plan to prudently invest in enhancements in the customer experience, including the redesign of our contact center and capabilities that support future growth. The revised midpoint adjusted EBITDA margin is 22.0%, down approximately 50 basis points compared to the previous guidance and continues to imply margin expansion for the year. We are reaffirming our adjusted free cash flow range of $790 million to $810 million. Beginning in Q2, we anticipate free cash flow add-backs to decline. This trend follows the first quarter reduction in EBITDA add-backs and reflects the typical reporting lag between expense recognition and cash payment. As integration activities mature, we expect a cleaner cash flow profile that more closely aligns with our underlying operational performance. Our strong free cash flow supports our capital allocation priorities, we continue to expect to deploy approximately 4% of net sales and capital expenditures for the year in addition to the approximately $100 million in integration capital expenditures. Also, given our commitment to return cash to stockholders last week, we announced our Board of Directors authorized a $0.12 quarterly dividend, which annualizes to $0.48 per share. We also intend to continue to execute our share repurchase plan, which had $78.3 million available under the program authorization as of the end of the first quarter. And with that, I'd like to turn the call back to Traci. Traci Mangini: Thanks, David. To ensure we can address as many of your questions as possible, please limit yourself to one question. And if we have time remaining, we will reap poll for additional ones. Operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from Peter Galbo with Bank of America. Peter Galbo: David, thanks for all the detail around the hedging program, particularly Slide 6, I think is very helpful. I wanted to just kind of pressure test that a little bit, David, first question being just how locked are you for the year? So if we do get kind of resolution based on the conflict and let's say, oil goes lower from here, is there actually kind of upside to what you presented, are you pretty much locked for this year? And then the second question is, I believe last quarter, you talked about a 48-52 split on EBITDA first half, second half for the year, I wanted to see if that still holds in light of kind of the updated guidance? And given that Q1 maybe came in a little bit light of Street, but maybe you could address those 2 items for us. David Hass: Sure. Let me maybe start with the second one quickly because I think in that regard, we're probably a little bit more like $47.53 and be about maybe one point from those investments inside the quarter. But again, I think we remain very encouraged by what that led to in our top line performance. And notably, when you see the momentum building in direct delivery, it gives us that confidence to go from essentially the down 3% in Q1 to closer to breakeven in Q2 and then resuming growth. So we think that those investments have really yielded the right activity set to respond to the consumer, deliver what they ordered on time and in full. And if not recover very quickly to sort of retain them, which is our #1 priority. Into the actual hedging and some of that activity year-to-date, really where we have technical hedges is within our diesel activity, and that's basically just using sort of market-based hedges. And then that allows us to sort of transact with that and sort of align that usage to our sort of what we believe is our fleet consumption. We're pretty far hedged but if there were to be a resolution as maybe the markets have anticipated this week, that would provide some opportunity for benefit balance of year. And it would obviously allow us to start to lock, if we felt so inclined, locked prices for '27 in that category itself. Where we have more forward priced contracts with our vendors, that happens in the resin portfolio. I think if there was a resolution, whatever premium that vendor or supplier is attempting to pass through to customers like ourselves and others, that would provide a more advantageous sort of negotiation posture for balance of the year and again into 2027 activities. Operator: Your next question comes from Nik Modi with RBC Capital Markets. Nik Modi: Maybe we can just talk a little bit about the scenarios between kind of the low end and the high end, whether it be on the revenue side and the EBITDA just so we can understand exactly kind of scenario wise, what would need to happen to get you to the high end versus, let's say, the low end? And then the second question is, would love just some more clarity around some of the pricing actions that recently have taken place. Maybe you can just kind of quantify like what percent of the portfolio is that happening? My understanding is that's not the case pack side. And do you believe you have opportunity to actually take price in case pack if you need to offset some of these headwinds from inflation? Eric Foss: Nik, it's Eric. Yes, thanks for your question. I think -- let me just start with the fact that I think we're really pleased, and I think we made meaningful progress in the quarter versus some of the growth priorities we laid out. So I'll get to your question. But I think the way to connect the dots to the low end or the high end on the growth side is look, we continue to improve our customer experience in direct delivery. That happened faster than we anticipated. So we were pleased by that. I think we also delivered earlier than anticipated this commitment to return the business to growth. I think on the last call, I talked about those 2 being our 2 focal points for the business. And I think what to me -- leads me to conclude that the growth is durable and even structural is the fact that, that growth was balanced and broad-based. And it was -- it took place across premium, which has been a key growth facilitator for us. But it also was applicable to our regional spring water portfolio. It was applicable to Pure Life. It was fairly broad-based across channels. And so as we look ahead, to me, the path forward is clearly compelling. We think that the continued brand building to create demand, continuing to raise the bar on execution. We are going to leverage a very disciplined revenue growth management approach to drive value and over time, expand margins. So anyway, we really believe that we're in a good spot as we look forward to the rest of the year. Second, I think when it comes to pricing, again, we still have a lot of work to do on RGM, but I'll give you a little bit of just the framework on how we think about pricing. Our first principle is that all of our pricing actions start and end with the consumer. So we keep the consumer and her decision-making matrix at the forefront of anything we would do. We also have to maintain competitiveness, which we have and will continue to do. And then we've got to look at the company P&L and look at the cost margin implications and try to make sure we're appropriately managing margins. So I'd say it's a comprehensive development approach that includes rate mix and trade spend. And what we've done is we felt like given the current environment, our focus would be more on immediate consumption, where you tend to see the consumer be more convenience oriented than price-oriented. We did take actions on the immediate consumption portfolio. We still maintain kind of the best value across channels in the marketplace. And relative to your question on case pack, yes, I think later this year, we probably look at taking some pricing on case pack, obviously, being very sensitized to the starting point, which is making sure we understand consumer value and elasticity on that package. Operator: Your next question comes from Daniel Moore with CJS Securities. Dan Moore: Obviously, encouraged to see the increased revenue growth -- revenue and growth guidance. Of the delta or change beyond the improvement or faster recovery in direct delivery, are there other areas of the business you're seeing more significant opportunities or acceleration? And how much of that delta is kind of volume versus price? Eric Foss: Yes. Well, again, I think, Dan, we want to continue to be very balanced. So I think we came out of the quarter with a combination of price mix and volume. I think as we look at the growth opportunities, I think, again, if you think about the kind of the structural tailwinds at the category and consumer level, you look at our leadership position within the category and then you think about the strength of our brands and where we can continue to make, I think, significant inroads on the direct delivery business. We also have an opportunity to continue to grow our presence in retail execution in store. And so you look at the momentum we have had at retail, I think that's poised to continue to run really well for us the rest of the year. And again, the encouraging thing, as I mentioned on Nik's question, is how broad-based that momentum has started to become as evidenced by the Q1 results. Dan Moore: Super helpful. I'll just sneak one more in. Just you are at your 6-month anniversary, congratulations. Beyond the stabilizing the HOD business, any surprises, takeaways or just things that you're hoping to change kind of culturally kind of high level, would love your thoughts there. And I'll jump back in queue. Eric Foss: Sure. Well, again, we -- I think have made a lot of progress on the culture front. We had our senior leadership team together a few weeks ago and had a very good discussion around our mission around hydrating a healthier America, rolled out a new set of values with the customer in our frontline really at the centerpiece of that. And so we continue, I think, to strengthen the team. I think we continue to change the mindset, which is we're a leader in not just the water and healthy hydration space, but a major player across LRB. And I think we're developing a winning mindset and changing our pace to be a little faster to market and our perspective of who we really are. So I'm really pleased with what's happened on the culture front and how the team has responded. And I think we're in a very different position than when I entered in November. Operator: Your next question comes from Andrea Teixeira with JPMorgan. Drew Levine: This is Drew Levine on for Andrea. You mentioned a number of potential mitigation options for the potential commodity inflation that we can be seeing, productivity and pass-through mechanisms among them. Just hoping you could talk a little bit more about some options on the pass-through side, particularly on direct delivery, maybe how quickly you would be willing to pull that lever? And if you could give some perspective on the stickiness of the customer base historically when there are changes in delivery fees, for example, I think in the past, it's really not been too much of an issue when the service is good. But clearly, that's been an area that was maybe a little bit more challenged over the past year. So if you could give us some perspective on when and if you would be able to adjust the delivery fee and expectations from a customer perspective when that happens? Eric Foss: Sure. Yes, it's Eric. I'll take that, and then David can jump in as well. I think let me just maybe back up as we think about how we might face any commodity or inflationary pressures, I think there's a variety of ways and a variety of levers for us to think about. One is just more top line growth and leveraging that growth through the P&L. Second is productivity and cost management third is pricing. And then we have 2 other ones available to us, which historically at times have been activated, whether that's the delivery fee that you referenced or fuel surcharges. I think our near-term focus is really on the productivity and the pricing side and wouldn't see us, at least in the near term, thinking about any changes on the delivery fee or fuel surcharge. And I think, again, our goal here is to make sure we have a balanced algorithm, meaning growth and margin improvement over time and that growth being a combination of sustainable volume and pricing actions. And that's what's reflected in the full year uptick in our growth guidance that you saw earlier this morning. The other thing I think I want to just make sure that I message is I've seen this movie before in the beverage industry. And I think when something like this happens, there's a couple of things to keep in mind. I think the first thing to keep in mind is unlike the growth potential that we have in this company, which is very much structural. This issue is transitory and it is not while near term, there is volatility and uncertainty that we have to deal with, it's not structural. Second, it tends to impact the industry broadly, both branded and private label players. And so everyone is kind of equally impacted. We all have our hedging strategies and forward by processes that David highlighted. But that's the reality of how this typically gets impacted. And then the final one is that we have multiple levers to offset, which I talked about earlier. So again, we are, I think, in a very good position to deal with this and to continue to move this business forward. Operator: Your next question comes from Derek Lessard with TD Cowen. Derek Lessard: Great to see that sales performance, Eric and David. Just one for me. I just want to maybe touch on the retail side. Can you maybe just talk about sort of the growth in your points of distribution category growth or maybe some share gains that you're getting in some of the categories? Eric Foss: Sure. Yes, I think this quarter, what you saw at retail as you saw us continue to expand points of availability across the portfolio. Certainly, we gain points of availability on the premium side, we also saw improved execution around number of displays. And I think as we go forward, again, we've talked about a more holistic approach to in-store executional excellence whether that be displays, space, certainly, coolers over time is a big priority for us. I think we were encouraged because from a market share standpoint, in addition to the great growth, we obviously translated that into both dollar and volume share gains in water and the same thing across LRB. So again, we are making progress. We still have more work to do, whether that's on the customer direct and direct delivery side or the retail side. But again, some of those success metrics executionally are starting to trend in a more positive direction. Derek Lessard: Absolutely. Congrats on that. And that's it for me. Operator: [Operator Instructions] Your next question comes from David Shakno with William Blair. David Shakno: This is David Shakno stepping in for Jon Andersen. Question, looking at Q2 specifically, if I recall correctly, a year ago, it was a pretty wet and cold spring season across the U.S. I just wanted to understand what we should be looking for in trends over the next couple of months here, especially as we get throughout May and June. And then separate from that, just kind of -- almost as a follow-up for the previous question, I wanted to understand if you're feeling kind of competitive pressures from private label, given the weaker consumer right now? I wasn't sure if there's pressure in specific channels, be it club or somewhere else or just kind of overall what you're seeing across channels related to private label, too? David Hass: Yes. Thanks, David. This is David. I think maybe let's start with a little bit of chronological framework of Q2 last year. So -- but what I want to start with is, first, Q1's performance. So if you recall last quarter, excuse me, same quarter prior year, we delivered a 3% top line. So on a 2-year basis, not only was this our hardest comp in which we still delivered actual growth. But it was obviously higher within the retail pieces of the business in our Q1 of this year. Obviously, offsetting what was the direct delivery decline I mentioned earlier, of approximately 3%. And so we feel incredibly encouraged by taking on a very challenged comp and still delivering. And again, that growth was broad-based and really balanced. And when you look at the disclosure tables in our quarter information in the supplemental, you'll see a couple of things that I want to call out. One, almost every brand and pack basically expanded in the quarter. And when you see things like purified water showing de minimis growth, if not a slight decline, that actually reflects a little bit more of the drag that's occurring in the direct delivery business itself. Similar things when you look at the premium water that grew substantially in Q1. And on a -- 2 years ago, this was a $50 million business in that quarter. So we've basically essentially doubled that business in 2 years. That's actually held back because Mountain Valley was a larger distributed brand on our route-based system in direct delivery. So that growth actually would have been even higher if we wouldn't have gone through some of the integration challenges and like you mentioned, weather disruption that occurred. So now let's kind of go into that sort of time line. Last year, just a few weeks ago, last year is when our Hawkin's facility was hit by a tornado. Actually, we held our board meeting in Texas in the market. And went and visited the plant, [indiscernible] celebrated what that team has done to rally and bring that factory back online and not only bring it online, but actually enhance it with an expanded line that we mentioned where Saratoga product will be coming to market from that facility. And then obviously, later in the quarter when some of the integration disruptions began. So we're not raising guidance because we have an easier comp. We're raising guidance because we have structural tailwinds that are occurring in the business and feel pretty confident in what's happening and what we're watching with both service levels as well as the retail execution, which was your original question, that retail execution continues to perform quite well. And it's not really at the expense of another brand and not really feeling directionally threatened at this point from private label, but I'll let maybe Eric provide some perspective there. Eric Foss: Sure. I think when it comes to private label, again, in this sector, you're always going to have a price-only shopper that's going to look for what's cheapest, which tends to be, in most instances, private label. Having said that, as the leader in the category, the good news is there is a high level of brand loyalty. And so as we look at our future consumption business. As I mentioned earlier, we have and intend to continue as we go through the summer months to maintain very good value around that portfolio. The encouraging thing in the first quarter is all 6 of our regional spring water brands grew. In addition to that, Pure Life, which is really our brand that tends to compete most against private label, and we manage a gap accordingly, also grow, as a matter of fact, grew mid-single digit. And so I think the point David and I are trying to convey is the durability and sustainability of some of the things we're starting to see on the recovery side. And certainly, that applies to our retail business in a big way. Operator: Thank you so much. That concludes our Q&A. I would now like to turn the call back to Eric Foss for closing remarks. Eric Foss: Thank you. Well, in closing, let me just state how excited we are by our start to the year. I think the fundamentals are strengthening. The momentum is building, and we're very energized by the opportunities ahead. and feel like we're well positioned to deliver sustainable long-term growth. So thank you for your continued interest, and we look forward to updating you on our progress. Operator: Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.
Scott Cartwright: Good morning, and welcome to Whirlpool Corporation's First Quarter 2026 Earnings Call. Today's call is being recorded. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer; Roxanne Warner, our Chief Financial Officer; Juan Carlos Puente, our Executive President of North America and Global Strategic Sourcing; and Ludovic Beaufils, our Executive President of KitchenAid Small Appliances and Latin America. Our remarks track with a presentation available on the Investors section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we will be making forward-looking statements to assist you in better understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K, 10-Q and other periodic reports. We also want to remind you that today's presentation includes non-GAAP measures outlined in further detail at the beginning of our earnings presentation. We believe these measures are important indicators in our operations as they exclude items that may not be indicative of our results from ongoing business operations. We also think the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations. Listeners are directed to the supplemental information package posted on the Investor Relations section of our website for reconciliations of non-GAAP items to the most directly comparable GAAP measures. [Operator Instructions] With that, I'll turn the call over to Marc. Marc Bitzer: Thanks, Scott, and good morning, everyone. During today's call, you will hear free message from us. First, we finished a tough quarter in our North American business. The month of March, which typically carries the quarter in North America, was exceptionally weak due to these 4 drivers, which I will discuss in further detail in the following slides. Second, we are taking decisive and bold actions to restore North American margins back to a healthy level. We have issued the largest price increase in more than a decade that raised prices by more than 10%, and we're doubling down and accelerating our cost actions despite higher inflationary headwinds. Third, our equity offering and a renewed revolver credit line, which we expect to finalize in Q2, puts our balance sheet in a strong position to weather this difficult industry cycle. Before we get into the numbers, I want to provide a bit of background about the macro environment in North America, not as an excuse, but as context for what happened in the second half of the first quarter. Turning to Slide 7. We can see that consumer sentiment has dropped to its lowest level in 50 years. The consumer sentiment was already on a very low level by any historical standard, but the war in Iran amplified consumer concerns about the cost of living. As a direct result, a consumer sentiment index in the U.S. plunged reaching the lowest level on record in March. Now while our view is that consumer sentiment is unsustainably low and should rebound from here, these events clearly pressured our industry and particularly discretionary demand. Turning to Slide 8, you can see the resulting impact on the U.S. appliance industry. The U.S. appliance industry demand declined 7.4% in the first quarter, with March being down 10%. This level of industry decline is similar to what we have observed during the global financial crisis and even higher than during other recessionary periods. Keep in mind that we are operating in an environment where the rest replacement demand drives more than 60% of the industry, and this part of the demand is relatively stable. So this gives you a sense about how dramatic the impact on [indiscernible] demand was. While we do believe that the negative industry demand in March was somewhat of an outlier, we do not anticipate a full recovery and are now forecasting the U.S. as the demand being down by 5% on a year basis. Turning to Slide 9. I want to share a snapshot of industry pricing over the past 15 months. This picture represents an aggregate view of literally thousands of price points which we collect weekly. It is based on publicly available retail sellout data. While it may be 100% accurate, it is, in our view, directionally correct. In 2025, the multiple changes in tariff policy, delays and [indiscernible] exemptions as well as the effect of inventory preloading by Asian competitors created significant volatility and promotion behavior. However, immediately after Black Friday, pricing improved slightly above pre-Black Friday levels. While the price changes were still below the level needed to fully offset the accumulated inflation and cost of tariffs about a positive development in line with our agitation coming into the year. As you can clearly see the small chart on the top right of the page, after the IEEPA ruling by the Supreme Court, promotion pricing reverted back in the following weeks. We believe the Supreme Court ruling, the broader skepticism about the durability of tariffs and the anticipation of refunds related to the tariff resulted in a resumption of an aggressive promotional environment. It is also obvious that price changes of 1% to 2%, as we've seen in February and March by the competition did not even remotely covered the cost of inflation and tariffs. You can also see that after the price changes, which we announced on April 17, Whirlpool set out prices, as determined by our retail customers have moved up by 10% compared to January 2025. At the same time, the behavior from our competitors has shifted more favorably. The key development for U.S. appliance industry this quarter was with change in Section 232 tariffs which brought clarity and predictability to the tariff landscape. We will later discuss these changes in detail. But what might appear as a small change in the 232 tariff has significant and lasting ramifications of the entire industry. Essentially, every imported appliance into this country, irrespective of where it comes from, will have to pay a tariff of 25% on full product value. And in the case of China, even more. The combination of drop in consumer sentiment, decline of consumer demand and the irrational industry pricing created an almost perfect storm during this first quarter. But we are taking decisive and bold pricing and cost actions we expect will bring our North American business back on its path towards healthy margins. With that, let me hand it over to Roxanne, who will discuss the first quarter results in more detail. Roxanne Warner: Thanks, Marc. Turning to Slide 10. I will provide an overview of our first quarter results. As Marc mentioned, our results in the first quarter were negatively impacted by the ongoing macroeconomic and geopolitical events that have developed since late February. We delivered an ongoing EBIT margin of 1.3% and an ongoing earnings per share of negative $0.56. Our earnings per share, in particular, was negatively impacted by approximately $0.32 from the noncash loss associated with our minority interest in Beko Europe B.V. Looking at our segment performance, MDA North America was severely impacted by a sharp decline in consumer sentiment and the costs associated with our inventory reduction actions. MDA Latin America margin was pressured by the intense promotional environment. This was partially offset by the gains associated with the [ default ] tax ruling in Brazil. Conversely, the SDA Global segment continued to perform exceptionally well. Our free cash flow was negative $896 million as the benefit from our inventory reduction efforts was more than offset by lower earnings. Finally, we returned cash to shareholders and paid a $0.90 dividend per share in the first quarter. Turning to Slide 11, I will provide an overview of our first quarter margin walk. Price mix unfavorably impacted margin by 275 basis points. This was driven by 2 key drivers. One, collapsing consumer sentiment further reduced discretionary demand and negative impacted mix. Two, the encouraging industry pricing progress we observed in the first few weeks of the year was heavily disrupted by the Supreme Court's IEEPA tariff ruling and the anticipation of refunds, which created further external volatility and the return of an intense promotional environment. Our net cost was negatively impacted by volume decline and onetime costs associated with the planned inventory reduction, resulting in 175 basis points of margin contraction year-over-year. We executed our originally planned inventory reductions and executed incremental reductions due to the unexpected industry decline. Overall, we drove 20% year-over-year volume reduction. Raw materials unfavorably impacted margins by 50 basis points, driven by inflation of steel, base metals and resins. The current and projected steel costs are now putting us at the maximum pricing of our long-term steel agreements. We experienced a neutral impact from tariffs in the first quarter as the incremental cost from changes to Section 232 implemented in the second half of 2025 were offset by tariff recovery and mitigation actions. Marketing and Technology was favorable 50 basis points versus prior year, driven by reduced transition costs and a pullback in spending as we saw consumer sentiment shifts. Currency was also favorable by 50 basis points, driven by the appreciation of the Mexican peso and Brazilian real. Lastly, transaction impacts was unfavorable 50 basis points to the noncash loss associated with our minority interest in Beko Europe B.V. It is important to note that based on the current carrying value of this investment, Whirlpool will no longer recognize any further losses from Beko Europe B.V. Now I will turn the call over to Juan Carlos to review our MDA North America results. Juan Puente: Thanks, Roxanne. Turning to Slide 12, I will provide an overview of our first quarter results of our MDA North America segment. In the first quarter, net sales decreased 8% year-over-year to $2.2 billion. Consumer sentiment collapsed into record lows due to the war in Iran prevented the recovery of the volume loss during the winter storms resulted in recession level industry contractions with discretionary demand down approximately 15%. The segment delivered breakeven performance with EBIT margins negatively impacted by the sharp decline in demand, higher-than-expected cost to reduce inventory and the return of an intense promotional environment after the Supreme Court IEEPA rule. . While we experienced high cost from the actions to reduce inventory levels and higher tariff costs year-over-year, these were partially offset tariff recovery and mitigation actions. As over 3 years of accumulated inflation continues to pressure our business, we have announced the largest price increase in a decade in conjunction with acceleration of critical initiatives to drive cost reduction. We expect these aggressive actions to put MDA North America profitability back on track. We'll share more details of those actions shortly. Now I'll turn it over to Ludo to review the MDA Latin America and SDA global results. Ludovic Beaufils: Thanks, Juan Carlos. Turning to Slide 13 and review the results for our MDA Latin America business. Excluding currency, net sales decreased approximately 4% year-over-year. This is the net impact of an aggressive promotional environment in the region and volume increases from a growing in share gains. Due to the promotional pressure, the segment's EBIT margin was 6%. This margin was supported by a favorable Brazil tax ruling and our ongoing cost takeout initiatives, which partially offset the unfavorable price/mix. Turning to Slide 14, and I'll review the results for our SDA global business. This business continues to perform exceptionally well, delivering approximately 10% net sales growth year-over-year, excluding currency. EBIT margins expanded an impressive 250 basis points year-over-year to 21%, driven by continued growth in our direct-to-consumer business, solid execution of cost takeout initiatives and some marketing investment timing changes versus prior year. We are proud to celebrate the sixth consecutive quarter of year-over-year revenue growth, clearly underscoring the strength of our product portfolio and our value creation strategy. On Slide 15, we showcase a few exciting new products that we're bringing to the market this year. We're proud to bring meaningful consumer-centric innovation to the stand mixer while maintaining our iconic design and heritage. The new Artisan Plus stand mixer is now featuring an integrated bold light and precise speed control. In our compact fully automatic espresso machine with iced coffee gives consumers the option to brew at a lower temperature, while also delivering a space-saving design that fits effortlessly into many kitchens. Now I will turn the call back over to Juan Carlos to review the critical actions we are accelerating to recover profitability in MDA North America. Juan Puente: Thanks, Ludo. Turning to Slide 17, I'll review some of our bold actions to restore MDA North America margins. On April 17, we announced the largest price increase in more than a decade. This price change is being executed in 2 steps. First, we executed a promotional price increase, which is already in effect of more than 10% relative to the first quarter prices. This is the most impactful change and is expected to start driving price/mix improvements in Q2, ramping up throughout the year. Secondly, we announced a lease price increase effective on July 9. The second wave represented an additional price increase of approximately 4%. This multistep plan is designed to offset the cost inflation accumulated over the last 3 years that has not yet been reflected in prices. the anticipated cost inflation in 2026 and some residual impact of tariffs. In addition to these pricing actions, we will continue to deliver product innovation and expand our mass premium and premium product [indiscernible]. The 30% incremental foreign gain on the back of the record year of product launches in 2025 is largely installed. And we are seeing the results of each major appliances continue to deliver strong sell-through performance year-over-year despite the softer industry. Our robust innovation pipeline was further validated by the outstanding award win performance at Cadis, where Whirlpool Corporation secured an impressive 23 awards. Turning to Slide 18. I will highlight the successful launch of our Whirlpool branded UV laundry tower, which we presented in our last earnings call. The national rollout of this product featuring the industry-first UV cleaning technology that reduces bacteria in the wash while keeping Fabric Care in mind has been exceptionally well received and is exceeding expectations. This innovation is driving rapid share gains, capturing approximately 5 points within weeks and increasing our balance of sales with trade partners who have floored the unit. This confirms the competitive advantage of our game changer, UV clean technology. Turning to Slide 19. I'm pleased to showcase the new kitchen intelligent wall oven, which earned the prestigious Best of Show Award, the highest owner at Tavis. This new wall oven is one of the many products available in our new KitchenAid suite, which began shipping late last year. This product allows consumers to experience cooking through a new lens with the intelligent cooking camera that identifies food, monitors [indiscernible] and remembers your preference for your favorite recipes. We continue to see strong sell out through our market share gains to trend towards the highest level in over the decade. Turning to Slide 20. I'll highlight exciting innovation coming to our incinerator business. The new LED Defense order fighting in flung features the UV-free LED light that kills 99% of common terms include an odor causing bacteria. These innovation features addresses one of the biggest consumer pain points of bacteria order. This is yet another product that we see recognition at Kabi this year and as the next-door neighbor to the dishwasher continues to position us well for the eventual housing recovery. Turning to Slide 21. Let me provide an update on the initiatives we are accelerating to bring our business back on track. As we navigate the current macro pressures, we maintain our commitment to deliver our $115 million in cost saving account in 2026, which will be fundamentally supported by our ongoing design to value engineering efforts. Given our current EBITDA margins, we're taking decisive structural actions across several key levers to accelerate our cost actions. First, we are heavily leaning into the vertical integration, automation and the optimization of our manufacturing and logistics footprint. As part of these initiatives, we announced 3 key products: one, our new strategic investment in Peres Group, Ohio. Two, the ongoing modernization of our Amana, Iowa plant; three, shifting production from Pilar Argentina to Rio Claro Brazil. Together, this footprint and integration moves are expected to unlock approximately $40 million in savings in 2026, while significantly improving our product quality, speed of invent and overall supply chain resiliency. Additionally, as we shared previously, we are renewing our strategic sourcing initiatives. We have already completed the first phase of this project, and we're making good progress on the second phase. We expect to capture roughly $15 million in savings in 2026. Finally, we're introducing a new measure which encompass targeted fixed cost actions within our corporate center. We expect to generate approximately $20 million in sales, which we will plan to share more details about it in the near future. Collectively, these actions will have a carryover benefit into 2027, ensuring that we are actively managing the element with our control to offset external headwinds and restore our profitability. Turning to Slide 22. Let me detail the accelerating of our vertical integration and how we significantly strength our U.S. manufacturing footprint. We recently announced that we are making a $60 million investment in our new state-of-the-art production facility in Perrysburg, Ohio. This represents our 11th factory in the U.S. and our sixth in the state of Ohio, reinforcing the legacy that we are incredibly proud of, we started in America and we stayed in America for over 100 years. The strategic investments will drive greater efficiency and is expected to deliver approximately $30 million in annualized EBIT benefits. Turning to Slide 23. We are executing critical factory footprint changes to unlock greater operational efficiencies within our regional manufacturing network. First, in Armada, Iowa, we are undergoing a multiyear modernization effort. This modernization will refocus our manufacturing of bottom on reiteration and optimize our card production and subassemblies, generating an expected annualized EBIT benefit of approximately $70 million. We're also optimizing our Latin America operations by shifting our [indiscernible] washer production from Argentina to our Rio Claro facility in Brazil. This strategic shift drives valuable manufacturing cost efficiencies and logistic cost optimization, which we expect to deliver an additional $20 million in an annualized EBIT benefit. Turning to Slide 24. Let me provide an update on Section 232 tariffs. While the Supreme Court overturned IEEPA tariffs in late February, the administration took significant actions in early April to strength Section 232 steel tariffs on home appliances. The UPDATE 232 framework represents a significant win for the U.S. manufacturing and lasting structure advantage for work. As a reminder, Section 232 steel tariffs were first implemented in 2018 and have proven the durability by remaining in effect throughout multiple administrations. While home appliances were officially covered under the framework in the mid-2025, the recent updates in April have increased the overall tariff rate on Home Appliances and greatly simplify both compliance and enforcement. Because we proudly manufacture the vast majority of our products domestically and continue to invest in [indiscernible] manufacturing, this trade policy strongly supports our position. We estimate that a 25% tariff impact on our competitors will now be between 10% to 15% of our competitors to a U.S. major appliance net sales. By contrast, the impact of our MDA North America business is estimated to only be about 5%. Ultimately, these changes bring much needed predictability to the industry and deeply strengthen our competitive advantage as by far the largest domestic appliance producer. Now I will turn the call back over to Roxanne to review our revised expectations for 2026. Roxanne Warner: Thanks, Juan Carlos. Turning to Slide 26. I will review our updated guidance for 2026. Given the rapid deterioration of the macro environment since late February, we have revised our expectations for our 2026 results. On a like-for-like basis, we expect revenue growth of approximately 1.5% in 2026 due to our revised expectations for the North American industry. Even though the industry has seen substantial degradation of a new product launches are expected to continue delivering growth in MDA North America. We expect our MDA Latin America business to regain momentum and expect continued strength in our SDA Global business. On a like-for-like basis, we expect approximately 70 basis points of ongoing EBIT margin contraction to a full year EBIT margin of approximately 4%. Free cash flow is expected to deliver more than $300 million or approximately 2% of net sales, driven by significant structural inventory optimization. We expect full year ongoing earnings per share of $3 to $3.50. This includes approximately $1 impact due to the recent equity offering alongside an additional $1 impact due to an adjusted effective tax rate of approximately 25%, which is an increase compared to 2025. Turning to Slide 27, we show the drivers supporting our 2026 ongoing EBIT margin guidance. We have updated our expectation of price mix to 150 basis points reflecting the current impact of collapsed consumer sentiment, offset by the impact of our Board pricing actions announced in April. We expect to substantially improve price/mix and as we progress through the year with the benefits starting in May and ramping throughout the year. Net cost takeout reflects the expectation of delivering more than $150 million supported by our accelerated cost actions. While we have long-term steel contracts in place, the current and projected costs are putting us essentially at the maximum pricing of those contracts. This has a minor impact on our full year RMI expectations. However, combined with the inflation of base metals on resins, we have updated our expectations to approximately 75 basis points of negative impact from raw materials. We expect approximately 175 basis points of negative impact from the tariff announced in 2025 and updated in April 2026. We expect the benefits seen in Q1 from the tariff recovery and mitigation actions to be more than offset by additional tariff costs due to the Section 232 tariff changes announced in April. It is important to note that these impacts represent currently announced tariffs and do not factor in any future or potential changes in trade policy. Our expectations for marketing and technology currency and transaction impacts remain unchanged. Turning to Slide 28, I will review our segment guidance. Starting with industry demand, we expect the global industry to be down approximately 3% in 2026. In North America, given the drastic decline already seen in Q1 and the anticipated prolonged inflationary environment, we now expect full year industry demand to decline by approximately 5%. Our industry expectations for MDA Latin America and SDA Global remain unchanged. For MDA North America, we now expect to deliver a full year EBIT margin of approximately 4%. The Board pricing actions we've taken and accelerated cost takeout initiatives are expected to drive profitability recovery in MDA North America. Margin expectations for MDA Latin America and SDA Global remain unchanged. Turning to Slide 29. I will provide the drivers of our free cash flow guidance. We have updated our cash earnings and other operating accounts, consistent with full year EBIT guidance. We have not changed our expectations for capital expenditures and continue to focus on delivering product excellence and investing in our U.S. manufacturing footprint. We have taken necessary actions to optimize our inventory and are updating our expectations to improve working capital by approximately $150 million to support cash generation in 2026. As seen in our first quarter results, our working capital initiatives are off to a very strong start and we expect these structural changes to improve our day-to-day inventory levels. Our expectations for restructuring cash outlays related to our manufacturing and logistics footprint optimization efforts are unchanged. Overall, we expect to deliver free cash flow of more than $300 million or approximately 2% of net sales. Turning to Slide 30. I will review our capital allocation priorities, which have been updated to reflect the current business environment. Investing in organic growth through product innovation remains critical to our business, and this will continue to be one of our top priorities. We will continue to invest in product innovation, digital transformation and cost efficiency projects with approximately $400 million of capital expenditure expected this year. Secondly, we are committed to reducing our debt levels no more than ever. We expect to pay down more than $900 million of debt in 2026, continuing our commitment to deleverage. Lastly, after careful consideration with our focus on ensuring financial flexibility during this challenging operating environment, we have made the prudent decision to pause our quarterly dividend starting in the second quarter. This decision is critical to ensure that we create the capacity on our balance sheet to pay down debt and fund organic growth. Turning to Slide 31. I will review how we are taking additional actions to manage our debt maturities and ensure liquidity in an uncertain macro environment. We recently executed a strategic equity offering that successfully raised approximately $1.1 billion in capital. The use of these proceeds was focused on debt paydown and accelerating our vertical integration and automation efforts. The proceeds were used as expected. We paid down more than $900 million in debt and began to invest in vertical integration with the acquisition of our Paris burg, Ohio facility. We are in the process of moving to an asset-based lending facility. As we transition, we entered into an amendment to our existing credit facility reducing our available line of credit from $3.5 billion to approximately $2.25 billion effective in May. This amendment provides us with a valuable near-term flexibility and ample borrowing capacity. We have strong lender support on the asset-based lending facility and are tracking well to closing the next credit facility over the coming weeks. These decisive actions demonstrate our continued focus on debt paydown as we work to drive our long-term debt below $5 billion. Now I will turn the call back to Marc for closing remarks. Marc Bitzer: Thanks, Roxanne. Turning to Slide 32. Let me summarize what you heard today. As we discussed, our first quarter results were heavily impacted by severe external volatility and onetime events. The sudden macro pressures from war in Iran, result in plant in consumer sentiment and the disruptions to industry demand and pricing all masked the underlying operational progress we have made. However, we're actively managing what is within our control. We have announced significant pricing and structural cost actions that are firmly in place to restore profitability to our MDA North America business. By driving over $150 million in cost takeout initiatives and executing our largest price increase in the decade, we're aggressively addressing our margin pressures. More importantly, our ongoing U.S. footprint optimization and the recent Section 232 tariff update meaningfully strengthened our competitive advantage as a domestic producer. Because we probably built approximately 80% of the products we sell in the U.S. here in America, we're structurally positioned to win in this new tariff landscape. Additionally, our SDA Global business continues to perform exceptionally well, remaining a bright spot in our portfolio, consistently delivering revenue growth and margin expansion. [indiscernible] in small appliances or our major domestic categories, we continue to hold a leading position supported by our portfolio of iconic brands and innovative products. Looking further ahead, we know the U.S. housing market drop will be over at one point, and the March read of housing starts may be an early indication of a more positive trend. The eventual tailwind from an inevitable recovery will be strongly catalyzed by our leading established position in mobility channel as well as the strength of our in since rate business. Now we will end our formal remarks and open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Michael Rehaut from JPMorgan. Michael Rehaut: I want to take a step back and just kind of -- my question is really just on the consumer. And you highlighted the all-time low in confidence impacting results. So far this earnings season, we've heard from other building product companies where volumes are down, but not to the extent that we're seeing in appliances and many have kind of reported that while the consumer confidence is shaky, demand trends have been somewhat more stable, perhaps than what you've seen in your own industry. So I was wondering if you could kind of contrast what the drivers are that maybe has created that greater amount of volatility in appliances as you see it from the consumer's perspective compared to other products like power tools, flooring, paint, plumbing, et cetera. Marc Bitzer: Yes. So Mike, obviously, I mean, just to repeat the numbers, we saw minus 7.4% industry demand in Q1, of which March was minus 10%. So that is even in our industry, as a point at a very, very unusual low level. I mean that's why we pointed. The last time you've seen minus 10% was during the global financial crisis. I think one of the key elements, which makes our category may be slightly different for other categories at the end of the day for the majority of U.S. households, appliances or the purchase of appliance or a significant portion of our disposable income. So ultimately, it's a decision against the confidence the consumer has about the financial future. So it's just a big ticket item. It's not a $50 purchase. And that, I think, explains a little bit what it's been seen right now in Q1. And while we're just a little bit more anecdotes, one of the strongest businesses, which we had in Q1 was actually our spare parts and repair business, which just as an indicated by even consumers are holding back, replacing products and rather repairing it. We've seen that also [indiscernible]. Now the flip side is consumer confidence is on a 50-year low, but we've seen in other phases, consumer confidence actually moves pretty fast. And I wouldn't expect that level of confidence, but also that level of industry demand being that much down for the rest of the year. So we do anticipate a recovery. But I mean the first 3 months already in use so much down, no matter how you do the math, if you anticipate kind of a more flattish environment going forward, that's why ended the minus 5%. So I do consider and I agree with you, March was probably an exceptionally low outlier, which we didn't expect. Will that be the same going forward? No, but it's not going to be an immediate recovery in consumer environment. Michael Rehaut: Right. And I guess Secondly, obviously, big price increases by yourself, and it looks like from Slide 9, the industry as well in the most recent couple of weeks. How are you thinking about second quarter EBIT margins for North America? And if your assumptions hold, what are you thinking about the trajectory for the back half as well? Marc Bitzer: So Michael, as you know, we're not giving specific Q2 margin guidance. But let me give you a little bit broader perspective on the pricing and what we're seeing and how it flows through our bottom line. So first of all, and I want to refer to a slide which we presented, this is the biggest price increase. I think we'll refer to decade, honestly, 3 decades in the company, I have not seen that level of price increase. Keep in mind, there's basic essentially 3 components of that price increase. One, a very significant promotional price map or PMAP increase of more than 10%. That's already out there, and you see that already reflected in the retailer pricing towards the consumer. . Two, we significantly reduced our participation in promotions. So for example, July 4, we're going 2 weeks as opposed to 3 weeks. And when participating in all house formation and promotions. And three, we have a list price increase also kicking in July on the vast majority of our products. So it's kind of a multi-tiered approach. I would say the first 2 weeks of what we've seen in consumer visible prices have been very encouraging. So you could use the term in the first 2 weeks, yes, the pricing is sticking. Needless to say, that is key to everything going forward on the EBIT margin. And if that holds, then we will be in a good place. Now keep in mind also, and this explains a little bit Q1, I mean you anticipate in Q2, that chart shows you consumer pricing. That is not exactly how it exactly immediately flows to our bottom line. What I'm referring to, for example, in Q1, you still pay the former promotional investment on Q4 because it's a delayed or trailing effect. So even more April price and consumer starts, you're still partially paying for the large promotions out there. So there's a little delay effect, which also will flow through Q2. But again, if the pricing holds, as we've seen in the 2 weeks, I think you will absolutely see the gradual recovery of our EBIT margin as we'll be kind of pretty much laid it out. Operator: Your next question comes from the line of David MacGregor from Longbow Research. David S. MacGregor: My first question was just on the guidance. And I guess a few parts to this, but can you explain why you're calling out the improving price environment at the same time taking down your full year price/mix guidance? And would you tell us how much of the price improvement you're including revised guidance. It looks like you've got kind of partial inclusion with the reduced PMAP, but maybe none of the July increase? And then how much are you specifically assuming for mix? And then I have a follow-up. Marc Bitzer: Yes. So David, first of all, the full year number, which you've seen on Page 27, keep in mind, we basically have 3 months of negative pricing. And you saw that in the earlier pricing margin walk. So you first have to overcompensate on a full year base of what you already lost in Q1. So put it differently, yes, on a full year basis, it looks like it's kind of 25 points down actually on the Q2 to Q4 point is significantly up. Did we factor in the full amount of a price increase? No, which also means the success of a stickiness of price will determine a lot, but we took, of course, there's a certain assumption, which we took into account here, but maybe not a full amount. But let's see how these things develop. The big uncertainty, and this is why we were still a little bit cautious, and you alluded to this one is mix. And let me explain that a little bit because that's probably on everybody's minds. I know some people will ask or may ask about what happens to price elasticity. Actually, in all previous years, we've not seen so much an impact on consumer price elasticity. For a simple reason, last time consumer board [indiscernible] of 10 years ago, by and large, the prices are very similar. So we don't see the big elasticity from a pure demand, particularly in replacement market. What you do see, however, that in particular in a distressed environment, that consumers enter the store with a budget in their mind. So what I mean is we have a budget like $600, and we're basically going to stick by that price point. So what you see as opposed to a product with used to cost $599 is now fixed for $599, but stick to a $599 price point. What it means is for us a mix down to [indiscernible]. So we saw in other circumstances, not necessarily impact on volume of demand, but you do management mix very careful. And that's what we -- but obviously, that's the kind of biggest uncertainty. That's why we didn't fully factor in what happens to mix, how much can we compensate? How can we mitigate? We have tools in place, in particular with our new products to manage the mix in the right direction. But that is really the consumer uncertainty about what happens to mix when you go out in an environment which from a consumer perspective is distressed. David S. MacGregor: Got it. Okay. Just as a follow-up, I guess this is maybe a higher-level question, but can you just update us on the path from where we are now to your 9% target for EBIT margins longer term? How does that 500 basis point bridge look in terms of price/mix, net cost, volume leverage, RMI, the framework you typically employ? Marc Bitzer: Yes. I mean, David, the first big step is actually what will have to happen in '26. I mean, as you can -- obviously -- and I know you're probably already did that. That guidance which we've given on 4% this year implies when basically you have an exit rate, which is very different from where we are today. And without getting into the details of quarter-by-quarter margin. And you're basically talking about an exit rate of, whatever, 6% plus for North America. That is the fundamental step on everything. So the question on your 9% starts with exit rate of Q4 this year. The pricing actions together with the cost actions will put us on the right trajectory. Olmocost actions and a lot of things which we talk today about, obviously, as you can imagine, have a lot of carryover benefits. . So all the manufacturing footprint, the vertical integration, the numbers for '26, as you could tell, are yes, they're okay, that gives some benefits, but the real benefits start '27 going forward. That's when you see a lot of these benefits. So we carry the exit rate into next year. We have additional cost actions. That puts us on a path towards the 9%. I'm not saying that's a '27 number, but it puts us on the right path. Operator: Your next question comes from the line of Sam Darkatsh from Raymond James. Sam Darkatsh: So the two questions. First off, around the RMI guide, I think you raised it by about $100 million versus prior. Does that contemplate current market prices for PVC and resin and base metals? Or does that contemplate some give back from current market prices in the second half of the year? And then I've got a follow-up. Marc Bitzer: Sam, the short answer, it does. Let me give you a little bit of context. So as you know, you know it very well. Our #1 purchase product is steel to Roxanne's point. We're kind of getting to a cap of our loan agreements. We were hoping maybe a little bit below the cap, but that's fully factored in, but it's not volatile going forward for us. On the resins, it does not reflect the current spot because the current spot and the way how we buy the steel be okay. But it anticipates that Q3 and Q4, we have some headwinds on our plastic components. It just ultimately results of what we're seeing on oil prices. There is another element which may be on a relative case, maybe a little bit more favorable for North America as opposed to Asia. I think there might be some supply constraints in plastics, in particular, for Asia, which ultimately will also drive prices on plastics. Sam Darkatsh: But they do -- the second half does contemplate like current market prices for resin and oil throughout the year, and then it just hits you in the back half, just clarifying that. Marc Bitzer: Yes, it implies an increase of plastic prices in Q3, Q4 versus where we are today. Sam Darkatsh: Got you. And then my follow-up, you cut out a lot of production, obviously, you get the inventories in better shape during the first quarter. The rest of the year, are you anticipating production and shipments to largely match? Or is there -- are there more production cuts to come? Marc Bitzer: Yes. So Sam, first of all, to clarify Q1, we already planned and we alluded to this one in January, but we want to bring down inventory to the right levels. Obviously, with industry being what it is, we had to cut even more production than we ever had in mind. That caused us in the quarter around $60 million. So it was massive. But the good news is right now in [indiscernible] And North America are what we call on a really good on a healthy, sustainable level. Now having said that, we are anticipating also on a full year base that the industry demand will not fully recover. So also going forward, we will produce less than we, for example, produced last year. But we know that now we can adjust accordingly. So there's not going to be a big onetime reduction in inventory, but it's just more we want to keep production in line with what we're seeing in the industry demand. Operator: Your next question comes from the line of Mike Dahl from RBC Capital Markets. Michael Dahl: I wanted to ask first about tariff dynamics of 2 parts. First is you didn't record a material tariff impact. And in first quarter and you're still lapping the tariffs from last year. So curious if there was any booking of refunds or anything other onetime in nature there? And then when you think about then the net tariff impact going up for the full year kind of despite that. Can you just help us parse out like what the -- like obviously, your competitors are more impacted by 232, but what your net puts and takes are around kind of the current guide? And what's contemplated and how much is specific to 232? Marc Bitzer: So Mike, so let me first talk about how it impacts us and then maybe broader 232 tariff and I'll read into this one. So first of all, as you know, we as a company, we pay 3 different types of tariffs. That's the 232 with 301 in the past was the IEEPA and now to some extent to 122. So it's always going to be a stack player of this one. In Q1, we had a number of favorable tariff mitigation actions. That's a combination of post-summary corrections. It's on tackling sales and tariff refunds on IEEPA piece, not only 301 or 232. So in Q1, there was actually a pretty neutral guy or put it differently, it pretty much helped offsetting the cost of inventory reductions. So it's a wash. . On a full year basis, we do anticipate, and that's now effective for 232 and also with 122 changes, but the tariff costs on a fully base go up 0.5 point. That's fully factored in. Now again, that's from today's environment, if something changes, when something will change, but that's pretty much we expect on a fully base. But keep in mind, in every given quarter, you may have ins and outs, that depends on shipment patterns, but it depends on what happens on the 3 different tariffs. But on -- at the current state, if the tariffs not stays able, I think 1.27% that's pretty much what you should expect. Now the broader comment I want to make on 232, Juan Carlos in his comments earlier already alluded to this one. I know we may feel to be outside, like this is a small change of 232. It is actually big in viremication thus for our industry. And let me just explain it once again. It's before it was fairly complicated. But the appliance first time were included in 232 last year in April. The way how it was set up with cleared steel value declared weight was very complicated. And I would say, left many doors on for maybe not a full declaration of real cost. What changed now is a flat rate of 25% against the full declared product value. That brings a lot of stability and clarity to the equation because the [indiscernible], which are very competent, they have a lot of history and understanding of full product declaration. So we built to kind of circle that are very limited. And 25% on every single imported appliance in the country is massive. Nobody can escape that. So -- and of course, with our domestic production footprint, that what I would call is finally the environment which allows the level playing field. Honestly, we've been waiting for this one essentially for a year. It's now as of April 6, finally in place. And I personally believe it will drive a lot of positive changes for us. Michael Dahl: That's helpful. My second question is more demand related and specific to North America MDA. The understanding March was kind of an acute weakness. What are the trends that you've seen kind of since March and April and midway through May, especially as you and others have tried to implement the price because I know you're saying that you're not assuming full recovery from a demand standpoint, but it still seems like to get to your full year revenue guide in trends in addition to price mix has to improve through the year. And it also seems to imply still some share gain while your own charts kind of show you trying to take at least at this point in time, more price than your peers. So I'm just hoping to get a better walk for kind of the more recent dynamics you've seen and how you're envisioning the balance of the year. Marc Bitzer: Yes. So Michael, obviously, Q1 was really rough from the industry demand and March, in particular, that March was just a fall off the cliff on demand. April slightly improved, but still a negative trajectory. And honestly, that's pretty much what we expect. It's -- as long as the consumer sentiment is that much down, I don't think you will see strong market demand patterns, but not to the level of obviously in March. March was just a shock to the system. So April is slightly improving. What we do see, again, the basic trends of this replacement market continues, what do we see is still mix being under pressure. Consumers are budget constrained. It doesn't impact necessarily volume of appliance sales sold, but it impacts the mix. That's what we've seen in Q1. That's what we're also seeing in April, and that relates back to my comments is we do go very aggressively on the overall pricing, but we've got to manage mix in the meantime. So that's a market trend, which I think you will see much Q2 and Q3, i.e., volumes being soft to slightly negative and mix being under pressure. Operator: Your next question comes from the line of Eric Bosshard from Cleveland Research. Eric Bosshard: Just a clarification of 2 things. One, the March and April, the demand -- this is an industry shipments, is that correct? Marc Bitzer: That is correct, Eric. Maybe to elaborate on this -- keep on going. Eric Bosshard: Yes. I was just going to ask. I was curious on sell-through. Is the sell-through at what you're seeing at retail down 10% in March in the summer level in April? Or is this just a shipment issue? Marc Bitzer: Yes. So Eric, you're pointing out a good point. So what I'm referring to is industry shipment into the trade. In Q1, and of course, we don't have industry inventory levels. We know our own product inventory levels with retailers. So I would say, estimate in the 7.4% down, probably about 0.5 point to 1 point of inventory reduction of trade included in there, but not more. But that's just an estimate from our side. I think I would say on our products because we don't have industry sellout data. Our products in Q1 actually held reasonably good ground. So I would say the last 13 weeks what we've seen is pretty much a flat to slightly down sellout, so a little bit better when we sell in. And that's what we continue to see. Again, with respect to we feel good about our product range. Our products are selling and what [indiscernible] showed earlier, the KitchenAid products, in that market is still growing at double-digit rates. So we know our new products are selling, but the sentiment is just weak overall. Eric Bosshard: Okay. And so the dramatic change, the impact from the war is on the sell-in and the sellout has not changed meaningfully. Is that your point? Marc Bitzer: Well, just I need to clarify on our products. But even in March for sell-out was maybe 1 or 2 weeks overall sellout, which were really down. our products right now overall, we sell out a little bit better when we see from a sell-in on a broader market, but we now need to see what's going forward. But I mean, again, March also sellout was not the strongest. Eric Bosshard: And then secondly, just to make sure I understand that you talked through the strategy with promotions and last weeks that you're going to participate. And all of that is than reflected in the industry down 5%. Is that -- and I know elasticity's not an industry that responds a lot to price and price is not that important as what I've heard you say. But in terms of your expectation on volume. That's all captured in this industry now down 5% versus 0. That's the expectation of these changes. Is that correct? Marc Bitzer: That is correct. And just again, it's in a market which is strongly replacement-driven, again, more than 60%, it just does not make sense to have promotions on July 4, which are 3 weeks on. You're not going to increase market demand. You pull forward at best but you're not going to change market demand. That's what our decision, but retailers make their own decision. Our decision is we will only support the July 4, 2 weeks and not 3 weeks. And we're also not going to promote in every -- or participate in every single house promotion. Again, retailers may make their own independent decisions. That's what I'm referring to is what we are supporting because in such a market, you will not increase demand by excessive promotions. Operator: Your next question comes from the line of Rafe Jadrosich from Bank of America. Unknown Analyst: This is [ Sean Calman ] on for Rafe. Just first one, you guys are raising price a little more than your competitors despite the higher tariff impact for them. Are you expecting them to have to catch up on the price increases? And then with that in mind, what are you guys expecting for share gains this year? Marc Bitzer: Yes. So Sean, first of all, I really want to be clear to the audience. We're raising price not just because of tariffs. We have 3 years of pent-up of inflation, which we have never reflected. The entire industry has not reflected that. Many people could argue that you have 20 years of inflation which have never been passed on consumer. So we're passing on 3 years of pent-up inflation, which, at one point, we just have to pass on to consumers in addition to tariffs. Now that mix of inflation and at may be different to competitors and they make their own decision. We know what we have to do because of our cost base. We will reflect the cost of our products in the consumer prices, and that's -- and your question about are we slightly higher on competitors. It's more -- yes, we also have a lot of new products, which serve a higher value. Unknown Analyst: Okay. That makes sense. And then on the 10% to 15% impact from 232 to competitors. How does that compare to what you guys thought the IEEPA impact was? Marc Bitzer: First of all, the IEEPA impact, I think there was a lot of uncertainty in terms of how much were we paid and how much flow through. For me, the more relevant point is, it's very stable. It's hard to circumvent and bypass. There is no country hopping, which will happen because of different rates. So normally, it's probably slightly higher, but in terms of real effect, I think you could call that tariff has gripped, and I think that's a very, very different landscape than what we've seen a year ago, very different. Operator: Your next question comes from the line of Susan Maklari from Goldman Sachs. Susan Maklari: My first question is on the strength that you actually saw in SDA, which seems to be quite contrary to what is going on with the me and your overall comments on demand. Can you talk about how much of that strength is driven by your product specifically in the investments in innovation versus the exposure that you have there of the price point? And how you're thinking about the sustainability of that given the environment? Ludovic Beaufils: Susan, this is Ludovic. Thanks for the question. So in terms of the overall industry, we have not observed as much of a compression in consumer demand in SDA as what we just discussed in MDA, be it in North America or in other regions. It's probably a couple of reasons for that. And actually, some of you alluded to it, we're looking at lower ticket items and so the consumer resilience is a little stronger. In that context, we're gaining share. And I think that's based on the fact that we're selling at a more premium prices where the consumer also has more resilience, number one. Number two, we're doing really well with our new products. So whether that's the carryover effect from launches last year in blenders, for example, or just now the effects that are starting to show up in terms of stand mixer innovation and compact espresso we're seeing just really strong numbers all around. So really pleased with how that's shaken out so far. We're going to continue to monitor the industry going forward. And -- but with the strategy we have and the launches we've done so far, we're pretty upbeat about the rest of the year. Susan Maklari: Okay. That's helpful. And turning to the dividend. Can you talk a bit more about the decision to spend that what needs to happen to perhaps start to bring that back in? And then just more broadly, your thoughts on the current capital structure post the offering. And I know you talked about that path to deleveraging. But can you just give us a bit more color on how you're thinking about the future of the capital structure and what that will mean for uses of cash? Marc Bitzer: So Susan, first of all, to clarify the dividend decisions are made by our Board. But as the CEO, yes, to suspend the dividend is a very, very painful decision. I mean just what it is. And certainly, it's not something which I want to keep for very many quarters in place. So we would like to resume a dividend as quickly as possible, but it's -- clearly, it's a board decision. What has to be true is, basically, we need to have a better ongoing operating margin, and we want to continue to pay down our debt. That's basically has to be true before we resume the dividend, but it's really a reflection of we want to pay down our debt this year. You saw earlier, $900 million, that's massive. . And at the same time, we want to continue to invest in our future in products, but we did not want to cut back our capital investments. That's why we took the difficult decision. It's the right decision with cap allocation and we will reassess as the operating margins will improve. But again, it's ultimately a Board decision. Roxanne Warner: Susan, to tap into your question related to overall what we would do with capital allocation post the equity offering. We do have, at this time, ample liquidity to operate the business in the uncertain environment. As you do know, we have the $3.5 billion unsecured revolver. At the end of Q1, we moved to a $2.25 billion unsecured revolver as part of our covenant amendment. With that revolver, we, as I said, have ample liquidity. But with that said, given the uncertain environment that Marc just touched on, we will continue to look at all opportunities to bolster our balance sheet, whether it be continuing to evaluate asset sales, as we mentioned in the last earnings call and then also continuing to look at financial alternatives like tapping in to the capital market as needed with our focus on ensuring that our net debt leverage continues to improve. Operator: Your final question comes from the line of Kyle Menges from Citi. Unknown Analyst: This is Randy on for Kyle. Yes, I was just hoping you could talk a little bit about what you're seeing in the promotional environment in Latin America. And I guess your expectations around how you'd expect pricing behavior to shape up in that market from here? Ludovic Beaufils: Yes. This is Ludo. So in terms of our -- the promotional environment in America, first of all, the general background is one of pretty significant growth in the market at this point. We're seeing growth in Brazil. We're also seeing growth in a large number of markets around that America. With that said, we're I would say with the outlook for the rest of the year, considering the political environment, a number of elections coming up, just general volatility in the region. I think the promotional environment has been particularly intense in Brazil lately with foreign competitors, in particular, and imports being pretty aggressive on the back of a strong real. So we're responding to this. We have product launches in -- particularly in the premium side of the market where we've got a nice lineup coming through that's being very successful right now and [indiscernible] in refrigeration and laundry, number one. And then number two, we have a lot of cost actions accelerating in order to provide competitiveness in this particular market, whether it's vertical integration, whether it's the Rio Claro production facility expansion to taking the front load volume that was previously built in our Argentina plant. So we're confident we're being the competitiveness that will enable us to be successful in a highly competitive environment. Operator: Ladies and gentlemen, that concludes -- please go ahead. Marc Bitzer: I think that pretty much concludes today's questions and the earnings call. So first of all, I appreciate everybody joining. I'm not going to repeat all the commentary we made, but you obviously saw we had a challenge in Q1, which was driven by a very, very rough environment in North America. But even more importantly, we took right bold and decisive actions. And we're talking about actions, which are not just transactions or hope we're already in place. And you see also the pricing chart, we start seeing the effect of this one. So yes, the Q1 was challenging, but the actions are in place, and we have 100% focus on reverting the current profitability trends in North America, and we have full confidence behind that. So thanks for joining me, and we will talk to you in July. Thanks. Operator: Ladies and gentlemen, that concludes today's conference call. You may now disconnect.
Operator: Greetings. Welcome to Shake Shack's First Quarter 2026 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Alison Sternberg, Head of Investor Relations. Thank you. You may begin. Alison Sternberg: Thank you, operator, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Rob Lynch. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our shareholder letter. Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K filed on February 26, 2026, and our other SEC filings. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. By now, you should have access to our first quarter 2026 shareholder letter, which can be found at investor.shakeshack.com in the Quarterly Results section and as an exhibit to our 8-K for the quarter. I will now turn the call over to Rob. Robert Lynch: Thanks, Alison, and good morning, everyone. I want to start by thanking our incredible team members across the globe who continue to bring enlightened hospitality to life every single day. Your dedication to serving our guests with care and kindness is what makes Shake Shack special. I'm grateful for everything that you do. Turning to our results. I'm pleased to report that our first quarter performance showcases continued sales momentum in our company-operated Shacks and meaningful progress against our 6 strategic priorities for 2026, which are building a culture of leaders, optimizing restaurant and supply chain operations, driving comp sales behind culinary marketing and digital innovation, building and operating our Shacks with best-in-class returns, accelerating our license business and investing in long-term strategic capabilities. For the first quarter, we grew total revenue by more than 14% -- much of this growth came from same-Shack sales growth of 4.6%, including a 1.4% traffic growth. These strong sales and continued traffic growth were achieved despite significant weather impacts that contributed 240 basis points of negative comp in the quarter, negatively impacting our EBITDA for the quarter. Despite these headwinds, our sales and traffic momentum continued, and we have now delivered 3 straight quarters of traffic growth. At the core of our sales performance is, first and foremost, strong restaurant operations that deliver guest satisfaction. Secondly, is culinary innovation that differentiates our brand. And lastly, our investments in targeted digital media to create awareness of our guest value proposition. In Q1, we increased investments in delivering guest satisfaction, driving comp and opening new Shacks. And despite elevated beef costs that continue to persist, we were able to expand our restaurant-level profit margin by 50 basis points year-over-year to 21.2%. We continue to show our ability to grow both top line sales and operating margin, primarily through ongoing traffic driving programs and operational and supply chain productivity. We also delivered our largest first quarter of new units ever with 17 new Shacks. We continue to successfully bring Shake Shack to new and underpenetrated markets, many outside of our historical footprint. Given our strong current cash-on-cash returns and expected future returns, we will continue to accelerate our company-operated development efforts. Consistent with this strategy, we are now guiding to 60 to 65 new company-operated Shacks for 2026, an increase from our prior guidance of 55 to 60 Shacks. I would call out that opening this higher number of new Shacks in Q1 did increase our total preopening costs, which weighed on our adjusted EBITDA for the quarter. Throughout the quarter, we made strategic investments to support our sales driving initiatives and new unit openings, both of which support our multiyear growth plans. These investments allow us to bring Shake Shack to more communities and create awareness of what makes our food and hospitality so special. These investments continue to enhance our strong value proposition and drive traffic in this value-oriented environment. As we work to continue to enhance our value equation in a very competitive marketplace, we're focused on making the right investments in our food, our assets, our team members and our traffic-driving strategy. As a result of the weather headwinds that we experienced and our investments in additional new store openings, our first quarter adjusted EBITDA did not meet our short-term quarterly expectations. That being said, we are confident that the foundation that we are building today positions us for long-term growth, and we remain confident in our long-term strategic plan. Still, given the volatility in the global and domestic marketplace, we are broadening our 2026 adjusted EBITDA guidance to a range of $230 million to $245 million. Despite that volatility, I am excited to share that our sales momentum is building in Q2 and that we are reiterating our 2026 guidance for Shake-Shack sales, restaurant level margins and our long-term financial targets. After making the strategic decision to focus our traffic-driving investments in May and June, we're excited to see very strong performance to start May behind the launch of our Baby Back Ribs Sandwich and anticipate strong sales growth in June as we expect to leverage the incremental traffic in some of our largest markets driven by the World Cup. And despite a slower start in April, driven in part by the shift in spring break timing associated with the Easter holiday, we're confident in our guidance for Q2 at 3% to 5% comp growth. Over the last 2 years, we have built a best-in-class executive team. A performance-driven restaurant operating model, a sales engine that can consistently drive transaction growth, a supply chain that is increasing productivity and a domestic development capability that is profitably accelerating the growth of our restaurant count on our way to 1,500 company-operated Shacks. Shake Shack is well positioned for the balance of 2026 and beyond. Now I will discuss our progress against our strategic priorities. At Shake Shack, our performance is directly correlated to the quality of our team members. I've invested a significant amount of my time over my first 2 years cultivating an executive team that is uniquely positioned to achieve our ambitious aspirations. Today, I'm excited to announce the newest member of our executive team. Michelle Hook will be joining Shake Shack as our new CFO next week. When we set out on this search, I thought that it would be very difficult to find a new CFO that met every criterion that was important to us. I'm ecstatic that we found a candidate that does. Michelle comes to Shake Shack with over 25 years of public company restaurant experience, including the last 5.5 years where she has served as the CFO of Portillo's. Michelle's experience leading FP&A, accounting, treasury and IR, coupled with her long track record of leading teams with a commitment to building a strong culture will allow her to hit the ground running and make an immediate positive impact on our organization. I look forward to introducing her to our investment community over the coming weeks. As we look to the balance of 2026, our focus will be on delivering significant value to our guests, leveraging both the numerator and the denominator of the value equation to accomplish this objective. We will employ a balanced approach leveraging premium core ingredients, culinary forward LTOs and a focus on guest satisfaction through enlightened hospitality to drive the numerator of the value equation. For the denominator, we will continue to focus on decreasing our reliance on base pricing and employ strategic focused price pointed offerings like our 135 platform to profitably grow our transactions in a value-oriented macro environment. We continue to make strategic investments in marketing to drive traffic and frequency. These investments have been primarily focused on creating a foundation for long-term revenue growth as opposed to short-term traffic burst. We are accomplishing this by motivating new guests to enter into our app and digital channels. We have also seen a frequency increase amongst our current guests in these channels. This increase in the population of our digital community will support the launch of our loyalty program towards the end of this year, and the results of these investments have exceeded our expectations. We have grown both our digital channel guest count and app downloads by over 35% year-over-year. Even more importantly, the lifetime value of our digital channel guests has grown by approximately 20%, driven by an increase in frequency from this highly engaged group. These guests visit us more often and spend more on an annual basis. With these strategic platforms, we are offering an improved value equation across all household incomes, which we believe will result in a broader guest base, sustained loyalty and greater lifetime value. These are long-term benefits from our current investments. On the brand building front, our We Really Cook campaign is resonating. We are seeing significant quarter-over-quarter increases in guest engagement on key media platforms as we refine our targeting and creative execution. This campaign reinforces what sets us apart, our commitment to fresh premium ingredients, cook-to-order and true culinary craftsmanship. Our culinary team continues to deliver bold flavor forward innovation. Adding to our successful return of the Korean-inspired menu launch in January, we introduced our Clubhouse Pimento Cheeseburger and Pimento Chicken Sandwich in March, which was inspired by a Southern Classic and reimagined with a Shake Shack Twist. These items performed strong nationwide and contributed to our sales growth in Q1. In late April, we announced the return of our Smoky Barbecue menu platform, anchored by a first-of-its-kind barbecue boneless Baby Back rib sandwich, along with a new Mac & Cheese side. This premium protein innovation is indicative of our ability to successfully deliver more than just the best burgers in the business. The BBQ Rib Sandwich is made with 100% baby Back pork ribs that are hand deboned, slow cooked for 9 hours and marinated in a proprietary barbecue spice blend with apple cider vinegar. It's a perfect example of our ability to develop and execute innovative Shake Shack-only recipes at scale without disrupting our operations. I'm happy to report that both the Baby Back Rib Sandwich and the Mac & Cheese have significantly exceeded our expectations and are driving outpaced traffic and ticket growth in May. We're also expanding into new beverage occasions intended to increase relevancy in all dayparts. Our new sparkling cucumber basal lemonade, our first sparkling lemonade, provides a delicious refreshing offering to complement lunch and dinner, but also gives us a platform to drive more afternoon beverage occasions with expected strong guest satisfaction and strong margins. All of this innovation is supported by our disciplined stage-gate process that has resulted in a 12- to 18-month pipeline of innovation, which positions us to deliver a consistent cadence of high-impact menu items. Our innovation strategy is driving both near-term performance and long-term brand relevance as we continue to differentiate Shake Shack through culinary leadership. We will continue to drive sales and traffic growth while improving our productivity across the company, and we are confident in our ability to drive continued margin improvement in a competitive inflationary environment. Foundational to those objectives is the recently announced Project Catalyst. Our comprehensive technology initiative designed to make us more productive across our company, which will be critical to creating long-term G&A leverage. Through strengthening our digital, data and operational framework, we expect to improve restaurant execution, deepen guest engagement and unlock enterprise productivity, all while enhancing our ability to deliver enlightened hospitality. Let me walk you through the key components. First, we're modernizing our restaurant systems. We've partnered with Q, a cloud-native unified commerce platform to upgrade our point-of-sale and kitchen display systems. These new systems will improve throughput, order accuracy and consistency, particularly during peak periods. They'll also enable better orchestration across digital and in-Shack ordering channels, giving our team members faster, more reliable tools so they can stay focused on what matters most, delivering hospitality to our guests. Second, we're building Shake Shack's first-ever loyalty platform. This will be a very meaningful platform for our brand. Our objectives in launching this new platform are to drive frequency, retention and lifetime value while enabling more personalized guest communication and enlightened hospitality. It's not just about points and discounts. This capability supports our continued journey towards data-driven targeted engagement that resonates with our guests and creates deeper connection with the Shake Shack brand. It will help us to reinforce the core principles of enlightened hospitality that launched Shake Shack as a company and continue to differentiate us in the marketplace. Third, we're investing in a new generation of proprietary AI capabilities, embedded directly into daily operations. These AI tools will provide real-time operational insights, alerts and recommendations at the Shack level and for our above Shack operational leaders, enabling faster and better informed decision-making for our restaurant operators and support teams. This intelligent operating layer will deliver measurable productivity gains and form the foundation for ongoing performance enhancement over time. Finally, we're advancing a unified data and analytics platform that brings together operational performance, guest behavior and advanced analytics. This data backbone will support improved service speed and accuracy, more personalized guest experiences and the continued expansion of AI-driven capabilities at scale. We expect to begin rolling out these systems in the second half of 2026, and these investments position us to deliver an even better experience for our guests and team members. Turning to operations. Our operations have never been stronger, and I couldn't be prouder of our team. In March, we hosted our first ever Operations Leadership Summit, where we celebrated an outstanding 2025, recognized best-in-class leaders across our company and outlined our vision to meet both our short- and long-term goals. Our operational focus in 2026 centers on 2 things our guests value every single time they visit us, our hospitality and the accuracy of the order that we deliver. Over the past 2 years, we've driven meaningful gains in speed of service, and we are now averaging under 6 minutes on ticket times of cook-to-order food, a significant improvement. However, speed cannot come at the expense of accuracy, food quality or hospitality. With the tools that we are putting in place, we expect to not only get faster, but to also get better, delighting our guests, which will in turn drive frequency and loyalty over the long term. Our operations performance scorecard continues to serve as the backbone of how we drive continuous improvement, and we've updated the metrics to reflect the sharpened focus on hospitality and accuracy. Even as a growing share of orders flow through our kiosks and digital platforms, we refuse to let efficiency come at the expense of connection. We've intentionally redeployed labor toward guest engagement through our front-of-house hospitality champion role. It's a deliberate investment to ensure there's a human touch point in every Shack, regardless of how the order was placed. I'm also happy to report that our team member tenure and retention has continued to steadily increase. You might think that more rigor and operating discipline would create more turnover, but it's just the opposite. Our team members are experiencing a high-performance environment, seeing opportunities to advance their careers and they're staying longer. That tenure builds experience, which makes them better able to serve our guests, and that makes us a better operating company. It also allows us to develop the leaders of tomorrow, which will support our continued new Shack growth. This culture has led to improved guest satisfaction across restaurant cleanliness, friendliness and overall experience. And we're delivering these results by making sure that we have the right labor in the right Shacks at the right time. Supply chain optimization continues to deliver the highest quality ingredients in a more productive way. We've restructured our internal teams to unlock productivity across every node of the supply chain model. And we've built a strategic sourcing capability that is fully connected end-to-end, delivering the cost visibility that we need to make smarter, faster decisions. We're partnering in new ways with both new and current suppliers, optimizing our distribution network and leveraging our scale to drive efficiencies, all while maintaining the quality standards that define our brand. In Q1, we realized cost savings through strategic sourcing initiatives, successfully transitioning key ingredients to new suppliers who meet our rigorous specifications while providing better economics. Before making any changes, our culinary, quality assurance and operations teams test and validate that if there is any change in taste or guest experience, it is for the better. These improvements are flowing through to better unit economics and directly supporting our priority of building and operating our Shacks with best-in-class returns as we scale. Turning to our license business. Our license business continues to be a long-term strategic engine for EBITDA growth. However, the short-term results have been and will continue to be impacted by the ongoing conflict in the Middle East, driving some of our rationale for a broader adjusted EBITDA guide in 2026. The conflict has led to business disruptions ranging from temporary closures to reduced operating hours and delivery-only operations for periods of time. Beyond these impacts, inbound tourism has slowed substantially, which has further pressured sales, particularly at high-traffic locations. Despite these near-term headwinds, we stand side-by-side with our license partners and the long-term opportunity in these markets. We've seen some delays in opening time lines, but as of now, we still plan to achieve our target of 40 to 45 licensed unit openings in 2026. We will continue to monitor the situation closely and provide additional updates as we move through the year. Domestically, our company-operated development pipeline remains robust. As I mentioned, we had a momentous first quarter with a record 17 openings compared to 4 openings in the first quarter last year. We also opened new markets, such as Naples, Florida; Tucson, Arizona; Athens, Georgia and East Lansing, Michigan. This is the start of a record year of growth for Shake Shack as we march toward opening 60 to 65 new company-operated Shacks. We continue to see strong results from our cost containment strategies and see similar build costs for the class of 2026 as compared to last year. We also continue to invest in our existing Shack base through targeted remodels and refreshes that enhance the guest experience and improve operational efficiency. I'm energized by the momentum in our business and the opportunities that lie ahead. We have a clear strategy focused on driving same-Shack sales growth and transactions, expanding our footprint with disciplined development and improving profitability across the enterprise. Project Catalyst will provide the technological scaffolding that we need to scale efficiently while enhancing the experience for our guests and team members. Our marketing investments are building brand strength and driving consistent traffic growth. Our culinary innovation is creating excitement and brand affinity, which differentiates us in the marketplace. And our operational improvements are delivering better guest experiences and stronger unit economics. Most importantly, we have an exceptional team executing with discipline and passion. From our restaurant team members who serve our guests every day to our leadership team driving strategy and innovation, we have the right people focused on the right priorities. I've never been more confident in our ability to build Shake Shack into the best restaurant company in the world. Our premium quality enlightened hospitality and a focus on supporting our team members drives prosperity for Shake Shack and our shareholders. And with that, I'll turn it over to Alison to provide more details on the quarter. Alison Sternberg: Thank you, Rob, and good morning, everyone. Our first quarter results showed the resilience of our business in the face of a challenging macro environment and inclement weather. The quarter marks our 21st consecutive quarter of positive Same-Shack sales growth alongside continued year-over-year restaurant level margin expansion. First quarter total revenue reached $366.7 million, up 14.3% year-over-year, supported by the opening of 17 new company-operated Shacks and 5 new licensed Shacks, leading to 14.1% year-over-year growth in system-wide sales. Our licensing revenue was $12.7 million in the quarter, with licensing sales of $204.3 million, up 13.8% year-over-year, driven by continued strength in Asia, U.S. airports and the United Kingdom. Sales growth was partially offset by the ongoing conflict in the Middle East, where we had temporary closures in 17 licensed Shacks in Q1 with 3 locations at airports and a transit center remaining closed from the onset of the conflict through the end of the quarter. In our company-operated business, we grew Shack sales 14.3% year-over-year to $354 million. we generated roughly $72,000 in average weekly sales, flat year-over-year. We delivered 4.6% Same-Shack sales growth with 1.4% positive traffic and 3.2% price/mix. Our Same-Shack sales growth was driven by the success of our culinary and marketing initiatives despite a 240 basis point headwind due to inclement weather in Q1. Our pricing remained disciplined. And in March, we rolled off the price we took on our delivery channels last year, an approximate 1% impact. In-Shack menu prices for the first quarter came in at about 3%, while blended pricing across all channels increased approximately 4%. This compares to approximately 5% last year, demonstrating our ability to deliver positive Same-Shack sales with less dependence on price increases. April AWS was $75,000, down 2.6% year-over-year and Same-Shack sales decreased by 0.6%. The month Same-Shack sales were negatively impacted by approximately 200 basis points, largely due to the shift of Easter weekend spring breaks into March this year compared to last. Additionally, we continue to see declines in tourism in our largest urban markets, particularly in New York City. First quarter unit development was strong with 17 new company-operated Shacks ahead of our guidance for 12 to 14 new Shack openings. As a result of these Shacks opening earlier than planned, preopening costs were higher in the first quarter to support our strong opening schedule for 60 to 65 new Shacks in 2026. First quarter restaurant level profit was $75.1 million or 21.2% of Shack sales, expanding 50 basis points versus last year. Strong benefits from our labor management strategies alongside procurement-driven cost improvements and other items in our commodity basket helped offset higher beef costs and demonstrate our ability to sustain profitability despite beef headwinds. That said, restaurant level margins came in slightly below our expectations for the quarter due to higher other operating expenses, mainly due to the timing of investments in repairs and maintenance expenses to support our Shacks and some mix impact of our marketing initiatives. In the first quarter, food and paper costs were $100 million or 28.3% of Shack sales, 50 basis points higher versus last year. The increase year-over-year was mainly driven by the mix of promotional activities to support our culinary innovations during the quarter. Blended food and paper inflation was down low single digits with beef costs up low teens and paper and packaging costs down low single digits year-over-year. Through proactive procurement and cost mitigation initiatives, our teams meaningfully offset continued beef inflation without taking additional price. Labor and related expenses totaled $92.7 million or 26.2% of Shack sales, representing a 180 basis point improvement year-over-year, driven by more efficient scheduling and deployment through our labor management strategies. As we move through the year and fully lap the benefits of the implementation of our new labor model, the year-over-year improvement in the labor line will be more muted with our supply chain initiatives driving restaurant level margin expansion going forward. Other operating expenses were $57.5 million, or 16.2% of Shack sales, 60 basis points higher versus last year, largely driven by the timing of repairs and maintenance expense and the growth of third-party delivery. Our digital sales mix increased to 39.9% in the first quarter. Occupancy and related expenses were $28.7 million or 8.1% of Shack sales, 20 basis points higher year-over-year. First quarter G&A totaled $53.6 million or 14.6% of total revenue, reflecting incremental investments in marketing and technology as well as continued investments in our people to support growth and strategic initiatives. As we mentioned on our fourth quarter call, our marketing plan for 2026 is more evenly distributed across the year. As a result, our quarterly G&A expense is expected to remain relatively steady from an absolute dollar standpoint each quarter of 2026 and will be relatively consistent with what we spent each of the last 2 quarters to land within 12% and 13% for the year. This results in a higher year-over-year G&A step-up in the first half, tapering off in the back half of the year. As we discussed last quarter, we plan to deliver G&A leverage in 2027. Equity-based compensation was $5.2 million, 13.6% higher year-over-year with $4.6 million hitting G&A. Preopening costs were $6.9 million, up 113.5% year-over-year, reflecting 17 new Shack openings in Q1 2026 versus 4 in Q1 2025. We have approximately 37 Shacks under construction and the largest pipeline of new Shacks that we've had in our company history. Adjusted EBITDA of $37 million or 10.1% of total revenue declined 9.3% year-over-year, resulting from sales underperformance due to weather and macroeconomic factors alongside strategic investments to support our multiyear growth plans. Depreciation was $29.1 million. The increase in depreciation year-over-year, both in the first quarter and throughout 2026 is a result of more new company-operated openings, coupled with new technology investments. Net loss attributable to Shake Shack, Inc. was $290,000 or a loss of $0.01 per diluted share. Adjusted pro forma net income was $88,000 or earnings of $0 per fully exchanged and diluted share. Our GAAP tax rate was 33% and our adjusted pro forma tax rate, excluding the tax impact of equity-based compensation, was 25.5%. We ended the quarter with $313.7 million in cash and cash equivalents on our balance sheet. Now on to guidance for the second quarter and full year 2026. Our outlook assumes no major changes to the macro or geopolitical environment. For the second quarter of 2026, we expect system-wide unit openings of 24 to 27 with 16 to 19 company-operated openings and approximately 8 license openings. Total revenue of $424 million to $428 million with same-Shack sales up 3% to 5% licensing revenue of $13.5 million to $13.7 million and restaurant-level profit margin of 24% to 24.5%. Our pricing plans for this year remain modest, assuming no outsized macro changes. We plan to exit the second quarter with approximately 4% overall price and continue to expect price across all channels to be up approximately 3% for the full year. We will continue to evaluate the need for pricing as our dynamic cost structure continues to evolve, but our intention is to take a limited amount of pricing. On to our full year 2026 outlook. Given the impacts that we've seen in the first quarter, we now expect to open 60 to 65 company-operated Shacks this year as our new Shack openings are tracking ahead of plan and more heavily weighted to the first 3 quarters of the year. We continue to expect total revenue of approximately $1.6 billion to $1.7 billion, driven by low single-digit same-Shack sales growth year-over-year. Given headwinds in the Middle East, we now expect licensing revenue of $57 million to $59 million. We still plan to open 40 to 45 licensed Shacks this year. We expect restaurant level profit margin of 23% to 23.5%. We are planning for food and paper inflation to be down low single digit year-over-year after accounting for our own supply chain strategies. Beef inflation is expected to continue at the high single-digit levels. We expect labor inflation to be in the low single-digit range. G&A investments are expected to be toward the higher end of our guided range of approximately 12% to 13% of total revenue to support our strategic investments in growing the business and driving greater brand awareness. We continue to expect approximately $28 million of equity-based compensation expense with about $25 million in G&A. We expect full depreciation of $124 million to $128 million and preopening of approximately $26 million to $28 million. We expect net income of $50 million to $60 million. Altogether, we now expect adjusted EBITDA of $230 million to $245 million, representing 10% to 17% growth year-over-year. Thank you for your time. And with that, I will turn it back over to Rob. Robert Lynch: Thank you, Alison. I want to thank our teams again for their hard work and passion for Shake Shack, which is the engine behind our ability to achieve our long-term goals. Thank you to everyone on the call today for your interest in our company. And with that, operator, please open up the call for questions. Operator: [Operator Instructions]. Our first question is from Brian Vaccaro with Raymond James. Brian Vaccaro: So just on the first quarter comps, and can you elaborate on the underlying cadence that you saw through the quarter? Any changes in consumer behavior that you've seen more recently that might be tied to higher gas prices and the Iran conflict? But also maybe provide some more color on how the value initiatives like 135, Chicken Shacks on Sundays performed in the quarter. And just curious how that might be positively impacting value perceptions or frequency among certain consumers. Robert Lynch: Thanks, Brian. Great question. We had relatively consistent sales rates throughout the quarter. We didn't see significant changes. We did see a little bit of softening in the back half of March, but not at a significant rate. And so we were -- we made a lot of our investments in February behind the launch of our Korean launch and some of the innovation that we were planning. So most of the weather impact we saw was January and March. We had anticipated even higher sales heading into Q1. So we made a lot of investments heading into Q1 with a sales plan that we would have achieved had we not seen those weather impacts. So our app and digital channels continue to drive significant value for our guests and are growing rapidly. We've seen over 35% growth in our digital channel entrance rate, so 35% downloads of our app, and that is driving a lot of our traffic growth. And we feel great about that. We feel like that is a long-term investment that we're making. It is not a short-term promotion. These folks are coming into our digital community and they're staying. And their frequency is higher than our nondigital guests. And when you think about the value prop that we offer today in our app, you can get a Shack burger fries and a beverage, a Coca-Cola for around the same price as you can get a lot of our other competitors for the same thing. So on average, an $8 Shack burger, $3 fries and $1 drink, you're talking about a $12 combo meal, if you want to call it that, we don't call it that. That makes us really competitive. That puts us in the universe of other brands that can persevere through these value challenged and value-oriented times. So we feel great about level setting that value equation. We also feel great about launching very premium culinary innovation. I would tell you, and I highlighted in the comments, we launched a $12.99 BBQ Rib Sandwich a week ago, and we're seeing huge demand for that innovation at that price point. So we really feel that we can play at both ends of the barbell -- we can deliver great value on our core and continue to drive traffic through new guest acquisition and repeat, but we can also drive frequency and check growth with our most engaged guests through our premium innovation. So we feel like the sales engine is in place, and that's why we've stayed committed to investing behind it. Operator: Our next question is from Christine Cho with Goldman Sachs. Hyun Jin Cho: Rob, it's really encouraging to see 3 consecutive quarters of positive traffic growth and really appreciate the quarter-to-date color. But could you elaborate on the key factors driving your confidence in that Q2 same-store sales growth guidance of 3% to 5% as well as the sustainability of this momentum through the second half of the year? And I think you mentioned a potential lift from the World Cup. How much of that benefit is currently embedded in your guidance? Robert Lynch: Yes, you're welcome. So we are highly confident in our guide for Q2, driven by what we're seeing both on our core business with our app driving a lot of growth and strength in our digital channels, complemented by the success of our premium LTO innovation. So we are -- we saw last week with the launch of this innovation, we saw 8% comps and 5% traffic. So we are seeing huge demand for the culinary forward innovation that we're bringing while underpinning that being able to go out and also deliver a great value proposition for a different consumer and primarily a newer consumer, right? Our new guests, when they come to Shake Shack are going to want to try the best burgers in the world. Like that's what they come for. They come for the Shack burger fries and Coca-Cola. And when they get there, we have to have a value proposition that allows them to come in and feel great about the money that they paid for that. And so that's what the app is designed to do. And we're using that app as a guest acquisition tool. But we also need to continue to differentiate ourselves in the space. We are not going head-to-head with the likes of the QSR value players from a holistic business proposition. We are going to continue to offer premium ingredients and culinary innovation and the best hospitality in the business with great assets. So when our guests come, it's a different experience than you typically see in traditional QSR. So that balance is working, and we're going to continue to invest behind it. On the World Cup side, I mean, we're not going to get into specifics about what our model looks like. But our -- the markets where the World Cup is being played are all markets where Shake Shack has a high degree of penetration. And Shake Shack in markets where we have a high degree of confidence in our ability to drive traffic to our restaurants regardless of whether there's the World Cup or not. So that influx of traffic is just going to benefit and accelerate the business that we do in those -- some of our best markets. So we're really excited about Q2. As we look to the back half of the year, we have more innovation coming. We have great items across our shakes, beverages, core sandwiches, and we're going to continue to invest in the marketing fuel that is driving a lot of this traffic. Operator: Our next question is from Michael Tamas with Oppenheimer & Company. Michael Tamas: It seems like your same-store sales are implied to be a little bit slower in the second half of the year versus the first half of the year. So can you sort of speak to the confidence in hitting that full year margin guidance of 23% to 23.5% as sales moderate a little bit in the second half of the year? And maybe how you're thinking about that split between COGS, labor and other OpEx? I mean, is it about COGS deflation that's going to drive the majority of that expansion? Or how do you want to think about that? Robert Lynch: Yes. I mean I would tell you that the 50 basis points growth that we had in Q1 was a bit muted given some of the revenue shortfall that we saw from some of the weather. So just the leverage impact. As we look forward, we continue to be able to -- we continue to see the path to continue to expand those margins. We have a lot of supply chain work going on that is already flowing through in a big way. So obviously, beef prices are elevated, continue to be elevated, although the rate of growth on the beef pricing that we're seeing is less than it was last year. And we're actually seeing a lot of cost mitigation and other items in our basket. And some of that is the macro markets and a lot of it is the work that we've done in our supply chain. So from a cost side, we're doing a lot to mitigate the cost of the inputs into our business model. On the revenue side, you're right. We delivered 4.6% comp in Q1. We're guiding to 3% to 5% in Q2. We're guiding to low single digits for the year. So that does imply a softer comp in the back half. And the reason for that is we're going to start lapping some of the marketing investments that we made in the back half of last year versus being fully incremental. So we're accounting for that. We still have a lot of confidence in our ability to drive strong performance on the top line. We're seeing continued momentum build. So we want to make sure that both our broadening of our EBITDA guide as well as the reiteration of our low single-digit comp guide takes into account some of the macro risk. I mean the reality is none of us know what's going to happen tomorrow, much less what's going to happen 3 months from now. So there's consumer sentiment driven by a lot of the macro factors. There's cost in commodities driven by macro factors. So we really thought very carefully about our guidance for this call because we want to make sure that we're informing our investors that we are very confident in our organic business model, but we recognize that there is volatility in the marketplace, and we want to express our guidance and show the risk of that volatility in that guidance. Operator: Our next question is from Brian Mullan with Piper Sandler. Brian Mullan: Congrats on the CFO hire. Congrats to Michelle. Related to that, Rob, last call, you said the new CFO would, I think, share some sort of G&A plan when he or she begins. Just to better understand, has that plan already been largely formed? Or would the new CFO need to kind of undertake that work from scratch once she begins? And you talked about Project Catalyst in the prepared remarks. I just -- are these one and the same? Or are these kind of just 2 separate topics? Any color would be great. Robert Lynch: Project Catalyst will definitely be an asset for us as we create G&A leverage moving forward. we have built these tools that I highlighted in the comments, and we shared with our Board last week, and we rolled out to our team members 2 weeks ago. The technology -- we've made a lot of investments. Like I want to be clear. The G&A is up $13 million this quarter versus a year ago, all right? Like I don't think about that lightly. Some of that investment was the Operations Summit that we had this year, which we haven't had before. So we had to obviously pay for that. But we felt like it was important for -- to recognize the great job that our operators did last year and lay out our vision for the future. So that was incremental. We obviously are investing in marketing, but we're also investing heavily in tech and Project Catalyst is a big part of that. And the infrastructure that we're building is going to make us dramatically better. It's going to make us better from an operating standpoint. Our operators today don't have a lot of the tools that they need to make real-time decisions. Our above-restaurant operators are spending huge amounts of time pulling reports and sourcing data to be able to have conversations with our GMs about their business. All of that time is going to be significantly reduced. And our folks in the field are going to be able to have real-time information to make informed decisions. So that's going to improve the quality of those decisions. It's also going to reduce the amount of capacity necessary to build those conversations. So there is a huge amount of value creation in Project Catalyst for us. And so to your original question around Michelle, Michelle is going to come in and have a lot of great work on her plate. And she obviously has all the experience and all the capabilities to be able to contribute in a big way to the work that's going on here. G&A, we obviously have a plan. We have a road map. We have things that we're doing and how we're thinking about it for the balance of this year and moving forward. But Michelle is absolutely going to come in and weigh in on all of that and have a point of view. Michelle and I are committed. We had a big discussion about this. We're committed long term to growing EBITDA faster than revenue and making sure that we're continuing to enhance our operating margins as a company. So that's going to be the work we're doing. And in order for us to continue to do that, we have to get better on the G&A line, but we have to make sure that we're making the right investments to drive the long-term outcomes. And right now, it's all about battling for share in this marketplace. we cannot afford to lose guests right now. And so we are making those investments. And yes, none of us are super excited about the way the EBITDA showed up this quarter. There's a lot of moving pieces there. There's a lot of timing. Opening up a lot more restaurants this quarter cost us a lot more, but we wouldn't make the decision not to do it. So we made some decisions knowing that this was going to be the outcome, but we have the most confidence we've had on the path forward. Operator: Our next question is from Peter Saleh with BTIG. Peter Saleh: Rob, I did want to circle back on that last comment you made on the decision to pull forward some new unit growth. Can you guys elaborate a little bit on that decision and maybe the impact that you saw in the first quarter from pulling forward some new units? And then I had a quick follow-up as well. Robert Lynch: Got it. So it's not necessarily that we pulled them forward. We just built them better, faster. So we obviously guided to a range for the year and gave guidance on how many we would open in Q1. And we're just getting better at opening restaurants, frankly. We're getting better on the construction side, on the equipment procurement side and on the operations and preparation it takes to open up a restaurant successfully. So we're just moving faster, and that's why we're able to take our guide up for the year. It's not just pulling forward from 1 quarter into this quarter. It's actually building restaurants faster. So with the same quality. So that really -- it wasn't as much a pull forward. It's just we're accelerating. On the amount that it cost, I mean, we opened 4 more restaurants than the midpoint of our guide. So you can kind of do the math on historically what we -- our preopening costs are for those restaurants. And it's not exactly 1:1 because we have a lot of preopening costs that flow from quarter-to-quarter because we're incurring preopening costs right now for next quarter. And as you think about the rate of acceleration and the fact that we're opening up so many restaurants in Q2, some of those preopening costs actually hit Q1. So that acceleration is great. We wouldn't change it. We're going to continue to build more restaurants. We love the returns. But it is a different cost profile on a quarterly basis, which did impact our results in this quarter. Operator: Our next question is from Sara Senatore with Bank of America. Sara Senatore: I guess maybe just 2 questions on the margins. One is you mentioned that cost of goods were -- the inflation was negative low single digits, but you did see some margin pressure there. So is that promotions or the in-app value menu? And I guess the related question is, as you think about supply chain initiatives, and I think you said those will be the primary driver of margin expansion going forward versus labor. The dynamic was reversed in the quarter. So what -- I guess, what's still ahead of you? And how should I think about sort of the mix of those 2 margin components in the next few quarters? Robert Lynch: Yes. Great question. So we did grow the margin 50 basis points, right? So we did make improvements. It was -- when we say we missed on margin, it's just relative to our guide. So we did anticipate higher margins than we delivered despite growing the margins 50 basis points. And a lot of that was just sales deleverage relative to our plan that formed our guidance. So we came into this quarter with a significantly higher sales rate than what came -- what the outcome was. And that was primarily the weather. And if everyone recalls, we had some bad weather in 2025. Q1 2025 was not a great quarter for anyone. wildfires, blizzards, the whole thing. So we didn't plan for a huge negative weather impact in Q1. So if you add that 240 basis points to what we delivered, it's pretty strong comp growth. And so our plans were based on that. the investments that we made in marketing, the guidance that we gave on margin was driven by what we anticipated on the top line revenue. And when that revenue didn't come through, you saw some -- you saw less than -- it was 10 basis points. It's not like we missed it by 100 basis points, but we take it seriously, 10 basis points relative to being within the guide. And the supply chain is driving a lot of the margin right now in addition to continued operational improvements. We've done a ton of work, a ton of work. And that work has also required G&A investment. We had to rebuild a procurement team. We had to hire distribution people. But all of that work is why we have a very high degree of confidence in being able to deliver at least 50 basis points of margin enhancement throughout the rest of the year. Operator: Our next question is from Jeff Bernstein with Barclays. Anisha Datt: This is Anisha Datt on for Jeff Bernstein. As you prepare to launch a loyalty program by the end of 2026, what customer or behavioral insights have been most influential in its design? And how will the program differ from purely points-based or discount-driven offerings? Robert Lynch: Yes. So we've been thinking a lot about -- it's a great question. We've been thinking a lot about this. And we have a big decision to make on -- does the loyalty program, do they just kind of turn into one thing? And we made a strategic decision that, that's not going to be the case. So the app as it list today is going to be a continued way for us to drive value and acquire new guests. The loyalty platform is really intended to drive brand affinity, brand engagement and frequency amongst our most valuable guests. So those 2 objectives will drive a different approach to our app and our loyalty platform. Now the folks that are already in our app will all transition into our loyalty platform because they're current guests. But we will communicate and approach the promotions and marketing that we do on the app differently than the loyalty platform. So the loyalty platform will not just be a way to send discounts. It will actually be a way to drive brand engagement, giving loyalty members unique and special representations of hospitality to drive further engagement, drive affinity and drive frequency. So we're looking at all kinds of different opportunities to do that, whether it's through some of our partnerships with some of our things we've done with partnerships and collaborations in the past, whether it's offering first access to special things that we do. So all of those things will flow through our loyalty platform and the app will kind of stay as a new guest acquisition tool. Operator: Our next question is from Margaret-May Binshtok with Wolfe Research. Margaret-May Binshtok: Just a 2-parter here. I just wanted to ask a little bit about the paid media that you guys have done, the location targeted paid media, how you guys are seeing that tracking in some of your newer markets versus more established markets? And then just wanted to follow up on the remodels that you guys have mentioned are underway, I think, in New York City. Any early reads on what you guys are seeing and any sort of cadence for the rest of the year? Robert Lynch: Great question. So our media, we don't have big national market media budgets. So we have to be very choiceful on what and where we invest. And so right now, our media is invested in 2 ways. One is guest acquisition through delivering a value proposition that's compelling for new guests, and that's primarily marketing our app and our 135 platform. And then it is driving frequency and check benefit through our LTO innovation. So it's a balanced approach in different markets depending upon our market penetration, depending upon the number of guests that we have in the app platform today, which is how we kind of measure the number of current guests versus new guest potential. That will drive a lot of the decisions on how we make -- on how we invest our media. On the remodels, we've been really pleased. We're continuing to invest in remodels. We're 2-year-old company now, and we're starting to see some of these great restaurants that have been in markets like New York for a long time and continue to deliver great revenue and some of our best margins, they get a lot of traffic. We want to make sure that, that traffic is when they show up, they're getting hospitality. And so it's not about making everything brand new and fresh, but it is about making sure that the restaurants feel cared for, making sure that the restaurants are welcoming. And then in addition to that, we're also leveraging remodels as an opportunity to optimize the back of house, right? We've done a lot of testing on kitchen and equipment and kitchen flow. And so when we go in and we know we're going to touch the restaurants, we're going to make sure that those restaurants are set up for the most productivity possible. And so that also can be a revenue driver as we increase throughput because of optimized back-of-house flow. So we're making both of those investments, and we're really happy with where we're at there. Operator: We have reached the end of our question-and-answer session. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Hello, and welcome to Albemarle Corporation's Q1 2026 Earnings Call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability. Meredith Bandy: Thank you, and welcome, everyone, to Albemarle's First Quarter 2026 Earnings Conference Call. Our earnings were released after market closed yesterday, and you'll find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; Neal Sheorey, Chief Financial Officer. Mark Mummert, Chief Operations Officer; and Eric Norris, Chief Commercial Officer, are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance and strategic initiatives may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation. That same language also applies to this call. Please also note that some of our comments today may refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now I'll turn the call over to Kent. Jerry Masters: Thank you, Meredith. I'm pleased to report that Albemarle's performance is off to a strong start for 2026. For the first quarter, we reported net sales of $1.4 billion, up 33% year-over-year. We also delivered adjusted EBITDA of $664 million, more than double the same period last year, reflecting higher pricing and volume in both Energy Storage and Specialties, as well as cost and productivity improvements. We continue to see strong end market demand, which I will discuss in greater detail as we get into the presentation. Our business is well positioned in resilient end markets. We are maintaining our outlook for strong lithium market growth led by energy storage demand, which is up 117% year-over-year. We remain focused on the areas within our control and made progress during the quarter, enhancing operational excellence, focusing on cost and productivity discipline and driving cash generation to enable long-term volume and earnings growth. In the first quarter, following the successful sales of our Eurecat joint venture and the controlling stake in Ketjen, we repaid $1.3 billion of debt, further strengthening our balance sheet and reducing interest expense. As Neal will share shortly, we are raising our 2026 outlook for Specialties net sales between $1.3 billion and $1.5 billion and adjusted EBITDA outlook between $225 million and $275 million, reflecting higher pricing and volumes in our Specialties business. Moreover, year-to-date, we've delivered $40 million in cost and productivity improvements and remain on track to hit our full year target of $100 million to $150 million. We're able to maintain our corporate outlook scenarios as these improvements offset supply chain disruptions. Now I'll turn it over to Neal to discuss recent results and outlook. I will then cover recent market trends and growth projects before we open the call for Q&A. Neal Sheorey: Thank you, Kent, and good morning, everyone. I will begin with first quarter performance on Slide 5. First quarter net sales were $1.4 billion, up 33% year-over-year, driven by higher volumes and pricing in both segments. Energy Storage pricing increased 51%. Volumes for Energy Storage and Specialties were up 14% and 7%, respectively. Adjusted EBITDA for the quarter was $664 million, up $397 million year-over-year, reflecting higher volumes and price as well as ongoing cost and productivity improvements in both segments. Both segments also saw strong adjusted EBITDA growth with Energy Storage up 196% and Specialties up 30%. Our adjusted EBITDA margin increased by more than 20 percentage points compared to the prior year quarter due to higher pricing and our continued focus on cost and productivity improvements. We reported diluted earnings of $2.34 per share. Turning to Slide 6. I'll go over the key drivers of our year-over-year EBITDA performance. Q1 adjusted EBITDA increased by 148%, primarily due to higher pricing and volume in both Energy Storage and Specialties segments. In addition, cost of goods sold benefited year-over-year from cost and productivity improvements in both segments. By segment, Specialties EBITDA increased 30% year-over-year due to higher pricing and favorable product mix. Energy Storage EBITDA increased 196%, driven by higher lithium market pricing and increased volumes. Both segments' results were bolstered by cost and productivity improvements as well. The corporate EBITDA change reflects favorable foreign exchange impacts and the fully consolidated results of Ketjen prior to the divestiture. Turning to Slide 7 and our outlook. As usual, we provide total company outlook considerations based on recently observed lithium market pricing scenarios. We are maintaining our total company outlook for 2026 across all 3 price scenarios despite global supply chain disruptions related to the Middle East. We estimate that the unmitigated full year cost impact of these supply chain disruptions would be approximately $70 million to $90 million, and expect it to be offset by the following: Reduced interest expense following our debt reduction actions in Q1, and stronger-than-expected pricing and volumes in the Specialties business, which gives us the confidence to increase our full year Specialties outlook, which I will cover on Slide 8. The Specialties segment had a stronger-than-expected quarter. Net sales increased 12% year-over-year and adjusted EBITDA increased 30%, primarily due to higher pricing, favorable product mix and cost and productivity improvements. For the second quarter, we expect net sales to increase sequentially due to higher pricing for bromine specialties. EBITDA is also expected to increase modestly as favorable price and volume mix are partially offset by higher costs due to supply chain disruptions. Additionally, operations at the Jordan Bromine Company joint venture have fully recovered from the flooding event in late December 2025, and continue to operate despite geopolitical tensions and disruptions in the region. Looking ahead and taking all these factors into consideration, we are increasing the range of our full year outlook considerations for the Specialties segment. We are raising our guidance for net sales to $1.3 billion to $1.5 billion, and for adjusted EBITDA to $225 million to $275 million, and we now expect EBITDA margin in the high teens. While outlooks for end markets such as petrochemicals and oil and gas remain volatile due to geopolitical tensions, this increase in outlook reflects bromine price and volume opportunities that we see, coupled with our strong operational execution and the success of our cost and productivity improvements. Moving to Energy Storage on Slide 9. First quarter sales volumes were 53,000 tons lithium carbonate equivalent, or LCE, with an average realized price of approximately $17 per kilogram. The gap between our average realized price and market price is primarily driven by 2 factors: the 1 quarter pricing lag in our long-term contracts and sales of spodumene, which dilute our realized price on an LCE basis. First quarter net sales increased 70% year-over-year due to higher pricing and volumes. Adjusted EBITDA nearly tripled, supported by the same price and volume factors as well as the timing of consumption of spodumene inventories. For the second quarter, net sales and EBITDA are expected to be up sequentially, assuming flat lithium market pricing due to increased volumes and pricing lags in our long-term contracts. EBITDA margin is expected to decrease sequentially due to the timing of spodumene inventory consumption and higher costs due to supply chain disruptions related to the Middle East. On a full year basis, we are maintaining our Energy Storage outlook scenario ranges even after including the impacts of cost increases due to geopolitical tensions in the Middle East. Our volume guidance also remains unchanged. Turning to Slide 10. We continue to be successful in driving productivity improvements and converting earnings to cash. We are on track to deliver our full year 2026 cost and productivity improvements of $100 million to $150 million. Year-to-date, we have achieved $40 million in savings, primarily related to manufacturing and supply chain, including debottlenecking projects such as increasing spodumene utilization at our lithium conversion facilities in China and ramping new assets to their full production capability. We generated $346 million of operating cash flow and $248 million of free cash flow in the first quarter. Capital expenditures were $99 million in the quarter. We continue to expect full year CapEx of $550 million to $600 million. At the $20 per kilogram lithium price scenario, full year operating cash flow conversion is expected to be within our long-term target range of 60% to 70%. As previously noted, there are select headwinds to our cash metrics this year, including recognizing deferred revenue related to the customer prepayment we entered in 2025, which will benefit EBITDA, but not contribute cash, and cash costs related to idling Kemerton Train 1, of which approximately $25 million occurred in the first quarter. Turning to Slide 11. We took advantage of our successful cash and portfolio management actions to pay down debt and further strengthen our balance sheet and financial flexibility. During the quarter, we repaid $1.3 billion of debt, reducing our weighted average interest rate to about 3.1% and lowering our annual interest expense by approximately $60 million. We ended the first quarter with a net debt-to-EBITDA leverage ratio of 1x. And from a debt profile standpoint, we have no major maturities due until late 2028. Together, these factors offer us substantial flexibility and resilience to navigate the current environment. I will now turn the call back over to Kent to detail our market outlook. Jerry Masters: Thanks, Neal. Turning to Slide 12. Before we dive into the details of the lithium markets, I wanted to take a moment to look at the company more holistically. Our overall portfolio is well positioned in resilient end markets, and that gives us confidence in the long-term outlook for our business, even with the current geopolitical uncertainties. As a market leader with globally diverse operations, we can pivot to meet dynamic market needs. More than half of our net sales are in new energy end markets like electric vehicles and energy storage with strong secular growth trends. Both Energy Storage and the Specialties segment benefit from these trends. Our Specialties segment end markets are diverse, including electronics, semiconductors, building and construction, and energy. AI demand strength continues to drive strong electronics demand, particularly in Asia and the Americas. Building and construction demand continues in line with our forecasts. While less than 5% of our net sales are in oil and gas markets, we anticipate near-term demand growth as investments shift away from the Middle East towards other regional markets. Now turning to Slide 13. Global lithium demand is tracking in line with our forecast. So far this year, lithium consumption is up 37%, towards the upper range of our 2026 forecast of 15% to 40%. We are holding our outlook steady due in part to geopolitical uncertainties. That said, our early estimates suggest that lithium demand will be relatively resilient to the situation in the Middle East. For example, demand could be slightly up due to greater emphasis on energy storage or electric vehicles, or slightly down due to broader supply chain disruptions. Either of these scenarios falls within our 2026 forecast range. Importantly, lithium demand continues to diversify with 2 key end markets, energy storage and electric vehicles. Now turning to Slide 14. Strong growth in the energy storage sector more than compensated for weak EV sales volumes during the first quarter. In China, seasonal weakness during the Lunar New Year and prebuying in December ahead of subsidy changes led to reduced EV sales in the first quarter. 2026 Chinese subsidies have shifted support to premium vehicle segments in Q1 leading to a 20% increase in average Chinese battery size and increased demand for lithium hydroxide. Due to the increased average battery size, global EV sales were up 3% year-over-year on a gigawatt hour basis despite a 6% drop in unit sales. In the United States, EV sales were lower year-over-year, largely attributed to reduced incentives. However, I'll note that the U.S. market now represents less than 10% of the global EV market. Developing markets in other regions such as Brazil, India and Australia have collectively grown 74% year-over-year as EV penetration continues to diversify globally. European EV sales continue to show robust growth as well, driven by greater policy support, particularly in Germany, France and the U.K. Overall, we remain on track to hit our 5-year CAGR for energy storage volume growth of 15%. We achieved 25% CAGR over the first 3 years and expect to deliver moderate growth over 2026 and 2027 as our large projects complete their ramp. It's important to note that completing this phase of growth requires little to no additional CapEx. Our scaled, low-cost, world-class resources are performing well today with capital-efficient brownfield opportunities to fuel future growth. Turning to our joint ventures on Slide 16. Operations at both Wodgina and Greenbushes are operating well and in line with our expectations. At Wodgina, we have a clear line of sight to operate all 3 trains at full capacity. Ore quality is expected to drop slightly over the next 2 quarters before improving in the December quarter as the Stage 3 pit deepens and availability of higher quality ore increases. Greenbushes is a world-class asset, and we are confident in the path forward and strategic direction. The CGP3 investment there is operational and ramping as planned. Our team is working closely with Talison's management team on value optimization studies to unlock the additional value as part of a multiyear transformation. As a result of these studies, the team has identified productivity improvements, including lower waste movements and a smaller truck fleet operating at higher utilization, helping to reduce the impact of fuel price increases. To date, neither operation has been disrupted by global fuel supply interruptions, with good visibility of ongoing supply. Having access to both of these high-quality hard rock resources plus our low-cost brine position at the Salar de Atacama positions Albemarle well for global growth. Slide 17 shows our progress as our longer-term projects at the Salar de Atacama in Chile and Kings Mountain in the United States. At the Salar de Atacama, we have initiated the environmental permitting process for a commercial DLE project. While the permit evaluates up to 6 trains of DLE, I want to stress that these investments would be phased in a prudent manner, contingent on approvals and investment decisions. Our pilot plant at La Negra has now operated for over a year and has achieved quality and recovery targets, including greater than 94% lithium recovery. We are evaluating numerous adsorbents and membranes, including proprietary and third-party technologies, and we've been able to incorporate findings from the pilot operation into our early engineering for the commercial plant. At Kings Mountain, we are currently obtaining the required permits and conducting comprehensive economic and environmental predevelopment evaluations prior to making a final investment decision. The project recently received federal mining permits, a meaningful milestone, and we continue to engage with local and state entities to obtain their respective approvals. As we continue drilling and engineering work, the more we learn about Kings Mountain, the more confident we are in the long-term strategic value of this asset. We look forward to sharing our progress as there are further developments. To summarize, we're off to a strong start in 2026 as we continue to demonstrate operational excellence and capitalize on the secular growth opportunities supported by our end markets across mobility, energy, connectivity and health, including the global need for long-term energy security. We are continuing to take disciplined actions to enhance our long-term competitive advantage and leveraging our strengths, including our world-class resources, expertise and innovation to position us for sustainable growth and value creation over the long term. With that, I'll turn it over to the operator to take your questions. Operator: [Operator Instructions] Our first question comes from David Begleiter with Deutsche Bank. David Begleiter: Kent, have you seen any -- at this higher level of lithium pricing, have you seen any change in buyer behavior either getting ahead of or whatever else to deal with the higher pricing in the lithium market? Jerry Masters: Thanks, David. So I don't know that we've seen a real change in behavior. I mean, it is evolving. So we have to -- it's only been a few months, right, since price has changed. And I wouldn't say we've seen a change. The conversations may be a little different. Eric is a little closer to it. So maybe you can comment. Eric Norris: Yes. David, I would say that -- I'd substantiate what Kent said. It's fairly new. Most of the growth has been on the ESS side, as we described in the call here. There's a lot of interest in the sort of the carbonate supply chain. That contrasts with EVs outside of China, which are a little weaker on the hydroxide side in terms of sentiment. All in all, though, we've got a pipeline of customers who are very interested in talking with us about certainly spot bids, but also contracts, and we're being very cautious as we look at that in terms of how we think about where we want to take that contract mix over time. David Begleiter: Very good. And just on the DLE opportunity in Chile, any early thoughts on potential cost improvements or benefits from this route versus your traditional solar evaporation route? Jerry Masters: Yes. So it's more about being able to access more lithium in the Salar at the cost position we're at rather than trying to do -- it's not really a cost improvement program, it's about being able to access more lithium in the Salar under kind of the environmental conditions there. Operator: Our next question comes from Patrick Cunningham with Citi. Patrick Cunningham: Kent, you seem to hint the broader deployment of renewables as a result of the crisis could be a potential positive for lithium demand. I guess, is that anything that you've seen already? And how would you expect the market to respond to higher embedded risk premium in oil, concerns around energy security? Jerry Masters: Yes. So there's a lot there, and it's difficult to see that in the market. I mean, we think that may have an impact on both EVs, but also Energy Storage segment, as we're calling that now. It's difficult to see. But I would say energy security and grid resiliency is probably one of the bigger drivers around that. I'm not sure that's about the Middle East crisis, but it's clear that's a big driver around the world. Patrick Cunningham: Got it. And then just on Greenbushes, I think one of your JV partners noted some issues around grade recoveries and production stability, maybe even suggesting that they're more systemic. I guess, is this in line with your assessment? And how does it affect the ramp-up at Greenbushes? Jerry Masters: So look, Greenbushes is operating in line with our expectations and the outlook considerations that we put forward. So every year, we look at all of our assets, and we make a risk-adjusted forecast around that, and we're fully in line with that. And the ramp of CGP3, so we started that up at the end of the year, and we expect it to ramp through this year. And I would say that ramp is on schedule. So it's fully in line with our expectations and our plan. Operator: Our next question comes from Mike Sison with Wells Fargo. Abigail Eberts: This is Abigail on for Mike. So as you look further ahead to your brownfield projects, what are the hurdle rates for these? Is there any scenario which any of these don't happen? And then how much capacity do you think these would add beyond 2027? Jerry Masters: So look, we look at it as -- so we are now kind of ramping investments that we've made that gets us through that profile that we showed you there. So it slows down a little bit of growth into '27. That's ramping the kind of bigger investments that we've made over time. The next phase would be those brownfield investments, and we think that gets us somewhere in the high single-digit growth rate maybe for that period of time. And those are at existing assets. So that would be, for example, Greenbushes, Wodgina, and at the Salar de Atacama. And we think of over time, after that, we think there are more significant investments we could make on resources that we own, Kings Mountain, for example, and then further trains at the Salar de Atacama. So we have a pretty good line of sight for growth. But the first tranche of that would be those brownfields. The returns would be -- I mean, it's hard to say what the -- we would look for hurdle rates. It would be traditionally the way we look at that, and we'll make those decisions at the time depending on how we see the market growth, pricing, what the costs look like from those assets. Abigail Eberts: Okay. Got it. And then for the 2026, 2027 projects, you're talking about requiring minimal additional CapEx. Can you just give us a feel for size there? Any color you can give would be helpful. Jerry Masters: Yes. Well, I think for '26 and '27, it's really just ramping up the projects that we've built and done. Probably the most significant one there would be the full ramp of Greenbushes, CGP3, and then getting Wodgina operating on 3 full trains. We're operating 3 trains today, but we anticipate working through a more difficult part of the mine. So the quality of the resource is not as good. We expect that to improve in the fourth quarter. That's the thinking around that. And that's kind of where those incremental volumes come from, plus just the normal productivity things that we do with better recoveries, Salar yield at Salar de Atacama, for example, the project we've invested in, and we're still working to get more and more out of that. Operator: Our next question comes from Josh Spector with UBS. Christopher Perrella: It's Chris Perrella on for Josh. Can you unpack the puts and takes to the 1Q energy storage margin? Given the $20 a kilogram spot price you guys experienced in the first quarter, I would have thought margins would be closer to 50%. So just kind of why were they so much better? Neal Sheorey: Yes. Chris, this is Neal. Sure, I can take that. Really, the main driver of that is the traditional lag that we see in spodumene costs and how we consume spodumene through our supply chain. So really, there was a small uplift in margin because essentially, we're consuming spodumene that we purchased from our mines in the fourth quarter, which was obviously a lower price than what you saw in the first quarter. But it's minimal. I think you see that our full year outlook, if you assume kind of flat pricing across the year, we've guided to Energy Storage potentially being in that mid-50% range. So there was a little bit of an uplift in the first quarter due to that. But obviously, that will start to normalize as we go through the year, assuming pricing stays consistent for the rest of the year. And that's why we gave you guidance that we expect margins to come in a little bit in the second quarter as, all things being equal, assuming that, that normalizes. Christopher Perrella: All right. And then just as a follow-up there, the Specialties outlook, you did $75 million, $76 million in the first quarter EBITDA, higher in the second quarter. What's causing that to drop off in your outlook in the back half of the year? Neal Sheorey: Yes, I can start with that, Chris, again. It is really, at this point, just the uncertainty that Kent mentioned in the opening remarks. Right now, the visibility that we have is at least through the middle of the year, and we are driving some price and volume initiatives that give us that confidence around the second quarter. I think we'll continue to give you updates as we go through the year. There's obviously a lot of uncertainty around the world, of course, stemming from the situation in the Middle East, and we're just watching that very closely. Operator: Our next question comes from Vincent Andrews with Morgan Stanley. Vincent Andrews: Just wanted to follow up a bit on the brownfield opportunity and just color a few things in. Kent, were you saying that these assets could potentially start up as early as 2028, or would the timeline on that be a bit longer? If you could just help us understand what the lead time would be? Jerry Masters: Yes. So well, none of the projects are finalized. So there are opportunities now. So I'm not sure we even call them projects. But there are things that we've talked about and discussed over time and we'll bring those on when we think it's the right time, right? And obviously, a couple of those are with our joint venture projects, so we need to align with our joint venture partners as well. So somewhere in that -- it's definitely clearly after '27, in that time frame, but we think that is the next leg of growth for us in that phase. And we say that because the bigger investments and bigger projects like Kings Mountain would be after that, right? So it fills the gap in between those two. Vincent Andrews: Okay. And Neal, can I just ask you, on Slide 10, you talk about it, at $20/kg, the free cash flow or the operating cash flow conversion would be 60% to 70%. As prices ramp higher than that, how much of that drops down to cash flow versus how much would go up to working capital? So would we stick with the 60% to 70% range? Would it be higher than that? Would it be in the lower end of the range? How should we think about it? Neal Sheorey: Yes, Vince, look, I think it, of course, always matters in the shape of how that pricing moves up. If it's a very sudden move up in pricing, particularly if it's towards the end of the year, then I would expect that our cash conversion will compress in the immediate just because of how sharply the working capital runs up and how quickly we can get that back in terms of cash. If it's a little bit more gradual, look, I still think that 60% to 70%, when we've done our benchmarking and our modeling, that seems to be the right place for us to be from a steady-state perspective. So if it is a little bit more of a ratable kind of movement up, I would expect us to be able to still be in that range. Operator: Our next question comes from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Congrats on the strong results. And apologies if this was asked earlier, but did you discuss the reduction of output at Greenbushes? It looks like it's about 10% to 15%, and how that affects kind of your own operations? Jerry Masters: Okay. So we had said that in an earlier question. So Greenbushes is operating in line with the plan that we have, right? And as we look at that every year, we build our plans, we look at all of our resource assets and we risk adjust those. And so what we've built in our plan for Greenbushes this year, the mine is operating to those plans, including the ramp of CGP3. So we're on our plan for the ramp of CGP3. And we started that project, first ore at the end of '25, and we felt like we could ramp it throughout the year. And then it's a schedule according to that ramp, but we should be at full capacity by the end, and we think we're on that schedule. Arun Viswanathan: Okay. And then you noted that ESS demand could be a little bit stronger, I guess, and we did notice kind of stronger EV demand also in the last month versus the first few months of the year. So are you seeing demand improvement? And obviously, I think you're still guiding to about flattish volumes. So is there any way you can address that upside on demand, if there is any? Or would that be unlikely this year and potentially likely next year? How should we think about your opportunities to capture some of that extra demand, if there is any? Jerry Masters: Yes. Eric can talk about maybe a little bit more detail. But I would just say, look, the market is growing, it is strong, but we're working through the seasonality, right? The early part of the year is always difficult to figure out what exactly is going to happen with the Lunar New Year, China is such a big market. That has a big impact, and we're off of that now. Demand is strong, but I'm not sure we're ready to kind of say it's at a different level. Eric Norris: Yes. So this is just to add, on a demand basis, our customers, the battery companies around the world, particularly in Asia, who produce for this market, their order books are full from now through the beginning of '27. So demand is very strong in Energy Storage, driven by the factors of grid reliability, renewables in various parts of the world, as well as AI and behind-the-meter storage. So there's very favorable trends that are driving that kind of an outlook. Neal Sheorey: And Arun, this is Neal. I think you had asked about our demand forecast -- sorry, our volume growth forecast for this year, which is flat with last year. Look, underneath that volume forecast was an assumption, as Kent highlighted, about how we see our resources ramping through the year. That's one part CGP3 and the other one being the improvements that are getting driven at Wodgina. Everything is going according to our plan, which is why we're still holding on to that volume outlook. But obviously, as we go through the year, if we start to see upside, we'll continue to give you updates. I think our volume growth potential this year, in particular, is really driven by how well those resources continue to move in their capacity expansion. Jerry Masters: Yes, it's about availability of product from our perspective rather than market. Market is pretty strong. Operator: Our next question comes from Laurence Alexander with Jefferies. Laurence Alexander: Two questions. First, can you talk a little bit about whether there's any advantages or disadvantages for you if the LFP producers need to switch to yellow phosphorus to reduce their sulfur consumption, and also how higher sulfur prices are affecting your economics versus your peers? And then secondly, just longer term, if you do undertake something like Kings Mountain, what would you see as like the desirable range for your balance sheet? And what balance sheet metrics would you use as boundary conditions? Jerry Masters: Okay. So maybe, Eric, you can talk about the LFP chemistries a little bit, because... Eric Norris: Yes. So you might have to expand a little bit on your question, Laurence. Let me answer the part of it that is clear to me and I think is important to understand. We talked in the call about raw material costs rising $70 million to $90 million across the enterprise, and we have a variety of ways we're mitigating that. One of those drivers, a fairly big driver, is sulfuric acid. I don't think we are advantaged or disadvantaged versus anybody who buys sulfuric acid around the world, particularly in Asia, where a lot of the conversion activity happens for hard rock conversion. So that's a cost that's affecting supply. In fact, frankly, any acid roast and leaching process is going to be impacted by that. Your first question was not clear to me, maybe you could restate it. Laurence Alexander: So my understanding was that one way to offset the cost on sulfuric acid for the LFP producers is for them to switch to yellow phosphorus. And that if they did, I was curious as to whether there's any issues with the contaminant profiles of the lithium from different mines. Like I mean, my understanding is you have an advantage in terms of being able to reformulate your product. But maybe I'm just overthinking kind of the dynamics there. Eric Norris: Well, I think one of the advantages of those LFP producers, the cathode producers who reside almost entirely in China that they have is their upstream capabilities to access phosphorus in various forms of it. I've had some discussions with some of these companies about how they do that. I understand any trade-offs are not impacting their ability to deliver quality. And that's, at the moment, the best I could say. If we learn more, we'll certainly share more. Neal Sheorey: And then, Laurence, this is Neal. Maybe I can start with your question on Kings Mountain. Look, what I would say, as you can see as a company, because of the extreme volatility that we've seen over the last 5 years, we are obviously in a position of balance sheet strength. And we are on purpose taking a conservative stance right now just because of the volatility we've seen in general. But as we look at Kings Mountain, and I want to highlight, we're nowhere near a final investment decision. Operator: Our next question comes from Joel Jackson with BMO Capital. Joel Jackson: The first question is, you're talking about Q2 margins guidance or commentary as if spot prices hold Q1 levels. Our prices or market prices are actually higher in Q2 than Q1. So can you talk about that? I mean what quarter-over-quarter price increase would you need to hold Q1 margins? Or how would you frame it? Jerry Masters: So I think -- let me start, Neal, and then you can talk a little bit more detail. But I mean, look, there is -- a portion of our volume is on contracts or about 40% on contracts, and there's a lag on that, right? There's typically a 3-month lag on how pricing moves through that. So that will move up slightly just as we go through the quarter if prices stay where they are. So we're not forecasting prices, but that's just a function of the way our contracts work. So it will move up, and that will impact margin as we move forward through the quarter. Then it becomes more steady state as it will catch up as long as prices are flat. Neal Sheorey: Yes. Just to add to that, look, if you hold everything flat, essentially to get to that higher margin that you're assuming, basically, from our $20 scenario to our $30 scenario, everything basically scales linearly. So to get to the higher margin, you have to make an assumption around just a higher price realization in the second quarter, all other things being equal. So it really comes down to pricing. Joel Jackson: Okay. And Kent and team, if I circle back to the Greenbushes question, which is, I've heard your answer a couple of times now on what you're saying about Greenbushes being the plan. But one of your JV partners really went public the other week and talked about safety, and it was in the prepared remarks, and it was very aggressive in wanting to call out to the public what they feel should be happening or is happening at Greenbushes. It is a different commentary that you're giving today. Why do you think your JV partner is wanting to do that? Is this just about negotiating how the mine plan should go forward, production, throughput, concentrate grades, and you have different interest being a customer of the spodumene as well? Like why do you think your partner is so aggressive in the market talking about safety and Greenbushes issues? Jerry Masters: Yes. So I guess I would -- look, I'm not going to comment on their perspective of what they're doing. I would say they're our partner's partner, right? So as we go through that -- but we do have -- we're not happy with the safety position at the mine. We've had lots of conversations with the management team and our partners around that. We have a plan, and it's improving, and we're working toward that. Safety is not something that you move overnight. It's a long-term program. We feel that we're on the right track there. But the mine is operating to the plan that we thought they would during the year, and we don't see exceptions to that. So the way we view it is that we are on plan. The CGP3 project started up last year, and it is ramping through the year, and we're on that ramp plan. So we don't see a variance in our plan, and I can't comment on what our partner is thinking when they talk publicly. Operator: Our next question comes from Colin Rusch with Oppenheimer & Co. Colin Rusch: As we look at some of the NDA compliance deadlines coming up at the start of 2028, I'm just curious about how you're planning to meet those and what we can think about from a CapEx perspective if there is any to meet some of those requirements? Jerry Masters: I'm not sure I understand that question. Can you just say that again? Colin Rusch: Yes, so NDA requirements for military batteries. We're looking at having to have entire supply chains in North America to meet some of those requirements. I'm just curious about your ability to meet those volumes and any CapEx plans that you have here over the next 2 years to be in line with them. Jerry Masters: Okay. Look, that's a segment of the market that we would want to serve. We actually have probably the only lithium produced today in the United States comes from Silver Peak and processed at Kings Mountain. So that's the only kind of pure lithium processed in the U.S. today. We have that. It's a pretty small volume. It's not a big piece of the market, but we can serve that through other locations with allied countries like Chile as well. So I mean, it is an opportunity for us. And as we look going forward to make investments, obviously, Kings Mountain, the mine itself would be one of the opportunities to serve that particular volume. Look, I would say we're not over-indexed on it. We think about the total market overall, but military applications in the U.S. is definitely an opportunity for us. Colin Rusch: Great. And then as you look at the European demand for EVs and seeing that grow, is there any concern that there's new regulations coming out of Europe in terms of compliance around supply not being able to come from China for any of those OEMs or through the EU properly from a regulatory perspective? Jerry Masters: Yes. Look, so there is a lot of conversation going now around critical minerals. And when we hear that, we think lithium, and around diverse supply chains, global supply chains, allied countries, that's going to move a lot over time. From our standpoint, we have a diverse portfolio, so around the world, so both brine and hard rock, but in a variety of different countries, and we think we'll be able to satisfy that one way or the other. So if it's tighter regulation, it just makes a different opportunity for us. If it's not as tight, we have our full portfolio to work with. So we see it as an opportunity, not a concern. And then we have to wait and see exactly how it plays out. Operator: Our next question comes from John Roberts with Mizuho. John Ezekiel Roberts: I have just one. Assuming this year plays out according to plan, where do you think your debt level should be this time next year? What would be a targeted debt level? Neal Sheorey: Yes, John, this is Neal. Look, I mean, I guess there's a lot of estimating and forecasting to get to that number. But look, if you -- I'm sure you're doing this math on your side, if you just take flat pricing from where we are today and just run that across the end of the year, we exited first quarter at 1x net debt-to-EBITDA. And you can imagine that at these kind of prices, we'll probably trend down from there below 1x. So obviously, like I had said before, our stance right now is to be in a little bit more conservative balance sheet position and for all the volatility and uncertainty that we see in the world, and that's our posture for the year. Jerry Masters: Yes. I would add to that. Look, we've brought ourselves through a tough period, and we clearly want to be a little more conservative as we go through that. We haven't worked out all the details around that, but we're trying to -- our overall goal, we're building a company that will be able to work through the cycle regardless of where it goes and that we would still be -- can be opportunistic at the bottom of the cycle. That's what we're trying to do. The balance sheet is definitely a part of that strategy. Operator: Our next question comes from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: I was wondering if you could speak to the quarterly cadence of your lithium sales volumes. You're guiding flat for the year. I think in the first quarter, you had 53 kilotons, which was up appreciably. It looks like your comps are a little tougher in the back half. So maybe you could speak to how you would foresee that flowing through in the second quarter and the balance of the year? Neal Sheorey: Yes. Kevin, this is Neal. I'm very happy to start. So the first quarter is typically our softest quarter, of course, because of Chinese New Year and just general seasonality. You should expect volumes to pick up here in the second quarter and the third quarter. I would not expect our fourth quarter volumes to be as strong as they were last year, mainly because we had inventory reductions that we did at the end of the year, as we saw that kind of strength in demand come through in the fourth quarter. And so that's the reason why we've been guiding to this overall sort of flat volume year-over-year. It's exactly what you said. We have tougher comps on a year-over-year basis as we go through the year. And so that's why you saw some volume growth here in the first quarter. That was the easiest of all the comps. Those will get tougher as we go through the year just because of the elevated sales volumes that we had last year. Kevin McCarthy: Very good. And then I'm tempted to ask, does Albemarle have any visibility at all into whether your lithium molecules end up in an EV versus an energy storage system? And if you do have any visibility, do you care? In other words, is there any strategic or commercial effort to influence your mix in one direction or the other? How do you think about that? Jerry Masters: So I mean we do see where it goes. I mean it's not 100% transparent, because a lot of times it's the same customers, but we have those discussions. We know where they're going. We understand order books and one versus the other, because they have different profiles. So I think it is important that we understand that. We think we have pretty good visibility of it. It's not perfect, because it is the same customer base, but it relies on customer conversations and their transparency with us. But we feel like we have a pretty good handle on that. Eric, do you want to comment on that further? Eric Norris: No, I think that's right. I think that's right. Clearly, someone buying carbonate for LFP production, that could go EV or ESS, but it comes down to the knowledge we have on the ground to be able to ascertain the difference. And to the second part of your question, it does matter in that we want to make sure we're close to understanding what's driving growth, so we can plan our own capacities and approaches to the market accordingly. Operator: Our next question comes from Mazahir Mammadli from Rothschild. Mazahir Mammadli: I just wanted to ask about the lithium market. So if we assume that the current market conditions persist, what kind of supply response would you expect over the coming year or so? And particularly, would you say that the current price is high enough for some of the unconventional supply that we saw in 2022, 2023 to come online? Jerry Masters: So I guess, first, I would say, it takes time almost for anything to come back, right? So if you've idled capacity and you've kept it in the right shape, condition, you can bring it back in pretty short order. But if you really put it in care and maintenance, it's going to take some time. And when you talk about mines, you have to think about things like yellow equipment and all of that, which is not sitting on the shelf. And even brownfield mines, it's a couple of years. And if it's greenfield, it's further than that. And then some of the unconventional. I don't know that we're at prices where things get a little crazy. I think also people learned a lesson in the last cycle about the nature of the market. I don't think we're going to see a massive supply adjustment to this, at least that's not how we're thinking about it at prices where we are now. If you think about a lot of the projects that were on the books and maybe even still happening, we're now getting to the point where their financial forecasts are in the market, so to speak. It's not that we've gone way above them, that we're just getting back to the numbers they were using to justify projects. So I don't think you see a huge supply response. Mazahir Mammadli: And just a follow-up on the specialties business. So the bromine price in China, if you look at the current prices, almost as high as the peak in 2022. And in 2022, this segment generated EBITDA of over $0.5 billion. Is that a trajectory we should expect if the bromine price stays at this level? Or are there other moving parts that we should think about? Jerry Masters: Yes. So there's a bit in there. So prices, they did peak. They've actually come off fairly quickly recently, but they were at a higher level, and we're below the performance level we were. But we recognize that we have some operational cost issues we need to address around that, and we're working on that. We've got projects around that. And I guess the other piece, and Eric can talk about this, but that bromine price you see, there's a small amount of our bromine that we sell on that basis. But it is the most visible index that you can see. So I understand why you watch it. We watch it as well, and it's indicative in the market, but it's actually a very small part of our bromine that we sell on that index. Eric Norris: Yes. Just to add to Kent's comment, this is Eric speaking. As you look at our overall Specialties sales, which, of course, includes lithium specialties and bromine specialties, it's 20% or less of our sales that are exposed to that kind of index, which is prevalent in China for upstream bromine. If you go around the world, regional markets behave differently. If you go down our value chain into derivatives, there you're going to get more of a specialty chemical type approach to pricing. So it does vary. And the pricing this year has been driven, we believe, by what has been a lot of anxiety at the beginning of the year around supply. But we had our own issues at JBC, which we resolved quickly. You have the Middle East crisis, which has created anxiety. In the midst of that, we've been able to position ourselves as a very reliable and diversified global supplier. That's helped us on the one hand. But on the other, as the Chinese seasonal production comes on, that has led to some price easing in China, too. So this all comes back to the question on the second half of the year and our visibility that Neal answered the question on earlier. So this is why we're a little cautious, but those are the factors that have contributed to what we're seeing right now in bromine. Operator: Our next question comes from Rock Hoffman with Bank of America. Rock Hoffman Blasko: I understand not wanting to take a view on near-term market pricing. But just with current Chinese spot near $27/kg, is there upside to that $20/kg market scenario guide if pricing stays at current levels? And maybe just on the other side of the market balance equation, how would you assess any near-term supply shocks either in Zimbabwe, Jiangxi province or elsewhere? Jerry Masters: Yes. So I guess -- I think the first one, if I understood the question, it's a pretty easy answer. If the Chinese price stays at $27, there's upside to our $20 forecast. I think the answer to that is yes. There's not a lot -- I don't think I'm taking a lot of risk in saying that. And the supply, I mean, what's happening, look, there's in and out moving. I think you're always going to have that in supply in the lithium when you're coming, there's African resources. Zimbabwe, we don't see that as a supply that comes off long term. I think that's a short-term issue, probably, call it, a negotiating position, if you will. So it has taken some product off the market, but we see it coming back in months or quarters as part of that. The lepidolite in China is a little more difficult to call. Some of those have been offline, and offline for quite some time, almost going on a year for the CATL mine, I think we understand that to be more about permitting rather than operations, but then that still has to play out. I don't think we can answer that, but I don't think this is like an extraordinary thing. This is going to happen in the lithium world where supply comes in and out on a regular basis. The market is big enough now to where 5 years ago, a mine coming off like Zimbabwe or a couple of mines would have been massive. The market is big enough now to where it influences, but it's not a huge supply shock. Rock Hoffman Blasko: Understood. And just as a follow-up, any updated views on the 2 major contracts, which roll off at the end of this year? And more broadly, how should we think about potential shifts of that product mix from the current 60% spot, 40% contracted? Jerry Masters: Yes. So we don't have anything to update on those. I mean -- and this is kind of business as usual as we've done these. We have conversations with our customers, and then we tend to adjust as we go through the year. But we have no update on those particular contracts at the moment. Eric, anything? Eric Norris: No, business as usual, we continue to evaluate a path forward with those customers. We also have a pipeline of many others who are prospective contract customers, and we're evaluating the terms and whether those meet our objectives, and we'll update you when we have a better view of that towards the end of the year. Jerry Masters: Yes. And we're always talking about contracts with our customers. And you can imagine the conversations are different today than they were a year ago just because of where the market is. But we continue to talk to them, and we don't have any updates on that, but we will provide them once we have some clarity. Operator: Thank you. That's all the time we have for questions. I will now pass it back to Kent Masters for closing remarks. Jerry Masters: Thank you, operator, and thank you, everyone, for joining us today. We've managed through a challenging period and actively positioned the company for future growth and resilience. As we look ahead, I'm deeply optimistic about our company's trajectory. Our team is dedicated to delivering operational excellence and sustainable growth, and our efforts are bearing fruit. Together, we will continue to leverage our competitive strengths and world-class resources and process chemistry expertise to capitalize on the opportunities created by the energy transition. I look forward to sharing more milestones and successes with you in the coming quarters. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. My name is Danica, and I will be your conference operator today. At this time I would like to welcome everyone to the Insmed First Quarter 2026 Financial Results and Conference Call. [Operator Instructions] I would now like to turn the call over to Bryan Dunn, Head of Investor Relations. Please go ahead. Bryan Dunn: Thank you, Danica. Good day, everyone, everyone, and welcome to today's conference call to discuss Insmed's First Quarter 2026 Financial Results and provide an update on our business. Before we begin, please note that today's call will include forward-looking statements. These statements represent our judgment as of today and inherently involve risks and uncertainties that may cause actual results to differ materially from the projections discussed. Please refer to our filings with the Securities and Exchange Commission for more information. The information we will discuss on today's call is meant for the benefit of the investment community. It is not intended for promotional purposes, and it is not sufficient for prescribing decisions. Today's call will feature prepared comments by Will Lewis, Chair and Chief Executive Officer; and Sara Bonstein, Chief Financial Officer. After their comments, they will be joined by Martina Flammer, Chief Medical Officer, for the Q&A session. I will now turn the call over to Will. William Lewis: Thank you, Bryan. Good morning, everyone, and thank you for joining for joining us. Insmed's business is off to a strong start in 2026. Commercially, BRINSUPRI delivered strong sequential growth and continues to outpace all past specialty respiratory launch analogs while establishing a new playbook for excellence for a commercial launch. And once again, ARIKAYCE grew year-over-year, which is especially impressive given it is in its eighth year since launch. Both products remain firmly on track to achieve their respective revenue guidance for the year. Clinically, we made meaningful progress, highlighted by clearly positive and potentially practice-changing results for ARIKAYCE in our Phase IIIb ENCORE study. Additionally, we continue to make steady progress on TPIP's Phase III development with PH-ILD and PAH trials now underway and trial designs for our PPF and IPF studies nearing finalization. As we look ahead, we will continue to focus on maximizing the impact of BRINSUPRI in patients with a current bronchiectasis diagnosis while also working to increase awareness and proper diagnosis of patients with COPD and asthma who may also be bronchiectatic. In parallel, we are moving quickly to submit the ENCORE data to regulatory authorities in the U.S. and Japan, which we believe have the potential to support an expanded label for ARIKAYCE in the first half of 2027 and a $1 billion-plus peak sales opportunity for that brand. TPIP will remain a central priority for us as well as we execute on our 4 Phase III trials while also generating long-term data from our Phase II open-label extension studies. Supplementing all these initiatives is our early-stage pipeline, which we expect will continue to produce an average of 1 to 2 INDs per year. We also intend to supplement our pipeline with select business development efforts. Financially, we are well resourced to execute on all of these initiatives as we advance toward cash flow positivity next year. Let's turn now to discuss BRINSUPRI's progress in more detail. BRINSUPRI's launch continues to exceed our expectations, delivering 44% sequential growth off of an already strong prior quarter baseline. We were particularly pleased by the strength of this growth because it occurred in the calendar first quarter, which tends to demonstrate slower growth for medicines given plan changes, out-of-pocket cost resets and reauthorization dynamics. In fact, when you look at the basket of strong respiratory launches that we have cited in the past, sequential growth for those products slowed significantly during their first calendar Q1, delivering only around 9% sequential growth on average. Of course, those past analog launches were impacted by the Medicare coverage gap, which was eliminated beginning in 2025 under the Inflation Reduction Act. But if you expand this analog analysis to include comparably strong launches since the coverage gap was removed, you've noticed that BRINSUPRI's sequential growth rate is actually higher than those of WINREVAIR and Rezdiffra, which in the first calendar Q1 of their respective launches generated between 30% and 40% sequential growth versus Q4. Notably, we did not raise the price of BRINSUPRI at the start of 2026, and the impact from inventory stocking this quarter was negligible. We are extremely pleased with how BRINSUPRI has performed to date and remain confident in our 2026 revenue guidance of at least $1 billion. If we achieve this level of revenue generation, it would place BRINSUPRI among the most impressive launches in our industry's history. We believe that we are setting a new standard for drug launches with BRINSUPRI, which is why we intend to open our playbook and share a lot of detail with you today regarding the metrics we are tracking to gauge this launch's success. Sharing these details is meant to simultaneously help you better understand the components driving BRINSUPRI's performance so far and also why we are so enthusiastic about the future of this launch. As we walk through our dashboard with you, we will highlight the following key observations. BRINSUPRI has healthy organic demand, and we believe we have treated nearly all patients who are ready and waiting for treatment at the time of approval. Payer access is excellent. We have supported a very high percentage of patients through our inLighten patient support program, reflecting strong patient engagement with their treatment. Time to prescription refill rates are ahead of industry benchmarks. Treatment continuation rates remain high. We are broadening and deepening our prescriber base with a lot more opportunity to continue to drive that forward. And our education and outreach efforts, which have already yielded positive results have really just begun to accelerate. Let's dig deeper on each of these items and start with a closer look at patient demand. We believe BRINSUPRI's organic demand is steadily growing. To understand what we mean by organic demand, some context is helpful. We expanded our sales force 10 months before approval so they could promote ARIKAYCE and build disease awareness for bronchiectasis. This effort drove significant interest and helped to build a base of patients who are ready and waiting for a new treatment option at the time of BRINSUPRI's launch. This included nearly 70,000 self-identified patients who registered on our website before approval. The vast majority of whom were being managed at larger institutions, which were involved in our clinical trials and very familiar with BRINSUPRI. Some of those physicians even shared with us that they were maintaining lists of patients for whom they wanted to prescribe BRINSUPRI when it was approved. By proactively doing this early work, we were able to successfully accelerate new patient demand into the early part of the launch. As we noted at the time we launched, larger institutions typically take a few weeks to a couple of months to add new drugs to their electronic medical record systems before prescriptions can be written. As a result, most of these ready and waiting patients receive prescriptions in Q4 and to a lesser extent, in Q1. We estimate approximately 3,500 such patients were embedded in the 9,000 new patient starts we saw in Q4, which is supported by comparing the elevated Q4 prescribing volumes at these institutions to the steady pace we have seen in recent months. Similarly, in Q1, we estimate that about 1,500 of the roughly 7,800 new patients who started treatment in the quarter were part of this ready and waiting patient group. As we enter the second quarter, we believe this surge from ready and waiting patients is now complete. What remains is organic demand, and that demand is growing. In fact, we believe we have seen a steady increase in organic demand in each quarter since we launched as illustrated by the dark blue boxes on this slide. While total new patient additions in Q1 came in lower than Q4, this was due to a significant influx of ready and waiting patients in Q4. Further, the growth that we have seen in the latter part of Q1 gives us confidence that BRINSUPRI's organic growth is really just getting started. The second quarter will be the first period that we believe will not benefit from a component of ready and waiting demand, but we expect organic new patient demand to continue to grow sequentially from Q2 through the rest of the year. Now before we move on to discuss other launch metrics, I want to add a word about Symphony script data. We have noticed that Symphony TRx data has historically been valuable as a directional predictor for total dispenses for BRINSUPRI. Having said that, Symphony NRx data has not been as helpful in predicting new patient starts, and we don't know if either measure will be helpful in the future, but it's worth calling out that Symphony TRx has been proportionately well aligned with reality in past periods. Another crucial component of any healthy launch is a favorable payer access environment. Initially, in a world without established policies, payer approval rates tend to be higher. Our strategy at launch was to focus physician prescribing and payer access on patients with 2 or more exacerbations where payer approval would be most favorable. As a result of this strategy, I'm pleased to say that the initial expected high rate of payer approval has continued. In fact, the approval rate for patients processed through our specialty pharmacies has been impressive at nearly 90% since launch. Also encouragingly, the time required for payer approval, while inherently variable has been less than a week for the majority of patients so far, which is well ahead of our internal benchmarks. Overall, we are extremely pleased by what we have seen in terms of patient access to date. These strong approval rates are aligned with our ambition to make access to BRINSUPRI as frictionless as possible for patients. Now just as important as getting patients access to treatment is supporting their successful use of the medicine. We are pleased that more than 80% of patients on BRINSUPRI have signed up for our inLighten patient support program, which is designed to help patients navigate the practical aspects of initiating and managing treatment with a specialty therapy. Separately, we continue to hear feedback from patients that they are feeling better on BRINSUPRI. This positive patient experience, coupled with BRINSUPRI's favorable safety profile are together driving the very high compliance rates and relatively low discontinuation rates that we have observed thus far. To be more specific on each of these measures, a reasonable industry benchmark for compliance is that a patient would refill a 30-day prescription around every 37 days. This accounts for practical logistics like remembering to take each dose on schedule and order the next prescription as well as the time it takes for the medicine to be delivered. So far, we have seen BRINSUPRI prescriptions refilled at a much faster pace, nearly every 30 days, which we believe speaks to patients' positive experience with the treatment, motivating them to continue therapy with minimal interruption. Turning to continuation rates. As with any treatment, there will always be patients who choose to stop taking their medicine. Daily oral tablets generally have higher continuation rates in the real world than many other classes of medicine. Well-tolerated oral medicines like generic statins, see around 70% of patients remaining on therapy at 6 months. So far, BRINSUPRI's continuation rate is tracking slightly above these analogs. Overall, we believe this high continuation rate adds evidence that patient experience with BRINSUPRI is largely positive. Our area of greatest focus is continuing to deepen and broaden BRINSUPRI prescribing. In terms of broadening the number of physicians who have written a prescription for BRINSUPRI, we feel we are on a very strong trajectory. As of the end of the first quarter, our cumulative total writers topped 5,000, which accounts for more than 1/4 of all pulmonologists in the U.S. There remain large institutions who still have not written their first prescription for BRINSUPRI, so there is plenty of opportunity to expand that prescriber base. We also see significant opportunity to increase prescribing depth. At the end of December, approximately 1,800 physicians had prescribed BRINSUPRI to only one patient. By the first quarter of 2026, roughly half of those physicians have prescribed it to at least one additional patient. We believe this trend represents our greatest growth opportunity, which will be reinforced by the consistently positive feedback we hear from patients and physicians about their experience with the medicine. As awareness continues to build and patients share their experiences during office visits, we expect physicians will grow more comfortable prescribing BRINSUPRI, naturally accelerating its use. In addition, we are encouraged by the fact that more than 20% of BRINSUPRI's prescribers have written it for at least 5 patients. And importantly, this group goes well beyond just physicians in large academic centers. This represents both the progress we have made on deepening prescribing and also the opportunity that is still in front of us to potentially expand prescribing among the remaining 80%. We anticipate the dialogue within the treating community facilitated by gatherings like the American Thoracic Society Meeting, which kicks off later this month, could further encourage physicians to trial or expand their prescribing behaviors as news of positive patient experiences spreads. Collectively, we see expanded prescribing from existing trialing physicians and broadened physician adoption as 2 positive trends, which, if extended, could enable even greater growth than is suggested by the current $1 billion-plus guidance we have reiterated today. We are also accelerating our work to increase awareness and proper diagnosis of bronchiectasis through appropriate education. Just yesterday, we announced the launch of a new diagnosis-focused disease education campaign called Suspect BE. This campaign features Emmy Award-winning TV host, Ty Pennington, and draws on his personal experience of caring for his mother who has lived with bronchiectasis for more than 40 years, including an extended period of time before she received the appropriate diagnosis. We also have plans for direct health care provider education and medical congress presence later this year to further support these efforts. From our point of view, we believe now is the time to elevate disease awareness to enable earlier and more accurate diagnosis of bronchiectasis. I'd also like to highlight the recently announced initiative from the American Thoracic Society aimed at addressing the underdiagnosis of bronchiectasis in the U.S. This ATS initiative will analyze electronic health records across 7 large academic medical systems to identify potential patterns of misdiagnosis. Based on these insights, the ATS initiative intends to pilot scalable solutions such as electronic health record-based prompts that automatically flag potential signs of bronchiectasis and continuing medical education modules for physicians to help improve the detection of bronchiectasis. Importantly, it also intends to determine how many patients within these medical systems are currently diagnosed with COPD or asthma and may also have undiagnosed bronchiectasis. We commend ATS for leading this effort to identify a potentially large and underserved population of COPD and asthma patients who may also have bronchiectasis, but have not been diagnosed. By improving recognition, these insights could drive better outcomes for current and future bronchiectasis patients by increasing the likelihood they will be appropriately diagnosed and gain access to care sooner. In summary, we see strong and growing organic demand. Payer access and patient compliance and continuation rates are exceeding expectations. We see further opportunity in broadening and deepening physician prescribing, while other groups like ATS are taking the initiative with new and significant efforts to raise awareness and improve diagnosis of bronchiectasis. Let me now shift to ARIKAYCE. Remarkably, ARIKAYCE continues to show year-over-year growth even now in its eighth year of launch, targeting only refractory NTM MAC patients. In March, we announced the clinical success of the Phase IIIb ENCORE trial in newly diagnosed NTM MAC patients, a far larger population than refractory. ARIKAYCE, in combination with a multidrug treatment regimen, delivered a statistically significant outcome on the patient-reported respiratory symptom score primary endpoint compared to the multidrug active control arm. This end point is the most important factor for U.S. regulators. The ARIKAYCE arm also demonstrated earlier, greater and more durable culture conversion throughout the study with statistically significant benefits at every prespecified time point, including at month 15 or 3 months off therapy, which is the most important factor for Japanese regulators. Importantly, the ENCORE data make a very compelling case for using ARIKAYCE earlier in the treatment paradigm for patients with an NTM MAC lung infection. As a reminder, in our Phase III CONVERT study in refractory NTM MAC, we observed the treatment with ARIKAYCE resulted in about 30% of patients clearing the bacteria from their sputum after 6 months on treatment. ENCORE showed us that if you treat earlier, you can convert well over 80% of patients to negative sputum cultures in that same period of time. And this conversion is likely to be durable. ARIKAYCE was also better tolerated in the earlier NTM MAC lung infection setting with much lower rates of discontinuation compared to the CONVERT study. Now that we have these data and a well-defined target product profile, we will be conducting market research to understand how the product might be perceived and used by the prescribing community, which will give us a clearer view of the opportunity. We are working to submit the ENCORE data to regulators in the U.S. and Japan in the second half of this year. If successful, these label updates could increase the addressable market for ARIKAYCE from around 30,000 patients today to more than 200,000 patients next year, potentially turning ARIKAYCE into a blockbuster brand with no new competition on the horizon of which we are aware. Let me now turn to TPIP. TPIP represents a very substantial late-stage opportunity where we are pursuing 4 Phase III trials with very meaningful addressable patient populations for each. We are very excited to announce that last month, we opened our first site in the Phase III PALM PAH study of TPIP. Based on the FDA's feedback, this study, if successful, will be the only registrational trial required for potential regulatory approval for the treatment of PAH. Additionally, data from our Phase IIb 24-month open-label extension study in PAH is now expected in the third quarter of this year and will include safety and certain efficacy measures through the first 12 months of the open-label period. As a reminder, this OLE gave investigators the option to continue to increase the dose of TPIP beyond the 640-microgram maximum dose allowed in the initial Phase IIb trial. During the OLE, we have not required or encouraged uptitration. That said, we are pleased to report that about 1/4 of the participants in the OLE have achieved doses that are higher than the 640 micrograms, and that 7 out of the 91 patients who entered the OLE have gone on to reach the new maximum dose of 1,280 micrograms. Given the absence of a placebo group in this open-label portion to which we can compare TPIP's effects, a good outcome for this update in our view would be to see that patients are able to sustain the best-in-class improvements in 6-minute walk, NT-proBNP and functional class measures that were demonstrated in the 16-week randomization portion of the trial over this much longer treatment period. For those who have increased their dosage since starting the OLE, we would want to potentially see some discernible improvement in those efficacy measures compared to what was shown in the randomized trial, along with a consistent safety profile with what we've seen in the Phase II trials. We will also be interested to see the impact of treatment with TPIP for the patients who are initially randomized to the placebo arm of the trial. We look forward to sharing these data once available. Moving now to our other 3 TPIP studies. In the ongoing Phase III PALM-ILD study, we are encouraged by the trial's progress with patients having been randomized in 7 different countries so far. We are also pleased to see that we are recruiting patients even in the U.S. despite competition from other marketed treprostinil products that could discourage physicians from enrolling patients into a placebo-controlled trial. We believe this willingness to enroll patients reflects excitement for the clinical trial results shown for TPIP to date, given that doctors know their patients will gain access to TPIP either at the start of the trial for those randomized to the TPIP arm or after the 24-week study period completes for those who are initially randomized to the placebo arm. We believe this represents a very positive early sign for future adoption should the medicine continue to show positive results and gain regulatory approval. We also continue to anticipate initiating a Phase III study in PPF in the second half of this year to be followed shortly thereafter by a study in IPF. Recent positive clinical data in IPF from another treprostinil product has added to our enthusiasm about the potential opportunity for TPIP in both PPF and IPF. The mechanism by which benefit may be seen in these patient populations is not fully understood yet, but it is believed that treprostinil demonstrates its antifibrotic effects via multiple pathways, including inhibitory impacts on fibroblasts and that those effects may be dose dependent. As a result, we believe TPIP may be more beneficial by virtue of being able to deliver a greater dose of treprostinil. In this way, we think TPIP could represent the optimization of treprostinil therapy, enabling continuous delivery of much higher doses of treprostinil directly to the lung using once-daily administration. As a result, since treprostinil has now been shown in other studies to deliver positive results for patients with IPF, we believe TPIP has the potential to provide even greater benefits for those patients. So let's recap. In a year that will be defined by execution, we remain focused on delivering across our commercial and late-stage clinical programs. BRINSUPRI is setting the bar for commercial success with exceptional progress across each of its key launch metrics, keeping us on track to achieve our ambitious full year revenue guidance of at least $1 billion in global net revenues. ARIKAYCE continues to grow in its current indication. Looking ahead, we see the potential for substantial growth next year if the FDA and PMDA approve a broader label for all MAC lung infection patients in each of these regions. And for TPIP, we have recently initiated our Phase III study in patients with PAH while continuing to enroll patients in our ongoing PALM-ILD study and finalize our trial designs for PPF and IPF. We anticipate announcing data from our open-label extension programs in PAH in the third quarter of this year. I have not spent any time today on our pipeline beyond our 3 most advanced programs, but these continue to progress as well. INS1148, INS1033 and gene therapies for DMD and ALS are all advancing to or in the clinic, and we look forward to future updates about these programs as clinical data becomes available. We believe in continuing to build out our pipeline through research and select business development and efforts in both areas continue at a robust pace. With that, I'd like to now turn the call over to Sara. Sara Bonstein: Thank you, Will, and good morning, everyone. Based on the strength of our performance so far in 2026, I am pleased to reiterate our guidance for this year, which can be seen on this slide, including full year revenue and gross to net guidance for BRINSUPRI and ARIKAYCE. I would add that the actual gross to nets we saw for both products this quarter also fell within these respective ranges. Let me now spend a moment on our cash position. As of the end of the first quarter of 2026, we had approximately $1.2 billion in cash, cash equivalents and marketable securities. Excluding cash received related to stock option exercises in the period, our underlying cash burn for the quarter was within the range of quarterly burn that we have seen over the past year. We believe this burn will continue to decline as company revenues ramp at a quicker pace than spending in the future. Importantly, we continue to believe we can achieve cash flow positivity without needing to access additional capital to support our existing business. Presuming we do not add to our expense base through business development, we would expect to achieve sustainable cash flow positivity in 2027. Now moving to other relevant financial metrics for the first quarter, which are displayed on this slide. Cost of product revenues in the first quarter of 2026 was $47.4 million or 15.5% of revenues, which is lower on a percentage basis than our historical performance, reflecting the positive contributions of BRINSUPRI to the company's gross margin profile. Additionally, as expected, research and development and SG&A expenses increased this quarter compared to the prior year period due to the necessary investment made to support the U.S. launch of BRINSUPRI and to continue to fund our pipeline. In closing, Insmed continues to execute, both clinically and commercially and remains in a strong financial position, providing us with the capacity to pursue our ambitious goals on behalf of patients and to maximize the opportunities for value creation we have ahead. We would now like to open the call to questions. Operator, may we take the first question, please? Operator: [Operator Instructions] Your first question comes from the line of Vamil Divan with Guggenheim. Vamil Divan: Thanks for details on the launch. It seems to be going well. So the question we're getting, I think, just because of the additional detail you provided is how to think about sort of the sequential growth from here. I know you don't give quarterly guidance, but I know you reiterated your views for the full year. But just given some of these dynamics with maybe this initial bolus of patient and now the more sort of organic demand, if you can provide any visibility on how we should think about sort of 2Q, 3Q, 4Q, especially given some of the unknowns around 1Q? And all the issues that we sometimes see in this quarter, that would be very helpful. William Lewis: So I know I'm going to disappoint by not providing a forecast on a quarterly basis other than what we said in our comments, which is that we expect organic demand to grow from Q2 throughout the rest of the year. What I would tell you about the inbounds that we've had, are you going to raise guidance? Are you going to adjust peak sales, all those sorts of things. We have 2 quarters under our belt, and we are a cautious company, as you all have learned by now. So while we are extremely enthusiastic about the performance we see here, and importantly, a lot of the metrics we're covering today are designed to convey the notion that the fundamentals are being put in place for what will be a sustained growth of this product launch. I think it's the breadth, it's the opportunity for additional depth and all of the metrics being above our respective targets that gives us that enthusiasm. So there may be a time when we want to come back and explore what those peak numbers are. I just think after 1 quarter in the year, the calendar year, it's a little premature. And we only have 2 quarters under our belt. But I do want to just remind you that in the first 2 full quarters, we've done $350 million of revenue, which, by any measure, is an impressive result. Operator: Our next question comes from Ritu Baral with TD Cowen. Ritu Baral: Another one on BRINSUPRI dynamics. Will, any thoughts on right now, whether breadth of prescribers or depth of prescribing within prescribers is more important to increasing demand? And as you think about that depth, what are you finding that drives that depth? Is it just sheer patient experience, the number of months that the Sentinel patient is on the drug? Is it detailing? Is it just patient flow thoughts? William Lewis: Yes, sure. So look, I think both are important. When we look at breadth, we know that we've already reached 25% of all pulmonologists that have written -- they've already written at least one prescription. So I think it's important to highlight that, that includes not just large academic centers, but we are already successfully in the community physician pool and convincing them to -- this is a prescription they want to write. That, to me, is a very positive sign because the sustained growth will come on the back of those physicians being participants here. We know that our Tier 1 call points have at least 100 patients and in some cases, more each. So when we talk about 1,800 physicians who have written one prescription in the fourth quarter, and half of those have written at least one additional prescription in the first quarter set against what that Tier 1 profile looks like, it gives you some sense of the enormous opportunity that is available to us in terms of depth. I think depth will come our way. It may take a little longer than we would like in the sense that we love for everybody to be writing this for 10 or 50 of their patients. But pulmonology community we're learning, particularly for this disease, where there's been nothing approved for more than 200 years since it was identified, are slow to adopt the new novel mechanism of action, and they're a little bit cautious. The good news is that the medicines profile has resulted in feedback that is very positive. Patients feel better on the medicine, and it is certainly doing a job consistent with what was seen in the Phase III data. That, to me, is the critical element. If you look at strong blockbuster launches, almost all of them share the common feature that the medicine's perception in the early days was very positive, and we're fortunate to be able to enjoy that kind of a status. So as physicians have more experience with the medicine, I think they will naturally turn to write the prescription more frequently. They certainly have the patients. The need is clearly there. We intend to draw attention to this dynamic through our communications efforts, and I am very bullish that whether it's in the next months or quarters, we are going to see organic demand kick up as physicians shift from a mindset that this is a novel medicine that they are going to consider using to this is the default medicine for the treatment of bronchiectasis. And I think that dynamic is going to be very powerful. Operator: The next question comes from the line of Joe Schwartz with Leerink Partners. Joseph Schwartz: Thanks for all the great color on the BRINSUPRI launch. Where do you see the organic demand coming from most now and going forward? Community or academic practices, the KOLs that many of us speak with at the experienced bronchiectasis centers seem to have prescribed BRINSUPRI to many of their highest need patients and note that community palms are still often referring patients to them. And as you think about the durability of the launch, what evidence are you seeing that this isn't likely to be a bottleneck and community physicians are moving beyond first prescriptions towards repeat independent prescribing? William Lewis: Yes. So this is really important. When we talk about the academic centers, and we talk about ready and waiting demand, what we tried to articulate in the commentary was this notion that it was very clear in the fourth quarter that the physicians at the academic centers were waiting for the electronic medical records systems to update at their institutions before they could write prescriptions. How do we know this? Because 1 week, there were no prescriptions coming from the institution and the next week or 2 weeks thereafter, we saw literally hundreds. So it is the arrival of that ability to prescribe using the electronic medical system that enables that turning to the list of patients that they had in many cases and addressing that demand. And that is what we refer to as the ready and waiting components of the 70,000 folks who have registered on our website. We look at the first quarter in comparison to the fourth quarter, and we see a steady state and cadence at those larger institutions that may have exhausted their initial lists, but that steady state continues. And importantly, there are many institutions who have yet to write a single prescription. And as we tried to highlight, even though we've already reached 1/4 of all pulmonologists, the vast majority of those have not written multiple or scores of prescriptions, and many of them have that kind of patient count, in fact, almost all of them. So there's a lot of breadth and depth opportunity here, but I would say depth is the one that I'm more focused on. And I would just refer to sort of 3 dynamics in the launch itself and its durability. The first is the basic blocking and tackling that we've gone into in detail today. How do you execute a launch well? And I think continuation rates, refill rates, all the sort of stuff that we've gone over in detail today, payer access, inLighten support, all that is extremely positive. So the basic blocking and tackling is going well. The commercial team and the customer-facing part of our organization has done an exceptional job in executing on those basics. The second dynamic is the one we were talking about a moment ago, which is that physicians will ultimately adopt this as the standard of care for bronchiectasis. As that process takes hold, it's less about the promotion and communication interaction and it becomes more the default practice of the pulmonologist to write the prescription. When that starts to take hold, then it will be the volume and traffic through the office that will generate prescriptions and less of the promotional side. And then the third and final substantial contributor to this launch over the middle to longer term is the comorbid populations that have yet to be appropriately diagnosed. Those are COPD or asthmatic patients who may also be bronchiectatic and would fill the top of the funnel in very large numbers. And so there's some efforts underway to raise awareness about that, not just our own, but those made by ATS. The combination of all 3 of these things, I think, paints a very robust picture for the potential of this drug in the next quarters, but also the coming years. Operator: Our next question comes from the line of Jessica Fye with JPMorgan. Jessica Fye: I was just wondering how you're estimating which patients were ready and waiting versus which fall into that organic demand bucket? And yes, I appreciate all the detail on the patient adds this quarter. Should we continue to expect to get patient metrics? William Lewis: So on the ready and waiting versus organic, this is always a little bit of a tricky business because it's not as if someone shows up and it self-identifies as one or the other. But what we try to do, as we described, is triangulate through a couple of different measures. The expected yield from the 70,000 registered patients on the website, the behavior of patients at the large institutions and the lumps that came through clearly once the electronic medical record system was cleared and then the steady state that we've seen over the course of the fourth into the first quarter. And I think we also had an anticipation that this would be the case, and it was contained within our own modeling. So we've triangulated through all of this to arrive at the numbers that we shared today, roughly 3,500 in the fourth quarter and roughly 1,500 in the first quarter as ready and waiting patients. We continue to see organic demand improve throughout the first quarter. And I think as we go through from Q2 through the rest of the year, we certainly expect that will continue. So I think those dynamics are all positive. What was the other part of your question? I can't remember what it was? Sara Bonstein: If we're going to continue to provide patient numbers. William Lewis: Well, patient numbers, yes, that's why I forgot it. No. So I would say what we are trying to do is provide the best approach to transparency so that you can model and understand the fundamental dynamics of the launch. That may or may not include patient numbers, it really just depends on the dynamics that are unfolding, but hopefully, today, you've understood that we are quite genuine in our ambition to make sure you understand what is driving the launch and why we have the enthusiasm we do for where we are. Operator: Our next question comes from the line of Jason Zemansky with Bank of America. Jason Zemansky: Congrats on the solid progress. Will, you've spoken about potential in the COPD and asthma patients. But I was hoping you can provide a little more color on what gets you there? In terms of the potential friction points, is it just awareness? Do you see any pushback from payers? Do you see any, I guess, unwillingness from prescribers to expand the polypharmacy in these patients? I mean what drives you to that population? William Lewis: So we know from our own clinical trial work that roughly 15% to 20% of patients in the ASPEN trial and the WILLOW study were comorbid with asthma and COPD. And those patients responded just as well as those that did not have those comorbid indications. So the presence of these patients, their existence is understood. It's not documented to a refined degree. And as a consequence, the literature is sort of all over the place as to what percentage of COPD patients, for example, are also comorbid with bronchiectasis, and what percentage of those patients have had 2 or more exacerbations and are continuing to be symptomatic because those are the low-hanging fruit that should definitely be on the top of our funnel. How do we get there? We get the pulmonologists or the primary care physicians, whoever they are, to refer them for a CT scan to look for the diagnosis of bronchiectasis. Once that has happened and a pulmonologist has done a workup on the patient, they're eligible for treatment, and they are on label. And so that process, we think, is going to take some time, but I think we're going to get there. And I'm very excited about the potential for these patients. In the U.S. alone, there are roughly 20 million COPD patients. And when we speak to KOLs, they estimate somewhere in the 20% to 40% range are comorbid with bronchiectasis. Now some smaller population of that are experiencing exacerbations despite on max treatment, and it may be that they're misdiagnosed. It may be that they are comorbid. We don't know, and honestly, we don't really care. What we want is for them to get the appropriate treatment and if BRINSUPRI can play a role in helping them, we certainly want to facilitate that. But I think that serves as a top of the funnel feeder that is quite substantial, and it may take time to bring it about, but we are investing in it almost like a second launch within the company with dedicated people focused on that area, and we think that's going to yield benefit over time. So we're pretty excited about that. Operator: Our next question comes from Gavin Clark-Gartner with ISI. Gavin Clark-Gartner: So I wanted to ask on the discontinuation rate in a very specific way. For the 11,500 patients who started on therapy by the end of 2025, for that same cohort of patients, how many were still on paid therapy at the end of the first quarter? Because in order to square the revenue versus the strong new patient starts you reported, I'm seeing there's probably 2,500 or more discontinuations from that cohort, which is in the 22% to 25% realm for a 6-month discontinuation rate. So I'm wondering if that's roughly on track with what you're seeing? And if we should be expecting that same rate of discontinuations moving forward? Like should we expect 40% discontinuations in a year? Any clarity there would be really helpful. William Lewis: Yes. It's hard to walk through the particular math that you're framing out here because I want to make sure that we're conveying accurate information. What I can tell you is that -- and I'll invite anyone else in the room to comment on this. What I can tell you is that we are tracking above trends for small molecule product use in terms of discontinuation rates. Statins are around, I don't know, 2%, 3% per month that tend to drop off. And the dropout rate is heavier in the first 6 months than the second 6 months, typically. So I think we feel like we're well ahead of industry benchmarks there. I don't know if we can give greater clarity. Would you... Sara Bonstein: Yes. The only other thing I would comment on is, in the prepared remarks, Gavin, we shared that statins had continuation in the first 6 months of around 70-ish percent. If you look at that over 12 months, it's about 60%. So as Will said, if you're going to have discontinuations, it tends to be earlier, but you do continue to see a level of discontinuations with statins. William Lewis: So hopefully, those numbers are helpful. I can't go through the particular calculations you're running over the phone, but we'd be happy to do that at sidebar. But in the meantime, I would just draw attention to that discontinuation rate that we've cited for statins and indicated that we're slightly ahead of that, which is about as good as you can hope to do. Operator: Our next question comes from the line of Olivia Brayer with Cantor Fitzgerald. Olivia Brayer: Yes, I appreciate the color around new starts and underlying demand. Sorry to ask another follow-up here. But the fact that you guys are pointing to sequential growth, I actually think is a really positive sign for 2026 numbers. So maybe a couple of questions there, is where is that confidence coming from? I'm assuming you're seeing some good growth in April trends? And then how long do you actually expect that sequential growth to continue until you start to see some of those new starts level off? And then I hate to ask a competitor question, but on TPIP, how quickly do you actually think you can enroll some of those studies like PAH in particular? I only asked given some disclosures yesterday around trying to expedite a once-daily DPI program from United. William Lewis: Yes, sure. So on the sequential growth point, what I would describe for everybody is that there is a massive opportunity that we still have before us with physicians, large practices, community docs and many, many patients, even within practices that have already written prescriptions that are available to us to access. So the opportunity for growth remains and will be there for some time. It's typical that in launches, you see companies get to a steady state after a certain period of time. You can look at the analogs to sort of define where you think the average is. But we would expect certainly to follow that sort of a profile, maybe a little bit better because of the opportunity that we think is before us. All of the metrics we've defined speak to the execution excellence of the team, and I think portend very positive things for when we're able to get those patients into the funnel in terms of our ability to execute and bring them through. I do think that our efforts in terms of communication and advertising and those sorts of things are going to amp up materially from here. And it takes time to get that stuff through the FDA and cleared and set up once we understand the launch dynamics. We are in that place now. And the Ty Pennington campaign as an example, is the first of what will be additional efforts made to raise awareness. And I think that will activate what is already a very vocal population of patients and probably drive additional demand. So lots of different vectors that give us this confidence. It starts with the capabilities of the team to execute, but it is complemented by the enormous availability of additional patients and physicians and all of the different efforts we've made to raise awareness and bring people into the funnel. On TPIP, the enrollment timing, we're going to go as fast as we possibly can. We have a good track record of accelerating our enrollment in trials better than standards, certainly in the industry. And I would expect that to be the case here. We tried to highlight today that we're already hearing some positive feedback from physicians even in the U.S. where there are available approved treatments for their patients. They're choosing not to put them on that treatment and instead putting them in our trial where their patient may be on a placebo for 6 months. So I think that speaks to the enthusiasm that is in existence already for our medicine and what it may be able to do for these patients. A comment on the other programs that are out there. I'm sure we're going to see a lot of talk about different programs and what they may be able to do. We are all about the data. And the data will lead the way, certainly for the physicians and the treatment of their patients, and the data we have so far is second to none in this category. So I think as long as that continues, we're going to be in a very strong position. The sooner we can get it out there, the better for everybody. The fact that we have to run through Phase I, II, III programs is because this is a novel differentiated compound. It is not a copycat, it is not a rewarmed version of an already existing drug. This is a very different drug that is breathed in inertly and then becomes active once in the lung. It has longer residence time, has a lower peak, a longer trough, once-daily coverage for patients, including nighttime with really excellent results. So I think its profile is very distinct from everything else that is in the prostanoid class, and we hope that, that will continue. Operator: Our next question comes from the line of Ellie Merle with Barclays. Eliana Merle: Can you elaborate a bit more on sort of the half of the single patient prescribers in 2025 that have not written an additional script in Q1? I guess why do you think that was the case? And are there any indicators that, that's changing? And I guess, from the organic growth that you've seen in 1Q, I guess, what is the mix that's coming from some of these higher volume prescribers versus some of these sort of like lower volume writers? William Lewis: Yes. So the half that have not written, there's an interesting dynamic in this therapeutic area and with these particular physicians. There's a conservatism, I think, that is now in evidence with the new mechanism of action and a new treatment for a disease that they've known about forever, but for which they've never had a treatment. And so I think what we've seen is great physician engagement. We have 1/4 of all pulmonologists who've already written a prescription. So they've crossed the hurdle or the rubicon of being willing to put their patient on the medicine. We now have to have the cycle of time take place where they go and they are on the medicine for perhaps 3, maybe as long as 6 months before they come back through the office and tell the physician of their experience. We are hearing a flood of positive feedback, and we read it in the social media as well. And it's not universal, but it's pretty overwhelming. And I would tell you that, that, I think, is the most powerful motivator for these physicians to write again. When they hear that 1 or 2 of the patients they put on medicine have had a good experience, they want to write again and more broadly, and that becomes a narrative and a dialogue that they share with their peers at places like the American Thoracic Society. So I think we're going to see this pick up throughout the year as physicians who have trialed the medicine have success and get good feedback from their patients and decide to continue to write prescriptions for others. Once they're over a hurdle, I don't know what the breakpoint is, a couple, 2, 3, 5 patients perhaps, we think that the rest of their practice is going to pick up. And so that just provides a really interesting opportunity for us. We haven't really broken out the organic versus -- between the high writers and the lower writers, that's even harder to discern, but what I would say is it's across the board. The vast majority of the ready-and-waiting patients came through the large centers where physicians had lists of patients and those are the ones that are easily identifiable as, if you will, ready and waiting versus those who are steady state. So hopefully, that's helpful. Operator: Our next question comes from the line of Graig Suvannavejh with Mizuho. Graig Suvannavejh: We've got ATS coming around the corner. I know that the ATS put out a statement just on new efforts to improve diagnosing of patients. I was wondering if you could comment just on how much of a potential springboard ATS might be, particularly from a prescribing perspective. And if you could also remind us of past comments that you've made around how maybe AI can help with increasing diagnosing of patients? William Lewis: Yes. So there's going to be a lot -- we're going to be quite loud at ATS, as you might expect, and also ERS and other academic meetings. And I think you will see both positive feedback stories that are shared by physicians from their experiences just in the hallways, but also a very deliberate effort to talk about the disease, raise awareness. We certainly will have a big presence in that regard. I think what ATS usually represents, you asked if it's a springboard, you take physicians and patients -- or pardon me, physicians and our commercial-facing group out of the market for a week, you tend to see a little bit of a drop during that week because of that, but then it tends to accelerate in the aftermath. How much? We don't know. But again, we pointed to the Symphony data, TRx has been fairly accurate for what we've seen proportionately in our own tracking. So hopefully, that may be something that can give some insight. With regard to AI, we are looking at a number of different ways to bring that to bear, most prominently in the area of examining historic CT scans and also doing sort of audits of patients -- patient records to try to understand what the diagnosis rate and identification of these patients might be able to be in a world where we bring that to bear in a more broad basis. I think you could expect us to be talking about a lot of different programs running in parallel to try to raise awareness and identify the appropriate patient and help with the diagnosis. And AI certainly is going to play an important part in that, not just for bronchiectasis, but generally. Hospitals are looking to bring that into the radiography field to help them get to more accurate and timely diagnosis. Operator: Our next question comes from the line of Matt Phipps with William Blair. Matthew Phipps: I appreciate all the additional color today. At the beginning of this year, you all cited a couple of potential risks to the launch as hypotheticals, including particularly more stringent payer contracting, more prior auths, things like that, that could come into account some point in 2026. First quarter, it doesn't look like that was an issue, still getting good payer coverage and time lines to dispensing. But just curious as you're now 5 months -- getting into 5 months into the year, if you still see that as a risk at some point this year? Or if you think you're at a good point with payer contracting that, that's not a concern? William Lewis: Yes. So through the specialty pharmacies, we've seen an approval rate of 90%, which is extraordinary. Now we don't expect that, that will sustain for the entirety of the launch. In fact, typically launches, you see that tend to trend down over time. We'll have to see where it goes. But I'm still very excited to be in possession of that kind of an approval rate. I think that speaks volumes about the perceived value of the medicine as well as the physician desire to push to ensure that it gets approved. Collectively, that lays a very positive forward view for where we may be able to go. I don't think there's as much risk for us in the payer approval collapsing, if you will, because of contracts and policies that are finally put in place. Many of them already have been put in place, more will come, but the point of that is because at the outset, we were focused on the moderate to severe patient for approval, there is not a big shift in what those policies will result in, in terms of holdback of patients. In fact, it may accelerate in some cases, the approval process. So one of the things we're trying to highlight today is that while whenever you start a medicine, it's always medical exception in every way, and you get higher approval as a result without a lot of scrutiny. Because of the way we channeled physicians and focus people on 2 or more exacerbations, we haven't seen a material decline with the implementation of these new policies. So that's a very positive thing. Operator: Our next question comes from the line of Leonid Timashev with RBC Capital Markets. Leonid Timashev: I wanted to ask on the international side and MFN. I know historically, you guys have been very conservative on how to approach an international launch. Just curious sort of what your latest thoughts there are? How much you expect some of these other governments to work with you around pricing? And then just given the discussion we've had around sort of the ready and waiting patients, how much of that dynamic you might be seeing in other geographies? William Lewis: Sure. So the interesting thing about MFN is, it does -- it has caused us to pause our launch efforts in Europe and the U.K. We are approved -- BRINSUPRI is approved for use in Europe and the U.K., but we need to be very cautious because the normal logic for selling in those regions is that if you can sell above the marginal cost of production of your medicine, it makes financial sense to do so. It is not intended to be a way for us to ensure that Europe pays the same that the U.S. does. We do not hold that bargaining power. We have 2 medicines that are approved. If I go to Germany and insist that they pay more for the medicine, they're simply going to say no. So we're not in a position to extract a higher price abroad than what we get currently from them. I think the pressure that's being brought to bear is causing Europe to reconsider some of those positions. But there's not a lot we can do about it, to be blunt. And so that puts us in a place where, if there's a risk that someone is going to import a price control into the U.S. at a fraction of what we're currently able to command based on the impact that is positive for patients, then that's something we simply cannot permit to happen. So we have 2 choices. We can either try to get a much higher price, which we do in Europe, or we sell -- we don't sell the medicine abroad. And in the latter case, I don't think that really serves anyone's interest because the intent behind MFN was to lower prices in the U.S. And at least for the mid-cap biotech companies, that's not going to be the result. The result is we simply won't sell the medicine abroad. And then the copycat medicines that are made in China are going to take our place. And then the result of MFN will be to bankroll the Chinese biotech market, which I don't think is really in anyone's interest. I appreciate and align with the notion that it is frustrating for Europe to pay far less than what the U.S. pays for the medicine, but we are not in a position to force them to pay more. And as a consequence, we have to be very cautious. Practically speaking, we will wait for clarity on where MFN is going to go in the coming months, and that will inform whether or not we're able to move forward as we would like to. Because the goal of the company is to make its medicine available to those patients who can benefit from it. And we need to work within the financial constraints that exist in these other countries, but we can't dictate them. Certainly, we think of Japan as a very exciting market opportunity. Europe has a role to play as well, but we need to sort of get to the heart of what MFN is going to be and how it's going to operate first. Operator: Our next question comes from the line of Danielle Brill with Truist Securities. Danielle Brill Bongero: I wanted to ask on -- a follow-up on discontinuations. Of the discontinuations that you are seeing, can you comment on what's driving them? Like what's the relative contribution of Medicare out-of-pocket resets and payer dynamics versus other variables? And then given the recently unveiled competitor programs, how important is it for TPIP to now demonstrate enhanced efficacy to support the thesis? William Lewis: We don't really have a breakdown of the reasons for the discontinuation that we can share today. We can step back and take a look at that and see if there's commentary we can provide, so we'll do so. But there isn't something I can tell you right now about the profile of discontinuations and where they're coming from. I think that given that they're at -- sorry, that they are above the best benchmark rates out there, certainly, it is not driven by the medicine. I think it's fair to conclude, this is driven largely by patients having other motivations. When we talk about the competitor programs, I don't -- we're not particularly focused or worried about them at the moment. The Phase II data we saw from the BI program was not particularly compelling in our mind, and we'll have to see what Phase III looks like. It's going to be several years before they're on the market. So we have a lot of room to run here and really to establish ourselves. We'll have to see what BI's data looks like. I want to remind everybody, BI has targeted 30% enrollment of Asian patients in its Phase III program. That is very deliberate. That is -- it is 8% of the population in the U.S. They are over-indexing to that group because as we saw in our trial, the Asian patient population is a hyperresponding group in terms of reduction of exacerbations. We had a 20% reduction in pulmonary exacerbations in our Phase III results. If we look at the subpopulation of Asian patients, it was north of 60%. So you can expect the headline number coming from BI to be better than ours. Certainly, that's what we would expect given the over-indexing to the Asian patient population. But when we tease through the data and see what is really there, we'll know what kind of profile that product represents. Operator: Our next question comes from the line of Max Skor with Morgan Stanley. Maxwell Skor: I was just wondering, have you seen any change in the severity mix or overall profile of the bronchiectasis patients on treatment through the early stages of the launch? And as the commercial base builds, how are you prioritizing business development? William Lewis: So on the mix of profile of patients, as I was commenting earlier, we really focused on those patients with 2 or more exacerbations, and so that continues to be the phenotype that we really want to advance for attention. We think they're going to benefit the most. Certainly, we saw that in our Phase III study very definitively. I don't expect that to change very much. You are right to highlight that our label is much broader than that. It actually is available for any patient with bronchiectasis, regardless of the number of exacerbations they've had in the last 12 months. This is just trying to work with the insurance companies and their policies, which will be focused primarily on those with 2 or more exacerbations. Sara Bonstein: Prioritizing BD. William Lewis: Prioritizing BD. So BD, let me just comment on this. I'm a big believer, and we are collectively as a company that the right time to do BD is when you don't need it. This is a particularly interesting time for us because we have 3 programs that are in excellent position to really be blockbusters or in at least 2 cases, potentially mega blockbusters. That gives us a very strong runway for revenue generation over the next 5 to 10 years. We could sit still and do nothing and perform, I think, exceptionally well. The opportunity is to augment our pipeline and to look for ways in which we can leapfrog from our current position into one of greater strength. We have done that with INS1148 at the end of last year for a very modest investment. That is a novel mechanism of action that we think has potential applicability in multiple disease states. We will look for similar programs like that. We will be certainly developing our China strategy, and we will be looking for other potentially even more substantial acquisitions if they fit all of our criteria, which is, number one, can it provide an asymmetric return opportunity for our shareholders. And that's the #1 criteria we have for BD that we're pursuing. Simply adding a program that targets a single disease is not interesting to me, unless it has the ability to go into broader disease states. So we may end up doing nothing. We may end up doing a lot. We don't know. What I can tell you is we are very active in looking, and this is a time when there are a lot of really interesting companies and technologies out there that I think are ripe for potential acquisition. Operator: Our next question comes from the line of Faisal Khurshid with Jefferies. Faisal Khurshid: I just wanted to ask you, you cited that the, I think, persistency rate on oral meds like statins at 6 months are around 70%, and that you're sitting a little bit above that. Just wanted to clarify that comment and also ask if you're seeing any meaningful differences that you can tease out between the kind of ready and wait patient population and your organic new demand patient population to the extent you're able to tell? William Lewis: Yes. So that is, in fact, the benchmark that we're using. The statin discontinuation rate of 70% is at the 6-month mark. After a year, it's about 60%, as you heard Sara referred to earlier, and we are above that benchmark. So we feel very good about what that portends for our -- for keeping patients on drug and of course, the benefit of that that inures to our shareholders. I think as we think about where we can go from here, we'll certainly continue to emphasize trying to keep patients on drug. I think the storylines that come back from the use of the medicine are going to help support that more than anything. And patients that come into their physicians' offices and report having their life back or feeling better again, I mean we have very dramatic stories. These are not necessarily indicative of how everybody responds to the medicine. I want to be really clear about that. But we do have quite dramatic stories of patients coming in and breaking down in tears and telling their physician how they couldn't take a short walk and now they're out doing a 4-mile hike. So I think there's a lot to like there. Sara Bonstein: Yes. The only other thing I would comment on is, I'll just remind you of the benign safety profile for this product, and Will mentioned it earlier, but the best launches in our industry start off with really these positive launch dynamics and experiences, and that is what we're hearing and seeing consistently through. And you guys are all seeing it too on the social media posts and just the feedback loop from the patients themselves, and that is sort of the building blocks of really successful launches. And so very pleased with the continuation rate that we've seen. As Will said, we're a little bit better than statins. So we're encouraged by that. Operator: Our next question comes from the line of Adam Walsh with ROTH Capital Partners. Adam Walsh: Going into the quarter, your guidance was $1 billion plus for BRINSUPRI, and consensus was at $1.2 billion. What will you need to see to be able to give more granular guidance going forward as we progress through the 2026 quarters? William Lewis: Yes. I think we always tend to take a conservative approach to guidance. If things -- dynamics are expected to continue to be positive, and certainly, the -- all signs are pointing in that direction, we'll come back and revisit this every quarter. I'm less focused on giving a higher estimate or putting out new guidance and much more focused on the execution. The execution is there, the numbers will come. And I'm just here to tell you that the execution is there. Our team is doing an excellent job. And my enthusiasm for where this product is in its launch, if it's not apparent by this point in the call, let me be explicit. I could not be happier about where we are. We are in a fantastic spot, not just for the performance in the first 2 quarters, but what it portends for the future because the building blocks for a long-term sustainable growth of this drug in this disease indication, they're all there. And that's probably the thing that's the most exciting about what we've seen and why we shared so much detail today. Operator: Your next question comes from the line of Ben Burnett with Wells Fargo. Benjamin Burnett: Just a question on TPIP. Great to hear that higher doses were tolerated in the Phase II OLE. But I guess, is this -- is it fair to assume that this will be reflective of sort of the Phase III doses? I guess really the question is, will patients have enough time to titrate up to those doses as high as what you're seeing in the Phase II OLE? William Lewis: Yes. So I think they are going to have enough time. We thought about that issue very particularly because the top dose is 1,280 micrograms in the Phase III studies. And our experience and our dialogue with physicians has made it very clear that they do have the ability to titrate up all the way to that max dose should they wish to. It is important to emphasize that in the OLE, we did not push physicians to increase the dose. That was a decision they made completely independently of us. And it was an option that was given, but it was not one that was encouraged or pursued. So what you're looking at is true organic decision-making that has driven these patients up in dose. And as we said, I think a total of 7 of them actually went all the way up to 1,280, which I find remarkable given that 640 was the original max dose of the Phase II study. So in all of the Phase III studies, we're going up to 1,280 as an option, and there's plenty of time to titrate up to that level. And of course, more drug to date has certainly shown better performance. So that's a very exciting dynamic. Operator: Our next question comes from the line of Andy Chen with Wolfe Research. Andy Chen: Just a follow-up regarding the diagnosis rate and expanding the pie. I know you're very excited about your diagnosis initiative and raising awareness, but that's still very qualitative, and we may not see results until sometime in the future. So can you please provide some timing expectation around this diagnosis expansion? Or maybe, in other words, can you maybe speak more regarding the appropriate industry analogs for this diagnosis expansion? William Lewis: Yes. It's a difficult question to answer accurately at this stage. I think what we believe is that through these efforts, we should begin to see, in the case of the COPD and asthmatic, comorbid patient populations. And we can look at things like CT scan rates or diagnosis rates of bronchiectasis, like there are lots of little markers out there that we can track to see if they're having impact. I would expect that by the end of this year and certainly more robustly in 2027 that these efforts will begin to result in some positive results. And we would expect to be able to look at that and hopefully share that with you at some point. I'm not concerned with whether it's the fourth quarter of this year or the second quarter of next year, because the size of this opportunity is so significant, potentially that I think it warrants patience for those patients to come around. And the process here is very straightforward. It's a CT scan and a diagnostic workup by a pulmonologist and the patient is at the top of the funnel. So it isn't that far to go. And I think as we think about low-hanging fruit, many of these patients already have CT scans from their interaction with pulmonologists over the years. In many cases, they were simply not asked at the -- the radiologist was not asked to look for bronchiectasis. So unless they identified it and sua sponte decided to report it, with no treatment available. There's not a lot of reason to do that. So what does that mean? It means that there's a slew of CT scans out there we can go back and look at retroactively to see if there's evidence of bronchiectasis already, and that is really at the heart of the ATS initiative. They see this opportunity as well. They see the risk of under diagnosis. And so they're running this effort at 7 different centers, and that should yield some very interesting information. And 1 of their 4 priority goals of this was to be sort of loud in terms of the discovery that they have. So I would look to them as a third party for information as well on diagnosis of bronchiectasis and the potential for underdiagnosis and what that will all look like. So I'm sure they'll have some time lines around their publications and the expectation of that. But end of this year, certainly in '27, I would want to see some evidence. Operator: Our final question for today comes from the line of Ash Verma with UBS. Ashwani Verma: Can you confirm the 1Q BRINSUPRI gross to net that you mentioned? Is it at the top end of the range, the mid-20s to low 30s? And then just trying to get a sense if there's any other extraneous factor like free goods or if the delta from the sales that you printed and new patient adds is just primarily the discontinuation that you talked about? William Lewis: So I'll ask Sara to address that. Sara Bonstein: Yes. So on GTN, what I can reiterate is the guidance that we provided for BRINSUPRI mid-20s to low 30s and the actual for Q1 was within that range. We're not providing additional clarity than that, but we were within that range. Same goes for ARIKAYCE, low to mid-20s, and we were within that range for Q1 actuals. Operator: Thank you, everyone. That concludes today's call. Thank you for joining. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Lincoln Financial First Quarter 2026 Earnings Webcast. [Operator Instructions] I would now like to turn the call over to John Muething, Head of Investor Relations. You may begin. John Muething: Thank you. Good morning, everyone, and welcome to our first quarter earnings call. We appreciate your interest in Lincoln. Our quarterly earnings press release, earnings supplement and statistical supplement can all be found on the Investor Relations page of our website, www.lincolnfinancial.com. These documents include reconciliations of the non-GAAP measures used on today's call including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to their most comparable GAAP measures. Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2025 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC. These forward-looking statements are made only as of today, and we undertake no obligation to correct or update any of them to reflect events or circumstances that occur after today. Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions. Let me now turn the call over to Ellen. Ellen? Ellen Cooper: Thank you, John, and good morning, everyone. Thank you for joining our call today. Our first quarter results reflect continued execution with adjusted operating income increasing 16%, marking our seventh consecutive quarter of year-over-year growth. This performance is the cumulative impact of the actions we have taken over the past several years to strengthen our balance sheet, build a more efficient operating model and diversify our business mix. Together, these are building the resilience that positions Lincoln for durable value creation in the years ahead. Anchoring this performance are 3 priorities that guide our strategy: fortifying our capital foundation, optimizing our operating model and driving profitable growth across our businesses. Our capital foundation remains strong with capital levels well above our established buffer and our leverage ratio at our long-term target. The capital buffer is sized to provide a cushion against adverse economic conditions, allowing us to maintain steady execution as we advance our strategy. We have also made meaningful progress on our operating model. This includes continuing to leverage our Bermuda affiliate to enhance capital efficiency, optimizing our investment strategy and maintaining expense discipline alongside investments in digital capabilities and automation that improve the customer experience and support the growth of our businesses. We see additional opportunity ahead to drive broader enterprise operating leverage while enhancing how we serve our customers through higher employee productivity, more streamlined processes and unlocking capacity for further innovation. At the same time, we are advancing profitable growth across our businesses, balancing top line momentum with profitability and capital efficiency. Our focus remains on segments and products where we can compete beyond price, leveraging the depth of our distribution relationships, the breadth of our product suite and our differentiated capabilities to meet our financial objectives with attractive risk-adjusted returns and more predictable, stable cash flows. The mix of business we are writing is increasingly shaped by this approach, providing a foundation for our ability to sustain value creation over time. Underpinning these priorities, we are growing the core capital generation of the company, deploying that capital to sharpen our competitive advantages, broaden our moat and drive growth in free cash flow over time. Results will not always be linear and the economic backdrop can be uncertain, but our momentum is building. Our track record is increasingly evident and we remain committed to creating long-term value. Each of our businesses made progress against these priorities in the first quarter. Group Protection had another strong quarter with earnings growth and margin expansion. Life Insurance produced solid earnings with sales up over 30% year-over-year, driven by growth across core Life and executive benefits. Retirement Plan Services generated earnings growth with the realignment of this business still in its early stages. And in Annuities, we shifted further toward a more balanced, less market-sensitive business mix with sales aligned to our deliberate approach and earnings carrying the known headwinds we previously communicated. Our Annuities business had another solid quarter, supported by diversified sales and strength in our distribution relationships. We offer a broad set of products across RILA fixed and variable annuities with and without living benefits, enabling us to meet customer needs across a range of market environments. As we discussed last quarter, our new business approach centers on balancing profitability, capital efficiency and lower market sensitivity. Our first quarter results reflect that discipline across each of our product lines. Total sales were $3.9 billion with spread-based products representing 64% of sales as we evolve toward a more balanced and less market-sensitive business mix. Starting with RILA, as we shared last quarter, we expect sales this year to be in line with the average of the past several years as we emphasize the parts of this segment, where we compete beyond price through our unique product features, crediting strategies and depth of our distribution relationships. A clear signal of that approach is our second-generation RILA launched nearly 2 years ago, which was recognized by SRP in 2025 and as the most innovative annuity product. First quarter RILA sales were up year-over-year and lower sequentially, consistent with our objective to prioritize profitability over volumes. As we mentioned last quarter, within fixed annuities, we see the most runway to grow over time across our annuity portfolio, particularly in fixed indexed annuities where our crediting strategies and product features allow us to compete beyond price. First quarter FIA sales increased over 90% year-over-year, supported by differentiated offerings, broader distribution and enhanced digital capabilities. Total fixed annuity sales of $716 million were below the prior year, reflecting lower volumes in the more price-sensitive MYGA products. Total fixed account balances grew as we retained 100% of our fixed sales with new business aligned to areas of the segment where the economics support our return objectives. Variable annuity sales of $1.4 billion were down year-over-year with the decline most pronounced in variable annuities with living benefits, consistent with our objective to reduce market sensitivity over time and the expectation we shared last quarter that 2026 volumes would move closer to pre-2025 levels. Variable annuities remain an important part of our portfolio, supporting continued free cash flow generation and attractive risk-adjusted returns. As a holistic annuity provider, the breadth of our franchise, our proven ability to pivot across product lines and our investment in technology modernization to support a more seamless and integrated customer experience position us to deliver on our objectives. Together, these capabilities reinforce our balancing of profitability, capital efficiency and growth while building towards a higher quality earnings profile over time. Now turning to Life Insurance. Transforming this business has been a significant strategic priority over the past several years. Aligned with our financial objectives, we refocused our new business mix on products with more predictable cash flows, accumulation and limited guarantee solutions such as IUL, accumulation VUL and executive benefits. These are areas where demand is rising and where our product distribution and customer experience capabilities give us a clear advantage. Drawing on insights from our deep relationships with advisers and producers, we launched a new generation of products in these areas, optimized our distribution footprint to align with our product strategy and built the digital capabilities to better serve our producers and their clients. We have been seeing momentum in our sales growth, although it will take time to meaningfully flow through to earnings and free cash flow. First quarter life sales were $129 million, up over 30% from the prior year, with growth across all product categories. Core Life and MoneyGuard sales were $96 million up 20% year-over-year. Our IUL suite led the growth as our integrated approach to product design and policy servicing is resonating with advisers who want to give their clients both long-term value and a simpler in-force experience. Accumulation VUL is also gaining traction, supported by broader offerings and self-service capabilities. Executive Benefits had a strong start to the year with sales nearly doubling versus the prior year period. While large case activity can vary from period to period, the pipeline remains active, and we are encouraged by the momentum we are building in this business. Overall, the progress in Life this quarter reinforces the direction we set several years ago. The actions we have taken are building on one another, and we are developing a more diversified and profitable life franchise over time. There is more work ahead, but the path forward is increasingly clear. Turning to Group Protection, another business where execution is clearly translating into results. Central to our success is our targeted segment strategy. We operate across 3 distinct market segments: local, regional and national with products, capabilities and distribution tailored to the different needs of each. In local markets, the fastest-growing part of our 3 market segments and where we see the most attractive margin profile, our approach centers on bundled solutions that emphasize ease of doing business, leveraging our local distribution footprint. In regional markets, we are reinforcing our broker partnerships and expanding the technology integrations and digital capabilities employers depend on to manage their benefits programs. And in national accounts, where clients demand robust capabilities, we are tailoring products and services enabled by integrated technology, streamlined processes and our market-leading leave management expertise. Across all 3 segments, supplemental health remains a key priority. This strategy is coming through in our results and reflected in year-over-year higher earnings, margin expansion and premium growth. First quarter premiums were up 2% year-over-year, driven by strong prior period sales and in-line persistency, offset by a large case lapse. Importantly, that premium growth is increasingly concentrated in the priority segments we are most focused on expanding with local market premium increasing by more than 4%, its strongest year-over-year increase in nearly a decade and supplemental health premium up 28% year-over-year. Sales were roughly in line with the prior year period and consistent with typical sales levels experienced in the first quarter. 74% of sales were from existing customers and a sizable share of that came from expanding additional lines of coverage with our in-force customers, particularly in supplemental health, where employers are responding to rising employee demand. Our pricing remains disciplined. Alongside that, we are making meaningful investments, modernizing our claims platform and expanding digital tools that improve the experience for the brokers and employers we serve. These investments enhance our offerings, reinforcing persistency while helping us attract new business. Overall, our targeted segment strategy, diversified footprint and disciplined execution are translating into consistent performance with a clear runway ahead. Looking forward, we expect Group Protection to be an increasingly meaningful contributor to Lincoln's higher-quality earnings profile. Now turning to Retirement Plan Services. First quarter operating income was up 26% year-over-year. First year sales of $1.1 billion were up nearly 3% year-over-year with growth concentrated in the core market segment, a priority area for us. Total deposits were modestly higher at $4.1 billion. As we discussed on our last call, the realignment of this business is in its early stages. Importantly, we are applying a playbook we have run successfully in other parts of our business, which gives us confidence in our ability to execute here. Three priorities anchor our approach. The first is disciplined growth, enhancing our product and service capabilities while broadening the opportunity to increase revenue. The second is service excellence, modernizing our operations, expanding offerings of digitally enabled tools and capabilities for participants and recalibrating how we meet the needs of plan sponsors. The third is enhancing what we offer, refreshing our value proposition by segment, updating our distribution model and using analytics to deepen engagement with our existing customer base. Across all 3 priorities, we are modernizing the technology that underpins this business. While this realignment will take time, we are encouraged by the early progress. We will steadily advance these priorities to improve the earnings trajectory of this business in the years ahead. In closing, we are executing, delivering results and making tangible progress on our priorities. There is more to do, and we see significant opportunities ahead. Lincoln has a differentiated set of competitive advantages, a diversified franchise across 4 businesses, each at a different stage of its realignment toward our financial and strategic objectives, a deep distribution platform that we are actively expanding and optimizing and capabilities tailored to each of the markets we serve, giving us the capacity to do more for our customers with greater agility. We are operating from a position of strength with a balanced and disciplined approach to growth and capital deployment. We remain confident in the actions we are taking, which are building toward a higher quality earnings profile that creates sustainable long-term value for our shareholders. With that, let me now turn the call over to Chris. Christopher Neczypor: Thank you, Ellen, and good morning, everyone. Our first quarter results represent another quarter of strong execution and meaningful progress on our strategic priorities, delivering year-over-year adjusted operating income growth for the seventh consecutive quarter. The result this quarter was supported by favorable underwriting experience in our group and life businesses, continued growth in spread income in annuities and retirement plan services and another strong contribution from our alternative investments portfolio. Alongside strong earnings, free cash flow and capital generation continued to build, tracking in line with our expectations. Holding company liquidity, excluding prefunding for our December senior note maturity, ended the quarter above $800 million, reinforcing the financial flexibility we have to act on multiple fronts over the next few years. This morning, I will focus on 3 areas. First, I will walk through our consolidated and segment level performance for the first quarter. Second, I will touch on our investment portfolio. And third, I will provide an update on our capital position. Let's begin with a recap of the quarter. This morning, we reported first quarter adjusted operating income available to common stockholders of $326 million or $1.66 per diluted share. There were no significant items in the quarter, but there were 2 normalizing items. First, our alternative investments portfolio delivered an annualized return of 12.3% in the quarter or $129 million. On an after-tax basis, this amount was approximately $19 million, above our 10% annualized target or $0.10 per diluted share. And second, results in the first quarter included a onetime $7 million impact due to unfavorable tax-related items, reflecting a true-up of certain prior year tax positions on our variable annuity separate accounts. As a result, the annuities effective tax rate this quarter was approximately 200 basis points above recent levels. Ongoing impacts are minimal at approximately $1 million per quarter. Turning to net income for the quarter. We reported a net loss available to common stockholders of $211 million or $1.10 per diluted share. The difference between GAAP net income and adjusted operating income was driven primarily by the negative movement in market risk benefits amid lower equity markets in the quarter. Importantly, our hedge program, which explicitly targets capital, continued to perform in line with expectations. Now turning to our segment results, beginning with Group Protection. Group delivered another strong quarter, building on the momentum from 2025. First quarter operating income was $112 million, up 11% from $101 million in the prior year quarter, and the margin was 8%, a 60 basis point improvement. The year-over-year improvement was driven by the strength of our group life results, partially offset by continued normalization in disability. The group life loss ratio was roughly 67%, an improvement of more than 800 basis points from the first quarter of 2025. Group Life results remained strong this quarter, supported by favorable incidence and severity outcomes. While mortality results can vary from quarter-to-quarter, the result was consistent with the favorable trends we've observed in recent quarters and remains favorable relative to historical experience. Importantly, we continue to see the benefits of disciplined pricing actions, which have supported a more durable earnings profile in this business. The disability loss ratio was 73.4% compared to 70.1% in the prior year quarter. The elevated loss ratio was driven by 2 primary items. First, our paid family leave product experienced elevated incidence rates with the introduction of 2 newly effective states, consistent with our continued footprint expansion as more states adopt these programs. This is an expected occurrence for new states, and we anticipate it will moderate as we move through the year. Second, within LTD, we experienced unfavorable resolution severity this quarter. As we discussed in the back half of last year, disability results are normalizing from the record low levels we experienced over the last 2 years, including some moderation in the favorable claims dynamics that supported those results. Even with this normalization, claims management outcomes remain solid and the underlying fundamentals continue to be strong and in line with our expectations. As we look ahead, risk results have historically improved from the first to the second quarter, and we expect that seasonal pattern to repeat this year. As a reminder, however, our second quarter results in 2025 included approximately $15 million associated with the annual experience refund tied to one state's paid family leave program. As we communicated last year, we have transitioned to accruing this refund on a quarterly basis throughout the year, mitigating the onetime impact experienced in prior years. Overall, group's first quarter results continue to reflect the strong progress in our strategy to expand this business into a larger and more profitable part of our enterprise. Now turning to Annuities. Annuities reported first quarter operating income of $275 million compared to $290 million in the prior year quarter. Given a few moving pieces this quarter, let's walk through the result on a sequential basis from the fourth quarter reported earnings of $311 million. As a reminder, fourth quarter results included approximately $8 million of favorable payout annuity mortality experience that we noted at the time. Excluding that, underlying earnings in the fourth quarter were closer to $303 million. From that level, a few items drove the sequential change to $275 million. First, as we discussed on last quarter's call, beginning in the first quarter and continuing on a go-forward basis, we reallocated net interest income earned on collateral posted in connection with our index credit hedging strategies from annuities operating income to nonoperating income. As our RILA business has grown, so have the associated collateral balances, making the related net interest income more meaningful. Moving this income to nonoperating income provides a cleaner view of underlying annuities operating performance. Relative to the fourth quarter, this reallocation reduced reported annuities operating income by approximately $10 million in the first quarter with no change to the underlying economics or free cash flow. Second, as I discussed earlier, results in the first quarter included a onetime $7 million impact due to unfavorable tax-related items, reflecting a true-up of certain prior year tax positions on our variable annuity separate accounts. The remainder of the sequential change relative to the fourth quarter reflects 2 fewer fee days, which drove approximately $10 million of additional pressure and continued traditional variable annuity outflows, partially offset by continued growth in spread income. Stepping back to a year-over-year view, when normalizing for the NII reallocation and the unfavorable tax-related items in the first quarter of this year, Annuities underlying earnings would have modestly improved relative to the first quarter of 2025. The improvement reflects continued growth in spread income and the benefit of higher equity markets, partially offset by continued traditional variable annuity outflows and higher expenses associated with the full retention of our fixed annuity flows. Account balances net of reinsurance ended the quarter at $169 billion, 7% above the prior year period, supported by 15% growth in RILA balances and 24% growth in fixed annuity balances. Spread-based products now represent 31% of total annuity account balances net of reinsurance, up from 28% a year ago. On a sequential basis, however, ending account balances were down approximately 4% from the fourth quarter, driven by the equity market decline in the period and continued variable annuity outflows. We would expect this lower starting balance to be a headwind to fee income beginning in the second quarter. That said, equity markets have recovered meaningfully through the first several weeks of the quarter. And if these levels are sustained, we would expect a reversal of that pressure. Turning to net flows. Total net outflows for the quarter were approximately $2.2 billion, an increase from the prior year quarter, reflecting higher traditional variable annuity outflows, partially offset by continued positive net flows in spread-based products. Traditional variable annuity net outflows for the quarter were approximately $2.6 billion. While outflows increased relative to the prior year quarter, the outflow rate has remained relatively consistent over the past year with the increase in outflow volume reflecting growth in our underlying account balances driven by favorable equity markets over the last year. Across spread-based products, both fixed annuities and RILA continued to generate positive net flows in the quarter. Fixed annuity net inflows were approximately $100 million and RILA net inflows were approximately $285 million as continued strong sales were partially offset by higher surrenders from earlier vintages exiting their surrender charge periods. As we have noted previously, we expect RILA net flows to moderate relative to recent years as additional vintages move out of their surrender charge periods with overall account balance dependent on overall sales. As we look to the second quarter, we anticipate a sequential tailwind from the normalization of the unfavorable tax-related items alongside the benefit of an additional fee day and continued growth in spread income. Overall, the fundamentals of the business remain solid. Our continued emphasis on diversifying the product mix towards spread-based products, together with the disciplined risk and hedging framework we have built around the business, positions annuities to remain a steady contributor to earnings and free cash flow over the long term. Now turning to Retirement Plan Services. Retirement Plan Services delivered a strong quarter with operating income of $43 million, up 26% from $34 million in the prior year quarter. The improvement was driven by continued spread expansion alongside the benefit of higher equity markets supporting average account balances. Base spreads were 116 basis points, up 13 basis points from 103 basis points in the prior year quarter. The expansion is driven by deploying new money at rates above our existing portfolio yield, along with targeted crediting rate actions taken at the start of the year. Average account balances grew approximately 10% year-over-year to $125 billion, supported by equity market performance over the past 12 months. Net outflows for the quarter were approximately $200 million, a meaningful improvement from the prior year quarter. As we look to the second quarter, however, we expect net outflows to be elevated in the range of $2 billion to $2.5 billion, driven by a small number of known plan terminations, the majority of which did not meet our profitability targets. Consistent with the comments made throughout last year, we are continuing to be deliberate about the business we retain, focusing on the segments and customers that meet our targeted return thresholds even when that means accepting elevated outflows in a given quarter. The combination of disciplined pricing on retained business, the meaningful spread expansion delivered this quarter and the operating leverage from a higher quality business mix is what positions retirement plan services to deliver durable earnings growth over time. The first quarter result represents an early but tangible proof point that the actions we've been taking in this business are beginning to translate into improved earnings, and we expect to sustain a similar level of year-over-year growth as we look towards the second quarter. Lastly, turning to Life Insurance. Life delivered first quarter operating earnings of $41 million, our strongest first quarter result in 5 years and a meaningful improvement from an operating loss of $16 million in the prior year quarter. The improvement was driven by higher alternative investment returns and the continued benefit of our captive consolidation, which represents an approximately $10 million year-over-year tailwind. As a reminder, we executed this consolidation in the fourth quarter of last year, so we will continue to see this year-over-year benefit in the second and third quarters of this year, after which the comparisons will normalize. Mortality this quarter was favorable to our expectations, driven primarily by continued favorable experience within our term business. The result is consistent with the improvement we have seen in recent quarters and with broader U.S. mortality trends, which have continued to move in a favorable direction. While quarterly mortality results will continue to vary, recent experience has been encouraging and remain supportive of the underlying trajectory of the business. Alternative investment returns were also strong, contributing approximately $19 million after tax above our 10% annualized target. Building on this progress, we are also beginning to see early evidence of the impact from the strategic repositioning of our new business franchise contributing to underlying earnings. While modest in the current earnings profile, the deliberate mix shift over recent years toward products with more favorable risk characteristics and attractive risk-adjusted returns will continue to emerge over time as the in-force grows in size. As we look to the second quarter, we expect a modest improvement in mortality as favorable seasonal trends from the first to second quarter are partly offset by the favorable experience in the first quarter. Additionally, given the elevated volatility we have seen across markets, alternative investment returns could experience some variability relative to our 10% annual guidance. As a reminder, the second quarter of 2025 also benefited from favorable mortality experience, which could create a less favorable year-over-year earnings comparison for the second quarter even as the underlying trajectory of the business continues to improve. Beyond near-term seasonality and as demonstrated by the past year of results, we remain focused on building the durable earnings power of this business through disciplined expense management, optimization of the investment portfolio and continued progress on our strategic repositioning toward products that generate more stable cash flows and attractive risk-adjusted returns. Turning briefly to expenses. First quarter G&A expenses, net of amounts capitalized, were $589 million, up modestly year-over-year and down sequentially from a seasonally high fourth quarter. The year-over-year increase reflects continued investments tied to specific business actions, including the ongoing modernization of our claims platform and Group Protection, which is intended to drive efficiency and a simpler experience for our customers as well as the financial impact of supporting the full retention of our fixed annuity flows and annuities. Expense discipline remains a strategic priority across the organization, and we see continued opportunity to drive efficiency as we advance our transformation with an ongoing focus on leveraging technology to improve productivity and ensuring our expense base is appropriately sized to support our strategic objectives. Now turning to investments. Our investment portfolio delivered solid results in the first quarter, reflecting our high-quality and well-diversified portfolio and continued execution of our strategic asset allocation initiatives. Portfolio credit quality remains strong with 97% of investments rated investment grade, while our below investment-grade exposure remains at historic lows. Credit performance for the quarter was in line with our expectations. Touching briefly on alternative investments. Our alternatives portfolio delivered another strong quarter with a return of 3.1% or approximately 12% annualized above our 10% annualized return target. While alternative investment returns have been at or above our target over recent quarters, the elevated volatility we have seen across markets could lead to some variability in our alternatives portfolio in the near term. While quarterly results can vary, the breadth and diversification of the portfolio give us confidence in its ability to achieve our return objectives over time. Lastly, I want to spend a moment on private credit, given the heightened focus on this area across the industry. Our approach across all asset classes is grounded in how we manage the general account, anchored in a robust strategic asset allocation framework that recognizes private assets as a natural fit for the long-duration illiquid nature of our liabilities. Investment-grade private placements, in particular, have been a long-standing core competency of our investment platform and a meaningful source of risk-adjusted yield that supports our liability profile. As you can see in our investor supplement on Slide 12, our private credit portfolios represent approximately 20% of our general account and are comprised of 3 categories: investment-grade private placements, private structured securities and direct lending. The vast majority of our exposure, approximately 15% of our general account or $19 billion sits in investment-grade private placements. This is a market we have invested in for decades, along with the majority of our long-tenured insurance peers. These are institutional investment-grade borrowers diversified across industry with sectors like utilities comprising a large portion of the exposure. Historically, the IG private placement market has delivered fewer rating migrations, lower defaults and better recoveries than their public comparables, supported by strong covenant protections and the deeper diligence that comes from having a direct relationship with the issuer. It's also worth noting that this market has been relatively stable in terms of growth over the last decade. At a smaller scale, we also hold approximately $4 billion or roughly 3.5% of our general account in private structured securities, which is largely an investment-grade strategy. This portfolio is A rated on average, has an average position size of $14 million and is represented by collateral such as equipment financing, solar financing and aircraft leasing. And while our portfolio is smaller than the industry in terms of allocation, we would expect this portfolio to grow over time given its duration profile, consistent with our strategic priority of growing our spread-based earnings and diversifying our annuity mix. The last and smallest allocation of the portfolio is direct lending, which represents less than 1.5% of our general account. This has been a surplus strategy, which over the last decade has delivered attractive net returns, though it has been a modest overall contributor to our earnings given the small allocation. The portfolio is highly diversified with more than 400 underlying loans, primarily managed by 4 large, well-tenured managers with an average position size of approximately $4 million. The weighted average life of the portfolio today is under 2 years, and we would expect this exposure to decrease over time, both in terms of absolute dollars and as a percentage of the general account, in line with the strategic priority of growing our spread-based businesses and thus allocating our risk appetite to assets more efficiently supporting our interest-sensitive liabilities. Stepping back, our portfolio across asset classes is the highest credit quality we've experienced in years. We maintain a robust asset allocation framework with rigorous stress testing and a measured approach toward diversified deployment of new money across asset classes, executed alongside our strategic partners and grounded in a consistent disciplined risk framework. We remain very comfortable with the portfolio. Turning now to capital, where we continue to operate from a position of strength. I would highlight 3 points. First, our estimated RBC ratio remains well above our 400% target and the 20 percentage point buffer we built on top of that target, now the eighth consecutive quarter that we've ended above the 420% target buffer level. Second, our leverage ratio improved further during the quarter to 25%, which is now at our long-term target. We've made meaningful progress on this front since the end of 2023, and the lower leverage ratio reinforces the financial flexibility we have built across the enterprise. Third, holding company liquidity ended the quarter at approximately $1.2 billion, an increase of approximately $150 million from year-end. This includes $400 million of prefunding for our senior notes maturing in December of this year. So net of prefunding, holding company liquidity is $805 million, well above our historical operating range. The continued build in holding company liquidity in part reflects the growing dividend capacity from our operating subsidiaries and provides the flexibility to support our broader capital priorities. Before I conclude, I want to briefly touch on the macro environment. While uncertainty remains with elevated volatility persisting across markets, the work we have done over the past several years to fortify the balance sheet, diversify our sources of earnings and deepen our risk framework leaves Lincoln well positioned to perform through it. In closing, our first quarter results reflect another period of consistent execution and meaningful progress on our strategic priorities. We delivered the seventh consecutive quarter of year-over-year adjusted operating income growth with continued progress across our underwriting businesses, ongoing spread expansion and another quarter of free cash flow and capital generation tracking in line with our expectations. The path forward will not always be linear and mortality experience and market conditions will continue to create some variability from quarter-to-quarter, but the trajectory of the business is clear, and we remain focused on disciplined execution, free cash flow generation and the creation of long-term shareholder value. With that, let me turn the call back over to the operator. Operator: [Operator Instructions] And your first question comes from the line of Wes Carmichael with Wells Fargo. Wesley Carmichael: Just thinking about the holdco liquidity increased about $150 million sequentially. And I think you guided to around, call it, $100 million of holdco expenses on a quarterly basis. So is that a decent proxy for free cash flow? I think last quarter, you had mentioned that kind of any excess generation in subsidiaries would be upstreamed, but any other considerations in the quarter when we think about free cash flow? Christopher Neczypor: Yes, good question. So I would say a couple of things. First of all, you're right, the holding company cash increased to over $800 million, net of the prefunding for the quarter. It's the highest it's been in a long time. We talked about this last quarter where as free cash flow is being generated, you will see an increasing amount of that move to the holding company. I think as it relates to the quarter-to-quarter dynamics, though, just keep in mind that we tend to take dividends from LPine and [ LNCAR ] at least last year in the back half of the year. So we would expect that trend to continue. And then there's also always going to be some variation quarter-to-quarter as it relates to free cash flow relative to GAAP because of things like taxes or how seasonal expenses might be dealt with between the 2. But at the end of the day, when you step back, the earnings growth came through at 16%. The free cash flow conversion continues to look strong relative to the guidance that we had talked about a quarter ago, and you're starting to see more of that move to the holding company. Wesley Carmichael: Got it. And I guess just the second one, good to see favorable alts returns in the first quarter. Chris, I think in your prepared remarks, you mentioned there could be some variability in 2Q. That makes sense. But do you have any kind of early view on alts returns for the second quarter or how you think that ought to trend through the rest of the year? Christopher Neczypor: It's too early, Wes. But I think the comments that I made in the prepared remarks are just a reminder that the portfolio is on a lag. And so if you think about what happened in first quarter, you would imagine any volatility that would play through would come through next quarter. Obviously, this quarter, in public markets, you're seeing positive performance. And so there's always just that lag. I do think it's important, though, to step back when you think about our alts portfolio. It really has been a significant contributor over the last few years. And frankly, it's a testament to the way that portfolio has been built. And so when there is volatility in the markets, it can have an impact, but I also wouldn't think of it as S&P beta, if you will. It's about $4.2 billion in size. We've done about 10% returns with relatively minimal volatility over the past couple of years. And the point on the way the portfolio is constructed, and this is true for our general account as a philosophical perspective, but it's extremely diversified, right? And so we get questions about the alts portfolio from time to time. $4.2 billion, you could think of it as 40% in private equity, 20% in growth equity, 20% in real assets. So think of things like infrastructure and energy and then 20% in other strategies, so hybrids or hedge funds. From a fund perspective, there's over 400 funds. So when you think about the diversification, that's, call it, $10 million per fund. And then if you just think about the way that portfolio construction works, from a position perspective, there's probably over 4,500 portfolio companies, so $1 million average size. So it's an extremely diversified portfolio. And the reason I make this point is because when you look back historically, depending on the macro environment, different parts of the portfolio are going to perform well and some parts of the portfolio are going to underperform. So the diversification is a real point, both from a strategy perspective, an asset class perspective and a size perspective. And frankly, it's been a really strong performer for us over the past couple of years. Operator: Your next question comes from the line of Ryan Krueger with KBW. Ryan Krueger: My first question was on disability. Could you help us size the PFML impact on either in dollars or on the disability loss ratio? And then if we were to exclude that, like where is disability at this point relative to your longer-term expectations? Have we basically removed all of the favorability you had been mentioning from the macro environment and now we're more at a stable state? Or is there's still some favorability you're seeing? Christopher Neczypor: Yes, good questions. On the first question on PFML, we're not going to size the specific impact. I think it's -- the dynamic there is relatively consistent with what you've heard from others in the industry. Two new states came online that has a near-term impact, but then normalizes throughout the year. So you will see the normalization of that as you go through the next couple of quarters. The other dynamic, though, if you look at the loss ratio year-over-year, 70% last year, 73% this year. So in addition to the PFML pressure, which again normalizes, the dynamic that we talked about in the second half of last year is continuing, and that's on the claims resolution side. So as you think about as the mix of the block evolves and a greater percentage of the reserves are from more recent years where new claim severities have been favorable, the release of reserves from older high severity claims become less impactful. So that normalization is continuing. It's continuing in line with our expectations. And those expectations were obviously baked into the way we framed the outlook for '26 and '27. That's continuing. What I would say, though, is that incidence is still really good. And incidence has been normalizing a bit, but relative to the longer-term expectations, both from a frequency and severity perspective for incidents in LTD, in particular, it's still favorable. So to the degree that the macro changes and unemployment becomes more of a dynamic, we would expect to see some change in incidents. But if you think about the 2 main drivers to your disability loss ratio on the LTD side, we are seeing the normalization on the resolution side, while incidence remains strong, but a little bit of a normalization from last year, which were, frankly, record levels. Ryan Krueger: And then on annuities, if I normalize for the tax item and also the 1Q seasonality, it would seem like you're trending kind of more towards the low end of the 66 to 70 basis point ROA guide you had given last quarter for the medium term. Is there any reason to expect any upward movement there from -- or is that -- or should we think of this more as you're probably running towards that lower end at this point? Christopher Neczypor: Sure, Ryan. So it's 1 quarter. And what I would say is you're right, there's a lot of noise in the numbers. And so there's the tax item, which we mentioned. There's the NII allocation dynamic that we talked about. And then on a year-over-year basis, there is the incremental acquisition expense from retaining the full flow. We've talked about that in the past, and that will be a recurring dynamic. But just when you're looking at the comp year-over-year, keep that in mind. So if you think about the underlying drivers beyond that, markets were not a tailwind for VA this quarter. When you think about the VA block, call that an 80 basis point ROA block of business, and you have the combination of outflows and fees and assessments and so forth running at about 10% a year. So for that 80 basis point large block to maintain its earnings trajectory, you need a similar level of earnings growth on an annualized basis. And so this quarter, when you don't have the market tailwind, you see that pressure come through a little bit more. That outflow rate has been relatively consistent the past couple of years. It's in our expectations. And as we talk about all the time, the volatility just comes from what's happening on the account value side for markets. On the spread side, the good news is we're continuing to see good spread income growth there. You can see some of that flow through in the P&L. I would also mention as a reminder that the NII allocation when you look year-over-year, you have to adjust for that. But as the account value grows for the spread income business, 2 dynamics will happen. One is you'll just get the greater lift of earnings, but from an ROA perspective, as you're building those blocks, the incremental return expansion comes over time because you've got some nondeferrable acquisition expenses. You have the expectation that your spreads expand over time, especially as you get through surrender periods and so forth. So longer term, I think you would expect the ROA of that to -- for the non-VA block to expand as the account balance is growing at the same time. And then you have the VA ROA sort of somewhat dependent on markets, as we've talked about. Very specifically, as you think about 2Q versus 1Q, the tax dynamic goes away and then you do have an extra fee. Operator: Your next question comes from the line of Joel Hurwitz with Dowling & Partners. Joel Hurwitz: Chris, first, can you just break down the loss in other ops. It seemed a bit elevated. Just walk us through the moving pieces of spreads in that legacy business you guys called out and expenses. Christopher Neczypor: Yes. It's relatively straightforward. There is a legacy block that has assets against it. There's some equity sensitivity in the legacy block. And so the assets have some equity component in the account values. And over time, as markets have performed well, the excess on the asset side has grown. And so what happens is in periods of volatility in the markets, you can have a little bit of a drag there, and that's the majority of the difference year-over-year. There was the net investment income allocation change. We talked about that for annuities. We also mentioned at the time that there would be a more minor impact for other operations. It's about $20 million annually in other ops, so about $5 million a quarter. So once you adjust for those 2 things, the other ops income number is pretty straightforward. Joel Hurwitz: Got you. And then just shifting to annuity sales. Can you unpack more what you saw in fixed annuities? It was a step down from prior quarters. It sounds like, right, I think, Ellen, you said FIAs were up 90% year-over-year. But how did that compare to the last couple of quarters as you started to sort of ramp that business up? Ellen Cooper: That's right. So first of all, if you take a step back and what you see in the first quarter just overall in terms of our annuity business is delivering on the framework that we laid out in our fourth quarter call. So as it relates to fixed annuity in particular, and one of the things that we said is that we see the greatest runway there over time and that we, as we move into 2026, are focusing on FIA over price-sensitive MYGA. And keep in mind a couple of things here. One is that in fixed annuities, as Chris mentioned, we are now retaining 100% of sales following the exit of our external flow reinsurance treaty. And so while we're doing this, you saw this quarter, even though sales were down, that fixed annuity account value growth was up, and we expect it to continue to be up relative to where we were in 2025. So when we look at overall FIA and we see that we're up 90% year-over-year, we really see that in the fixed segment, importantly, this is where we see the most attractive growth opportunity. And some of the reason why is that we are really leaning into where we have differentiated crediting rate strategies, where we have differentiated product features, and that enables us to compete beyond price. And then at the same time, we have the opportunity in FIA to continue to expand from a distribution perspective where we have strategic partnerships, but we have not traditionally been on the shelf for FIA. And then additionally, one more thing, which is that we're investing in the customer capabilities around digital and things like statement on demand, et cetera. So all places that support us in terms of continuing to grow here. MYGA, at the moment, we are deliberately stepping back. So we are seeing -- and I believe some of our peers have talked about this as well. We really want to compete on features rather than pure rate. And so we're going to selectively be in the market where the value trade is. We have the ability to pivot, and we're always going to make that trade-off. And if we see market conditions or we see something change here, we will, of course, adjust and pivot the strategy accordingly. Operator: Your next question comes from the line of Suneet Kamath with Jefferies. Suneet Kamath: I guess for Ellen, we're seeing or witnessing the first merger of equals in the annuity space in probably 20 years, I think your company is probably the last one. Just wondering how you're thinking about that transaction? And does it change the need for scale in the business? And ultimately, does this start a wave of consolidation as people try to kind of catch up to size? Ellen Cooper: Sure. So I agree with you that we haven't seen an MOE of this size in quite some time. And as you all know, we compete with both of these organizations that are part of the merger announcement. And we also, by the way, compete with organizations that are much larger, too. So we feel really comfortable that we're going to be able to continue to compete well. We feel very well positioned. Just in terms of -- recall that several years ago, when we were initially going through our transformation and realignment, we did a broad strategic review. We looked across every business, every product, every segment. We made the decision at that time to sell our Wealth Management business because that was a business for us that we didn't have scale, and we didn't really feel that we had the right to win and really compete in that business. And we talked about the fact that we have a commitment to the 4 businesses that we're in, all of which, as we've reinforced, are in different stages of their realignment. So we feel really good about our ability to continue to execute and deliver results. And to your point, scale is clearly a factor, and we have scale in our businesses. And at the same time, there are a number of other factors that we think are just critical in terms of success. Capabilities, and you hear us, we are investing in unique and differentiated product features. We know that we've got a real competitive advantage as it relates to our distribution and proven track record of pivoting, and we're doing that all across the platform. And then you also hear us over and over again talking about all the investment that we're making in capability in ease of doing business with customer. And really, those things go hand-in-hand in terms of really having the right to win, continuing to gain share, continuing to grow the business. So we feel very good around where we are and our ability to continue to compete and importantly, grow the overall earnings trajectory for Lincoln. Suneet Kamath: Okay. That's helpful. And then I guess for Chris, I don't know if you can provide this, but in terms of the Bain Capital, is -- can you give us a sense of how much of that has been deployed at this point? Christopher Neczypor: So I don't know that I would add a lot to what we said at the fourth quarter. So if you think about it, when we brought in the $800 million, we said we were going to use it for basically 3 primary strategies: number one, grow the fixed annuity account value and spread earnings over time as we exited the flow deal. Number two, continue to scale the institutional funding agreements; and number three, optimize the legacy Life block. So as you think about where we were at the end of the year, we had talked about the fact that we exited the flow deal and we had, call it, a quarter and a month worth of flow. that was being capitalized and will produce strong spread earnings over time. As you think about the rest of this year, we'd obviously earmarked for the remainder of that to run through from a comp perspective. And then we've been doing funding agreements when the markets are supportive, as you know. So from a cadence perspective of deployment, I think the spread income side of things continues at the pace that we had expected. The bigger variable as it relates to the use of proceeds as it relates to optimizing the Life portfolio, we mentioned in the fourth quarter that we restructured a number of the legacy life captives. We used some of the capital for that, really good return, both GAAP and even more so on the free cash flow side. And then we discussed the fact that in 2026 and 2027, we would look at a number of different actions, some external, some internal, to deploy more of that capital towards either repositioning the life portfolio asset base or looking at an external risk transfer deal. And obviously, we're still working through all of that. So we like the trajectory of the deployment. There's the pace of account value growth that we're seeing on the fixed annuity side. We had the big first step on the life side with the captive. And really from here on out, it's making sure that we're being diligent on how we think about using the proceeds to execute on some of the life actions. Operator: Your next question comes from the line of Tom Gallagher with Evercore. Thomas Gallagher: Just 2 competition questions. The -- so Ellen, I think you were partly referencing the first one in your answer a few minutes ago. But on the Apollo call yesterday, they mentioned irrational competition in the annuity market coming from incumbent insurers, not from the new PE-backed entrants. And I certainly hope it's not you guys they're referencing because you did have good FIA growth, but you were mentioning MYGA is where you're seeing the most competition or at least aggressiveness in the market where you pulled back actually. But what are you seeing competitively that you think might explain this commentary and irrational competition from incumbents? Ellen Cooper: So I obviously can't speak to the comment of another peer. But having said that, we know that there are certain pockets of the annuity product segments where it's a pure price competition play. And one of those examples at the moment is MYGA. And we see pockets of this, and we've referenced this in previous calls. There are pockets of this on the RILA side as well as we see more competitive entrants. And one of the ways that we are focused on differentiating and ensuring that we are achieving the risk-adjusted returns that are critical for us in terms of growing this business is differentiated product features and really having a deliberate focus on the more profitable segments of this market. So you're going to hear us over and over again reinforcing this fact that we are not focused on top line growth. We are focused on balancing growth with profitability, with capital efficiency as we continue to grow here, and we're leveraging the strength of our distribution franchise to pivot across products. You've seen us do this many times before, and we're going to stay focused there to make sure that we are ensuring that we're building the durability for this business going forward. Thomas Gallagher: Got you. My follow-up is a question on competition in the Group Protection business. So your large case lapse that you referenced, was that more you needed rate, you were looking to reprice and as a result, you lost it? Or would you say that was more aggressive pricing from competitors or some other reason that you thought you lost that? And I'm just curious if that informed you about where you currently see competition in that market. Ellen Cooper: So Tom, you've repeatedly heard us talking about the fact that we are prioritizing margin expansion over top line growth across all of our businesses, but in group in particular. And so with one large customer, you can assume that it holds true here as well. So importantly, our in-line, our persistency was in line ex the one large case. And while we saw premium growth of 2%, there are a couple of things that I want to emphasize here year-over-year. One is that we feel very comfortable with the medium-term outlook that we laid out for all of you last quarter, expecting premium growth to be in the 3% to 6% range over the medium term. And then you've also heard us talk about the fact that we are leaning into the most attractive margin and fastest-growing segments in our group business, the local markets and also continuing to expand supplemental health. And we saw local market premium growth deliver its strongest growth that we've seen in nearly a decade. And as it relates to supplemental health, that premium grew 28%. So we feel really good about where we are. And again, we'll continue to prioritize margin over top line growth. John Muething: Thank you for joining us this morning. We're happy to address any follow-up questions you may have. Please e-mail us at investorrelations@lfg.com. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning. Thank you for attending the Aspen Aerogels, Inc. First Quarter 2026 Financial Results Call. [Operator Instructions] I would now like to turn the conference over to your host, Neal Baranosky, Aspen's Senior Director, Head of Investor Relations and Corporate Strategy. Thank you. You may proceed, Mr. Baranosky. Neal Baranosky: Thank you, [indiscernible]. Good morning, and thank you for joining us for the Aspen Aerogels First Quarter 2026 Financial Results conference Call. With us today are Don Young, President and CEO; and Grant Thoele, Chief Financial Officer and Treasurer. The press release announcing Aspen's financial results and business developments and the slide deck that will accompany our conversation today are available on the Investors section of Aspen's website, www.aerogel.com. During this call, we will refer to non-GAAP financial measures, including adjusted EBITDA and adjusted net income. The reconciliations between GAAP and non-GAAP measures are included in the back of the slide presentation and earnings release. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the disclaimer statements on Page 1 of the slide deck as the content of our call will be governed by this language. I'd also like to note that from time to time, in connection with the vesting of restricted stock units and/or stock options issued under our long-term equity incentive program, we expect that our Section 16 officers will file Form 4 to report the sale and/or withholding of shares in order to cover the payment of taxes and/or the exercise price of options. I'll now turn the call over to Don. Don? Donald Young: Thanks, Neal. Good morning, everyone. Thank you for joining us for our Q1 2026 earnings call. My comments will cover an April event in our manufacturing facility in East Providence, our growth outlook for the Energy industrial segment, the evolving demand environment for electric vehicles and our progress in developing a battery energy storage systems segment. I will also provide an update on our strategic review process. Grant will amplify these points with his comments. On April 8, we experienced an operational disruption in our aerogel manufacturing facility in East Providence. The incident involved an explosion in a high temperature oven and resulted in plant damage confined to that specific area of the facility and the temporary cessation of operations. We are immensely grateful that no employees were seriously injured in the incident and want to recognize the Aspen team for their tireless work towards a safe and disciplined restart of the facility. We currently expect a staged restart of operations to begin in May, subject to continued progress in our mechanical, operational and safety reviews as well as ongoing coordination with local and state agencies. To date, we have mitigated any significant commercial impact of the disruption by working through inventory and by leveraging the capacity of our external manufacturing facility. It will take time to restore full capability to the EP plant a task that will receive our full attention once we complete the restart phase. We are also closely -- we are also working closely with our external manufacturing facility to enhance its capabilities to support our Energy, Industrial and Thermal Barrier segments and to enhance short- and long-term supply flexibility, all of which is intended to strengthen our operational resilience and commitment to customers. Turning to our Energy & Industrial segment. Even with a messy start to the year due to the EP disruption and delivery delays in the Middle East, we still have our sights set on 20% revenue growth for the year. We believe we will gain considerable momentum in the second half of the year, leading to further growth in 2027 and 2028. With energy security and supply diversification paramount and structurally higher energy prices projected, our customer base is gearing with urgency for a multiyear investment cycle in global energy infrastructure from which we expect to benefit. These dynamics are translating into 3 clear growth drivers for our business. First, Subsea. We continue to build a strong pipeline of opportunities that extend through the decade. We were recently awarded a second subsea project deliverable in Q3 and with the win announced earlier this year, positions us in 2026 to be within our historical annual revenue range of $10 million to $20 million. Second, LNG and natural gas infrastructure. LNG has become one of the clearest and most dynamic growth lanes for us. We are seeing positive developments in the United States and in the Middle East with large-scale LNG infrastructure activity moving from market interest into executable commercial opportunities. Our confidence is not based only on the LNG macro cycle but also based on our concrete engagement with project level execution. We are actively working with customers, EPC contractors and construction teams and believe we have the potential to increase our scope on several projects, which would increase our 2026 opportunity and extend visibility into 2027. We believe this supports our expectation that LNG-related activity can approximately double in 2026 versus 2025 and provide continued momentum into 2027. Third, maintenance and turnaround work remains an important deferred demand opportunity. Refiners have continued to prioritize uptime and operate at high utilization, which has compressed some maintenance windows. Over time, reliability requirements should bring that work back into scope, and we remain well positioned to support customers as turnaround activity normalizes. Taken together, we believe these drivers support our expectation of approximately 20% growth in energy industrial in 2026. We anticipate building momentum through the second half of the year and remain focused on scaling this segment into a $200 million high-margin business without the need for incremental capital investment. Turning to our PyroThin thermal barrier business. The EV market in the United States remains in reset mode. Market share for EVs in the U.S. appears to be settling at approximately 5% to 6%, roughly half the level of when incentives and regulation favored EV adoption. GM's monthly market share for EVs this year has averaged 14.1%, which would suggest a sales rate over 100,000 EVs in 2026. GM produced EVs in Q1 and in April at levels below current sales volume, resulting in lower finished vehicle inventory levels. We anticipate GM will begin aligning production rates more closely with sales volumes, consistent with its stated objective of operating in a demand-driven manner and adapting to current market conditions. GM has maintained its full line of EV nameplates and has stated that it remains dedicated to its long-term EV success, including in its Cadillac division, where EV sales represented 28% of total sales in 2025 and over 30% in Q1 2026. We see a different dynamic in Europe where battery electric vehicles now account for more than 20% of new vehicle registrations and where stronger structural drivers are supporting the early stages of production ramp-up among the OEMs with whom we have design awards. Our EU thermal barrier revenue in Q1 increased more than threefold versus the prior quarter -- prior year quarter and we believe this momentum could translate into 2026 revenue in the range of $10 million to $15 million. Across these European awards, we are supporting programs that incorporate battery cells from a diversified global supply base, including European, Korean, Japanese and leading Chinese manufacturers. We are encouraged by our momentum in Europe and again, believe the region will be an important contributor to our revenue in 2027 and beyond. Looking beyond our current segments, we are also advancing new growth opportunities. In battery energy storage systems, we are actively engaged in multiple qualifications and commercial discussions with developers serving grid infrastructure, data centers and other high reliability applications as system architectures evolve toward higher energy density, the thermal challenges increasingly resemble those we have already solved in EV platforms. With proven performance and domestic manufacturing capability, we believe we are well positioned to enter this market and generate initial revenue in 2026 following a period of market change and internal restructuring, we initiated a strategic review in Q4 last year. Our goal was to execute a disciplined evaluation of our strategic options to ensure our growth strategy and capital allocation priorities were aligned with maximizing long-term shareholder value. The process allowed us to open the aperture to compare our existing opportunities to a wider array of strategic alignments and capital structures. While optimizing strategy is an ongoing endeavor for all good companies, we are confident that our current approach, scaling energy industrial, driving new growth and diversification for PyroThin thermal barriers, expanding into adjacent markets and continuing targeted R&D to create breakthrough opportunities represents the best path to deploy our financial strength and deliver long-term value for our shareholders. Grant, over to you. Grant Thoele: Thanks, Don, and good morning, everyone. I'll cover our first quarter 2026 results and Q2 outlook, along with drivers for the remainder of the year. As we signaled on our last earnings call, Q1 2026 was projected to be the lowest revenue quarter of the year, and we remain confident that it will be. We also anticipated sequential revenue growth each quarter through 2026, which we continue to track towards as expected. First quarter revenue was $37.9 million, including $21.6 million from Energy Industrial and $16.3 million from thermal barrier. Total revenues declined 8% quarter-over-quarter. Energy Industrial revenues came in below expectations, declining 15% quarter-over-quarter. Customer demand was constrained by ancillary impacts from the conflict in Iran, creating logistics and inventory challenges. Our supply chain and commercial teams have taken targeted steps to mitigate further disruption. On the positive side, we have secured 2 project awards in Q1, both expected to contribute revenue this year. Thermal barrier revenues were in line with expectations and flat quarter-over-quarter, although we did see softer GM production volumes as they continue to destock inventory, encouragingly, GM's market share grew during the quarter, a positive commercial signal. In Q1, we received $37.6 million in claim proceeds from GM. The GAAP treatment of the claim is informed by ASC 606. This payment is recognized as revenue ratably through the end of 2027, with $3.5 million booked as revenue for Q1 and approximately $4.9 million revenue per quarter thereafter. Gross profit of $4.3 million or 11% gross margin reflected the impact of lower production volumes being unable to fully cover fixed manufacturing costs. Gross margin at the segment level was 15% for energy, industrial and 6% for thermal barrier. Adjusted operating expenses, excluding impairments, restructuring charges and other onetime items remained relatively flat from $21 million in Q4 '25 to $21.2 million in Q1 '26. Q1 results included a few onetime items, a $2.2 million property tax charge related to Plant 2 and approximately $1 million of charges related to nonrecurring professional services. GAAP net loss was negative $23.7 million in Q1 versus negative $72.9 million last quarter. And adjusted EBITDA was negative $12.7 million in Q1 versus negative $18 million last quarter, representing a 29% improvement despite slightly lower revenues. Moving to liquidity. We generated $17 million of cash in Q1 and ended the quarter with $175.6 million in cash and cash equivalents versus $158.6 million at the end of 2025. The increase in cash was driven by the receipt of $37.6 million GM claim proceeds, along with a working capital benefit of $8 million, while CapEx of $1 million and debt payments of $15.6 million represented the primary uses of cash aside from Q1's operating loss. Debt payments in Q1 were driven by $6.5 million in principal amortization connected to the term loan and a $7.6 million reduction in the revolving credit facility. Our term loan balance at the end of Q1 was $86 million. Our sole financial covenant under the MidCap facility requires us to maintain cash equal to at least 100% of the term loan balance with $175.6 million of cash against an $86 million term loan, we have substantial covenant headroom. Turning to Slide 6. For the second quarter of 2026, we expect increased revenue and profitability relative to Q1, with total revenue expected to be between $40 million and $48 million. This range represents between 5% to 28% growth quarter-over-quarter. Our Q2 guidance assumes GM production at an annualized rate of approximately 55,000 to 65,000 vehicles in the quarter, an increase versus Q1 where GM sourced the equivalent of 43,000 vehicles annualized. The current IHS forecast has GM producing nearly 100,000 vehicles for 2026, which points to more production weighted to the second half of the year. Given the product mix included in our range, we expect adjusted EBITDA to be between negative $10 million and negative $4 million for the second quarter. This profitability range is dependent on supply mitigation efforts. So all the variability resides above the gross profit line. A few items worth noting here, mainly around production and supply. The incident at EP is creating near-term cost pressure. Our teams are doing an exceptional job managing supply continuity, but expedited freight, expedited repair costs and inventory build across both EP and EMF will all result in elevated costs in Q2 and potentially Q3. Elevated costs in this circumstance are difficult to estimate as production evolves by product, location and customer, particularly as we balance safely restarting EP. Protecting supply and meeting customer expectations is our clear focus during this time. As a reminder, our restructuring actions were designed to achieve EBITDA breakeven at $50 million of quarterly revenue. Our Q2 guide reflects progress toward that target, and we expect to reach it in the second half of the year, assuming success of our ongoing production and supply mitigation efforts. All estimates reflected in our guidance assumes that the staged restart of our East Providence plant proceeds as we currently expect. Turning to our liquidity outlook. Let's start with what we can control. CapEx and scheduled debt payments should total less than $12 million in Q2. And Alternatively, working capital will be more variable depending on where we produce inventory and ultimately sell finished goods. Additionally, we will build to higher inventory targets for safety stock at quarter end, depending on the pace at which EP comes back online. We will continue to be prudent with cash during this period, but want to strive for the high end of our Q2 revenue range. As a result, we could see total cash outflows of $20 million to $30 million for Q2, which includes $12 million of CapEx and scheduled debt payments, again, highly dependent on our ongoing production and supply mitigation efforts. With Q1 as our base, we anticipate sequential revenue growth through 2026, supported by 3 primary drivers. First, GM production continues to recover as inventory levels normalize and destocking subsides. Second, the continued ramp of our European OEM programs which we expect to contribute approximately $10 million to $15 million of revenue in 2026. We see activity picking up here. Third, we expect approximately 20% growth in energy industrial with a greater concentration of project activity in the second half. As volumes increase, while we continue to lower our cost structure we expect improved operating leverage and margin expansion throughout the year. Full year capital assumptions remain unchanged from the last earnings call. We continue to expect less than $10 million of capital expenditures and approximately $26 million of scheduled debt payments. Proceeds from the potential sale of Plant 2 assets are most likely a Q4 event rather than Q3. We and would be applied directly to reduce our term debt on a dollar-for-dollar basis. Combining these assumptions with our profitability expectations for the rest of the year, we anticipate ending the year with a strong net cash position. As a result of restructuring by reducing our fixed costs, we've built a financial framework that supports both resilience and growth as evidenced by our progress reducing EBITDA breakeven levels from $330 million revenue in 2024 to our $200 million revenue target in 2026 and even further to our $175 million revenue target by the end of 2027. With ample levels of liquidity, we still see flexibility to further delever the business, and we're evaluating a host of options while staying nimble to opportunistically invest in strategic growth initiatives. As we continue to navigate 2026, driving incremental profitability with new commercial activity and maintaining balance sheet strength remain top priorities. Don, back to you. Donald Young: Thanks, Grant. To close, while the first half of 2026 has been shaped by temporary disruptions and evolving market conditions, we believe the fundamentals of our business are solid. We see market signals -- positive market signals across our energy and industrial platform alongside growing diversification and new growth in thermal barriers. As we move through the year, we expect to build momentum and further strengthen our positioning for sustained growth into 2027 and beyond. With that, we'll open the call to your questions. Operator: [Operator Instructions] Your first question comes from the line of Eric Stein of Craig-Hallum Capital. Unknown Analyst: This is Luke on for Eric. So I guess, first, just on the European demand for thermal barrier, just following the record quarter on that front. I mean do you think OEMs are looking to accelerate production in part just because of the volatility in energy markets? Could you just talk about what you're hearing from customers in the pipeline? And also, would you expect to be leaning on the EMF to meet that ramp just with everything going on in Rhode Island right now? Donald Young: In terms of the ramp, I think it's a little too early to associate their active first quarter and the levels of activity that we're seeing here in 2026 with higher energy prices and switching from ICE vehicles to EV vehicles. I think more broadly, though, this has been building for some period of time. We've seen significant EV market share gains in Europe and the OEMs with whom we have won awards are beginning to benefit from that. In terms of supply, look, we want to be sure that we have as much flexibility as we can and make sure we're capable of meeting expectations of our customers. And everything that we can do to assure that we're going to do. And that does include having capability in our East Providence facility and in our Chinese EMF supplier. Unknown Analyst: Got it. So I guess just for my follow-up, switching gears here to EI. I mean you've talked about ultimately scaling that business to, let's say, a $200 million annual business. Do you have line of sight into just some of the subsea and LNG opportunities that could really make that a real possibility before the end of the decade? And just what are some of the factors that ultimately would get you there? Donald Young: Yes. I really think it's the 3 things that I touched on in my earlier statements. And certainly, Subsea is one of them. If you think back, as I cited, our historic range for a long time going back, I want to say, to 2008 or so, has been in the range of between $10 million and $20 million in '23 and '24, we had numbers that were closer to $30 million. And in '25, we had a very quiet year, a number less than $5 million. So we see a lot of activity going on, and it's not just the 2 awards that we've won to date, but the roster of opportunities. I can't remember when it's been stronger. And again, our value proposition and our record serving that market is outstanding. So that is definitely one component. And then LNG, as I said again in my statements, we're not just looking at the LNG kind of macro cycle. Our teams are engaged with the owners, with the EPC contractors in the field accelerating projects and expanding some of the opportunities that we have there. So that has a good opportunity. I have said that we have the opportunity to double the size of that business compared to 2025, both in number of projects and in dollars, and we are aiming to do that. And then the third area has been kind of a quiet area for us. It's our day in and day out maintenance work, turnaround work that we do in refineries and petrochemical plants around the world. These refiners have been running their plants pretty hard, and they've had relatively narrow maintenance windows. And we know that reliability is critical to them, and that cycle will move and create opportunity for us in that nice baseload day in and day out revenue that we're accustomed to in that area. So if you add those 3 things together, we believe that, that $200 million mark is a very realistic opportunity for us. Operator: With no further questions, we have reached the end of the Q&A session. I will now pass the call back over to Don Young for closing remarks. Donald Young: Thank you, [indiscernible]. We appreciate your interest in Aspen Aerogels and look forward to reporting to you our second quarter results in August. Be well. Have a good day. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the Arrow Electronics First Quarter 2026 Earnings Call. Today's conference call is being recorded. And at this time, I would like to turn the conference over to Michael Nelson, Arrow Vice President and Investor Relations. Please go ahead. Michael Nelson: Thank you, operator. I'd like to welcome everyone to the Arrow Electronics First Quarter 2026 Earnings Conference Call. Joining me on the call today is our Interim President and Chief Executive Officer, Bill Austen; our Chief Financial Officer, Raj Agrawal; our President of Global Components, Rick Marano; and our President of Global Enterprise Computing Solutions, Eric Nowak. During this call, will make forward-looking statements, including statements about our business outlook, strategies, plans and projections regarding future financial results, which are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including due to the risk factors and other factors described in this quarter's associated earnings release and our most recent annual report on Form 10-K and other filings with the SEC. We undertake no obligation to update publicly or revise any of the forward-looking statements as a result of new information or future events. As a reminder, some of the figures we will discuss on today's call are non-GAAP measures, which are not intended to for our GAAP results. We reconcile these non-GAAP measures to the most directly comparable GAAP financial measures in this quarter's associated earnings release. You can access our earnings release at investor.arrow.com, along with a replay of this call. We've also posted a slide presentation on this website to accompany our prepared remarks and encourage you to reference these slides during this webcast. Following our prepared remarks today, Bill, Raj, Rick and Eric will be available to take your questions. I'll now hand the call over to our Interim President and CEO, Bill Austen. William Austen: Thank you, Michael, and good morning, everyone. We appreciate you joining us for a discussion of our first quarter 2026 results. Before turning to our results, my sincere thanks to our colleagues around the world whose dedication and hard work continue to support our suppliers and customers and drive Arrow's success. Starting on Slide 3. We started 2026 with very strong results in the first quarter. Total revenue of $9.5 billion increased 39% year-over-year while operating margin expanded 160 basis points year-over-year to 4.2%. The strong revenue growth combined with the significant margin expansion resulted in non-GAAP EPS of $5.22, representing an increase of 190% year-over-year. Our strong results were attributable to several items, including: one, unit volume growth, coupled with good execution; two, leverage in the P&L; three, the mix of value-added services and good execution in the core that benefited from the market that accelerated in the second half of the first quarter. We saw a strong performance in both global components and ECS. In global components, the recovery is broad-based across geographies, industry verticals and customer mix, driven by customer demand. In ECS, we continue to benefit from strong secular demand trends in the AI-driven workloads, and we have generated year-over-year growth in billings, net sales, profit and operating income. Operating momentum across our business continues to build as our fundamentals strengthen. Raj will provide more detail on our financial performance. But first, I would like to highlight several key themes from the quarter that reinforced this momentum. First, our leading indicators continue to improve. Book-to-bill ratios improved further, and we currently are at healthy levels sitting well above parity in all 3 operating regions. Additionally, backlog continues to build into the third and fourth quarters, providing us with confidence that the momentum is sustainable. We have also seen lead times extend, but they remain significantly lower than a pervasive shortage environment. Second, the market recovery is unit volume-driven backed by customer demand. Third, the recovery is broad-based as we are seeing backlog from our mass market customers build quarter-over-quarter. Fourth, value-added services, and particularly supply chain services, saw a meaningful contribution to overall operating income. Finally, we are achieving good growth driven by better regional and customer mix, more accretion from value-added services and importantly, our cost structure is more efficient, demonstrating the positive operating leverage we have built into our model. We have been disciplined with our cost structure, which is now benefiting from operational momentum in the business and generating significant incremental margins. Turning to Slide 4. I would like to remind you of the 4 key pillars of our investment thesis. The reasons why Arrow is a unique and compelling investment opportunity. First, Arrow holds a leading position in large and growing markets, maintaining a central role across our 6 core markets of industrial, transportation, aerospace and defense, medical, consumer electronics and data center, each supported by durable, long-term secular tailwinds. Second, Arrow has differentiated capabilities driving profitable growth. We have made a shift toward an increased mix of higher-margin value-added services, including supply chain services, engineering and design services, and integration services. Our distribution capabilities around semi, IP&E and demand creation remain a fundamental part of what we do, and our value-added services are a natural extension for Arrow. Third, Arrow has a diversified business model, which provides financial flexibility. This continues to be a key differentiator for us, providing balance, resilience and consistent free cash flow generation through cycles. Our global components and ECS segments complement each other well, allowing us to participate across the full technology life cycle while providing resilience on both the income statement and balance sheet, supporting long-term value creation. And fourth, our focused capital allocation strategy is designed to maximize shareholder value through reinvesting in organic growth, pursuing disciplined M&A and returning excess capital to shareholders. We remain focused on deploying capital where we anticipate the highest long-term risk-adjusted returns while preserving an investment-grade credit profile and the flexibility to continue investing in the business. Turning to Slide 5. We are very pleased with the results we delivered in the first quarter, which positions us well for the remainder of the year. We remain focused on executing against our strategy with discipline and are encouraged by the accelerated recovery we are experiencing across geographies and verticals. The momentum we are building illustrates the beginning of a recovery cycle, and the customer order patterns are currently reflecting a rational market backdrop. Our priority continues to be driving profitable growth through improved execution as we manage mix, costs and working capital carefully and align investment levels with the pace of demand. At our core lies traditional distribution. It's the engine that has gotten us to where we are today. It's a big engine, which allows us the opportunity to get beyond the traditional business and expand margins via supply chain services, engineering and design services and integration services. Just to be clear, we will always excel at our traditional distribution and our higher-margin value-added offerings, deepening customer relationships and improving the quality and durability of our earnings over time. We will also continue to be disciplined with our cost structure, which we expect will drive additional operating leverage in the business. I believe Arrow is well positioned for the long term. supported by a diversified business model, improving profitability and a focused capital allocation strategy that enables us to invest through market cycles and drive sustainable shareholder value. With that, I'll turn it over to Raj to dive deeper into our financial performance. Rajesh Agrawal: Thanks, Bill. On Slide 6, sales for the first quarter increased $2.7 billion year-over-year to $9.5 billion exceeding our guidance range and up 39% versus the prior year or up 34% versus the prior year on a constant currency basis. First quarter consolidated non-GAAP gross margin as a percent of sales of 11.5% was up 20 basis points versus the prior year, driven by favorable business mix and global components as well as higher profit contribution from our value-added services. Our first quarter non-GAAP operating expenses increased $95 million year-over-year to $687 million, primarily driven by variable costs and FX. Importantly, OPEX as a percent of gross profit declined 13.6 percentage points year-over-year to 63.2%. In a way, operating expenses increased at roughly 1/3 the rate of revenue growth. The restructuring efforts we have executed the past couple of years are bearing fruit as we gain operating momentum and drive substantial operating leverage in the business model. We remain focused on disciplined, profitable growth and efficient operations. In the first quarter, we increased non-GAAP operating income year-over-year by $222 million to $401 million. Non-GAAP operating margin rate increased 160 basis points year-over-year to 4.2% of sales. Interest and other expense was $48 million in the first quarter as we benefited from lower average debt levels throughout the quarter, and our non-GAAP effective tax rate was 23%. Finally, non-GAAP diluted EPS for the first quarter increased 190% year-over-year to $5.22, which was significantly above our guidance range, driven by a number of factors including favorable sales volume in both segments, healthy contribution from our value-added services, operational leverage from our productivity initiatives and lower interest expense. Turning to Slide 7 in our global ECS business. In the first quarter, global ECS sales increased approximately $800 million year-over-year to $2.8 billion above our guidance range and up 39% versus the prior year or up 31% versus the prior year on a constant currency basis. Total ECS billings were $6.4 billion, up 39% year-over-year. First quarter non-GAAP operating margins declined modestly by 10 basis points year-over-year due to a few different factors. First, as pockets of supply became constrained for technologies around AI investments, hardware sales saw strong momentum in the first quarter. Additionally, we took a charge primarily related to 1 underperforming multiyear contract. We are in the process of adjusting the economics with this large long-term partner. As we shared on our last earnings call, in the first quarter, we had 4 extra shipping days compared to the same quarter last year. This impact is predominantly relevant for the ECS segment given sales cycles tend to be end of month weighted. The results from the extra shipping days was several hundred million dollars of incremental billings in the quarter. By normalizing for the 4 extra days, our global ECS business still achieved year-over-year growth in billings, net sales, gross profit and operating income dollars, reflecting our alignment to the high-growth demand trends behind AI and data center build-out. We believe our global ECS business is well positioned as we continue to differentiate on the more complex end of the IT spectrum. Our diversified line card of solutions for cloud, infrastructure software, cybersecurity, data protection and data intelligence are experiencing strong secular demand trends for AI-driven workloads. Today, as pockets of on-premise memory supply becomes thin, channel partners will need to find alternatives and lean more on the software and public cloud solutions that we offer. And our proprietary digital platform, Arrowsphere, allows our partners to source, provision, manage and scale these technologies, all within a user-friendly interface that drives deeper engagement and accelerates recurring revenue. Turning to Slide 8, let's take a closer look at our global components business. Global components sales increased $758 million sequentially to $6.6 billion in the first quarter, above our guidance range and up 13% versus the prior quarter. Global Components non-GAAP operating income increased $146 million sequentially to $365 million, up 67% from the prior quarter. Non-GAAP operating margins increased 180 basis points sequentially to 5.5%. In the back half of the first quarter, the cyclical market recovery accelerated at a pace that exceeded our expectations at the beginning of the year. The growth that we experienced was broad-based across geography, industry vertical and customer type. Booking momentum picked up and our book-to-bill ratios are at healthy levels and remain well above 1 in all three regions. Lead times continue to gradually extend; however, remain at manageable levels, lower than a broad shortage environment. This is lending itself to improving visibility as our backlog construct continues to grow in magnitude and duration with coverage building into the third and fourth quarters, supporting our confidence in the sustainability of a strong market. Importantly, the complexion of the recovery is fundamentally unit volume-driven backed by a breadth of demand. We believe our customers are holding normal inventory levels and their order patterns illustrate a rational market environment. As we look ahead, our focus is on disciplined profitable growth and we're seeing healthy proof points that our positive operational momentum should continue. First, the mix of our business continues to improve, both from a regional and customer standpoint. In the first quarter, our 2 largest verticals, Industrial and Transportation, saw a double-digit sequential growth in both the Americas and EMEA regions. Additionally, we're seeing backlog across our mass market customers trend positively as the segment of the market continues to normalize. Second, we are executing well in the accretive areas of the business. Our value-added services, primarily supply chain services, made a meaningful contribution to our overall first quarter operating income. Supply Chain Services exceeded our expectations in Q1, partially due to the heavier growth from our customers, which accelerated data center builds. Additionally, interconnect, passive and electromechanical components, or IP&E, an accretive segment of the market had a record revenue in the quarter and surpassed $1 billion for the first time. Lastly, our cost structure is becoming more efficient, which we expect to drive meaningful operating leverage as the market progresses. Taking a closer look at each of the regions. In the Americas, sales growth was broad based, highlighted by strength in aerospace and defense, industrial and transportation. In EMEA, the market meaningfully improved underpinned by strength in industrial, transportation and aerospace and defense. And finally, in Asia, the sequential growth was driven by industrial mass market and demand for data center computing power. Turning to the balance sheet on Slide 9. Net working capital declined sequentially for the first quarter by approximately $490 million, ending the quarter at $6.9 billion. Inventory grew sequentially by approximately $640 million, ending the first quarter at $5.7 billion. Now half of the inventory build was related to data center activity within our Arrow Intelligence Solutions. In this offering, we're helping to design, build and test the compute and storage infrastructure needed to run AI workloads. And this value-added service is margin accretive for Arrow. Importantly, the financial metrics that we monitor continue to improve. Return on working capital increased to 11.8 percentage points year-over-year, finishing the first quarter at 23.1%. Likewise, return on invested capital increased 7 percentage points year-over-year, finishing at 13.4%. Working capital as a percent of sales declined in the first quarter to approximately 18%, and our cash conversion decreased year-over-year by 16 days. Cash flow from operating activities was $700 million. The contributing factor was the timing of cash flows in Supply Chain Services, which may partially reverse throughout the balance of the year. This offering is generally a working capital-light model as most of the inventory is consigned and does not sit on our balance sheet because we do not own or bear the risk of holding it. However, because we are providing services within an existing customer-supplier relationship, we are also managing the associated AR and AP flows. Each program is bespoke, given the unique needs of each customer. But in general, the cash flow dynamics of the offering will impact our accounts receivable and accounts payable balances and can create material swings at the end of the quarter. Taking a broader view, the countercyclical cash flow dynamics of our business model have not changed. Typically, in times when the business is growing, we will consume more cash and invest in working capital to ensure we can meet the needs and demand levels of our customers because that is at the core of what we do as a leading global distributor. Gross balance sheet debt at the end of the first quarter declined sequentially by $619 million finishing at $2.5 billion. Finally, we repurchased $25 million in shares in the first quarter. Now turning to Q2 guidance on Slide 10. We expect sales for the second quarter to be between $9.15 billion and $9.75 billion, representing an increase of 25% year-over-year at the midpoint of the range. We expect global component sales to be between $6.8 billion and $7.2 billion, representing sequential growth of 5% at the midpoint. In enterprise computing solutions, we expect to be between $2.35 billion $2.55 billion, which is up 7% at the midpoint year-over-year. We're estimating a tax rate in the range of 23% to 25% and interest expense of approximately $60 million. Our non-GAAP diluted earnings per share is expected to be between $4.32 and $4.52. Details about the impact of changes in foreign currencies can be found in our earnings release. As we look at the balance of the year, we are confident in the operational momentum of the business. As always, there are factors that will impact the linearity of our results. We expect global components to perform at or above seasonal trends in all of our regions for the remainder of the year. However, consistent with historical patterns, in Q2, Asia is expected to be seasonally strong. As a reminder, Asia operates at a lower margin than the other regions. Additionally, unlike the first quarter where we experienced heavier growth from our customers, Supply Chain Services is expected to return to a more normal profit level in the second quarter. In ECS, consistent with the first quarter, we expect the business mix will experience healthy hardware sales driven by ongoing AI data center build out. Lastly, the timing of organizational annual compensation increases will impact operating expenses beginning in the second quarter. More broadly, as we expect demand levels to continue to improve, we believe that operating leverage that we have created will drive significant earnings power. With that, I'll now turn things back over to Bill for some closing thoughts. William Austen: Turning to Slide 11. Looking forward, our key priorities are clear. We are focused on continuing to execute with discipline and drive the operational momentum that we have in the business. We are confident our strategy is delivering, and we are well positioned to sustain this momentum. Leading indicators continue to strengthen, reinforcing our confidence that the market is improving and that the actions we have taken over the last couple of years position us well to realize the positive operating leverage embedded in our model. The path forward is clear. We plan to expand our high-margin value-added offerings across both Global Components and ECS, deepening customer relationships and enhancing the quality, resilience and durability of our earnings over time. I remain confident in Arrow's strategy, differentiated capabilities and diversified business model to drive profitable growth. We will continue to allocate capital to the highest return on investment opportunities with the goal of creating sustainable shareholder value. And in 2026, to better align the leadership team with shareholders, they will be compensated on our relative total shareholder return. And speaking of leadership, the Board's search for a permanent CEO is ongoing. The Board continues to evaluate a range of highly qualified candidates, and we will update the market when an appointment is ready to be announced. With that, Raj, Rick, Eric and I will now take your questions. Operator, please open the call for questions. Operator: [Operator Instructions] And your first question comes from the line of William Stein with Truist Securities. Aidan Wilson: It's Aidan, on for Will. I was hoping you could touch on what drove the ECS strength in Q1. How much of that may have been one time and then also what's driving the Q2 guide? And then secondly, if I could, if you could quantify the contribution from value-added services maybe to hyperscalers specifically? William Austen: Eric, why don't you take the ECS question? Eric Nowak: Yes, of course. The trends are the same since several quarters. We are experiencing the high growth in our cloud and AI and software and infrastructure business. So this is basically not new. What's new in Q1 is that with the softage in memory, we have a higher growth in storage and compute. We believe that the customers place their orders in advance to avoid price increase and be sure to be delivered during the year. That's what drove the extra growth in Q1. And also, of course, the 4 days that we had at the end of the quarter. William Austen: How about your look forward? Eric Nowak: The Q2, Q3 should be more or less normal quarters. Basically, the 4 days will compensate in Q4 only. And we will have the same kind of growth, I believe. We don't expect that the hardware growth will stop during this year, and the cloud and AI and software will continue. So basically, we should experience the same kind of growth during the quarter. William Austen: Very good. Rick, do you want to take the hyperscaler question? Richard Marano: Yes, sure. Thanks, Bill. I think on the hyperscaler side, Will, when we look at our business overall, we're experiencing the same growth expectations that the market is experiencing as it relates to them. I don't think there's anything different. The way we service that customer base is through Supply Chain Services as well as through our normal channels of business going forward. But that growth in that market, we continue to see, we continue to participate in as time goes on. William Austen: I'll just add to that. In Q1, as Raj -- what's in Raj's script, one of the hyperscalers accelerated the build of a data center, and they pulled it up into Q1. So we had some higher revenues related to hyperscaler growth in our supply chain services business in Q1, which was not expected. Rajesh Agrawal: Yes. And the other thing I would just add is that value-added services in total was about 30% of our operating income generated by the business areas last year. And that probably ticked down just a little bit in the first quarter because of the overall growth of the entire business, and so it's still a significant contributor to the overall bottom line. It's going to continue to be a strong contributor, and it's one of the key drivers of the margin growth that we're seeing in the business. Operator: And your next question comes from the line of Ruplu Bhattacharya from Bank of America. Ruplu Bhattacharya: I have a couple of them. Raj, I'm going to add you for a little bit more detail on the margin performance between fiscal 4Q, fiscal 1Q. And in components, I mean obviously, 5.5% is much higher than what we had thought. What was the contribution of the extra 4 days on revenues as well as on EBIT? And on the value-added services part, as Bill mentioned, you had a pull-in of demand. When you think about going from 1Q to 2Q, do you expect that level of demand to continue? Are you expecting some lower demand? So help us just bridge the 3.7% to 5.5% operating margin performance in the core business. And then it looks like you're guiding something lower for the fiscal second quarter, maybe like 4.5%. Can you help us bridge from 1Q to 2Q? And then I have a follow-up. William Austen: Ruplu, it's Bill. Before Raj gets into the CFO part of that answer, I'll give you the CEO part of that answer. It's what we said in our script. Our business in Q1, and as we look forward, because we got these leading indicators that are very strong, we've been saying for quite some time, once regional mix starts to change, i.e., the mass market comes back in the West, Europe and North America, and that's, as Raj had in his script, industrial and transportation has come back strong in both of those Western regions. That's a part of why we went from 3.75% to 5.5%. Value-added services, we're pushing harder and harder in our strategy to push more value-added services, both in ECS, which is not part of the 5.5%, but in global components, okay, demand creation, Supply Chain Services. We have made a purposeful shift, and Rick has done that in his organization, to focus more and more on value-added services. The third is the growth in the mass market is coming back. And as I've already said, it's in industrial and it's in transportation. And it's also in aerospace and defense. But we've been talking now for close to 7, 8, 9, 10 months about the leverage that the business has been building in the P&L. We've been maintaining costs flat to down on the fixed cost side, so that as we drive more and more volume growth, which is what's driven our results in Q1, volume, not price, we get fall through, and it falls through at a pretty heavy clip. So what we're doing in global components is exactly what we said we were going to do 7, 8, 9 months ago, and we're executing on that. We're executing very well. Raj will give you the details now. Rajesh Agrawal: Yes. Bill got into some of the details, but let me just add a little bit of color. The themes you're going to keep seeing or hearing Ruplu is that just to summarize, again, we're getting the right kind of growth. And we always said that we're going to get leverage on the bottom line with the right kind of growth. So growth in the West, the mass market customer coming back, the value-added services, and I'll address your question specifically on that here in just a second. But that's a strong contributor to the bottom line and then significant leverage, all of those factors have an impact to getting us to the 5.5% margin in the first quarter. And I think your math might be a little bit wrong. We're not guiding to margins in the second quarter, but component margins do step down a little bit related to Asia mix and then the supply chain services step down as well as some of the OpEx that increases. But overall, I think we're still going to have very strong operating margins for components in the second quarter. And it's just indicative of the leverage that we have in the model, that those conditions will continue for the rest of the year, we believe in terms of the mix that's driving the margin expansion. On value-added services, I wouldn't think about it as pull-in of demand into the first quarter. It's really just extra growth that we got from our customer base in that part of the business. We're assuming in our outlook a lower number for Supply Chain Services, but it's still going to be a significant contributor to the overall profit line. And we'll certainly try to do as much as we can there. So not a pulling in demand, it's more about just continued momentum in that business at a more normalized level. And then I think you asked about 4 extra days. That's in the ECS business. It was worth several hundred million dollars of billings in the first quarter, which is what we indicated when we gave the outlook last time. And if you just apply a net revenue to that, maybe 50% or so as a good benchmark, and then you apply a margin to, you'll get to an operating profit number that benefited us in the first quarter. And that obviously isn't going to benefit us in the second quarter, and that's in our outlook as well. So hopefully, I addressed all of your questions; if not, just let me know. Ruplu Bhattacharya: Thanks for the details there, Bill and Raj. Can I ask a follow-up? So you mentioned, Raj, a couple of times that this is not related to pull-in. Can I ask how you're judging that? Like what's the risk that component costs, including memory costs are going up. And so what's the chance that customers are preordering or trying to preempt the price increases and ordering ahead of time? And what's the risk either in the ECS segment or in the components segment that as prices for components go up, end market demand for end products can be lower in the second half and the backlog that you're building could have some double ordering in it or could have some prebuys and that demand is weaker in the second half. So just wanted to get your thoughts on it, how do you calculate whether there's any pull ahead or not? And how do you see that trending? And how do you see demand or true end demand shaping up in the second half? Thank you for the details, I appreciate your color. William Austen: Thanks, Ruplu. Good question. We monitored order flows, okay? We monitored order flows from customers. And if there's a customer that, let's say, orders at a rate of 10 and all of a sudden now they placed an order for 27. That's kind of a red flag that goes up and the team gets into that data and gets into the customer and say, what is it you're really doing here? Do you really have that demand? What's going on? So we try to monitor that the best we can. And we don't see the fact that -- we don't see at this time that customers are double ordering, placing orders this week, next week, the next week, all for the same device or component. And if they are, we track that, and we'll call them out. I'll let Rick add a little bit more color from what he sees in the branches. Richard Marano: Thanks, Bill, and thanks, Ruplu, for the question. I think the way to look at it is the following is, we've talked about this gradual recovery. We've talked about inventory levels in the past. If you think about it, if you look at the vertical markets or the segments we represent, inventory levels were really, really taken down to very low levels through the last cycle. And if you think about what lead times are doing, and we said this earlier, is lead times are gradually increasing, but from an overall perspective are in line with the market overall. So I would say more of customers are looking at how they look at their buffer inventories, how they build their buffer inventories and how they plan their demand moving forward based off of lead times that we believe are in line with the market at this point in time. Rajesh Agrawal: I just want to add a couple of things just for the benefit of our listeners since you asked the question. And we said it in our commentary, but the growth in revenue that we saw in the quarter, quarter-over-quarter in the components business was driven by unit volume growth, and it was not driven by pricing because as we look at the average selling price of our units and the unit volume growth, the unit volume growth lines up pretty well with the level of revenue growth that we got. So we actually did not see much pricing impact in our business. Yes, it's happening around us, and we flow it through. But when you look at it in total, it's not a significant impact from a quarter-over-quarter standpoint. And then the memory exposure that we have is probably in the mid-single-digit range. And yes, we've seen the price increases there as well, but still in the mid-single-digit range in terms of exposure to our revenue, so not a big impact. We obviously participate in the supply chain services offering from a profit standpoint, but that's much more a fee-based model. So just to clarify the pricing impacts within our results. Ruplu Bhattacharya: I appreciate all the details. If I can just sneak one more clarification in. Do you also resell GPUs? What percent of your product line is that? And from an AI standpoint, when we look at ECS, do you think that's a meaningful contributor this year? Again, thanks so much for all the detail. William Austen: Go ahead, Rick. I was going to say, we don't resell CPUs or GPUs. No, it's not what we do. Richard Marano: It's not our business, no. Rajesh Agrawal: And then ECS, I think you asked a question about ECS, it's heavily exposed to everything, AI and data center build with everything that we do. So we have a heavy, heavy exposure to all the fast-growing areas of business. Eric, do you want to add anything? Eric Nowak: Yes. Our hardware business in ECS is only 25% of the revenue. And of course, the memory impact mostly the compute and compute is just a fraction, only 75%. So basically, the impact is pretty weak on the ECS side. The opportunity that we have is that if this continues, this will be good for our cloud business because the customers will have to do more public cloud rather than buying hardware and software. So basically, it could be good for us in the longer term. William Austen: I think, Ruplu, just to close it all up there. What we're seeing is a broad-based recovery across many, many, many verticals in all regions. It's not just related to AI and the AI build. We're seeing it across our mass market. And that's one of the things that gives us comfort, and that's how our backlog is building, that Europe and North America or the Americas, I should say, our customers there are serving demand. They're not building to inventory, they're building to order, which is a comforting site for us. Operator: There are no further questions at this time. I will now turn the call back over to Bill Austen for closing remarks. Bill? William Austen: Thank you, operator. In closing, I'm really pleased with how we are operating with rigor focus and a cadence that has us setting our sights on serving and supporting suppliers and customers. There is, however, still room for improvement across the entire business. Thanks for joining us today, and we look forward to speaking with you all in the near future. Thanks, everybody. Have a great day. Rajesh Agrawal: Thank you, everyone. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for standing by, and welcome to the ESAB Corporation First Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Mark Barbalato, Vice President of Investor Relations. Mark, you may begin. Mark Barbalato: Thanks, operator. Welcome to ESAB's first quarter 2026 earnings call. This morning, I'm joined by our President and CEO, Shyam Kambeyanda; and CFO, Brent Jones. Please keep in mind that some of the statements we are making are forward-looking and are subject to risks, including those set forth in our SEC filings and today's earnings release. Actual results may differ, and we do not assume any obligation or intend to update these forward-looking statements, except as required by law. With respect to any non-GAAP financial measures mentioned during the call today, the accompanying reconciliation information related to those measures can be found in our earnings press release and today's slide presentation. With that, I'd like to turn the call over to our President and CEO, Shyam Kambeyanda. Shyam Kambeyanda: Thank you, Mark, and good morning, everyone. Thank you for joining us today. Turning to Slide 3 to discuss our first quarter highlights. We're pleased to report a strong start to the year headlined by record first quarter sales. Total core sales grew 10% year-over-year, a result that reflects both the effectiveness of our compounder strategy and the resilience of our diversified global footprint. Despite a more challenging environment, which included higher costs as a result of the conflict in Iran, we generated sales of $715 million and adjusted EBITDA of $136 million, an increase of 6% year-over-year. We delivered this performance while continuing to invest in the long-term drivers for the business. I am especially encouraged with the performance of our acquisitions. EWM and Aktiv both grew double digits year-over-year, and our sales synergy funnel across the portfolio improved meaningfully, reinforcing our confidence in the strategic value these businesses bring to ESAB and their potential to drive organic growth in the years to come. Looking ahead, we are accelerating our compounder journey through the previously announced acquisition of Eddyfi, which we expect to close midyear. This transaction strengthens our portfolio and extends our runway into profitable growth. Given our first quarter performance and our visibility to the remainder of the year in booked orders and additional price, we are reiterating our previously announced guidance, we are confident in the trajectory of the business while remaining mindful of the dynamic environment in which we operate. Moving to Slide 4. Before we turn to the quarter, I want to put the past 1.5 years into context. Throughout 2025 and into the start of '26, we have deliberately been reshaping ESAB, sharpening the portfolio and building new capabilities across the company. The ESAB you see today is meaningfully stronger. Our capital allocation strategy is the clearest place to see it. We have continued to build a premier industrial compounder by adding strength across every layer of the value chain. We have strengthened our position in gas control with DeltaP and Aktiv. We've created a best-in-class equipment portfolio with EWM and filled out every gap in our equipment product lineup. We added to our leadership position in proprietary filler metal with Bavaria and Eddyfi, which is expected to close midyear, extends our workflow solution into inspection and monitoring. Complementing these acquisitions, we now have more than 40 AI projects actively underway contributing both to near-term productivity and long-term growth. The new acquisitions coupled with AI initiatives will drive growth, reduce cyclicality, expand our gross margin profile making ESAB more durable through the cycle than it has ever been. Turning to Slide 5. This slide brings the story to life. Over the past decade, we have reshaped ESAB into a faster-growing, higher-margin enterprise and the shift is now plainly evident in both our mix and our margins. Three levers have driven the work. First, sustained R&D investment to refresh our product portfolio and fuel growth; second, EBXai, our operating system for productivity and operational excellence, third, a disciplined M&A program that has added growth and margin. Let's start with our mix. In 2016, equipment represented roughly 38% of our sales, a fully refreshed product portfolio and an optimized manufacturing footprint and 18 successful acquisitions have changed that picture. With the recent additions of EWM and Bavaria in Fabrication Technology and DeltaP and Aktiv in gas control equipment now accounts for roughly 44% of revenue. Upon closing Eddyfi midyear, that mix will rise to approximately 52%. The margin trajectory tells the same story. Our gross margin has moved from approximately 35% in 2016 to nearly 38% today. Eddyfi accelerates the next step. As I've shared with you before, our equipment product carries gross margins closer to 45%. And Eddyfi, as we shared before, is close to 65%. Together, these dynamics will push our consolidated gross margins to greater than 40% for 2027 and beyond. Moving to Slide 6. Momentum is building globally across our welding equipment portfolio, and 2 launches are leading the way, the Ruffian 270 engine-powered welder and the Aristo Edge. The Ruffian fills a critical gap in our offering and stands out as the most productive operator-friendly unit in its class. It is the only welder in its category to deliver full power simultaneously. 270 amps of welding output and 11,000 watts of generator power at the same time at a 100% duty cycle, an independent generator arc ensures that running power tools never causes a spike or drop in the welding arc. The Aristo Edge sets a new performance benchmark on both the advanced manual and robotic sides. Its ultrafast arc control manages the arc 10 to 20x faster than traditional equipment, clearing short circuits instantly and preventing defects and the advanced waveforms reduce spatter by up to 85%, producing a stable puddle that virtually eliminates post-weld cleanup. With 500 amps at a 60% duty cycle, the plug-and-play compatibility with all major robot and cobot brands, it is built for continuous industrial scale production. Customer response has been strong. We have secured preferred status with the yellow goods OEM on the Aristo Edge, and we're gaining channel share with the Ruffian. Together, these 2 product families add roughly $250 million to our servable market. Turning to Slide 7. When we acquired EWM, additive manufacturing was one of the capabilities we were most excited about. It is an advanced 3D metal printing process that uses electric arc as the heat source and metal wire as the feedstock to build large high-strength components layer by layer. And EWM is a clear leader in this space. EWM's React technology is now opening doors for the broader ESAB portfolio. We are gaining real traction with a major U.S. distributor and with defense OEMs. We have secured orders with integrators, engineering and construction firms and 2 German OEMs manufacturing in the U.S. today. In parallel, our teams are building a healthy cross-sell funnel, bringing ESAB filler metal to EWM customers and EWM equipment to ESAB customers. There is still work ahead, but Q1 was an encouraging start. The next product, Tetrix 350, adds a second growth lane, it is the best-in-class power source for TIG applications, including precision welding requirements needed for semiconductor wafer manufacturing and it pairs naturally with our AMI product where order activity continues to rise. Together, these 2 products give ESAB access to an additional $900 million of servable market across additive manufacturing and TIG and orbital TIG welding. They have our sales teams energized by the new workflow solutions we can now deliver to our most discerning customers. Moving to Slide 8. Let me reiterate what I shared when we announced the Eddyfi acquisition. This transaction extends ESAB workflow solutions into faster-growing, higher-margin inspection and monitoring space, a bit more detail on the asset itself, Eddyfi is a clear market leader in electromagnetic testing, ultrasonic testing and automated inspection. It serves mission-critical end markets with attractive secular tailwinds across aerospace, defense, nuclear and energy infrastructure. The business also brings meaningful North American exposure that pairs naturally with ESAB's global footprint, opening immediate geographic expansion opportunities for both companies. Financially, Eddyfi is a premier asset, high single-digit growth, gross margin is about 65%, and EBITDA margins around 30%. Strategically, the deal accelerates our shift towards equipment, strengthens our ability to deliver differentiated workflow solutions, expand margins, reduce cyclicality and ultimately improves the predictability and resilience of our earnings profile. Although the transaction is expected to close midyear, we're already in motion. Our integration team is in place sharpening the combined workflow solutions value proposition and beginning to share Eddyfi's capability with ESAB customers. Turning to Slide 9. What I love about this industry is that we enable extraordinary engineering every day. A few moments capture that better than what is happening right now with NASA's Artemis program. For the first time in more than 50 years, humanity returned to the moon and ESAB technology helped make that possible. A decade ago, we would not have been at the table. Today, we are a key contributor and that is a source of enormous pride across our company. You can see one example on this slide. Our friction-stir welding technology delivers the exact combination of strength, precision, reliability and weight optimization that the most demanding aerospace environments require. ESAB's technology enables aluminum alloy structures to be extraordinarily strong and remarkably light. Boeing's selection of our technology for the Space Launch System, fuel tank reinforces the thesis behind our portfolio, differentiated innovation applied to mission-critical manufacturing in the world's most demanding end markets. This is what we mean when we talk about being the fabrication technology provider of choice, and it is what gets our teams out of bed every morning. Before I go into more detail about the quarter, I'd like to take this opportunity to thank Kevin Johnson for his contributions to ESAB and wish him well in his new role. At the same time, I'm very excited to welcome Brent Jones to the ESAB family. Brent brings diverse and highly valuable expertise as we move into the next phase of our compounder journey. With that, let me hand it over to Brent to say a few words. Brent Jones: Thank you, Shyam, and good morning, everyone. I want to start by thanking Shyam and the entire ESAB team for the warm welcome. I'm thrilled to be joining ESAB and look forward to working closely with the team as we continue to advance ESAB's compounder journey. ESAB has a strong foundation a compelling strategy and a tremendous opportunity ahead, and I'm excited to be part of it. Let me hand it back to Shyam to go through the financials. Shyam Kambeyanda: Thanks, Brent. Moving to Slide 10. Turning to the quarter. We're pleased with how the business has performed overall. Strong execution by our global teams drove record first quarter total sales growth of 10% year-over-year, a clear demonstration of the power of our compounder strategy. Adjusted EBITDA was $136 million, up 6% year-over-year with an adjusted EBITDA margin of 19%. Margins in the quarter reflected an expected 40 basis points impact from EWM and an additional 30 basis points of headwind from the conflict in Iran. Important to note, EWM is already contributing strong growth this quarter. As I've shared before, EWM is accretive to gross margins but dilutive to EBITDA margins for the first 3 quarters in 2026. Our cost out and sales synergy efforts are running ahead of schedule, and we expect EWM to be EBITDA accretive as we exit the year. Turning to Slide 11 and talking about the Americas. The Americas delivered a steady first quarter. Total sales were $288 million, up 3% year-over-year and adjusted EBITDA was $56 million, also up 3% year-over-year, with margins flat at 19.4%. Within the segment, North America, excluding Mexico, grew mid-single digits and Mexico held stable. We're also seeing meaningful interest in EWM across the U.S., which is encouraging as we broaden the commercial reach of that business. At the same time, we're reshaping our manufacturing footprint and accelerating our EBXai initiatives, which are designed to strengthen competitiveness and expand margins. Moving to Slide 12 to talk about EMEA and APAC. We continue to gain share from competition across EMEA and APAC, a clear demonstration of our global footprint. Sales increased 16% to $426 million and adjusted EBITDA rose 9% to $80 million. Margins declined 130 basis points with 50 basis points of that reflecting the conflict in Iran and the additional 70 basis points coming from EWM. Europe and India performed in line with expectations, and the Middle East saw limited disruption. EWM and Aktiv both grew double digits with strong sales funnel momentum building across all 4 acquisitions. EWM integration is progressing ahead of schedule, and we're already seeing early benefits from the combination with ESAB. Moving to Slide 13. We continue to gain share in the Middle East, and that success starts with our local presence in the region. The resilience we have shown this quarter reflects both the local footprint and the way our teams have responded to changing conditions. The Middle East represents roughly 7% of our sales. And despite the conflict, the region saw limited disruption. Our teams reacted quickly to the disruption by rerouting inventory through ports of Jeddah and Salalah in Oman and implementing surcharges to offset higher costs. It is a clear example of the agility and discipline that define our operating model. Long-term fundamentals remain attractive. We've made investments on the ground, most notably in Saudi Arabia and that footprint positions us better than any of our peers to win with customers and support the rebuild once conditions stabilize. Turning to Slide 14. Our balance sheet and cash flow remain important enablers of our compounder journey, and we've made meaningful progress on both fronts. Adjusted free cash flow was $40 million and cash conversion improved to 49% up from 40% in the prior year quarter. The improvements reflect strong working capital management and continued EBXai-driven process gains in order-to-cash. We expect strong full year cash generation. We're also focused on deleveraging. We ended the first quarter at net leverage of 1.9. That figure will step up temporarily once the Eddyfi acquisition closes where we expect to be back below 3 by year-end. Moving to Slide 15. Given our first quarter performance and our visibility to the remainder of the year in booked orders and additional price, we are reiterating our previously announced guidance. We are confident in the trajectory of the business while remaining mindful of the dynamic environment in which we operate. On a core basis, our outlook assumes total sales growth of 6% to 9%, which consists of organic growth of 2% to 4%, 400 basis points from M&A and FX contributing approximately 1%. Our adjusted EBITDA range remains $575 million to $595 million, and our adjusted EPS range remains $5.70 to $5.90. Turning to Slide 16. In summary, our recent initiatives have fundamentally reshaped ESAB, accelerating our transformation into a premier industrial compounder. The 4 acquisitions we made last year, EWM, Bavaria, DeltaP and Aktiv and Eddyfi now to start 2026, have moved the company decisively towards higher growth, higher-margin, lower-cyclicality and a more predictable earnings profile. We have meaningfully increased our exposure to defense, nuclear and the fast-growing additive manufacturing space while positioning ourselves opportunistically to benefit from rising semiconductor capital spending. We are thrilled with these acquisitions and the way they have shaped our portfolio, strengthening our ability to compound value and generate stronger cash flow over the long term. Operationally, we're winning in the market, our acquisitions are performing. EBXai continues to power productivity across the company. The second quarter is tracking to plan with stable sales and orders, supporting our decision to reiterate full year guidance. Taken together, these actions position ESAB to compound long-term shareholder value at an accelerating pace. Our teams are energized, our strategy is working. The path ahead for ESAB is full of opportunity and our finest moments are still in front of us. With that, operator, let's open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Nathan Jones with Stifel. Nathan Jones: Again, at a fairly high level, volume in the first quarter was minus 3 and I would have thought that price should be fading from the plus 2 that we had in the first quarter, maybe not with all the renewed inflation. It does imply an inflection on volume to get to the 2% to 4% organic growth for the full year. So can you maybe talk about where you see the inflection in volumes as we go through the year from that negative 3 to something that's positive. Shyam Kambeyanda: Yes. I think, Nathan, we obviously were going against the comparable last year, if you remember, with the pull ahead with tariffs. So comparably, we knew Q1 would be just a bit softer as a result of the pull ahead that happened last year when the tariffs went into play. So we sort of landed in Q1 even a little stronger than what we thought based on when the conflict started. So very pleased with the top line number and how the teams performed. And as you go through the year, a couple of things happen. One, obviously, we go in with some additional price into Q2. Second, in the back half of the year, as you know, some of the acquisitions that today show up, the acquisitions that show up today on a different line become organic as we go into the third and the fourth quarter driving up organic sales as we finish out the year. So the thoughtful way to look at it is down slightly neutral, a little bit more positive in Q3. And then when the acquisitions become part of the base, you really see that organic driver kick in. Clearly, for us, the teams have done, in my view, a phenomenal job navigating through the first quarter even though the war came upon us as we finished out February, the team sort of really rallied, figured things out quickly in terms of supply chain, handled the quarter strong and we finished well, and we set us up nicely for Q2 and beyond. Nathan Jones: I guess I'll ask my follow-up about the Middle East. We have heard from companies about lack of side access and things like that, that are impeding, I guess, work being done in the Middle East, can you talk about the impact that's having on your business? We were only at it for 1 month out of the quarter in the first quarter. Should we expect a little bit more impact than I think you called out 50 basis points of margin in EMEA and APAC. Does that get a little bit worse in the second quarter? Or maybe talk about the mitigation activities that you've deployed to help offset that? Shyam Kambeyanda: Yes. So the way to think about it, at least in the first quarter was when it came upon us, I think we drove to get supplies into the Middle East so that we had the right inventory in place for the business. And so think of it as some additional costs that came at us in Q1 that we thoughtfully engaged with to make sure that the business was in a good spot. We've gone out for price as the month went on. And so think about that margin gap actually reducing. That being said, we are going out for price to match costs so we don't have any additional price there. So we expect to be price cost neutral. So it's an improving scenario. And as the year goes along, we'll continue to work the price piece to continue our journey forward like we've done in the past. So that's the way to think about it. So a little additional hit in Q1, getting better as we get into Q2 with the additional price that we've gone out with and then getting slightly positive as we finish out the year in the third and fourth quarter. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: Good morning. Thank you so much. I heard you talk about acquisitions growing double-digit percent. Did those acquisitions have unusually easy compares? Or that's a good gauge for the rest of the year. And within that double-digit percent, how much was price versus volume? Shyam Kambeyanda: All right. So let me start with the first piece. The 2 businesses that I highlighted were EWM and Aktiv. The short answer is, year-over-year, it wasn't about easy comparables. It was the actions that the team were taking, engaging with new customers, getting new orders especially in Europe, the Middle East and some extent also in North America for the EWM business. And so we feel really good one about the acquisition, two, about the funnel that we've created that's now creating momentum in the equipment business. There was some price in it, but most of it was volume, which is what's exciting for us as we go through the year. So I hope that sort of answers that question. The other piece that I think I want to reiterate as we look at the second half of the year as well, we have some automation orders that we booked several of them that stack up quite nicely adding to that organic growth number that we expect to see in the second half of the year in Q3 and Q4. So additional price, additional orders in automation, these businesses that we've acquired that are really matching the strategic fit that we saw are today outperforming our plan, creating additional tailwind for volume as we finish out the year. Tami Zakaria: That is excellent color. And regarding the 30 basis points headwind you saw in the quarter to EBITDA from the Iran conflict. Do you expect a similar 30 bps headwind in 2Q or that steps down? Shyam Kambeyanda: I think the way to think about it is, we'll obviously see, but let's start with the positive. The war could settle in a week and maybe we're talking about something different. But on the side, if the war were to continue, we would see 2 additional months of volume that would then get offset by some additional price that we've gone in. So the way to think about it is that it's not going to get worse, could get slightly better as the quarter goes on. Operator: Your next question comes from the line of Mig Dobre with Baird. Mircea Dobre: Thank you, and good morning, everyone. I want to talk a little bit about the Americas segment. And I guess the moving pieces here, I'm trying to think through them. You had the negative one organic in the quarter, but you kind of call out here that excluding Mexico, North America is up mid-single digits. Mexico, it's stable. Obviously, something else acted as a drag here. Can you comment at all on that? Shyam Kambeyanda: Yes. We were actually very pleased with our U.S. and Canadian businesses for the quarter, Mig. We felt that both on price and on what I would call created volume, we were very happy with how the business performed. And I would also say that in April, we did better than how we finished out in Q1. So really happy about how that business is performing. The traction that we're getting with customers and the channel. I was actually out with some of the distributors. Our team had an EDAC, our distributor meeting out in Albuquerque. That went really well. I've done some gemba with the North American team down in Texas and also down in Mexico. And we feel really good about the traction, the funnel, the growth bridges that the teams have that are now driving results in U.S. and Canada. When it comes to Mexico, as you remember, this was the last quarter in those comparables that we spoke about and so what I meant by stable is that the business continues to be at the levels that it was in Q4. As I visited with the team last week, there are shoots of improvement as we go through the year. So optimistic about how the year sort of shapes up, also with Mexico kind of lapping itself in Q2. To give you some additional color on the volume, obviously, the rest is South America where they also had some tariff-related volume bump last year that sort of goes away and neutralizes now and puts us in a better spot for Q2. Mircea Dobre: I see. And given the way the comparisons are looking here from a volume standpoint for the rest of the year, I mean, we started with negative 4, but then your comps are getting easier. At what point in time do you -- so I guess 2 questions. At what point in time do you see volume inflection here? When can we expect some growth? And how do you think about the full year from a volume perspective? So what's embedded in the 2026 guide for America's volume specifically? Shyam Kambeyanda: Well, America's volume, we expect to be -- so let me just sort of thoughtfully walk you through that. When you look at U.S. and Canada, we feel that we're going to be volume positive. And when it comes to Mexico as well, we think as the year goes on, we're going to be volume positive, slightly positive on volume also in Mexico. South America, in my view, will stay slightly volume positive. They were a bit volume negative in the first quarter just on the back of year-over-year comparables with the tariff year. They also go positive. So the way to think about the year as it plays out is you saw Q1 be slightly negative. You'll see Q2 be neutral, Q3 getting positive. And then Q4, in my view, will be nicely positive because some of the acquisitions that today are not considered part of our base, become part of our base. In addition to that, obviously, we're really excited about the Eddyfi acquisition that will close here in midyear. That then allows us additional opportunities for growth for our base business and to be able to pull to Eddyfi with our customers. Yes. And Mig, the other thing I'd say to you is that in the second half of the year, I made the comment earlier, we've got additional price going in, in Q2. We've also got additional automation orders that we have booked for the third and the fourth quarter. So as you look at it, one, obviously, you're lapping a tariff quarter in Q1, you're getting to a spot where Mexico becomes -- laps itself in Q2. You've got additional price Q3, you've got these automation orders plus additional price. In Q4, you've got these businesses that today drove double-digit growth in Q1, becoming part of the base in Q4. And so as you sort of look at it, my thoughts here are very realistic and maybe slightly conservative is how you think about the volume numbers as you finish out the year. Operator: Your next question comes from the line of Neal Burk with UBS. Neal Burk: I just wanted to go back to the Middle East question. Just to clarify, this 50 basis point drag that was on segment EBITDA margin. Was there any impact on volumes and is there any sense that more broadly, higher commodity prices are in any sense, weighing on overall demand? Shyam Kambeyanda: Yes. The short answer is we did not see it, and we have not seen it yet. But we have seen cost impact, specifically some like tungsten, we've seen nickel move a little bit. We've seen steel move a little bit. So yes, the war has created a little bit more cost in some of the steel and components that we buy. The other piece that we've really seen is around freight. Freight costs have gone up and partially, that's likely because of fuel costs. And so those are the 2 aspects. We're moving price to the market to sort of overcome and offset all of it. We expect price/cost to be neutral for at least the second quarter, and then we'll continue to sort of work to be price/cost positive as the year plays on. Neal Burk: Okay. And then just another question on margins. I think incremental margin in the quarter was about 12% for the total company and the guide seems to embed something around 20%. So can you just kind of walk through the progression through the rest of the year of how incremental margins should improve? Shyam Kambeyanda: Yes. I think the first one, obviously, is we expect better price from Q1 to Q2. So that's assumption number one. Things came at us a bit fast in March. We went out with some price. We didn't get all of it in Q1. We get price in Q2. The second piece is that we are seeing good momentum in the North American market. And those margins for us are also accretive. We see really nice activity in Europe. One of the things that we have not talked about is how well Europe performed for us to offset some of the issues that we had in the Middle East. So those are basically the 2 aspects of it. And then we continue to make improvements in the acquisitions. We talked about EWM being ahead of schedule. In terms of its integration plan and the plans that we had to continue to improve EBITDA percentage in that business. So Q1 will be sort of the -- in terms of EBITDA, the lowest quarter for EWM. And every quarter, sequentially, the EBITDA percentage for EWM improves becoming accretive in Q4. Operator: [Operator Instructions] Your next question comes from Steve Volkmann with Jefferies. Stephen Volkmann: Shyam, you mentioned Europe's strength a couple of times. Can you just delve into that a little bit and sort of share versus kind of what you're seeing from an end market perspective? I think you might have mentioned some stimulus benefits over there in past calls or something? Just an update on what's happening there? Shyam Kambeyanda: Yes. There's a couple of pieces playing in our favor. One, obviously, we have a phenomenal footprint and now with the 2 acquisitions that we've made in the Germanic region, we really have a position of strength in Europe. We are local. We are able to supply and serve our customers locally, giving us a significant advantage in the region. In the moments of conflict and the moments of uncertainty, what we find is customers begin to realize that they can rely on ESAB. The second thing that's driving it to some extent is the defense spending that's happening in Europe, we're seeing quite a bit of orders associated with that come to us. We're also seeing a lot of momentum on the equipment side, especially with EWM that's benefiting our business. And there's a couple of actions underway in Europe that could also benefit us. One is this carbon tax piece that is expected to land in 2027. That's giving us a little bit of an advantage and then there are some additional tariffs and quotas that the European Union is expected to put in midyear that would advantage local companies in Europe. So those are the aspects that are giving us a benefit, really pleased with how our European business did. Obviously, if the Middle East conflict resolves, there's some additional significant tailwind for us in Europe and Asia Pac. Stephen Volkmann: Okay. Great. And I think you may have almost segued to my follow-up, which is I know it's early days, but has your team been able to think about what type of sort of rebuilding and upgrades might be required in the Middle East and how that -- you might participate in that? Shyam Kambeyanda: Yes. We actually have -- we met with our leader in the Middle East this week to look through what the opportunities will be once peace finds its way into that conflict. We feel that with the damage that has occurred in the conflict and the repair that would be needed, ESAB could have a position to take advantage of that rebuild because most of our filler metal is specced into most of the damaged sites. As a result, we find ourselves in a position of advantage. Operator: And that concludes our question-and-answer session. I would now like to turn the conference back over to Mark Barbalato for closing comments. Mark Barbalato: Thank you for joining us today, and we look forward to speaking to you next quarter. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good afternoon. This is the conference operator. Welcome, and thank you for joining the d'Amico International Shipping First Quarter 2026 Results Web Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Federico Rosen, CFO. Please go ahead, sir. Federico Rosen: Hello. Good afternoon, everybody, and welcome to our earnings call. So jumping, as usual, to our Slide #7, nexus of our fleet. At the end of March '26, we had 29 vessels on the water, which that's 27 towing and 2 that were charter. We actually, as you know, sold one of the ships and we delivered her to buyers on the 24th of April, so now the ships on the water are 28. On top of that we have 10 vessels under construction. 4 LR1s with expected delivery in 2027, 4 MRs with expected delivery in 2029 and 2 Handys with expected delivery in 2029 as well. Average age of our fleet at the end of our period was 9.8 years. 93% of the fleet was eco-designed at the period end. And our percentage rose to 96% after the stage of the high price. And moving to the next slide, on the net debt front we kept on executing our strategy of gradually repaying some of our most expensive debt and refinancing a portion of that with a new facility at a much lower cost of debt. So, between that and Q1 '26, we began to continue repaying that for $32.2 million in 2 vessels. We drew down new facilities for $42 million in 3 ships. I consider the lower margin over the U.S. dollar is tougher. On top of that, our strategy was also based on reusing or remediating our debt during 2027, which is also a year in which we will get the delivery, as I mentioned before, 4 LR1 vessels. So now, as you can see, we are expecting to be active again with finances front in the remaining part of 2026, and we're basically getting to 2027 with no debt to mature. Also, looking now on the right-hand side, you can see [indiscernible] daily bank loan repayment of our own vessels, which was historically, in 2019, at $6,150 a day, and it's now $2,049 a day. Here in Slide 9 we provide, as usual, our estimated earnings for the second quarter of the year, which has been so far much stronger than what we achieved in the first quarter of '26. As you can see, we have already fixed 21% of our days at $59,733 a day on the spot market. At the same time, we covered 50% of our Q2 days at $23,560 a day. So overall, as we speak, we're talking about 81% of our total days in Q2 '26, fixed at a blended average TCE of over $33,000 a day. So we are expecting an extremely profitable quarter at the end of June. Next slide. And here you see the evolution. So based on the --considering also the vessels that we recently sold, we expect to have, right now, an average peak of 28.3 vessels in 2026, rising in the delivery, the expected delivery, of our 10 new building vessels to 34.7 by 2029. On the right, you see also our potential [indiscernible], our sensitivity to the spot market, the spot trade. So, as we speak, for every $1,000 a day of a higher spot rate, we -- that will translate to $3 million more on our bottom line. And, of course, we see the increases for '27 and '28 since our coverage is lower, as we speak, for those years. And right now, we have a sensitivity of approximately $8 million for '27 and $11 million for '28. On at the bottom of the slide, interesting graph on the left. So based on everything that we have fixed so far, both in terms of time charter and spot market, we [indiscernible] the rest of the year at a breakeven level. We would make a net result at the end of the year of almost $83 million. And the same goes for [indiscernible] '27, and the figure would be $16.5 million already. Then on the right, we also show a sensitivity compared to the figure that I just mentioned. So should we run the remaining free days of '26 at an average of $20,000 a day, then our net result for the year would be of almost $98 million. Should we run it at $22,500 a day, the net result would be $105 million. Should we make $25,000 a day on the remaining free days of the year, then our net result would be even higher, to $112.5 million. On the cost front, it's always not particularly meaningful to look at the OpEx costs on a quarterly basis. Anyway, we saw a slight increase in Q1 '26 relative to the same period of last year. So we had daily OpEx on our fleet of $8,600 a day. The reason for this more increase relative to the same quarter of '25 was driven mostly by higher crew expenses and insurance costs. On the G&A front, we actually had a total cost of $5.3 million in the first quarter of the year compared to $6 million in Q1 '25. So a slight increase of approximately $700,000. Again, here is the increase. And as we mentioned, this is the main time to increase. As you can see here, compared to the previous years, it was due to the higher personnel compensation, which is directly linked to the strong financial performance that has been achieved in recent years. Net financial position. So, very strong net financial position at the end of the quarter. We had a cash equivalent of $189.6 million. Net financial position of $25.8 million. This includes a small tax arising from the application of IFRS16. Our net financial position was of $23.8 million. And that compares to a fleet market value assessed by one of the top shooting brokers of the ability of $1.2 billion. So, the ratio between our net financial position and our fleet market value at the end of March '26 was only 2%. I'd like to remind you that this ratio was almost 73% at the end of [ 2008 ] when we started executing our deleveraging plan over the last few years. Opening slide. On the income statement side, we generated in the first 3 months of the year a net profit of $27.5 million compared to $18.9 million in the same quarter of the previous year. Very strong. These are almost $41 million, which entails an income margin of 50.5%. It's pretty strong. Excluding some small nonreported items, we achieved an adjusted net profit of $26.8 million in this quarter of the year compared to $19.2 million in 2025. Key operating measures. We achieved a daily spot rate of $32,264 a day in the first quarter of the year. This year it was actually 90% higher than the last quarter of '25, which was already the best quarter of 2025. And 53% higher than the first quarter of 2025. At the same time, we covered 62.2% of our total days of the first 3 months of the year, averaging $23,000 a day. So our total [indiscernible] was $26,500 a day for the first quarter of the year. All I'll pass it on to Carlos. Antonio Carlos Balestra Mottola: Good afternoon. So as usual, we now continue with our CapEx commitment, which in relation to our investment plan comprising 10 vessels amounts to $512 million and with outstanding commitments of around $137 million, most of these are made -- planned for '27 and '29, coinciding with the deliveries of the vessels. In '27, we will be receiving 4 LR1s and then in '29 2 LR1s, 4 MR2s, all ordered at first class Chinese ships. In relation to the options on the lease vessels, well, the recent movement in forward interest rates makes it less likely that these options will be exercised this year. Both of them can be exercised at any point in time with 3 months' notice. We continue monitoring the situation. And when a window opens up for us to exercise them, generating value for the company, we will do so. Here we show the difference between the market value and the exercise price at the exercise date of the options we exercise on the 6 vessels, which were previously time-chartered in. And we also showed today the difference at the end of March, the difference between the market value and the book value, which is even higher than this difference was at the time of exercise. So far, the exercise of these options has generated substantial value for the company. In terms of contract coverage, we now have 55% coverage for 2026 at an average rate of $23,400, slightly higher rate of $23,500 for 2027 with, however, a much lower coverage of 23%. The fleet is increasing the eco, as mentioned by Federico, we only have 1 non-eco vessel in our fleet which we plan to sell by the end of the year. In terms of freight rates, well, as already highlighted by Federico, the fixtures in Q2 has been extremely strong, reflecting the very strong spot market as seen from the graph on the left-hand side of the yellow line, which is -- which depicts [indiscernible] clean earnings, which is at record levels. And of course, also the short-term TCs or new TCs have reached record levels. Asset values have moved also up older vessels by a higher percentage, new buildings, not that much, but there was also an uptick in new building prices. And here, well, this is the major contributor to the exceptional market. But of course, this is -- the Iran conflict is being layered upon other geopolitical factors, which were already supporting the market as well as strong underlying fundamentals of the sector. So it added more fuel to this rally, and you see refining margins, which at very high levels, especially for certain products like jet fuel and diesel. And creating arbitrage opportunities that are not always open on all routes. They open and close, but they are there. This is creating quite a lot of volatility also on rates, on spot rates in different regions. As the conflict started, we saw a very strong market West of Suez and weaker -- much weaker market East of Suez, things moved west today. There's not that much difference between the average rates that can be achieved in both basins. The disruption because of the war is very significant. There were around 20 million barrels per day transiting the straight last year on average of oil, crude and refined products. And the beginning of the first 2 months of this year, the figure was even slightly higher, around 21. During the conflict, there were moments where there was quite a lot of volatility in the amount of oil that transited. There were some brief moments where more vessels were able to transit. But on average, just under 2 million barrels per day were able to transit through Hormuz during the period. And 4 million barrels per day were redirected with pipelines to Yanbu or to Fujairah or Ceyhan, therefore creating a net disruption of around 14 million barrels per day of lost flows. This was then compensated by the -- partly by releases by the EIA of the announced release of 100 million barrels, which, however, is being injected into the market at a rhythm of around 2 million barrels per day. And also by a drop in demand, of course, which is starting to become quite pronounced and is linked both to the high prices affecting demand for the more -- for the products where there is a bit more elasticity of price, elasticity of demand. Generally, they are quite elastic, but also measures taken by certain governments in particular in Asia to reduce consumption. And of course, the delta is being met through reduction in stocks, which were quite abundant in particular in certain countries before the conflict started. So this, as we will see later, has helped the market so far, but it is dangerous. And as the stocks start reaching critical levels, there is a risk that oil prices could rise much faster than what we have seen so far, and that economic activity could be more -- much more severely impacted than what we have seen so far. So -- and I like to highlight that, I mean, from our perspective, the reopening of the Strait would be a positive because we are more concerned about the closure of the Strait for too long because of the negative associated economic consequences. But the reopening then should create some pent-up demand for our vessels at least in the beginning to rebuild stocks which were depleted during the conflict at a very rapid pace. Well, these are factors which have supported the market throughout last year and which explains the strengthening market that we saw throughout last year and beginning of this year before the conflict started. So there was a lot of oil being pushed into the market, but also a lot of inefficiencies because of the tougher sanctions that were being imposed on vessels trading Russian and Iranian and Venezuelan barrels. And therefore, we saw this sharp increase in sanctioned oil and water last year and a huge increase in the number of vessels sanctioned, which reached over 1,000 vessels, representing 19% of the overall tanker fleet in [indiscernible]. So we are now starting to see this unwinding. So we see that sanctioned oil on water has been falling also because there were temporary waivers provided for the sanctioned oil to be discharged because of the war in Iran. So initially, these waivers were provided to Russian oil, but then also to Iranian oil. And the Red Sea disruptions was very supportive in the first 9 months of '24, but as mentioned, this became actually a headwind for the market afterwards because the higher cost of the longer routes through Cape of Good Hope and the products were traded more regionally and ton miles actually declined thereafter because of this disruption. Venezuela, this is a positive for the market. This oil used to be transported on sanctioned vessels. So now it's being transported on compliant vessels. It is very beneficial, in particular, for the Aframax sector, which are the most suited type of vessels to transport these cargoes out of Venezuela. But it directly benefits also the product tankers transporting PCP through the well-known transmission mechanism that we will see later, whereby we have seen a lot of LR2s transiting into dirty trades. And here, this was -- this is the forecast that we -- by the U.S. Energy Information Administration of the production of Venezuela for '26 of 1 million barrels per day. Actually, I have seen a report recently where it indicates that the production has already reached 1.2 million barrels per day, so surpassing these estimates. The returning to the production levels of the late 1990s will take time, most likely, but this initial ramp-up was faster than anticipated. So Russia's refined product exports continue declining, although seeing at quite high levels, both as a result of the tougher sanctions that were imposed and larger number of sanctioned vessels, but also as a result of attacks by the Ukrainians with drones to export facilities, Russian export facilities. So it creates usually not very significant damage, but it does hamper their ability to export products. And we have seen these attacks occurring on a quite frequent basis and it's creating a further obstacle to Russian exports. Here, well, these are the estimates of the EIA in terms of demand and throughputs, refinery throughputs, sharp drop in demand as what we expected and in Q2, and a very sharp drop in refining volumes in particular in April with a recovery thereafter. Of course, it's very difficult to make such forecast in this environment. A lot will depend on how the conflict with Iran evolves in the coming weeks. Also in terms of oil supply, very difficult to make forecast. I mean this was a market which was very well supplied. It was expected to move into contango during the course of this year. And now we are faced with the opposite situation with a very undersupplied market as just mentioned. Inventories were at good levels before the war started, and we are already seeing this drawdown here in the floating oil and total oil at sea, which has been declining over the last 2 months at quite a fast clip. And here we see this previously mentioned transmission mechanism between the dirty and clean markets with an increasing number of LR2s trading dirty as depicted by the yellow line on the graph on the left and rapidly declining number of LR2s trading clean despite the quite fast deliveries of LR2s last year and in the beginning of this year. And this is because, of course, of the very strong markets, the dirty markets, the Aframax rates, which are still at very high levels. And in terms of refinery landscape, there's not much new here. There were important closures of refineries in the Americas and in Europe over the last few years and with new refinery capacity coming online in China, the Middle East and other Asian countries, in particular in India. So this increase in ton miles as Europe and the Americas to import more from these more distant locations. The fleet on the supply side continues aging rapidly and the order book on the MR and LR1 sectors, which are those we operate in after peaking at the end of '24 has started declining despite there being orders continuing to come in, but at a lower rate, at a lower rate relative to the delivery of new vessels. So at the end of March, this order book had declined to 13.5% relative to almost 21% of this fleet, which has already more than 20 years of age. So important to note that by the end of '27, the portion of the fleet, which is more than 20 years of age will have risen to almost 25%. So a very sharp increase which bodes well for the market also next year. This is not surprising this percentage, which is rising of the fleet, which is crossing the 20-year threshold because it is aligned with the graph at the bottom where we show the vessels reaching 25 years of age. So the vessels which will reach 20 years of age in '27 are those that will be reaching 25 years of age in 2032. And we see here by this graph that this represents 7.7% of the fleet, around 10 million deadweight. So a very big number and portion of the fleet reaching 20 years of age already next year and starting to trade in more marginal trades. The picture is not as favorable if we look at across all tankers, including also crude tankers because there has been quite a lot of orders coming in for crude tankers over the last few months. So here, the order book rose to 20% and is now pretty much aligned with the portion of the fleet, which has more than 20 years of age. We can have a strong product tanker market even without a strong crude tanker market. But the opposite is not true. I mean, a strong crude tanker market will eventually generate strong product tanker market. That is because the crude tanker market is much bigger than the product tanker market as you see looking at the left-hand axis when we include also the crude tankers that the fleet size is much, much bigger than if we look only at product [indiscernible]. We look here at the deliveries, which has been accelerated. The positive thing to highlight here is that most of the deliveries, the quarter with the largest number of vessels to be delivered was Q1, and that is already behind us. And we are still in an extremely strong market despite this huge number -- quite large number of vessels, I would say, delivered in Q1. And if you look at deliveries in the coming quarters, they're actually not too dissimilar from what we saw in the last 2 quarters of the last year. In particular, if you look at Q4 '26, there are 75 tankers being delivered relative to 71 in Q4 '25. So very, very similar number of vessels. And here, you look at the vessels that were ordered in the first 4 months of this year, 28, which annualized puts it pretty much on par with just over 80 vessels ordered in '25, which is quite a low number compared to the over 200 vessels ordered in '25 and over 150 in '23. And also -- and especially relative to the over 200 vessels, for example, ordered in 2013 when the fleet was much smaller. So these 225 vessels ordered in '13 represented a much bigger portion of the fleet than, for example, the 200 vessels ordered in 2014. And the fleet growth is accelerating. But as I mentioned, the sub-20 fleet growth even in '26 across all factors is actually less than 1%. So this is supportive for the market this year and will be supportive also next year because next year there are even more vessels turning 20 years of age. Our NAV has been rising. NAV per share at the end of March was at around $10. And our discount at the end of the quarter was 14%. And today, it's even lower than that. So below 10%. Of course, this relative to the 31st of March NAV, but this is a moving target. We know, for example, that some of our vessels that were valued at the 31st of March at a certain level today would be valued more because there were some transactions that happened afterwards for vessels which are very similar at higher levels than the valuations we received from the broker at 31st of March, not much higher, but still higher. And of course, we also generated a lot of cash in April this year. And finally, here in terms of our payout ratio, it has been rising throughout the last few years in quite a regular fashion with the 55% payout ratio out of the 2025 net results, which is the highest payout ratio we have had. And of course, the balance sheet also which strengthened significantly as previously mentioned by Federico. So that's it, and we pass it over to the Q&A. Thank you. Operator: [Operator Instructions] The first question is from Massimo Bonisoli of Equita. Massimo Bonisoli: 2 questions. One on the Strait of Hormuz reopening. Could you elaborate on the minimum safety and operational conditions required for d'Amico to resume transit through the Strait of Hormuz in the sense that there are plenty of situation to be cleared and we still don't know when the Strait will open for commercial traffic. And the second question is on the spot rate evolution, referring to your Slide 9 of the presentation. Spot fixed for in April were running close to $60,000 per day. Could you provide some color on the trends seen so far in May? And on the current environment. Based on the latest contract concluded or under negotiation, do you expect the average realized spot rate in Q2 to remain around these levels? Improve further, maybe normalize somewhat versus free peaks? Antonio Carlos Balestra Mottola: Two good questions. So in terms of the transit through Hormuz, we are not going to be the first one venturing in that. I mean we have to make sure that our main priority will be the safety of our crew. So an assessment will have to be made that the passage is safe. And of course, we will need to be able to ensure the risk, which will be reimbursed to us by the charter. But there are situations like this, also exclusions to the policy, which can mean that you are still exposed to quite a lot of risk. So we will assess this very carefully. And there's also the risk of mines still. So there has been some demining happening. But we don't know to what extent this has been -- this has progressed and it's near to completion. So we will take a prudent approach in that respect and try to employ our vessels in other regions initially. One port which we could consider calling initially could be the Port of Duqm, which is close, but outside the Strait of Hormuz, for example, and which is also where are -- there's also an important refinery which exports significant amounts. And so that could be something we could consider. But we would be very prudent in that respect. In terms of the rates, achieved the almost $60,000 that we have shown for Q2 so far includes also some fixtures that run into May. The latest fixtures, I would say, are at slightly lower levels than that on average. But they are still at very good levels. I mean today, the spot market is still above $30,000 in both basins in both East and West. There was more of a correction west recently. But I believe it is a temporary correction. This market in the U.S. Gulf has always been very volatile. For example, the arbitrage for exporting naphtha out of the U.S. Gulf closed momentarily a few weeks ago. It had -- as we have shown in the presentation when we approved our year-end results, it has risen to record highs. And thereafter, it collapsed to levels which were lower than those we had before the conflict started. And now it's starting to move up again. And analysts believe that it could in the coming weeks rise further and possibly return to those very high levels we saw because there's going to be an important need to import petrochemicals into Asia if Hormuz doesn't open up in an important way soon. So very hard to forecast what will happen. Of course, if there is a reopening, then we expect a big surge in freight rates east of Suez because we will be seeing more exports out of Hormuz, transiting Hormuz. But not only, I think also China will then, of course, be exporting much more. China initially after the conflict started stopped exports of refined products. As a result, its stocks rose and are very abundant right now. And it recently declared that it will already even without the Hormuz reopening start exporting again in a more limited way to certain countries. It's going to be -- it's more of a political move also to support some friendly countries which are suffering in this moment. But that in itself already should help the market in the North Asia region in the coming weeks. But with the reopening of Hormuz then we should see a normalization of Chinese exports. So even bigger volumes coming to market as well as, of course, a lot of volumes coming out of Hormuz. Potentially if the reopening -- if the passage of the straight is being saved by all, very large flows coming out of almost because bank storage in that area is full. So they have a very strong incentive to push out product very fast, out of that region. So -- and we don't have a lot of vessels there because we have all these vessels that move into the Atlantic Basin. So we expect that basin to strengthen a lot. So again, this dislocation, which on a net basis will be positive for the market. The market should come down in the U.S. Gulf, but net-net, I think it will be positive for the market. So I'm quite positive, but it's very difficult to make forecast at this moment. I think that's it in terms of answers... Massimo Bonisoli: If I may squeeze in another question, Carlos. Just to understand how your fleet is positioned between east and west of Hormuz right now? Antonio Carlos Balestra Mottola: We want to -- it's very difficult to read and to make calls. So we are trying to keep quite a balanced allocation of the fleet, a few vessels in the Americas, some trading in West Africa and then a similar number in Asia trading out of mostly Southeast Asia and the North Asia out of Korea and out of Singapore. We have done some Australia runs recently. There was an increase in demand into Australia of refined products. There was a fire in an important refinery in Australia. So there's also a seasonal uptick in demand now before the winter season there, which was then also associated with an additional demand because of this fire in this refinery there. So yes, so I mean, whatever happens, we should do quite well. Operator: The next question is from Climent Molins, Value Investor's Edge. The next question is from Matteo Bonizzoni, Kepler Cheuvreux. Matteo Bonizzoni: I have a quick question with regard to your capital allocation flexibility, let's say. So I would like to know if the current market environment, which is probably above what you had -- what everybody had in mind in terms of rates and profitability and cash flow could have implication on dividend policy or buyback or also on the feasibility to further expand the fleet after the recent, I mean, decision which you have communicated on the new buildings. But I mean, you have clearly more room to go potentially. So I would like to know what are your current thoughts as regards future capital allocation choices? Antonio Carlos Balestra Mottola: Thank you, Matteo. No, look, I think that at this moment, there isn't -- the very strong market should not affect our policies in this respect. We will, of course, look very carefully when we are closer to the end of the year what could be the dividend policy out of the '26 results. If the market is as strong as it looks it will be this year, then it is then that we will be able to confirm a similar payout ratio that we had in 2025. Also in terms of buyback, we will only do it very opportunistically if we see some very substantial unjustified weakness on the share price. And the fleet-wise, we don't expect to make other investments at this stage. We are quite happy with the 10 vessels we have ordered. But if opportunities were to arise, more because of an unexpected correction, which creates an attractive entry point, then we might decide to take advantage of that. But with the 10 vessels we have ordered today, we have 28 vessels on the water. That represents quite a big percentage of our fleet, over $500 million in investments. So we don't feel we need to do more, but we will look at opportunities if they arise. Operator: The next question is from Climent Molins, Value Investor's Edge. Climent Molins: Most has already been covered, but has the recent increase in asset prices changed your view on potentially exercising the purchase options on the high fidelity and high discovery before than previously expected? Antonio Carlos Balestra Mottola: Yes. The purchase options on the fidelity discovery is -- the decision is more linked to the interest rate environment from our perspective because these are fixed rate financing transactions which were done at the time where interest rates were very low. So of course, the implicit margin in these deals is high relative to what we can achieve today, but the implicit swap rate is set very low. So the all-in cost of financing on these deals is actually quite competitive still today. And we would need interest rates to move down more for the forward interest rate curve to make the exercise of these options attractive. Otherwise, for us, it is probably more convenient to reimburse some floating rate debt that we have, which is costing us more than these facilities here. So that is our thinking today. I mean, of course, we have the necessary liquidity to exercise these options, but there are also other things we can do with the liquidity that is potentially more attractive for us. So we will only exercise them if we see this decrease in forward rates. Operator: [Operator Instructions] Gentlemen, there are no more questions registered at this time. Antonio Carlos Balestra Mottola: Thank you. Thank you, everyone, for participating in our call today and look forward to seeing you soon when we approve our Q2 results, and good afternoon. Thank you. Renato Raduan: Thank you. Bye-bye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices. Thank you.
Operator: Good day, and thank you for standing by. Welcome to Galapagos's Q1 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sherri Spear. Please go ahead. Sherri Spear: Hello again from Belgium. Thank you for joining us today as we report Galapagos's First Quarter 2026 Financial Results and Business Update. Last evening, we issued a press release outlining these results. This release, along with today's presentation, can be found on the Galapagos investor website at www.glpg.com. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These forward-looking statements include remarks concerning future developments of our company and our pipeline and possible changes in the industry and competitive environment. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on information currently available to us and on assumptions we have made. Actual results may differ materially from those indicated by these statements and are accurate only as of the date of this recording, May 7, 2026. Galapagos is not under any obligation to update statements regarding the future or to conform to these statements in relation to actual results unless required by law. You are cautioned not to place any undue reliance on these statements. Joining us on today's call from the executive team are Henry Gosebruch, Chief Executive Officer; and Aaron Cox, Chief Financial Officer. Eric Hedrick, Chief Clinical Adviser; Sooin Kwon, Chief Business Officer; and Dan Grossman, Chief Strategy Officer, will be joining us for the Q&A session. With all of that, let me now turn the call over to Henry Gosebruch, CEO. Henry? Henry Gosebruch: Thank you, Sherri, and thank you all for joining us today. It is truly an exciting time to be here. This call marks my 1-year anniversary as CEO, and I couldn't be more proud of what we've accomplished together in the first year of our journey. We have transformed our management team and Board, repositioned our portfolio, added an exciting set of new pipeline programs, and we are changing our name to Lakefront Biotherapeutics. This is not a story of small adjustments. It's a story of real transformation. A transformation like this requires the right people. At Galapagos, we've assembled a management team with world-class business development expertise and a shared mission of leveraging our unique position to develop new medicines for patients and to create significant value for our shareholders. Our executives bring world-class deal making experience and each has an enviable track record. This is a team built for this new phase of our company. We are focused on disciplined decision-making, careful capital allocation, reshaping our pipeline through business development and focused execution that can create long-term sustainable value. As Galapagos transforms, it's also important that the Board brings the right mix of capabilities and background. We are very pleased with the talented group that has joined us. The Board's expertise and background brings the skills and experience that are needed to provide effective oversight of our strategy and the company. Our previous Board Chair, Jerome Contamine, retired from the Board following the 2026 AGM/EGM. I am extraordinarily grateful for Jerome's service. He has been a great partner and provided valuable insights that have positioned us for this next phase of growth. I'm excited to work with Gino Santini as our new Board Chair going forward. Gino is a seasoned pharmaceutical professional with a 27-year career at Eli Lilly, where he served as Senior Vice President of Corporate Strategy and Business Development and led major acquisitions and partnerships. He has advised and directed numerous pharmaceutical, biotech and venture-backed organizations and has relevant experience in M&A, commercial partnerships and Board governance. Gino's extensive operational, strategic and business development expertise shaped by decades of global leadership in our sector will be invaluable as we execute on our strategy to deliver meaningful patient impact and sustainable shareholder returns. Just a few weeks ago, we announced that we had entered into a binding agreement with Gilead regarding the portfolio created by Ouro Medicines. This did not happen overnight. It was the result of a structured process, early relationship building, confidential reviews, negotiations and ultimately, successful agreement on a partnership with Gilead that has the potential to drive significant value for our shareholders. The transaction centers on Ouro's lead program, gamgertamig, a BCMA/CD3 T cell engager for autoimmune diseases with multibillion-dollar revenue potential. Currently in Phase Ib dose-ranging studies and expected to enter registrational studies as early as 2027. Gamgertamig, Ouro's lead molecule is, in our view, a potential first and best-in-class T cell engager that has demonstrated a compelling profile in clinical studies. The collaboration brings a meaningfully clinically differentiated high potential asset into our portfolio. The proof-of-concept initial indications are orphan indications where the clinical trials are manageable in size and scope with significant potential for expansion into additional indications. So far, we've seen compelling data from over 60 patients treated with gamgertamig across 5 distinct autoimmune indications. This clinical experience has highlighted the differentiated profile of gamgertamig characterized by rapid induction of durable complete responses, minimal cytokine release syndrome with the current schedule of administration and remarkable consistency in these findings across studies and disease indications. We look forward to sharing data with investors over the coming months in a series of publication and presentations at medical meetings. We believe that gamgertamig has a clear speed-to-market advantage. The initial focus on the treatment of rare autoimmune diseases has provided rapid proof of concept, enabling initiation of registrational trials as early as 2027. The program has also received Fast Track and Orphan drug designation in the U.S. for ITP and AHA, further supporting an accelerated development path. Finally, the spectrum of diseases that may be addressable by gamgertamig encompasses over 20 separate indications, giving us a pipeline and a product opportunity. In conclusion, we believe gamgertamig could represent a very important new type of treatment approach for immune reset therapy for patients across a large number of conditions. It has shown compelling clinical data so far, and it may have both a first-in-class advantage and best-in-class potential. Our partnership also includes 3 exciting preclinical programs, which we will look to progress with urgency. We look forward to sharing more about these programs in the future. Now I'll turn the call over to Aaron to talk about financials. Aaron? Aaron Cox: Thanks, Henry, and hello, everyone. As you heard from Henry, we are really excited about the Ouro transaction. Another major benefit is that it includes a partial waiver and modification of terms of our legacy Option License and Collaboration Agreement or OLCA, with Gilead, marking a meaningful step forward in our strategic and financial flexibility. This slide details the benefits of this transaction relative to our legacy relationship. In short, the participation of Gilead was far above the $150 million expected with the Legacy Agreement. I'm really proud of our team for negotiating far better terms and proving that we are able to work together with Gilead to achieve our common goals. As noted in our transaction announcement, under the revised terms and subject to the closing of the transaction, $500 million is now unlocked for broader use beyond the Ouro investment, enabling Galapagos to pursue new opportunities and transactions independently of Gilead and expanding the universe of potential strategic targets. Additionally, up to $150 million of this $500 million may be used for return of capital to shareholders, subject to certain limitations, providing us with additional optionality to drive shareholder value. This partial waiver and modification to terms of the OLCA further strengthen our ability to deploy capital strategically and to pursue additional value-accretive opportunities. Along these lines, last week, we also received approval from our shareholders to complete a share repurchase. We will provide an update regarding a potential share repurchase following the close of the Ouro transaction. Turning now to our Q1 2026 financial results and as outlined in the press release issued last night. Our total net revenues were EUR 6.5 million compared to EUR 75 million in Q1 2025. This decrease is mainly driven by the prior year comparison, which included EUR 57.6 million related to the OLCA revenue recognition. As noted with our full year 2025 results, the remaining deferred income balance related to the OLCA was fully released at year-end 2025. In Q1 2026, revenues were primarily driven by EUR 4.9 million in supply revenues from Jyseleca inventory sales to Alfasigma and EUR 1.6 million in collaboration revenues, reflecting royalties from Gilead. On the cost side, we continue to see significant reduction in our operating expenses. R&D expenses decreased to EUR 31 million, contributing to an overall improvement in our cost base. This reduction is driven by lower severance expenses as well as the absence of restructuring-related charges that impacted Q1 2025. As a result, operating loss improved to EUR 63.7 million compared to EUR 158.7 million last year, which included EUR 111 million in restructuring costs. Moving below operating income, we reported net financial income of EUR 77.7 million, mainly driven by positive fair value adjustments and favorable unrealized currency exchange gains on our U.S. dollar-denominated cash and investments of EUR 64.3 million. This led to a net profit of EUR 14.5 million for the quarter compared to a net loss of EUR 153.4 million for the first 3 months of 2025. Financial investments and cash and cash equivalents totaled EUR 2,982.2 million on March 31, 2026, as compared to EUR 3,297 million on March 31, 2025. The quarter end cash balance meaningfully benefited from a decrease in the U.S. dollar to euro exchange rate, which moved from $1.175 at year-end 2025 to approximately $1.15 at the end of the quarter. Turning now to our guidance for 2026. With the closing of the Ouro transaction expected in the second quarter, we expect to spend EUR 60 million to EUR 75 million on Ouro-related cash expenditures, including operating costs and transaction expenses in 2026. Along with the upfront payment of approximately EUR 713 million, this results in total Ouro related cash expenditures of EUR 775 million to EUR 790 million for 2026. We continue to expect onetime cash costs of EUR 125 million to EUR 175 million related to the wind down of cell therapy activities. Inclusive of the Ouro-related expenditures and continued wind-down of cell therapy, we now expect to end the year with EUR 1.975 billion to EUR 2.05 billion of cash and cash equivalents. Importantly, the company remains robustly funded. Following this transaction and including estimated R&D spend associated with gamgertamig until first approval, the company will continue to have a majority of its current cash remaining for additional strategic transactions and other capital allocation priorities. Now let me turn it back to Henry to wrap up. Henry Gosebruch: Thank you, Aaron. In closing, I'm just thrilled to introduce you to the new Lakefront Biotherapeutics. To us, Lakefront symbolizes the attractive opportunity in front of us and the new beginning we are creating. My most reflective moments often occur when I'm out exercising on Chicago's Lakefront. Our new name captures what we aspire to achieve for patients, enhanced quality of life, meaningful positive impact and more time for what matters most. It represents helping patients move toward a better future with greater hope and possibility. As of tomorrow, May 8, we expect to be listed as LKFT on Euronext and NASDAQ, symbolizing another pivotal step in our transformation. So with that, thank you all for your attention, and we will now open it up for your questions. Operator? Operator: [Operator Instructions] We will now take the first question from the line of Brian Abrahams from RBC Capital Markets. Brian Abrahams: Congrats on all the transformation over there. I was wondering if you could give us maybe your latest thoughts on what the dose-ranging gamgertamig data will need to show specifically just in terms of B-cell depletion, depth and durability, CRS rate reductions to move forward in registrational, how you're going to be picking which registrational trials to begin first? And just any more thoughts on the potential size and complexity of these trials that could start next year? Henry Gosebruch: Brian, it's Henry. Thanks for the question. I'll start, and then I'll have Eric supplement. So first of all, look, we -- as we said on the prior discussion, we had a chance to really thoroughly diligence not only gamgertamig, but other programs out there with other T cell engagers. And we've seen really compelling data from over 60 patients that showed very rapid onset, very deep depletion and very good durability. And so again, as we've talked about, that will come out here in the next couple of quarters in terms of individual releases at medical meetings and other publications. So just for context. But I'll let Eric go through the specifics on the 3 points you raised. Eric? Eric Hedrick: Yes. Thanks, Henry. Brian, thanks for the question. Sort of expanding on what Henry just said, I think the team at Ouro has done really good work on exploring dose ranging here. I would say that the profile that would be an optimal profile for going into late-stage development would be one where you get profound B cell depletion, but a dose duration schedule that minimizes CRS risk. And I think at the current dose and schedule, we referred to this previously, it really does seem like alterations in the dose and the duration of therapy can really minimize the CRS risk. I think the other aspect here that's important will be having a dose that results in a period of B-cell depletion that is deep, but relatively short, right, so that you can minimize the infectious risk, the need for supplemental intravenous immunoglobulin. And again, I think the team at Ouro is well on your way to identifying that dose. And we fully expect that by 2027, we'll be comfortable with the doses that we take forward into Phase III programs. Operator: We will now take the next question from the line of Judah Frommer from Morgan Stanley. Judah Frommer: I think we saw another transaction recently for BCMA/CD3. There are several assets in the space. Just curious how you think the space might evolve and how you're thinking about development plans. Do you see room for multiple assets targeting the same mechanism within the same large indications? Or do you think this is going to be an area where various assets are going to kind of carve up sub indications, maybe stick to smaller indications as opposed to necessarily all going after the same large ones? Henry Gosebruch: Yes. Thanks, Judah. It's Henry. So again, just for context, we were able to diligence multiple opportunities in some depth, and we're quite pleased that our top choice, i.e., gamgertamig was the one that we were ultimately able to transact with. So we continue to believe that gamgertamig is the best alternative out there and has the potential to be first-in-class. That being said, look, we're very encouraged by the fact that we're not the only ones excited about the space that there's a lot of investment going into it. I think that is good to see and ultimately good for patients. The Ouro team has been really, really savvy in terms of picking very interesting indications that we believe are quite sizable, multibillion-dollar potential easily, but where they have a clear timing advantage. And so I think in those places, we're in a really favorable position. That being said, we don't view gamgertamig behind in any other indication as well, and those are being very actively explored. To your question whether ultimately the best drug takes all of it or the market gets split up in some way, I think we'll defer that when we go a little bit further. But again, we're -- based on our diligence of multiple programs, we think we got the first and best-in-class alternative here with us. Operator: We will now take the next question from the line of Phil Nadeau from TD Cowen. Philip Nadeau: Congrats on the progress. Two from us. So first on gamgertamig, you've mentioned that it's perhaps best-in-class. Can you go into a little bit more detail about how it is differentiated structurally or otherwise from the other BCMA/CD3s? That's first. And then a follow-on to Brian's question. In terms of moving into pivotal development, can you talk about the framework with which you're evaluating the different indications and opportunities and how you prioritize the first one or several to move forward into pivotal development? Henry Gosebruch: Eric, why don't you take the first one and then perhaps Dan can take the second one. Eric Hedrick: Yes, sure. Phil, thanks for your question. Yes, I think in terms of differentiation amongst these BCMA-directed T-cell engagers, yes, one of the things that was attractive about the Ouro molecule, I guess there was 2 aspects. One is the detuning of the CD3 binding arm, which we think goes a long way in addition to dosing and significantly reducing the CRS risk. So that was important. The BCMA binding arm is very potent, right? And so we're comfortable that, that from the data we've seen so far is sort of resulting in very deep B-cell depletion and the sort of response in disease that you would associate with profound B-cell depletion. So I think those were the main aspects of the molecule that were attractive to us. And again, the Ouro team has really advanced us very well in the clinic. And I think you're seeing the clinical representations for those molecular features. And maybe, Dan, if you want to comment as well. Dan Grossman: Yes. Sure. I'm happy to talk about indication selection. And first, I'll echo what Henry said in terms of appreciation for the Ouro team's strategic judgment in choosing initial indications in which you could get a very rapid and very clear signal of the actual clinical potency of the molecule and particularly in the benign hematologic indications. Beyond that, I mean, we kind of see gamgertamig as a vanguard of T cell engager therapy for autoimmune disease broadly, it's going to really be revolutionary over the next 10 years. We anticipate that there's a high likelihood that in 10 years, it will be hard to imagine there was a time when this was not -- this kind of technology was not part of standard of care across these B-cell mediated autoimmune disease. And so we are really looking for quite a bit of breadth and to get the product out into the clinic and then into the hands of physicians to see what it can do across not just different diseases, but different therapeutic areas. So of course, the first filter is always going to be a mechanistic hypothesis that deep B-cell depletion will result in meaningful clinical benefit to patients. That's sort of effectively a proxy for PTRF. And then within that, we see a range of disease states in which the -- in which the standard of care today and anticipated over the next couple of years is woefully inadequate. So there's the room to the most good for patients where there are material sized patient populations and where the feasibility of running clinical trials and bringing the product to the commercial market is most feasible. So we're going to be balancing those factors, but really looking to show the broad potential of this kind of technology. Henry Gosebruch: Yes. And Phil, it's Henry. Just to add to Dan's answer. One thing that, again, really attracted us in our diligence is that given how profound the impact is on patients that we've been able to see, you really need just pretty small numbers of patients in these diseases to really figure out whether you get the right dosing scheme to take it forward into larger studies. So we quite like the fact that this is very capital efficient. Again, in due time, we'll provide a little bit more on sort of our R&D spend, et cetera. Aaron gave it for this year, of course. But that's another very important feature that there's really relatively modestly sized studies needed and then you can go into pivotal, which are also quite modest given, again, this profound impact on patients we've seen. Dan Grossman: We can do a lot with a little at this effect size. Operator: We will now take the next question from the line of Sean McCutcheon from Raymond James. Unknown Analyst: This is [Yang], on for Sean. I have 2 questions. Maybe the first one is, could you speak to the optionality on continued BD activities and the prioritization, for instance, targets or indications driven that may have a clear strategy to have a synergism with gamgertamig in autoimmune disease? And I have a follow-up. Henry Gosebruch: Yes. Thanks for the question. It's Henry. So a couple of things. Again, we've said that the majority of our capital is available for other strategic initiatives and future BD. Aaron walked through the $500 million bucket we now have that we can do deals independent from Gilead and we can take a portion of that for return of capital as well. So we're very excited about that flexibility and the substantial capital we have left to look for other BD. That being said, we're very excited about Ouro and the potential that we just in the prior question outlined and the 3 preclinical assets we have that could also be meaningful opportunities. So I would say the hurdle for the next BD deal is very, very high. The hurdle for the first one was also high, but the next one is very, very high because we've got a really, really nice portfolio. We do have increased capability now, and we, of course, have a set of diseases that it could make sense to build on, as you say, to introduce some development or even commercial synergy down the road. But I think the message right now is, look, we're excited about what we have. We're going to be very, very busy executing these programs, and we're in no rush to do a second BD deal here given how much have. Unknown Analyst: Great. Could you also please comment on the infection risk, hematology events associated with gamgertamig and all the BCMA-TCE class in general and the company's view on the differences it may be associated with CD19 TCE for autoimmune disease. Henry Gosebruch: Eric, why don't you take that one? Eric Hedrick: Yes. Yes. Thanks for the question. I would say that sort of in relation to the comment I made previously, the infectious risk here really has to do with the duration of B-cell depletion and plasma cell depletion, right? When we're giving -- when team at Ouro was giving this drug in the current dosing schedule, we're comfortable that we're getting to the point where the period of B-cell depletion will be such that the infectious risk should be manageable. So that will be a key point in sort of determining the dose to go forward. But again, I think the key point is that you can dose this drug in such a way that you can have an impact on the period of B-cell depletion and then the infectious risks should really go along with the durability of B-cell depletion. And again, the team at Ouro has done a really nice job at dose ranging and trying to like optimize that period. Operator: We will now take the next question from the line of [indiscernible] from KBCS. Unknown Analyst: [indiscernible] coming in for Jacob. I had a question on the Galapagos 3667 program. What are the strategic options you're currently considering? And could one of the potential outcomes be that you choose to develop the program in collaboration with Gilead? Or how do you look at that program at the moment? Henry Gosebruch: Yes. Thanks for the question. It's Henry. As we said previously, we're analyzing various alternatives relating to '3667. That process continues, although it's quite well advanced at this point. So we're coming close to the end of that process and making a decision which way to go, and we're assessing kind of a broad range of options. So more to come on that in the not-too-distant future, but it's inappropriate at this point to comment further on it. Operator: I would now like to turn the conference back to Henry Gosebruch for closing remarks. Henry Gosebruch: Very good. Well, thank you for your time today. We look forward to closing the Ouro transaction here in the second quarter and welcoming the team from Ouro to join us here. But more broadly, reflecting on the last year, it's really been a fantastic year, and I'm super proud of what we've accomplished together. But I'm also super excited about the year ahead for Lakefront Bio. So thank you, and we hope you have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator for today. [Operator Instructions] Thank you. And I would now like to turn the call over to Monica Prokocki. Please go ahead. Monica Prokocki: Thank you, operator. Good morning, everyone, and welcome to LifeStance Health's First Quarter 2026 Earnings Conference Call. I'm Monica Prokocki, Vice President of Finance and Investor Relations. Joining me today are Dave Bourdon, Chief Executive Officer; and Ryan McGroarty, Chief Financial Officer. We issued the earnings release and presentation before the market opened this morning. Both are available on the Investor Relations section of our website, investor.lifestance.com. In addition, a replay will be available following the call. Before turning over to management for their prepared remarks, please direct your attention to the disclaimers about forward-looking statements included in the earnings press release and SEC filings. Today's remarks contain forward-looking statements, including statements about our financial performance outlook, business model and strategy. Those statements involve risks, uncertainties and other factors as noted in our periodic filings with the SEC that could cause actual results to differ materially. Please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year. At this time, I'll turn the call over to Dave Bourdon, CEO of LifeStance. Dave? David Bourdon: Thanks, Monica, and thank you all for joining us today. We had an exceptional start to the year at LifeStance. We exceeded each of our guided metrics with strong revenue growth of over 21% and more than $50 million in adjusted EBITDA, a 48% increase over last year. We grew our clinician base by more than 300 in the quarter to over 8,300 clinicians. We also delivered meaningful year-over-year improvements in clinician productivity, reflecting the continued impact of the initiatives we implemented last year. Given the outperformance in the quarter, we are raising our full year guidance across all metrics. And later, Ryan will provide the details on our improved view of 2026. From a macro environment perspective, we continue to see a growing demand for high-quality mental healthcare, as well as patients seeking more affordable solutions, driving a shift from cash pay to insurance coverage. LifeStance is uniquely positioned to meet these needs. We're seeing this through our success in growing our clinician base, attracting new patients and driving clinical and operational excellence. Regarding operational execution, the momentum we established in 2025 with strong visit growth and clinician productivity carried into the first quarter. These efforts centered around enhancements to new patient conversion and engagement. Importantly, these initiatives are embedded in our operating model and supported by clinician level visibility, education and incentives, giving us confidence in their durability as we continue to scale our clinician base. Turning to technology. We continue to apply digital and AI tools in focused, practical ways to improve patient access, clinician experience and operational efficiency. Across the organization, digital and AI tools, including digital patient check-in, AI-driven workflows and robotic process automation support operational excellence, particularly in areas with heavy manual processes such as revenue cycle management. In addition, AI-enabled scheduling tools support our new patient telephone booking process, resulting in converting more calls to appointments. We are also rolling out AI-assisted clinical documentation to reduce administrative burden and cognitive load for clinicians, enabling them to spend more time with patients, which should improve patient and clinician satisfaction. As per our new EHR, last quarter, we announced the selection of a best-in-class vendor with implementation expected to begin this year and the transition occurring during 2027. Our focus has now shifted to organizational readiness and early clinician engagement. The transition to the new EHR will support our ability to scale efficiently, integrate AI more seamlessly and improve the consistency of both the clinician and patient experience, while delivering clinical excellence. There remains a tremendous opportunity for technology to further enable the business. We will remain focused on prioritizing use cases with clear clinical and operational impact as we deploy these tools more broadly across the organization. This approach to technology strengthens LifeStance's leadership position, while reinforcing clinician trust and the quality of care we deliver to patients. Turning to geographic expansion. We see a significant opportunity ahead to increase both density within our existing markets and to expand our geographic footprint. As we've discussed, tuck-in acquisitions are our preferred way of entering new MSAs. And after 3 years, we're back to executing on M&A, with a disciplined and targeted approach. We have established a strong pipeline of potential acquisitions and expect tuck-ins going forward to be a meaningful part of our geographic expansion strategy. We're pleased that during the first quarter, we opened 2 new markets through acquisitions, adding high-quality practices that align well with our model and our culture. While these deals will contribute a nonmaterial amount of revenue this year, they establish new market entry points to support future growth in 2027 and beyond. Where attractive tuck-in opportunities are not available to us, we'll continue to enter new geographies with a de novo approach. Finally, I'd like to highlight our progress on clinical excellence. Our clinicians and the positive impact we're having on patients is the foundation of everything we do at LifeStance. Measuring how we're improving patient outcomes at scale is critical to ensuring our care is effective, and we also use these findings to identify opportunities to improve that care. In April, we published new clinical outcomes data from nearly 180,000 LifeStance patients that showed roughly 3/4 benefited from clinically significant improvements in their anxiety and depression, further validating our commitment to clinical excellence. These clinical outcomes, combined with strong patient satisfaction as reflected in our over 4.7 out of 5 Google Stars rating for our over 575 centers, reinforce that our model is working. And importantly, these strong patient outcomes and high satisfaction scores are the direct result of the dedication of our clinicians and our ongoing commitment to enable our clinicians to deliver high-quality care to patients. With that, I'll turn it over to Ryan to provide additional commentary on our financial performance and outlook. Ryan? Ryan McGroarty: Thanks, Dave. I am pleased with the team's operational and financial performance in the first quarter, which exceeded our expectations. For the quarter, revenue grew 21% to $403 million. Revenue surpassed our expectations from both better-than-expected total revenue per visit and visit volumes. Visit volumes of 2.5 million increased 18%. The outperformance was driven by a combination of better-than-expected clinician productivity and net clinician adds. Total revenue per visit of $163 increased 3% and was modestly ahead of our expectations. Our visits per average clinician were strong once again, increasing 7% year-over-year for the second consecutive quarter. This was achieved while at the same time adding 309 clinicians in the first quarter, bringing our total clinician base to 8,349, representing growth of 11%. Turning to profitability. Center Margin of $136 million in the quarter increased 24% and was 33.7% as a percentage of revenue. This came in ahead of our expectations, primarily due to the revenue beat as well as lower spending in center costs. Adjusted EBITDA increased 48% to $51 million in the quarter, which was very strong and exceeded our expectations. This resulted in a margin as a percentage of revenue of 12.7%. The outperformance in the quarter was attributable to favorable Center Margin. We also finished with positive net income of $14 million in the quarter as compared to $1 million last year. Turning to liquidity. We generated robust free cash flow of $22 million in the first quarter, which was an improvement of $32 million from the first quarter of last year. We exited the quarter with a strong balance sheet, including a cash position of $195 million and net long-term debt of $263 million. Importantly, that cash balance reflects $49 million deployed towards share repurchases during the quarter following the Board's $100 million authorization in February. With net leverage of 0.5x and gross leverage of 1.6x, we believe we are well positioned with significant financial flexibility to support the business and execute on our strategic priorities. In terms of our outlook for the full year, we are raising our revenue range by $25 million at the midpoint to $1.64 billion to $1.68 billion. The midpoint of the revenue guidance implies a growth rate of 17%. We are also raising our Center Margin range by $21 million at the midpoint to $547 million to $571 million and raising our adjusted EBITDA range by $15 million at the midpoint to $200 million to $220 million. The midpoint of the adjusted EBITDA guidance implies a margin as a percentage of revenue of 12.7%, which is over 150 basis points of margin expansion year-over-year. As we previously communicated, our annual guidance assumes year-over-year revenue growth driven primarily by higher visit volume, combined with low to mid-single-digit increases to our total revenue per visit. Additionally, we continue to expect stock-based compensation of approximately $60 million to $70 million this year. For the second quarter, we expect revenue of $405 million to $425 million; Center Margin of $135 million to $147 million; and adjusted EBITDA of $50 million to $60 million. As we look beyond 2026, we continue to expect annual revenue growth in the mid-teens and to achieve mid-teens adjusted EBITDA margins by full year 2028. The macro trends we're seeing across mental healthcare, along with the momentum in our performance, reinforce our confidence in that outlook. With that, I'll turn it back to Dave for his closing comments. David Bourdon: Thanks, Ryan. This is an exciting time for LifeStance. Demand for mental healthcare is growing while affordability is increasingly important for patients. Our model is differentiated and delivers high-quality outcomes. This combination gives us confidence to meet the needs of patients and provide a compelling place to practice for clinicians. Operator, we will now take questions. Operator: [Operator Instructions] So your first question comes from the line of Craig Hettenbach from Morgan Stanley. Craig Hettenbach: Clinician growth was a bit above expectations in the quarter. So any tailwinds you would call out in the quarter? And then more broadly, just some of the things you're doing to kind of attract and retain clinicians to the platform. David Bourdon: Craig, this is Dave. I'll take that one. So we did have strong, we had very strong results around clinicians in the first quarter, as you noted, not just in the clinician adds, which were over 300, but also saw the third quarter in a row of strong productivity improvements. We grew that about 7% year-over-year. In regards to the clinician growth that we saw, nothing new to point to there, primarily driven by the strength of our recruiting along with stable retention. Craig Hettenbach: Got it. And then when I think through on the margin front, so delivering some good operating leverage here, the 15% to 20% longer-term EBITDA margins, how are you thinking about all the things you're doing from a technology perspective? I know you touched on the EHR investment. But just how do you envision kind of some of the efficiencies in AI kind of layering into kind of that path to the longer-term margins? Ryan McGroarty: Yes, Craig, this is Ryan. So overall, so technology is a key lever, right, in terms of being able to deliver the long-term margins. But you framed it exactly right. So when we've stand out, we've talked about long-term margins in the 15% to 20% range. Overall, we further time to mention that to hitting adjusted EBITDA margins of mid-teens by 2028. And so we look at the leveraging. So to get to those margins, you get continued expansion around your Center Margin. And then you also get continued leveraging through your G&A line, which does come from items such as AI enablement, technological initiatives that kind of make us more efficient in being able to get the scale growth overall. So it is a key component just as we think about the long-term margin profile of the business. Operator: Your next question comes from the line of Ryan Daniels from William Blair. Matthew Mardula: This is Matthew Mardula on for Ryan. Congrats on a great quarter. It's great to hear about all the productivity initiatives continuing to work well. But when we look ahead, are there still new productivity initiatives planned by the company to be released in the upcoming quarters that are in the company's pipeline? Or is the strategy more focused to work on the current productivity initiatives that are already established and going well instead of maybe adding new ones? David Bourdon: Matthew, it's David. I'll take that one, and thanks for the congrats on the quarter. We're really pleased with the strong start to the year. In regards to the clinician productivity, we have numerous initiatives that are underway. We've talked about that a lot in the back half of last year. The thing I always start with is remember, this is about visit growth. And what we're doing is an intentional balancing of using the available capacity of our existing clinicians versus hiring new clinicians. And the higher productivity benefits, both the clinician as well as the LifeStance. So we're going to continue to look for new opportunities to improve productivity, while we're also continuing to execute on the initiatives that we've talked about for the past half year, of which all of those are durable and are continuing. You're seeing that in our results. But I always come back to it that intentional balancing. And when we think about the long-term growth algorithm, we still point to that that's going to be primarily driven by net clinician adds versus productivity and with productivity just being complementary. Matthew Mardula: Great. And then regarding visits, with that coming in strong at, I think, roughly 18% growth in Q1. And then given the last 2 quarters before Q1, we've seen visit growth around that 16% to 18% growth. And when we think about your guidance of that low double-digit visit growth going forward, should we maybe be expecting visits not to accelerate as seen in the past quarters in the back half? And that might just be because of the productivity initiatives that were established and gaining maturity in the second half of last year. But if you could just kind of help me understand, what you're thinking about visit growth for the rest of the year? And any color into that given what we've seen in the past couple of quarters would be great. Ryan McGroarty: Yes. So perfect. This is Ryan. I'll jump in there for that one. So first and foremost, just as you talk about the guide, overall, we're very pleased with the guide. So just you take it from a top line from a revenue perspective, growing at the midpoint at 17%. And then if you go down the P&L to adjusted EBITDA of 33%. When you think about revenue, so I'll start there is, obviously, we've raised our guidance by $25 million. When you think about the 17% year-over-year growth, it takes on a more normal shape to some of our consistent patterns that we've had in terms of revenue being approximately 50/50 first half versus second half, with second half being modestly higher. And so that plays into the whole visit volume. So we do have -- and you referenced this in your question, as you get into the second half of the year, you do lap your productivity initiatives. And as Dave mentioned, our growth will always be primarily from net clinician adds complemented by productivity, and you see more of that dynamic kind of happening in the second half versus the big gains in productivity that we saw in the second half of last year and the first half that we're expecting this year. Operator: Your next question comes from the line of Richard Close from Canaccord. John Granville Pinney: Yes, John Pinney on for Richard Close. Congrats on the quarter. First, on the clinician adds, do you have any sense of, like where a majority of the strong quarter, 309 adds sequentially, where a majority of them are coming from? And how many are attributable to the tuck-in acquisitions? Are they mostly like new adds? Are they moving from private practice? Or just any other sense of the source? David Bourdon: John, this is Dave. I'll take that one. So first of all -- I'll take the last part of your question first. M&A did contribute in the quarter to net clinician adds, but very modest. So as mentioned in our prepared remarks, M&A is immaterial to 2 tuck-ins from a contribution perspective. So the net clinician growth is primarily driven by organic hiring, again, with stable retention. Now your first part of the question, where are those clinicians coming from? No real change in that dynamic. We continue to see clinicians coming from 3 buckets. The first is and the largest being clinicians that are $10.99, small practice, and they're looking for more support and a stronger connection to our practice. And so they're joining us. The second bucket I'd highlight is the clinicians that are salaried, this is a smaller bucket. These are ones that are at hospital systems or practices like that, and they're looking for more flexibility, but while still retaining some of those W-2 benefits in regards to health, health care, matching 401(k), those kinds of things. And then the third bucket is new graduates. So individuals that are just graduating from school, then getting their licensure and coming to work at LifeStance. We continue to have a strong pipeline across all 3 of those categories. And again, I wouldn't point to anything new in the first quarter. John Granville Pinney: All right. And then on the EBITDA guidance, it looks like margin at the midpoint steps up with the 2Q guidance. And for the full year, it stays pretty consistent with what was achieved in first quarter. Is there anything to like keep in mind when modeling in the second half of the year? Ryan McGroarty: Yes. So this is Ryan. So I'll jump in on that question. So you got it right, like overall. One thing kind of as you're thinking about your models is that G&A does step up $6 million from our previous guidance. We're very thoughtful about, like the investments that support our growth. As it relates to G&A, there's really nothing significant to point to as it relates to -- we talked about this a little in Craig's question just around continued investment around AI and technology and then also in patient acquisition on a BD perspective. But when you're looking at just the sequencing the phasing second half versus first half, that is something that's notable just in terms of kind of key difference between first half and second half. Operator: Your next question comes from the line of David Larsen from BTIG. David Larsen: Congrats on another great quarter. Can you talk a little bit about the technology infrastructure and basically the conversion from inbound inquiries from prospective patients to first visit? And maybe just talk about how that process is evolving or improving or how it's changed over the years and what your expectations are for it going forward? David Bourdon: Dave, this is Dave. I'll take that one. So in regards to the conversion of patients seeking care to a booked appointment, one of our big focus areas for online booking is we've rolled out what we're calling Care Matching 2.0. And we had piloted the new solution. It's a new algorithm, with a little bit of new technology in the back half of last year and the beginning of this year, and that went really well. What we're seeing is an improvement in conversion of patients seeking care to a book appointment by about 5%. And so as a result, we're now rolling out that new Care Matching algorithm and online tool across the country and have that rolled out completed in the next couple of months. So we're really pleased with that. We won't stop there. It's really a journey. We'll also be looking at the patient experience online as they're going through that process and are there opportunities to reduce friction. And we'll be doing some of that exploration in the back half of this year. David Larsen: Great. And then can you talk a little bit about how you measure results like the functionality of the patient themselves? And I guess, I don't know, perhaps like performance with activities of daily living. Are they tracking health improvement metrics? And do you have an app where the members can sort of correspond with the docs on a real-time basis and track and measure habits so that you can sort of see and track how all the patients are doing and if they're improving? And if so, like by how much? David Bourdon: Yes. This is Dave. I'll take that one as well. There are a couple of things there. So first of all, from a measurement perspective, and I talked about in my prepared remarks, the study that we published based on data we had across 180,000 patients, and that data was from last year. What we're doing now is on a regular basis, monthly, we're checking in with our patients, and they're completing surveys primarily around anxiety and depression, and that allows us to track their progress. And if it's going great, then we stay the course. But obviously, if their health is not improving, then what we're doing is we're exploring from a care pathway perspective, what are other options that our clinicians could provide to those patients to improve their health. And that survey is taken by the patients in our digital patient check-in tool. So that's where the patient interacts and fills out that information. In regards to an app, we do not have that, so we do not have that capability you described. That is something that we're exploring. And we think about it as almost a continuum of care and what are ways that we can interact with and support the patient in between the visits that they're having with their clinicians. So more to come on that. And we do believe that that will eventually improve the outcomes for patients and potentially get them healthier faster. But that's more of an in the exploration phase at this stage. Operator: Your next question comes from the line of Sean Dodge from BMO Capital Markets. Sean Dodge: Maybe just staying on that outcome study, Dave, you just mentioned, how do you leverage those findings now? Is this more of a tool that helps with negotiations, and coverage and rates from managed care? Or is this something that maybe more helps with like competitive positioning, competitive differentiation and driving more referral volumes from primary care? Or is it kind of all of the above? Just how do you kind of like operationalize this now? David Bourdon: Yes. It's Dave. I'll take that one, Sean. You nailed it. It's really all of the above, right? So first of all, as I was just talking about, it's going to become a more increasingly important part of how we provide care to patients because it's rich data that our clinicians can use in the treatment of their patients and understanding how their health is improving or not improving. So that starts there. And then sure, it becomes a proof point for us as we're working with referral partners or prospective referral partners about them sending their patients to us. It's part of establishing that trust. And then in regards to the payer dynamic, today, most payers are still focused on access. They need access for their members and they're hearing it from their corporate clients around that access to outpatient mental healthcare. But we believe that, it will become increasingly important to be able to demonstrate quality outcomes. And that's why we have such a big focus on clinical excellence. And we're going to continue to put a lot more emphasis on that this year and in the coming years. We believe there's a lot of opportunity for us to be able to differentiate ourselves versus other practices. Sean Dodge: Okay. Great. And then maybe going back to the clinician productivity enhancements. You talked about one of the other maybe less direct benefits of that being improved clinician satisfaction and that leading to less turnover since they're getting the hours they want as they're seeing more patients. I guess, with having a couple of quarters of kind of that behind you now, these improved productivity tools, have you seen any change in clinician retention or clinician churn, or is it maybe still a little too early to tell? David Bourdon: I think it's too early to tell. What we're seeing is continued stable retention. We are anecdotally getting very positive feedback from clinicians around us better filling their calendars, the new cash incentive program that's tied to both productivity and quality. So again, we're continuing to get anecdotally positive feedback from the clinicians, but we have not seen anything meaningfully move in regards to retention. Sean Dodge: Congratulations on the quarter. Operator: Your next question comes from the line of Jack Slevin from Jefferies. Jack Slevin: Congrats on the really strong quarter. Maybe I'll just tack 2 into one here. I guess looking at the stack of the guidance, a lot of commentary on the productivity efforts and other things. But maybe just more granularly thinking about care margin, I think, it assumes sort of a higher year-over-year step-up based on how that trended last year when you look at the last 3 quarters. Can you maybe just talk a little bit about what drives that or what in the baseline from last year may not necessarily be the right thing to comp against as you think about the care margin performance that's implied in the new guidance? And then the second one, we noticed over the last, call it, 5 or 6 months that payers have been broadening access for TMS or some of the higher acuity services that you provide. Can you maybe just talk a little bit about how that's trending for you or if you see potential for that to accelerate? Optum quite recently made it possible for NPs to bill for that service, which they previously had not allowed in a number of states. I'd just love to think about that broadly and if those good trends can continue or if there's potential to accelerate. Ryan McGroarty: Jack, this is Ryan. I'll start off on the first question. I think Dave will jump in on the second part of your question. So as it relates to Center Margin, just as it relates to the step-up that we're seeing there. So when you look on a year-over-year basis, Center Margin approximately has improved about 130 bps. So went from last year, 32.4% to implied in our guide is 33.7% this year. When you think about some of the components just in terms of the favorability, it really is from rate, operating leverage from volume, which includes some of the productivity initiatives that we've talked at length about, and then also just some favorable spending kind of within that bucket. When you think about the spending, I wouldn't point to anything specific on that. But to go back to like we're really pleased with the progression just as it relates to being able to expand our Center Margin, and it's tied back to just Center Margin expansion in addition to G&A leveraging gets us to our long-term growth algorithm. And I'll turn it over to Dave to answer the specialty question. David Bourdon: Yes. So in regards to specialty, just from a grounding, last year, we did about $50 million in revenue from specialty services, and we expect that to grow to roughly $70 million this year or about 40% year-over-year increase. The majority of the $50 million is neuropsych testing, where we're the national leader in that particular service. But then when you step into 2026, the higher growth rate versus regular book of business is driven by the TMS and Spravato services, which we're in the early stage on from a rollout perspective. We're adding new TMS chairs and Spravato sites every quarter, and we'll continue to do that for some time to come. The other thing I would point to, Jack, is we're really set up well for these specialty services, whether it's TMS Spravato or if there is new things that are approved in the future, like psychedelics because we have over 575 centers. And so this ends up being a very low capital intensity for us because we're able to leverage those centers, and it works well for our model and providing holistic treatment for our patients, especially for the patients that need these services. Jack Slevin: Congrats again on the strong results. Operator: Your next question comes from the line of Peter Warndorff from Barclays. Peter Warendorf: You guys opened 6 centers this year -- this quarter and you had 2 tuck-in acquisitions. So I was just curious what the cadence might look like for the rest of the year. And then when it comes to that M&A, I know you've talked about recently how some of the larger businesses in that kind of $200 million to $250 million range maybe had higher valuations than private markets. I mean, are you seeing anything differently there? David Bourdon: Peter, this is Dave. I'll take that. So in regards to the first quarter, firstly, you had your facts right. So we opened 6 centers, and we had the 2 tuck-in acquisitions. In regards to the rest of the year, what we've talked about is opening up 20 to 30 centers for the full year. We're still on pace for that. And then from an M&A perspective, we have a strong pipeline of tuck-in opportunities that we're evaluating. Obviously, there's a lot of moving pieces there. So I don't want to make any commitments in regards to the timing on those. But we do expect the tuck-in acquisitions to be a meaningful part of our geographic expansion strategy going forward and we do intend to do those on a regular basis. In regards to the overall M&A environment, no change to what we said last quarter, and that is we see meaningful opportunity in the tuck-in type acquisitions, or down market. We do not see meaningful opportunity for us -- as you get into that next or the biggest tier of our competitors that are in that $200 million, $250 million of annual revenue. And the reason we don't see an opportunity there is because there's a lot of geographic overlap between us and them. And so there's just not meaningful synergy or value creation in the combining of those practices with us. It's just much more financially effective for us to grow organically rather than trying to do an acquisition of one of those larger practices. Peter Warendorf: Got it. Okay. And then on the visit rate side, you had a nice bump in 1Q, up about 3% year-over-year. Just curious, I think that last year, you had the last customer pricing impact that came through in March. So maybe there was a bit of a headwind still in 1Q. How should we think about the cadence of that over the remainder of the year? Ryan McGroarty: Yes. So Peter, again, your facts set is right. So we're actually really pleased with the TRPV. You referenced the 3% year-over-year. So we did $163 from a TRPV perspective. So sequentially, that grew $3.80. This is key as we think about just rate in general. This is one of the reasons why we raised our revenue $25 million and also EBITDA by the $15 million for the full year was on the strength of rate increases. As we think about the balance of the year, we're still guiding to low to mid-single digit as it relates to rate. We still have some work to do as it relates to kind of executing on the rate and payer negotiations. I would kind of frame the overall environment consistent to like our prior calls just around it's very constructive, and we're getting really good response from the payers. So again, when you think about this year, guiding to low to mid-single digits. And again, it's also a critical component to our long-term growth algorithm kind of in that same range, low to mid-single digits. So we really like the momentum that we're seeing there. Operator: Your next question comes from the line of Scott Schoenhaus from KeyBanc Capital Markets. Scott Schoenhaus: Almost got it there. Congrats on the strong start of the year, really firing on all cylinders here, team. My question is a follow-up on the 6 de novo adds. Are those -- historically, you talked about trying to build density in metropolitan areas. Is that the way we should be thinking about those adds? And then when you're starting a de novo clinic, can you talk about the productivity ramp up? It seems like these technology investments have caused your productivity ramp to be quite quick. Maybe just walk us through your de novo strategy and the productivity on these de novo adds. David Bourdon: Scott, it's Dave. I'll take that one. So in regards to the de novos or the building of new centers, they come in a lot of different flavors. So you could have a center going in, in an adjacent town where we already have an existing center, already have existing referral partnerships, things like that. And so that kind of center is going to ramp very quickly. Those are the majority -- when we talk about the 20 to 30 centers that will build this year, that's the majority of the centers that are being added. We also are placing some de novos in brand-new geographies, because again, our preferred entry is through M&A rather than going pure de novo. That's a minority of the centers that we're adding in that 20 to 30. And those are going to have a slower ramp than the first category that I mentioned. That you're looking at more of 12 to 24 months to getting to breakeven. But again those are important beachheads that are going to be the foundation for growth in the years to come. Scott Schoenhaus: That's helpful. And then this is sort of an industry broad general question. You've seen a lot of industry changes and shifts, whether it be a large D2C behavioral health company trying to get into the payer market. And then a company in the behavioral health space that was acquired by a large provider network. May be talk about is that -- are you seeing impacts on either recruitment or patient perspective or rate perspective from the payers? Maybe talk about what's changing in the competitive landscape and if it's impacting you guys at all? David Bourdon: This is Dave. I'll take that one. In regards to the overall industry, you always have to start from the framing of it is still a highly, highly fragmented industry. And so you should expect that there will be consolidation in the years to come. And I think we're in the early days of consolidation. And I really like where LifeStance is positioned to be able to take advantage of those trends going forward. And because the industry is so fragmented, because there's such unmet demand from patients, we're not seeing any changes in regards to new patient volumes, clinician hiring, things like that. And you're seeing that in our results in the first quarter with really being strong across pretty much every aspect of the business. Operator: That will conclude our question-and-answer session. And I will now turn the call back over to Dave Bourdon, Chief Executive Officer, for closing remarks. Please go ahead. David Bourdon: Thank you, operator. I want to take a moment to recognize our nearly 11,000 mission-driven teammates. Every day, you show up for our patients, often at some of the hardest moments in their lives, and you do it with extraordinary compassion, professionalism and resilience. And I'm deeply grateful for what you do. Mental healthcare has never been more essential. We're proud of the difference LifeStance is making today, and we're even more committed to expanding our reach so we can help millions more people get the high-quality care they deserve. Thank you for joining us today. Operator, that will conclude our call. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by, and welcome to Targa Resources Corporation's First Quarter 2026 Earnings Webcast and Presentation. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Tristan Richardson, Vice President, Investor Relations and Fundamentals. Please go ahead, sir. Tristan Richardson: Thanks, Jonathan. Good morning, and welcome to the First Quarter 2026 Earnings Call for Targa Resources Corp. The first quarter earnings release, a supplement presentation and our latest investor presentation are available in the Investors section of our website at targaresources.com. Statements made during this call that might include Targa's expectations or predictions should be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our latest SEC filings. Our speakers for the call today will be Matt Meloy, Chief Executive Officer; Jen Kneale, President; and Will Byers, Chief Financial Officer. Additionally, members of Targa's senior management will be available for Q&A, including Pat McDonie, President, Gathering and Processing; Ben Branstetter, President, Logistics and Transportation; Bobby Muraro, Chief Commercial Officer. I'll now turn the call over to Matt. Matt Meloy: Thanks, Tristan, and good morning. This year is off to a pretty remarkable start here at Targa. We had record first quarter adjusted EBITDA, Permian volumes and NGL fractionation volumes despite the impacts of severe winter weather and periodic producer shut-ins from weak Waha gas prices. We are continuing to see strong production activity in the Permian and are on track for our volume forecast this year despite being impacted by more shut-ins than we previously estimated. A huge thank you to our field operations and engineering employees who worked tirelessly to support our producer customers through very cold weather across much of late January and early February and to also quickly resolved an unplanned outage towards the end of the quarter at a portion of our LPG export facility. The efforts by the Targa team supported another record quarter and strong start to the second quarter. The short, medium and long-term outlook for Targa growth has continued to improve. Higher prices and supply disruptions in the Middle East create tailwinds for our business and underscore the importance of secure and reliable energy supply for the United States. With growing cost-advantaged natural gas and NGL supply from the Permian Basin and significant expansions underway across our integrated value chain, Targa is well positioned to meet the growing demand for natural gas and NGLs across domestic and global markets. We believe that there are significant advantages to being on the Targa platform, a track record of constructing Permian gas processing plants on time or early. We have the largest system with best-in-class redundancy and fungibility across the Permian Basin, and we continue to invest and grow our system as further evidenced by 2 additional gas processing plants in the Permian Delaware announced today. We have a large and growing portfolio of transportation assets in both NGLs and intra-basin residue gas, a leading fractionation footprint in Mont Belvieu with Train 11 now online, 5 trains added over the last 6 years and Trains 12 and 13 currently under construction. And our LPG export facilities, which we are expanding our capacity to more than 19 million barrels per month time very well for the increase in demand for long-term LPG export contracts. Looking back over the last 6 years, we have brought into service 27 major projects, including 16 Permian processing plants, 5 fractionators and 3 NGL transportation pipelines with every one of these major projects over this period coming online on time or ahead of schedule. We have also successfully and seamlessly integrated several Permian acquisitions. This track record of execution is a credit to our best-in-class engineering and operations teams and to our commercial team for continuing to identify attractive opportunities to grow our footprint. Today, we increased our adjusted EBITDA outlook for 2026, which is bolstered by continued and disciplined production growth from our customers and a strong opportunity set in our downstream business across LPG export and marketing and optimization opportunities. This increase highlights Targa's strength and the durability of our business across environments. At Targa, we continue to focus on execution and believe the strength of our large integrated asset footprint positions us to be successful across commodity environments as we continue to invest in attractive integrated opportunities and return increasing amounts of capital to our shareholders. Targa now has more than 3,600 employees. And before I turn the call over to Jen, I want to express my thanks to all my colleagues. We have a lot of positive momentum and a lot going on. And as we discuss internally all the time, safety is our first priority. So a huge thank you to our employees for their continued focus on safety. Jennifer Kneale: Thanks, Matt. Good morning, everyone. Operationally, it was a solid quarter as our Permian natural gas inlet volumes were a new record, primarily driven by the successful integration of and volume contributions from our acquisition that closed at the beginning of the year as well as continued strong producer activity, partially offset by the impacts of Winter Storm Fern and other severely cold weather plus some gas price-related shut-ins. Currently, our Permian volumes are more than 250 million cubic feet per day higher than the first quarter average, even with more shut-ins to start the second quarter from some of our producers given weaker Waha natural gas prices. Average volumes through the first 4 months of the year are consistent with what we forecasted coming into this year, which is remarkable given we currently have between 200 million and 400 million cubic feet per day of Permian gas temporarily shut in by producers on any given day, depending on what is happening with gas prices. And while it is difficult to predict with precision how producers are managing egress constraints in the short term, we continue to feel good about our low double-digit Permian volume growth estimate for 2026. Importantly, we have demonstrated the strength of our strategy and resiliency over the last several years by ensuring that we have sufficient takeaway capacity from the Permian for our producers and by continuing to identify marketing optimization opportunities through our growing portfolio of natural gas transportation assets. We expect that marketing opportunities will continue likely until later this year when incremental Permian egress capacity is added. We are also continuing to execute on our major projects along our Permian footprint to accommodate the growth from our customers. In Permian Midland, our East Pembrook plant, which was scheduled for the second quarter, began service early starting at the end of the first quarter. Our East Driver plant remains on track to begin operations in the third quarter of 2026. In Permian Delaware, our Falcon II plant successfully came online in the first quarter, and our Copperhead, Yeti 1 and Yeti II plants remain on track to begin operations as previously announced. Our new Permian Delaware plants announced today, Roadrunner III and Copperhead II are both expected to begin service in the first quarter of 2028, which will be much needed to accommodate the expected growth from our customers in the very active Delaware Basin. We have multiple Permian intra-basin residue projects on track as scheduled that will add connectivity and fungibility across our system for our customers and offer access to multiple premium markets. Additionally, we expect Blackcomb, a natural gas pipeline in which we have an equity interest, will provide much needed egress relief for the Permian when in service in the fourth quarter of this year. Traverse will further enhance market connectivity when it comes online in mid-2027. The Permian natural gas egress environment is set to improve as we exit 2026 and the prospects for sustained higher Waha gas prices with improved egress will be a positive for Targa and our Permian producers. Shifting to our Logistics and Transportation segment, Targa's NGL pipeline transportation volumes averaged 1.02 million barrels per day and fractionation volumes averaged a record 1.145 million barrels per day during the first quarter. Both transportation volumes and fractionation volumes were impacted by the winter weather and shut-ins that impacted our G&P volumes, but consistent with what we are seeing in G&P have rebounded nicely as the underlying fundamentals of our business remain very strong. We are also making great progress on some of our key downstream projects as our Delaware Express NGL pipeline is currently in startup and our Train 11 fractionator began operations early in the second quarter. Speedway, our large expansion of our NGL pipeline transportation system remains on track for the third quarter of 2027 and Trains 12 and 13 remain on track for the first quarter of '27 and the first quarter of '28. With 4 Permian plants now in service since we announced Speedway and 6 Permian plants now under construction, we continue to expect a meaningful and growing supply of available NGLs behind our system to baseload Speedway's initial capacity of 500,000 barrels per day and supply our Mont Belvieu fractionation and LPG export footprints. Turning to our LPG export business at Galena Park. Our loadings averaged 13.1 million barrels per month during the first quarter despite the unplanned outage at a portion of our facility that reduced our loadings towards the end of the first quarter and early in the second quarter. Our LPG exports are highly contracted, and our team is doing a great job of trying to figure out how to support the high global demand by getting incremental volumes across the dock. We have some flexibility at our facility to move more butanes during periods of high demand and have been able to secure some additional contracts across this year that we expect will drive record Targa loadings in the second quarter. Longer term, we are in a really good position to continue to secure incremental multiyear contracts given the increasing supply that will be in our system through all of our G&P, transportation and fractionation expansions underway and increased global demand for U.S. Gulf Coast LPGs. We expect our large LPG export expansion will be much needed when it comes online in the third quarter of 2027. We are exceptionally well positioned operationally and believe that our wellhead-to-water strategy driven by activity in the Permian Basin will continue to put us in excellent position to execute for our customers and shareholders. I will echo Matt's appreciation for all of our employees that are focused on delivering for our customers and are doing it safely and with great pride. Your efforts are greatly appreciated. I will now turn the call over to Will to discuss our financial results and outlook in more detail. Will? William Byers: Thanks, Jen. Targa's reported adjusted EBITDA for the first quarter was $1.4 billion, which is 5% higher sequentially. The increase was primarily a result of contributions from our Permian Basin acquisition, which closed in early January and from optimization opportunities in our marketing businesses. The increase was partially offset by winter weather that impacted both G&P and L&T volumes. We are increasing our estimate for full year 2026 adjusted EBITDA to be in a range of $5.7 billion to $5.9 billion. The new midpoint is $300 million higher than what we provided in February, supported by higher first quarter adjusted EBITDA than we were estimating, meaningful natural gas marketing and LPG export opportunities for the full year and continued strong performance of our underlying businesses. We continue to estimate net growth capital for 2026 of approximately $4.5 billion, with no change despite announcing 2 new Permian gas plants today. We also continue to estimate 2026 net maintenance capital spending of $250 million. In March, we successfully completed a $1.5 billion debt offering comprised of 4.35% notes due 2031 and 6.05% notes due 2056. As a result, we are in an excellent liquidity position as we execute on our capital program. At the end of the first quarter, we had $3.1 billion of available liquidity and our pro forma consolidated leverage ratio was approximately 3.6x, well within our long-term leverage ratio target range of 3 to 4x. Shifting to capital allocation, our focus is more of the same from Targa, maintain our strong investment-grade balance sheet, continue to invest in high-returning integrated projects and return an increasing amount of capital to our shareholders. We declared a first quarter common dividend of $1.25 per share, which is a 25% increase relative to the first quarter common dividend for 2025. We also opportunistically repurchased $55 million in common shares at an average price of $241.43 per share during the first quarter. We expect another record year at Targa across multiple dimensions and remain well positioned to create value for shareholders over the long term. And with that, I will turn the call back over to Tristan. Tristan Richardson: Thanks, Will. For the Q&A session, we ask that you limit to 1 question and 1 follow-up and reenter the queue if you have additional questions. Jonathan? Operator: And our first question for today comes from the line of Jeremy Tonet from JPMorgan Securities. Jeremy Tonet: Just want to start off with the Waha basis, if we could, and I guess, the impacts on the basin and Targa going forward here. There's a lot of production that seems being curtailed with the low prices. And just wondering how you see the interplay between GCX and other pipes coming online over the balance of this year, how the basis trends and when these curtailed volumes could return? And then at the same time, the interplay with the uplift that you have gained on the marketing. Just wondering if you could provide some color on how you think that mixes together over the balance of the year. Jennifer Kneale: Jeremy, this is Jen. I'd say that Waha is largely playing out as we expected this year, which is that as we go through the year ahead of the incremental pipes coming online as well as the GCX expansion, it's going to continue to be really tight. And I think you are seeing that manifest really all throughout this year. And it's arguably going to continue to get worse before it gets better as we think about the cadence of volume growth that we're seeing on our system and that we're seeing more broadly in the Permian and how that interplays with not enough takeaway capacity. I think importantly, from Targa's perspective, we have available capacity to ensure that our producers' volumes flow, which is, of course, of paramount importance to us in making sure that we are delivering for our customers. So for us, it's not physical constraints. It's really the interplay of prices that are resulting in some producers making decisions, frankly, day by day, week by week to shut in volumes in certain areas within our footprint. And I think that's largely based on a view of when there's planned maintenance on pipes coming, that creates more visibility to the fact that it could get a little bit tighter and that could create more weakness in pricing. And of course, if there's unplanned maintenance, then that impacts the basin as well. As we look forward, the GCX expansion and then Blackcomb and [indiscernible] will bring much needed relief, and we believe that we will see that collapse in basis, and we'll have significant capacity of Permian egress, call it, towards the end of this year and heading into 2027. [Technical Difficulty] and prices relative to what we see today for Waha. Jeremy Tonet: That's helpful. And is it fair to say, I guess, the guidance bakes in optimization kind of only what's visible right now? Or just trying to get a sense for how that fits in. Jennifer Kneale: I'd say that we tend to be very conservative about how we forecast optimization opportunities. So we've got 4 months of visibility that's realized so far this year. And then, of course, we've got some visibility into what our expectations are for May. And then beyond that, we try to be modest about how we forecast marketing benefits across a range of scenarios. So really, the guidance uplift for 2026 is driven by strong fundamentals, as we've talked about on the volume side, what we've seen year-to-date on the marketing side, plus some modest expectations for go forward and then just increasing demand for global LPGs where we've been successful operationally in managing to plan to get an incremental cargo or cargoes across our dock across this year as well. So it's a confluence of factors, but the fundamentals are just really strong at Targa, and it sets us up exceptionally well exiting this year. Jeremy Tonet: Got it. That's very helpful. And if I could just follow up on that last point real quick, the LPG export dynamics. Just wondering how much upside that could bring here and particularly as it relates to, I guess, the butane side, as you said, and just wondering what that looks like and what you see. Benjamin Branstetter: Jeremy, this is Ben. I think you hit on a key point. As you know, we did have an outage in the first quarter. And I just want to, first of all, say thanks to our operations and engineering team again for bringing it back so quickly. But also thanks to our commercial team and our customers. It was really a hand-in-hand exercise to get as much as we could across the dock during it and then afterwards. And then part of us getting back on track and having line of sight to additional spot volumes across the dock is, of course, the product mix. And so what we've seen as a result of the Iran conflict is an additional call on butane. So we're working with our core portfolio of customers to move more butane across the dock as they need it and the world needs it. And then that does have the additional benefit of freeing up space on the dock for additional cargoes as we co-load that product. So of course, we came into the year, as we always do, very well contracted across the dock, but that does -- ultimately, that product mix does shift a little dock space in our favor. Operator: And our next question comes from the line of Michael Blum from Wells Fargo. Michael Blum: I wanted to ask -- notwithstanding the recent curtailments and the Waha weakness, I'm curious if you're seeing any change in producer conversations or planned activity in light of the higher price deck and just the Middle East volatility. Matt Meloy: Yes, sure, Michael. I think what we're seeing is just really continued strong activity across our footprint. We haven't seen any dramatic changes in response to prices moving up. I think we would suspect as the prices stay elevated for longer and the back end of the curve moves up, I would anticipate there to be some tailwinds for us as we kind of look out into '27, '28 and beyond. But I think what we're seeing this year is just really strong activity, continued, I'd say, outperformance on the gas side. As Jen mentioned, with 200 million to 400 million shut-in, we're on track with our volumes. I would say kind of coming into this year, thinking there could be some downside to volumes for the year for us, given all the expected shut-ins that we're going to have, it was just kind of a big unknown. I think we're -- now that we're in the midst of really weak Waha prices and that our volumes are on track. I think it sets us up well for kind of back half of this year when that egress comes on for a volume picture and then going into '27. So I'd expect producers to continue to drill. We've even had some tell us that they're kind of pushing and delaying some of their completions and activity into the back half of this year. And so even with some of that happening, us being on track for our volumes in the first part of the year with these shut-ins, I think it just paints a really good picture for us as that activity ramps when there's sufficient egress on the gas side. Michael Blum: Got it. And then just on the LPG exports, I wanted to ask a little bit of a longer-dated question. I'm just -- clearly, you're seeing an uptick in demand, as you would expect. I'm wondering if you think you'll see higher rates or perhaps longer contracts going forward in light of just the global volatility in that market? And quarter beyond what you've already committed to, what's in flight in terms of expansions, do you think you could see even further expansions of your LPG capacity? And do you have the room to do that if demand was there? Benjamin Branstetter: Michael, this is Ben. In terms of expansions, I'd just step back and point to our export program is really part of our integrated system. So that's something that we're looking back to the wellhead across our millions of dedicated acres and seeing what kind of supply we have coming out of the Permian and really across the U.S. And so as we look at expansions, we're really looking at our integrated supply footprint. And clearly, we're very bullish about that, and we see it growing '26 and into '27. And so we'll keep monitoring that and to the extent we see the need for additional chilling to move product through the system. That will, of course, be a nice expansion that we have room for at our Galena Park facility and would be a really relatively inexpensive next step for another chiller. So that always remains on the horizon. And then in terms of -- you asked about rates and contracts, I'd just say, as I mentioned earlier, on butane, we have seen just additional long-term -- near-term and long-term interest in firm butane volumes. So over time, if that's sustained, we could move a little more than we had initially thought out of our export facility. And then I'd say just generally on the contracting side, we are, of course, working with our current portfolio of customers. And then we have more inbounds than I've certainly ever seen just from others across the world, thinking about getting into the U.S. LPG export market, the surety of supply that comes with working with us here. And I'd say those are multiyear contracts that we are in discussions on and have been actively closing. So I think it's a very constructive environment for us to continue to be highly contracted across our export facilities. Operator: [indiscernible] Unknown Analyst: Just on the processing side, it seems like you've seemingly been announcing new capacity every quarter here recently. Just curious how you're thinking about the cadence of new plants from here and if you see potential upside to the 3 plant per year run rate that you've outlined in the past? Jennifer Kneale: This is Jen. I think ultimately, it will be the pace of producer activity of our, what I'll call sort of foundational existing contracts already in place and then the cadence of new contract adds that our best-in-class commercial team are working on securing day in and day out that will ultimately dictate how much incremental capacity we need on the processing side and of course, what that will mean for incremental assets that we'll need all along the value chain. I think that we've got a great set of customers. We continue to add contracts. We feel very, very good about the short, medium and long term. You see the cadence of plant adds that we've got going now with the addition of Roadrunner III and Copperhead II. So we'll have 3 plants online in '27, now 2 plants online in the first quarter of 2028. And I think whether it's 3 plants more or less, that's ultimately going to be dictated by producer activity. But I think we're feeling very bullish about really the short, medium and frankly, long term for continued activity and growth from our Permian Basin contracts that are already in place. And I think that puts us in great stead to just continue to have a portfolio of growth looking forward. But it's a little bit hard to predict 2, 3, 4 years out what exactly the cadence of plant adds will be. I think the fact that we've got 50 plants built and in progress is recognition that we've got the largest footprint across the basin, which puts us in a great position to compete for incremental contracts as well with the most reliable, most fungible, most redundant system already in place where we've just continued to have a cadence of plant adds year in and year out and bringing those online on time or early, as Matt described in his remarks, is just a testament to our outstanding team. And I think, again, just puts us in a really good position to continue to capture growth going forward. Unknown Analyst: That's helpful. And maybe just to follow up on your comment there about that process and kind of feeding down the value chain. Can you just remind us your latest expectations here just in terms of how quickly you expect Speedway to ramp once online? And then realize you have 2 more fracs in the works already, but I guess how soon might you need to start thinking about another frac as well? Jennifer Kneale: I think we tried to provide pretty good visibility on the ramp of Speedway by both talking about fairly early that we were going to be overcapacity on our existing Grand Prix line, which meant that we were going to need to utilize third-party offloads, which you can expect we are currently doing and that when Speedway comes online, those volumes will be available to baseload over to Speedway. And then as I described in my scripted remarks, all of the plants that have come online since we announced Speedway as well as all the incremental plants that we've added since then, mean that we are in a really good position to generate a very attractive rate of return on our Speedway investment similar to what we did for Grand Prix and have, I think, good visibility to continued plant adds beyond the 2 that we announced this morning, which will, again, bring a lot of incremental NGLs in our system, and those will move down our pipeline to our fractionation footprint, and then we'll have incremental propanes and butanes available for export. Operator: And our next question comes from the line of Keith Stanley from Wolfe Research. Keith Stanley: How much of the '26 guidance raise would you attribute to marketing with the wide Permian gas spreads and spot LPG exports versus more core volume and margin outperformance in the business? And I'm trying to get at how much of the pretty meaningful guidance raise is repeatable beyond 2026? Jennifer Kneale: Keith, this is Jen. I'd say it's a combination of factors. But certainly, when we forecasted our guidance for 2026 in February, we probably sounded a little bit conservative even on that call in saying that given the visibility we were seeing and the fact that we had only included modest marketing gains, there was definitely the potential for upside there, and we're definitely seeing that play out for this year. But I think what you also heard me say in some of my earlier comments was that what we are including in the revised guidance range is still a relatively modest set of outcomes for the balance of the year. Good visibility to the first 4 months of the year that are realized, good visibility to May. But beyond that, I think that we've been, again, pretty modest in what we have forecasted into our new guidance range. So we'll have to see how that plays out. I'd say importantly, what is definitely repeatable is what we are seeing on the volume side going all the way through our integrated system. And as Matt described, when we get those Permian lines online, we're going to see pretty good ramp in volumes here across the rest of this year. And that ramp, we believe, is going to continue into 2027 and well beyond that. So I think it's a mix. But of course, a lot of the fact that we're raising guidance by as much as we are a couple of months after we gave our initial guidance range is definitely because we are seeing significant marketing opportunities on the gas side. And then as Ben described, also some good incremental opportunities on the LPG export side, too, which we didn't factor in. Keith Stanley: That's helpful. And then I want to kind of revisit growth in a little bit of a different way. You now have 6 plants under construction and 5 in the Delaware. So that's over 1.5 Bcf a day of new plant capacity that you're adding by early '28. Historically, Targa has filled up plants very quickly, almost immediately. Do you expect that to still be the case with these 6 plants under construction? And I ask because -- I mean, it's a 25% increase in your plant capacity relative to your inlet volumes all by early 2028. Jennifer Kneale: This is Jen again. I mean I'd say that we generally try to be incredibly capital efficient, but we also want to make sure that we are creating white space for our producers. So if a producer wants to accelerate and/or if a producer has better results than they're forecasting that we, of course, can handle all of that incremental volume. So a lot of what you're seeing us do, particularly in the Delaware now, which is similar to what we had in place in the Midland Basin already was create a lot of that system reliability and fungibility. We're also adding a lot of sour gas infrastructure to, again, make sure that we're positioned if producers are forecasting less sour gas than materializes, we're going to be able to handle it. And if we've got peers that aren't able to handle it, then hopefully, we can handle incremental volumes even above and beyond what is even contracted at Targa today. So I'd say that based on our forecasting, we believe that these plants are going to be very much needed and well utilized when they come online. So there's nothing that's different about how we are forecasting when plants are added or how much volume growth we expect when the plants come online. I'd say that part of what we do is we get to a final investment decision on a new plant when we've got visibility with contracts in hand to fill up that next plant. And then what invariably happens is our commercial guys do a great job of going out and adding incremental contracts. So by the time that plant comes online, we've actually added more volumes than we were forecasting when we got to the investment decision. And I think that's part of why our plants continue to be very well utilized. And I can assure you that our commercial teams are working very hard to continue to identify incremental opportunities to add to our already several million acre base of contracts today. Matt Meloy: Yes. And -- well said, Jen. And just to add to that, we've talked about over the last couple of years of having kind of outsized commercial wins, some on the sour side, some on the sweet, and it's been disproportionately on the Delaware side. So you see the kind of shift of us putting in more Delaware plants compared to the Midland. We still think Midland is going to have strong growth going forward, but a lot of the success we've had over and above the dedicated acres and the activity on existing contracts, existing acreage that we have, we just had a tremendous amount of success over the last several years. And us building these additional plants is in response to the volume curves we have from producers and what their anticipated drilling activity is going to be. Operator: And our next question comes from the line of Elvira Scotto from RBC Capital Markets. Elvira Scotto: Just a couple of follow-up questions. Are you embedding any scenario of sustained higher commodity prices in your Q2 plus volume expectations? Or are you assuming prices normalize back to kind of previous levels? Also, can you talk a little bit about what you're seeing on the GOR trends in the Permian? Jennifer Kneale: This is Jen. I'd say related to forecast, we tend to get longer-term forecasts from most of our producers that aren't moving sort of month by month as the price curve shifts. You are seeing some smaller and private producers that may accelerate activity into a higher commodity price environment. But for the most part, we're putting infrastructure in place based on a longer-term forecast. And so I'd say that, that longer-term forecasts are largely consistent with what they were even back in February in a lower commodity price environment. So I wouldn't say that we've got a material increase in activity based on where commodity prices have moved over the last couple of months. It's really more based on a disciplined set of producers that have multiyear programs in place, and they are executing on those multiyear programs. As it relates to GOR trends, I'd say that we continue to expect that we will have a higher gas-to-oil ratio as we think about where producers are drilling and just the results that we are continuing to see in our system. So that will provide a continued tailwind for us going forward. Elvira Scotto: Okay. And then just on capital allocation, what's your latest thinking here on opportunistic M&A? You talked about acquisitions. Are you seeing attractive acquisition opportunities in the Permian? And then just kind of thinking about some of your other assets that are not in the Permian, what's the kind of strategic importance of some of those assets? And could they be monetized over the kind of medium to longer term? Jennifer Kneale: This is Jen. I'd say that we're always looking at opportunities to add to our footprint. We have a lot going on organically and very high focus organizationally on making sure that we continue that strong track record of project execution. But we continue to look at opportunities. I think we're really pleased with the acquisition that we made that closed at the beginning of this year and really grateful for the new employees that have joined the Targa team and how successful that integration has been. So I think we have a good track record of executing acquisitions and integrating them well. But again, for us, primary focus right now is executing on what we have under foot in terms of the projects underway. And then I think related to non-Permian assets, I think related to all of our assets, part of our job is to always evaluate if somebody has a view that something is worth more to them then that's something that we would certainly consider in terms of monetizing assets. But we're in such a strong balance sheet position. And I think we've got a lot of option value in many of our assets that I call non-Permian that we're really excited about the outlook for our entire footprint. And ultimately, our base case is that we will continue to execute with the assets that we have under foot, but of course, are always open to any discussions on any assets that others might value more highly. Operator: And our next question comes from the line of Jackie Koletas from Goldman Sachs. Jacqueline Koletas: I just wanted to go back to your comments on guidance. You noted the new guide continues to be somewhat modest on optimization. Where could you expect the most outperformance or upside from here that could kind of drive you to the near or above the top end? And then specifically, what could that come from? Is that all incremental Waha or something else? Matt Meloy: Yes, sure. This is Matt. I think Jen kind of articulated where we are in our guidance and how really good we feel about our guide, even albeit $300 million higher. I think from here, we have a relatively conservative forecast for the back half of the year in terms of marketing and optimization. We'll see how that plays out. That could be some further upside. But we'll just kind of see how Waha plays out in the back half of the year with the incremental pipeline capacity coming on. Then I think just in terms of production activity and volumes through our system, we're still seeing on any given day, it is pretty volatile, the amount of shut-ins we have on our system. When exactly that's coming back, is there, frankly, more gas there than we really think. It's a bit of an unknown of kind of how much comes back and where volumes settle out once we're in an environment where we have sufficient takeaway capacity. So I'd say there's some -- probably some volume up -- potential volume upside and both gas marketing and LPG export upside as well. Jacqueline Koletas: Got it. And then just to go back a little bit to capital returns. With '26 capital -- CapEx being maintained for the year and increasing EBITDA guidance, what is your appetite to increase shareholder returns from here? William Byers: This is Will. I'll take that one. Thank you for the question. When we look at our return of capital strategy, it's one that we've been pretty consistent adhere to, and that is to have a strong balance sheet to invest along our value chain at attractive returns and return increasing capital to our shareholders. If you just look at the first quarter, we did all of those things. We had a strong balance sheet at 3.6x leverage. We invested in our business and significant capital investments. We also closed an acquisition. We bumped our dividend 25%, and we bought back $55 million worth of stock. So I think you'll see us continue to execute on that plan and try and grow our shareholder value. Operator: And our next question comes from the line of Manav Gupta from UBS. Manav Gupta: Congrats on the strong result. Your press release says your inlet volumes in 2Q are trending significantly above your 1Q. I was hoping you could quantify that significant a little bit for us. And also what's driving the quarter-over-quarter volume growth, if you could talk a little bit about that? Jennifer Kneale: Manav, as I said in my scripted remarks, right now, our current volumes are about 250 million cubic feet a day higher than the Q1 average. And then I also described that on any given day, we've got about 200 million to 400 million cubic feet a day of shut-ins on our system that are really driven by the low Waha gas prices that we are seeing. So I think that makes it difficult to forecast the quarter in terms of volumes with precision. But what we are seeing is material growth over the first quarter. The first quarter, again, impacted by severe weather as well as some shut-ins, say, second quarter, seeing really good strong underlying fundamental activity, but also seeing increasing shut-ins because of lower gas prices, and we've got a number of -- we've had some planned maintenance on the egress side and some unplanned maintenance that has impacted that as well. So those are all the data points that we tried to give this morning and color around our volumes. And really, the underlying premise is just there's a lot of volume growth. And when we get these incremental pipes online later this year, I think you're going to see a material step-up in our volumes just because of the shut-ins that we're experiencing. Manav Gupta: Perfect. My quick follow-up here is one of your peers who was somewhat of a late entrant in sour gas is finally acknowledging that they're seeing a big activity in that region. And I was wondering if you're also seeing higher rig count in that part of Delaware and Lea County? And do you expect your sour gas volumes to also ramp up in the second half of this year? Unknown Executive: As we've discussed before, we have, for a long time, invested in sour gas infrastructure in the Delaware Basin. And one of the things as the larger producers develop their acreage positions, they really develop sweet gas for a long period of time because they didn't have confidence in sour gas takeaway treating, et cetera. But over the last 3, 4 years, we have seen a significant increase in sour gas activity, certainly because we put the infrastructure in place. We've been able to tie up and dedicate acreage under our sour gas infrastructure. We continue to see volumes ramp. We do have discussions with producers where some of the Bone Spring, Avalon development that they had put off for a period of time, they are now stepping into. So quick answer is yes, we expect to continue to see sour gas growth. And we have the infrastructure in place, really comparable -- nobody is comparable to us in that footprint. So we feel really good about that incremental opportunity and the margins associated with it. Operator: And our final question for today comes from the line of Brandon Bingham from Scotiabank. Brandon Bingham: Just wanted to maybe go back to the setup into next year, especially as more producers are coming out with, at least in the Permian, incrementally positive commentary or updates. I think Diamondback, in particular, mentioned pulling forward some Barnett development. Just curious, given all of this plus the forthcoming egress capacity and forward curve pricing, at least on the crude side that sits comfortably above what people would consider mid-cycle. Is there potential for something more than just a modest pulling forward of incremental pads thinking '27, '28 and beyond? Jennifer Kneale: Brandon, this is Jen. I mean I'd say that just the overall environment as we look at short, medium and long term, just feels really constructive for continued producer activity. And given the system that we're sitting on, the contracts that we already have in place, the millions of dedicated acres, I think there's going to be material volume growth here for years to come. I think part of what makes us really well positioned as well is the infrastructure adds that we have underway. So we'll add the East Driver plant on the Midland side here in the third quarter of '26. And then as we get into 2027, we'll add Copperhead on the Delaware side in the first quarter, then Yeti in the third quarter and Yeti II in the fourth quarter. And all of those incremental adds combined with the largest system just puts us in a really good position to be able to handle any incremental growth above and beyond what we were already expecting to be a very robust growth year in 2027. So I think we're just feeling really good about the outlook, and there's nothing that we're seeing so far this year that doesn't support that continued view that 2027 is going to be a really, really strong year for Targa. Brandon Bingham: Okay. Great. And then just quickly, it looks like East Pembrook came online ahead of schedule. I think Falcon II was previously pulled forward as well. Just curious how much opportunity is there to continue that trend of plants in service early? Or is it maybe constrained by customer volume expectations or anything out of your control? Jennifer Kneale: I think that our engineers and operations teams do a fantastic job, along with our supply chain team of making sure that we've got the infrastructure to construct of working really well together to try to get assets online as quickly as possible. I think that we try to be very conservative in the initial dates that we come out with relative to our projects, just to make sure that we can deliver both internally and, of course, for our customers. And then as we move through a project cycle of getting it fully complete, we do sometimes have the opportunity to pull it forward. And I think we're constantly probably quite annoyingly challenging our engineering team with questions of can we move something forward even if it's a week or a month or in some cases, you've seen us successfully move projects forward as much as a quarter or so. So that's something that I think we just pride ourselves a lot on is making sure that we bring our projects on time or early and are consistently challenging ourselves to do that while also maintaining the high quality of service that I think really sets us apart for our customers. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Tristan Richardson for any further remarks. Tristan Richardson: Thanks to everyone joining the call this morning, and we appreciate your interest in Targa Resources. 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: Ladies and gentlemen, thank you for standing by. Welcome to the MarketAxess First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded on May 7, 2026. I would now like to turn the call over to Steve Davidson, Head of Investor Relations at MarketAxess. Please go ahead, sir. Stephen Davidson: Good morning, and welcome to the MarketAxess First Quarter 2026 earnings conference call. For the call, Chris Concannon, Chief Executive Officer, will provide you with an update on our strategy and our business; and Ilene Fiszel Biele, Chief Financial Officer, will review our financial results. Before I turn the call over to Chris, let me remind you that today's call may include forward-looking statements. These statements represent the company's belief regarding future events that, by their nature, are uncertain. The company's actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the company's future results, please see the description of risk factors in our annual report on Form 10-K for the year ended December 31, 2025. I would also direct you to read the forward-looking statement disclaimer in our quarterly earnings release, which was issued earlier this morning and is now available on our website. Now let me turn the call over to Chris. Christopher Concannon: Good morning, and thank you for joining us to review our very strong financial results for the first quarter 2026. 2026 is all about the execution of our long-term strategy, and that is exactly what we did in the quarter. Turning to Slide 3. We grew total revenue by 12% to a record $233 million including very strong 20% growth in product areas outside U.S. credit. Record total revenue was underpinned by record total trading ADV, driving record commission revenue. Momentum continued to build with our new initiatives and generated approximately 50% of total incremental revenue in the quarter. Strength on the trading side was complemented by 10% growth in services revenue, helping to drive trailing 12-month free cash flow generation of $316 million. We continue to be disciplined with our expenses with 8% growth in non-GAAP expenses. And underlying these strong results was the strong progress we made in innovating and growing our franchise. First, we significantly enhanced the MarketAxess advantage by expanding our global network enhancing our differentiated liquidity and fortifying our high-value proprietary data and analytics by expanding the use of AI. Next, we continued the rollout of our new enhanced X-Pro front end that is changing the client experience. And last, we are continuing to invest in our technology modernization, which includes our recent strategic hire, Will Quan, who joined us as our Chief Technology Officer. Slide 4 highlights the market access advantage where we are increasingly using AI to leverage our sizable proprietary data set to deliver unique data and analytics to clients to enhance their trading outcomes. Our global network of the largest fixed income investors and the most active fixed income liquidity providers generates deep vertical IP that gives us a significant competitive advantage in generating critical analytics and insights for our clients. In 2025, our global network generated over $5 trillion in notional inquiry information and over $34 trillion in notional response information, all of which is proprietary to MarketAxess. This unique data set across U.S. credit, emerging markets in Europe gives us a special AI opportunity to interpret the markets in real time to assist in clients' portfolio construction and to deliver a unique and enhanced execution experience. We have already delivered AI-driven data solutions like the award-winning CP+, CP+ for blocks, depth of book, sense AI and AI Dealer Select. We are now exploring the next level of AI-enhanced data products. What is critical to remember is that AI solutions are only as good as the data they are trained on. We have a unique advantage given our global proprietary data set. Slide 5 provides an update on the macro backdrop of the first quarter and April. Recent geopolitical events drove higher levels of volatility and wider credit spreads in the quarter. The initial jump in volatility and widening of credit spreads was short-lived and credit spreads moved back to historically low levels in April. Open Trading penetration in U.S. high yield increased to 47% in the quarter, the highest level since 2023, reflecting increased demand for differentiated liquidity. Despite these shocks, the market has remained very healthy, with historic levels of new issuance in the first quarter continuing into April. New issue pricing concessions are up modestly from lows, and deals continue to be approximately 4x oversubscribed, reflecting the very strong focus on new issues. All of these factors generated record results in the quarter but the return to lower volatility, tighter credit spreads and strong new issuance in April, combined with tougher year-over-year comparisons were key drivers of the decline in trading volumes in April. Slide 6 highlights the shift in segmentation of U.S. high-grade trace market ADV in April, including the strong focus on the new issue calendar, which reduced our estimated market share. We believe there were several factors that reduced our estimated market share in April. First, duplicate reports in TRACE have been increasing over the past some quarters and we estimate that they inflated U.S. high-grade TRACE volumes by up to 8% in April. Adjusting for these duplicates, consistent with FINRA's recent proposal to suppress duplicate reporting, we believe our estimated U.S. high-grade market share would have been approximately 160 basis points higher in April. Next, April's historically high new issuance further reduced our estimated U.S. high-grade market share in April. We generally have lower levels of market share and new issues during the first 2 weeks of trading. When our clients are very focused on new issues, we believe it can crowd out some of their secondary trading activity on our platform. In summary, while there was considerable noise in the denominator used to calculate our estimated market share in April, we are now addressing the challenges of the new issue calendar with our new issue trading solution. Slide 7 summarizes the record levels of trading volume across our credit products and the strong growth in U.S. treasuries. We delivered double-digit growth in ADD across most credit products and U.S. treasuries and double-digit growth in variable transaction revenue. U.S. high-yield liquidity provision by our long-only clients increased almost 80% compared to last year. This increase in unique liquidity is delivering a greatly improved execution experience for our high-yield clients. Slide 8 highlights the record levels of trading volume and revenue we generated in our emerging markets franchise. Over the trailing 12 months, our EM franchise has generated $20 million in incremental revenue, representing 68% of total credit incremental variable commission revenue. This reflects the success we have had with our investments in the EM business. In the quarter, we expanded our EM global client network to a record 1,547 active client firms and 3,410 international active client traders. Total trading volumes were up 30% in the first quarter to record levels with record levels across both hard currency and local currency markets and across all regions. We grew our hard currency revenue with high fee per million by 15% and we grew our local markets revenue with lower fee per million by 56%. Total EM fee per million is down only 4% in part because of the mixed impact of the local markets fee per million which is over 40% lower than the hard currency business. Fee per million is simply an output that reflects the mix of business being executed while we are still focused on maximizing revenue. Slide 9 and 10 highlight how well we are executing our new initiatives across our three strategic channels, including record levels of credit automation trading model. On Slide 10, in the client-initiated channel, we continue to make strong progress with block trading globally. We generated 35% growth in ADD to a record $7 billion of block activity across U.S. credit, emerging markets and Eurobonds, with record block trading ADVs across all three products. Importantly, in U.S. high grade in March, dealer algos won 30% of block trades on the platform. In the portfolio trading channel, we generated a 51% increase in total global portfolio trading ADV to a record $1.9 billion. U.S. credit portfolio trading market share increased by 100 basis points year-over-year. In the dealer-initiated channel, we generated record levels of ADV with record Mid-X ADV as well. And in April, we delivered volumes of $6.7 billion, the second highest level of monthly activity. passed in our automation suite, we had another record quarter as clients continue to leverage automation even in more volatile periods. We saw $144 billion in automation volume helped with a sizable increase in adoption of our [ Adaptive ] Algo solution. Slide 11 shows the strong growth we have generated in U.S. credit blocks as well as the new protocols and workflow tools we are developing to attack this important segment of the market. We are starting to crack the block market, and now we have expanded the toolkit for clients to trade blocks. We are continuing to invest in block automation and targeted RFQ solutions, but we also recently launched targeted access, and we expect to launch our new issue block trading solution in the second half of 2026. Now let me turn the call over to Ilene to review our financial performance. Ilene Bieler: Thank you, Chris. Turning to our results. On Slide 13, we provide a summary of our first quarter financials. We delivered 12% revenue growth to a record $230 million, which included $5 million from our RFQ hub acquisition and a $3 million benefit from foreign currency translation. Growth in revenue outside U.S. credit was 20% in the quarter, reflecting strong contributions from our international product areas. We reported diluted earnings per share of $2.20 or $2.25 per share, excluding notable items, representing an increase of 20%. The benefit of our enhanced capital return program with the completed $300 million ASR flowed through in the quarter and was the key driver of the $0.12 benefit to EPS on a 6% reduction in share count. The $0.05 per share impact of notable items in the quarter consisted of approximately $1.5 million or $0.03 per share in repositioning charges in our expenses in the employee compensation and benefits line. And approximately $700,000 or $0.02 per share in other legal related notable items in the professional and consulting line. My comments on our results from this point forward will largely exclude the impact of notable items, only on a non-GAAP basis where applicable. Looking at each of our revenue lines in turn, record total commissions revenue increased $22 million or 12% to $203 million compared to the prior year, 50% or $11 million of the incremental commission revenue in the quarter was driven by emerging markets and eurobonds on record trading volumes in each area. Other commissions, which include FX, equities, derivatives and ETF activity, increased $5 million or 104% driven by the inclusion of RFQ hub commission revenue and higher trading volumes. Services revenue increased 10% to a record $30 million. Information Services revenue of a record $14 million increased 12%. Post-trade services revenue of $12 million increased 5% versus the prior year. Technology Services revenue of a record $4 million increased 19%, driven by higher connectivity fees from RFQ Hub. Total other income decreased approximately $5 million, driven by lower interest income on lower rates and increased interest expense related to borrowings for the ASR. For modeling purposes, please note that we received a onetime $3 million tax credit in the other net line, which is nonrecurring. The effective tax rate decreased to 25% from 27%, primarily due to higher tax credits, lower state tax accruals and reduced stock-based compensation shortfall. Slide 14 highlights our key performance indicators. As you can see from all the green on this slide, it was a very good quarter for us, and these strong KPIs underscores the strong revenue generation in the quarter. The investments that we have made to enhance our products and provide clients with new workflow tools and protocols gain traction and helped drive tangible outcomes in the quarter. While we are pleased with these results, U.S. credit market share continue to require attention and focus. On Slide 15, we provide more detail on our commission revenue and our fee capture. Record total credit commission revenue of $184 million increased 9% compared to the prior year. These record results were driven by 4% growth in both U.S. high-yield and U.S. high grade. 24% growth in emerging markets and 14% growth in Eurobond's total commission revenue. We are very pleased with the improvements in U.S. credit revenue generation in the quarter relative to recent historical trends. The reduction in total credit fee capture year-over-year was due to protocol and product mix shifts. Partially offset by the higher duration of bonds traded in U.S. high grade. The quarter-over-quarter reduction was due principally to product mix. On Slide 16, we provide a summary of our operating expenses. Excluding notable items, total expenses increased 8%, which included a headwind of $2 million due to the impact of foreign currency translation. The increase was driven principally by higher employee compensation costs and higher technology and communication costs as we continue to upgrade talent and invest in our technology modernization to drive future growth. We are continuing to invest while maintaining focus on cost discipline and operating efficiency. With our strong revenue generation, combined with our continued cost discipline, operating margin of 44% in the quarter increased almost 200 basis points, reflecting the inherent operating leverage in our model. Head count was 859, down 1% from both 870 in the prior year period and a 869 in the fourth quarter of 2025. On Slide 17, we provide an update on our capital management and cash flow. Our balance sheet and cash generation continues to be strong with cash, cash equivalents and corporate bond and U.S. treasury investments totaling $537 million as of March 31, 2026, compared to $679 million at the end of 2025. In the quarter, we paid out $52 million in annual incentive compensation. We paid down $63 million in borrowings on the credit facility related to the ASR and we paid out $27 million in dividends. After the quarter, we paid down an additional $20 million on the credit facility. So the drawn balance was $137 million at the end of April. And while it is not reflected in our cash flow in the quarter, we returned $60 million to investors through share repurchases with the completion of our $300 million ASR in early February. We generated $316 million in free cash flow in the first quarter on a trailing 12-month basis. As of April 30, 2026, $205 million remains on the Board's share repurchase authorization. Now let me turn the call back to Chris for his closing remarks. Christopher Concannon: Thanks, Ilene. In summary, on Slide 18, we are continuing to execute our long-term strategy. We significantly enhanced the MarketAxess advantage in the quarter. The growth profile of the company outside U.S. credit is strong, and we are pleased that we delivered higher levels of revenue growth in U.S. credit in the quarter. We continue to make strong progress with our new initiatives across our three strategic channels, including our new issue trading solution. We are increasingly leveraging AI to unlock more value from our proprietary data and analytics for our clients. And we are continuing to focus on expense discipline and optimizing capital deployment to maximize long-term shareholder value creation. Now we'd be happy to open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Chris Allen of KBW. Your next question comes from the line of Dan Fannon of Jefferies. Daniel Fannon: Another really strong quarter out of your non-U.S. business. I wanted to talk about competition there and what you're doing to kind of maintain your moats or defend your -- defend that as competition picks up and kind of -- and also just talk more broadly about the momentum in that business as you think about your bonds as well as the app. Christopher Concannon: Obviously, we're quite excited about the progress in our international business and just to clarify our international business really are driven through our emerging market business as well as our Eurobond business. And so that's quite a strong quarter, not just in our U.S. credit business, but obviously, in our international business, emerging markets had record ADV, record volume in Q1, up 30%. And really records across our key initiatives, the block initiative is where we've seen a lot of progress across EM and Eurobond business. Our block business -- block volume in the euro markets in the EM markets was up 46%, and we also saw block volume up in the Eurobond business as well a record up 45%. So we're really driving those two international businesses both with traditional RFQ, where we're seeing a record volume in Q1, but also our key initiatives. Portfolio trading we saw in Eurobond market, up 90% and the dealer business as well, we had a record dealer business in the Eurobond business up 73%. So when you think about our key initiatives, block trading, the dealer initiative and our PT or portfolio trading initiative, they all experienced growth across our international businesses. And really, that's been the strategy for just over a year and attacking the key, what I call, flank of the key RFQ businesses using the new products and new protocols that give us extended growth. With regard to the EM business, we obviously have very little competition on the electronic trading side other than we see Bloomberg. Bloomberg is probably the only one in that space that we see as a competitor. In Eurobond business, it's obviously a Bloomberg and Tradeweb that we see as competition in the space. But largely, in the dealer-to-client business, our key franchise, we only see Bloomberg in that space really making a difference at all. So altogether, the international business saw a record quarter, record volumes, and it was really driven by the growth of our key initiatives. Again, block trading. We've launched all the block trading tools across EM and Eurobonds. Our portfolio trading tools have been rolled out across EM and Eurobonds. And then our dealer initiated, that's where we've seen the biggest pickup using our Mid-X trading solution across Europe and recently launched in emerging markets as well. Operator: Your next question comes from the line of Chris Allen with KBW. Christopher Allen: Sorry about the tech issues. I wanted to dig a little bit deeper on the April commentary. I recognize the year-over-year headwinds were pretty material. But when you look at April relative to the first quarter months, we saw lower issuance and block activity that we can kind of track. So say, expectations, especially in U.S. investment grade or for stable to up share. Anything you could point to when you comp it versus the 1Q months besides tighter spreads, lower volatility that impacted share -- and more importantly, anything -- any catalysts ahead that could allow you to outperform the environment over the next few months or quarters? Christopher Concannon: Great. I'm glad we have you back, Chris. First, let me start. Just to put April in perspective, I really want to -- the set up is Q1, just as we step into April. I think it's important to take a quick look at Q1 because Q1 was really indicative of the progress we were making as we rounded out the end of 2025. Again, our key initiatives, the trends are quite consistent going through Q1. We grew block trading, as I mentioned, on the international business, but really in U.S., we saw block trading growing. We saw growing portfolio trading as well and then growing our dealer business as well. So those key initiatives across the quarter continued on trends that we were seeing as we ended 2025. We also obviously not only had a record quarter but we really -- we closed out the month of March with smashing records. And these -- we broke records across all products from U.S. credit to the international products even to equities and FX. And then at the end of March, we smashed our single-day trading record on the last day of March as we went into April. So all signs of phenomenal activity on the platform across all of our key channels and all of our key protocols throughout the quarter and as well as the month of March. As April started, we walked in right into a holiday week, if you recall, both religious holidays and the European holiday fell in that first week. And then right around April 8 was when we saw the seats fire announced given the geopolitical activity that we were experiencing in the month of March. We saw the VIX drop from plus 25 down to around 17 quite rapidly. So obviously, a quick slowdown in volatility. No, it's not unusual to see a month following what I'll call, excessive volatility, high turnover to have a material slowdown. And that's really what we saw in April, somewhat influenced by holidays, really, the slowdown that we saw in April was largely across all products. So it wasn't just U.S. credit that we saw the slowdown. Markets saw a slowdown across international products as well as treasuries or rates globally. So it was a consistent theme across the market. The other thing we noticed in April was a return to near historic spread tightening. Again, we saw this in -- certainly in January and February. So that was broken in March with the volatility. The other thing we saw was near record-breaking new issuance return, while March was record-breaking, April was the new issuance market in April was the second highest new issuance market for any April if you had April in 2025, it would have been the second highest new issue in all of 2025. So quite a robust new issue market. And really, that's what we really tried to show on the slides in our opening remarks was the market was largely turned its attention to that new issue market. Our clients, the client dealer side of the business certainly moved its attention to new issue particularly new issue blocks. We saw the new issue block market grow by 34% year-over-year in quite a heightened April market environment. It grew as high as 13% of the total block market. So it was a sizable percentage of the overall block market in April. And really, what we saw with clients moving all of their training attention coming off of the high volatility and high turnover of March, they moved all their attention to that new issue market. We saw a lot of what we call switches or swaps, where clients were trading the seasoned -- exchanging seasoned bonds of the same issuer for that new issue bonds. You typically would do that in block form directly with the dealer. So when we look at April, really not at all surprised or concerned with that 1-month slowdown. We've always said 1 month does not make the year, but we were also faced with what we call fairly robust new issue market. Now here's some good news and so some of the trends that you were asking about. We did see on month end, April 30, it was our fourth largest single-day trading record in history. So we did see a return of high activity at the month end. We also broke some high-yield PTs during the month of April. So we saw it was a high-yield PT record month for us. And then as you mentioned, it was obviously a very difficult comparison to April 2025 where we had -- we were dealing with the tariff tantrum and volatility and quite high turnover during April of 2025. The good news is also in May, while we're certainly early in May, we have seen a return to higher levels of activity, which is quite exciting across all channels. And then my most exciting piece, and we put it in the opening remarks is that we are addressing that new issue market. We have historically saw challenges during around new issue. We are addressing that new issue market with the launch of our direct books partnership, which we announced recently. And we are excitingly launching our new issue solution in -- as a pilot form in the month of May, near the end of May. So we're excited that we are finally addressing the new issue market head on. And we have a new product coming to market that we're quite excited about. Operator: Your next question comes from the line of Michael Cyprys, Morgan Stanley. Michael Cyprys: I was hoping to dig in on the new issue trading solution that you're going to be bringing to the marketplace. I was hoping you could elaborate on how that is going to work. Key milestones that you're looking for, how you anticipate that contributing? And then maybe you could also touch upon the closing auction, just an update there in terms of traction and milestones as you look ahead, how you see that progressing and contributing. Christopher Concannon: Great. Thanks. Well, we're quite excited about our partnership with DirectBooks and what that brings to the market. If you look at the new issue market in 2026, it's over $800 billion has been run through the new issue market year-to-date. Current forecasts are close to $2 billion -- or sorry, $2 trillion of new issue in 2026. So we're expecting a pretty vibrant new issue market in 2026. For quite a long time, clients have been asking us to assist in the new issue market, particularly streamlining an integrated solution in that new shoe market. What we've really partnered with DirectBooks on is what's a great new issue solution. It's a brand-new offering that we'll be rolling out again in pilot form at the end of May. We've ring-fenced the solution. So it's a separate solution to traditional MarketAxess, all new UI, new technology. What's clear is that we're not part of the offering, just to be clear, we are really just providing clients with a streamlined access to DirectBooks services. All clients have access to this seamless kind of access to this integrated offering and clients have to opt into the offering. So it's not just available to anyone. Clients actually have to opt in and dealers have to approve each client for each offering. So it's well integrated into how the new issue market operates today. It does provide first part of the partnership with DirectBooks is largely around data sharing. So we are able to present to our clients have real-time access to the DirectBooks new issue calendar, status updates on new issue pricing information around that new issue and then ultimately, final pricing and final allocations. Our clients -- what's exciting for clients is within their current credit application, MarketAxess UI Clients can submit indications of interest to each deal being operated by the syndicate banks. Those indications of interest go direct to DirectBooks and really made available for the syndicate banks to run their normal deal process. We are able to receive confirmation of final allocations and coming in August, those allocations will be subject to really a seamless booking and straight-through processing to the client's back office, something clients have long complained about and asked for assistance in. So we can really be involved in the new issue process from start to finish. It also allows us to present a great deal of information around of the new issue market prior to the new issue pricing but more importantly, at pricing and after pricing. What's really exciting is what comes later in August and the second half of 2026, where we will be presenting clients with really after the break of a new issue, a streamlined single 2-way pricing a single click to trade solution for new issue trading. And this is an area that we have spent a lot of time on looking at what is the right protocol to attack the new issue market, but that where we see challenges around market share, it's right after the break of the new issue, and now we'll be able to have an offering in the second half rolled out. That allows us to trade directly on the break using access from dealers, streaming price and a click-to-trade solution. So super focused on that new issue trading. And again, it's piloting the partnership with DirectBooks pilots starts to pilot with one or one clients at the end of the day and we'll roll out during the month of May, June and the rest of the summer. The demand and the feedback from clients that have seen the solution and looked through the steps of the solution have been overwhelmingly positive. And obviously, the dealer community was quite supportive given their partnership and direct ownership of DirectBooks. So a very important partnership, a very exciting partnership and obviously, a very big step for MarketAxess to crack that new issue market, but also presenting clients with a solution that is quite seamless and quite simple for them to use in an aggregate way. Michael Cyprys: And on the closing auction, any update there? Christopher Concannon: Right. Sorry about that. On closing auction, again, we launched this late in the quarter -- about fourth quarter of 2025, really around December. Quite a great deal of excitement from some very large investor clients around bringing to market a new protocol where we can organize and aggregate liquidity at a single moment in time. As you look at the fixed income market, it's unlike most markets, liquidity in most markets, equities, futures options is what we call use shaped. Liquidity start of day is quite strong and you get increased liquidity at the end of day as well, a natural U-shaped curve of liquidity. Fixed income, we tend to see high levels of liquidity in the morning. And as the day progresses, levels of liquidity start to decrease near and around the end of the day, just given the risk of holding positions. This is designed to allow both clients and dealers to participate in a single auction where they can -- dealers can provide a sizable liquidity at different price points and clients can find liquidity in and around the close of the trading day. While we launched it at the end of the year, Unfortunately, during the quarter, with all the volatility, we made progress with clients in how to use the close, how to use the auction. We rolled out new order types. We've seen staged in our platform over $11 billion in auction orders. And then we saw submitted over $7 billion in notional orders into the auction. While the trading volume is still light, we've seen -- we continue to see about 12 active very large buy-side clients and then four active dealers participating in the auction as well. So more to come on the auction is a novel protocol that we've delivered into the market. But there's a huge and overwhelming application for an end-of-day liquidity solution, and that's really from the client feedback that we've heard that have engaged in the auction. Operator: Your next question comes from the line of Simon Clinch of Rothchild & Co Redburn. Simon Alistair Clinch: I was wondering if you could expand on the success of your new initiatives in European and international markets. And just how to think about I guess the application of those in U.S. markets and what the differences are? It looks like the speed of the uptake there has been hugely positive in the international markets. But we just don't see the same level of penetration, at least initially in the U.S. So I was wondering if you could talk to that, please. Christopher Concannon: Sure. Number one, I think you have to look at where those markets, the international markets sit with regard to electronification. EM, in particular, still, we see, again, the notional volume of the total market is not clear. It's hard to estimate. But we do estimate we're still in early innings of electronification of the EM market. So much of our penetration in the market is organic growth of penetrating new clients, adopting electronic trading. The good news is we're using multiple protocols to engage those clients because each market -- each local market, in particular, is quite different in terms of the protocols that they gravitate to. But overall, the international market still has a great deal of growth given low levels of penetration. The good news about the different protocols that we're seeing expand on portfolio trading in EM, it's still early days relative to what we see in U.S. credit. So we think there's a lot more runway in portfolio trading. And we would expect to see more and more what we call global portfolio trades coming to market where you are trading not just the EM bond but across U.S. and European bonds as well. And we're set up and designed to allow for global portfolio trading. Where we're most excited, and we've seen a great deal of growth is our block trading solutions. We first launched our targeted RFQ into the EM markets. We thought it had great application given some of the local markets are truly rates markets. Our block trading in Q1 in EM smash records, it was up 46% year-over-year. It was up 11% quarter-over-quarter. So we're seeing organic -- a true organic growth of the block market really starting in the EM market. And that's, again, where we launched it first. The dealer business as well, remember, there's quite a sizable interdealer business or a dealer-to-dealer business in not only the Eurobond market and the U.S. credit market, but also in the interdealer market for emerging markets. That market for us was up 15%, largely driven by our dealer RFQ offering. So again, early innings on electronification of the EM market we're using, as I mentioned, the different key protocols that we've launched across all our markets. They're just -- I think the block market is most reflective of the success we're having in that EM market. And then there's one other protocol that we've had a great deal of success and it's been driving some of that block market share, and that's instead of request -- for request for market where you're really able to show more size from the client you don't reveal your direction. So clients are much more comfortable trading blocks in a request for market. And that protocol has been growing consistently year-over-year and quarter-over-quarter. So a number of different protocols, but really, we're just seeing some of the early launch protocols like our box solution growing really outpacing some of the growth in EM than we see in other products. Simon Alistair Clinch: And just -- when I think about the U.S. application of these initiatives then. I mean if I look at the share gains you had sort of last year on a trading 4-quarter basis, it really sort of accelerated across all the initiatives. And then it's really started to segment income down. I just wondered what's the color around that? I mean is this -- do we just need to wait for these new products to be launched to gain more traction again? Or has there been something else at play here? Christopher Concannon: Sure. Well, one, I think if you look at the first quarter, and our record volume across U.S. credit. It was driven by some of these new initiatives. So our block trading activity high grade. We saw a record up 31%. And then our PT volume was also up 35%. So some of the protocols that we've seen success in our international markets, and we've launched here in the U.S. While it's still early days in that protocol and the breadth of that protocol being adopted by clients, we're still seeing heightened growth across those protocols. I think the one protocol that was newly launched in the U.S. is Mid-X. Mid-X is our dealer solution. It was launched earlier in Europe and EM. But we have been seeing growth in Mid-X and U.S. credit. Year-to-date, it's traded over $16 billion in volume, and we're seeing high participations from dealers. We have over unique dealers participating on a regular basis and a number of traders as well. And certainly, that's the one protocol that's still, I'd say, early days in U.S. credit. Ilene Bieler: Just one other thing I would add is, you'll recall that in the fourth quarter, we talked about the significant amount of activity we were seeing in portfolio trading in high-yield. In the first quarter, that also continued with our PP high-yield ADV up about 78%. So we are seeing, as Chris said, some of these same protocols that are doing quite well in the international markets, taking hold here as well. And there's -- obviously, we're looking to see more to come. Operator: Your next question comes from the line of Alex Blostein of Golden Sachs. Aditya Sharma: This is actually Aditya filling in for Alex this morning. So Chris, we heard you in the prepared remarks on how you look to leverage AI to deliver unique data and analytics. Could you just help expand that a bit more on the opportunities that you see? What's reachable, the next steps from your -- and I guess, importantly, how would this create a structural advantage for market access that competitors cannot replicate. Christopher Concannon: Great. Great question. And obviously, an area that we've been spending a lot of time on. I think everybody has been spending a lot of time on. This is one that I'm super excited really for our position in the market when it comes to data. And there's really three reasons why I'm so excited about the data opportunity. One, we have the best source data in fixed income. When you think about the breadth of our product the protocols that we use, RFQ is a phenomenal source of data because you have both the inquiry from clients around the planet as well as the response from both dealers, alternative dealers, hedge funds and clients now. So the data source that we have is the raw data and very important. The other key ingredient is we have not sold what I call the good data. We have sold things like CP+. We have sold Access All. There's really good data underlying the platform. And we've been for now several years on these calls saying we will not sell all our data. It's too important to the execution solutions that we are building. The other reason why I'm excited is because we also protect the data that we sold. We have very tight restrictions, derived right restrictions as well as AI use restrictions on the data sources that we are selling. So we feel like we're in a very good position to take advantage of the footprint of data we have. So also the other opportunity that we have is we've been investing heavily in AI when it comes to our date for a number of years. It's not a new topic for us when it comes to data and data products. So within the use of AI to produce data or produce product, I'll be more clear. We have AI-derived real-time data called CP+. We've had it for quite a number of years. It is now across all products. and certainly well regarded in the market, certainly viewed as real-time benchmark for trading U.S. credit, and we've been getting awards with that product as well. We are now able to predict using AI real-time block pricing based on your direction, sell or buy. We are predicting using AI liquidity levels in the market. We were also using AI, leveraging AI to predict what we call counterparty selection or dealer selection as well. And then obviously, one of my favorite use of AI is being able to predict when it is advantageous to provide liquidity. This is a very important component. It's one of the drivers behind our algo solution, which is the theory that clients who have historically crossed spread for most of their fixed income experience may present with the opportunity to avoid crossing spread. And we are now leveraging AI to actually help with predicting when is that beneficial for you to have patience and wait. So again, AI from a product and execution solution is really what's the most exciting part of our day. We are also, just to be clear, piloting a new AI solution with some of our clients. And the areas of exploration that's super exciting for us is, first, AI-derived real-time market intelligence. As I mentioned, our market footprint is quite broad. So we see the markets from the start of APAC through the trading hours of Europe into the U.S. hours, and we were able to leverage AI to look at the market intelligence know what kind of direction certain sectors are experiencing volumes, volatility, spread volatility, all of the market intelligence can be derived leveraging AI sitting on top of our -- quite broad source data. The second area of exploration where we have dabbled already is what we call portfolio optimization. Given the market intelligence that we have, given the levels of liquidity that we see in the market, AI is a wonderful tool in interpreting selection of underlying bonds when building a portfolio. And then the last area of exploration is really -- and one that we hear from our clients the most is leveraging AI to help us suggest protocols. There are times when a portfolio trade is an optimal way to trade a list of bonds. There's times when going direct to a single dealer for a large block is the right protocol for that bond. So using AI to actually suggest protocol selection is a key ingredient to some of the areas of exploration. Now the other area of AI, I think, which is store exciting for us, it's certainly in the way we're leveraging AI in our technology footprint. If you look at MarketAxess for the first 20 years of our history, there's probably a large underinvestment in modern tech. We have been, over the last number of years, making sizable tech modernization investment and we've been doing that both organically and inorganically. If you recall, our acquisition of Pragma was really a tech modernization acquisition. We are now leveraging that technology and things like auctions and and our automation suite. What AI is doing for us today is what's most exciting. We're now accelerating that tech modernization, including our core trading stack. We're currently actively engaged in AI solutions that can look at refactoring our legacy code. This is an exciting component that a number of people have deployed in the market space that we're in, where they can refactor legacy code. We're also seeing AI can increase our time to market on new capabilities and new functionality. So we're expanding our use of AI across our engineering footprint. All our developers have access to all the latest and top models and that is slowly having an impact on how fast we move. As I mentioned in my opening remarks, we brought in our CTO, Will Quan, he has both cloud and AI experience. So that alone has accelerated our deployment of AI, and it's quite exciting. UI design is another area where we see AI development accelerating what clients can have in front of their desktop and how quickly we can turn around those UI designs. The last point on AI, I'll make, and it's really around the M&A space that I foresee. I think AI is going to change the M&A landscape. Most of my career was -- I was involved in M&A that was -- you typically would see sizable tax synergies in M&A and some M&A was really designed either. I either had acquisitions that we were doing that were tech accretive, where technology synergies were one of the drivers of the M&A or I had companies that were acquired because of tax synergies where, again, technology synergies were a big component in the synergy analysis of the acquisition. AI is effectively reducing the value of tech synergies when it comes to M&A. AI has the ability to, in a faster way, refactor, older technology. So it's really changing the math of deals when you actually look at what AI is capable of making some deals less attractive because they're less synergy accretive. And that's an important thing. The other important thing is really to recognize and think about the MarketAxess over 25 years of sales effort and network effect. AI does not sell and distribute services. AI can't build client networks, it can't do KYC onboarding, but they can do KYC work, but it does not onboard thousands of clients. It doesn't take clients to dinner, and it doesn't make source data. So what really becomes valuable in this world of AI when it comes to M&A is companies that have golden source data and companies that have broad networks. And I do think AI, not only is it changing our product set, but it's also changing how fast we can deliver product. And ultimately, it changes the value of the data that we sit on and are mining today. So sorry for the long-winded answer, but it's really reflective of the excitement that we have and the advantages that AI give us. Operator: There are no further questions at this time. With that, I will now turn the call back over to Chris Concannon for final closing remarks. Please go ahead. Christopher Concannon: Great. Thanks a lot. Thanks for joining us today, and thanks for listening to my long-winded answer on AI. We're excited to talk to you in the next quarter to give you an update on the progress we're making. Thank you. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Hello, everyone. Thank you for joining us, and welcome to ACI Worldwide, Inc. Reports Final Results Call. [Operator Instructions] I will now hand the conference over to John Kraft. You may begin. John Kraft: Thank you, and good morning, everyone. On today's call, we will discuss ACI Worldwide's first quarter 2026 results as well as our updated financial outlook for the remainder of the year. The slides accompanying this webcast can be found at aciworldwide.com under the Investor Relations tab and will remain available after the call. We will then open the line for your questions. As always, today's call includes forward-looking statements and is subject to the safe harbor provisions. You can find the full text of these statements in our earnings press release and in our filings with the SEC. These documents describe important risk factors that could cause actual results to differ materially from those indicated in any forward-looking statements. Joining me today are Tom Warsop, our President and CEO; and Bobby Leibrock, our Chief Financial Officer. Tom will begin with an overview of our Q1 performance, strategic highlights and the progress we're making against our long-term plan, and Bobby will then review our financial results in more detail, including segment performance, cash flow and updated outlook for 2026. We'll then open the line for questions. Before we begin, I'd like to let everybody know that we will be attending several upcoming investor conferences, including JPMorgan's 2026 Global Technology, Media and Communications Conference on May 18 in Boston, Baird's 2026 Global Consumer Technology and Services Conference on June 4 in New York City; and D.A. Davidson's 2026 Technology Conference in Nashville on June 11. With that, I'll turn the call over to Tom. Thomas Warsop: Thanks, John, and good morning, everyone. As always, I appreciate you joining us for our first quarter 2026 earnings call. We're pleased with the start to 2026, and that's building on the strong performance we delivered throughout 2025. We're executing well. We're delivering on our promises, and we're staying focused on our strategic priorities. We're in a strong competitive position, and we're increasingly optimistic about the outlook for our business. If I look at the first quarter, we delivered 6% organic revenue growth in constant currency, and that growth compares against the strongest first quarter in the company's history last year. That is the strongest quarter until this quarter since we grew on top of that. So I'm particularly happy with this performance. Our focus on operational efficiency, combined with the operating leverage in our model drove over 160 basis points of FX-adjusted net adjusted EBITDA margin expansion and 8% adjusted EBITDA growth. The combination of this overall strong operating performance and our continued share repurchases, I'll detail that a little bit later, translated to double-digit growth in adjusted EPS. Bobby is going to cover the quarter in more detail in a few moments. But for my part, I'd like to step back and provide an update on our strategic initiatives and what we're seeing in our markets. Our business momentum stems from continuing sustained focus on our multiyear value creation strategy. As we regularly discuss, our strategy emphasizes growth within our core vertical markets, disciplined operational execution and a return-driven approach to capital allocation. We expect our strategy to enable us to deliver at least high single-digit organic revenue growth, strong cash flow conversion and the allocation of capital to drive incremental value, all with a focus on maximizing shareholder returns. Our growth strategy is built on expanding within our existing customer base in addition to winning new logos and of course, accelerating innovation all along the way. Within our Payment Software segment, we took a major step forward in 2025 when we unified our bank and merchant businesses into what we now call payment software. The goal is to increase efficiency, to accelerate innovation and to simplify our operating structure. We're seeing the benefits of this strategy and the payment software business had a very solid first quarter, growing 6%, 2% on a constant currency basis. Now again, as you recall, Q1 last year was particularly strong in this area, driven by our largest competitive issuing and acquiring takeaway ever in the Asia Pacific region. Our issuing and acquiring solutions remain leading edge and strongly in demand. We've been at it for 50 years, and our latest versions of these proven tools utilize leading technology as we continue to innovate and deliver market-leading customer value. And these solutions are, to put it very simply, mission critical. They're so critical, in fact, that we actually have one Middle East customer push itself to not let an upgrade go-live date slip even with the Iran conflict raging all around them. Together, we successfully delivered on time, and that's just another reminder of the resilience of our customers, the dedication of our employees and the mission-critical nature of the solutions we provide. They just wouldn't let it slip. We also saw strength in real-time payments. That part of the business grew revenue by over 20% as increasing real-time payment volumes drive larger total contract values at renewal. Transaction volumes, as most of you know, are one of the key levers we use at ACI to expand our relationships with existing customers. I'd like to share a specific example from Q1 of how this sometimes works as it relates to real-time account-to-account solutions. We had a renewal of a base 24 customer in the first quarter. It happened to be in Asia. And this is a customer that's seeing very significant growth in real-time payment transaction volumes. We were able to construct a deal which drove mid-single-digit growth in the pricing for their renewing portion of their transactions and 25% plus growth in pricing related to the net new real-time transactions. And those transactions are generating new business, incremental business for the customer. Overall, when you put all that together, this led to a healthy overall increase in total contract value from this customer. And as RTP volumes continue to grow, we expect similar opportunities across our portfolio. This is a demonstration of the power of having many different payment solutions our customers can use as the market evolves. They see ACI as a partner across payments, not just in a particular payment area. I gave you an example of RTP and its impact in Asia. Much of our business and the growth we're seeing right now is international, but the U.S. adoption of real-time payments is also starting to pick up. FedNow and RTP adoption is increasing. This is obviously a huge opportunity for us, and we remain optimistic about future volume growth here domestically. So the volumes are still small in the U.S., but we're definitely seeing them start to expand. We also continue to make progress advancing ACI Kinetic and that, of course, is critical to our long-term platform and modernization strategy. In the quarter, we expanded Kinetic's scope and momentum. We extended the platform to modernize card payments to unify multi-rail U.S. clearing connectivity and to embed advanced fraud and verification capabilities directly into the payment flow. These advancements reinforce Kinetic's role as a single cloud-native foundation that helps customers reduce complexity, manage risk and modernize across payment types at their own pace. Kinetic's capabilities, combined with ACI's proven reliability and future-ready road map remain and are, in fact, growing as meaningful differentiators between us and our competitors. And I want to share something about the broader Kinetic's strategy that may not be quite as clear to some people and may require a little more explanation. So let me try to put it this way. Simply investing in Kinetic, and of course, that's the name of our next-generation payments technology, just investing in that is providing confidence in our customer base that our longer-term technology road map is aligned with where most people in the industry want to go. I want to use a sports analogy here. We're skating to where the puck will be, not where it is today. As we compete for work under RFPs and during renewals, we're consistently asked about our multiyear road map and how we're going to help customers modernize without introducing undue risk. And Kinetic is that road map. It's resonating. Even when a customer isn't ready to migrate immediately, they're not ready internally. Aligning our strategy with theirs builds confidence and supports expansions and longer duration commitments. We've had several customers signed significant contracts with us for our core solutions because of Kinetic, even when they're not quite ready to go all the way down the Kinetic path. So to illustrate this dynamic, I want to use another specific example from the first quarter. We had a renewal with a major North American bank, and I personally engaged to finalize the renewal terms. And the entire conversation was not about the renewal itself, the products they use today, it was about Kinetic. And even though the bank is not ready to embark on the modernization journey Kinetic enables, they know they need it in the future. The bank's CTO told me he wants Kinetic. He wants to begin the preparation for it during the next few years, and that's during the renewal period, this renewal period, and that he wants us to be ready to hit the ground running at the time of the next renewal. And when I say us, I mean the bank and ACI. In the meantime, they've asked for our help to get the bank to a place where they can make the progress they need internally from a business process, a personnel perspective and a technology perspective. They want our help, and of course, we're thrilled to support that. This is an example of Kinetic supporting expansion of a renewal deal and positioning us as the long-term partner for our customers. Now I want to turn to Biller, where we continue to see strong results, and that's building on the momentum we saw in 2025. A key area of focus is advancing our market-leading Speedpay One platform, and that's driving core electronic bill payment transaction growth and new customer relationships. We signed significant new contracts in the quarter, and our total new ARR bookings grew 39% for the company, a majority of which was attributable to Biller. We signed several new logos, and we saw some nice expansionary up sells with existing customers in our utility and insurance verticals in particular. One renewal that I'd like to highlight provided us an opportunity to improve pricing substantially while offsetting interchange increases, and that shows the strength of the relationship and leadership position we hold in the utility sector. Another large client was able to work with us to significantly improve its customer experience while also dramatically lowering operating costs by shifting transaction volume from calls to self-service. And when they do that, that reduces the operating cost from about $20 per inbound call to about $1 for a self-service interaction. That client was also able to consolidate 4 platforms into 1 while significantly improving the overall experience and adding new payment options at the same time. Another deal in the quarter involved an existing customer in the insurance industry, and that also happens to be my personal insurer. In the first quarter, this customer nearly doubled their relationship with us, and I can personally attest that the experience is straightforward, quick and convenient. These are the types of significant outcomes we're able to achieve within our Biller business that benefit both ACI and our customers and their customers. ACI is gaining share in the Biller market as more billers are consolidating on to modern outsourced digital bill payment platforms, ACI Speedpay One. They're meeting customers where they are with mobile-first digital payment experiences that enable them to tailor payments to their preferences. This is a highly fragmented market, and the immediate opportunity is converting the significant portion of the market that is using legacy or outdated platforms to ACI. Increasingly, we are the partner of choice, and we're excited by the opportunities for our biller business through modern, scalable, resilient platform, Speedpay One. So I want to talk a little bit about operational execution across ACI. Our model remains highly scalable. As we grow, we have a clear opportunity to continue expanding margins through operational discipline and continued productivity improvements, while we still continue to invest in the initiatives that support our long-term road map. We saw that in the first quarter with about 200 basis points, nearly 200 basis points of margin expansion. And while near-term investments have a little bit of ebb and flow and they can modestly dampen operating leverage in any given quarter, we expect the underlying scalability of our business to become increasingly evident over time. We're also very focused on our disciplined approach to capital allocation. We benefit from a strong business that has limited capital requirements and generates strong cash flow, and that gives us the flexibility to execute on our strategy. Our capital allocation strategy prioritizes investments in organic growth, strategic M&A, capital return and maintaining financial strength, of course. As we've discussed, a key area of recent focus has been returning capital through our share repurchase program. Last quarter, we committed to allocating at least 50% to 60% of our cash from operations to share repurchases in 2026, and that reflects our strong financial position, our confidence in the long-term outlook and our belief that current valuations are particularly attractive. During the first quarter of 2026, we repurchased 1.5 million shares, and that brings the total repurchase since the start of 2025 to over 5% of the shares that were outstanding at the beginning of last year. We remain in a very strong financial position with leverage well below our targeted range of 2x EBITDA, and we remain committed to our capital allocation framework. To sum all that up, I'm excited about our recent financial performance, and I'm very encouraged by our path ahead. I'm proud of what we've accomplished, and we have a lot of work ahead, and I mean that in a really good way. We'll continue to invest in our key growth initiatives, and that includes our cloud-native Kinetic platform and Speedpay One. In addition, as I discussed last quarter, we're investing in our AI-first road map. We view generative AI as a significant opportunity, not a threat. We're already deploying many tools across the enterprise, and this is accelerating our process. ACI is able to combine the power of these tools with our 50-plus years of engineering and architecture expertise and substantial volumes of proprietary data. When we put all that together, we can provide enormous customer value. Further, we provide certifications with hundreds of networks and payment schemes around the globe, and all of those regularly require updates. We are really good at that. AI simply cannot deliver these aspects of what we do. As I emphasized on our last earnings call, we see generative AI as a big opportunity, and we're well down the path to taking advantage of it. Before I close, I want to briefly address the macro environment. The conflict in the Middle East and the resulting energy shock have introduced real uncertainty into the broader economic outlook. And of course, no organization is entirely insulated from macroeconomic pressures, but our business at ACI is purpose-built for moments like this. Payments infrastructure doesn't take a pause during geopolitical disruption. If anything, the resilience of our customers and the criticality of what we provide becomes even more apparent. The example I shared earlier from the Middle East is not an exception. It's indicative of who our customers are, the role they play in the world's economy and what our solutions mean to them. I want to thank all of our employees across the organization for their hard work and dedication. We're excited about the opportunities ahead as we continue our shareholder value creation journey. I'll hand over to Bobby to talk more about our financial results and our updated outlook for 2026. Bobby? Robert Leibrock: Thank you, Tom, and thank you all for joining us today. I'll begin with a brief review of our first quarter financial performance, followed by an update on our balance sheet, liquidity and cash flows. I'll close with an update on our guidance and capital allocation priorities for 2026. As Tom said, we had a solid start to the year, driven by our progress on our growth initiatives, strong operating discipline and focused execution following the move to a 2-segment operating model last year. That translated into margin improvement and continued progress against our capital allocation priorities. Total revenue in the quarter was $426 million, up 8% year-over-year on a reported basis and up 6% in constant currency. Recurring revenue was $313 million, up 10% as reported and up 8% in constant currency. The continued growth in recurring revenue reflects strong momentum and increasing demand from our software-led offerings across both payment software and biller. We delivered first quarter adjusted EBITDA of $105 million, an increase of 12% year-over-year or 8% in constant currency, driven by solid organic growth and improved operating performance. As a result, adjusted EBITDA margin was 38%, up from 36% last year, reflecting continued disciplined execution and the operating leverage inherent in our software model. We also took certain onetime cost reduction actions in G&A during the quarter, which are excluded from our adjusted EBITDA. Net new ARR bookings increased 39% to $12 million, while new license and services bookings were $50 million, flat against a notably strong prior year comparison. Turning to our segment results. In Payment Software, revenue increased 2% in constant currency to $214 million. We continue to see increasing demand for cloud-based offerings with SaaS revenue growing 11% in Q1, excluding FX. Segment recurring revenue, representing SaaS and maintenance, grew 9% year-over-year as reported or 6% in constant currency. From a product perspective, we saw particular strength in real-time payments and merchant, which grew 22% and 21% in constant currency, respectively, driven by transaction-based volume growth within our customer base. Fraud management was essentially flat as we're issuing and acquiring, which maintained the strong revenue levels achieved in the first quarter last year. Payment software EBITDA was $113 million in the first quarter, up 2% year-over-year in constant currency. EBITDA margin was 53%, flat versus last year as operating leverage was offset by continued investment in growth initiatives, including ACI Kinetic. Turning to Biller. Revenue increased 10% to $212 million, driven by higher transaction volumes and new customer wins. Revenue net of interchange increased 5% year-over-year. We continue to see strong new business momentum across utilities, government and consumer finance as billers increasingly consolidate onto modern digital platforms. We also continue to advance Speedpay One, our next-generation biller platform, supporting the long-term modernization of the segment. Building on Tom's comments, I want to highlight the diversity of our top 10 ARR contributions this quarter. Three were consumer finance, 3 were utilities, 2 in insurance and 2 in government and higher ed. That breadth across verticals is exactly what we want to see. Equally important is the balance between new and expansion. 3 of the 10 were new logos and 7 were existing customers expanding the relationship with us. That mix is a healthy indicator of the durability of our growth. Biller adjusted EBITDA grew 10% to $34 million. EBITDA margin net of interchange was 51%, up more than 200 basis points from last year, reflecting operating leverage from new implementations and incremental volume from existing customers. Turning to cash flow and the balance sheet. Cash flow from operating activities was $64 million in the first quarter compared to $78 million last year. Strong underlying performance continued to translate into solid cash generation with the year-over-year change driven by timing in working capital, including a higher concentration of billings late in March. We are not seeing changes in billing discipline or collection patterns, and we expect this timing to normalize in the second quarter. We ended the quarter with $162 million of cash on hand and total debt of $812 million, resulting in net leverage of 1.3x adjusted EBITDA, below our targeted leverage range of 2x. With total liquidity of $560 million, including revolver availability, our balance sheet remains a strategic asset and provides flexibility to invest in growth while returning capital to shareholders. Capital allocation remains a core component of our value creation framework. As Tom discussed, during the first quarter, we repurchased 1.5 million shares for approximately $65 million. Since the start of 2025, we have repurchased roughly 5.7 million shares, representing more than 5% of shares outstanding. We remain well on track to allocate 50% to 60% of operating cash flow to share repurchases in 2026, and we ended the quarter with $391 million remaining under our current authorization. Turning to our outlook for 2026. Based on the strong start to the year, we are raising our financial guidance. This increase is driven by operational performance with minimal impact from currency movements relative to our February guidance. For the full year, we now expect revenue growth of 7% to 9% or $1.89 billion to $1.92 billion, up from our prior forecast. Both payment software and biller are expected to deliver upper single-digit growth. For the second quarter, we expect revenue of $420 million to $440 million, representing approximately 7% growth at the midpoint. Payment Software is expected to deliver double-digit growth, while Biller is expected to grow at mid-single digits against a strong prior year comparison. Looking to the second half, we see a strong pipeline of implementations and renewals with a heavier contribution weighted towards the fourth quarter. We expect an approximate 40-60 revenue split between Q3 and Q4, consistent with historical patterns. Payment software licenses are the primary driver of the SKU with Biller expected to accelerate in the second half. For the full year, we are raising adjusted EBITDA guidance to a range of $540 million to $555 million, up from $530 million to $550 million, representing growth of 7% to 10% -- this outlook reflects continued cost discipline while reinvesting in high-return initiatives and maintaining flexibility to support our long-term road map. For the second quarter, we expect adjusted EBITDA in the range of $85 million to $95 million. Looking ahead to the remainder of 2026 and beyond, we remain confident in our strategy and execution. Our strong balance sheet and a highly cash-generative business give us the flexibility to return capital to shareholders while continuing to invest in innovation and long-term growth. With that, Tom and I would be happy to take your questions. Operator: [Operator Instructions]Your first question comes from the line of George Sutton. George Sutton: Great job, guys. So I think you buried the lead a little bit with the 39% bookings growth. I just wondered if we could kind of talk about that in the context of the full year. What kind of growth does your pipeline support? Was there anything super unusual in that first quarter bookings? Robert Leibrock: George, this is Bobby. Thanks for the question and agree that, that was one of the most encouraging pieces underneath of our ARR recurring businesses there. And to provide some context, we delivered $12 million, 39% growth in our new ARR bookings that straddle both segments. Tom talked about the great performance we saw in there for our Biller Business, our Speedpay platform as well as the SaaS offerings across payment software that span both our banking as well as our merchant customers. Very encouraged across it. I think as you think about the pipeline for the year, it's strong. The team got off to a great focused execution. And then that means 2 things. One, healthy demand in the market for our products and platforms; and two, we're off to the races to go implement these SaaS-based offerings to go -- be able to get those live for our customers. I did try to expand, George, when I was talking a bit about the profile of those underneath the Biller business in my earlier comments. When I looked across the top 10 of those in our Biller business, I was really talking about new logos within there and equally encouraging, the amount of new customers that are doubling up on the revenue that they see and the commitments they're making to platforms like Speedpay. Tom talked about a big insurance business. That was one of our top 3 wins there. The team has been maniacally focused on reliability, new innovation, and we're seeing a lot of demand there from that piece. And it reflects when you look at our guidance for the year that we've taken that up. Thomas Warsop: Yes. I think, George, just to add, I want to reiterate the point Bobby is making about the spread of wins, and we saw it specifically in builder, we saw it across all the verticals. And that is precisely, as he said, what we want to see, and we are seeing that. The team -- they got off to an amazing start. And we just -- we're pushing them to continue to deliver at a very high level. George Sutton: I wondered if we could just talk about Kinetic and the target market. Originally, when you're building Kinetic, it was really driven towards more of a midsized institution and it sounds like it's creating confidence across even your larger markets in terms of sizes of customers. Are you kind of redesigning the target market or rethinking the target market for Kinetic as you build this out? Thomas Warsop: No, we're not -- I wouldn't say it that way, but I'll give you the kind of 2 most encouraging things from my perspective around Kinetic. One, the new customers, net new customers that are interested in Kinetic, they are, for the most part, that mid-tier that you were just talking about that we talked about at the Investor Day. whatever, 2 years ago, I guess it was. So that hasn't changed. The net new ones, that is absolutely the target. What's happening, which is super encouraging, is that the larger customers, they're not ready, as I was highlighting in my prepared remarks, they're not ready. And they're not ready because it's kind of an inertia thing. They've made huge investments in what they have. It's hard to turn a battleship as they say. So they're not quite ready, but Kinetic has had a very clear impact on our ability to cross-sell and expand with those big customers. So we always expected them to want Kinetic, always expected that. We knew it would take longer for them to really take advantage and to be prepared for the transformation at the institution that will be both facilitated by and required to take advantage of Kinetic. So the great news is this is a massive selling point for us. And we -- Bobby highlighted that we have increased our investment in Kinetic, and that's absolutely true. And one of the things that I want to tie that point together with my point that larger customers, current customers and even new customers are excited about Kinetic, and it's a big selling point. It's one of the reasons that they're buying or expanding. And we talked about that big Asia Pacific brand-new takeaway from last year. That deal would not have happened without Kinetic and our ability to explain the road map, show them where we're going. They were so excited about the future of Kinetic that they said, "I got to have that. I'm not ready. Can you put in current software right now and then phase us in over the next few years? Of course, we said yes. And that deal alone funded would -- if we looked at it this way, it would fund the entire budget for our Kinetic development. So that's the power of Kinetic with big customers, and then we've got these net new ones coming, pipeline continues to grow. So we're really excited about it. But these are -- just as a reminder, these are very complex transactions. These are big changes for financial institutions, whether they're midsized or extremely large. These are big deals and complicated. And so it does take time, but I couldn't really be happier with the way that our investment in Kinetic is driving our pipeline and our expansion of existing customers. Operator: Your next question comes from the line of Jeff Cantwell with Seaport. Jeffrey Cantwell: Can you elaborate a little more on Kinetic in terms of how sales are going right now? I'm curious if maybe you could talk a little bit about the announcement you had with the 8 major U.S. payment networks and give us some details on why that's important? And then more broadly, how is everything tracking with Kinetic versus your expectations at the beginning of the year? And when should we expect to see these announcements impact your P&L over time? Robert Leibrock: Yes. I'll jump in first, Jeff. I appreciate the focus there. And I was going to bring up actually that expansion we saw because what we were just talking about was one dimension of how Kinetic expands the addressable market from the top-tier banks into a longer tail within the mid-tier, as Tom described. There's 2 other dimensions, I think, and you've touched on one of them that I think are really important in Kinetic. One, it touches the payment software portfolio very holistically. It touches both the issuing and acquiring business, the card side of that, you saw those types of announcements and the account-to-account, the real-time payment side. We put out an announcement 2 weeks ago, really showing the breadth of that across 8 different payment types. And when you think about the core value prop of Kinetic, intelligent payment orchestration, orchestration is key with the amount of payment types that customers are challenged to deal with right now. The intelligence side, and Tom's had some great examples on this and our customers are really seeing the excitement and the value around this. The intelligence side is around the AI capabilities we're infusing in Kinetic across those payment types. So a couple of points. The second dimension after the addressable market is really it covers our portfolio. It embeds AI across that as well as the orchestration touches everything from our account-to-account capabilities to the issuing acquiring and the card side. The third dimension that's important is a geographic one. One of the impressive stats that I've highlighted over my last year here is how internationally diverse our payment software business is. It's 75% of payment software business for ACI comes outside of the domestic market here in the U.S. And with that, you've got customers that rely on us across Europe to operate within many different economies there, straddle, the U.K. economy, the euro economy. When you get into that, we've invested early on, and you can see the public wins that we've announced in Europe. This year is a big year for the U.S., and our pipeline starts to show that because you saw that announcement, we'll have kind of a rolling thunder of capabilities that customers are excited for here on the road map in the U.S. And then your last point there is where is the money? When is that -- how does the pipeline look? And how does that contribute to the year? Pipeline is healthy across the 2 markets we have availability in. It's, I'd call it, a little bit more than half in Europe and then the other part made up here in the U.S. Like Tom said, that does not preclude probably every one of our renewals we do in APAC or LATAM and asking about it. A lot of the face-to-face meetings I've had with customers across Latin America, we still spend half the time on the Kinetic road map, and they're eager to get that localized for their market. You put it in context for this year. We don't have a dependency on Kinetic revenue this year, and I'll tell you why. It's not related to the confidence that we're seeing from customers or the confidence in the pipeline. It's because of the availability that we're providing in a hybrid fashion for customers to consume Kinetic as a service or if they want to manage it themselves. It's a fully cloud-native offering, runs on Kubernetes. But if you're running it yourself, that's a different licensing revenue model for it as a service. So as we look at the pipeline, it's split across those, and that's going to either have a ratable revenue model or it's going to have more of our traditional upfront. But we're encouraged by it. This year, we'll continue to provide the visibility and the transparency that we've done against that. Thomas Warsop: And the early -- just to add a couple of things. The early wins have been primarily, I think, actually exclusively SaaS. And so those -- the rev rec, as Bobby was just saying, that happens as transactions flow and the first go-live is coming up here in the next few months. And so we will start to see revenue come in this year, but we're not dependent on it. It's not a huge amount this year, and it's not factored really into our guidance at all. So it's great pipeline growth. I mean we're seeing real excitement about the platform. It is driving, as I was just saying a moment ago, it is driving expansion with existing customers as well as new customers. So it's been a fantastic journey so far, and we're keeping the pedal to the metal, Jeff. Jeffrey Cantwell: Okay. Great. I appreciate all the color on that. And then my other one was, could you maybe just clarify for Q1, was there any pull forward of revenue from Q2? I seem to remember that happened last year. And I'm curious if there's anything to be aware of on that front. And then when we think about Q2, what are the biggest drivers for payment software delivering double-digit growth? Can you maybe unpack that for us in terms of what's driving the step-up in growth there? Robert Leibrock: I'll jump in. So one, I viewed it. We provided visibility on the first half SKU and reaffirm that here with our 2Q guide. Your beginning part of your question, you asked about the quality of the roughly $15 million, $16 million beat on revenue in Q1, which was a great way to start the year on top of the roughly 25% growth we saw last year in Q1, we posted the 6% constant currency this year. So underneath of that, really, Jeff, it was minimal pull forwards, and that's why we're able to reaffirm the 2Q guidance. Really, what we saw is on the deals that we had forecasted, both renewals and some of the new logo opportunities, it was exceeding the expectations we have on upselling and cross-selling into those accounts. We came in at the high end of those ranges, which is really encouraging when you think about the retention rates you're getting on renewals and the adoption you're getting and the commitment you're getting on the new logo side of it. As you put that in context and roll that forward through the year, we rolled the bulk of that beat right through to the full year for us. We maintained a disciplined approach to the way we're guiding. We want to provide you numbers we have high confidence in getting to. You look at Q2, which you asked about, pleased with the profile we've given you the range at the midpoint, revenue is growing 7% and strong operating leverage when you see the EBITDA that's growing 11% -- and I think you're asking about some of the durability underneath of that. I think hopefully, you see this year a transparent approach and more visibility that we're trying to give you into the quarterly dynamics. I talked about second half as well and really providing not just through adjusted EBITDA, I've given you all the componentry to think about the earnings power we have in the business. For the full year, we've guided an EBITDA range that's growing 7% to 10%. When you see what that translates to on an adjusted earnings per share basis, you can see we almost double that growth range at the midpoint of what we're telling you there. So we're excited about the year, the position of strength and the team is very focused. Operator: Your next question comes from the line of Alex Neumann with Stephens. Alexander Neumann: Just wanted to ask, are you facing any headwind from lower tax payments from the IRS this year from higher refunds? And then if you could quantify that impact, if so? And then just secondly, assumptions for FX benefiting the '26 guide? Robert Leibrock: Yes. I'll jump in on them. On the IRS side, I mean you're right to point out, we do have some seasonal benefits that started last year as we saw the ramping of this business. The IRS and our federal business maintains strong volumes, good resiliency there. And there is some spreading of that throughout the year as tax payments are made multiple times throughout the year. We don't -- we see growth continuing in that segment. So no declines forecasted there. I did try to provide transparent commentary, Alex, within Q2. As we lap on some of that growth, the 10% we had of biller growth in Q1, that's going to be more like mid-single-digit growth. And then we see that reaccelerating in the second half based on the compare we saw in Q2. And as you heard, I did try to provide segment-level commentary on the full year in line with our model that we see both segments growing high single digits there. Thomas Warsop: Yes. And Alex, we don't see a meaningful impact from what -- specifically what you were talking about, more refunds leading to potentially fewer tax payments. We're not really seeing that. So I read the same thing, more people are getting a refund, but we're not seeing material impacts. I think what Bobby was highlighting was there'll be -- it's a tougher compare because we had a very strong year last year and that IRS business, in particular, grew a lot over the previous year, but we don't we don't see anything material there. Robert Leibrock: And the second part of your question, Alex, was around currency impacts. I made the comment earlier that we -- versus 90 days ago, 60 days ago, roughly when we guided in February, we didn't see a change really in the U.S. dollar strengthening or weakening against that guidance level. But we did see 2 points of tailwind with a weaker U.S. dollar versus last year in Q1. On the full year basis, the rest of the quarters are more neutral and nominal when you look at the -- our reported delta. I'm not forecasting where the U.S. dollar goes, but versus current positioning, we don't see that 2 point really carrying forward in the remaining quarters. And that's how it plays out in terms of the modeling on the top line there. Operator: We have reached the end of the Q&A session. I will now turn the call back over to the company management for closing remarks. Thomas Warsop: Well, thank you very much for the questions and of course, for the support that you give us all the time. We really appreciate it. I want to just summarize, we're pleased with the start to 2026. We're pleased with the momentum we're seeing in our business. Of course, there's a lot of noise in the industry. There's a lot of geopolitical unrest, all kinds of things happening in the world, but we remain absolutely focused on continuing to execute on our strategy, and we're very confident that we remain well positioned to continue winning. The platforms we're operating are mission-critical, highly reliable and deeply embedded in our customers' critical workflows, and we sit at the center of payment flows that are global, highly regulated and increasingly complex. We have a clear strategy, a resilient portfolio. We're seeing accelerating growth. We have significant financial flexibility, and we're very well positioned to continue delivering our long-term value for shareholders. So we feel great about where we are, great start, and we're going to keep doing our best to deliver very high-quality results and shareholder value. Thank you very much. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for standing by. Hello, and welcome to McDonald's First Quarter 2026 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Dexter Congbalay, Vice President of Investor Relations for McDonald's Corporation. Mr. Congbalay, you may begin. Dexter Congbalay: Good morning, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer, Chris Kempczinski and Chief Financial Officer, Ian Borden. As a reminder, the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website as are reconciliations of any non-GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then reenter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay via our website. And now I'll turn it over to Chris. Christopher Kempczinski: Good morning, everyone, and thank you for joining us. This past quarter, we once again demonstrated that when we execute our strategy with discipline, we win. In Q1, we grew global system-wide sales 6% in constant currency and global comparable sales grew 3.8% with solid growth across each of our operating segments. Just as importantly, we gained market share in the quarter in nearly all of our top 10 markets. In a challenging environment, our system stayed focused on what we can control, delivering on the things that matter most to our customers, compelling value that brings customers in the door, breakthrough marketing that gives people a reason to choose McDonald's and great tasting menu innovation that keeps us relevant and gives customers more of what they want. That's what going 3 for 3 looks like at McDonald's, and we believe that outstanding execution will continue to set us apart in any environment. While each pillar is powerful on its own and even more so together, it all starts with value. At McDonald's, value has always been part of our DNA. As I've said before, and I'll say it again, McDonald's is not going to get beat on value and affordability. We've listened closely to our customers and adjusted along the way with a relentless focus on strengthening our value leadership. In the U.S., with unanimous alignment through the franchisee field votes, we recently evolved McValue to include an everyday affordable price menu with individual items under $3, along with a $4 breakfast meal deal. Those additions build on our meal deal offers throughout the day and give customers clear, consistent options across dayparts. We've been applying that same discipline internationally for quite some time, where the vast majority of our large markets offer both everyday affordable price items and meal bundles, giving customers flexibility and options that work for a range of budgets. This approach isn't new to us, and we know it works. We've listened closely to our customers and adjusted along the way with a relentless focus on strengthening our value leadership and leaning into our role as a bright spot for customers in what continues to be a challenging environment. That's exactly why the U.S. relaunched Extra Value Meals last September. As we said at the outset, we're measuring success in 2 ways: our ability to grow share with low-income consumers and our ability to improve value and affordability scores. I am proud to say, as we look back from when we launched the program to the first quarter, that we've delivered on both, reinforcing something we know well at McDonald's. When value is clear, consistent and supported by strong marketing and menu execution, it moves the business. That takes us to marketing. Paired with a strong value foundation, marketing remains a powerful growth lever. We saw that this past quarter as teams around the world created moments of joy for fans and delivered campaigns that resonated with customers across different interests and occasions. Our Friends campaign connected with long-time fans across several international markets by tapping into nostalgia and collectibles. We partnered with The Super Mario Galaxy Movie on a Happy Meal tied to the films release, creating a big family occasion around the brand. And most recently, we launched the KPop Demon Hunters partnership with Netflix, a campaign built for a more digitally native customer, combining a dual-daypart offerings with digital activation in the McDonald's app. In the U.S., even in light of comparing against the highly successful Minecraft Movie promotion last year, the KPop Demon Hunters partnership did what we expected. And as with past culturally relevant IP, like last year's Minecraft and Grinch campaigns, we're scaling the event globally. That's one of McDonald's real advantages. We can take insights that resonate locally, turn them into brand moments customers want to be a part of and scale them in a way that we believe very few companies can. And when we do that well, marketing does more than create buzz. It drives traffic and strengthens the underlying momentum of the business. Lastly, menu innovation. With our category focus, the system is successfully delivering the great-tasting food our customers expect quickly and efficiently. There's no better example than the beverage category. In Q1, Australia successfully executed the beverage test, building on learnings from last year's U.S. pilot. We're continuing to build real momentum in the category with both Germany and Canada launching new beverage platforms a few days ago. And yesterday, all U.S. restaurants nationwide began offering 3 different refreshers and 3 crafted sodas as part of our new U.S. beverage platform under the McCafe brand. The soft launch results over the last week are encouraging, and we're looking forward to introducing different flavors and Red Bull-infused energy drinks throughout the year. As I said earlier, the strategic combination of a strong value foundation with culturally relevant marketing and focused menu innovation delivers outsized impact. Across key markets, we're seeing consistent 3 for 3 execution translate into sustained performance. Australia is a clear example of this playbook in action. Value offerings such as McSmart Meals and a Loose Change menu provided compelling flexibility and choice and drove traffic into our restaurants. This quarter's Friends activation created excitement for our fans. Beef and chicken full-margin LTOs drove comp sales performance in the quarter, and the recent beverage test was met with great customer reception. By going 3 for 3, Australia delivered mid- to high single-digit comp growth and extended a third consecutive quarter of market share gains. Before I conclude, I want to provide an update on the impact of the war in the Middle East. While the direct impact on our operations in that region did not have a material impact on our total company results in the first quarter, the operating environment remains volatile. Our teams are focused on supporting our franchisees, mitigating costs within our control and protecting the long-term health of the business in the region. We're extremely proud of the way our system continues to consistently show up for customers in every corner of the world, supporting both the communities in which we do business in and our teams, highlighting time and time again the strength of the McDonald's brand when our system comes together. With that, I'll turn it over to Ian. Ian Borden: Thanks, Chris, and good morning, everyone. As Chris just mentioned, overall, we delivered another solid quarter with global comparable sales growth of 3.8%. Our results reflect consistent execution across our system even as we continue to navigate a challenging environment. Starting with the U.S., comparable sales grew 3.9% for the quarter. And importantly, we delivered positive comparable sales and guest count gaps to our near-end competitors and maintained market share. As we discussed on our last earnings call, we exited 2025 with good momentum, and the U.S. system continued to build on that momentum in the first quarter. Value continued to contribute meaningfully to our growth throughout the quarter, including our Extra Value Meals, which have performed well since the relaunch last September. Financial support to franchisees under the EVM relaunch program is expected to be below our initial estimate of approximately $35 million, as the program continued to see positive momentum. Together with the broader McValue platform and full margin promotions, EVMs continue to help drive incrementality. While the EVM financial support concluded at the end of March, EVMs remain a core part of our menu offering and continue to provide customers with a compelling and consistent discount versus a la carte pricing on their core McDonald's favorites. On the menu front, the U.S. executed limited time offers across both chicken and beef, which helped maintain share in the highly competitive chicken category and drive market share gains in beef for the quarter. Campaigns like Hot Honey helped build further credibility with consumers and excitement within our chicken portfolio through the introduction of a new sauce, while the full margin Big Arch promotion introduced in March generated strong interest and performed in line with our expectations. As Chris noted, we've worked collaboratively with franchisees to ensure we continue to provide customers with the most compelling value, as we adapt our offerings to meet consumers where they are. With unanimous approval through the franchisee field votes, we launched the revamped McValue platform in mid-April. The new under $3 menu features well-known a la carte items available throughout the day. Similar to how we relaunched Extra Value Meals, we kickstarted the new program by spotlighting 2 items available in the under $3 menu with a nationally advertised $2.50 McDouble and a $1.50 Sausage McMuffin. Likewise, the new $4 Breakfast meal deal now complements the $5 McChicken and $6 McDouble rest-of-day meal deals that remain on the McValue platform. Together, the under $3 EDAP menu and the meal deals provide clear compelling price points across all dayparts, similar to what we've been offering successfully in nearly all major international markets. As with any new program, we know it may take time to build awareness, but early indicators on McValue's performance since the changes were introduced a couple of weeks ago are in line with our expectations. Turning to the international operated markets. Comparable sales grew 3.9% in the first quarter. In many of our top international markets, QSR industry traffic contracted, yet we gained share in nearly all of them. Our results were driven primarily by strong performance in the U.K., Germany and Australia. These 3 markets continue to demonstrate disciplined execution across value, menu and marketing with each market gaining share again this quarter and delivering comparable sales growth in the mid- to high single-digit percent range. Our value offerings are resonating as we continue to evolve them to meet local consumer needs. In the U.K., for example, the team strengthened its meal deal strategy with the introduction of Meal Deal Plus in January, which provides customers more flexibility to choose from a range of core and side items for only GBP 5.59. U.K. customers responded positively and the revised offer drove higher incrementality than the previous GBP 5 meal deal. And in Germany, the McSmart platform continues to perform well, while a marketing campaign strengthened our brand's value perceptions by embedding affordability into familiar real-life moments, speaking to the importance of both experience and price to overall value. With respect to menu innovation, several large burger campaigns across the U.K., Germany and Australia delivered strong results in beef. In Chicken, the Chicken Big Mac in Germany generated incremental demand. And in beverages, Australia's test of our new range of offerings performed very well, and we're excited about Germany's recent beverage platform launch. From a marketing perspective, the Friends TV show theme promotion, which ran in both the U.K. and Australia added to each market's solid results and serves as another example where we're sharing ideas and scaling campaigns across markets. We also featured this campaign in Italy in the first quarter. Speaking of Italy, the market celebrated its 40th McDonald's anniversary in the first quarter. To mark the occasion, Italy brought back several iconic menu items, including the 1955 Burger, the Chicken Bacon Onion Sandwich and the Royal Deluxe Burger, all which have deep roots in our brand's history and continue to see strong customer demand. These full margin LTOs helped Italy extend its streak of consistent market share gains to more than 2 years. While the IOM segment continued to deliver solid growth in aggregate, an example where performance is not meeting our expectations would be France. France's performance highlights the importance of consistent discipline in our execution of value. As a first step, the system aligned on a new value platform that just launched last week, reflecting a shared commitment to improving performance even amid a contracting industry environment. Turning to our international developmental licensed markets. Comparable sales grew 3.4%, led by continued strength in Japan, reflecting great local execution and brand relevance. In China, we maintained share in the quarter. And while we expect the macroeconomic pressures to persist, we continue to execute against our strategy to capture the long-term growth potential of the market. We remain on track to open approximately 1,000 new restaurants in China this year. Turning to the P&L. Our solid top line performance drove adjusted earnings per share of $2.83, which included a $0.13 benefit from foreign currency translation. On a constant currency basis, this represents a 1% increase versus the prior year. We generated more than $3.6 billion in restaurant margins during the quarter, and our adjusted operating margin was 46%, highlighting the resiliency of our business model. However, our U.S. company-operated margins in the quarter were not acceptable. We're actively addressing opportunities to improve performance and revisiting the optimal franchisee versus company ownership balance to maximize system value. Based on current exchange rates, we expect foreign currency to be a full year tailwind to 2026 EPS, totaling in the range of $0.20 to $0.30. As always, this is directional guidance only, as rates will likely continue to change as we move throughout the remainder of the year. In regards to the remainder of the year, we are reaffirming our full year 2026 financial targets as we outlined in February. With respect to food and paper inflation, our supply chain teams, along with our world-class supplier partnerships and hedging strategies position us well to navigate near-term cost pressures and increased volatility resulting from the war in the Middle East. Longer term, we believe there is an increased risk of higher cost inflation due to ongoing global supply chain disruptions. While we expect the external environment to remain challenging, we're focusing on what we can control, executing consistently across value, menu and marketing and leveraging the financial strength and scale of our global system. And with that, let me turn it back over to Chris. Christopher Kempczinski: Thanks, Ian. This quarter reinforces something important. In a challenging environment, we believe McDonald's can still do what very few brands can. We can lead on value, we can show up in culture in ways that matter, and we can keep bringing customers menu news that gives them more reasons to choose us. That's what this system delivered in the first quarter, and it's why I feel very good about where McDonald's is headed. Our history has been defined by our ability to remain green and growing. And what gives me confidence is not just the momentum we've built, it's the strength of this system and our ability to keep evolving with the customer without losing what makes McDonald's distinctly McDonald's. We'll share more with the McDonald's system on what's next when we come together in June for worldwide convention. And later this year, we look forward to sharing more with all of you at our Investor Day on September 23 in Chicago. With that, we'll take questions. Operator: [Operator Instructions] Dexter Congbalay: Our first question today is from Dennis Geiger of UBS. Dennis Geiger: Following another solid U.S. sales performance in the quarter, can you talk a bit more about how you're thinking about the U.S. sales trajectory over the balance of '26, given some of those key sales drivers that you identified across value and marketing and menu innovation, but also against the currently challenging macro backdrop in the U.S.? Christopher Kempczinski: Yes. Thanks for the question, Dennis. As I look at the marketing calendar that they've got for the U.S. for the balance of the year, I feel very good about the plan that they have in place. I think clearly, we're going to expect to continue to benefit from the McValue program. That's locked in through the balance of the year. And then we have, I think, a great lineup of menu innovation as well as marketing news. Certainly, beverages is something that we're expecting is going to be a tailwind for us for the business for the balance of the year and hopefully longer than that. What's obviously going on is the macro environment and consumer sentiment. That's not new news. But I think probably it's fair to say that it's getting -- it's certainly not improving, and it may be getting a little bit worse. How that plays out in all of this, I think, is an open question. But as Ian said in his comments, our focus is on what we can control. And on that score, I feel very good about the balance of the year. Ian Borden: Dennis, I might just tag on to Chris and just knowing, I'm sure, it will be a focus for lots of the Q&A today, just talk a little bit about kind of Q2 and beyond. I think as you heard us say upfront, I mean, we've had a solid start to the year. And I think what we're most pleased with is just the consistency of our performance across all of the 3 operating segments. The fact that we took share in the majority of our largest markets in the quarter, I think, is proof that we've positioned the business well to do well in any kind of environment even if the environment becomes a little more challenging than it has been. I think just speaking a little bit to kind of Q2 and beyond, I mean, I think we expected April to be a difficult comp month, driven by the really successful global Minecraft program that you've all heard us talk a lot about. And as we had planned, sales in both -- comp sales in both the IOM and the U.S. segment were slightly negative in April. So I think as a result of that and as we had planned for in both the U.S. and IOM segments, we expect in Q2 that we're going to see a meaningful deceleration from the 3.9% that we put up in both segments in Q1 from a comp perspective, which reflects the soft performance in April, but we also expect for each segment comp sales to accelerate on a 2-year stack basis. For IDL, comp sales growth in Q2, we expect to decelerate from the 3.4% in Q1, primarily reflecting a little bit what Chris was talking about earlier, just the volatility, obviously, of conditions in the Middle East and some markets in Asia, but also to accelerate slightly on a 2-year basis. I think just to be, I think, clear, I mean, obviously, with the April -- the difficult April comp now behind us, we're confident in our underlying momentum driven by what Chris was just talking about, the strength of value and affordability, which we think we've really got right. You've heard recently about some of the adjustments we put in place in April as part of McValue 2.0 and then the lineup of activities through the rest of Q2 and into the rest of the year, like the recent beverage launches that we've talked about in Germany, Canada and the U.S. and then, of course, our FIFA partnership in June. So we certainly feel like we've got the business set up well irregardless of the conditions. And as Chris said, we're really focused just on making sure we continue to strongly execute. Dexter Congbalay: Our next question is from Brian Harbour of Morgan Stanley. Brian Harbour: I guess just on the value point, it seems like you're kind of continuing to revisit it here. I guess, could you just elaborate on sort of the need for another iteration? How often do you think you will change that? And then outside the U.S., right? I think you alluded to France, for example, where you also need to revisit that. What has made certain markets more or less successful on value given that many of them have had things in place recently? Christopher Kempczinski: Sure. Well, let's start with where we're at with McValue and the components, there's really 2 core elements that we look at. One is the Meal Deal program that we have, and that's been in place for over a year. And then we also have -- just recently, we launched this, what we call everyday affordable price point or EDAP menu, which is the 10 items for under $3. And what our experience has shown us in markets around the world as well as a fair bit of work that we've done is you've got to have both of those components in place. You need to have a Meal Deal offering there to be able to drive interest and excitement around some of our core menu items. But you also need entry-level price points for those folks, who are maybe a little bit more stressed around affordability and are looking for what can I get for $3 or less. And so hats off to the U.S., they've got that in place. In rest of world, most of our IOM markets, we had the same construct. And in fact, that informed what we've done in the U.S. France was the one exception. We did not have as strong a program as we needed to in France on both dimensions of that. And so what Ian referenced is getting that put in place. If I look at sort of our overall value and affordability scores, we've made a ton of progress. We were -- if you went back 18 months or so ago, there were places where we were seeing -- that we were starting to have declines in terms of perception there. Now we were still better than competition, but our leadership gap was narrowing. And if you look at what's happened more recently over the last 6 months or so, we've seen a significant improvement in all of our value and affordability scores to the point where I think we're in great shape on value and affordability. Now because of the operating environment that we're in, thank God, we've got that in place because I think you need in this environment, value and affordability to be a strength. And I'm happy on behalf of our system to say that we've got value and affordability now where I think it's a real strength of our system. Ian Borden: I'm just going to hook on that one, Brian, just to add to what or emphasize maybe a couple of things that Chris talked to. I mean I think in this environment, agility is going to be -- continue to be key. And I think that's what our business is demonstrating. I think as you've heard Chris and I both talk about repeatedly, we're not going to get beat on value. And I just would echo Chris' comment on credit to the U.S. business that they have listened to consumers and really leaned into the areas of opportunity. And I think that's -- one of our key advantages is our strength and scale and our ability to kind of lean in proactively to what consumers are expecting and needing from us. And I think we're really confident in the setup in the U.S. now because, as Chris talked about, we've had that model in place in most of our international markets for some time, and we know it works. And France is an example where if you don't stay disciplined, and keep being sharp on value and be -- have a winning formula that can get away from you and then you've got to come back and get after it again. So we feel really confident, as I talked about earlier, that we're positioned well no matter how the environment around us continues to evolve. Dexter Congbalay: Our next question is from John Ivankoe from JPMorgan. John Ivankoe: The question really is around system optimization. And you did mention that in the context of U.S. company store margins, but I'll even pivot that even forward and look at company store margins for the IOM business as well. So it seems like both of those markets might have opportunity to refranchise. I mean the stores would actually potentially create more from a P&L perspective as a franchisee than a company store. So just kind of comment on that, how big of an opportunity we may have to refranchise company-operated stores. And in that context, especially if refranchising does occur, should we be rethinking previously set development targets in the U.S. and IOM, as margins have been under relative pressure in both of those segments since the initial guidance was given, I think, in late 2023. Ian Borden: John, thanks for the question. I think as I kind of said in the upfront remarks, I mean, our U.S. McOpCo performance is not acceptable. I think we were very clear on that. I think we have opportunities. Although I would highlight just because you referenced it, we saw McOpCo margin growth in our IOM segment in the quarter. And I would say that's in a set of conditions where the IOM markets are generally facing more inflation. So I think it goes back to what we've talked about pretty consistently when we are able to generate solid top line growth, we feel confident about our ability to grow margins over time. I think at the end of the day, it's pretty straightforward, and you've alluded to this. I mean, we have a choice. We make a decision, obviously, when we own and operate a restaurant directly, and that decision is based on generating a strong return and generating a strong system outcome. And if we can't deliver that, I know we've got a lot of great owner operators in the U.S. or around the world that can run those restaurants well and generate strong outcomes for either themselves or for the overall business. So I think we are going to be very clear and disciplined in how we make those decisions, looking at what's best for the overall system. I think in regards to new restaurants, what I would say is we still have a lot of confidence in our ability to grow. But again, it's -- as we've emphasized for the last couple of years, our primary decision matrix is based on delivering a strong return for McDonald's and a strong return for the owner-operator that's going to own and operate that individual restaurant. And if we can't deliver a strong return and certainly, we're seeing more inflationary pressure, I think, with what's going on in the war, in the Middle East, and kind of the ancillary impacts on that. If that means that an individual restaurant no longer meets the right return threshold, then we're going to make those decisions accordingly. I think overall, we still feel confident in our ability to kind of get to about 50,000 restaurants by the end of 2027. Christopher Kempczinski: Yes. And I would just maybe underline a couple of points that Ian made. One is on McOpCo, frankly, it's any restaurant in our system. We're always looking to put the restaurants in the hands of the best operator. And so I think certainly, the performance in the U.S. right now relative to franchisees would indicate it's not being run as well as it could be. And so it's either on us to fix that or we're going to find franchisees who can run the restaurant better. And if you look at the margins that our franchisees, the restaurant level margins that they're earning on their own restaurants, clearly, there's a lot of upside versus what the McOpCo performance was in the quarter. And you think about development, I would just say to build on Ian's point, we are relooking at the pipeline in light of what we think are going to be now the new construction costs, as a result of some of the supply chain challenges. And if that means that some of those restaurant locations that are in our pipeline no longer make sense, they'll drop out, and we will adjust accordingly. But as Ian said, everything that we're doing around development is about getting good returns. And if we don't feel like we can get good returns, we're going to drop those out. We're not chasing an absolute growth number, but we do see significant opportunity for us on development still. Dexter Congbalay: Next question is from David Tarantino from Baird. David Tarantino: My question is about franchisee profitability. And I was hoping you could give us an update on what those trends look like in the U.S. in light of the McOpCo margin performance. It sounds like maybe there's a unique issue there that's not affecting the franchisees. But just wanted to confirm sort of what the profitability there looks like. And then secondly, I was hoping you could comment specifically on IOM franchisee profitability in light of the spike in energy prices. I think maybe back in 2022, you had to provide some support there. So just wondering what the outlook for that dynamic is? Christopher Kempczinski: Sure. Well, no surprise with the inflation that we're seeing in the market, there's certainly a lot of pressure that we're trying to navigate with franchisees around their own profitability. U.S. cash flow last year, we've talked about that previously, but it was stable. But as we head into this year, there's certainly concern around franchisee profitability, not just in the U.S., but in IOM as well. And what we've talked about with franchisees, our system -- everybody needs to be successful in our system. And so we're keenly focused along with our franchisees on how do we make sure that we can navigate some of these cost pressures and the other investments in the business and also make sure that we're able to grow franchisee cash flow. But beef inflation is just one example, particularly pronounced in Europe, but also a factor in the U.S. For a portfolio like ours, that absolutely puts pressure on this. And so I think if you were to talk to our U.S. franchisees right now, they're feeling under pressure from a cash flow standpoint. I think you'd find the same thing if you talk to our IOM franchisees. And we're working as we always do with our franchisees to make sure that all 3 legs of the stool are successful. Ian Borden: Yes, David, just maybe let me add a bit to what Chris has said. And just a couple of things. I think on commodity costs, just to be clear, because we've reiterated our guidance and part of the assumptions that went into the guidance that we issued at the beginning of the year was obviously commodity inflation from a food and paper perspective, which in the U.S., we expect to be in the low to mid-single-digit range and in IOM mid-single digits. So I think we feel pretty confident in our ability to navigate inflation through '26, partly because, obviously, we've got a fair bit of hedging in place, both on food and paper and on energy. So that gives us confidence kind of in our ability to navigate what we're seeing right now. And obviously, we've got the strength of our supply chain system, our world-class suppliers who really help us to kind of navigate even some of these pressures like Chris alluded to on beef, for example. I think -- obviously, based on what we know today, I think we certainly think there's more potentially inflation on the way as we get to the end of '26 and into beginning of '27. And obviously, what we're continuing to focus on is driving that strong top line growth. That's obviously what allows us and our franchisees to navigate kind of the external conditions as best we can and, of course, continue to manage the cost impact on the business as we do that. Dexter Congbalay: Next question is from Greg Francfort over at Guggenheim. Gregory Francfort: I just wanted to ask maybe what you guys were seeing in performance of higher income and lower income customers. I think we're getting maybe mixed reads from companies in other sectors. And I just -- you were one of the first ones to call out maybe some pressure in 2024. I want to see how that might be evolving? Christopher Kempczinski: I mean I think at a macro level, it's largely unchanged and that the higher income continues to have very resilient spending, and that is true for our business as well, where we're seeing solid growth, good growth with higher income and also gaining share with higher income for us. On that lower income, while the declines are not as pronounced as they were maybe 6 or 12 months ago when we were talking about high single digit, the low income is absolutely still declining. I think some of that is probably due to lapping. I think also in our business, we would look and say, we think we've recaptured some of those low-income consumers because of our value program. But clearly, when you have elevated gas prices, which is the core issue that I think we're all seeing about it in the press right now, gas prices, inflation on that, that is going to disproportionately impact low-income consumers. And so we expect the pressures there are going to continue. Dexter Congbalay: Next question is from Sara Senatore with Bank of America. Sara Senatore: I wanted to go back to FIFA, the World Cup. I think you sponsored it before, obviously, so you have a good read on what it does. I think in my recollection, it was an important driver of digital adoption, but maybe not in aggregate as much a demand accelerant. So I guess 2 parts. One is, is that the right recollection? And two, given that you have loyalty now, is this an opportunity to still see the kinds of increased frequency that you have previously? I think, you've talked about kind of doubling frequency when people join loyalty. So just kind of your historical experience with FIFA and kind of what you're expecting going forward. Christopher Kempczinski: Sure. Well, we're very proud of our 30-year-plus association and sponsorship of the World Cup, and that will continue this year. In terms of performance, it really depends on country by country. I think your question, Sara, is probably focused on the U.S. And the big benefit that we have this year, of course, is that the World Cup is in North America. And it's also going to be something that happens in stadiums across not just the U.S., but Canada and Mexico as well. And so I think that's something that for us, we see as a real benefit. And the U.S. team as well as our Canadian team and Arcos Dorados have an exciting marketing calendar that's lined up that we think is going to have the potential to really drive performance in the restaurant. So I think because of the fact that this year, we're in North America, it's a little bit difficult to extrapolate from other years where it wasn't in kind of our big U.S. market, but we're optimistic about what we think it's going to do this summer. Dexter Congbalay: Next question is from Dave Palmer over at Evercore. Unknown Analyst: This is [ Elliot ] on for Dave. This is the second quarter in a row where you've called out U.K. business strength. The turnaround has been remarkable, both in the speed that it has been achieved and the fact it was done in what seems to be a very challenging backdrop in the region. Are there any lessons you can take from the wins you have been able to generate in the U.K. and apply those to the U.S. and France? Christopher Kempczinski: I'll let Ian start and then if there's anything else to add, I'll jump in. Ian Borden: Elliot, look, I think it's a few things. I don't think it's necessarily anything new, but it's just a reminder of, I guess, discipline and focus. Obviously, it starts with having the right leadership in the market. We've made a fair bit of change there, and we feel really confident that we have strong leadership in the market now, which I think has been instrumental to building confidence both internally with our franchisees and externally with consumers. I think the U.K. has really done a nice job of adopting that formula of having a really strong value and affordability foundation, evolving that to meet the needs of consumers in the market, as the context has kind of continued to shift and then doing a great job of kind of brand activation combined with exciting menu news. The U.K. has done a number of campaigns, whether that's kind of what we call our menu heist campaigns or kind of favorites around the -- from around the world to other exciting activations, and they've done that in a way, I would say, consistently to kind of get that holistic formula to come together very, very well, and they're taking share, which is the ultimate proof point of how the actions are kind of resonating with the consumer. And I think it's just -- it's obviously strong leadership and then it's consistency of execution. And I think us having impatience to make sure that if that's not the case, we act quickly to get it in place. Christopher Kempczinski: The only other thing that I would add, the U.K., as I think about the IOM markets was probably -- a franchisee profitability there was probably under the most pressure of any of our large markets. And if we look back I think probably it's fair to say that the team was overemphasizing traffic at the expense of franchisee profitability in some cases. And we've got a much better balance now. Franchisees have a clearer line of sight to how we're also going to be growing franchisee profitability. And that just drives much tighter system alignment, which then allows us to do all the things that Ian was talking about. So that would be my only other add. Dexter Congbalay: Next question is from Jeff Bernstein of Barclays. Jeffrey Bernstein: I just wanted to follow up on that U.S. ownership structure conversation. I know you mentioned not being happy with the company-operated margin. Seemingly, that's despite the solid top line that you delivered in the quarter, for example, which I think was what you noted was kind of needed to drive that margin. So I'm wondering if you can offer some color on the primary issue in terms of not being well run enough or perhaps the value menu is not profitable enough. Anything you can share in terms of the pricing you're taking? Otherwise, it does seem to imply... Christopher Kempczinski: I mean there's a lot of different things. I think if I were to simplify U.S. McOpCo performance, it was investing in labor -- additional labor at the same time that they were probably being even more restrained around pricing. And so when you are adding labor to the restaurants and you're also not passing through some of the costs because you're sort of being overly conservative around pricing, you end up having the performance that we've talked about here. Now those are fixable, but I think the broader question for us that Ian was discussing is having confidence that we can be running -- that we are the best operators of those restaurants. And we're working closely with the U.S. team, as we are in every other market. We'll continue to kind of evaluate that. And I would say if we're going to make any changes on that, that would be a topic we would talk about at Investor Day. Dexter Congbalay: Next question is from Andy Barish over Jefferies. Andrew Barish: I wonder if you could talk a little bit more to the beverage launch and maybe what caused you not to use kind of Red Bull and energy as part of the initial launch right now? Christopher Kempczinski: Sure. Well, we're really excited about what we're seeing so far. Yes, it's early days, but you get a sense sometimes of these things even in early days of the buzz and not just in the U.S., but we're also simultaneously right now launching in Germany and seeing great kind of consumer reception on that. I think as it relates to what are all the various products that we launch with, there's really 2 things. One is just operationally being ready in terms of launching the beverages, and there were some things that we needed to do in partnership with Red Bull to be able to meet the demand that didn't line up perfectly with this May launch, but it also gives us an opportunity to rehit the platform, which we'll do sometime later this year. So it's a combination of operational readiness and also our desire to continue to have new news to drive customers into this beverage platform. Dexter Congbalay: Next question is from Jon Tower at Citi. Jon Tower: I want to go back to the comments regarding development and the idea of examining the cost to build, given the supply chain challenges. And obviously, it sounds like on the horizon, there's a new potential remodel cycle coming for the U.S. business. So I'm just curious how we should think about that dynamic playing into a potential remodel cycle. Are you looking at things a little bit differently given the cost? Would you have to maybe commit more capital on the company side for franchisees to buy into some larger remodels that might be coming? Christopher Kempczinski: Sure. Well, I'll start at a high level and then Ian can cover anything I missed. But you're right that we're in the midst of entering into a remodel cycle. And it's not just in the U.S. I'd say the same thing applies to IOM as well, which is we're now about a decade post really making EOTF or Experience of the Future, a big remodel program that we first started in IOM and then we brought to the U.S. So in our business, every 10 years, the expectation is that our franchisees will remodel their restaurants as part of just continuing to make sure that they look great and offer the customers the experience that they do. So we're naturally heading into right now that remodel cycle. And we're taking the opportunity as we approach that to also think about, are there any other things that we need to go do around this business to make it set up for the future. Certainly, one of the things that we've seen over the last several years is just the growth of digital, the growth of delivery. That means that the kind of customer flows or customer journey in our restaurant looks a little bit different, how might we adjust that, et cetera. So we are certainly working with franchisees to think about what does that restaurant in the future need to look like. There may be partnering on aspects of that, but typically, we don't partner on remodels as part of just the regular updating of the business. But if there are specific sales driving things on top of that, that makes sense for us to partner on, we would take a look at that. And I would imagine if we had more to share on that, that would be another topic we could cover with you all in September. Ian Borden: Yes. I think Chris has covered all the bases. I mean I think I think the key is any time we get into kind of these more significant reinvestment cycles, we're very, very thoughtful to look holistically at how we can kind of get the most out of the investment. And that obviously, a bit to your point, Jon, in this case, is just making sure in this environment, we're really confident that there are enough and the right levers to drive growth so that everybody, the franchisee, obviously, firstly, gets a strong return on their investment. And if we are going to support elements of that investment, as Chris alluded to, sales driving elements that we're also getting a strong return on any support that we may put behind that. So I think that's pretty normal course, but it's certainly a good time for us to be looking at that, particularly in the U.S. where we've got a big investment cycle ahead. Dexter Congbalay: Next question is from Lauren Silberman at Deutsche Bank. Lauren Silberman: I wanted to just follow up on the comp expectation for 2Q. I understand the April lap, but I guess, do you expect the balance of the quarter to rebound back to where you were running? And then just more broadly, do you think you're seeing any discernible impact from the rising gas prices on the underlying business? I know you mentioned low income will remain pressured, but have you seen a step down, I guess, since gas prices have accelerated globally? Ian Borden: Lauren, let me start, and I'm sure Chris may want to weigh in here. I think as I said earlier, April is isolated and discrete because of the lapping of Minecraft. We just wanted to be very clear to kind of call that out because it is quite a unique month. And as I said earlier, I think, we feel very confident about the lineup of activity and the underlying momentum of the business with all of the things we're doing, including obviously, the moves we've made on value and affordability. I mean, I think the environment around us, as Chris talked about earlier, I think, continues to be challenging. But as also he said, it's not new. And obviously, our focus is on what we can control. And as I said earlier, we think we've positioned the business well and well to win irregardless of the environment. Obviously, higher gas prices, as you talked about earlier, are not going to be helpful, particularly for lower income consumers who are already, I think, under pressure. But we think we're offering the right choice and affordability on the menu that's going to appeal to consumers, whether across all income cohorts. And obviously, that's always our goal. Christopher Kempczinski: The only other thing I would add, I guess, to this point about do we expect the momentum to continue as we get past April. Certainly, our expectation is, as we've been doing, that we're going to continue to gain share. And so if you look at May and June, our expectation is that we should in our major markets be gaining share. Now that share growth against what is the industry growth, I think that's an open question. Whether there's been slowing or not, I don't know if there's enough data at this point to really give you a definitive answer on that. But certainly, consumer sentiment is heightened anxiety, let's just say, and it may have an impact. But our focus, again, is on controlling what we can control and our expectation for continuing momentum around share growth, we're expecting that to continue. Dexter Congbalay: Next question is from Andrew Charles over at TD Cowen. Andrew Charles: Ian, you talked about the commitment to get to 50,000 restaurants by 2027. But I'm curious, given the state of cash flows in the U.S. and IOM that you've talked about, is it right to think that [ ILD ] is going to really be driving a lot more and pulling a lot more of its weight than you originally expected at the Investor Day a few years ago? Ian Borden: Andrew, well, I don't think we're expecting a kind of a shift in the mix. I mean, as you know, IDL already makes up the majority of our openings just because of the size of the opportunity in a lot of those developing markets like China or elements of Asia and Latin America, et cetera. And I think our partners continue to be optimistic about the opportunity for growth. And in those markets, a lot of them, you already have conditions where you've got to be very, very sharp to get good returns. So I don't think there'll be a significant shift. I think for all of us, though, a bit to what Chris and I talked to earlier, it's just -- we just have to stay sharp on making sure we feel confident in our ability to deliver returns. And that's, I think, ultimately what will be any shorter-term adjustment. I think the long-term opportunities in all of our markets, we still remain very optimistic about, and we're going to stay focused on that. Christopher Kempczinski: Yes. The only thing I would add, I think sort of implied in your question was that cash flow pressures somehow affect our system's ability to invest on new restaurants. And I would just say we have a tremendous amount of financial firepower in our system, despite some of the pressures that exist in some markets with franchisees on cash flow because of inflation. The overall financial situation when you look at debt levels and everything else, we're in a really good spot there. And so I have no concerns about our ability when it makes sense, when we can get good returns to continue opening restaurants at a strong pace. That's going to be ultimately what drives these decisions because we've got plenty of capital to spend if we need it and we see good opportunities. Dexter Congbalay: Our next question is from Danilo Gargiulo at Bernstein. Danilo Gargiulo: I was wondering if you can share your thoughts on what you're seeing on the chicken category, both nationally and internationally. And perhaps what has been the evolution of your market share and the competitiveness of the category? And more specifically, whether the beef prices being more elevated is driving consumers to be eating more chicken mix for you and in general, for the rest of the industry? And any thoughts that you have on the evolution of beef costs would be great. Christopher Kempczinski: Sure. Well, as we've talked about -- and I know you are well aware, Danilo, the chicken category is bigger than beef globally, and it's growing 2x faster. So it's something that there's a ton of opportunity. If you think about beef where we have, call it, a mid-40% share, our share in chicken is, call it, high teens. So the opportunity, the headroom for us in chicken is really quite significant. And I'm pleased with how our system has performed over the last couple of years, the last several years around chicken. We've gained significant share. I don't have the number in front of me, but it's probably close to 2 points of share that we've gained in chicken over the last few years because of all the work that our system has been able to do on that. So we're very excited and bullish on that. Because of the underlying growth, you're seeing everybody else is also excited about it. And so there's certainly a lot of activity happening in chicken across the industry. For us, it's going to continue to be a point of focus and a point of priority. And I do think it's a fair thing to point out that when beef prices are as elevated as they are, chicken becomes a much more attractive value opportunity relative to beef. And I do think that, that's something that's playing in right now. And so how that continues or plays out in terms of its growth, it depends largely on how long these beef prices are at these sort of historic highs. But certainly, right now, in the environment that we're in, I think chicken is benefiting relatively to its better cost position relative to beef. Dexter Congbalay: Our next question is from Chris Carril over at KeyBanc. Christopher Carril: So I wanted to ask about your advertising focus and marketing message for the balance of the year, maybe with a specific focus on the U.S. Can you expand a bit more on how you're thinking about balancing the messaging around McValue in light of the current backdrop alongside messaging on new and perhaps more premium menu innovations such as beverages? Christopher Kempczinski: Yes. I think your question is kind of hinting at the fact that it needs to be a balance. And we can't be overtorquing on value at the expense of margin-driving initiatives. At the same time, you need to have a strong value program in place to be able to generate the traffic and offer those opportunities for trade-up and everything else. And so -- as I look at the U.S. calendar, obviously, I'm not going to share the details of that for competitive reasons for the balance of the year. But I think the U.S. team working closely with our franchisees has a good balance on their marketing calendar. Dexter Congbalay: That's it for today, folks. If you need any follow-ups, please send me an e-mail or send it to the McDonald's IR inbox, and we'll talk to you later. Thank you. Operator: This concludes McDonald's Corporation Investor Call. You may now disconnect, and have a great day.
Operator: Good morning, and welcome to the Sun Life Financial Q1 2026 Conference Call. My name is Galeen, and I will be your conference operator today. [Operator Instructions] The conference is being recorded. [Operator Instructions] The host of your call today is Natalie Brady, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Ms. Brady. Natalie Brady: Thank you, and good morning, everyone. Welcome to Sun Life's Earnings Call for the First Quarter of 2026. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tom Murphy, President of Sun Life Asset Management, will provide an update on our asset management businesses. Following Tom, Tim Deacon, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management are also available to answer your questions this morning. Turning to Slide 2. I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. And with that, I'll now turn things over to Kevin. Kevin Strain: Thanks, Natalie, and good morning, everyone. Turning to Slide 5. We delivered solid first quarter top and bottom line results. Underlying net income was $1.05 billion with EPS growth of 4% over first quarter last year and underlying return on equity was 18.6% on path to achieve our MTO of 20%. Reported net income was impacted by market adjustments as well as a few onetime items that Tim will discuss in more detail. Strong protection income results were driven by growth in Canada, Asia and U.S. stop loss. In Sun Life Asset Management, MFS had consistent earnings year-over-year, reflecting market conditions. SLC management results were below our expectations, reflecting the absence of catch-up fees and lower seed income this quarter, which were both strong last year. We expect SLC earnings to rebound solidly over the remainder of 2026. For top line, insurance sales saw significant growth, driven by sales momentum in Asia and continued solid sales in the U.S. Asset Management gross sales remained strong across MFS, SLC, Canada and Asia. MFS U.S. equity outflows increased in the quarter amid the broader industry-wide dynamics impacting the U.S. mutual fund market. We ended the quarter with a strong LICAT ratio of 143% following the completion of the BGO and Crescent acquisitions. This quarter, we announced a 4% increase to our common share dividend to $0.96 per share, and we also announced a renewed normal course issuer bid to repurchase up to 10 million shares, reflecting strong cash flow and a focus on execution across our businesses. Turning to Slide 6. We are making significant progress across our key strategic areas. At SLC, we achieved several significant milestones, including completing the acquisitions of BGO and Crescent, advancing leadership alignment through the launch of our management equity plan and announcing our intention to acquire Bell Partners. We are confident in SLC achieving their medium-term growth targets. Later in the call, Tom Murphy will share a few words on the Sun Life Asset Management platform and the growth opportunities ahead. Staying on asset management, in Canada, growing our wealth businesses is a key focus. Sun Life Global Investments continues to build its ETF platform with the addition of 2 MFS-powered low-volatility equity strategies. Turning to Asia. We are seeing strong momentum with sales up 49% over last year, exceeding $1 billion in a quarter for the first time ever. Growth was led by Hong Kong, where sales grew 75%, driven by double-digit sales growth across all channels. Indonesia also delivered strong performance on the ongoing strength of our expanded CIMB Niaga partnership. Our relationship with CIMB Niaga goes back 20 years. Together, we continue to innovate and partner to deliver exceptional solutions for our clients in the market. We also saw good sales momentum in high net worth, India, China and Malaysia. CSM in Asia reached $7 billion, up 12% year-over-year, reflecting the quality of our sales growth. In the U.S., we delivered strong sales results. The rebuild and refocus of our U.S. Dental business is progressing well. We are focused on executing against a targeted strategy to increase our share of the commercial dental market to deliver stronger margins and improve profitability over time. Helping members access care and improve health outcomes sits at the core of our U.S. strategy. Guided by this focus, we expanded Sun Life expert cancer review. This service supports members facing a cancer diagnosis with access to objective second opinions, helping them attain the treatment plan best suited for their needs. We continue to advance our digital capabilities across the organization with a focus on delivering improvements in both client experience and business efficiency globally. In Asia, our Hong Kong business expanded their data-driven underwriting, increasing straight-through processing and enabling faster client onboarding. In Malaysia, we deployed an AI-assisted Talkbot, expanding servicing capacity and creating more timely and consistent engagement with clients. In Canada, we are continuing to scale AI across the business with advisers using AI-enabled tools to support client conversations. Our operations employees are leveraging AI to access information more quickly and more than 90% of our developers are using AI to improve efficiency and the speed of delivery. Building on this broader adoption, straight-through underwriting increased to 40% for eligible individual life insurance applications, up more than 50% year-over-year. This reduced average issuance time from 25 days to 11, enables faster policy delivery and improved operational efficiency. These examples demonstrate how digital investments are enhancing client outcomes while enabling more efficient, scalable growth across the businesses. Turning to Slide 7. We delivered solid first quarter results progressing against our medium-term objectives. Underlying earnings per share growth of 4% reflects our solid businesses. Our underlying ROE of 18.6% and dividend payout ratio of 49% are aligned with our medium-term objectives. Our 4 pillars are well positioned to deliver our medium-term objectives. Canada continues to anchor Sun Life's performance and reinforces our role as a trusted partner to millions of Canadians. Asia is performing strongly, driven by growth in the high net worth and middle class markets and solid execution. The U.S. is focused on scaled capital-light group benefits businesses in a growing and increasingly complex health care market. At Sun Life Asset Management, our scale and broad capabilities enable our resilience to manage across cycles and leverage synergies from our protection businesses. Our purpose continues to guide how we serve our clients, while the strength of our diversified business mix and global capabilities positions us to navigate the current market conditions and geopolitical uncertainties with confidence. Across our businesses, we are making clear progress against our strategic priorities, supported by strong fundamentals and disciplined execution. Looking ahead, we are confident in our ability to continue creating value by executing on our strategy with focus and consistency. With that, I'll turn the call over to Tom, who will walk you through Sun Life Asset Management, what the platform looks like today and where we see opportunities to grow. Thomas Murphy: Thank you, Kevin. I'm excited to share some updates on the Sun Life Asset Management pillar. As Kevin mentioned, this quarter, we took 2 major steps forward with SLC. First, we completed the buyouts of BGO and Crescent Capital. Second, we launched our management equity plan with over 300 of our most senior people investing their personal wealth in the future of the business. We see this as a strong statement of intent as it creates alignment between our employees, clients and shareholders. During 2026, SLC will move from a group of related affiliates to a $400 billion singular global asset management platform. As such, this will be a moderate growth year for SLC and there is significant room for growth in the years ahead. We remain committed to our previously communicated medium-term targets. Sun Life Asset Management was established to accelerate the growth of our asset management businesses and specifically to unlock opportunities between our asset management, insurance and wealth businesses. We are starting from a position of real strength with $1.4 trillion in assets across equities, fixed income, real estate, infrastructure and alternative credit. Let me share a few areas that we are working on. For SLC, we are focused on enhancing access to seed capital, the lifeblood of any alternative asset manager. Seed capital is critical as we incubate and launch new funds. We are also pursuing sources of permanent capital, which will create scale benefits for SLC and boost future revenue and earnings. Bringing our pension risk transfer business into Sun Life Asset Management was a deliberate move to source strategic capital for SLC. In return, this allows our pension risk transfer business to better leverage SLC's investment capabilities to enhance their client value proposition and to grow their market share. Turning to MFS. We see significant opportunity to grow alongside Sun Life's wealth businesses. We have room to grow our AUM alongside SLGI and Group Wealth here in Canada, and there are further opportunities to help MFS grow in Asia through our Hong Kong MPF business. Many of the opportunities within our insurance and asset management flywheel can be fueled by both internal and external capital. With this in mind, we are proactively engaging with insurers, reinsurers, pension funds and sovereign wealth funds to create sources of seed and permanent capital and with wealth providers for enhanced distribution opportunities. We also continue to add new investment capabilities. During the quarter, we announced our intention to acquire Bell Partners, which will boost our U.S. multifamily capabilities. While at Crescent, we are investing in new adjacent credit capabilities, which we believe will bring value to clients and boost future earnings. Finally, we are proud of our joint venture with Aditya Birla in India. Today, Aditya Birla Sun Life AMC has $60 billion in AUM. It's growing quickly and has strong margins. We believe the alternatives market in India is at an early stage of development and is primed for future growth. Our combination of global and local resources positions us very well to capture this opportunity. Our $1.4 trillion asset management pillar covers an enviable range of asset classes and is truly global in nature. We are well positioned and excited by the journey that lies ahead. With that, I'll turn the call over to Tim, who will walk us through the first quarter financial results. Timothy Deacon: Thanks, Tom, and good morning, everyone. Turning to Slide 12. We reported solid underlying net income of $1.05 billion in Q1, consistent with the prior year. Reported net income before notable items this quarter was $775 million, reflecting $220 million of market impacts, primarily related to yield curve movements in equity market and real estate performance below long-term expectations. Total reported net income was $465 million, which includes 2 previously disclosed items, a $165 million charge related to the completion of the BGO and Crescent acquisitions and $145 million provision for a previously disclosed proposed legal settlement. Turning to Slide 13. Total insurance sales increased 17% over the prior year to $1.7 billion. Individual insurance sales were very strong, reaching a record $1.2 billion in the quarter, up 32%, with growth largely driven by Asia across multiple markets, led by Hong Kong and Indonesia. Group Insurance sales were $552 million, reflecting continued progress in the U.S. with higher sales across all business segments led by medical stop-loss, commercial dental and the timing of large case sales in Canada. New business CSM grew by 6%, driven by the strong sales growth in Asia. Gross flows were up modestly, driven by higher fundraising from SLC, higher MPF sales in Hong Kong and higher group fund sales in India, tempered by lower volumes in Canada. In Asset Management and Wealth, net flows reflected outflows in the U.S. equity products by retail investors and institutional portfolio rebalancing at MFS. Turning to Slide 14. Sun Life Asset Management underlying net income of $265 million declined 3% year-over-year, largely reflecting the impact of catch-up fees and seed mark-to-market gains at SLC in the prior year, partially offset by higher fee income at MFS and net investment income in the Solutions and Other segment. Reported net income includes the final costs associated with completing the BGO and Crescent acquisitions at the end of March. Fundraising and deployment activity across the platform remained solid. Gross inflows were led by Crescent's flagship private credit strategies and BGO's European debt platform alongside continued institutional engagement in MFS, where gross flows were consistent with last quarter and included 12 new institutional mandates over $100 million. Net outflows were driven primarily by elevated U.S. equity redemptions at MFS. At the same time, ETFs, fixed income and SMA products continued to see growth with $2 billion in net inflows in the quarter. Sun Life Asset Management managed assets increased 7% over the prior year, reflecting strong fundraising and deployment at SLC, demonstrating the continued scale of the platform and growth in AUM from positive public equity market performance at MFS despite outflows. Turning to Slide 15. Canada underlying net income of $370 million increased 7% from prior year, reflecting higher fee income from higher AUMA and strong net investment results in the Asset Management and Wealth businesses, alongside solid performance in Sun Life Health and Individual Insurance. Reported net income of $87 million reflects the charge from the proposed legal settlement and market impacts from a flattening yield curve and lower equity and real estate performance. Canada's Wealth platform reached $261 billion in AUMA, up 12% from last year with strong retail adviser activity and market appreciation. Insurance sales declined year-over-year from a record in Q1 '25, which included a significant large case sale in Sun Life Health. Q1 '26 Sun Life Health sales remain above our historical quarterly average. In Individual Insurance, sales declined, reflecting lower participating life sales as we continue to focus on optimizing our product mix. Turning to Slide 16. Our businesses in the U.S. continue to build momentum. Underlying net income is up 6% from growth in medical stop-loss from strong premiums and cost discipline as well as solid contributions from in-force management supported by favorable investment results and insurance experience. Sales were solid across all businesses. Medical stop-loss sales increased 43% year-over-year, building from strong fourth quarter momentum and continued success in winning high-quality business in a hardening market. This reflects our disciplined approach to pricing and risk selection. In Dental, we continue to execute on our strategy to improve business mix, and we're seeing solid growth in commercial sales. The decline in premiums this quarter reflects the impact of our deliberate actions to reprice and, in some cases, exit underperforming Medicaid business. As expected, this is resulting in lower membership but an improving loss ratio. As part of this repositioning, the U.S. team remains focused on aligning expenses to the lower revenue base to improve profitability in the near term. Turning to Slide 17. Asia had another excellent quarter with underlying net income increasing by 23% over the prior year, driven by robust sales growth, lower expenses and higher investment earnings. Insurance sales exceeded $1 billion in the quarter with growth across most markets. Hong Kong individual insurance sales increased 75% with double-digit growth across all distribution channels and a 25% increase in agent count. Indonesia delivered 40% sales growth with higher margins generated by the strong momentum from the CIMB Bancassurance partnership. New business CSM grew by 23%, driven by the strong sales growth we've seen across Asia. CSM margins reflect increasing competition and the impact of regulatory changes. Turning to our capital position on Slide 18. We ended the quarter with a LICAT ratio of 143%, which decreased 14 percentage points over the prior quarter with 10% of the decrease driven by the BGO and Crescent acquisitions and the remainder from the impact of markets and lower reported net income. We delivered book value per share growth of 2% to $41.10 and maintained a financial leverage ratio of 23.2%. Total CSM of $14.7 billion increased 8% over Q1 '25, driven by strong insurance sales through 2025, which continued this quarter. These metrics underscore our continued financial strength and provide resilience in more volatile periods. Turning to Slide 19. In the quarter, we returned $0.5 billion to shareholders through common shareholder dividends, delivering a dividend yield of 4.2%. We also announced our intention to renew our NCIB, subject to regulatory and TSX approvals, enabling the repurchases of up to 10 million common shares, returning capital as market conditions permit. In addition, our Board approved a $0.04 increase to the quarterly common shareholder dividend. In closing, our first quarter results reflect the resilience of our diversified business model and the discipline we apply in the execution of our strategy and capital management. We delivered solid underlying earnings, continued progress against key businesses and maintained strong capital and balance sheet strength while returning $500 million to shareholders and preserving flexibility to invest for growth. These fundamentals provide a strong foundation for navigating ongoing market volatility, supporting our strategic priorities and delivering consistent progress towards our medium-term objectives. With that, I will now turn the call back to Natalie to begin the Q&A. Natalie Brady: Thank you, Tim. To help ensure that all participants have an opportunity to ask questions this morning, please limit yourselves to 1 or 2 questions and then requeue with any additional questions. I will now ask the operator to pull the participants. Operator: [Operator Instructions] Our first question is from Doug Young with Desjardins. Doug Young: Just wanted to kind of go through the decline in the LICAT from 157% to 143% because it was a bit of a surprise to me. And maybe you can just walk through, Tim, just the moving pieces because I thought the SLC buy-in was about 7 points, maybe it's now 10%. I don't know what the difference. Maybe you can talk a bit about that. And I get the markets had about 1 point impact, legal provision probably 1% impact, and I get that there wasn't much organic capital generation. But I'm just trying to bridge between the 157% and 143%. Maybe we can kind of start there. Timothy Deacon: Doug, this is Tim. Happy to touch on that. So as you noted, the LICAT ratio did reduce by 14% this quarter. We did finish the quarter with a very strong LICAT ratio overall at 143%. But 10% of that was really coming from the SLC acquisitions. That was $2.4 billion in deployment. And just as a reminder, about every $250 million in capital deployment equals about 1% on the LICAT ratio. And for the last 2 quarters, our LICAT was obviously high as we had prefunded the acquisitions through the debt. So that accounts for the bulk of the change. The remainder really is coming from markets, as you noted, that it was actually a 2% impact, about 1% was coming from the MetLife legal settlement and the remaining 1% effectively from dividends and other items. And so overall, that accounts for the 14-point decline. And as I said, finished strong at 143%. And I think we're quite pleased with that being a leading LICAT ratio. Doug Young: And maybe just a follow-up, okay. So I appreciate that. Can you quantify -- because I'm increasingly becoming challenged in doing this, but can you maybe quantify what you view as excess capital and walk through the buckets between like what's in the holdco, excess of what you would want to hold there, what's in the opco? And maybe on the opco side, like what do you think is the minimum LICAT and the binding constraint on that side? Timothy Deacon: Yes, sure. So again, very, very strong capital position. This quarter, we finished at 143. We have a low leverage ratio of 23.2% and the holdco cash of $1.3 billion. And when you look at the composition of capital, the move to IFRS 17 really changed the overall composition for the industry. And so in our case, 60% of the LICAT ratio is comprised of the contractual service margin and the risk adjustment and which LICAT refers to that as a surplus allowance. And both of these are really high-quality capital items and as they represent future earnings for us, they also act as a shock absorber for market volatility and economic downturns. And this quarter, we finished with a CSM balance of $14.7 billion, and that has grown 8% year-over-year. And it's not currently liquid, but it converts to earnings over time at about 8% to 10%. So on your comment, to get a sense of our deployable capital, really, I think you should think about that as our holdco cash balance as well as our surplus balances, and that broadly reflects our deployable capital. The remaining part of our capital has been deployed in our business, and that's generating a great return as you can see in our results. This quarter, we had an ROE of 18.7%, and we're making solid and consistent progress towards our medium-term objective of 20%. So hopefully, that gives you a good flavor of how to think about our capital and also the proportion that's deployable. Doug Young: Yes. If I may just follow up for the sake of time on that. But just -- and lastly, you put -- you're planning to put an NCIB in for 1 point, I think it's 1.7% of shares outstanding. And Kevin, I guess my question is, if you go through this, let's say, by midyear, would you reload on this? Because you didn't reload last time, and I get it because you had the SLC buy-in come in. But I'm just curious, like it doesn't -- it seems like you generate a lot of excess capital, 1.7% of the shares outstanding doesn't seem high. I don't think you're interested in big acquisitions. So if you do get through that faster than you expect, would you reload? Kevin Strain: I think Tim described it well, right? If you look at the cash at the holdco, that's what we're looking at as being deployable capital and cash. And that's what's formulating the amount of the buyback we're doing. We continue to optimize inside of SLA and moving capital up, and you've seen us do that quite effectively. And so -- and we continue to require cash flow out of the businesses and out of the acquisitions we do. So tracking what we've got at the holdco would give you a good indication of what's deployable. And our priorities remain the same, and Tim talked about this, funding our organic growth, funding the dividend. And then we look at M&A where we need scale and where we're looking for capabilities, and we've deployed capital into that. At this point in time, the pipeline in M&A is quite small. And the execution that we're focused on across the business is quite important to us. So I think you are seeing that deployment of cash and excess cash into the buybacks, but we always keep the flexibility to do different things. Does that help, Doug? I was just going to step back and say, really, if you look at it, the last 10 years, we've deployed a lot of cash and capital into M&A. We've taken SLC from 0 in third-party assets to $260 billion. And we think we've built great capabilities across the Alternative Asset Management platform that we didn't have. We've deployed capital into scale and distribution capabilities in Asia, which are serving us really well, and you saw the results in Manjit's business. And we've deployed capital into the U.S. And we think that long term, that's going to be important deployment of capital to us. And we've built out into the dental business, which is one of the core benefits in the United States, and David is working hard on executing on that. So we've had good results from the deployment of our capital. And at this time, the focus for the businesses is on executing on that. And so when you look at the cash at the holdco, you get a sense of us using that to buy back shares. And I keep monitoring that. And we keep pushing on getting more and more cash up to the holdco, and we intend to deploy it back to shareholders when we can. Operator: The next question is from Gabriel Dechaine with National Bank. Gabriel Dechaine: Just a numbers one, if you'll indulge me here. The morbidity experience in the stop-loss business was improved. Can we get a more specific number around that? Because I want to get a sense of how much of that stop-loss repricing and other actions you've been taking has actually had an impact because it was offset by the employee benefits, LTD morbidity, which went the other direction. David Healy: Gabriel, this is David. Thanks for the question. Yes, the stop-loss business continues to perform very well, reflecting the quality of the business and the franchise we have. We continue to have a disciplined approach to pricing and risk selection. And our Q1 experience reinforces really the quality of our business and the confidence we have in our current pricing. So we did see material improvements in that business. It was offset somewhat by more unfavorable disability experience in Employee Benefits business compared to Q1 of last year. Disability in Q4 was actually worse than Q1, but it did improve. But year-over-year, it was down and less favorable. And that's partially because we had a very favorable quarter in Q1 of '25. So consistent with what we're seeing in broader in the rest of the industry, the disability business is sort of -- is moving back to more normalized levels, and we expect it to be similar to this in the future. Gabriel Dechaine: Yes, that's very descriptive. You're not sharing any numbers, though. I think the issue in that particular business line over the past year was the negative experience, and we saw that in the first 3 quarters. You took some actions and to get confidence in the effectiveness of those actions, it would be helpful to get some numbers. Could you give me that, please? Brennan Kennedy: Gabe, it's Brennan Kennedy. So the experience in the quarter for that business was -- the morbidity experience was CAD 8 million. So that's the specific number. Gabriel Dechaine: That's the stop loss. Brennan Kennedy: That's right. That's correct. Gabriel Dechaine: Okay. And -- okay. Well, I could take more of that offline. I guess the dental business, the strategy makes sense. You're exiting some relationships, I guess, more intermediated ones as opposed to direct ones in the Medicaid business. I just want to get a better understanding of how much of that business could be affected so that does this quarter's Medicaid revenue represent a new run rate, you've done your pruning? Or could we see it dip further? What sort of offset could there be from -- you alluded to cost containment and to the improved benefits ratio of the business you're retaining. So I just want to get a sense of if we hit a bottom here or what? David Healy: Yes. It's David again. Thanks for the question. As Tim and Kevin noted, we continue to execute on our strategy and are very much focused on improving the mix of our business. We have been taking pricing actions. And you can see some of that in the change in revenue that we've seen this quarter and also, of course, growing our commercial business. Over time, we expect to continue to improve this. Of course, we have a path forward on improving the business, and we remain focused on that path. We do expect the business mix to change as we continue to improve our sales and momentum in our commercial business. And of course, we're staying very focused on maintaining relationships where we can have a line of sight to more reasonable margins over the long term for that business. So we remain very focused on that path, and we're working with our partners to do that. So I expect -- certainly, in the second half of the year, we'll see continued improvement in this business. Gabriel Dechaine: In the second half. So I just want a sense of timing here. I get the strategy. We see this from the banks from time to time. They optimize their balance sheet, and that means shrinking the loan book for a certain amount of time, but you get a sense of, okay, we'll be done by then. Is that something you can -- is that what you're telling me like the second half is when you'll be kind of through most of this selective pruning of the customer base? David Healy: Like I said, we continue to execute on that. The external environment is something we're staying very much focused on. So you can see some of the improvement in the loss ratio coming through this quarter as a result of terminations. That's somewhat offset by experience, which continues to change quarter-to-quarter and something that we'll continue to pay attention to. And then the membership, of course, of existing plans is something that we'll still adjust as well. So all of that is happening while we are focused on expenses and working our way through our plan. So it will be a continued pressured environment in 2026. We know that, but we're focused on the actions to improve. Operator: The next question is from Mike Ward with UBS. Michael Ward: I was just wondering if we could run through the drivers of some of the Asia strength and I guess, the sustainability of the earnings strength, but also the growth in sales, I think, was a little bit better than expected. And it's good to see. But I guess we just kind of thought that markets like Hong Kong might slow down a little bit. So just wondering if you could just help us understand what's driving that on the ground? Manjit Singh: It's Manjit. So as you mentioned, we had a great start to the year in Asia in 2026, and that builds on the really strong performance we've had over the last 2 years. And we've seen strength across all of our financial metrics, not only sales, but also CSM, net income and ROE. And in terms of what some of the key factors are that are driving some of the performance, I think it's a number of things. So one is really the investments that we've made in distribution are paying off. So we've seen growth across all of our distribution channels. Our agency force is stronger, not just in numbers, but also more productive. We've invested in new bancassurance arrangements over the last 2 years, both in Hong Kong and in Indonesia. And we're deepening our broker relationships as well. We're also making investments in brand and our brand strength is at record levels, and that's a really important competitive factor in Asia. We're also really focused on meeting the needs of our clients, put a sharper focus on that, and our client CSAT scores are also at record highs. And then really looking at our end-to-end business processes and making sure that we're strengthening those and delivering really strong client experiences. And of course, all of that's underpinned by our team. And we've made some investments in our team and really brought in strong talent. So I think all of those things are driving the performance you see. Michael Ward: Okay. And then I had kind of a strategic one just on the U.S. for you guys. Where do you see the kind of business mix? Or where would you like to see your business mix trend over many years? And what I'm wondering is -- you mentioned not really seeing a whole lot of potential M&A targets. Just wondering if there's areas where you might consider inorganic growth in the U.S. Kevin Strain: I can start and then David can jump in. Our focus in the U.S. protection side and the insurance side in the employee benefit space, which is a capital-light business is really important to us. And we see that as being aligned to our purpose and aligned to what we're trying to achieve. And we've had that focus since the end of the global financial crisis, and it served us well. So I think continuing to build out on the benefits side and building scale there, which is why we did the dental acquisition and why we did the Assurant acquisition was building scale in that employee benefit space. We have scale now in stop-loss or now we've had scale. We're a leader in the stop-loss side, and we're pretty happy with how that performs and the capabilities we have. We've added certain capabilities around it to make that business stickier like the PinnacleCare, and we've talked about that in the past. But that focus on the benefit space and building that out because it is capital-light and has been one of our key focuses. So I don't know, David, if you want to add some color to that. David Healy: Yes. Thanks, Kevin. The only thing I would add is, obviously, we really have a strong portfolio of businesses in the U.S. that we're very focused on and how we execute on. As Kevin noted, we are the largest independent writer in the stop-loss business and the additional capabilities we've added over the last number of years around cost containment, around health care navigation are really very important to clients in the space, especially in a very disruptive health care environment. And then our Employee Benefits franchise is really strong, and it's now bolstered by the strength of our dental business which brings a new element to that business. So we see opportunities to both cross-sell with existing clients and also get into new segments of the market that we haven't been in historically on the strength of the platform and the scale of our business now. So it's something we're very focused on. And of course, improving the quality of our business in dental is a key part of that as well. Operator: The next question is from Paul Holden with CIBC. Paul Holden: I want to ask a question related to the U.S. business. And what we should be expecting in sort of Q1 and Q2 in terms of that improved profitability and stop loss? Because typically, those aren't big experience quarters. So I think when you're talking about the experience in Q1 '26, that would probably be the improvement in 2025 cohort over 2024. And correct me if I'm wrong on that. But really where I would have expected to see improved profitability is in an expected PAA or short-term insurance earnings, and we didn't see any growth there. So just curious on those 2 points, particularly the last one, like with 21% premium growth and I guess, an anticipated better margin, why isn't expected short-term insurance earnings growth more than 0. Brennan Kennedy: Paul, it's Brennan Kennedy. So we do review that expected level at the beginning of each year for each of the group PAA businesses. So for the group business in Canada and the Stop Loss Employee Benefits and Dental business in the U.S. So we reviewed that this quarter. Specifically to the U.S., we did see increases in the expected -- or the earnings on short-term business in the stop-loss business, driven by the higher volumes. We saw increases driven by higher margins in the Employee Benefits business and decreases in the dental business from both volume and lower margins. So implicit or in the current numbers, there is an increase for the stop-loss business. David Healy: And Paul, it's David. Just to add to that, you're right on in terms of our Q1 performance is largely reflecting experience from the 1/1/25 cohort that has been playing out. So this was the fifth quarter of that. That cohort is now 92% complete. And the experience was very much consistent with our experience in Q4 and gives us quite a lot of confidence in our current pricing and the trajectory for that business. Paul Holden: Okay. That's helpful. So the key message there is stop loss expected insurance earnings is up, but it's being offset by Dental, right? So I think that was the message. Unknown Executive: That's correct. Paul Holden: Okay. And then second question for me. Maybe get a better understanding, sticking with the U.S., maybe getting a better understanding of what drove the growth in earnings and surplus there. It was up $6 million year-over-year, but then also up $5 million Q-over-Q. So it seems like a step function improvement this quarter. So what drove that? And really, what I'm getting to is, is it a sustainable step function improvement? Brennan Kennedy: Paul, it's Brennan Kennedy again. That's primarily trading gains. So I wouldn't call that recurring, but it is -- periodically, we do see trading gains. In this quarter, we experienced some. So that's driving the majority of the variance that you highlighted. Operator: Your next question is from Tom MacKinnon with BMO Capital. Tom MacKinnon: Kevin, you mentioned in your prepared remarks, you expect SLC to rebound solidly over the remainder of 2026. If we look at SLC, we kind of see there's -- we see flat fee-related expenses and for some time now and down year-over-year, but we don't see much growth in fee-related revenue. So can you elaborate on how much this solid rebound is going to be and what's going to drive it for the remainder of 2026? And then perhaps what to expect for 2027? Kevin Strain: Yes. Thanks, Tom. I'm going to turn it over to Steve. But you will have heard us say last year that we expected the SLC to outperform what it did last year, and we still expect that to happen over the next 3 quarters. But Steve can provide some more color on how the business is doing and how it's all come together. Stephen Peacher: Yes. Thanks, Kevin. Tom, thanks for the question. Let me comment on a couple of things because there are a number of aspects to your question. The first is, let me comment on the quarter. You mentioned fee-related revenue. Well, there are a couple of things, both on the revenue line and the fee-related earnings and underlying net income were weaker than they have been for the quarter. So let me comment on that. And there were a few things that kind of conspired for the -- that led to that this quarter. First, in terms of revenue, we had a couple of items that I would put under the headline of timing, where revenues came down in the quarter, but we'll be giving them in subsequent quarters as we invest money, and I can give you some examples of that, but that really hit the management fee line for the quarter. And that was at the same time that we had some seasonality factors. Our property management fees are almost always down in the first quarter versus the fourth quarter because they're based on leasing activity, which is back-end loaded. And on the expense side, we see higher expenses in the first quarter related to employment items tied to bonus payments. And then the third thing is we often have some other items moving the other way, like catch-up fees and performance fees, and we really didn't have any of those this quarter. So when you put all that together, it led to a weaker quarter. One of the things you referred to is that if you look in the supplement, you look at the management fee line item, it looks flat over the last number of quarters. It's a bit misleading because in that line item, there are catch-up fees and catch-up fee move around. So if -- and you can't see this, but if you went back to, say, Q2 of '24 and went through, say, Q3 of this year, management fees, excluding catch-up fees, are up about 10%. And you're seeing that grow with fee-related AUM, and you'll continue to see that. So I would -- if you look at it quarter-to-quarter, we raised another USD 4.4 billion this quarter, net flows for both fee-earning AUM and AUM were positive $4 billion. We basically had a decade of uninterrupted quarterly positive net flows, and we expect that to continue. And I actually think it depends on some timing of closes, I think you'll see an acceleration of fundraising in the next quarter. And we would expect to see management fees on a quarterly basis start to increase over the course of this year as well. I think if you think long term, where the acceleration in growth is going to come from in this platform, and this is a point that may be underappreciated. To date, we've reported SLC as a business. It's actually been 4 or 5 distinct separate businesses. And that's been very intentional because as we bought BGO, when we bought Crescent, we intentionally wanted to leave them alone to manage their businesses. We provided seed capital. But we really did little to try to coordinate that given the structure of the deals. With the put calls behind us, really starting at the end of March, we can now manage this business as a consolidated holistic business. That means 2 things. First of all, we can present ourselves to the market more as a platform. That's really important as we try to face off with the biggest institutions out there in the marketplace. They want to deal with fewer managers. And then internally, we can take advantage of efficiencies and synergies that we've never pursued. And I can give you examples of that. So that's really where you're going to see the acceleration of growth over the coming years. Kevin Strain: It's Kevin again. I'm just going to say -- sorry, Tom, I'm just going to say we put together a really strong collection of businesses. And as we bring them together, and Steve mentioned about management buying in and there's good alignment to us growing the earnings. So I would take the 30% as being an outlier in terms of the quarter, and you're going to see some volatility in that business because there's seed capital and catch-up fees and those types of things. But that -- we expect that earnings per quarter to grow over the next 3 quarters and into the future. We've talked about a 20% CAGR for SLC, and that's still what we see being the target there. Stephen Peacher: It would be a mistake to look at this quarter and think that, that has, in some ways, changed the momentum of the business. It's just not the right. Operator: The next question is from Darko Mihelic with RBC Capital Markets. Darko Mihelic: I have so many that I'll probably take some of these offline, including the ones on private credit. So I just wanted to focus real quick on the Canadian business, recognizing that your sales mix isn't quite where you want it to be. So 2 parts to my question. When you -- first of all, what is your appropriate mix? Like what do you want to be selling more of? And more to the point for my model, I'm just interested in CSM growth and noticing that last 2 quarters, CSM is actually down. It's not a big deal. I get it. But I want to understand better where you can take this to and what I should be thinking about for CSM growth in the Canada business? _ Sin Yin Tan: Darko, this is Jessica. I think you're probably referring to our mix of business for individual insurance, which then would be the par and the non-par mix. And I think as we said last year, it was a deliberate kind of balanced portfolio so that we are much more in tune both par and nonpar. I think where we want to get to is that I think for the non-par, as you see from last year, we invested a lot both in underwriting, in the way we do our product, distribution. So it has a 10% growth, and we intend to continue a 10% non-par growth for the medium-term objectives. So you see a natural rebalancing there. I think for the CSM growth, you will see that you don't see the split between the total and the shareholder. But total, I think you should expect a positive number. I think if you look at our insurance kind of earnings from the release of the CSM and the risk adjustment, it should be around 5%, 6%, in line with our MTO. And hopefully, that's helpful. Darko Mihelic: Sorry, the 5% and 6%, do you mean the growth of that in the income statement or the actual CSM growth? Sin Yin Tan: The growth in the income statement, which you can infer a bit because we do have, for example, CSM depreciation is about 8%, 9% every year and stuff. So that should be roughly translating to the growth of the pool of the CSM. And then the other thing that maybe I'll note while we're on this because I hardly get a question is then on the other parts of the business, I think we've been really growing our wealth asset management business, as Kevin and Tim were saying. And you can see the other fee income had a huge increase, I think, from $55 million to $88 million, which is a 60% increase. It's become now 25% of our earnings, which is, I think, due to, I think, both, one, AUMA of $261 billion going up by 12%. So it's a much larger size. And then I think we're also getting some synergies because now our wealth business actually has scale. So actually it's much more efficient. So I think that will continue to be another strong business earnings growth engine. Kevin Strain: Darko, it's Kevin. I was running individual when we reintroduced par into the individual business, and we never expected it to be such a big component of our sales. We knew it was a good component for clients, but the profitability is 2.6% of the dividend versus the profitability in the non-par sales. So I think Jessica is bringing that sort of back in line where we're getting a better balance between par and non-par sales and more in line with what our expectations would have been a long time ago when we did the strategy. Darko Mihelic: Okay. Understood. I appreciate that. And just a quick question on the U.S. We can see in this quarter the step function in the premiums for medical stop-loss, which is great. Is there a lag? Or is that more or less now the run rate we should think about for this year? And at some point, I'd love to talk about the return on your premiums, but I think you're still maybe for the whole business targeting 7? Or should we think about that as maybe modestly being higher now that the stop loss has repriced in a hard market and your net premiums are higher. David Healy: Yes. So Darko, it's David. Thanks for the question. We obviously continue to see good strong momentum with that business, and we have had an external target of 7% after-tax margin for the combined Group Benefits businesses. And obviously, as this becomes a larger component, that's something that we'll stay focused on and making sure we're above that target over time. At the same time, it is a business that we continue to see a lot of progress with. And I expect that this is what you should expect going forward. Operator: We have no further questions at this time, and I will turn the call back over to Ms. Brady for closing remarks. Natalie Brady: Thanks, operator. That will be the end of the call. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day. Goodbye.