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Operator: Good day, everyone, and welcome to the Saga Communications First Quarter 2026 Conference Call and Earnings Release. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Chris Forgy. Sir, the floor is yours. Christopher Forgy: Thank you, Matt, and thank you to everyone who has taken the time to join Saga's 2026 Q1 Earnings Call. We appreciate your continued support, your interest and your participation in Saga Communications, what we believe is the best media company on the planet. With that, I'm going to turn it over to Sam Bush, our Executive Vice President and Chief Financial Officer. Sam, the floor is yours for now until I take it back from you. Samuel D. Bush: Very good. Thank you, Chris. This call will contain forward-looking statements about our future performance and results of operations that involve the risks and uncertainties that are described in the Risk Factors section of our most recent Form 10-K. This call will also contain a discussion of certain non-GAAP financial measures. Reconciliation for all the non-GAAP financial measures to the most directly comparable GAAP measure are attached in the selected financial data tables. For the quarter ended March 31, 2026, net revenue decreased $1.3 million or 5.6% to $22.9 million compared to $24.2 million last year. Political was not a factor in the quarter as for the first quarter in 2025, gross political revenue was $271,000 compared to $275,000 in 2026. For 2026, we currently have $1.4 million in gross political revenue on our books compared to gross political revenue of $650,000 for the whole year in 2025 and $3.3 million for the year in 2024. Digital revenue was up $900,000 or 25.2% to $4.4 million for the first quarter of 2026 compared to $3.5 million for the same period last year. This growth was not enough to surpass the decline in our traditional advertising revenue, including national, local direct and local agency. Also, other income was down approximately $200,000. This was primarily due to the reduction in rental income we previously received for the tower sites we sold in the fourth quarter last year. Chris will be adding more color to the various revenue line items, both traditional and digital in his upcoming comments. Station operating expenses were approximately flat with the same quarter last year at $22 million. We do expect our station operating expense to increase 1.5% to 2.5% for the year when including the added expenses that we are taking on to build out the infrastructure related to our digital transformation. We continue to expect that our corporate, general and administrative expense to be approximately flat with last year at $12.3 million. As stated in our year-end filings, for the company closed on the sale of telecommunications towers and related properties on October 17, 2025, recognizing a gain of $11.6 million. The total proceeds, including both cash and noncash, were $15.1 million. The net cash proceeds from the sale after expenses was $9.8 million. This does not include the approximately $400,000 being held in an escrow account pending finalizing the landlord's consent to transfer of one final tower. We anticipate this transfer will take place in the second quarter of 2026. Due to the sale and our continued ability to operate as we historically have these tower sites we sold, we have a noncash expense recorded of approximately $50,000 in station operating expense in the first quarter. We will continue to have a noncash expense based on the accounting treatment required to record the noncash gain in each of our future quarters, which will be disclosed in our ongoing releases and filings. The company paid a quarterly dividend of $0.25 per share during the first quarter on March 20, 2026. The aggregate value of the quarterly dividend was approximately $1.6 million. The company also issued a press release this morning, simultaneous with our earnings release that Saga's Board of Directors declared a quarterly dividend of $0.25 per share on May 6, 2026, with a record date of May 22, 2026, and a payable date of June 12, 2026. With the most recent declared dividend, Saga will have paid over $145 million in dividends to shareholders since the first special dividend was paid in 2012. The company intends to continue to pay regular quarterly cash dividends in the future. The company's balance sheet reflects $30.4 million in cash and short-term investments as of March 31, 2025, (sic) [ 2026 ] and $27.8 million as of May 4, 2026. For the quarter ended March 31, 2026, the company recorded capital expenditures of $780,000 compared to $700,000 for the same period last year. The company expects to spend approximately $3.5 million on capital expenditures during 2026. We also continue to evaluate our nonproductive assets with the intent of monetizing those assets at a value that is higher than is recognized in Saga's stock price. This also allows us from a cash perspective to offset the cash spend on some, if not all, of the capital expenditures required to continue to operate our core business as well as invest in our digital transformation. As reported in the fourth quarter, we sold excess land at one of our Iowa tower sites for a little over $200,000. And at the end of this quarter, we sold our old studio site in Springfield, Mass, for approximately $500,000. We expect to be able to report more on this initiative with our second quarter earnings release. The second quarter is currently pacing down high single digits with digital up 10.2%. We continue to have a ways to go before the increases in digital revenue is larger than the decline in traditional broadcast revenue. To increase the pace of the transformation, we are continuing to move forward with a plan to add resources to build the digital infrastructure we need to process the interactive orders that the blended sales process is creating as well as to provide our local management teams in a number of markets that don't already have them with sales managers as well as digital campaign managers. This will allow our media advisers to spend more time calling on existing and potential clients to solicit new business as they will now have the assistance they need to help build the unique blended campaigns that are required to grow our digital business and mitigate the decline in radio ad spend. It also allows us to have the talent to monitor the performance of the blended campaigns, which will allow us to retain a higher percentage of the blended clients. The expense of this initiative will initially be more costly than the revenue it will bring, but it is a necessary expenditure to be competitive with other digital companies and to be better -- and to better serve our clients in meeting their advertising needs. In totality, this will increase our marketing expenses approximately $1.5 million for 2026. We have already hired most of the corporate digital staff and are in the process of continuing to find the right individuals at a market level. All said, we believe Saga is in a strong financial position to improve profitability as our digital initiative improves both local radio and digital revenue. And with that, Chris, I'll turn it back over to you. Christopher Forgy: Thank you, Sam. Constant, sustained, intensive training, teaching, coaching, inspiring and encouraging. These are the clearly stated behaviors that make up the prescription for success for broadcasters in the digital space. Saga has spent the better part of 2.5 years doing just that with our general managers, sales managers, media advisers, content creators in all of our 27 markets. And it has been challenging, to be honest. Recently, I spoke with 16 of our Saga general managers. That's about half of all of our Saga general managers in total. And during that discussion, I conducted a quick survey. I asked the question, how long have each of you been in the broadcast business? Each of the 16 leaders gave their answer, and I then tallied the totals and discovered that the leaders in just those 16 Saga markets had been in the business we love for a total of 594 years. 594 years of acquired skills, knowledge, expertise, intuition, instincts, acumen and other skills and abilities. Traditionally, radio professionals have been very successful and have made a lot of money for their organizations and for themselves over the years on just 5% to 7% of the total ad spend. Parenthetically, 5% to 7% has been radio share of the total advertising pie for some time and has now settled in at about 5%. And now with the digital age, there seems to be an element of fear to change or maybe a fear of loss on the part of broadcasters. But times have changed. Thus what Saga and other broadcasters have been aggressively doing is to expand the knowledge base. In Saga's case, expand the knowledge base in the 594 collective years of acquired skills, knowledge, expertise, intuition, instincts, acumen and finally, success. This, while at the same time, continuing to blunt the onslaught of a macro downdraft in the traditional advertising sector. That's a tall order, and we're progressing on getting it done. In essence, we have been remodeling a home while we're still living in the home. If any of you have ever done that, you know it's rather disruptive. And in this case, old habits die hard. And in the digital space, it can be confusing and alluring with all the new bright shiny options that exist. Thus, it is also critical for us as leaders and operators to avoid the urge to focus or try to focus on too much. As I have said on previous earnings calls, we chose this path of transformational change at a desire for growth and out of necessity. We believe and have seen evidence of it that a local digital advertising market that remains is ripe for disruption. Here's what we see. I've shared some of this with you before. There's an ongoing increase in digital advertising dollars and the rapid growth of digital budgets has outpaced the ability of the advertisers to use them effectively. There are frustrated buyers with unmet needs. The ineffective evergreen, as we call it, set it and forget it campaigns and empty promises create a lack of trust with what the advertiser is buying and with who they are buying it from. There are too many providers and too many conflicting solutions. Everybody's got a new and bright shiny answer. So buyers are confused. Thus our media advisers must be properly trained and equipped with the right resources so they can then provide the clarity and simplicity to help our customers be successful. And finally, many of the digital offerings out there focus too much on the products and not enough on the real journey the consumer goes on once they engage with a product or service. To be clear, Saga is a customer-first company, not a digital-first company. We are a customer first, not a digital-first company. Our blended process honors and respects and grows local radio and allows Saga's core business to do the magic it has always been known for. Radio gets the advertiser wanted and always, always leads to a search. Search gets the advertiser found and display gets the advertiser chosen. In concept, it's simple. Saga's blended digital process is easy to understand, easy to buy, easy to execute, easy to measure and ultimately easy to rebuy. So now it comes back to the feet of leadership. And it is our job to make enough of the right blended sales calls saying the right things to the right people with frequency. So to assist with these objectives, we've deployed a lead gen solution to help Saga's media advisers and media groups get wanted found and chosen. You noticed I said to help Saga's media advisers and media groups get wanted found and chosen. In essence, we are applying the blended strategy to our own enterprise. Practice what we've preached. And now after a couple of years of training, conversations we're having are much different than they ever were 2 years ago. Our leaders continue to put in the work and they are becoming experts. We believe they have learned and know more about consumer behavior and digital advertising than they ever even realize. The other day, one of our leaders said to me, it's more important to get it right than it is to be right, and we are beginning to get it right. And in the process of getting it right and in our quest to catch up with our broadcast brethren after being late to the digital party and attempting to forge a path no one has ever forged before successfully, we may have, may have made some of the training and coaching and inspiring and encouraging a bit too complicated and perhaps tried to focus on a little too much with those leaders with the 594-plus collective years of broadcast experience. These leaders who are then charged with teaching, coaching, inspiring and encouraging others in their organization to go out and tell the story to the consumers and to our customers so they can benefit from the story itself. So with us, clarity and simplicity also applies. It applies to us during our training process. So going forward, we've shifted slightly to not ignore or forego the traditional radio and radio advertising that has served so many in the Saga verse for so long and to ignore it just because it's not blended or doesn't include search and display. Every conversation, every interaction with an advertiser is another opportunity to have a blended conversation that could lead to a sale and success for our customer. We are and will continue to sell e-comm, online news, endorsements, promotions, events and create impeccable spec creative, be great storytellers who tell persuasive stories that allow the customer to see themselves in that story, be intense and curious listeners that help our customers solve problems and use those 594 years of experience gained by our leaders to accomplish this. Now all of that being said, at a time when traditional advertising is extremely challenging and some broadcasters are looking to divest partially or completely and cut expenses or perhaps hang on just long enough for deregulation to become a thing. Saga with the support of management and the Board of Directors continues to invest in the ongoing training and resources and people power necessary to acquire, retain and grow our revenue. And we continue to see green sprouts of success as we remodel the house that we're currently living in. And now speed of execution is what we need. When I got into the business, we called it wearing out your shoe leather. I don't think you call it that anymore. That's what we call it then. These are some of the green sprouts we're seeing. For example, Saga's digital-only blended revenue was up over $1 million, a 103% increase year-over-year Q1 2025 versus Q1 2026. Local direct revenue that was attached to a blended product, the blended products being search and display was up year-over-year Q1 2025 versus Q1 2026, 29%. The average blended local direct radio buy is 70% larger than the average non-blended local direct radio buy. The average total blended buy per client is 3x larger than the average non-blended local radio buy. Year-over-year Q1 2025 versus Q1 2026, we gained 158 blended accounts and lost 419 accounts. So significant attrition is real. Let me say that again, we gained 158 blended accounts and lost 419 non-blended accounts. Attrition is real. And revenue from blended and digital -- excuse me, revenue from blended digital and radio together in Q1 2026 was $3.6 million and was up $1.3 million over Q1 2025. If you do the math, that was up 59% year-over-year quarter-over-quarter. Unfortunately, as Sam mentioned, even with the lift in blended performance, which consists primarily of search and display, we did not yet offset the delta in overall performance for the 3 months ending 3/31/26. Saga finished down 6% in total gross revenue and down 5.6% in total net revenue. As forecasted, digital expenses over the same period increased $649,000 due to the addition of digital people, training, digital products, resources for several of our Saga markets. This investment in infrastructure and people will ultimately enable us to bring several outsourced products in-house to allow us to increase Saga's operating margins on many of the digital products we offer. And during this transition, however, there will be a brief overlap in time where we will be training in-house employees and continuing to use third-party providers and we'll be doing it simultaneously, training and then deploying. This, along with the increase in general digital expenses will not be for any means a long-term proposition. We need these short-term investments in order to compete in an extremely competitive and ever-changing digital marketplace. There will certainly be a ramp-up period for those -- for that revenue to catch up and surpass the expense lift. And we anticipate this crossover period to take place in the third and early fourth quarters of 2026. At that point, our plan is that the investments made will become accretive. As far as Saga's other terribly important revenue initiatives are concerned and ones that we've talked about on virtually every earnings call, for the quarter ending March 31, 2026, local e-commerce revenue was up 23.2%. And looking ahead, April e-commerce registered a record month of $347,000. And January through April, e-commerce is performing up 24% year-over-year for the 4-month period. And the 12-month trailing revenue on e-com platform is nearly $3 million. The vest of digital program was up 15% year-over-year for Q1 2025 (sic) [ 2026]. However, national streaming revenue during the period ending 3/31/26 was down 31.5%. This was due primarily to a change in third-party provider processes and a change in algorithms. Mobile streaming was up 116% and local streaming revenue was down 7%. Online news sites were also down for the quarter, 7.2%. Despite this decline in national streaming, local streaming and the online news, Saga experienced a large lift in overall digital revenue. All in, interactive digital revenue for the period ending 3/31/26, as Sam mentioned, was up 25.2%. More specifically, SEM and search was up 105% year-over-year quarter-over-quarter. Targeted display was up 120% year-over-year, quarter-over-quarter, and social media was up 108% year-over-year and quarter-over-quarter. So in closing, the reach and frequency and intrusive magic of radio, along with search and display, coupled with hundreds of years of experience from Saga's broadcasters, bring the best of all worlds together and engage and enable us to change with the times. It enables us to honor the past and guide the future. That's how we move from simply changing with the times to leading through them together. Thank you again for your time, your interest and support of Saga Communications, what we believe to be the best media company on the planet. Sam, are there any questions? Samuel D. Bush: Yes, Chris, we did get a few questions. I'll start with the first one. Are there efficiency initiatives or automation efforts underway to protect margins? Christopher Forgy: Do you mind if I take that one? Samuel D. Bush: No, absolutely. Christopher Forgy: Okay. We continue to bring digital offerings currently provided, as I mentioned, by third-party providers in-house. This ultimately decreases the cost and increases margins. We've also deployed AI in our on-air and online products and efforts, including our online news as well as other products and services that really are used to create operational efficiencies, and we'll continue to do that. Samuel D. Bush: Very good. Thank you, Chris. There's 2 questions that I'm going to kind of roll together, and I'll reiterate what I've already said. The first, and they're about political revenue. What are your expectations for political ad revenue this cycle compared to prior elections as well as how much of political revenue is already booked or visible at this stage? I'd already indicated that from a political standpoint that we currently have $1.4 million in gross political revenue on our books. Compared to last year, our total political revenue was $650,000 for the year in 2025. And in 2024, it was $3.3 million. So we are expecting to continue to see -- it's nice to see we already have the $1.4 million booked for the year, and we are expecting to see that pick up as we progress into what is more of the political spending time, and that's late third quarter and early fourth quarter as we go into the actual elections. Next question, Chris, was for you. What are the biggest risks to your business over the next 12 to 24 months? Christopher Forgy: Okay. So we mentioned it on the call -- on the earnings call just a moment ago. But clearly, it's speed of execution. Some of the risks that are out there that concern us, we control and others we don't, like, for example, the speed and intensity of the macro downdraft in the traditional advertising sector. But really more importantly, can our markets effectively execute what they've been taught and do it with speed, authority and frequency. That, to me, is the biggest risk over the next 12 to 24 months to Saga that I see currently. Samuel D. Bush: Very good. Thank you, Chris. What KPIs should investors focus on to measure the progress we make in our transformation -- digital transformation strategy? Christopher Forgy: If I was an investor, which I am, I would -- the KPIs I would use and the ones that we're encouraging our leaders and our trainers to use is we measure the lift in search, display and local direct because those are all the drivers that aside from local and local agency and national and all the others. But certainly, we always measure those. But in terms of transformational growth in the blended space, if the KPIs are search growth, display growth and local direct growth. Samuel D. Bush: Very good. And one final question, which I'll address. Do we anticipate further consolidation in the radio industry? And where does Saga fit? Now as we all know, a lot of eyes, including ours, are on the FCC, whether it is continued ownership limit waivers as we've seen recently or an overall change in ownership rules, our first priority will be to become stronger in the markets we already serve. We're not focused on expanding just to get bigger. In reality, only time will tell where Saga fits if there is further consolidation in the industry. And we obviously, as I said, are all like a lot of people watching the FCC and see what actions they take as we proceed through this year. And I think with that, Matt, we can turn it back over to you to wrap up. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation. Samuel D. Bush: Thank you, Matt.
Operator: Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's First Quarter 2026 Earnings Conference Call. Today's call is being recorded, and an audio webcast and presentation are available in the Investor Relations section of the company's website, www.ardmoreshipping.com. [Operator Instructions] A replay of the conference call will be accessible any time during the next 2 weeks by dialing 1 (888) 660-6345 or 1 (646) 517-4150, and entering passcode 89653. At this time, I will turn the call over to Gernot Ruppelt, Chief Executive Officer of Ardmore Shipping. Please go ahead. Gernot Ruppelt: Good morning, and welcome to Ardmore Shipping's First Quarter 2026 Earnings Call. First, let me ask our President, Bart Kelleher, to discuss forward-looking statements. Bart Kelleher: Thanks, Gernot. Turning to Slide 2. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the first quarter 2026 earnings release, which is available on our website. And now I will turn the call back over to Gernot. Gernot Ruppelt: Thank you, Bart. Let me outline the format of today's call, which you can see here on Slide 3. First, I'll give you a brief overview of our first quarter highlights and cover key strategic and capital allocation actions we have taken since our last call. I will then hand over to Bart, who will cover the market outlook and update you on our financial and operating performance. Thereafter, I will conclude the presentation before opening up the call for questions. But before we discuss our earnings, I'd like to take a moment to acknowledge the major disruption in the Middle East and the significant impact this has had on the maritime industry, in particular, on seafarers and their families. While Ardmore has not had any ships in the region since the beginning of the conflict, we express our solidarity with those currently living through this period of hardship and distress. And we continue to engage with and actively support industry organizations, such as The Mission to Seafarers, INTERTANKO and other industry partners who have been playing a vital role in working with the people directly affected by these recent events. Now turning to Slide 4 for earnings highlights. In addition to last week's activity update and TCE guidance, we report today adjusted earnings of $23.6 million or $0.58 per share. We are declaring a dividend of $0.39 per share, in line with our recently updated dividend policy of paying out 2/3 of adjusted earnings effective Q1. Disruption in the Middle East is adding further tightness to an already firm market. Our Q1 TCE performance reflects these market conditions and momentum is accelerating into the second quarter. Our MR tankers earned $33,700 per day for the first quarter and $52,100 per day so far in the second quarter with 55% booked. Our chemical tankers earned $22,300 per day for the first quarter and $32,500 per day so far in the second quarter with 65% booked. MR spot rates are, therefore, at levels nearly 5x our operating cash breakeven of $10,800 per day. And as we'll discuss in the next slide, we are executing on a clear and deliberate long-term strategy, targeted fleet investment, while simultaneously increasing the return of capital to shareholders in a meaningful manner. Moving to Slide 5. Here, we highlight 3 significant updates since our last call. First, we have ordered 2 highly efficient and versatile Handysize tankers at Wuhu Shipyard at a price of $44.9 million per vessel. This price includes a $3 million upgrade package to make the vessels fully IMO2 capable, as well as advanced MarineLine tank coatings. In addition, we are commissioning further performance and safety upgrades. Deliveries are scheduled from late 2028, and we have the option to acquire 2 additional vessels on the same terms. Second, we are doubling our quarterly dividend payout ratio to 2/3 of adjusted earnings. 2025 was a heavy CapEx year, which entailed an extensive dry docking program and significant vessel efficiency and commercial upgrades. This is now behind us. Importantly, we also invested over $100 million in 3 vessel acquisitions that have substantially increased in value since, arguably by about 30% to 35% on a like-for-like basis. And as always, dynamic in our approach to capital allocation, we increased our percentage dividend payout effective this quarter. We have also agreed the opportunistic sale of a 2014-built MR tanker for $35.5 million. At the time of agreement, the delivery window was about 3 months forward, allowing us to continue participating in the strong market with delivery to the buyer expected in June 2026. We believe this is an attractive transaction, not least in conjunction with the previous newbuilding announcement and in context of the aforementioned acquisitions. Overall, these decisions reflect our disciplined through-the-cycle approach to value creation, growing the business in a thoughtful way, investing in high-quality assets that match our strategy and unique organizational capabilities, all while enabling meaningful distribution of capital to shareholders. Moving to Slide 6 for a bit more detail on the newbuildings just mentioned. The vessels will be handysize product and chemical tankers built to full IMO2 specifications with MarineLine coatings. These upgrades will enable us to trade across a wide cargo slate from mainstream oil products to edible oils, renewable fuels and complex commodity chemicals. As a reminder, we upgraded our existing chemical fleet last year with MarineLine coatings, and we are capturing significant benefits through access to premium cargo options and shortened cleaning times. We have undertaken an extensive review of shipyards in China, Korea and Japan, and we believe Wuhu offers a compelling combination of high construction quality and value. In terms of funding, we have ample capacity under our existing revolving credit facilities and access to a wide range of alternative sources. With that, I'd like to hand it over to Bart. Bart Kelleher: Thanks, Gernot. Turning to the market, starting with Slide 8 and some significant shifts in trade flows. This slide illustrates the rerouting of refined product cargoes as a result of the conflict in the Middle East. Shortages in the East are being filled long haul from the Atlantic Basin. Flows from the U.S., Europe and West Africa are replacing lost Middle East volumes with voyage lengths roughly doubling. As Gernot mentioned, unfortunately, there are approximately 130 product tankers currently trapped in the Middle East Gulf. This is having an impact on the available vessel supply. In addition, the recent Jones Act waiver is further supporting U.S. bicoastal trade flows. Moving to Slide 9 for more detail on current market drivers. The effective closure of the Strait of Hormuz is disrupting approximately 15% of the global oil product flows and 30% of crude flows. As a result, refining margins in the Atlantic have reached their highest level since the pandemic recovery, creating notable arbitrage. Asian refineries have needed to reduce throughput with replacement products sourced via long-haul imports from the Atlantic, boosting U.S. exports. Vessels bouncing back to the Atlantic Basin had a further layer of fleet inefficiency, tightening effective supply. This run-up in the Atlantic market has resulted in a lack of vessels in the East, accelerating rates in the Pacific in recent weeks. Product inventories have been significantly drawn down. Looking ahead, a substantial post-conflict restocking requirement should support elevated trading activity for an extended period, all while damaged refining capacity may take several years to restore with replacement volumes continuing to move on long-haul voyages. Turning to Slide 10. Looking beyond the immediate disruption and focusing on the longer-term fundamentals. Energy security is front and center, supporting long-term demand forecast. Meanwhile, refining capacity continues to shift east with closures in Europe and the U.S. adding to ton-mile demand. While the markets understandably pay attention to the situation in the Middle East, these fundamentals are driving the market over the long term. Moving to Slide 11 for the supply side. The chart on the left depicts how the MR fleet has continued to age during this century, while the current order book represents just 15% of the fleet. The Handysize segment is a connected market. But if we look at the Handy order book in isolation, it stands at just 5% against an average fleet age of 18 years. The chart on the right highlights the same story from a different angle. Within the next 5 years, half of the global MR fleet will be over 20 years old and approaching the scrapping window. As a reminder, even if these vessels are not initially scrapped as a result of strong market conditions, their utilization levels notably decline. Turning to Slide 13 and our capital allocation summary. As outlined in our late April press release and commentary today, we have been active across all pillars of our capital allocation policy. And this slide further highlights the numerous actions taken in recent quarters. We're dynamically investing in the business while returning capital to shareholders, including the doubling of our dividend payout ratio to 2/3 of adjusted earnings. Moving to Slide 14, where we detail our financial position. As always, Ardmore remains focused on optimizing TCE performance, closely managing costs and preserving a strong balance sheet. Our low cash breakeven level of $11,700 per day or $10,800 per day, excluding dry dock CapEx, gives us financial flexibility. Considering forward new build CapEx, which we can fund through our existing credit facilities or other alternatives, overall pro forma leverage remains at a modest level. Turning to Slide 15 for financial highlights. Ardmore is well positioned with strong operating leverage. Every $10,000 per day increase in TCE rates translates to an additional nearly $2 per share in annual earnings. For the first quarter, we are reporting adjusted EBITDAR of $37.3 million and as noted earlier, earnings per share of $0.58. We continue to frame EBITDAR as an important comparable valuation metric against our IFRS reporting peers. A full reconciliation is in the appendix alongside our second quarter guidance figures. Moving to Slide 16 for fleet operations. As a reminder, we have limited dry docking activity through 2027. Existing fleet capital expenditure is expected to decline significantly to approximately $8 million this year versus $30 million last year. We have our refreshed fleet on the water capturing the current market. With that, I'm happy to hand the call back to Gernot and look forward to answering any questions at the end. Gernot Ruppelt: Great. Thank you, Bart. Moving to Slide 18. Allow me to summarize. On top of compelling long-term fundamentals, product markets continue to experience significant near-term disruption driving ton-mile demand as is reflected in our TCE performance on this slide. Commodity dislocation and product supply gaps, urgent inventory restocking needs as well as continued structural demand growth point to sustained strength. Ardmore continues to progress through a disciplined, deliberate and dynamic approach to capital allocation. We have made targeted investments in the fleet over the past years through value-focused newbuilding and secondhand acquisitions as well as upgrades to the existing fleet, all while increasing shareholder returns and maintaining responsible debt levels. As always, our investment decisions are guided by the company's strategy, strong corporate governance and a long-term value approach. We now welcome your questions. Operator: [Operator Instructions] Your first question comes from Jon Chappell with Evercore. Jonathan Chappell: I'll start with the dividend policy. I know you've spoken about it a little bit in the prepared remarks, but just trying to understand the timing and the thought process behind it. Again, I understand you've sold the vessel, you have far less capital commitments as it relates to fleet maintenance this year. But is this kind of a sign that investing in this part of the cycle where asset values where they are, just doesn't offer the same type of returns that you think a doubling of the capital return policy to the investors provides? Gernot Ruppelt: Yes. Great question, Jon. I think we really want to look at dividend policy as a subset of returning capital to shareholders as part of our capital allocation policy, which we've been quite consistent with. If you go back to end of 2024, of course, we saw some opportunity in our stock price, and we did some buybacks, continue to pay dividends all throughout. But last year, we also saw some really interesting opportunities to reinvest in the fleet through the acquisitions we've mentioned, some really interesting retrofits, paid down the pref on top of the interesting refi, and we're able to also pay back some debt. So I think for us, this is really a way to reshift and rebalance, acknowledging, of course, that half of debt prices have moved up, but also not in any way, I think, taking away from this kind of rebalanced approach to capital allocation that you really need to see across quarters and across the whole game, which will continue to balance thoughtful and measured reinvestment in the fleet with returning capital to shareholders while maintaining healthy debt levels. Jonathan Chappell: Okay. That makes sense. And then as it relates to fleet strategy, I know you have a couple of time charter outs right now. It feels like in the larger crude asset classes, time charter rates have spiked to all-time record highs, and there seems to be a pretty decent amount of liquidity, especially in the [ VEs ]. Is there a similar thing transpiring in the MR and chem market? And if there is, what's your appetite to kind of lock in at some of these really elevated rates with guaranteed cash flows versus maintaining that optionality in the spot market that you speak to? Gernot Ruppelt: So time charter rates have definitely reacted and moved up significantly. We have not executed on those time charters in the past quarter because we don't quite feel that the value proposition is maybe as pronounced as you would see in crude tankers. And sometimes these things take some time to build just to the nature of the timing and the rhythm of the time charter markets. But we'll continue to monitor that. We, of course, do take note that a lot of the time charter interest right now is coming from oil majors, refiners and major traders, including some long-term interest, and we think that's really encouraging. And we have in the past, opportunistically engaged in time charters out and time charters in. But for now, we've been monitoring, and we're looking at it with great interest, of course. Operator: [Operator Instructions] Your next question comes from Omar Nokta with Clarksons Securities. Omar Nokta: Clearly, nice quarter, and it looks like definitely more to come. I just want to ask, you've got the MRs, which are historically and continue to be your biggest footprint. You've also got the chemical tankers or the handy chemical tankers. Can you just talk a little bit about those segments and how they performed in this market given the Hormuz disruption just in terms of the 37 and the 25 deadweight that you have? Are those capturing similar earnings together? Or would you say there's a detachment where the 37s are closer to the MRs and the 25s are separate? Any color you can give on how those are traded? Gernot Ruppelt: Yes. I think this is actually a great question and maybe something we didn't highlight enough. For us, the order we committed to, these are handysize tankers that cover the full range of liquid products, which includes chemicals, but this is really all about creating trading options for these ships and for the company. It's not some fundamental philosophical leaning deeper into chemicals. For us, it's always been enabling the full range of oil products, which, of course, includes jet fuel and naphtha and all the other road fuels that are in extremely high demand. And equally then alternative cargoes, emerging cargoes because we think this offers really interesting long-term strategic perspectives for the business. And in the near term, it already offers substantial triangulation opportunities. So these ships that we have ordered and the way we're approaching our existing chemical tankers too, these ships are fully conversant in both markets. And we will basically continue to follow the money and just benefit from this added optionality. So right now, even our 25,000 toners that you mentioned, which make up the majority of our existing chemical fleet, half the size of an MR, and typically, under sort of normalized market conditions, they would probably trade 90% in non-CPP cargoes, but we have been redirecting those ships where they now trade almost exclusively CPP because that's where the money is. So really, for us, about trading options, not trading obligations, and continuing to be very versatile players across the full spectrum of products and nonproduct cargoes. Omar Nokta: Okay. That's quite detailed and helpful. And I guess then just as you place those orders and you look to be something that you're looking to be a bit more opportunistic on as you see an opportunity there, as we kind of think about then your footprint going forward, not necessarily saying you're going to potentially deemphasize MRs because clearly, that's your main market, but should we kind of think about you potentially pivoting into maybe expanding more within that business or maybe bringing them both together in size over the long term? Gernot Ruppelt: Yes. I think very important, the way we treat these ships already is in a very integrated fashion where we don't have a separated sort of product or separated chemical part of the business, very much the relationships, cargo flows, market insights are used in a very integrated fashion. So for us, it's really just continued progress along this product and chemical space. For us, we felt like these ships really are terrific strategic fit given our current and our forward strategy. We will continue to follow all sources of deal flow, of course, as we have in the past. It felt that last year, there was a much stronger value in secondhand MRs where we saw values drop by arguably 20%, 25% on the back of concerns on tariffs and what that could mean for the global economy, liberation day and the likes. And we then acted very decisively on MRs. And of course, that was money well spent, given the fact that they are under money by 30%, 35%. And we now saw the value proposition much clearer on these very forward-looking, very versatile fuel-efficient assets. If you compare the price between the 12-year-old MR we just sold to the newbuildings, we're committing to the delta on a like-for-like basis is less than $10 million. So again, it is a combination of strategic fit on one hand, which is products, products with full versatility and flexibility to trade into more complex cargoes, but of course, there's a strategic fit and then there's opportunity and just relative value and being opportunistic at times when we have that -- when the market gives us that chance. Operator: Ladies and gentlemen, there are no further questions at this time. This concludes today's conference call. Thank you for participating. 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: Ladies and gentlemen, welcome to the SGL Carbon Conference Call Results for the First Quarter of 2026. I am Mattilda, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Claudia Kellert. Please go ahead. Claudia Kellert: Yes. Thank you. Good afternoon, and a very warm welcome to our today's conference call. We would like to give you an overview about the business development of the first three months in 2026 and a short overview on the current sentiment today. Andreas Klein, our CEO; and Thomas Dippold, our CFO, will lead the presentation and will answer your questions. So let's start. So I hand over to Thomas Dippold for the financials. Thomas Dippold: Hello, everybody. This is Thomas. It's my pleasure and my privilege to guide you through the results for the first quarter. And as a summary, we can clearly state that our top line, as we already anticipated, and I think as everybody of you joining this call already know, is influenced to a large extent by discontinued unprofitable business activities, which we closed down in the course of the year 2024. And therefore, we cannot repeat this unprofitable sales in this year. We also suffer in some sales drops in Graphite Solutions and also Process Tech and the three effects, all in all, stand for, which you can see on this slide here on Slide #3, they stand for a reduction of our group sales of EUR 50 million or 21.3%, coming from EUR 234 million in the first quarter last year to EUR 184 million this year. And as I said, EUR 28 million clearly can be attributed to the discontinuation of the carbon fiber activities in Lavradio and Moses Lake, which we closed roughly at half year 2025. In Graphite Solutions, we still see weak demand from our silicon carbide customers. The inventory levels are still very high. However, what we are trying to do there is on an individual customer basis, we try to renegotiate with them in a partnership way, some specific adjustment of the CTP contract. And one of them is already in Q1, but I come to that when we talk about Graphite Solutions in particular. And for the first time since four years, the continuous growth, at least in profitability and a stable -- roughly stable sales platform. Also Process Tech suffered a severe downturn in the market. We have anticipated that also in a way. We had always, as you remember that in the second half of last year, already a declining book-to-bill ratio. And this now kicks in, and therefore, also our sales in Q1 for Process Tech suffer. And these three factors influence our top line. However, we managed to keep the EBITDA pre on a group level in, I think, a moderate way in just a moderate decline. Our EBITDA dropped by EUR 4 million coming from EUR 33.5 million in the first quarter 2025. And in the first three months of this year, we reached EUR 29.6 million. So it's a decline by 11.6%, which is less than the decline in our top line. And how does it come from -- or where does it come from? We have lower contributions, of course, from the high-margin silicon carbide business in Graphite Solutions. We have lower contributions from Process Technology, where in the past, you remember that we also saw margins of about 25% and beyond. But we can compensate that with continuous cost savings and our ambition to keep the cost intact. Our EBITDA pre margin increased to, I think, a very healthy 16% for a company which is so capital intensive like us. And this is exactly as we predicted Q1 and which is exactly in line with our guidance. We come to that later in the next chapter. Now on Slide #5, coming to the individual business units, Graphite Solutions, as I already just pointed out, suffered an 8.8% decline in the top line, which stands for EUR 10 million, coming from EUR 116 million last year to now EUR 106. This is influenced in the top line in sales, in EBITDA and also in cash by one settlement with one of our CDP silicon carbide customers, where we anticipate future sales in the course of the year and make it already a payment right now. So we kind of anticipate future sales, but also have a kind of a breakup fee in that where we adjust the conditions of the contract. There's maybe more to come, but Andreas will talk about that later in the chapter when we talk about guidance and outlook and strategy. As I said, we are still suffering from a sluggish demand in silicon carbide customers. The other markets that we see there are also burdened by some difficult macroeconomic environment. You know that our GDP is hardly growing. You know how the overall economic situation in Europe, in particular, but also worldwide in general looks like. And therefore, there is no real spark that our sales go into an opposite direction if we leave out the small, medium reactors, but they're also part of the strategy, Andreas will touch the latest status on that in his chapter. EBITDA-wise, I think we also managed it quite well that our EBITDA dropped only from EUR 21.6 million last year in the first three months to first quarter 2026, EUR 18.4 million this year, which is minus 14.8% or minus EUR 3 million. The negative impact comes from the decline in the high-margin silicon carbide products, which hit then the bottom line overproportionally. We try to do our best in order to keep our costs in the right way. And I think if you see the decline in the margin only from 18.5% last year to 17.3%. I think this is a remarkable achievement when you see that your super high-margin business goes down in a way as it does in Graphite Solutions. Coming to Process Tech. And as I said, for the first time since many years, we have to report a major decline in sales and also EBITDA for this business unit. Where does it come from? We see a postponement and a lot of uncertainty in the meantime in the chemical industry. So even a lot of maintenance projects and also some overhauls and parts and service business is really declining significantly for us. And other investment projects where somebody builds up a new synthesis plant or a heat exchanger really came to a standstill and everybody is waiting that the bottleneck gets solved, and we have a little bit more visibility and clarity whether or not these investments are really viable. So our order intake also in the first three months stays below our sales. So this is also for the next months, we don't expect a real recovery. And when you look at our overall performance in the first three months of the year, and we are coming down from EUR 36.5 million to EUR 25.5 million, which is a EUR 30 million decline -- 30% decline, sorry, for that, and minus EUR 11 million in our top line. This is really remarkable how hard it hit us in Q1. And this, of course, also hits our bottom line as this is a project business, and we only are left with some fixed costs. our profitability declined by 62% coming from EUR 11 million to now EUR 4 million. The absolute impact is minus EUR 7 million is not that much given the impact on the group. But relatively, of course, for Process Tech, this is a big decline that we are trying to fight against in the upcoming months. The margin is now 16.1%, which is not bad at all given the historic averages that we've seen. Of course, in the past -- in the last two, three years, we had a very special economic situation for us where we had margins above 25% and beyond. But we always said that 18% is a very good margin, and I think we came close to that. And maybe we can recover a little bit in the course of the year. And now for the first time, I can introduce our business unit Fiber Composites. As you probably can remember, we merged our remaining carbon fiber activities with the Composite Solutions business unit starting from January 1. So with the start of the new year 2026, we only have Fiber Composites. In the end, you can just add those two business units together. There's hardly inter business unit consolidation effect. In the end, you just can add the two together. This is more or less the right figure. There we see also the impact from the discontinued business, which I started my presentation with. We are coming from EUR 76.6 million first three months last year now to EUR 47.7 million. This is a decline by EUR 29 million. I said EUR 28 million is a decline of the discontinued businesses of the carbon fiber and more or less, this is now the new normal that they roughly have EUR 50 million in a normalized and like-for-like activity. This is a decline by EUR 37.7 [ million ]. But as I said, the big chunk of it comes from the discontinuation of the unprofitable businesses of Carbon Fiber. The profitability, however, increased significantly. There are many factors in that. On the one hand side, we are only left with the profitable remains of the carbon fiber business. We have a steady and healthy Composite Solutions business, which also pays in for that. And also our BSCCB JV, which is consolidated at equity contributed EUR 4 million to that. So if you exclude the EUR 4 million, then our new business unit has an operative result of EUR 5 million. And this is roughly a 10% operating margin. If you include BSCCB, then it's 18.9%. I think it's a super healthy recovery that we've seen. And I think it was a very stringent and consequent restructuring that we did last year. And I think the result of that can be seen now where we are only left with profitable businesses there. Then maybe a quick look on the bottom line of the P&L, the cash flow and maybe also some balance sheet figures. Our net result turned positive. Last year in the first three months of the year, we were left with minus EUR 6 million, which was thanks to the fact that we had EUR 16.6 million restructuring and one-off costs in the first quarter. There are also some purchase price allocation depreciation there. So when you look at in our quarterly report, you see EUR 17.7 million, if I'm not mistaken. Now we see EUR 5.9 million. So it's a big turnaround by EUR 12 million from minus EUR 6 million to plus EUR 6 million. And I think this is the other strong message. We only are left with EUR 1.4 million restructuring and one-off costs in Q1. This is exactly what we told you three weeks ago when we presented our full year figures for 2025. The restructuring is over to a large, large extent. We only have some couple of smaller remains, which we digest in the course of the year. But when you see that the first quarter is only affected by EUR 1.4 million, I think this clearly underlines what we said three weeks ago. Our free cash flow is again positive and increasing from EUR 5.1 million to EUR 6.4 million like-for-like despite the fact that last year, we also had some cash-wise restructuring costs, but we expect the free cash flow to be on the level of last year also for a full year figure. So we are on a good way to achieve that. And last but not least, thanks to the good free cash flow, our net financial debt declined a little bit again. So we have a very healthy leverage ratio of 0.7. Our equity ratio is getting closer to 40%. Again, we are at 39.5% and the ROCE is roughly 10%. So I think these are very, very steady and solid figures that we can report there. For the outlook and the guidance, I hand over to Andreas, who will lead through that chapter. Andreas Klein: Thank you very much, Thomas, and also a warm welcome from my side you know the guidance just a couple of weeks ago in the next slide. You even know that slide, the EUR 720 million to EUR 770 million sales level we guided leading to an EBITDA pre of EUR 110 million to EUR 130 million. However, I would like to highlight two topics in the assumptions part of that slide because they have been particularly reconfirmed in the last couple of weeks. It's number one, the assumption of an overall weak economic development and uncertain geopolitical environment. Of course, we all know that this has been underlined by the ongoing Middle East conflict, the Strait of Hormuz developments and also recently the further tariff activities. So overall, all paying into ongoing uncertainty. And of course, for many of our industries, for many of our customers, that's a negative development because it doesn't enable our customers to take the decisions needed. The second thing I would like to highlight is that we do not foresee a recovery in the semiconductor and automotive sector for 2026 yet. This has been confirmed by the development in Q1 and further customer discussions and of course, also the uncertainty and the tariff developments paying into the automotive sector doesn't help the downstream demand for these applications. Digging a little bit deeper in the next slide, I would like to give you some more details on the current sentiment and how we see it. As already mentioned, we see ongoing high uncertainty, especially in automotive and chemicals, impacting basically all our three business units, as already commented for the Q1 performance by Thomas. We see availability and prices of raw materials and energy negatively impacting key markets. So that's adding to the uncertainty and the weak economic development we were already seeing. And of course, that's a lot driven by the developments in the Middle East. However, we are quite relaxed on the cost side in the short term because a rather nice hedging rate for the year 2026 and also constructive discussions with customers to forward these cost impacts in the chain should be able to limit the effects from the cost side as much as possible. In the area of defense, that's the third point commenting on the current sentiment. We see the budgets feeding slowly through the chains. So the -- especially in the Western government Hemisphere, all these big funds are arriving at the primes in the defense industry, they are feeding through the Tier 1 and Tier 2 steps. And this is what we need to create the certainty and the commitments for us to finally ramp up that business in the area of defense and generate contribution from that business as anticipated in our Strategy 2030 plan. What do we focus on at the moment in light of these developments? We mentioned one example already from the semiconductor side that impacted already Q1. We are in negotiations with our silicon carbide customers, with the CDP customers to, yes, bridge the situation we are currently in together with still high inventories in the chain, although we see them continuously decreasing and bridging from that situation in a sustainable long-term cooperation and the growth future we foresee for silicon carbide as an important demand driver for SGL. The second thing is we are expanding project development in the defense sector, a lot of network cooperation activity in the highlighted application fields in defense from our strategy work. And these discussions that networking, that intensification leads now to piloting steps and a step-by-step ramp-up of that business, hopefully having the potential to impact 2027. As you know, for this year, we didn't take into account any more significant contributions from defense yet. Last but not least, and this is for sure, the most present activity with a rather short-term impact. You know that from the publication from the announcement we did in January, we are working intensely on ramping up the full value chain. It's quite a long value chain in our network for the Energy projects and the orders we had received. So we are operationally well on track in that regard. And this is why we can also here reconfirm the impact of the USD 100 million over the next three years from these orders. The three focus areas to the right side of this slide, they are all paying into SGL Growth 2030. So we can clearly confirm we are intensifying the implementation activities for the long-term strategy, and we consider ourselves to be well on track to leverage the potential as soon that is possible in the respective markets. Many thanks for your interest, and we are looking forward to your questions now. Operator: [Operator Instructions] Claudia Kellert: At the moment, I don't see any questions. So, it seems that our press release and quarterly statements are very clear in our messages. So I think we give you an additional minute to write your questions. So, then I think it's everything really clear. So maybe you have an upcoming question in the next hours or days. Give me a call that we can answer your information needs. Thanks a lot for your time. I know it's a busy day today of announcement of quarterly statements of other companies. So thanks a lot for your participation, and have a nice afternoon. Goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Suburban Propane Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Davin D'Ambrosio, Vice President and Treasurer. The floor is yours. A. D'Ambrosio: Morgan, thank you. Good morning, everyone. Thank you for joining us this morning for our fiscal 2026 second quarter earnings conference call. Joining me this morning are Mike Stivala, our President and Chief Executive Officer; Mike Kuglin, Chief Financial Officer; and Alex Centeno, Senior Vice President of Operations. This morning, we will review our second quarter financial results, along with our current outlook for the business. Once we've concluded our prepared remarks, we will open the session to questions. Our conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, relating to the partnership's future business expectations and predictions and financial condition and results of operations. These forward-looking statements involve certain risks and uncertainties. We have listed some of the important factors that could cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in our earnings press release, which can be viewed on our website at suburbanpropane.com. All subsequent written and oral forward-looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements. Our annual report on Form 10-K for the fiscal year ended September 27, 2025, and our Form 10-Q for the period ended March 28, 2026, which will be filed by the end of business today, contain additional disclosure regarding forward-looking statements and risk factors. Copies may be obtained by contacting the partnership or the SEC. Certain non-GAAP measures will be discussed on this call. We have provided a description of why these measures as well as a discussion of why we believe this information to be useful in our Form 8-K, which was furnished to the SEC this morning. Form 8-K will be available through a link in the Investor Relations section of our website. At this point, I will turn the call over to Mike Stivala for some opening remarks. Mike? Michael A. Stivala: Thanks, Davin. Good morning. Thank you all for joining us today. The fiscal 2026 second quarter was another solid quarter for Suburban Propane. Our core propane business performed extremely well in a very challenging heating season. We made great progress stabilizing production and advancing our expansion projects in our renewable natural gas business. And with our excess cash flows from operations, we continued to reduce our total outstanding debt. With respect to our propane operations, this year's heating season was a tale of two halves. The eastern half of our footprint experienced some of the most sustained colder temperatures in the heart of the heating season than we've experienced in decades, along with several harsh winter storms. Our Western half, on the other hand, reported near record warm temperatures throughout most of the winter. Where we got weather, customer demand surged and our teams worked tirelessly to safely and reliably meet the needs of our customers, many times in some very harsh weather with challenging road conditions. Volumes in our Eastern territories were approximately 3% higher than the prior year second quarter on average heating degree days that were 3% colder than the same period. In the West, volumes were approximately 10% lower on average heating degree days that were 17% warmer. As always, our operating personnel were well prepared to manage the surge in demand in our Eastern markets, supplemented by resources redeployed from certain locations in our Western territories to provide the additional support, and I am so proud of how our teams responded to meet our customers' needs under these conditions while also maintaining their focus on our customer base growth and retention initiatives. In addition to solid volume performance, we effectively managed selling prices amid a volatile commodity price environment influenced in March by the conflict in the Middle East while also maintaining disciplined expense control. In our renewable natural gas operations, average daily D3 RNG injection during the second quarter of fiscal 2026 increased 16% compared to the prior sequential quarter and more than 12% compared to the prior year second quarter, driven by improved facility uptime and the benefits of our capital investments and process improvements that we have implemented since our acquisition of our anaerobic digester facility in Stanfield, Arizona. Additionally, with our new anaerobic digester facility in Upstate New York and our gas upgrading system at our facility in Columbus, Ohio, both of which remain on schedule for completion during the second half of fiscal 2026, we expect to add approximately 200,000 MMBtus of annual production to our RNG platform. We are also pursuing opportunities to increase feedstock intake for both manure and food waste at the Stanfield facility in order to take advantage of additional production capacity at the plant. While environmental credit values, particularly California LCFS prices have been depressed over the past couple of years, we are encouraged by the regulatory steps taken by the California Air Resources Board to create a better balance in the supply-demand equation for environmental credits, which is starting to favorably impact LCFS credit values. We were also pleased to see the Treasury release draft regulations in February 2026 that favorably addressed ambiguities in previous guidance related to the eligibility to earn production tax credits or PTCs under Section 45Z of the Internal Revenue Code as promulgated in the Inflation Reduction Act. The One Big Beautiful Bill Act also extended the window for PTCs by two years until December 2029. During the second quarter of fiscal 2026, we recognized $3.5 million of PTCs earned on D3 RNG injections at our Stanfield facility for the period from January 2025 through March 2026, and we continue to earn PTCs on production going forward. As D3 production at our Upstate New York facility comes online, we expect to be eligible to earn PTCs for RNG injected from that facility as well. So for the second quarter of fiscal 2026, adjusted EBITDA of $175.3 million was essentially flat to the prior year. And combined with our fiscal first quarter results, adjusted EBITDA totaled $258.7 million for the first half of the fiscal year. That's an increase of $8.4 million or 3.4% compared to the first two quarters of the prior year. And with another quarter of strong operating performance and with capital expenditures for our RNG facilities that are nearing completion, we used excess cash flow generated during the second quarter to reduce our total outstanding debt by more than $64 million. We remain disciplined in our capital allocation, balancing investments in the growth of our core propane business and renewable energy platform with preserving balance sheet strength and flexibility in support of our long-term strategic growth initiatives and for enhancing unitholder value. In a moment, I'll come back for some closing remarks. However, let me turn the call over to Mike Kuglin to discuss the second quarter results in more detail. Mike? Mike Kuglin: Thanks, Mike, and good morning, everyone. To be consistent with previous reporting, as I discuss our second quarter results and exclude the impact of unrealized mark-to-market adjustments on our commodity hedges, which resulted in unrealized loss of $1.4 million for the second quarter compared to an unrealized gain of $700,000 in the prior year second quarter. Excluding these and certain other noncash items, adjusted net income for the second quarter was $139.3 million or $2.09 per common unit compared to adjusted net income of $136.9 million or $2.11 per common unit in the prior year second quarter. Adjusted EBITDA for the second quarter was $175.3 million, which was flat compared to the prior year second quarter. Retail propane gallons sold in the second quarter were 161.6 million gallons, essentially unchanged compared to the prior year as the impact of colder temperatures across much of the eastern half of the country on heat-related demand, together with contributions from our recent acquisitions were offset by considerably warmer temperatures in the western half. With respect to the weather, average temperatures across our service territories during the second quarter were 6% warmer than normal and 1% warmer than the prior year. In the eastern half of the U.S., average temperatures were slightly warmer than normal and 3% colder than the prior year second quarter, whereas average temperatures in the West were 22% warmer than normal and 17% warmer than the prior year second quarter. From a commodity perspective, propane inventory levels in the U.S. experienced a seasonal decline during the second quarter, but remained well above historical averages for this time of year. At the end of the second quarter, U.S. propane inventories were at 77 million barrels, which were 75% higher than March 2025 levels and 47% higher than the five-year average for March. Given the increase in inventories and other factors, average wholesale propane prices for the quarter of $0.69 per gallon, basis Mont Belvieu decreased 23% compared to the prior year second quarter. Although average propane prices for the second quarter were lower than the prior year, prices have evolved and have recently begun to rise due to the conflict in Iran and the resulting disruption in global energy markets. At the end of February, just before the start of the conflict, spot propane prices were in the mid-$0.60 per gallon range, whereas most recently, spot prices have risen to the $0.90 per gallon range. Excluding the impact of the noncash mark-to-market adjustments on our commodity hedges that I mentioned earlier, total gross margins of $345.1 million for the second quarter increased $500,000 compared to the prior year second quarter, primarily due to a slight increase in propane unit margins of $0.03 per gallon or 1.7%. As Mike mentioned, following the publication of proposed treasury regulations in February 2026, which provided sufficient clarity for us to conclude that the production and sales of our RNG qualified for production tax credits under Section 45Z, we recognized $3.5 million of PTCs earned on D3 RNG injections at our Stanfield, Arizona facility for the period from January 2025 through March 2026. The benefit was reported as a reduction to operating expenses and included a catch-up adjustment of $2 million for credits related to fiscal 2025 and $800,000 related to the first quarter of fiscal 2026. With that said, combined operating and G&A expenses of $169.5 million for the quarter were flat compared to the prior year second quarter as higher payroll and benefit-related expenses along with higher fuel and vehicle maintenance costs, driven by elevated activity levels to meet stronger customer demand in the Eastern territories and an increase in accruals for self-insurance matters were offset by the recognition of production tax credits and a $2.9 million insurance recovery related to the partial settlement of certain claims associated with our RNG acquisition in December 2022. Net interest expense of $19.7 million for the quarter decreased 4.2% compared to the prior year second quarter, resulting from a lower level of average outstanding borrowings under our revolving credit facility and lower benchmark interest rates on revolver borrowings. Total capital spending for the quarter of $24.7 million was $5.4 million higher than the prior year second quarter, primarily due to the construction efforts at our Columbus, Ohio and Upstate New York RNG facilities. On a year-to-date basis, our total growth CapEx for our RNG facilities totaled $19 million, and our full-year capital spending estimate for the existing projects is $35 million to $40 million. Turning to our balance sheet. During the second quarter, we utilized excess cash flows from operating activities to repay $64.3 million of borrowings under the revolver. Our consolidated leverage ratio for the trailing 12-month period ended March 2026 improved to 4.34x compared to 4.54x for March 2025 with an increase in adjusted EBITDA of $6 million and total debt reduction of $32.3 million. We have now moved through our historically high period of seasonal working capital needs into the fiscal quarters we expect to generate excess cash flows. We will continue to remain focused on utilizing excess cash flows to strengthen the balance sheet as opportunities arise to fund strategic growth, including the remaining growth capital for our RNG platform. We have more than ample borrowing capacity under our revolver to support our capital expansion plans and ongoing strategic growth initiatives. With that, I'll turn the call back to Mike. Michael A. Stivala: Thanks, Mike. As announced on April 23, our Board of Supervisors declared our quarterly distribution of $0.325 per common unit in respect of our second quarter of fiscal 2026. That equates to an annualized rate of $1.30 per common unit. Our quarterly distribution will be paid on May 12 to our unitholders of record as of May 5. Our distribution coverage continues to remain strong at 2.2x for the trailing 12-month period ended March 2026. So just a few closing remarks. The management team here at Suburban Propane has been together for decades now. We've built our core propane business to be recognized as best-in-class with our hyperlocal operating model. As evidenced by our performance in this year's heating season, our business and our outstanding personnel are very well situated to adapt and handle whatever weather conditions come our way. When others in our industry may struggle to keep up in high demand scenarios, our hard-working and dedicated teams across the country rise to the occasion. I'm super proud of their efforts in the face of some very challenging operating conditions this past winter. They've also done a great job executing on our customer base growth and retention initiatives, especially meeting growing demand for propane in certain unique applications, such as EV charging stations, powering port equipment, power generation for data center construction, backup power generation and multipurpose agricultural uses. We're also proud of our expanded sponsorship with NASCAR and Speedway Motorsports as the official propane of NASCAR, which has given us the opportunity to showcase the power and versatility of propane in a very high-performance setting at 28 races throughout virtually every weekend of the NASCAR Cup Series. In the meantime, we have taken a measured and disciplined approach towards the execution of our long-term strategic growth plans as we continue to build out a renewable energy platform to support the evolving clean energy needs of our customers. As I mentioned in my opening remarks, we've been focused on stabilizing production levels, building a team and increasing the scale of our RNG platform, a process that we call suburbanizing the platform to deliver the same operational discipline and excellence that we have been known for within the propane space. We have made tremendous progress, and we believe that the market for RNG is still in the early stages with tailwinds that will provide positive support for long-term growth potential given the ultra-low carbon qualities and its blending or drop-in replacement capabilities with traditional natural gas. And as we are coming up on our 100-year anniversary in 2028, we view the build-out of our renewable energy platform as truly long-term strategic investments to help set Suburban Propane up for its next century of success. In closing, I want to once again thank the more than 3,300 dedicated employees of Suburban Propane for their unwavering commitment to safety and outstanding customer service during a very challenging winter heating season and during a time when our customers needed us most. Thank you. As always, we appreciate your support and attention this morning, and we'll now open the call for questions. And Morgan, if you could help us with that. Operator: [Operator Instructions] It appears there are no questions at this time. I would like to turn the conference back over to Mike Stivala for any further remarks. Michael A. Stivala: Great. Thanks, Morgan, and thank you all again for joining us. I hope you have a great summer. We look forward to talking to you again in August as we close out our third quarter results. So thank you again, and please be safe. Operator: This concludes today's call. Thank you for attending. You may now disconnect and have a wonderful rest of your day.
Operator: Good morning, everyone, and welcome to the Aris Mining First Quarter 2026 Results Call. We will begin with an overview from management followed by a question-and-answer period. [Operator Instructions] The conference is being recorded. [Operator Instructions] Please note that the accompanying presentation that management will refer to during today's call can be found in the Events and Presentations section of the Aris Mining's website at aris-mining.com. First quarter 2026 financial reports for Aris Mining have been filed on SEDAR+ and EDGAR and can also be found on their website. I would now like to turn the conference over to Mr. Neil Woodyer, Chief Executive Officer. Please go ahead. Neil Woodyer: Thank you, operator, and welcome to our Q1 2026 earnings call. Joining me today are Doug, Oliver, Cam, Dustin, Corne and Alejandro. But before we begin, please note the disclaimer on Slide 2. Moving to Slide 3. Aris Mining delivered a solid start to 2026, supported by higher production, a stronger realized gold price, and continued progress across our growth portfolio. Gold production totaled 74,000 ounces, gold revenue of $364 million, up 20% from Q4. Adjusted EBITDA of $212 million, up 25% and adjusted net earnings of $124 million or $0.60 per share, up from $0.46 per share in Q4. Our operations generated cash flow that funded our growth and expansion projects during the quarter, while generating $42 million of free cash flow. Looking across our portfolio, we continue to advance each of our four assets. At Segovia, the ramp-up of the expanded mill is progressing well. The focus remains on increasing owner mining rates and developing our CMP business to support the new 3,000 tonne per day processing facility. At Marmato, construction of the new 5,000 tonne per day, CIP plant remains on schedule for first gold production in Q4 of this year. In April, we connected the decline to the crosscut, making an important milestone and providing direct underground access between the mining -- the bulk mining zone and the new CIP plant infrastructure. Toroparu, the pre-feasibility study is progressing well and remains on schedule for completion in the second half of 2026, so we can make a construction decision in early '27. Updated mineral resource and reserve estimates are advancing to support the mine schedule optimizations. Select preconstruction activities continued during the quarter, including construction of the bridge of the Puruni River crossing, key personnel ramp-up, camp expansion and ongoing road works. At Soto Norte, the environmental license application is nearing completion, and it's on track for submission in the second quarter. And we continue to actively engage with the Colombian regulators to support a collaborative approach to the submission and review process. With our producing assets delivering strong results and our growth projects continuing to advance, Aris Mining is well positioned to achieve its longer-term objective of approximately 1 million ounces of annual gold production from assets we currently own. And with that, I'd like to hand over to Cam to review our financial performance. Cameron Paterson: Thanks, Neil. Turning to Slide 4. The key message from the financial results this quarter is the continued strengthening of our business. We're seeing the benefit of higher production volumes, strong realized gold prices and disciplined cost management flowing through the income statement and into the balance sheet. The charts on this slide show the following progression over the past 5 quarters. Gold ounces sold, revenue, adjusted EBITDA and adjusted earnings per share have all moved meaningfully higher. And importantly, the improvement has been consistent across our financial metrics. Please turn to Slide 5 for a discussion of the key cash flow drivers. We ended the first quarter with a cash balance of $472 million, up $80 million from the $392 million at the end of 2025, reflecting $103 million of operating free cash flow after sustaining capital and taxes paid, which despite an additional $44 million from increased cash mine operating earnings was $22 million lower than it was in Q4 due to working capital movements and share-based incentive settlements. The $61 million invested in growth and expansion capital comprised mainly of the $47 million spent at Marmato, as well as a $40 million installment received under Marmato's precious metal stream following the achievement of the 50% construction capital expenditures milestone. In Q1 2026, just as in full year 2025, we generated free cash flow while investing significantly in organic growth, which contributed to the steady growth of our cash balance over the year. The only exception being the temporary decline of our cash balance in Q4 of last year, which reflected the $60 million cash consideration paid for our acquisition of the remaining 49% interest in Soto Norte. It's also notable that our net debt was reduced to $1.6 million, down from the $86 million at year-end due to our increasing cash balance. I'd like to now hand the call over to Dustin to discuss our operational results. Dustin VanDoorselaere: Thank you, Cam. Turning to Slide 6. Aris Mine reported consolidated gold production of 74,300 ounces in the first quarter, a 6% increase over Q4 '25, to which Segovia contributed 66,600 ounces and Marmato 7,800 ounces. Worth highlighting are the strong gold grades delivered at both of our operations. At Segovia, our mill feed in Q1 had an average gold grade of 12.41 grams per tonne, significantly above reserve grade of 10.7. At Marmato, the first quarter mill feed grade was 3.53, also above reserve grade of 3.16 grams per tonne. At Segovia, our AISC margin increased to $2,935 per ounce, up 128% from Q1 '25 and up 25% from Q4 '25, reflecting higher realized gold prices and increased gold sales volumes. That translated to an AISC margin of $199 million, up 31% from Q4 '25. Owner-operated mining comprised 64% of the mill feed with an AISC of $1,492 per ounce, down from $1,662 per ounce last quarter and outperforming the full year 2026 guidance range of $1,700 to $1,800 per ounce. This improvement was primarily driven by higher gold ounces sold on stronger average gold grades. Our CMP business generated an AISC sales margin of 40%, achieving the top end of the full year 2026 guidance range of 35% to 40%. Turning to the chart on the bottom right, we highlight the continued expansion in margins at Segovia, driven by the rising realized gold prices and disciplined cost controls. In Q1 '26, the AISC margin continued to widen compared to previous quarters. Looking ahead, with our production profile being weighted towards the second half of the year and a supportive gold price environment, we're well positioned to keep generating strong cash flow to fund our growth. Moving to Slide 7. As discussed previously, we installed a second ball mill at Segovia in June of last year, which increased our processing capacity by 50% up to 3,000 tonnes per day. In order to run our expanded processing plant consistently at 3,000 tonnes a day, we need to increase both our owner mining rates and our CMP mill feed. To facilitate the former, we're enhancing haulage capacity by way of building an interconnected underground haulage circuit, which will connect three of our four principal underground mines at Segovia being El Silencio, Providencia and Sandra K. And we're driving new ramps to surface in both our El Silencio and Providencia mines. In addition to increasing the mill feed, these development projects have a few other positive attributes, such as enhanced productivity by enabling more efficient transport of workers, ore and waste, shortened cycle times, eliminating long routes and multiple shafts, and we also eliminate a lot of our haulage through the main town of Marmato. We expect to deliver the El Silencio ramp in Q4 '26, the connection between El Silencio and Sandra K in Q1 '27 and the Providencia ramp and connection to El Silencio in Q1 '28, enabling steady-state production from next year onwards. With that, I'd like to pass it over to Corne for an update on the construction progress at Marmato. Cornelius Lourens: Thank you, Dustin. Moving to Slide 8. At Marmato, construction of the CIP plant and development in the bulk mining zone continues to advance with significant progress, both underground and on surface. Last month, we achieved an important milestone as the new underground decline broke through into the Los Indios crosscut. This connection enabled direct access from the bulk mining zone into the new 5,000 tonnes per day CIP plant. It also establishes an additional access and ventilation pathway, facilitating ore and waste haulage between existing and new infrastructure and supporting the initial ramp-up of mine production. Construction of underground workshops, main pump station and fuel offices will begin in Q2 2026. Development of the main decline to the bulk mining zone is over 1,200 meters advanced, which equates to a completion rate of more than 70%. Moving to Slide 9. On surface, bulk earthworks for the process plant platform have been completed, along with key foundations for the mills, tailings thickener, and the leach and CIP tanks. Civil, mechanical, and electrical works are continuing to advance well. In terms of equipment, all long lead items required for first gold have been ordered. Major equipment, including the primary crusher, SAG and ball mill, and filter presses are ready to be moved from storage in Cartagena and Medellin to our Marmato construction site, with deliveries beginning this month. In Q1, we entered into a leasing agreement with Sandvik, ordering an underground mining and development fleet. Equipment deliveries are scheduled to commence in Q3. Construction activities are progressing as planned, and we remain on schedule for first gold in Q4 2026. We expect a progressive stage production ramp-up to steady-state operations during 2027. Turning to Slide 10. As you'll see in the photos of this slide, work is continuing around the clock, underscoring both the pace and scale of development underway. Approximately 850 people work on site during the day, and 250 people are on night shift, focused on work streams we deem safe at night. Last month, the project team achieved 365 days lost time, injury free. And I would like to thank everyone involved for their continued commitment to safe, safely advancing the project. A new video showing the progress of the project is also available on our website. The link is available at the bottom of this slide. With that, I'd like to pass it over to Neil for his closing remarks. Neil Woodyer: Turning to Slide 11. Building on our strong first quarter performance, we remain firmly committed on track to deliver our full year '26 guidance of 300,000 to 350,000 ounces. Looking ahead, our focus remains on advancing all four core assets. Ramping up Segovia throughout the year, targeting gold production of 265,000 to 300,000 ounces for the year. Achieving the first pour for Marmato CIP plant in Q4, followed by a progressive ramp-up during 2027. Publishing the PFS for Toroparu in the second half of the year, as well as conducting additional work for enabling construction readiness and a construction decision for early 2027. Submitting the environmental license application for Soto Norte in Q2. With our producing assets delivering strong results, our financial position, and our growth projects continuing to advance, Aris Mining is well positioned to achieve its longer-term objectives of approximately 1 million ounces of annual gold production from the assets we currently own. Thank you for joining us today. Operator, and please open the line for questions. Operator: [Operator Instructions] Our first question is from Carey MacRury with Canaccord Genuity. Carey MacRury: Congrats on the strong results. Maybe first on Segovia, just wondering if you can give us some more color on the development. Just given that some of these ramps won't be done until you're showing 2028. Expect -- when should we expect you to hit the 3,000 tonnes a day? And is that going to happen sort of continuously over the next four or five quarters, or is there a step function? Just some more color on how we should think about the ramp-up of underground mine tonnes. Dustin VanDoorselaere: Hi, Carey. I'll take that one. So yeah, obviously, some of the development extends into 2028, being mainly in Providencia. But our biggest production area, as you know, from your visit, is Silencio and all of that development is coming to completion at the end of this year. So our expectation is to hit the 3,000 tonne a day mark towards the end of this year, early 2027 and maintain it. Providencia coming online through the ramp and the access just makes it that much easier for our logistics. But really, it's the Silencio and Sandra K connections that really open up our 3,000 tonne a day production. Carey MacRury: Okay. Great. And should we see a pickup in Q2? Or is it more of a H2 pickup? Dustin VanDoorselaere: No, it's more towards the second half. It will be probably late Q3, Q4 where we really start to see it. Again, all that development just having to get completed and open these additional areas and debottleneck our Silencio mine. Carey MacRury: Okay. And then just on the grade at Segovia, obviously, it was high grade this quarter, 12.4 grams per tonne. Was that just positive grade reconciliation? Should we expect that to continue into Q2? Or just some guidance on grade available? Dustin VanDoorselaere: No. Our grade guidance still remains within the 9 to 10 grams per tonne. We got lucky in our -- one of our newer veins. We kind of hit a high-grade pocket, and we really wanted to push and get that out given some of the logistical challenges. And we basically focused on that through Q1 to mine that area out and get it up into our mill. Carey MacRury: Okay. Great. Maybe just one last one. I mean your cash balance continues to increase. You're generating free cash flow. On my numbers, it looks like that's set to continue at these prices. Are you guys thinking about share buybacks or anything like that at this point in time? Or just how you're thinking about the balance sheet? Cornelius Lourens: No, I think when you look at our cash balance, you look at the fact that Segovia is generating a lot of cash. I understand the point you're raising. But on the other hand, we are doing the expansion of the two mines at the moment, and we have two more projects in the pipeline that certainly one we would hope to start constructing next year. So we have a long-term cash requirement as we expand the business. Ultimately, when we're generating cash without expansion, of course, we'll turn to a dividend. Operator: There appear to be no further questions. I'd like to turn the conference back over to Mr. Wood for closing remarks. Neil Woodyer: Thank you, operator. And thank you, everybody, for taking the time to come and listen to the presentation. We're very happy with the results. And believe me, we continue -- we will continue to perform in the future as we have in the past. And thank you very much, everybody. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Atmos Energy Corporation Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jennifer Wernicki, Director of Investor Relations and Assistant Treasurer. You may begin. Jennifer Wernicki: Thank you, Kayla. Good morning, everyone, and thank you for joining our fiscal 2026 second quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 29 and are more fully described in our SEC filings. With that, I will turn the call over to Kevin Akers, our President and CEO. Kevin? John Akers: Thank you, Jennifer, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported year-to-date fiscal '26 net income of $985 million or $5.92 per diluted share, and we updated our earnings per share guidance range to $8.40 to $8.50. Our capital expenditures for the first half of the fiscal year totaled $2 billion, with over 89% of those investments focused on enhancing the safety and reliability of our distribution, transmission and underground storage systems. Across our service territories, we continue to see steady customer growth. For the 12 months ending March 31, 2026, we added over 51,000 new customers with over 39,000 of those new customers located here in Texas. And during the second quarter, we added over 800 commercial customers and 4 new industrial customers. This continued demand from all customer classes demonstrates the value and vital role natural gas plays in economic development across our service territories. In APT, we continue to work to enhance the safety, reliability, versatility and supply diversification of our system as well as support the continued growth we are seeing in the local distribution companies behind APT system. During the second quarter, we completed Phase 2 of the Line WA project. This project installed approximately 44 miles of 36-inch pipeline to the west of Fort Worth to support growth in this area of the DFW Metroplex. Additionally, APT enhanced supply optionality, reliability and system versatility with the completion of 5 interconnect projects and adding nearly 100,000 Mcf a day of additional natural gas supply to the APT system. These investments further enhance APT's ability to serve the LDC customers behind the city gate. These LDC customers also benefit from APT's Rider REV tariff, which shares approximately 75% of APT's other revenue build that is above a specified benchmark. As a reminder, these revenues vary from year-to-year based upon available capacity on our pipeline and natural gas pricing dynamics in Texas. Over the last 3 years, these customers have received approximately $150 million in total as credit from the Rider REV tariff. As you'll hear from Chris in a few minutes, natural gas pricing dynamics have positively impacted APT other revenue build in the first half of fiscal 2026 and are expected to favorably impact our financial results for the remainder of the fiscal year. Our customer support associates and service technicians continue to provide exceptional customer service, achieving customer satisfaction ratings of 97% for the first 6 months of the fiscal year, truly outstanding work by this team. Additionally, during the first half of the fiscal year, our customer advocacy team helped over 33,000 customers to receive approximately $9.5 million in funding assistance. And recently, we were named to the Forbes list of America's best large employers, ranking as one of the top 100 employers overall and placing second among all utilities. This is the sixth consecutive year Atmos Energy has been named to this list. This recognition reflects the continued dedication, focus and effort of all Atmos Energy employees to safely deliver reliable and efficient natural gas to homes, businesses and industries to fuel our energy needs now and in the future. Their commitment has us well positioned for the remainder of the fiscal year. Now I'll turn the call over to Chris for his update. Christopher Forsythe: Thank you, Kevin, and thank you to everyone for joining us this morning. As Kevin mentioned, earnings per share for the first 6 months of the fiscal year was $5.92, which represents a 12.5% increase over the prior year period. Our year-to-date results include $94 million or $0.43 from the impact of Texas House Bill 4384. Of this amount, $44 million was recognized in our Distribution segment and the remaining $50 million was recognized at APT. During the second quarter, the Texas Rev Commission completed its final rulemaking to codify Texas Household 4384 into Rule 7.7102. As you know, this rulemaking reduces lag in Texas by permitting gas utilities to defer post-in-service carrying costs, depreciation and ad valorem taxes associated with non-eligible Rule 8.209 capital investments such as new customer growth and system expansion. Since adopting Rule 7.7102 in late fiscal '25, we've been presenting the deferral of post-in-service carrying costs as a reduction to interest expense to be consistent with Texas Rule 8.209. With the new rule now final, we have determined it is most appropriate to present the deferral of post-in-service carrying costs in the income statement line items where the incurred costs are classified, O&M and interest expense. This updated presentation has been reflected in our fiscal second quarter and fiscal year-to-date results, which reduced reported O&M for the first 6 months of the fiscal year by $41 million. Our year-to-date performance was influenced by several additional factors. Freight increases in both of our operating segments totaled $171 million. Operating income increased by an additional $32 million due to residential and commercial customer growth and increased customer load. Finally, APT's through-system revenues net of Rider REV increased about $16 million or $0.08. Substantially, all of this increase reflected higher spreads realized during fiscal '26 compared with fiscal '25. During this first 6 months of fiscal '26, the spreads we captured averaged $4.35 compared to $1.80 in the prior year period, reflecting rising associated with gas production, constrained takeaway capacity and lower demand due to unseasonably warm weather during this past winter heating season. Excluding the impact of Rule 7.7102 deferrals, consolidated O&M increased $27 million, reflecting higher employee, compliance and safe-related spending in our distribution segment and higher maintenance spending at APT. From a regulatory perspective, since the beginning of the fiscal year, we have implemented $136 million of annualized operating income increases in our distribution segment. Currently, we have 13 filings in progress, seeking nearly $600 million in annualized operating income increases. We expect to implement approximately 40% of this amount primarily during our third fiscal quarter. The largest filing we expect to implement during the second half of the fiscal year, APT's [ script ] filing seeking $112 million in annualized operating income increases is scheduled to be considered by the Texas Royal Commission next Tuesday, May 12. Our equity capitalization as of March 31 was 61%, and we did not have any short-term debt outstanding. During the second quarter, we extended our 4 credit facilities that provide $3.1 billion in total liquidity. At quarter end, we had $4.1 billion in available liquidity to support our operations. This amount includes approximately $890 million in net proceeds available under existing forward sale agreements, which is expected to satisfy the remainder of our anticipated fiscal '26 equity needs and a portion of our anticipated equity needs for fiscal '27. As we reported last night, we have increased our fiscal '26 earnings per share guidance from an original range of $8.15 to $8.25 (sic) [ $8.35 ] to a new range of $8.40, $8.50. We expect the remaining contribution to fiscal '26 earnings per share to be recognized somewhat evenly by quarter in the back half of the fiscal year. Two key items are driving the increase in our fiscal '26 guidance. First, our guidance reflects our expectations for the performance of APT's through-system business for the second half of the fiscal year. As we've mentioned before, going into a fiscal year, we based our assumptions for this line of APT's business, assuming revenues in line with our benchmark based on historical norms for available capacity on our system and pricing. Although we have recently seen some modest improvement in Waha, we anticipate natural gas pricing in the Permian will remain challenging for the remainder of our fiscal year. As I mentioned earlier, this part of APT's business added $0.08 period-over-period. We currently anticipate that APT's through-systems business will add an additional $0.08 to $0.12 for fiscal '26 results during the second half of the fiscal year. Secondly, with final rulemaking completed and improved visibility into the timing of our capital spending in Texas for the remainder of the fiscal year, we believe the impact of implementing Rule 7.7102 will be higher than originally planned. We estimate this impact will range from $155 million to $165 million for the entire fiscal year, including the deferral of incurred post-in-service carrying costs, depreciation and ad valorem taxes. We still anticipate our O&M to be in the range of $865 million to $885 million. We have reflected the estimated impact of Rule 7.7102 deferrals in our O&M guidance. However, we anticipate this decrease to be substantially offset by higher system monitoring compliance and employee costs. And we anticipate our interest expense to be in a new range of $155 million to $160 million. This increase is solely due to the reclassification of the 7.7102 deferrals of interest into O&M that I mentioned earlier. Finally, we remain on track to spend approximately $4.2 billion in capital expenditures in fiscal '26. We appreciate your time this morning and your interest in Atmos Energy. We'll now open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Paul Zimbardo: It's Paul Zimbardo on for Julien. The first I had was just on the dividend increase, like roughly 15%, again, quite impressive and better than where you've been trending in the past. Just any thoughts on kind of how sustainable? Do you intend to kind of keep increasing above trend? And just overall thoughts on the dividend perspectively, would be useful. John Akers: Yes. I think we stated for a while now that we're going to grow the earnings per share at a 6% to 8% range, incrementally grow the dividend, and that's where we're going to continue to go as we move forward. Christopher Forsythe: Yes. As a reminder, that 15% year-over-year is reflective of the dividend being rebased in addition to rebasing the earnings per share because of the expected impact from Texas Rule 7.7102. Paul Zimbardo: Okay. So you're kind of converging back to where you were before after the rebates, okay. Christopher Forsythe: Yes. Paul Zimbardo: And then the other was just -- could you unpack a little bit more? I know you gave some detail on the kind of the shift between O&M and interest expense. If you could give a little more detail and just confirming that is kind of a basically a one-for-one change, not a net earnings impact there. Christopher Forsythe: Correct. It is not a net earnings impact, is a reclassification in how we present the deferral of the post -- incurred post-in-service -- incurred carrying costs at the end of the day. So originally we had all of that in the interest expense line item, final rulemaking, we looked at the proper classification of that. Incurred post-in-service carrying costs reflects all costs associated with the gas plant investments. That has been -- is subject to the rulemaking that has not yet reflected in rates that includes O&M, interest and other costs to be elected to present that deferral in the line item of the income segment where the costs were originally incurred and reported, if that makes sense. Paul Zimbardo: Okay. No, that does make sense. And then if I can sneak in a last one quickie. You mentioned that there's been a pretty dramatic move in Waha. Just any way that you would frame that kind of beyond 2026 for customers? John Akers: No. I mean, obviously, we don't have a crystal ball out there. We'll continue to watch what happens over the next 6 months. We're not even into the real heat here in Texas. So the power gen load hasn't kicked in yet as well. As Chris said earlier, we have seen some moderation from some of the historic highs at Waha and the basis differential. We're going to continue to monitor as we go through the next 6 months. We'll keep you updated on these calls as we move forward. Operator: And your next question comes from the line of Richard Sunderland with Truist Securities. Richard Sunderland: Turning to the guidance raise. I know you parsed two different pieces there. How do you think about that as a base for growth going forward? Obviously, that clarification on rulemaking for Texas 7.7102 sounds like a new long-term view, but is that $8.40 to $8.50 a good clean base for the 6% to 8%? Christopher Forsythe: Yes. At this point, we think that's a pretty good base to think about fiscal '27 and beyond as a launch point within that range. Richard Sunderland: Great. And then on the ATM, I think if I'm reading the disclosures correctly, you didn't price anything on the quarter. I know you're a little bit ahead with having part of '27 addressed. But how are you thinking about activity there? Was there any hang up on the quarter specifically and just timing overall of ATM activity? Christopher Forsythe: No. On the ATM activity, you're correct, we didn't price anything during the second quarter. As you mentioned, we were fully priced for fiscal '26. We got a pretty good portion already established for fiscal '27. So we just wanted to kind of see what the market is doing. As you know, there's a lot of volatility in the second quarter with geopolitical events and economic news and whatnot. So we decided to keep our powder dry for the quarter, but we'll evaluate as we move forward pricing opportunities, so we can get ahead -- further ahead on fiscal '27's equity needs at the right time. Operator: [Operator Instructions] Your next question comes from the line of Ryan Levine with Citi. Ryan Levine: I appreciate the disclosure around the commodity price movements in Waha. Are you going to break out what the earnings contribution was this quarter? And any early indications of what you were seeing last month? Christopher Forsythe: We're breaking out the earnings for the quarter on just the APT through-system business? Ryan Levine: Correct. Christopher Forsythe: Well, as I said, I look at it more on a year-over-year basis because we really just look at our performance in totality on a full fiscal year basis. And that was $16 million or about $0.08 year-over-year. Ryan Levine: Okay. And would you -- and given what we saw last month, would the monthly benefit be trending higher, given some of the commodity spread movements that we have seen? Christopher Forsythe: Well, as I mentioned, kind of in wrapping up my comments around the guidance, we're anticipating another $0.08 to $0.12 in the second half of this fiscal year, which contemplates the activity you saw in the month of April. Ryan Levine: Great. And then lastly, just in terms of the Dallas Fort Worth area growth dynamics, what are you seeing on the ground in terms of kind of just customer growth and expansion of volumes across your footprint? John Akers: Again, as we talked about in my opening remarks, of the 53,000-or-so we added for the last 12 months ending March about 39,000-plus-or-so of that was here in Texas. So again, we continue to see good growth across all areas, good residential growth across Texas. And again, with -- on our opening remarks there, good commercial growth as well with what we've added year-to-date. And the industrial side continues to show good positive results as well across the footprint, adding industrial accounts, Kentucky, Tennessee, Virginia area as well. Operator: Your next question comes from the line of Aditya Gandhi with Wolfe Research. Aditya Gandhi: I wanted to start on your comment about $8.40 to $8.50, the updated guidance range being a good base or launch pad for 6% to 8% growth in 2027 and beyond. Just can you maybe speak to how you're thinking about APT spreads maybe normalizing when you get back out to 2027, and how we should think about that impact in '27 and beyond? Is that sort of contemplated within sort of your 6% to 8% growth view off of the updated guidance range? John Akers: Yes. At this point, I'd encourage us to let's get through the next 6 months and just see what the world brings. Again, we've seen where the spreads have been the previous 6 months. We've got a short window end of what it looks like here in the next few weeks. But again, we haven't even gotten into the heating season yet here. So we're going to let the market move through the next 6 months. We'll see what it presents itself. And as we get closer to the end of '26, and we're ready to talk about '27, we'll let you know what we think about the market and where the market currently stands, and how we incorporate that into '27 and forward. Aditya Gandhi: Understood. And my second question is regarding your comment about the benefit from the Texas legislation now the final rulemaking being higher than originally planned sort of in that $155 million to $165 million range for fiscal year '26. Can you, one, clarify, is that a pretax or posttax amount, and it seems significantly higher than the original sort of maybe $0.40 annual run rate that you've pointed to. How should we think about that benefit sort of beyond '26? Should we see a similar maybe even growing benefit as your capital plan grows in the out years? Christopher Forsythe: Yes. So to clarify, the $155 million to $165 impact from 7.7102 for the full fiscal year is a pretax number. And as I mentioned earlier, kind of going into the fiscal year, the rule was fairly new when we were establishing our budget and guidance. There was certainly rulemaking that was going on that actually modified the rule a little bit from our original thinking. So we've got a better handle on that going forward now, also visibility in our spending, as I mentioned. So this is basically, as we talked about at the beginning of the fiscal year, a rebasing year because we're now layering in the impact of the new rule to ink all the APT spending and the remainder of the distribution spending in Texas that didn't qualify under Rule 8.209. So going forward, we were still guiding in that 6% to 8% off of, as you mentioned earlier, a new range of $8.40 to $8.50. So the impact in our 5-year guidance is reflective of that as well. So we feel confident we're not going to see another rebasing going into fiscal '27. It's going to be more steady state as we move forward. Operator: [Operator Instructions] And there are no further questions at this time. Jennifer Wernicki, I turn the call back over to you. Jennifer Wernicki: We appreciate your interest in Atmos Energy, and thank you for joining us. A recording of this call is available for replay on our website through June 30, 2026. Have a good day. Operator: And this concludes today's conference call. You may now disconnect.
Operator: Good morning, everyone. Welcome to Maple Leaf Foods First Quarter 2026 Financial Results Conference Call. As a reminder, this conference call is being webcast and recorded. [Operator Instructions] I would now like to turn the conference over to Omar Javed, Vice President of Investor Relations at Maple Leaf Foods. Please go ahead, Mr. Javed. Omar Javed: Thank you, and good morning, everyone. Before we begin, I would like to remind you that some statements made on today's call may constitute forward-looking information, and our future results may differ materially from what we discuss. Please refer to our first quarter 2026 MD&A and financial statements and other information on our website for a broader description of operations and risk factors that could affect the company's performance. We've also uploaded our first quarter 2026 investor presentation to our website. As always, the Investor Relations team will be available after the call for any follow-up questions you may have. With that, I'll turn the call over to our President and CEO, Curtis Frank. Curtis Frank: Okay. Thank you, Omar, and good morning, everyone. Joining me on our call today is our Chief Financial Officer, David Smales. I will begin with a strategic and operational update. Dave will walk you through the financial results in more detail and then I will return with a few closing thoughts before we open the line to questions. The headline for today is that we delivered a solid first quarter and we are firmly on track to deliver our 2026 outlook. Sales in Q1 were $963 million, up just over 6% year-over-year, driven by our proven and resilient growth platforms. Poultry delivered double digit growth, supported by improved channel mix and strong consumer demand across both the retail and foodservice channels and Prepared Foods also delivered sales growth, supported by pricing and mix. Adjusted EBITDA was approximately $122 million, up nearly 6% year-over-year and our adjusted EBITDA margin was 12.7%. Margin improved sequentially by 90 basis points as we expected, supported by the inflation-based pass-through pricing we implemented in the quarter. Productivity initiatives and efficiency improvements, including our Fuel for Growth program and better sales mix are contributing to EBITDA growth and supporting continued margin resilience. This disciplined execution reflects the benefits of the separation of our pork operations, which has sharpened our focus as a purpose-driven, protein-focused and brand-led CPG company and has strengthened our ability to accelerate profitable growth and generate free cash flow. Earlier this year at our Investor Day, we introduced our 2030 financial ambitions and the strategic blueprint that will guide us to achieving them. That ambition is supported by a clear value creation framework. First, scaling the core business through our proven growth platforms, meeting and sustainable needs, building a portfolio of loved brands, accelerating impactful innovation, expanding our reach into the U.S., new channels and new categories and aligning more deeply with our customer strategies. Second, expanding structural margins through improved commercial mix, disciplined revenue management and a productivity-driven operating model supported by the continued benefits of our Fuel for Growth program. And third, allocating capital with discipline, maintaining a strong balance sheet, investing to support growth and efficiency and returning capital to shareholders in a balanced and consistent way. By executing against this framework, we are targeting approximately $5 billion in revenue, approximately $750 million in adjusted EBITDA and cumulative free cash flow of approximately $1.7 billion to $1.8 billion by 2030, while maintaining an investment-grade leverage below 3x net debt to adjusted EBITDA. Our 2026 outlook demonstrates progress towards these ambitions. In January, we introduced 2026 guidance, calling for mid-single digit revenue growth, adjusted EBITDA in the range of approximately $520 million to $540 million and continued discipline in capital allocation, including dividend growth, capital investments of approximately $160 million to $180 million and maintaining leverage below 3x. Today, we are reaffirming that outlook. I do, however, want to offer some context with respect to how we see the balance of the year playing out. First, despite the noise of the external market, our focus remains on executing our strategic blueprint. We have an experienced and highly capable team, proven growth strategies and a productivity playbook that is active across the business. We are also maintaining a disciplined shareholder-friendly approach to capital allocation. Second, food inflation remains an active area of management focus. Geopolitical developments, including the conflict involving Iran are affecting energy markets and increasing transportation costs in the near term. We are monitoring these pressures closely and we are responding with speed and with discipline. In addition to the inflation-based pricing actions implemented in February, we have introduced a temporary fuel surcharge as a direct pass-through tied to higher transportation costs. This provides transparency around the underlying drivers of those increases and will be removed if or as fuel markets normalize. With the pricing actions we have taken to date, along with the optimization of our ongoing promotional programs and the discipline we are showing in managing our costs, we are confident we are well positioned today to mitigate these inflationary impacts. Of course, should additional inflation justify pricing become necessary, we will act as quickly as possible, respecting the normal lag time required for our CPG industry. And finally, we've been examining the seasonality patterns of the new Maple Leaf Foods and our business profile following the spin-off of Canada Packers. As we noted in our MD&A, revenue is typically the lowest in the first quarter and then remains relatively consistent throughout the balance of the year, while raw material input costs are often higher in the second half. This can create some variability in margins from quarter-to-quarter as we've seen in recent years, particularly in the third quarter, reflecting our typical business mix and input cost profile at that time of year. You can see this clearly in our supporting slides, which illustrates this pattern in 2024 and 2025. Importantly, this is a matter of phasing and does not impact our full year expectations. As we look ahead, we remain confident in the trajectory of the business and confident in delivering our full year outlook. Protein continues to be one of the most attractive and resilient segments in food with demand supported by strong consumer fundamentals and long-term structural growth. We have a clear strategic blueprint, a portfolio of leading brands, a focused operating model and a team that is executing with precision and with discipline. Our focus is set squarely on staying close to the consumer, responding to changing needs, demonstrating excellence in revenue management, protecting service and quality and continuing to drive cost efficiency across our business. The fundamentals of the business are strong, and our priorities are clear. With that, I will now turn it over to Dave to walk through the financial results in more detail. Dave? David Smales: Thank you, Curtis, and good morning, everyone. Today, I'll comment on results for the first quarter before turning to the balance sheet and outlook for 2026. Sales in the quarter were $963 million, an increase of 6.2% compared to last year. This robust growth was driven by both poultry and Prepared Foods, which grew by 11.7% and 2.3%, respectively. In poultry, sales increased compared to the same quarter a year ago due to improved channel mix with growth in both retail and foodservice volume as well as pricing impacts. Prepared Foods sales growth was driven by improved mix, related party revenue and pricing impacts, which were partially offset by lower volume tied to timing of promotional activity and lower industrial sales as well as unfavorable foreign exchange translation on U.S. sales. Adjusted EBITDA of $122.4 million increased by 5.7% versus the first quarter of last year with an adjusted EBITDA margin of 12.7% compared to 12.8% last year. Improved profitability was mainly driven by advances in operating efficiency, inclusive of the benefits from our productivity playbook and Fuel for Growth program and favorable poultry channel mix tied to retail and foodservice volume growth. These factors were partially offset by the impact of nonrecurring items, which were a benefit in the first quarter of last year as well as increased trade promotion spending this year. Adjusted EBITDA margin of 12.7% was comparable to last year despite the impact of nonrecurring items that were a benefit in the first quarter a year ago. Importantly, the implementation of pass-through price increases in mid-February following the inflation we saw in the second half of 2025 contributed to a sequential margin improvement of 90 basis points from the fourth quarter. SG&A expenses were $101.9 million in the quarter, broadly consistent with $103.1 million last year, while SG&A as a percentage of sales improved by 80 basis points. Earnings from continuing operations were $46.1 million for the quarter or $0.37 per basic share compared to $16 million or $0.13 per share last year. The increase in earnings was driven by strong operating performance, reduced interest expense due to lower debt levels and changes in unrealized net gains on commodity futures contracts, which were partially offset by the impact of nonrecurring items that benefited the first quarter of last year. Capital expenditures were $21.3 million in the quarter compared to $25.1 million in the same period last year. The decrease was driven by approximately $8 million of prior year capital expenditures related to discontinued operations, partially offset by increased spending in the first quarter of this year on maintenance projects. Looking ahead and consistent with our 2026 guidance, we still expect capital investments for the full year to be in the range of $160 million to $180 million, with spend focused on maintenance and productivity enhancement initiatives. We generated $36.6 million in free cash flow in the quarter, an increase of $50.2 million compared to the same period last year. The improvement was driven by a lower level of investment in working capital, improved cash earnings from continuing operations and lower interest payments, which were partially offset by prior year cash earnings generated by discontinued operations. Consistent with our stated capital allocation priorities, our leverage ratio remains well within an investment-grade range with a net debt to trailing 12 months adjusted EBITDA ratio of 2.1x at the end of the quarter, in line with leverage at the end of the fourth quarter and down from 2.6x a year ago. Strong free cash flow generation and an investment-grade balance sheet provides flexibility to execute a more balanced approach to capital allocation. In the first quarter, we returned $36 million in capital to shareholders through a combination of our first quarter dividend, which increased by 10.5% from the prior year and the repurchase of approximately 0.3 million shares under the NCIB. We intend to remain active with the NCIB to, at a minimum, offset the impact of dilution. As Curtis mentioned in his remarks, we are reaffirming our 2026 guidance and as such, expect to deliver mid-single digit revenue growth and adjusted EBITDA in the range of approximately $520 million to $540 million, while executing a balanced approach to capital allocation. I will now turn the call back to Curtis. Curtis Frank: Okay. Thank you, Dave. Let me close with a few key messages, which closely mirror those of our recent Investor Day. First, the transformation of Maple Leaf Foods is complete. Over the past decade, we have reshaped the business through major capital investment, portfolio simplification and strategic focus. That work and the capital associated with it is now firmly behind us. Second, we now operate with stronger structural advantage as a purpose-driven, protein-focused and brand-led CPG company. These advantages are showing through in our performance relative to our peers and the broader CPG market. Third, we are firmly in our delivery and return phase. Our focus is on growth, margin expansion, cash generation and improving returns on invested capital. Our 2025 results and our first quarter of 2026 performance reflect the benefits of that focus. Fourth, our strategic blueprint is future-ready. Our strategy, our assets and our team are aligned to deliver long-term value with a clear line of sight to our 2030 financial ambitions. And finally, we are reaffirming our 2026 outlook today. As I close here this morning, I want to recognize the Maple Leaf team. We continue to live our values and deliver outstanding results in a demanding operating environment, while at the same time, advancing our bold vision to be the most sustainable protein company on earth. Thank you. Operator, we can now open the line to questions, please. Operator: [Operator Instructions] Our first question comes from the line of Michael Van Aelst from TD Cowan. Michael Van Aelst: I want to start off with some questions around the consumer because there was some commentary on a conference call yesterday that talked about trade down, particularly and actually mentioned poultry trading down from, I guess, a private label RWA product down to entry-level price points at a double digit pace. I'm wondering if you're seeing the same things given that you've had some pretty strong momentum in your branded items at retail in recent quarters and whether that's changed. Curtis Frank: Before I answer your question, which I will, I understand that today is most likely your last call with us given your retirement. So I wanted to first congratulate you and second, thank you for your coverage and support of Maple Leaf Foods over the past many number of years, and you've been with us on a lengthy journey and I and we all at Maple Leaf certainly appreciate that. So thank you, and congratulations. On the topic of poultry and trade down, which I think was predominantly your question and a little bit around the consumer environment. The consumer environment, we've been saying consistently and for a relatively lengthy period of time here that things are stable, but that still means the consumer is under stress. We continue, as David mentioned in his comments, to be investing in promotional allowances that are rightsized to the consumer environment today. So that intensity hasn't changed, I don't think, in any material way quarter-to-quarter. But on the poultry side, I think there's some important clarification for our own portfolio. We had a very successful first quarter in the poultry business, which you saw in our top line results. Sales grew at a little over 11% in the poultry business for us in Q1, which was, again, a very strong quarter. But underneath that, the Prime brand, in particular, which is our premium brand positioned in the RWA segment grew at around the same pace in a double digit range. Our sustainable meats fresh poultry business grew at double digits. And we actually picked up a little more than 1.7 points of market share gains in the first quarter. So overall, it was a pretty successful first quarter in the poultry business for us. So we're optimistic that will continue over the balance of the year, but I think all things positive on the poultry front. Michael Van Aelst: Did you see any change recently, at least in the last month or so as fuel prices have spiked? Curtis Frank: Not materially. I think more -- not materially in terms of change. I would point to the fact, Mike, that our Prepared Foods business revenue growth in the quarter was around 2.3%, predominantly driven by mix and pricing. And we had a small volume decline in the Prepared Foods business, small, between 1% and 2%. That's not atypical in the period following price adjustments. As you know, we took our prices up in February. And that would be in line with kind of the normal consumer behavior following a price change like that. So I would say nothing abnormal or atypical from the environment that's existed pretty consistently here. Operator: Your next question comes from the line of Irene Nattel from RBC Capital Markets. Irene Nattel: Wanted to just unpack a little bit the cost side of the equation. Very much appreciated your commentary around the introduction of fuel charges. But I'm wondering about what you're hearing from your suppliers, say, packaging as an example, with respect to price increases, what your outlook is for your operating costs as we move through 2026? Curtis Frank: We, as you know, implemented in February kind of our broader-based inflationary view of the year and the costs associated with the increases we took early in the year. Those are in the market and have been implemented. And you see the sequential benefits of that pricing taking place from Q4 to Q1 and the cost recovery we've had. On fuel specifically, we are working today alongside our customers to implement a very targeted and hopefully, what's temporary, although certainly lots to play out, but hopefully, what's temporary, a fuel surcharge in the market to reflect what was essentially in the range of a 50% cost increase in fuel throughout the month of April as an example. So we see that as a justified increase and we took the learning of moving a little slower than we would have liked to have in the last part of last year and moved with certainly more pace this year. So we feel like we're well positioned from a fuel recovery perspective. The longer-term implications of the conflict in Iran are kind of yet to play out. They come in areas that you're referencing in packaging and plastics, in particular, as a secondary impact. To date, those impacts are certainly manageable and we're monitoring them closely, just like we did fuel. But we feel like we're really well positioned today. And should anything change, I think we're monitoring things closely and are prepared to act quickly should we need to. We're hopeful that won't be the case, but we're well prepared in the event we need to. Irene Nattel: That's very helpful. And then just a follow-up question, if I may. In the release, you talked about the timing of promotional activity in the Prepared Meats segment and sort of that having a negative impact on volumes as well. Can you talk us through how we should think about that? Does that -- does the promotion happen more in Q2? Can you just walk us through that and your thinking around volumes as we move through the year? Curtis Frank: Yes. It's just a commentary that was more reflective of the change in a couple of key promotional activities with customers that we had in Q1 last year and we expect they are going to take place into Q2 and Q3 next year. So just the phasing of our annual plans and some seasonality attached to that, the timing of seasonal events and things like that. So I don't think there's anything material to our year. And we continue to reaffirm our outlook for the year, which I think is a good indication of the fact that we don't expect the timing of those events to significantly impact the results we deliver in the year, just the timing quarter-to-quarter. Operator: Your next question comes from the line of George Doumet from Ventum Financial. George Doumet: I just wanted to follow up on the seasonal information you guys provided for the quarter. I think you mentioned Q3 is the more seasonal quarter weakness, I guess, based on the commodity pricing and all that kind of stuff. But can you talk a little bit about any of the factors that we should be cognizant that we might -- might get in the way of us attaining kind of those low 30% EBITDA margins next quarter -- as early as next quarter, I guess, those levels attained earlier last year? Curtis Frank: Well, I'm not going to give precise quarterly guidance. I think what we offered in our commentary is entirely appropriate, but I'll recap that a little bit with some color around it. The first and I think most important news is we had a very strong Q1. And the key message today is that positions us to deliver our outlook for the year and we're entirely confident in that. So that's the headline overall. We did put a little bit of color around that. I mean, Q2 logically is all about the pricing impact on volume, keeping in mind that we took pricing in February. The response has been relatively normal so far, but we're paying careful attention to that. And the inflation from an energy perspective, which, as I just said, I feel like we're positioned really well for. Q3, we wanted to give a little bit more commentary more because of the composition of the new Maple Leaf Foods. We've been studying the seasonality of the new business after the separation of pork, obviously, quite closely. We did put in our supplementary materials, if you look at the continuing operations section, you see kind of the quarterly progression of margins over the last couple of years. And Q3 tends to be because of higher meat costs in the second half and an escalation in things like bellies as an example, in Q3, Q3 tends to be a little lower margin than the balance of the year. And we thought it was important to be transparent about that and call that to your attention. And then I would say no new news for Q4. So it all leads to very confident in delivering our year with some extra context and color around how we see it playing out. And of course, if things change, we'll continue to update you along the way. George Doumet: And last one for me, Curtis. Given where the balance sheet is today, can you talk a little bit about M&A? How should we think about kind of the nice to have versus the really sought out targets out there? Curtis Frank: Yes. Dave could maybe add some color from an M&A perspective. What I would say is it's not our immediate priority, although our focus from a management perspective is certainly shifting there strategically. There's nothing imminent happening in the moment. Our focus has been on returning capital to shareholders, which, as David mentioned in his comments, Q1 was around $36 million of capital returned to shareholders and over a 10% increase in our annual dividend. Given the health of the balance sheet, obviously, we'll turn our attention to strategic alternatives in M&A, but it's not urgent for us. We're focused on proving out the earnings. I think Q1 was a good reflection of that and we'll continue down that path. There's nothing urgent in the moment. But Dave, maybe any other color you'd like to add? David Smales: Yes. I mean just in terms of M&A, I'd point you to the materials from Investor Day where we kind of laid out the strategic priorities as well as the financial framework we would look at in terms of assessing opportunities, which from a high level, branded protein in core categories with a focus on North America and in particular, the opportunity to build out our platform in the U.S. So nothing's changed in terms of how we're thinking about that. And as Curtis mentioned, timing is not urgent. Operator: Your next question comes from the line of Vishal Shreedhar from National Bank. Vishal Shreedhar: With respect to Prepared Foods and the slowdown in growth that you noted sequentially, which you said was in part a response to pricing, how long does it take for that pricing response to normalize such that the consumer would go back to the volume growth that you expect in that segment? Curtis Frank: In consumer packaged goods, our typical experience, and I think for us, not just for us, but for all CPGs is as kind of the category leader, we tend to move first and quickly, I think, as we should from a leadership position in times of inflation. The consequence of that is typically a little bit of volume trade-off in the near term. That typically plays out for a quarter or 2, maybe at the most before normalizing. I was really encouraged last quarter actually by the market share performance. I mean, the volume was down very slightly, which again is typical, but the market share performance in both Prepared Meats and in the poultry business was relatively strong. We picked up a small amount of share in Prepared Meats, which is good on the back of a price increase. And the poultry, as I noted earlier, was really strong. So typically a quarter or 2 of consumer adjustment from a volumetric point of view and then kind of right back to normal. Vishal Shreedhar: Okay. And with respect to how trends are playing out intra-quarter, are you seeing any acceleration in Prepared Foods? And are you seeing any change to the poultry trends? Curtis Frank: Is your question between Q1 and Q2, Vishal? Vishal Shreedhar: Yes. Like if there's any material changes intra-quarter associated with either the pricing actions and consumers' ability to respond and/or the -- I know you said the impact of fuel wasn't that large, but are you seeing any incremental changes on the margin with respect to trend quarter-over-quarter intra-quarter? Curtis Frank: No, not materially. I mean 12% was a pretty strong quarter in poultry this past quarter. I mean, I think I just -- I would point you to our annual guidance of mid-single digits. And I think that through the combination of Prepared Foods and poultry, again, we expect to deliver that this year, remain entirely confident in it. However, I don't know that we'll have double digit growth every quarter in poultry. I think that was a relatively strong quarter. But no, I don't think anything has changed materially. Operator: Next question comes from the line of Mark Petrie from CIBC Capital Markets. Mark Petrie: I actually wanted to follow up on a couple of the topics you just touched on. So first, with regards to the poultry growth, putting aside any shifts in consumer taste or preferences, it seems fair to assume that once you start lapping the double digit growth in second half of -- or from second half of last year, you're going to see some deceleration. I think that's what you just sort of called out. But I'm wondering if you could just specifically talk about the potential tailwinds still to come from London. I understand that a big part of the growth has been driven by the tray pack capacity and leveraging that. Where are you with regards to actually utilizing that capacity? And is it still a growth driver? Curtis Frank: Yes. Great question. We continue to be encouraged by the poultry business, starting with consumer demand. I mean, we're seeing very, very strong consumer demand. That's translating into strength in both the retail and the foodservice channel and -- which is great news for us. But most importantly, it's leading to allocation growth from a supply management point of view. So we're getting volumetric support on the backs of strong and growing consumer demand in the Canadian market for poultry. We continue to see relative affordability as compared to competing proteins like beef and consumer preferences for chicken and poultry continue to increase. So that's positive structurally for the category and we're seeing the benefits of that. The best thing we could have done in this situation is have a plant -- have built a plant like London Poultry with the capacity and capability to support that level of growth. We feel like we're uniquely positioned in the Canadian market to capitalize on that growing consumer demand that you're seeing the benefits of that, obviously, in the quarter from London, but there's still runway. To be clear, there's still runway for growth in the poultry business supported by the benefits of London. The team is just doing a fantastic job there. They continue to operate the plant in a world-class way, both from a cost efficiency point of view, but also a throughput point of view to continue to support growth. So I think we're -- we've got lots more to squeeze out of that asset and it's going exceptionally well at the same time. Mark Petrie: Yes. Okay. And then just on the pricing dynamic, what's your sense of sort of how the competitive set followed your price increase? Is it fair to say that, that was sort of universally adopted or some of the gaps still adjusting after you took your price increase? How did that play out versus your competitors? Curtis Frank: I don't know yet. I mean, we watch shelf prices. Our measure for that is kind of auditing shelf prices and watching that carefully. I think it's too soon to know what the follow-on effect is. I mean, the order of magnitude is really important here, too, Mark, right? Like on -- the February increase was important and the fact that we were able to recover sequentially in the way that we did was critical. I mean, the order of magnitude in the fuel increase, I think, has to be kept in perspective as well. It's around $0.11 a kilo. I think this became public information, which is about $0.04 a package for an average 375-gram pack of hot dogs or bacon. And that between the fuel surcharge actions we've taken, the cost reduction playbook we have in place and the work we're doing from a revenue management perspective to optimize our promotions to the consumer, again, I feel like we're really well positioned. Mark Petrie: Yes. Okay. And then just last one. I'm curious in terms of the cadence with regards to the volume pullback in prepared meats, I understand it was a modest volume deceleration. But do you think any of that was sort of lapping maybe the buy Canadian surge that happened in the latter part of Q1 last year? And is that what you're referring to with regards to the promotional activity? Or is that something else? Curtis Frank: No, that's -- what I was referring to on the promotional side is more customer-specific activations. That's possible, Mark, although I would say that, that buy Canadian movement had a bit of an impact on the momentum. Although I would point out that we also had the positive benefits in this year of the Olympic partnership that we had with Team Canada. And I think the amazing promotional support that our marketing team put behind that. And I'd like to think the 2 -- there's no perfect data science behind that, but I'd like to think the 2 balanced each other out on a reasonable basis. But yes, it's possible we saw a small impact of the deceleration of the buy Canadian momentum in the market. I've always said it's hard to tease the data out precisely around that. And I think it would be fair to point out, but we also had the positive benefits of the Olympic partnership as well. Operator: Your next question comes from the line of Martin Landry from Stifel Financial. Martin Landry: In your prepared remarks, you called out productivity initiatives as a margin growth driver. And I was wondering if you could give a little bit more color around that, maybe share a few examples that have led to margin expansion? Curtis Frank: Yes. The combination of the work we're doing in our Fuel for Growth initiative, which is driving structural cost advantage and in our continuous productivity playbook have both been supportive of the profitability of the business. That ranges from everything we do in our SG&A management, which I think if you look at Q1 specifically, was managed quite well from a cost control perspective in Q1 to the work we continuously do in our procurement function and so on from a continuous productivity point of view. From a fuel for growth perspective, we saw the benefits in the quarter of standardized organizational structures in the plants, which we implemented late last year and that benefited us in the quarter. And we're also lapping the benefits of the -- or continuing to see the benefits of the Branford plant retirement, which happened in Q2 last year. So the combination of the structural ongoing components that I think are just good hygiene in the business, good cost management by good cost managers, combined with the strategic work in the Fuel for Growth platform is really what's supportive overall from a productivity perspective. Martin Landry: Okay. And then on your Fuel for Growth initiatives, is there like a timing or like a completion of that project? Or is that ongoing? Curtis Frank: It's ongoing. It will span multiple years. It started with the SG&A work that I mentioned earlier, the retirement of the Branford facility. We've pivoted to making targeted investments with high returns in technology and automation in the manufacturing facilities, which are yielding great results and will continue to over the next number of years as technology obviously continues to evolve. Our operations team is in the process right now of implementing a standardized operational excellence system across the business that we know is going to generate benefits on the shop floor. And then outside of this year, I think, would be the way I would describe it in 2027-plus, we still believe we have some network optimization work to do that will continue to benefit us as we kind of march towards our 2030 financial objectives that we laid out at Investor Day. Operator: Your next question comes from the line of John Zamparo from Scotiabank. John Zamparo: I wanted to follow up on the topic of higher inflation or the prospects for higher inflation later this year throughout the supply chain. And specific to feed costs, I wonder at this point -- I know there's a lot of moving parts, but I wonder at this point when that might be felt by MFI and what magnitude do you think that could be at the moment? Curtis Frank: I don't know. It would be delayed for certain on the feed component side. I mean the new crop is just really being planted in North America now. And a lot of that, John, is dependent on multiple factors beyond just the inflationary impacts of, say, fuel and fertilizer and some of the things we're familiar with, even weather to a certain extent and crop yields and how the fall crop conditions materialize, I think will probably play the most material role. And obviously, the duration of the conflict in Iran I think matters a lot here, too. And I wish I had a crystal ball on that one. And by the news this morning, I'm hopeful there'll be perhaps an abrupt end, but I'm not so certain in that area. So I think there's lots to play out. We watch this weekly, if not daily, the impacts. And as I said earlier, we're prepared to respond quickly should we need to. But at this stage, we feel like we're really well positioned. John Zamparo: Okay. Understood. And then my second question is on beef prices. And given where they are and the fact that they're continuing to show inflation, it would be helpful to get your expectation on how that impacts MFI. And I know you're not going to guide on volume growth for poultry or Prepared Meats. But I wonder just generally would you agree that this is positive for volume growth for MFI? Curtis Frank: s Yes. I would. Beef is a small part of our portfolio, like if you kind of start there. So I think that's to our benefit, just kind of the pricing and inflation seem to be because it's part of our portfolio, but a smaller part of our portfolio. The benefits to the poultry business, I think, are more structural than they are beef-induced, to be honest, the changing face of demographics in Canada, the strength of demand for poultry, the composition of the bird that's consumed by Canadian consumers today, very, very favorable. So I wouldn't -- said differently, if beef prices came down a little bit, I wouldn't necessarily say that's negative for chicken. So I'm reluctant to take credit for the positive impact higher beef prices are having today. But undoubtedly, the affordability of poultry relative to beef as a competing protein is positive for us, yes. Operator: Your next question comes from the line of Etienne Ricard from BMO Capital Markets. Etienne Ricard: Given the continued outperformance of poultry, where do you think the mix between poultry and Prepared Foods ultimately settles a few years from now? And if you could help quantify the margin impact, that would be helpful. Curtis Frank: Well, I'm assuming you mean as a percentage of our total portfolio. I think the best answer I could give you is to point you to our Investor Day materials and the targets we've established for 2030. I mean, both poultry and Prepared Foods play a meaningful role in our growth story for the future. The 5 core growth platforms we have are certainly focused on both businesses, poultry and Prepared Foods. And truthfully, we've seen over the last number of quarters, strength in both areas. We're getting outperformance in poultry today, again, based on the consumer fundamentals that I talked about, but also the quality of the London Poultry asset. But our -- I should also note that our leadership in sustainable meats, the work we've done from a brand development perspective, the innovation platform that we put out into the market last year and our growth in the U.S. have all been -- if you look at a little bit longer term, last number of quarters, have all been positive and constructive and we think that will be the same in the future. So I expect over the next 5 years, balanced growth between Prepared Foods and poultry. There was an M&A question earlier. I think some of that will be dependent on how the portfolio is shaped over the long term. But again, we really love both businesses today and the growth strategies that are attached to both the poultry business and the Prepared Foods business and remain entirely confident not just in our outlook for the year, but for our 2030 aspirations as well. Etienne Ricard: And on the U.S. market, what initiatives from a distribution standpoint are you focused on for this year? Curtis Frank: Well, we're -- distribution is exactly the right word. We continue to be focused on scaling up the number of items that we have distributed or listed at every U.S. retailer. I mean, I've commented in the past that in the Canadian market, we're fortunate to have distribution in an average Canadian grocery store of well over 100 items on the shelf. And in the U.S. market, we have in the vicinity of about 14 in the meat protein and plant protein business combined. And the lucrative financial opportunity for us, if you will, is really to take that 14 items to a broader distribution of items at every retailer now that we've established a supply chain, we have a sales and marketing team on the ground in Chicago and are deepening our customer relationships in the U.S. So it's really about growing distribution. The Greenfield Natural Meat Company brand has been a beachhead for that. We continue to grow our distribution. That brand had double digit growth or our brands in the U.S. had double digit growth last quarter in the meat business and we continue to see a lot of runway for growth, obviously, in the U.S. So you're right to point to distribution. There's an innovation component of that. There's a customer alignment component of that and the consumer demand continues to be strong as well. So I think that's the U.S. priority for the moment. Operator: [Operator Instructions] Your next question comes from the line of Irene Nattel from RBC Capital Markets. Irene Nattel: Yes. Just a quick follow-up question. A point of clarification. Earlier on, when you were talking about poultry, did you say that you've actually had an increase in your quota allocation? Curtis Frank: Our quota, our amount of quota hasn't changed in any material way, Irene, but the annual -- sorry, the allocation process under supply management, which allocates the amount of poultry to be grown every 8 weeks is increasing along with consumer demand. So we and all other processors who own quota are getting more volume to sell in market. Irene Nattel: Understood. Can you quantify for us the magnitude of that increase? Curtis Frank: Yes. That typically grows -- I'll give you an average kind of on an annual basis. That typically grows in and around 2% to 3% a year, I think, on a historical basis. And we're seeing in the moment, increases in the 4% to 5% range, which would be a little more outsized than we would have seen historically, which just speaks to the continued strength in consumer demand and the allocation process matching that consumer demand. And what we always want to see is balance in supply and demand, obviously. And I think we're seeing that in a pretty fruitful way right now or a productive way right now for the industry. Irene Nattel: Absolutely. And sorry, final question on this topic. Can you please remind us how much more volume you can put through the London Poultry facility? Curtis Frank: We had -- when we completed the start-up and the business case for poultry, we had protected for about a 10-year growth spend, Irene, for those average kind of growth in the 2% to 3% range. We're running a little bit ahead of that right now. That's positive and good news. But we also see the potential for operational improvements to unlock more capacity beyond what we had originally contemplated. So I think to summarize, 2 important takeaways, maybe 3. We have space protected for growth for a decade. We are running ahead of that today, which on the surface is positive, but might be a concern. And we've already identified operational opportunities to improve beyond the current performance we have in the plant that we're confident will give us many years of growth out of London. So all to say, I think we're really well positioned. Operator: Last question comes from the line of Mark Petrie from CIBC Capital Markets. Mark Petrie: Sorry about that. I was just on mute. So I just wanted to follow up on the whole opportunity for broadening the SKU base in the U.S. because obviously, there is a massive gap, but there's also a gap in the portfolio of brands that you have a presence in each market. So what would be the equivalent distribution of the 14 SKUs that you have in the U.S. for the same brands in Canada? Curtis Frank: It's a -- that's our primary focus in the U.S. is the Greenfield Natural Meat Company brand. And that is an important question and distinction, Mark, because really, that's what gives us a strategic point of difference and a beachhead into the U.S. We're not focused on kind of participating in the mainstream components of the category in the United States. Crossing the border as a Canadian supplier without a meaningful point of difference is a very difficult venture and that's not our area of focus. We're focused on the sustainable meats business, I think, in 2 areas actually. On the sustainable meats business, the premium end of the category, where there's a large market to access and we only need to access a small component of the category. So think about sustainable meats, raised without antibiotics, gestation crate-free made by a carbon-neutral company. So the suite of those claims has been fundamental to our entry into the United States, giving us a competitive point of difference. And then -- so at the top end of the category. And then we also have a strategy to participate in the U.S. market for capacity utilization purposes, wherever we have excess capacity in our manufacturing facilities in Canada and in the United States as a way to drive efficiency in the manufacturing plant. So those would be the 2 predominant areas and that's purposeful and strategic in nature. Mark Petrie: Yes. Understood. Okay. So -- but just to clarify, so the 14 SKUs today versus the 100 that are distributed in Canada, those would be in the same brands that are -- existed in the U.S. today? Curtis Frank: No. That would just be the number of branded items we have in an average grocery store in Canada across all our brands and the number of average items we have in the United States across all of our brands. Operator: There are no further questions. I'll turn the call back over to Mr. Frank. Curtis Frank: Okay. Great. Thank you. I appreciate your engagement and your questions today. I think I would close with just a couple of brief comments, which is we're obviously coming off a strong first quarter, over 6% growth, a sequential improvement in our margins as we had expected and the return of $36 million of capital in the quarter. We are reaffirming our outlook for the year, I think, is the key message for today despite all the noise in the market and that's something we're entirely confident in. And we look forward to speaking with you at the end of Q2 to give you an update on our progress on the journey. So thank you again for your time today and look forward to talking to you again. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning. Welcome to the SM Energy's 2026 First Quarter Operating Results Live Session. [Operator Instructions] Please note, today's event is being recorded. I'd now like to turn the call over to Megan Hays, SM Energy's Vice President, Investor Relations. Please go ahead, Megan. Megan Hays: Thank you, Rob. Good morning, and welcome to SM Energy's First Quarter 2026 Earnings Call. It's a busy morning for everyone, so we'll jump right in. Joining me are Beth McDonald, our President and CEO; Wade Pursell, our Executive Vice President and CFO; and Blake Mckenna, COO. Today's discussion will reference forward-looking statements. Please see Slide 2 of our earnings presentation as well as the risk factors in our most recent Form 10-K for risks and uncertainties that could cause actual results to differ materially. We will also reference non-GAAP financial measures throughout the call. You can find the definitions and reconciliations to the closest comparable GAAP measures in yesterday's earnings release and in the slide deck available on our website. [Operator Instructions] With that, I'll turn it over to Beth. Elizabeth McDonald: Thanks, Megan. Good morning, everyone. The first quarter validates what we've set out to build with the new SM. We closed the Civitas merger on January 30 and, in just 2 months of operating as a combined company, we delivered production over the top end of the guidance, capital below guidance and synergy capture that is tracking nearly 2x our original target. That doesn't happen without an exceptional team. So let me tell you what we built SM to do. We have been deliberate and disciplined in assembling this platform. And today, SM is better positioned than at any point in our history. We have scale across 4 premier basins, a high-quality inventory that spans multiple years of high-return development and a team that has proven it can execute. That platform exists for one purpose: to put capital to work in the highest-returning opportunities available and with the technical and operational excellence SM is known for. Execution compounds value for stockholders over time. This is our North Star, and it drives and guides every decision we make. Our 2026 plan is clear: Integrate, Execute, Bolster. Integrate relates to the synergies that make us more efficient. Execute means operational excellence across every basin. And Bolster means strengthening our financial position and leaning into the evolution of our stockholder return framework. After 100 days into the Civitas integration, I can tell you we are executing ahead of plan on all 3 fronts. Our first quarter results are proof positive and allow us to strengthen our full year outlook. On Integrate, we've actioned approximately $300 million in merger synergies, and we have raised our target to $375 million by year-end 2026. That is nearly 2x our original target with a present value of approximately $1.8 billion, up from our prior estimate of $1 billion to $1.5 billion, further evidence that the organizational capability we brought to this merger is real. On Execute, we delivered higher production for less capital. Production was above expectations at 371,000 barrels of oil equivalent per day, with oil at 190,000 barrels per day. Capital was below guidance at $672 million. With this strong start, we are raising our full year production and maintaining our capital guidance, delivering more volume with the same investment and building a strong and sustainable free cash flow growth trajectory. On Bolster, the South Texas divestiture closed April 30 with approximately $900 million in net proceeds directed entirely to debt reduction. We have a clear path to operating at low 1x leverage, and the trajectory from here is toward further improvement. As leverage declines, we expect to increase our share buybacks and we expect to commence buybacks in the second quarter. We see tremendous value in our equity, and we know that the best investment we can make today is in ourselves. I'll hand it over to Wade to cover our recent financial performance and provide more detail on our balance sheet progress. Wade? A. Pursell: Thanks, Beth. Good morning, everyone. Well, to summarize, our financial performance was strong. Our adjusted EBITDAX was $970 million and adjusted net income was $309 million or $1.55 per diluted share. Lease operating expense and transportation came in below guidance. We're maintaining that guidance as cushion against potential cost inflation in a higher commodity price environment and to get a full quarter of the new SM under our belt before we revisit. On a GAAP basis, the net loss was largely related to a noncash mark-to-market adjustment on our entire hedge book as of March 31. As you know, that number moves around with commodity prices every quarter. What doesn't move around is the underlying business. We delivered adjusted free cash flow of $20 million despite the fact that we had approximately $180 million of onetime integration and transaction cash costs in the quarter. Capital came in below guidance. And we expect our free cash flow profile to accelerate meaningfully through the balance of the year. Let me spend a minute on the hedge book and remind you how we use it to reduce risk while maintaining upside exposure. We hedge to protect cash flow to meet near-term objectives, including funding high-return drilling, reducing debt and returning capital to shareholders. In short, our derivatives allow us to run the business for long-term value creation. Turning to the balance sheet. Since Civi closed in January, we have reduced absolute debt by approximately $700 million through several well-timed and decisive actions. As a result, our pro forma leverage is moving into the low 1x area, ahead of our original year-end target. From here, the trajectory is toward further improvement as free cash flow builds through the back half of the year. The credit agencies have recognized our rapid progress. S&P and Fitch both recently upgraded us, and Moody's moved to a positive outlook. We're running our business with investment-grade metrics. Lastly, our bank group reaffirmed our $5 billion borrowing base under our credit facility even after removing our recently divested South Texas assets and while also holding lower commodity price assumptions, a clear testament to the quality of SM's asset portfolio. So with that, I'll hand it back to Beth. Elizabeth McDonald: Thanks, Wade. Our results start at the asset level. So let me take you through each basin's recent performance. In the Permian, we turned 25 net wells in line. Our teams drilled the longest and fastest Wolfcamp D wells in SM's history. And we're also advancing Woodford development and see real upside with that effort. Completion efficiency improved 4% compared to 2025. And scale in the Permian creates procurement leverage and scheduling efficiency that neither legacy company had independently. In the DJ, first quarter turn-in-line showed early time outperformance versus offset wells. More importantly, we implemented simul-frac in our Watkins area, which drove a 25% improvement in completion efficiency compared to zipper operations. That is not a marginal gain, and the DJ is a low-cost, high-margin business. In South Texas, base production is outperforming and completion efficiency improved 6% compared to 2025. The South Texas asset divestiture strengthened our balance sheet and high-graded our South Texas position towards higher-margin, liquids-rich opportunities. In the Uinta, our cash production margin was nearly $40 per barrel, the highest margin in our portfolio and the highest torque to higher oil prices of any asset we operate. That margin was achieved with only 1 month of the stronger oil price environment we've seen in 2026. We're encouraged by our move to longer, 4-mile developments, which are delivering meaningful savings in drilling cost per foot. In summary, the portfolio delivered, and we are raising our full year production midpoint from 410,000 to 420,000 barrels of oil equivalent per day, and the oil production midpoint from 221,000 to 225,000 barrels per day. Importantly, we are maintaining our full year capital guidance of $2.65 billion to $2.85 billion. We expect the second half production run rate to be approximately 430,000 barrels of oil equivalent per day and 238,000 barrels of oil per day. Faster cycle times, strong well performance and synergy-driven cost savings are enabling our teams to do more with less. Looking ahead, our inventory-rich, 4-basin platform sets SM apart to deliver value today and well into the future. Let's turn to our framework for returning capital as it's important that the market understands its significance. Because of our strong start to 2026, we are moving to low 1x leverage. And with free cash flow accelerating through the back half of the year, we expect to strengthen that position further. We've taken decisive actions on the balance sheet, and onetime integration costs are largely behind us. The synergy benefits are building. With commodity price tailwinds, our free cash flow is accelerating faster than expected. Lower leverage and higher free cash flow are a powerful combination. This will enable us to increase the percentage allocated to buyback sooner than originally anticipated, and we expect to begin repurchasing shares in the second quarter. We see upside in our equity, and as the year unfolds, we have the flexibility to lean further into repurchases. What this quarter demonstrates and what I want to leave you with is that this organization can execute at scale. We captured synergies ahead of schedule, delivered results above guidance and built a new company all at the same time. That capability doesn't show up in any line item, but I believe it is the most durable competitive advantage that we have. Our enhanced full year outlook reflects that confidence: more volume, the same capital and a clear path to our leverage target. And 2027 is when full earnings power of what we've built becomes visible: a full year of the combined platform, onetime costs behind us, synergies at full run rate and a balance sheet at or below 1x leverage and significant returns to stockholders. We are a powerhouse in shale, and we are just getting started. I look forward to your questions. Megan, back to you. Megan Hays: I'll turn the line now over to the operator for Q&A. [Operator Instructions] Operator: [Operator Instructions] Our first question today is from the line of Zach Parham with JPMorgan. Zachary Parham: First, oil's moved higher post Iran, and while it's pulled back the last 2 days, it's still quite a bit higher than it was coming into the year. You're in a bit of a unique situation in that you closed a merger in 1Q and you had plans in place to allow some acquired volumes to fall to kind of rightsize that asset. But does your thinking change at all in a higher oil price environment? Is there a scenario where you could look to add activity? If so, is that later this year? Is it into 2027? Maybe just talk about that a little bit. Elizabeth McDonald: Zach, our deliverables for 2026 are clear and unlikely to change. So we don't see this current disruption in the market as a green light to increase our activity. We're just going to keep investing in our high-return projects, generating additional free cash flow, reducing leverage and returning capital to our shareholders. I've said this on the call that our current -- at our current valuation, there's not a better investment than buying our own shares, and so we'll have incremental capital to do that. Zachary Parham: And then my follow-up, maybe for Wade. You gave some updated guidance around 2026 cash taxes, which is helpful. Could you just give us an update on how you're thinking about cash taxes over the longer term? Would you expect cash taxes to move higher in 2027 where the strip is today? Just trying to get a sense of where cash taxes might trend over time. A. Pursell: Yes, Zach. It's a great question. Yes, I would say that -- and we gave the guidance for this year, and it's all going to be about the oil price, obviously, in the coming years on whether we pay a lot of cash taxes or not. And I can just say if oil stays kind of in this area, strip wise, if it looks like $70 or $80 next year, or below, cash taxes will certainly be below $100 million. And if you get down closer to $70, the cash taxes become quite minimal actually. And that's based on the IDCs and the deductions we have and the efforts with R&D and all those things that allow us to maintain a lot of deductions. Operator: Next question is from the line of Phu Pham with ROTH Capital Partners. Phu Pham: My first question is about just the Uinta activities. Can you provide a little bit about like the well productivities and the well costs over there, like how are they trending right now? Elizabeth McDonald: Yes, I'll start, and then I'll hand it over to Blake Mckenna, who is also in the room. So our Uinta delivered strong Q1 performance. And our basin is oil-focused, so it has the highest torque to this higher oil price, which we love. We've been continuing to develop the lower cube, which is our high-return development. And we have also leaned into several upper cube developments as well, and we're very encouraged by the results to date. So with that, I'll turn it over to Blake and he can add any color. Blake Mckenna: Yes. We like the Uinta, especially in the oil price environment we have. This is a very integrated basin, meaning we've rolled together a lot of our different services, very consolidated from the land side. And it's an area where we continue to deploy some of our newest technology and some of our most exciting operations. And so we're going to continue to do that in Uinta and feel great about how we're positioned in Uinta right now. Phu Pham: All right. And my just follow-up, about the asset sales. Yes, I know we just -- you did a big asset sale last quarter. So in the current high oil environment, are you looking to do more asset sales? And what's going to be the size? Is it going to be smaller or the same size? I guess it would be smaller. Elizabeth McDonald: Yes. With our South Texas gassier divestiture, that really got us meaningfully to the $1 billion target. And that said, our assets have strong Q1 performance and our teams are really doing amazing things in the early innings. And what this sale did for us was allow us to be patient. And it really allows us to look at the entire portfolio and be strategic about what creates the most value in the future for SM. Operator: The next question is from the line of Gabe Daoud with Truist. Gabe Daoud: I was hoping we can maybe pivot to an ops question, particularly in the Permian, in Howard County. I was looking at your permits. Does it come across these Zissou wells, which appear to be U-turns? So I guess the question would be, how confident are you in U-turn wells? And maybe what's changed in your view around U-turn wells relative to the past where I think maybe there's a little bit of hesitancy from SM on drilling U-turns? Blake Mckenna: Gabe, I appreciate that question. One of the things we're excited about with the integration portion of these companies and getting these synergies together is some of the legacy team has come in with a really great experience on U-turn wells. We have been getting up to that curve. And as a combined team, we're extremely confident in it. We have had great experience here in the DJ Basin, and we're still pushing that in areas where we can be creative to unlock leases and rock we had before, and the team is executing on that. And we're taking those same learnings down. We've also completed one of our longest laterals, and we feel highly confident about U-turn wells and have not seen a huge effect in our cost at all in executing or fracking these U-turn wells. So they will continue to be a big part of how we strategically go after rock that may have previously been stranded and more difficult to access. Gabe Daoud: Awesome. Okay. That's great color. That's great to hear. Appreciate that. And then just as a follow-up on the same topic again, just kind of sticking to that Big Spring area in Howard as we think about development on a go-forward basis and remaining inventory. Just was curious around your confidence in the stack overall in that neck of the woods. It looks like many of the offset wells there are largely Wolfcamp A's. So I was just curious around your belief in there being an adequate frac barrier between the Wolfcamp A and Lower Spraberry, and even deeper, Wolfcamp A versus the Wolfcamp D? Just trying to get a sense of, I guess, future reserve bookings from those multiple zones there that I noted. Elizabeth McDonald: Yes, Gabe. I think when you look at the history of SM, we really put Howard County on the map. And so we have a deep understanding of the entire section within Howard County. So our teams continue to evaluate that to deliver high returns in Howard. And that's multiple landing zones, some of which you mentioned, and then continuing to extend our technical capabilities beyond kind of the conventional cube. But overall, we're really excited. We've always loved Howard County. And we push the limits for the Midland Basin as it as it stands in that area, and we'll continue to do so. Gabe Daoud: Beth, you certainly have. Really appreciate that. Operator: Our next question is from the line of Oliver Huang with TPH & Company. Hsu-Lei Huang: I just wanted to ask, is there a scenario where if you're looking ahead to 2027 plus, that you all would look to drive a bit more growth on the oil side under where that -- just kind of given where the current commodity strip backdrop sits? I know you all have been kind of in that maintenance type of area. Elizabeth McDonald: Yes. Again, just reiterating that 2026 is really about Integrate, Execute and Bolster, and we're going to continue to do that. That incremental free cash flow is going to go to our return of capital framework as we've laid out so far. But kind of beyond that, we have to look at the overlying conditions in the market, right? So we look at the longer-term oil price strength, and we'll continue to monitor the market. I think we can all agree that there's a lot of uncertainty right now, and we need the strait to open and understand the infrastructure hits before we really understand the underlying fundamentals of the market going into 2027. Once we understand that, then we can build our 2027 story. But for now, we've guided to our second half run rate being in that 430,000 BOE per day and CapEx similar to this year. So we've said that all along and we'll continue with that story unless we see a fundamental shift in the 2027 commodity outlook. A. Pursell: Fundamentally shifts our outlook for free cash flow. Because production will continue to be an output. We will maximize free cash flow. Hsu-Lei Huang: Okay. That makes sense. And maybe just kind of a follow-up to that, I mean, have you all considered reallocating incremental activity towards maybe the Uinta just given it is some of the highest torque to stronger oil prices, given the higher oil cut within your portfolio, is there anything that's preventing you all for doing that from a logistical perspective? Elizabeth McDonald: No, Oliver, there's nothing preventing us from doing that, other than the fact that we don't respond really quickly to changing dynamics or disruptions in the market. We look at the overall program from a capitally efficient perspective. So we look at those high returns and we know that we're driving capital efficiency. If we throw in activity in and out of a basin really quickly, we might not have or be able to drive those capital efficiency numbers to the metrics that we're performing today. So we look at it holistically. It's not just one variable that pushes our allocation differently. Just like we said a second ago, if Uinta activity makes sense to drive our incremental free cash flow in 2027 at higher oil prices, then that's when you could see us making a change. But for now, we have a great program going on, we have a high-margin business there, and we'll continue to perform. Hsu-Lei Huang: Okay. Perfect. And if I could just squeeze one more in, just on workover side of things. Are you all doing anything incremental there or considering doing so just given the more constructive oil environment? I'm just trying to think through what might have been contemplated in the initial outlook in February versus where things have shaken out since. Blake Mckenna: Oliver, we've been pretty efficient on staying on top of all of that. Are there little tiny things we might move ahead? Sure. But nothing meaningfully. We've got a great program on our workovers that are always looking at incremental returns. In general, we've been on top of all of our workovers. So I'd say we're pretty efficient to date. I think you see those efficiencies in our 1Q numbers. So nothing substantial here. Operator: Our next question is from the line of Jack Kindregan with BMO Capital Markets. Jack Kindregan: First one, to touch on the DJ Basin, which is a new asset for you guys and you've had a couple of months under your belt now. But just curious about your initial impression there on resource, returns and the general operating environment. Elizabeth McDonald: Yes, I'll start and then hand it over to Blake. When you look at the DJ Basin, just like I said in the prepared remarks, it's a high-margin business. I mean our drilling and completions team there is top-notch, really pushing the limits on what we can do, and they've delivered. And so we're really proud of what the team has been able to put together. As far as the individual well performance and anything like that, I'll turn it to Blake for that. Blake Mckenna: Yes. These are -- the wells that we have on our schedule are very high-return wells. And the great thing about the DJ Basin is it recycles cash very fast. And so drill times are low, fracs go very fast. And we've got a really good development program, especially with the DJ Basin being one of the older resource plays here in the United States. And so everything that we have in the schedule, we are very excited about upcoming. Jack Kindregan: Great. And then just wanted to touch on inventory as well. At year-end, you communicated an 8-plus-year inventory. I think it was $60 a barrel, but most mid-cycle oil prices have increased since then. Just curious about what the resource is beyond that $60 level that could be derisked or become more economic at, say, $70. Elizabeth McDonald: Fair point. The inventory that we released earlier this year was at the $60 WTI mark, in line with what our budget was set at. And so in the current price environment, that number really only grows, right? So higher prices make more economic locations, extending the runway further. I think it's important that everyone just -- and I reemphasize that we remember that our number is primarily a 3P number, so it contains a lot of certainty and it doesn't include all the additional allocation -- I mean all the additional locations that we continue to test and work on. And our technical team is known to bring those opportunities forward. So you can see in the current price environment how that runway is extended, much longer than the 10-plus years. Jack Kindregan: Got it. If I could squeeze one more in on oil differentials that I know SM doesn't guide to, but we've seen some elevated numbers from peers looking into 2Q and the balance of the year. Given your diverse asset base, any insight on what to expect there? Elizabeth McDonald: I would say, you look at Q1 performance and everything that's happened there, we would just guide back to what we've done to date. And it's really pretty much steady. One thing I will emphasize is that we have a diversity within our 4 basins. That allows us to take advantage of any increases that we see in order to gain realized prices that are better than the holistic market or 1 individual basin. So we love our diversity. We love the fact that we can capitalize on different markets, and we're going to lean into that to drive more free cash flow. Operator: [Operator Instructions] The next question is from the line of Michael Scialla with Stephens. Michael Scialla: Wade, you mentioned you're delevering -- you mentioned you're deleveraging more quickly than you thought. I guess based on where the strip is, I realize you just put this framework in place, but do you stick with that 80-20 split going forward given that your stock is one of the least expensive in the industry? Or could that formula change this year? A. Pursell: Mike, we do like stock price as far as buybacks, so thanks for pointing that out. You're right, it's very exciting to be able to see the path to the low 1's area accelerating based on the higher oil price. I would just say for now, we're very focused on, obviously, the second quarter. Very excited to be buying back a lot more stock than we would have anticipated because the free cash flow is going to be so much higher than it was. And then as we progress through the year, we'll continue to monitor the leverage levels and just see how that plays out. I'll reiterate what I said before, what we're looking for is a low 1's area leverage, assuming a mid-cycle oil price. Determining what that is, I think, is a good question, and we'll be monitoring that as well. And so as we move through the year, and if all this plays out that way, then, yes, at some point, at the appropriate time, you could see us move that percentage up on the share buyback side. Elizabeth McDonald: Yes. And the only thing to add there, Mike, is just any additional divestitures that we do will drive that even faster. Michael Scialla: Yes. Good to hear. Beth, you'd mentioned too early on the plans for '27 with the uncertainty, you got to see how the Middle East plays out. I was curious how you're thinking about hedging '27 right now with the strip and a pretty steep backwardation. Elizabeth McDonald: I'll start and hand it to Wade. But our hedging strategy really hasn't changed, Mike. It's in line with what our philosophy has been for a long time, and it's really tied to leverage. So Wade, I don't know if you want to expand on that. A. Pursell: That is a great summary and that's what we continue to do. I'll just remind you that in this leverage area that we entered post the merger, kind of in the 1's area, that drives us to hedge about 50% of our volumes on kind of a rolling year basis. And that's what we've continued to do. So we've continued to do that as the prices have moved higher. And we've gone, to answer your question on '27, that means we've been putting in some hedges, kind of beginning some layers. We never go in too large at any one time. We methodically kind of layer in as we move along. So that allows us to capture big moves up in the price, which is what we've been doing recently. Operator: The next question is from the line of Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: I wanted to ask about the second quarter production. It looks like it's a little bit lower than the second half run rate. But I wonder maybe if you could talk about where and what assets the production is declining and how you kind of see that trajectory through the back half of the year. And that's it for me. Elizabeth McDonald: Yes. What I would say about the -- just looking at the second quarter in a vacuum, really you should look at it more holistically. We're off to a great start. We've driven Q1 production to beat the top end of our guidance. Our well productivity was a primary driver behind that beat. So that should indicate how confident we are in our production going forward. And really just to drive home, our second half of the year production run rate has increased. If you remember on the first call, I said 420,000 to 430,000, and now we're driving that to at least 430,000 BOE per day. And I think that's really the run rate that you need to look at going forward as it's important in our future to drive that free cash flow. Operator: We have a follow-up from the line of Jack Kindregan with BMO Capital Markets. Jack Kindregan: I was just hoping to follow up once more on the asset sales. I know South Texas largely got you to your target. But I was just hoping to get some more clarity on the nature of any potential sales, whether it's more PDP heavy, midstream and infrastructure, or any specific geography. Elizabeth McDonald: Yes. I think we still have yet to determine that. So as we continue to review the portfolio, we'll start to fold in the synergies that the team is building and then align that with our technical expertise to really understand the valuations. And from there, we can prioritize the portfolio. As you imagine, we've only had all the full data for just a couple of months really. And now that we're folding that in together, it really allows us to understand where we can create the most value on the market ourselves as well as where can we see other E&Ps willing to pay for that. So we're still in the phase of understanding and prioritizing. So I can't give you an exact place of where that might be. But we're looking at it especially in this market of more interest and significant capital chasing these assets. So we're definitely looking at it. Operator: At this time, I'll turn the floor back to Beth McDonald for closing comments. Elizabeth McDonald: Thanks, Rob. Thank you, everyone, for joining our call today. We're really encouraged about the performance we've had to date. Excited that we got to share that with you today. And we look forward to seeing many of you on the road in the coming weeks. Have a great day. Operator: Thank you. This will conclude today's conference, ladies and gentlemen. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Crane NXT Q1 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matt Roache, Vice President of Investor Relations. Please go ahead. Matt Roache: Thank you, operator, and good morning, everyone. I want to welcome you all to the first quarter 2026 Earnings Call for Crane NXT. Before we begin, let me remind you that the slides we will reference during this presentation can be accessed via the Investor Relations section of our website at cranenxt.com, and a replay of today's call will also be available on our website. Before we discuss our results, I encourage all participants to review the legal notice on Slide 2, which explains the risk of forward-looking statements and the use of non-GAAP financial measures. Additionally, we refer you to the cautionary language at the bottom of our earnings release and in our Form 10-K and subsequent filings pertaining to forward-looking statements. During the call, we will also be using non-GAAP financial measures, which are reconciled to the comparable GAAP measures in the table at the end of our press release and accompanying slide presentation, both of which are available on our website at cranenxt.com in the Investor Relations section. With me today are Aaron Saak, our President and Chief Executive Officer; and Christina Cristiano, our Senior Vice President and Chief Financial Officer. On our call this morning, we'll discuss our first quarter highlights the early completion of the Antares Vision acquisition, our financial and operational performance, and our updated 2026 financial guidance. After our prepared remarks, we'll open the call for questions. With that, I'll turn the call over to Aaron. Aaron Saak: Thank you, Matt, and good morning. I appreciate everyone joining the call today to discuss our first quarter results. I'd like to start by thanking our Crane NXT team members around the world for their strong performance, which helped us begin the year with solid momentum. Starting on Slide 3. In Q1, we delivered on our 3 value creation priorities of accelerating organic growth, building on our leadership positions and driving operational excellence through CBS. In the quarter, we had organic sales growth of approximately 6%, with total sales growth of approximately 17% year-over-year. Also in the first quarter, we further built on our leadership positions, successfully completing the acquisition of Antares Vision ahead of schedule. I would like to extend a special welcome to our new team members from Antares Vision, and we're excited to have you part of the Crane NXT team. Finally, through our focus on continuous improvement, we increased adjusted EBITDA margin by 80 basis points, a 22% improvement over the prior year. In summary, I'm pleased with our start to the year and delivering on our value creation priorities. Moving to Slide 4. I'd like to provide an overview of Antares Vision and why we're so excited by the technology and expanded end markets it brings to the company. At the end of March, we successfully completed all key milestones related to closing the transaction, which was ahead of our original schedule. Now as part of Crane NXT, Antares Vision meaningfully expands our reach into the $3 billion life sciences and food and beverage end markets and further positions Crane NXT as a global leader in authentication and traceability technologies. As shown on this slide, Antares Vision provides advanced detection and inspection equipment, field and remote services and track and trace software that ensures the quality and traceability of products from manufacturing through distribution to consumers. Its core end markets are life sciences and food and beverage with sales primarily coming from the Americas and Western Europe and a growing list of customers in emerging markets. With the transaction now complete, our focus is on executing our integration and synergy plans. Moving to Slide 5. With the addition of Antares Vision, we've successfully built on our core positions and created an integrated and differentiated portfolio, providing customers a full suite of authentication and traceability technologies. These include proprietary security features applied to physical products, the ability to track and trace those products through the supply chain, detection and inspection equipment to authenticate products and ensure their quality, a field service organization for commissioning and maintenance of the equipment and unique capabilities to bring these solutions to governments around the world. These technologies and operational capabilities are a key differentiator, allowing us to truly be a trusted partner to our customers and their consumers. Moving to Slide 6. Antares Vision now sits alongside our CPI business and our newly established Detection and Traceability Technologies segment, or DTT. We see clear and actionable opportunities for operational synergies between Antares Vision and CPI as both businesses are centered on equipment manufacturing, advanced detection system design, and field services. We are confident we can realize these synergies, leveraging our established integration and operational improvement playbook through the Crane Business System. DTT is also highly complementary to our existing Security and Authentication Technologies segment, or SAT. Put simply, DTT focuses on ensuring product quality, authenticity, and traceability across global supply chains. And SAT is focused on helping to prevent the counterfeiting of products and identities through our proprietary security technologies. Together, both segments position Crane NXT as a differentiated global leader across the full authentication and traceability value chain. Now with that, let me hand the call over to Christina to review our first quarter performance in more detail and our updated guidance. Christina Cristiano: Thank you, Aaron, and good morning, everyone. I'd also like to express my appreciation to our associates around the world for their hard work this quarter. Starting on Slide 7. We're off to a good start to the year with sales of $388 million, an increase of approximately 17%. Organic sales increased approximately 6% year-over-year, driven by continued strong performance in SAT partially offset by expected softness in CPI hardware. Adjusted EBITDA margin increased approximately 80 basis points to 19%, driven by the SAT volume flow-through and the realization of operating synergies in authentication. We delivered adjusted EPS of $0.60, an increase of approximately 11%, which is on track with our full year guidance expectations. Finally, free cash flow reflects normal seasonality and timing of payments in the quarter. Based on our strong backlog and delivery schedule, we expect to accelerate free cash flow throughout the year and to achieve a full year conversion ratio between 90% and 110% on track with our guidance. Moving to our segments and starting with Security and Authentication Technologies on Slide 8. In the first quarter, we achieved sales growth of 51% year-over-year, including the contribution from the De La Rue Authentication acquisition that closed in May 2025. Organic sales grew by approximately 22% driven by continued robust demand in international currency and a favorable comparative to 2025 in U.S. currency. This quarter, we were excited to welcome the U.S. Treasurer, Brandon Beach to our currency facilities in Dalton, Massachusetts and Nashua, New Hampshire to learn more about the advanced technology and security measures that go into manufacturing the U.S. currency, and we look forward to the launch of the new $10 banknote, which is expected to be announced this year. We also ended the quarter with 3 new micro-optics wins in our international currency business and are on track to achieve our full year target of 10 to 15 new denominations. I'd like to congratulate our currency team on their continued success, including their work for Curaçao and Sint Maarten Central Bank, which was recently named the 2025 Bank Note of the Year by the International Bank Note Society. These notes, which were released last year are beautifully designed and feature our advanced micro-optics technology on both sides of each banknotes. Adjusted EBITDA margin increased approximately 600 basis points to 20% reflecting the benefit from higher U.S. currency volume and execution of synergies in the authentication business as planned. Looking forward, we expect to see continued margin expansion in SAT and are on track to end the year with an adjusted EBITDA margin of approximately 25%. Finally, SAT backlog continues to be robust and this, along with a healthy funnel of opportunities, gives us high confidence in achieving our full year sales target. Moving to Detection and Traceability Technologies on Slide 9. I'd like to highlight that our first quarter sales and adjusted EBITDA reflects CPI only, as the Antares Vision transaction closed at the end of the quarter. Additionally, as of March 31, we have consolidated Antares's balance sheet into Crane NXT and are now including its backlog in the DTT total as presented on this page. Sales declined approximately 4% year-over-year as mid-single-digit growth in CPI service was more than offset by expected lower hardware sales. Adjusted EBITDA margin decreased approximately 160 basis points year-over-year, reflecting the lower hardware volume and product mix. We expect accelerating sales growth and margin accretion in CPI throughout the year, driven by productivity programs and disciplined cost management. These factors will drive an incremental improvement to CPI's expected full year adjusted EBITDA margin of approximately 20 to 30 basis points. Segment backlog was $221 million, including approximately $100 million of Antares Vision backlog, which we expect to deliver in 2026. CPI backlog of approximately $120 million reflects sequential growth of approximately 8% with a book-to-bill ratio of approximately 1. Turning to our balance sheet on Slide 10. We ended the first quarter with net leverage of approximately 2.9x, including the financing for Antares Vision. Looking ahead, we anticipate deploying free cash flow toward debt reduction and expect to end 2026 with net leverage of approximately 2.3x. This low leverage and our substantial liquidity provide us with ample capacity to deploy capital to M&A in 2027, further building on our leadership position. Moving now to Slide 11. We are updating our 2026 guidance to reflect the inclusion of Antares Vision. For the full year, we now expect total sales growth of 15% to 17%. In SAT, we continue to expect high single-digit sales growth, driven by high single-digit growth in U.S. currency from a favorable mix of banknote demand and low single-digit growth in international currency over a very strong performance in 2025. In Crane Authentication, we expect mid-single-digit organic growth with total growth in the low 20s percent, including a full year contribution from De La Rue Authentication. In DTT, we expect sales growth in the low 20s percent, including Antares Vision. In CPI, we continue to expect sales to be flat year-over-year, reflecting mid-single-digit growth in service, offset by approximately flat to slightly down sales in hardware and vending. Antares Vision will add approximately $200 million to $210 million of revenue for 9 months in 2026, with Q4 being the highest quarter. We now expect our full year adjusted segment EBITDA margin to be approximately 27% including Antares Vision. We are maintaining our full year EPS guidance range of $4.10 to $4.40 as we expect the benefit of productivity initiatives in the core businesses and the EBITDA contribution from Antares to offset the expected incremental interest expense. Looking ahead to the second quarter, we expect mid-teens sales growth in the SAT segment, driven by timing of international currency shipments. In DTT, we expect mid-20s percent sales growth with CPI sales approximately flat to slightly down year-over-year and Antares Vision contributing approximately $60 million to $70 million of sales in the quarter. Now I'll turn it back to Aaron to provide closing remarks. Aaron Saak: Thank you, Christina. To wrap up, we delivered a strong start to the year, delivering on our value creation priorities. First, we're accelerating our organic growth, achieving mid-single digits in Q1. Second, we're building on our leadership positions in authentication and traceability technologies by closing the Antares Vision acquisition ahead of schedule, and it's expanding our TAM into the life science and food and beverage end markets. And third, we drove operational improvements, expanding our adjusted EBITDA margins by 80 basis points. Putting this all together, we continue building momentum as we progress toward our longer-term targets as shown on the next slide. As we outlined at our recent Investor Day, our first priority is focused on accelerating organic growth with the goal of delivering sustainable mid-single-digit growth over the coming years. Second, we plan to continue strengthening our core businesses through targeted organic investments alongside a disciplined approach to M&A, with acquisitions that build on our leadership positions in authentication and traceability technologies. Taken together, these initiatives are expected to grow the company to approximately $2.5 billion in sales in 2028, while maintaining net leverage below 3x. Third, we're committed to driving operational excellence, and we expect to sustain adjusted EBITDA margins in the mid-20% range and to generate approximately 100% free cash flow conversion. We're building a technology-driven leader with durable advantages, strong cash generation and a clear road map for long-term value creation. So thank you again for your time this morning. And I'd also like to again thank our Crane NXT team members around the world for their commitment to our customers, to our communities, and to all of our stakeholders. And with that, operator, we're ready to take our first question. Operator: [Operator Instructions] Our first question comes from the line of Matt Summerville with D.A. Davidson. Matt Summerville: I just want to focus on the international portion of the currency business for a moment. Is there a way for you to either quantify or qualify how the go-forward funnel of opportunity looks in that business today versus maybe a year ago? And we're aware of a significant amount of oncoming redesign activity internationally. I'm wondering if you can sort of pencil out through the end of the decade, whether you envision that peaking or still extending further beyond that? Aaron Saak: Yes. Thanks, Matt. And I appreciate the question. I think, as you know and we've talked about, we're just incredibly confident in the performance of the international currency business. We have a backlog in place that takes us through this year. We're building out for '27 and even some bookings into '28. So very high confidence in how we're performing. I'd go back, Matt, to what we talked about at our Investor Day. We're adding between 10 to 15 new micro-optic wins a year. With that, when you pull that out to 2028, we're going to be approaching 200 denominations under -- or using our micro optics versus just 150 in 2024. So significant increase there. And to your point, we see a number of opportunities. In fact, over 70 denominations that are going to come to being quoted and designed between now and 2030. And that momentum, we do not see abating here over the next coming years. My crystal ball may not be good enough to -- for a decade. But I can tell you for the next 4, 5 years out to 2030, this is a very strong business with a lot of optimism and tailwinds to it. Matt Summerville: In terms of Antares, can you maybe help quantify, obviously, that's going to be dilutive this year. Can you maybe help quantify the magnitude of dilution and maybe if you have an early kind of prognostication on how accretive that deal may be in '27 as you reduce indebtedness and drive efficiencies, et cetera? Aaron Saak: Yes. Thanks, Matt. So exactly as you've indicated here. We do have added interest expense coming in because we've closed the deal and closed it earlier than we originally expected. That's going to be partially offset by the increased profit that Antares Vision brings in 2026. Net-net, we're seeing a few million dollars that are going to be offset though, by increased margins in our core businesses. And as Christina said in our prepared remarks, we're seeing that coming out of CPI with 20 to 30 bps of improvement in margin. So we're able to cover that several million dollars -- a couple of million dollars of net headwind out of that in Antares. In '27, it will be accretive to our EPS and certainly, we'll wait to give updated guidance later in this year, early next in reality on exactly what that means in '27. Exactly as we expected other than we were able to successfully close the deal earlier, Matt. So we feel good about that and the margins that we're seeing in the core are really coming through to hold that EPS range for us. Operator: Our next question comes from the line of Bob Labick with CJS Securities. Bob Labick: Congrats on a good start to the year. Aaron Saak: Thanks, Bob. Good to hear you. Bob Labick: So looking at SAT and kind of digging in a little deeper and maybe we were a little off, but currency sales were much stronger than we expected and authentication were a little bit weaker than expected. Could you talk about the underlying dynamics between the 2? Because you didn't really -- I think you maintained your full year guidance. So maybe timing, it may be something else. But if you could just give us a sense of the strength in currency. And I think it looks like OpSec may have been down year-over-year, but you still have mid-single-digit organic growth as part of your guidance for authentication. Aaron Saak: Yes. Why don't I hand it over to Christina. We can talk about currency, and I'll take authentication. Christina Cristiano: Yes. Sure, that sounds great. Bob, so starting with currency, I just want to start by saying, as Aaron just said, we have very high confidence in our 2026 sales guidance. So we'll expect to see mid-single-digit growth in currency for the full year. That's a high single-digit growth in the U.S. based on favorable mix and a low single-digit growth in international based on a very difficult comp to 2025, as you know, where we had just a blowout year, particularly at the end of the year last year. Now if you step back, that creates a linearity dynamic this year. So the phasing of the sales will not be linear this year in currency, we'll have exceptionally strong performance in the first half driven by U.S. currency and then less strong performance in the second half driven by that difficult comp in international. And so overall, just on currency, as Aaron said, we've got over 90% of our sales in backlog for 2026, and we have high confidence in that sales guidance. Aaron Saak: Yes. And let me pick up on that on the rest of the segment in authentication. Bob really performed as we expected in Q1. We've been going through a lot of CBS and synergy activities. That's on track ahead of schedule from what we originally said a few years ago when we first did OpSec and then last year when we closed De La Rue. And what you're seeing run through is some of the 80/20 work and again, the rationalization of the products. And that's what we expected. So as Christina said in her prepared remarks, we're expecting mid-single-digit growth in authentication this year. And I do want to point out, Bob, and congratulate our authentication team and may be hard to believe, but just this last week, we celebrated the 1-year anniversary of Crane Authentication, where we brought the businesses together. And that's what's really driving a lot of this great 80/20 work in CBS. So congratulations to that team. And I know we're all excited about the next few years ahead. Bob Labick: Super. Okay. And then congrats on closing Antares early. And as it relates to Antares, could you just remind us of some of the growth drivers and let us know, has -- given the European exposure and everything, has it been impacted at all by the war, higher transportation, fuel costs? Any kind of impacts from the macro on Antares? Aaron Saak: Sure. Let me take that last part first, Bob, the simple answer here is, no. Well, we don't really see any significant or material impact to Antares from the war or any of the macro events occurring. What really excites us by it by bringing it into the portfolio is exposure to secular growth in end markets like pharmaceuticals, life sciences and food and beverage that expand our TAM up to now $13 billion and really put us in the position of market-leading authentication and traceability technologies. And we see these as a long-term secular growing markets at mid-single digits. With the leading products in an integrated portfolio. So we're excited to have Antares in the portfolio. And I'd say in the last 30 days since we closed, we've really hit the ground running. Operator: Our next question comes from the line of Ian Zaffino with Oppenheimer. Isaac Sellhausen: This is Isaac Sellhausen on for Ian. Question would be on the DTT side as far as CPI hardware, has anything changed as far as growth expectations across end markets? And maybe when you would expect to see some normalization in vending? And then the second part would just be on the CPI services growth. Maybe what's driving that? Is it mainly more recurring maintenance across some of the installed base? Aaron Saak: Yes. Thanks, Isaac, for that question. Really pleased here with CPI. Performed exactly as expected in Q1. The team did a really good job. And as you know, Isaac, we're focused in that business on driving and maintaining our high margins. We're going to end this year with adjusted EBITDA margins of about 30%. And as Christina said, we're increasing that incrementally by 20 to 30 bps based on productivity programs and cost actions going on inside that business and maintaining approximately 100% free cash flow. So really strong, as expected, consistent performance here from CPI. To your question on the different subcomponents of that business, and we think about that first is services, hardware and vending. Services is growing mid-single digits in the quarter. We expect that for the year, and that's where we're growing last year. And it's where we're targeting investment and the build-out of the capabilities. And it's coming from expanding our service offering, not only inside of our CPI equipment portfolio with a better attach rate but also to third-party equipment. And that's where we see the ARR or recurring revenue growth continuing to occur in that business. And as you know, that's a very resilient, sticky revenue base that we like quite a bit. So good performance there. Hardware and vending largely as expected, we had some seasonality here in the first quarter that we talked about and guided to. That played out as expected, and as Christina mentioned, we expect some recovery there as we go through the year, net-net being about flat for the last part of the year. So hopefully, that helps, Isaac. In summary, really feel good about the performance in Q1 and performing as expected. Isaac Sellhausen: Yes, that's helpful. And then just as a follow-up on U.S. currency, obviously, with the new $10 bill rolling out. Maybe if you could -- I think you walked through a little bit of the growth trajectory in the business earlier, but maybe how you see volumes progressing through the year? And then if we should see a benefit rolling into 2027? Aaron Saak: Yes. Thanks, Isaac. So hey, we're ready to go with the new $10 bill. Our team has done a great job. And our part of that is largely set. What we're really focused on now is with our engineering and designing team is getting ready for the $50. And getting ahead of that so that we're ready to go when the BEP is ready to start their pilot production. So when you look at what's been designed for the $10, which obviously hasn't been announced, with what we're doing on the $50, very confident that the U.S. government is going to include advanced security features, similar, if not better, than what other governments are doing around the world. And we see that playing out in the international currency business. Now in terms of this year, we're benefiting from a nice mix improvement in the U.S. currency, and that's going to read through to high single-digit growth this year. Very confident in that, and we typically follow what the Fed order has projected, and that's what we're seeing. So really, the uplift as we talked about with you and others for the new U.S. currency materially occurs really more in 2027 for us. But feel very confident in the long-term prognosis of this business with what we're seeing. Operator: Our next question comes from the line of Zach Walljasper with UBS. Zachary Walljasper: I guess the first question I had, which is something around the model. Can you just help parse out what's happening below the line? Because it looks like tax was a little high 1Q and then the nonoperating expense is going up relative to the previous guide. And then the other question I had was just around Antares Vision just closed. Anything you guys can share around like the appetite for further M&A and the M&A funnel? Like should we expect more deals within the next year or so? I know it's part of the long-term outcome, but I'm just curious about maybe more near term now that it just closed. Aaron Saak: Yes. Thanks, Zach. So why don't I hand it over to Christina on the modeling question, and then I'll take the M&A part of your question. Christina Cristiano: Yes. And I'll just make a note that there are no changes to our core business guidance. The only changes to the guidance were to include Antares Vision. So just to be clear on that. And the impact of Antares, as you see reading through there's an increase in the sales for DTT. And then an adjustment to margin just for the dilution that Antares brings because it comes into the portfolio at a lower operating margin, but we expect to execute CBS to drive that margin back up to the low 20s percent as we've done with our other acquisitions over the next few years. So feel very confident that we'll get that margin up to the low 20s percent. Then what you're seeing in nonoperating is the addition of interest expense related to the Antares Vision financing. And so that, in total, gets offset with the profitability that Antares brings into the company as well as the productivity that Aaron mentioned in the core business. When you put all that together, we're able to maintain our EPS guidance range of $4.10 to $4.40 and we have high confidence in that guidance range. Aaron Saak: And Zach, let me take the second part there, the question on M&A. Right now, our focus, as you can probably imagine, is on integrating Antares Vision. We're on track and really my compliments to our team and in the Antares Vision team, we've hit the ground running on that here in the month of April. And as it relates to future M&A, I would frame that more as we're really not looking to anything until 2027. And that's also so that we keep our balance sheet well below 3. So as you saw, we're at 2.9, we're going to deploy our cash flow to pay down that debt, get into the low 2s as we go through 2026. And then we'll be ready to go. In 2027, the funnel remains healthy. We're going to continue to use our disciplined framework around markets that are focused on authentication and traceability technologies and feel very good about where we're positioned to potentially do something in 2027. Operator: Our next question comes from the line of Bobby Brooks with Northland Capital Markets. Robert Brooks: I get it's still early days on the ownership of Antares, but I know one of the pieces they brought into the portfolio that's really exciting is the tracking equipment paired with the software. So I was hoping you could discuss what sort of incremental capabilities that brings into your portfolio? Because I think some folks might not appreciate that enough given you already had some hardware and software for tracking and tracing. So curious to hear more there. Aaron Saak: Yes. Thanks, Bobby. I appreciate that question. And it really is a key jewel inside the Antares portfolio. We call that the DIAMIND platform. And you're right. And it's actually part of the integrated portfolio we now have when you link this to some of the capabilities we had in our authentication business, tracking and tracing of products more through the brand and sports leagues and luxury good channels. What Antares brings, it's really a step-up in the capabilities because now we're moving into markets like pharmaceutical and food and beverage that, in some cases, are regulated by the government. And that's a whole step-up in sophistication to track the product from the point of manufacturer, all the way through the consumption of that product by the consumer and every step in between. So I would just say it's a, again, more sophisticated, more detailed type of track and trace software that really brings and elevates our capabilities. And why we're excited by it Bobby, is just, first, the underlying growth in that market that more governments are regulating this for their pharmaceutical products and food and beverage as well as the ability to take the core capabilities of it into other markets. And of course, as you just said, it's very early days for that, but that's strategically where we want to go with the technology. Robert Brooks: Super helpful. Maybe just a follow-up there. Do you think there's -- do you think it's more likely to take that higher -- the higher-end tracking and trace from Antares to some of the markets that you were already in previously in SAT? Or is it maybe more taking some of the SAT products and layering them into the customers that Antares is already serving? Aaron Saak: It could be both. I'll tell you what's our focus right now, and it's a little bit due to it's faster to take the products from Crane Authentication and start to partner those with the Antares sales and products into their channel. And we're already doing that. That's a key part of where we saw commercial synergies. And so that's the early focus area here in 2026. Robert Brooks: That's super helpful. And then just last one for me. You've mentioned, Aaron, I think in the prepared remarks, you targeted growth or targeted organic growth initiatives. And I was just curious if we could hear more about what those look like? Is it similar to the facility expansions in Malta and domestically within SAT, or is it hiring more sales folks to go after those cross-sell opportunities or break it into new markets? Or maybe it's something completely different? Aaron Saak: No. Thanks, Bobby. I appreciate getting a little more precise on that. It really is what you referred to. It's this increase in CapEx and OpEx in our primarily international currency business to take advantage of the just increased win rate we're having and what we see in the coming years. And maybe, Christina, you can talk to some of that in more detail. Christina Cristiano: Yes. We spoke about this last quarter a little bit. So just to reframe, the international currency demand right now is exceeding our expectations. And so we're prioritizing organic growth and investing in that area. And in total, our CapEx will still stay in the same range of about 3% to 5%, but we'll see a greater allocation toward currency and right now, this is focused on building new production lines and outsourcing with partners so that we can just increase our capacity. So as Aaron said, we'll be spending more, you're seeing a little bit of cost coming through in OpEx right now related to freight and supplies and outsourcing, and that will be a few million dollars this year. And then later this year, we'll ramp up more on CapEx which will take 1 to 2 years to build the facility -- the production lines that we're working on. Overall, I think the key point here is we're actively managing our working capital and focusing our CapEx on the areas that will drive organic growth and the highest return. Operator: Our next question comes from the line of Matt Summerville with D.A. Davidson. Matt Summerville: I think it makes a lot of sense to take a minute and just kind of talk through maybe the pluses and minuses that you would want us to be thinking about from a modeling standpoint as we kind of progress through the rest of the year and $0.60 in EPS in Q1, how should we be thinking about kind of the sequential build in earnings through the year to, say, the midpoint of your guidance range? What are the more pronounced things you want us to all be aware of and kind of just a little bit of help with that earnings build? Christina Cristiano: Yes. Maybe I'll start and then Aaron, you can jump in. And again, just confirming that we are maintaining our full year guidance range -- or full year EPS guidance range of $4.10 to $4.40. And so you can expect an acceleration throughout the year. So a linear progression of EPS throughout the year. Antares comes into the portfolio and is a little bit dilutive, as Aaron said, a few million dollars to EPS, but we plan to offset that with productivity in the core. So there's really not a change to the core EPS guidance. Aaron Saak: Yes. I would add, Matt, on the top line, which will definitely flow through, right? In terms of the pluses, you're going to see an acceleration here of CPI exiting Q1, as we've talked about, really unchanged from how we talked about that last quarter. With a little bit of incremental improvement in our margins, as we said in the prepared remarks. For the rest of DTT, which is Antares, the phasing of that, as you think about the year is a little more skewed into the fourth quarter. That's the normal seasonality of their business, where they typically ship large projects, particularly in the pharma space at the end of the calendar year. That's something not new but normal in that business. And with that comes a little bit of an improvement in operating profit or EBITDA margins in the fourth quarter. The one thing I would point out, and we've talked about this, but we will see it as currency inside of the SAT business continues to grow in Q2, we're going to face some tougher comps as we get to the back half of the year. And I really want to point that out, particularly in late through Q3 into Q4, where we just had outstanding performance in Q4 of last year, that's going to tend to become a negative top line growth for us in Q4, but it's just due to the strength that we had in 2025. So, hopefully, that helps, Matt to give you a little bit more color. Matt Summerville: Yes. And then maybe if you can just comment a bit on what kind of magnitude of relative price capture you expect incrementally in '26 across the 2 businesses? Aaron Saak: Yes. Again, I'd like to think about it ex currency, Matt, because of that being a project business and you kind of see it though come through in the margin rates in that business. When you think about CPI, authentication, let's stick to the core there. We're going to see kind of a low mid-single-digit price increase year-over-year. And we're more than offsetting the inflation we're seeing. And that does not include, though, some of the actions we've taken, like many companies right now to offset freight increases that are coming through. The team has done a great job there. We're offsetting those. So kind of core price of, call it, low to mid-single digits across the portfolio. Operator: I'm showing no further questions at this time. I would now like to turn it back to Aaron Saak for closing remarks. Aaron Saak: All right. Well, thank you, operator, and thanks again for all the questions today. So as we conclude our call, I'd like to once again thank our NXT team around the world for their solid start to the year. And I also want to take another moment to welcome our new Antares Vision colleagues to the company. We're excited to have you, and welcome aboard. As I mentioned in my earlier remarks, Q1 was an important proof point on delivering on our value creation priorities. And I look forward to giving you all an update on our progress next quarter. So thank you again for joining today, and I hope you have a wonderful week. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Hello, everyone, and thank you for standing by. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Christine McDevitt, Krispy Kreme Associate General Counsel. Please go ahead. Christine McDevitt: Hello, everyone, and welcome to Krispy Kreme's First Quarter 2026 Earnings Call. Thank you for joining us today. This morning, Krispy Kreme issued its earnings press release. The press release and an accompanying presentation are available on our Investor Relations website at investors.krispykreme.com. Joining me on the call are President and Chief Executive Officer, Joshua Charlesworth; and Chief Financial Officer, Raphael Duvivier. After their prepared remarks, we will host a question-and-answer session. But before we begin, please note that during this call, we will be making forward-looking statements, including statements of expectations, future events or future financial performance. Forward-looking statements are based on current expectations and are subject to risks and uncertainties. Actual results could differ materially from those contained in any forward-looking statements because of factors described in the cautionary statements in today's earnings press release, our annual report on Form 10-K filed with the SEC and in other SEC filings we make from time to time. We assume no obligation to update any forward-looking statements, except as may be required by law. Additionally, during this call, we will reference certain non-GAAP financial measures. Please refer to our earnings press release on our website for additional information regarding these non-GAAP measures, including a reconciliation to the closest comparable GAAP measure. Raphael will take us through our financial performance in a moment, but first, here's Joshua. Joshua Charlesworth: Thank you, Christine, and good morning, everyone. We are pleased with our significant progress in the first quarter as we continue to advance our turnaround to deleverage our balance sheet and drive sustainable, profitable growth. Krispy Kreme remains a compelling growth story, supported by strong consumer demand for our iconic fresh doughnuts. Unlocking that demand remains our priority, and we are doing so through our 2 largest opportunities, profitable U.S. expansion and capital-light international franchise growth. This year, we expect system-wide sales to grow 2% to 4% compared to last year to over $2 billion, driven primarily by international expansion. In the back half of the year, we anticipate growth in the U.S. as we lap the now ended partnership with McDonald's, which we exited last July. While we recognize that the broader macroeconomic environment remains dynamic, this outlook is driven by anticipated higher volumes, points of access expansion and franchise development. Last year, approximately 25% of system-wide sales were generated by franchisees. After the refranchising transactions in the first quarter, the expected percent of franchise sales going forward has increased to 42%, reflecting strong progress toward our goal of reaching 50% of system-wide sales generated by franchisees entering 2027. Now let's move to the 4 pillars of our turnaround plan and the progress we are making on each. Number one, refranchising; number two, improving returns on capital; number three, expanding margins; and number four, driving sustainable, profitable U.S. growth. Our first pillar, refranchising, enables us to drive more profitable system-wide sales growth while accelerating new shop development through a capital-light model. In March, we completed 2 transactions advancing this strategy, contributing to a reduction in net debt. In Japan, we entered a refranchising agreement with Unison Capital, an experienced operator in the retail restaurant sector. Krispy Kreme has a 20-year presence in Japan with approximately 90 shops and 300 fresh delivery points of access, and we are pleased to partner with Unison to support continued growth in this important market. Japan marks the first of the 2 to 3 international refranchising deals we are targeting in 2026. As we pursue refranchising across our other international markets, we remain focused on identifying the right partners to maximize value and position our brand for long-term growth. We also reduced our ownership in our Western U.S. joint venture to a 20% minority stake with our long-standing partner, WKS Restaurant Group. The WKS franchisee now operates more than 70 shops across the Western U.S. and has agreed to develop new shops and further expand Krispy Kreme's fresh delivery footprint over the coming years. The second pillar of our turnaround is improving returns on capital. Across the business, we are reducing capital intensity and improving utilization of existing assets, while our franchisees continue investing to support brand growth. The combination of these factors has resulted in a significant decrease in CapEx in the first quarter compared to last year, which we expect to contribute to positive free cash flow in 2026. Our international development pipeline is an important driver for our capital-light growth. We are projecting more than 100 shop openings this year, nearly all through franchisees as we continue expanding fresh delivery doors across grocery, convenience, club wholesalers and quick service restaurants outside of the U.S. In the first quarter, we opened 26 shops around the world. In April, we celebrated our first anniversary in Brazil. And just yesterday, we opened our second Hot Light Theater shop in Sao Paulo, supporting our growing hub-and-spoke network in this important market. Today, the Krispy Kreme system consists of more than 2,100 locations, both company-owned and franchised across 42 countries, including the U.S. This year, we expect to add 3 to 4 new markets, including the Netherlands, which we recently announced. The first Hot Light Theater shop in the Netherlands is expected to open in late 2026 and will service both a retail shop and a production hub, anchoring a broader phased expansion to approximately 30 shops across the country over the next 5 years. The Netherlands represents our sixth Western European market, along with the U.K., Ireland, France, Spain and Switzerland. In the U.S., we are prioritizing leveraging existing capacity to drive growth more efficiently. Our current network utilization is only about 25%, demonstrating that we can reach significantly more locations without incremental capacity investment. Walmart and Target, along with other strategic partners, remain meaningfully underpenetrated, and we have the capacity to support their growth through the same facilities that currently deliver to more than 7,400 fresh doors nationwide. The third pillar of our turnaround is expanding margins. We are simplifying the business and reducing costs across the P&L, resulting in a significant margin improvement in the first quarter, led by a strong increase in the U.S. segment. In the U.S., we are making doughnuts more efficiently through improved production planning, labor optimization and streamlined hub operations. Doughnuts are also being delivered more efficiently by improving route management and demand planning and by optimizing production and delivery schedules to support cost-effective expansion. In April, we completed the transition of our U.S. fresh delivery network to third-party logistics partners ahead of schedule. Now that we have successfully outsourced our U.S. logistics, we have greater cost predictability and reduced operational risk, enabling our teams to focus on what they do best, making fresh doughnuts. We expect the benefits of our logistics optimization to offset the impact of recent increases in fuel prices. As a result of the cost reduction initiatives implemented last year, we improved profitability in the first quarter with shop and delivery labor and SG&A expenses declining more than 10% versus the year ago period. The fourth pillar of our turnaround is sustainable, profitable growth in the U.S. We know that when our doughnuts are available in the right places and in the right quantities with strategic partners, we can generate higher average weekly sales and improve profitability as we have done for 3 consecutive quarters. After completing our door optimization in the third quarter last year, we have returned to growth in the last 2 quarters, adding over 250 higher-volume, higher-margin doors in quarter 1 with strategic partners such as Publix, Sam's Club and Target. We also launched in Jewel-Osco, which is part of the Albertsons family of brands. With our U.S. logistics now fully outsourced and our optimized fresh delivery footprint in place, we believe we now have the right formula for profitable growth, stronger average weekly sales per door supported by more predictable logistics. In my recent meetings with our strategic fresh delivery partners, it was encouraging to hear their enthusiasm for growing Krispy Kreme, not only through new locations, but by strengthening the brand in existing doors. In support of this, we are working closely with them to enhance merchandising and in-store doughnut displays while also improving our presence on their digital platforms. Other drivers of sustainable profitable growth in the U.S. are the original glazed, especially in dozens, our LTOs and the digital channel. We're seeing strong results across each. Both original glazed and dozen sales are up, driven in part by second dozen promotional offers. Our innovative limited time offerings, which are often tied to seasonal and cultural events continue to drive incremental traffic. For example, we had record sales for both Valentine's Day and St. Patrick's Day, reinforcing Krispy Kreme as a top choice for gifting, sharing and celebrating while highlighting strong consumer demand for our fresh doughnuts. We also saw an enthusiastic response to our Artemis 2 doughnut, celebrating NASA's historic deep space Crew mission. While we had originally planned to feature the doughnut for 3 days, we extended the promotion for the duration of the mission due to high demand. Our LTOs performed particularly well in our rapidly growing digital channel, which represented 23% of U.S. retail sales in the first quarter. Our digital presence, including our loyalty program, which has over 17 million members, continues to drive engagement across all age groups, while also encouraging repeat transactions through customized rewards. Beyond tapping into cultural moments to create relevant buzzworthy offerings, we also stay closely attuned to evolving consumer trends, including the increased use of GLP-1 and other weight loss medications. As part of our ongoing commitment to better understand our consumers, we conducted research, which found that Krispy Kreme consumers who identify as users of these medications are just as likely as nonusers to purchase sweet treats for holidays and special occasions with a focus on quality and taste. With our differentiated fresh doughnuts typically purchased 2 to 3 times per year, primarily for sharing occasions, Krispy Kreme is well positioned in this context. While we continue to monitor this trend among other macro factors, we remain focused on expanding the ways consumers experience and share Krispy Kreme, including through our high-performing minis category, which currently features Doughnut Minis and Doughnut Dots and our new mini crullers, which is a mini cake doughnut sold through select fresh delivery partners. This new product further strengthens our assortment of smaller shareable treats and provides consumers with more variety. Overall, we are pleased to have carried last year's momentum into the first quarter, delivering the results our turnaround plan was designed to achieve, including improving financial flexibility through refranchising our operations in Japan and the Western U.S., reducing capital intensity by opening new shops with franchisees and reducing our CapEx expanding margins through greater operational efficiency, including the full outsourcing of U.S. logistics and by driving sustainable, profitable U.S. growth through OG dozens, digital sales and by adding new high-volume doors with our strategic fresh delivery partners. With that, Raphael will now review our first quarter financials and provide an update on our 2026 full year outlook. Raphael Duvivier: Thank you, Joshua. I'm pleased with our quarterly performance, which is driven by the disciplined execution of the turnaround plan. We are focused on sustainable, profitable growth through quality sales and effective cost management across the P&L. We deleverage our balance sheet through refranchising activity and by delivering higher adjusted EBITDA. We also generated free cash flow, our first positive free cash flow in a Q1 period since our 2021 IPO by continuing to reduce capital expenditures and better working capital management. Net revenue was $367 million in the first quarter of 2026, down 2.2% year-over-year, reflecting our strategic closure of underperforming doors completed in the third quarter of 2025. System-wide sales were $485.3 million in the first quarter of 2026, increasing 0.7% in constant currency, excluding sales attributed to the now ended McDonald's USA partnership. Adjusted EBITDA of $33.1 million was an increase of 38% year-over-year, driven by productivity initiatives across our network and cost control at the corporate level. This represents the third consecutive quarter of adjusted EBITDA growth year-over-year. At quarter end, our net leverage ratio, which reflects our net debt divided by trailing 4 quarters adjusted EBITDA, improved 1.2x quarter-over-quarter to 5.5x and reflected an improvement of 2x since we announced the turnaround plan in August last year. This is also below the forecasted 6x we previously shared due to the timing of WKS refranchising as the proceeds help us further reduce our net debt. In addition, we benefit from our turnaround initiatives, which led to the substantial improvement in adjusted EBITDA. We continue to have healthy liquidity, which has now increased to more than $300 million. Our bank leverage is now below 4x, which lowers the interest rate on our primary credit facility by 25 basis points. In our U.S. segment, organic revenue declined 4% year-over-year due to the strategic closure of underperforming fresh delivery doors in the third quarter last year, including McDonald's, as we focus on quality growth. We have since replaced low-volume doors with higher volume, higher-margin doors with strategic partners. Positioning Krispy Kreme products in the right place with the right partner at the right time resulted in substantially higher average weekly sales of $685, a 16.7% increase over year and a 3.8% increase quarter-over-quarter. Adjusted EBITDA for the U.S. segment increased 61% to $25.5 million, up from $15.9 million in the first quarter last year, reflecting traction from our turnaround plan. We benefited from cost controls and other initiatives related to efficiencies in our operating network, including completing the outsource of our U.S. logistics networks, savings on SG&A and the eliminations of costs related to the now ended McDonald's USA partnership. Adjusted EBITDA margin increased 480 basis points year-over-year. In our International segment, organic revenue increased by 0.4%, primarily due to growth in Canada and Mexico. Adjusted EBITDA for International segment was down 2.9% to $14.5 million, driven by the refranchising of our operations in Japan in early March. In our Market Development segment, organic revenue declined 4.3% as growth in royalty revenues from international markets, including India, Brazil and Spain was more than offset by lower equipment sales in the quarter. Adjusted EBITDA for the Market Development segment rose 5.3% to $11.6 million. Adjusted EBITDA for the Market Development segment rose 5.3% to $11.6 million. Adjusted EBITDA margin decreased year-over-year 60 basis points to 57.5%, driven by changes in the regional mix of product sales. Our highly attractive franchise margin levels support our intention to advance our capital-light growth strategy. As Joshua mentioned, we plan to open 3 to 4 new international franchise markets this year, including the Netherlands, which will open later this year. Let me now discuss our financial guidance, which we have expanded with a full year range for net revenue and for adjusted EBITDA. Both ranges include the impact of refranchising transactions we have already completed, but not any future transactions. We expect net revenue of $1.25 billion to $1.35 billion. System-wide sales are expected to increase 2% to 4% in constant currency from $1.96 billion in 2025. We project at least 100 shop openings this year, nearly all franchised, including 26 shops that opened in the first quarter. We expect adjusted EBITDA of $140 million to $150 million. This range, as I said, includes the impact of refranchising transactions. We estimate that annualized impact of EBITDA of refranchising Japan and WKS is approximately $15 million. Capital expenditures of $50 million to $60 million, which reflects a decrease of approximately 50% from last year, positive free cash flow of more than $15 million; and finally, net leverage ratio below 5.5x. Our first quarter demonstrated clear progress on our turnaround. We are driving sustainable, profitable growth in the U.S. and globally, deleveraging our balance sheet by expanding our capital-light model, increasing adjusted EBITDA and generating free cash flow through disciplined CapEx and tighter working capital management. In the quarters ahead, we intend to build on this approach and continue to deliver on the objectives outlined in our turnaround plan. I will now turn the call back over to Joshua. Joshua Charlesworth: We continue to build momentum with our focus on sustainable, profitable growth and a stronger balance sheet. We are confident in the foundation we are laying for Krispy Kreme's next year of growth and the progress we have made shows we are well on our way. Operator, let's now open it up for Q&A, please. Operator: [Operator Instructions] Your first question comes from the line of Daniel Guglielmo with Capital One Securities. Daniel Guglielmo: We appreciated the 2026 guidance for both revenues and adjusted EBITDA goes to show how far we've come from last year. As you continue to execute on additional international refranchising deals, so over what's already been announced, how do you expect that to impact the guidance? Just trying to think through the puts and takes for those kinds of deals. Raphael Duvivier: Thanks for the question. So yes, look, as we get more deals done, we'll update the guidance. The guidance we gave include the 2 deals that we have already done, so exclude WKS and Japan. And I provided some clarity on the annualized impact of both of around $50 million. As we get more deals done, we will update both numbers for revenue and EBITDA. Daniel Guglielmo: Appreciate that. And then U.S. consumer trends have been mixed based on business type in this kind of complex macro environment. Can you just dig in a little more into your U.S. customer trends? Are you seeing strength in certain regions? And how did demand trend by month in 1Q? And do you have any insights on April trends? Joshua Charlesworth: Dan, this is certainly a dynamic broader consumer environment. But at Krispy Kreme, we continue to see strong demand for our differentiated fresh doughnuts. For example, the original glazed in dozens, where we are driving value with our second dozen promotions has performed well through the quarter. And we also saw in those gifting and sharing moments like Valentine's and the Artemis 2 doughnut, which is a real buzzworthy event, we saw strong demand so strong that we actually even had to expand availability. So we certainly saw weather disruption in January here in the Southeast, the home of Krispy Kreme. But overall, we saw a strong performance through the quarter and continue to see that in April, especially around these buzzworthy moments. Operator: [Operator Instructions] Joshua Charlesworth: Well, assuming there are no more questions, thank you, everyone, for joining the call. And we're making significant progress on our turnaround plan to deleverage the balance sheet and position Krispy Kreme for sustainable long-term growth, and we look forward to continuing this momentum throughout 2026. Thank you again. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Magnus Grenfeldt: Good morning, and welcome to Hotel Continental, and good morning also to you online. It's a fantastic and sunny day in Oslo, and it is a fantastic day for Smartoptics and a great quarter that we are going to talk about today. I want to start by just a few thoughts to my staff and my team. Thank you very much to operations for always being there, supporting us through the quarter and also supporting us through the relocation of production in Q2. I want to address all of our staff that, much like me, have spent their life contributing to the optical networking industry. Very few people get to contribute to technical innovation that changes humanity forever once. We are starting our second time around now. That's a luxury. To the new people who have joined Smartoptics, warm welcome. You have a beautiful future ahead in this industry. Stepping to the quarter, obviously, super strong momentum and really, really good progress overall and in some of our strategic areas that we've been talking about for a couple of years now. I want to start this conversation around the market that we are in. And I think today versus about a year ago or 2 years ago, there is no doubt the market projections for our market, for the coming 5-year period and beyond look much, much more attractive than they did previously. It seems like consensus is somewhere high single digit to low double-digit growth over the coming 5 years of the industry. So in particular, Cignal AI, which is the analyst firm that we have been using for reference, is projecting $16.5 billion in 2025 to grow to $24.7 billion in 2030. It's not difficult to find higher estimates than this. And some people will say this is only a 10% growth, what's all the fuss. I would like to remind you that Smartoptics game has always been to take market share. We are the challenger of challengers. We are growing faster than anyone else, and we are developing our products to have a larger and larger addressable market. The fact that we have in 2030, another $9 billion to fight for is fantastic for us. That means we can target our technical innovation, we can target our customer activities towards that market and really grow this company for a very, very long time. So great news. You will also notice those of you who have followed us for some time that we are no longer talking about a subset of the market. There are subsets in this market that is growing faster and faster. But with the innovation that we have done in our product portfolio over the past years, I think it's more relevant to look at the whole market. We are not a pure-play long-haul player as an example, but we are certainly there in the gray zone competing for long-haul kind of applications, a development that has happened in the past year or so. That gray zone is huge for us, and it's an important market for us, and it will be an even more important market as we move forward. So a great market around us and broad and high traction in everything strategic that we have been talking about for several quarters. We normally don't report order booking, as you know, for many, many reasons. But from time to time, we talk about our order booking to illustrate a phenomena or to give you a sense of the traction that we are feeling on a day-to-day basis, and I will do the same today. What I want to say is, first and foremost, great traction through the quarter, great order booking through the quarter. Our book-to-bill is considerably higher than one and very stable. If we look at the United States of America, to illustrate the width of our market, we have orders from about 100 accounts. By far, the largest one is a U.S. Tier 2 operating across the United States. It's an unannounced customer. So it's not someone that we've talked about. They represent a little bit above 15% of our order booking in the quarter. Two runner-ups, sort of $1 million to $1.5 million accounts in the quarter are regional Tier 2s also from the CSP segment. So clearly -- and we have several accounts like that. As an example, in 2025, our largest customer was a very similar Tier 2 regional operator operating in a number of states then. They are not among the 3 that I'm talking about here this particular quarter. So great success in what we have referred to as our large account strategy over the years. But that's not it. We have a California-based ISP sort of $1 million account in the quarter. We have financial vertical, so trading, algorithmic trading and such around about $1 million. And we have our first individual neo-scaler placing orders in the same range, million-dollar orders. So great progress also in this emerging segment of neo-scalers where we have a handful or more customers today. EMEA looks similar from one perspective, but still a little bit behind the U.S. We have orders from about 125 accounts, $1 million-plus bookers in the quarter include, as for instance, government in Nordics, Tier 2 business-to-business operators, so typically data center to data center in the U.K. And we have an algorithmic trading company placing orders north of $1 million in the quarter, operating on a global scale, so great potential in those type of accounts, too. Asia, from an order booking standpoint, good news. We have opened up one new market in the quarter. We have a between $500,000 and $1 million PO from the Philippines, which is a market where we have not done business before. So our biz dev activities in Asia are scaling. And you will see also when I talk about revenue that there is some good news also in the revenue. So great position. I will leave the numbers -- I will let the numbers speak for themselves here. And now Stefan will come back in great detail. We have a lot of new shareholders that have joined and invested in the company over the past months and year. So I want to, as we normally do, take a step back and talk a little bit about the drivers in our market. What one should remember is that the megatrend that we are leaning on is something that we have referred to as the ever-growing demand for bandwidth. It's always been there. Drivers come and go, drivers accelerate. All of the forces that we have talked about over the years are still there. The need for modernization of global transport infrastructure, particularly in the metropolitan and regional area networks to support higher bandwidth, the cloud applications, the mobile, the streaming, all of that is still there. And now the ever-growing demand for bandwidth has a new best buddy called AI. So AI is the second megatrend that I talked about that will change humanity forever, and we are very much part of contributing to that development. If there are people who still doubt AI and the existence of AI and whether or not that's going to affect us all and how we do everything in the future, my recommendation is think again. So it's nearly impossible to talk about our customer segments without talking about AI. So I will take that stance today. So we have 3 customer segments: Cloud and AI, Network Operators and Enterprise. And I think what's happening now and what will happen in the coming decade is going to be very, very relevant for all customer segments. So Cloud and AI, those are the cloud service providers, the ICPs, Internet content providers. We package also all of the content delivery networks and such into that and obviously, the neo-scalers. So what's going on in the world is that data centers are being built at a pace that we have never seen before. A lot of those data centers are loaded up with GPU technology, and it's at massive scale. So the GPUs are instrumental machines when all of you, the public are using AI. All of the compute is happening, all the models are running in these GPU-enabled servers. And there are hundreds and thousands of those per data center, and there are many, many, many data centers, and it's still growing. So in order to build one of these data centers, as I said, in Q4, you need power, number one; you need cooling, number two, so water, cold climate or whatever or space for that matter or submerged or whatever really. And you need connectivity. So connectivity is what we do. Fibers in the ground, we light them up and we send massive amounts of data over those fibers to connect those data centers to, for lack of a better term, the Internet to reach the users and also in a growing fashion to connect those data centers together to allow for the emerging machine-to-machine communication between these GPU clusters, which is going to be huge. So owning a data center and owning one of these GPU parts or whatever it might be, you always have the option to buy network products and software and services from Smartoptics and build your own network. That is happening. You also have an option to place your equipment in a multi-tenant data center owned by someone else who then may buy the network connectivity from Smartoptics and connect this data center to the world. You may also use either of the 2 models that I just referred to and call a network operator, a CSP, very much like the 3 customers that I talked about being our lead order bookers in Q1 and ask them to supply you with bandwidth to connect your data centers. And this is happening in the whole world for us. So as many of you know, we have no direct engagements with the hyperscalers of the world, but we have a lot of indirect hyperscaler-related business, sometimes named accounts. As an example, this operator needs to build this network for whoever it might be, say, Meta as an example. And we have a lot of general demand from our operator customers who are selling a lot of capacity to hyperscalers. But hyperscalers are not alone. It's neo-scalers and a lot of other organizations who are building that sort of infrastructure. So high growth for us in the network operator segment, also driven by the same development. Enterprise is an interesting one because I believe that's going to be a very, very important market for us in a few years. We're seeing that happening. We're seeing the enterprises realizing that the token cost for running every AI demand that you have is going to be a significant part of your overall cost in the company. Hence, you will start to invest in your own AI infrastructure and GPU technology to run your models, to run your workloads natively or in a data center somewhere. So I think that -- and this is not for all AI workloads, but it's for some. So I think the enterprise community will build this type of infrastructure for a very long time. We, Smartoptics, we have already started to build our own infrastructure to run our AI models that our customers will connect to and run our models when they buy our software products that are AI-enabled in the future. So a great market also there. So fantastic market and Smartoptics is here to service that, and we are here to stay, and we're here to continue to develop our products to become more and more and more relevant. I want to dig in a little bit more into the quarter and look at the numbers. We start, as usual, by looking at the different geographies. In 2025, it's been an obvious pattern that the U.S., in particular, and the Americas region overall, which is, in our case, 95% U.S. or something like that. It's way ahead, great traction. We're winning a lot of new accounts, and there is just growth everywhere and opportunity everywhere we look. And the development between Q4 and Q1 is a very unusual development. The normal seasonality in our market is that Q1 is the weakest quarter. We're actually sequentially growing Americas to an all-time high in Q1. That is a proof point of the market around us and our performance in that market, our attractiveness for our customers. I also talked last year a lot about EMEA and how I think EMEA will catch up. That was based on the reality that EMEA in 2025 looked a lot like the U.S. in 2023, meaning large accounts, a lot of business development towards larger customers, projects that we can name, identify and design for future wins. And EMEA has gone through the first phases of that now. We have won a lot of new customers in the area. In Q1, the drivers in EMEA, the engine in EMEA is built largely on the Nordics and U.K., Ireland. The other regions are performing absolutely okay, but the growth for right now seem to be the strongest in Nordics and the U.K. But a fantastic quarter for team EMEA. APAC is still very small. It is a biz dev market for us. What we see in Q1 is that our large and established market, Australia, is fairly weak in the quarter. So the $1.2 million doesn't include a lot of Australia. Hence, for the other geographies, it's an okay quarter. There are not that many larger projects in the quarter. There is one sort of $300,000, $400,000 project, and that's in South Korea. So that's a second example of how we're opening up a new market. South Korea is -- has also been more or less virgin territory for us in the past. So overall, good progress with our business development activities in APAC. It is still Japan. It is still the cluster of countries from Singapore down through Malaysia and Indonesia. It is still Australia and New Zealand, and now we're adding the Philippines and South Korea to the mix. So -- and we have opportunities in all those geographies that are significant for the future. Looking at products and growth and revenue, we can clearly see that the -- well, same as always, where we invest money, we get the good growth and returns. So Smartoptics has been on a journey for the past 7, 8 years to invest in our Solutions, Software and Service businesses. Those are very tightly connected to each other. When we sell Solutions, we sell Software and Services. And occasionally, we sell Software and Services when we don't sell Solutions, but that's something we still have in the future to develop our products to become more multi-vendor, to be a pure software play in certain applications and certain areas. But today, they are largely connected with each other. And we can see the same phenomena as we saw in the U.S. that we have sequentially growth Q4 to Q1, which is great. And in my fairly long career in the industry, actually unheard of, again, demonstrating Smartoptics' attractiveness in a fantastic market. We're also growing business area Devices, and that's important because that has been now for more than a year. It's more like 1.5 years now when we have put a little bit more focus on that, have put in a new leadership, have done great changes, have invested in our software platforms to better support that business. And I'm very pleased to see growth in that segment. So it's following the market. It is time to talk about details of the numbers, and I will invite Stefan to do that. Welcome, Stefan. Stefan Karlsson: Thank you, Magnus. So the revenue was a very strong quarter. We have an increase of 59.6% to $22.9 million. And that, as Magnus said, was mainly driven by high growth in Americas and EMEA, mainly within business area Solutions. The gross margin in Q1 was 48.2% compared to 47.3% last year and in line with the full year gross margin for '25 of 47.8%. The underlying margins are still -- are consistent quarter-over-quarter, and we believe that the full year 2025 gross margin still serves as a good guide going forward. The EBITDA is -- was $2.7 million compared to $1.2 million last year with an increase of $1.5 million. And that is split up in the revenue made an increase of $4.2 million and the employee benefit expenses increased with $2.2 million from -- to $6.7 million from $4.5 million with 48%. And that is -- can be broken down into some components where we see 11% is related to nonrecurring costs related to the consolidation of production, and that's around $0.5 million. We have 10% that is an FX component. We have 70% of our cost in NOK and SEK, and we have 20% in U.S. dollars. 14% of the growth is related to organizational growth, where full-time equivalents grew from 129 to 147 persons. And that includes new hires of sales in the U.S. that with the mix with more people in U.S., the average cost per employee goes up. Remaining 13% is related to inflation, annual salary increase and variable compensation related to the positive development in sales. Other operating expenses increased from $1.1 million to $1.7 million and was -- and that component is -- half of it is based on employees and half of it is related to the development in sales. The EBITDA margin increased to 11.7% compared to 8.4% last year. And excluding the nonrecurring cost, the EBITDA for Q1 was 13.7%. The EBIT margin was 7.9% compared to 4.1% last year. And excluding the same nonrecurring cost, the EBIT margin would have been 9.9%. Cash flow from operations in the quarter was good, $2.2 million compared to $2.6 million last year, and we have a stable working capital. Looking on our balance sheet, we have an equity ratio of 56% compared to 58% last year, and the decline is a result from the growing balance sheet. Nonrecurring assets amounts to $9.1 million, up from $8.6 million last year. Current assets is $39.3 million, up from $34.4 million and is related to mainly inventory and trade receivables. Cash, $8.4 million compared to $9.9 million last year. We have available credit facilities of $7.7 million, equivalent to NOK 75 million. We have a high focus on cash. We continue to manage trade receivables, but we expect inventory to increase and that will then result in an increased working capital. Nonrecurring liabilities, a small item, $0.2 million and current liabilities, excluding deferred revenue, amounts to $11.4 million, down from $11.6 million last year. Deferred revenue is still growing and is now $13.6 million, up from $10.2 million last year. The working capital amounts to $14.6 million compared to $13.6 million last year and is up $100,000 from last quarter, and there is no major changes. Inventory is amounting to $18.4 million compared to $14.9 million last year. And the increase is related to longer lead times in components. We see also that, as I said, higher levels of inventory are essential to secure the future growth in sales, and we see a very low risk in our inventory. Trade receivables amounted to $19.1 million compared to $18.4 million last year. We have had normal collections in Q1, and we have a higher share of sales later in the quarter compared to last quarter. We see no risk in our trade receivables. Trade payables has decreased to $5.7 million compared to $6.9 million last year and are on par with last quarter. Our payment terms is mainly 60 days, but we have some suppliers that force us into 30 days. Net other short-term liabilities increased to $17.2 million, and that is mainly related to deferred revenue, as I mentioned, and also we have net tax liabilities of a little bit more than $1 million. The Board has proposed a dividend of NOK 0.6 per share. And the company is facing -- emphasizing an increasing or stable dividend. We see a stable and positive financial development with a solid financial position and a strong cash flow. The dividend is still pending AGM approval later today. Thank you all, and back to you, Magnus. Magnus Grenfeldt: Thank you, Stefan. I want to talk a little bit about the long-term targets. This slide is the same one, and these targets are the same ones that we've been using since mid-last year. So the company at the moment, me and my team, we are in the middle of our yearly strategic review process. We are also in a market that has changed dramatically. The outlook for the coming several years is absolutely phenomenal. And we are, of course, adjusting to that. In Q2, we will release new targets. And I would like to say that there are a number of things that you should expect and there are a number of things that you should not expect. There is nothing wrong with the targets that you see in front of you now. They are strong, solid for us in the company and for people deeply involved in our industry, they are understandable. But I don't think they are good enough for a broader audience. We have to clarify what do we mean and what are we really striving for in the coming 5 years. You should also expect more KPIs from Smartoptics where you can track our progress in greater detail and that we can really lean on when taking our investment decisions going forward. So an overall improvement in that area, but not significantly different. What you should also expect is continued investments. We have a fantastic opportunity ahead of us. And as I've said for several quarters, not investing in the company's future at this point would be full out foolish. So that's the path we're going, and that's the future we have ahead of us. With that, we are done with the presentation part of today, and I would like to hand over to Per, our moderator, if there are any questions. Per Burman: Do we have any questions in the room? Okay. Then we go to Teams. We have our analysts on the call. I see Christoffer Wang Bjornsen wants to start. He's from DNB Carnegie. Christoffer Bjørnsen: So first of all, congrats on the strong momentum in the quarter. It's all exciting. I just wanted to kind of -- if you could give us some kind of non-quantified preview on the need to kind of change a bit the targets in conjunction with Q2. Is it reflecting like something like negative? Or is it more that you're seeing that you're kind of currently tracking well ahead of the trajectory that you set out and you need to kind of talk about higher growth now and then return to below trend in some year further out. It's just like -- it creates a lot of uncertainty when you say that there will be a change in outlook when we get to next quarter. So just any directional hints would be much appreciated, I guess. Magnus Grenfeldt: So directional hints on the strategy, is that what you're asking for and the new targets that we intend to release? Christoffer Bjørnsen: Yes, directionally, like is it -- do you think it will be a positive thing or -- yes, because it's a bit spooky when you say that we are maintaining our guidance for the long term, but we will kind of change it next quarter... Magnus Grenfeldt: Christoffer, if I may, stop you right there. We didn't say that we will change it. We said -- I said -- I hope I said that we will improve it. We will improve it in a couple of ways. We will improve -- yes, make it more simple to understand. Obviously, we are setting tougher targets on ourselves. We are continuing to invest probably at a higher pace than we have. And the market ahead of us is fantastic. We need to capture that opportunity. So I would say for you, for me, Christoffer, it's going to be a very positive development. It's going to trigger us enormously within the company, and I hope it's going to create some excitement in other stakeholders. Christoffer Bjørnsen: All right. That's helpful. And then as my follow-up, can you give an update on the lead times you see from competitors and how they've evolved since last quarter and that's on the demand side and then also how your kind of transition into new facilities has fared and how your supply and capacity looks in the quarters ahead if you're able to deliver on the massive opportunity that is currently out there? Magnus Grenfeldt: Right. So I mean, obviously, to get detailed information, you should probably talk to our competitors because I'm hearing information kind of indirectly from our customers mainly and the several new customers that Smartoptics has onboarded for the past 2, 3 quarters as a result of larger competitors not delivering products to them. I mean the overall trend seems to be the largest players in our market are doing everything they can to satisfy the demands of the largest customers in our market, meaning hyperscalers, a very demanding group of customers with huge growth and huge needs. That is kind of opening up the good old gap that we have been talking about for so many years, the lack of midsized vendors to address the midsized market. I mean, that gap argument is more relevant than ever. We are, as I said, onboarding many, many new accounts as a result of this. The good thing is that they are not changing their overall procedures when they do that. They do it at an accelerated pace, but it is still important when you bring in a new critical vendor of this type of technology and software into your backbone, that's a procedure that has to be thought through. You have to change your operational procedures to fit the new player, Smartoptics in this case. You have to educate people. You have to do a lot of things. So it's not like this is happening overnight. But I would say what took us 1 to 3 years to achieve a few years ago may take 2 to 3 to 4 quarters now. So the processes are way faster. When it comes to Smartoptics delivery times, we're still good. Our inbounds on components is still working nicely. But you also have to be aware that we are currently in the process of planning component deliveries for Q1 and Q2 next year. So we have to take risk, and we have to do the right things. Now this is not a trivial exercise by any means. So far, we have it pretty much right, and I'm hoping that we will continue to have it much like that for the rest of the foreseeable future, but there is a little bit of risk in those exercises. When it comes to our own capability, well, I kind of hinted to that in the beginning here that our book-to-bill is considerably higher than 1. So were we limited to our own capabilities in Q1? I mean, the answer is given by the previous statement. We could have delivered more if we had, as an example, a double-sized production facility or triple size production facility, which we will have going forward. Q1 is also a quarter, as you know, with a lot of holidays, closing all the books, doing all of the stock taking, keeping the orders. So it's a shorter-than-average quarter from an operational standpoint. In Q2, we have a massive project for Smartoptics in the first 3 weeks of the quarter, where we are consolidating all of our production into a new facility. So Q2 for us will be very much a catch-up game now. The teams are working overtime and have been working overtime for a very long time, including Saturdays and Sundays, so on. And -- we're doing all the tricks that we are aware of to increase capacity, including bringing on temporary staff, taking external help and so on and so forth. So knock on wood, the catch-up will go great. And yes, so... Per Burman: Up next is Oystein Lodgaard from ABG. Øystein Lodgaard: So first of all, just on the quarter, is this -- are there any kind of one-off large projects or anything? Or is this more kind of many smaller deals? I'm thinking here about how we should kind of extrapolate the strong Q1 growth. Is this kind of -- should we now assume kind of normal seasonality here for the next year? Or were there any kind of one-off large contracts that boosted Q1 growth? Magnus Grenfeldt: Nothing significant to talk about. I mean, obviously, we are in a different situation now than compared to a year ago. We have a lot of larger accounts that we did not have, well, 1 and in particular, 2 years ago. So obviously, the overall project size when our customers expand their networks in certain regions or areas of the network, et cetera, they are, in general, bigger. There is no doubt. But that's not going to change in Q2, Q3 and Q4. If it does change, it's going to change upwards. So -- yes, so normal seasonality, taking into account what I said about 2 minutes ago is probably a good, as always, a pretty decent way to think about this. Øystein Lodgaard: Yes. And regarding what you said 2 minutes ago about the big move in Q2, do you think that will have a major impact? Or is that something that you -- that will kind of lower revenues, all else equal? Or do you think you should be able to catch up during the quarter? Magnus Grenfeldt: There are things that I know and things that I hope and things that I think here. And I know that the first 3 weeks in the quarter were dramatically lower in revenue than they would have been without the move. That's a no-brainer. That's obvious. I think we will have a great catch-up game, and I hope that we will have a great catch-up game. But the market is not slowing down. We haven't seen any signs of that. So I would assume that when we talk about Q2 in the summertime, we will reiterate that if we had, had a production facility twice the size that we have now, we could have done more. I think that's a fair assumption for now. Øystein Lodgaard: Interesting. And you stated earlier that the market outlook for the coming years is, I think you said, absolutely phenomenal, and we have to adjust to this. Could you just give some flavor on what does that mean? What -- if you have to adjust, does that mean investing more now upfront to capture that opportunity? Does it mean going more broader? Does it mean going even more focus towards the larger customers? Can you say what you mean by that? Magnus Grenfeldt: So I mean, the details of this, we are in the middle of it. I'm the CEO of the company, of course. My influence on this is huge. So my feeling is I pretty much know where this is going to land, but I want to save some thunder. This is a process. We need to get people on board. We need to get the Board on board with our strategy. We need to do a lot of things when we do this. But I think all of the things that you said there are relevant, broadening the scope in terms of what softwares are we going to deliver to the market, what hardware capabilities are our products going to have? Which verticals are we going to address? Are we going to go after larger and larger accounts? I would say, yes, that's a given. Are we going to invest more? Yes, that's also a given. But to what degree is the interesting question here and how to manage that in a responsible way and aggressive enough, I would say. So a lot of forces in play here. Øystein Lodgaard: And last question for me. Devices, once again, very strong results from Devices. How much of that is the market just being very, very strong? And how much do you think is driven by the strategic measures that you have implemented in the Devices business? Just trying to figure out how sustainable that is and if that is kind of a new trajectory going forward? Magnus Grenfeldt: So I wish I knew, Oystein. That's a very, very difficult question to answer. It's again here things that I know and things that I think. So what I do know is that we have done tremendous progress in terms of our tools to deliver products to customers quicker and at higher quality. Those are our software tools. That's where the innovation in this product area is happening in Smartoptics. We've done great progress. Are we done with that? No, we're not done. We're going to continue down that journey. But I think -- sorry, I know that, that has had a positive effect on that business. And what I think is that the overall market is, of course, contributing to this growth to some extent. It's impossible to give you any more qualified numbers on that. Per Burman: Good. Up next is Markus Heiberg from SEB. Markus Heiberg: So a couple for me as well. The first one is on the addressable market that you're talking about there, $16.5 billion in 2025. I would assume that less than half of this is addressable to you or I might be wrong, but you talk about the whole market growth being addressable. So how should we think about that market number? Magnus Grenfeldt: So the way I think about this, and this is a big change, and we sort of started to talk about that change about a year ago, maybe 2 years ago even. If you take Smartoptics' full product portfolio and you say that all of the world is going to be built with Smartoptics, can it be done? Yes or no? The answer is yes. Will it be the most effective and efficient solution for all of those applications? The answer is probably no. We are continuing to invest in performance, capabilities, speeds, feeds and so on and so forth. It's a very multidimensional game we're playing there into our product. They are becoming more and more capable. They are becoming more and more comparable to the more advanced products in the market. And we are also riding some other waves like -- I mean, the advancements in pluggable optical technology that we are using in the lion's share of our product is also helping us tremendously here. So I think if we were talking about $5 billion, $6 billion being exclusively the metropolitan area networks, 2 years ago, we are definitely an attractive player in the very large gray zone between metro and the most advanced applications. We have customers running terabits of traffic over 1,500, 2,000 kilometers today. That is absolutely very, very long distance communication, and that is very, very high capacity transport. That's the gray zone I'm talking about. And that, I believe, is a huge market. We're also adapting our products for 2027 to do even more on that. So this is going to be a continuous opening up of that long-haul market, but not to the extreme. Markus Heiberg: That's very interesting. Magnus Grenfeldt: Very interesting. I agree. Markus Heiberg: And then to my second one here is on the cost and investments going forward. The costs were a bit higher. Of course, you have some FX headwinds and some relocation issue, but it also looks like underlying costs are up quite a lot. So how should we think about that over the coming quarters? Is the Q1 cost base here a reasonable level to look at and you will invest from that? Or are there any things that we should adjust for? Magnus Grenfeldt: Do you want to come up and answer? I think that is... Stefan Karlsson: Yes. I can see if we look on the employee benefit expense, it has increased 48%, 21% was nonrecurring and FX driven. So the remaining increase of 20, 25 percentage points approximately, I think it's reasonable that that's going to be a stable position for our expenses, a stable increase and a good guidance going forward. So -- but of course, in general, we will see that our expense is growing at a slower pace than our revenue. I mean that's the underlying plan to be able to facilitate the increase in EBIT and EBITDA. Markus Heiberg: And a short follow-up on cost to take the gross margin question here also. It recovered very nicely from Q4. Anything in particular that we should be aware of going forward on the gross margin side? Magnus Grenfeldt: No, I think the answer is no. There is nothing in particular that you should be aware of at this point. And what we said in Q4 is that the Q4 was a little bit abnormal in some senses and that the full year 2025 was better guidance. And I think it's -- that's where we are, and I think it's going to be relevant. Per Burman: Good. Then I see that Christoffer has an additional question he wants to ask. Christoffer Bjørnsen: I just want to ask on Fibre Channel. It seems like there's some talk in the market about Broadcom kicking off new generation. Can you maybe talk about how you're positioned for that? And from your experience, how the kind of the refresh of customers' setups have impacted you in the past and how to think about this going forward? Magnus Grenfeldt: Sure, absolutely. Yes. So Fibre Channel is a subset of our enterprise market. So if you look into our Q4 reports over the years, you see that we have been reporting the different market segments. Fibre Channel is -- we've never really done the estimate. But if I were to sort of give a qualified guess, I would say that half our enterprise market or so is related to those type of applications. So we do not dictate the pace in the Fibre Channel market. That's dictated by companies investing in their storage environments. That, in turn, is dictated by when new generations of Fibre Channel technology are released and new generation of, of course, disk systems and so on and so forth. So it's typically every second year or so, we get a new generation of Fibre Channel coming out, and we see a boost that lasts for 18 months or so. And then it cools off a little bit before the next generation comes out, and we see a new boost and it goes on and on like that. I would say, overall, there are very few people who talk about Fibre Channel being a growing market. I mean that can change. It is a rock-solid technology for storage area networks. And of course, storage will always be a very, very relevant piece of the overall IT infrastructure cluster. So one should never say never. At the moment, so Brocade or Broadcom, who are the largest supplier of the switches, that we also have a unique collaboration with in the sense that our optics is the only optics that's approved to sit in the Fibre Channel switches and directors. They are now on releasing Gen 8. I believe they are releasing it this summer. Is that correct? Yes. And that means the big storage OEMs, I mean, the IBM, Fujitsu, Dell Corporation and so on of the world, they will start qualifying Brocade Gen 8 technology this summer. They will be done by that sometime late fall and customers are going to start buying Gen 8-enabled storage area network and storage clusters from sometime next year. We are releasing our response to Gen 8 this summer. It's a 64 gigabit DWDM technology we're talking about that goes together with basically all our other products, line systems and so on and so forth and become part of this solution. It's going to go through the same qualification processes as I just talked about, and we can expect that to have a pickup in 2027. Per Burman: That was all from the call. We have a few questions on the portal as well. Oscar, first here, he has 2 questions. One, risk for shortage of components, et cetera. The second one is, given the growth target, is 13% to 16% EBIT margin conservative given underlying scalability? Magnus Grenfeldt: So I think 2 things there. On the first one, is there a risk of component shortage? I wouldn't characterize this as a risk. It's a fact. I mean the component industry is absolutely running at full pace. There is no doubt. And I mean, these are components sitting inside the components of our components. That's where you see the shortages. So things like laser chips for pump lasers that we use in EDFAs, Erbium-Doped Fiber Amplifier that we use to extend reach in our products is one good example. So it's a fact. We are managing it. We're working now on securing our future, and we have been doing that for 2 years. So yes. So it's here. The second one was related to profitability and scalability of the business model. And I think this is precisely what I talked about in the conversation around what is our new strategy going to look like. And I would like to push that question into the future and come back in Q2 with better guidance on what we are really aiming for with this fantastic company. Per Burman: Then we have Tryg Bruland. In addition to a potential revenue loss, what is the level of extra cost that the moving process in Q2 will incur, USD 1 million is the question or less or more? Magnus Grenfeldt: The cost of consolidation of production. So that's already in Stefan's number, the $472,000 includes all of the extraordinary things that we have done and it includes everything up to and including July, August and then we're done. So... Per Burman: Good. That was the last question on the portal. Magnus Grenfeldt: And I think if I may clarify, it's not lost revenue. It's going to be, if at all, it's going to be slightly delayed revenue because we are still better than most other people in the market. Per Burman: Good. That was it. Magnus Grenfeldt: Then thank you very much. Have a great day, and see you in about a quarter. Thanks. Bye.
Operator: Good morning, ladies and gentlemen, and welcome to the Vontier First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. Replay will be made available shortly after. I'd like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead. Ryan Edelman: Thanks. Good morning, everyone, and thank you for joining us on the call this morning to discuss our first quarter results. With me on the call today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Executive Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call, we will present certain non-GAAP financial measures. We'll also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to Slide 3, and I'll turn the call over to Mark. Mark Morelli: Thanks, Ryan. Good morning, everyone, and thank you for joining us on the call this morning. Let's get started with a few high-level takeaways from the quarter. Vontier delivered solid sales and orders growth to start the year as we continue to gain traction on our connected mobility strategy. We're expanding our integrated offerings to capitalize on strong secular tailwinds across our end markets. Core sales grew nearly 2%, slightly ahead of our expectations, driven by strong performance in our Environmental & Fueling Solutions segment. Orders were up approximately 5% on a core basis, including strong demand for fueling equipment and key wins in retail solutions. Adjusted operating margin declined 70 basis points below our expectations, reflecting unfavorable mix and timing of R&D expenses. Importantly, the underlying fundamentals of the business are intact, and we are confident in our full year outlook as well as our ability to achieve the $15 million in savings related to ongoing simplification and 80/20 efforts. We're seeing meaningful momentum in our convenience retail end market, which strengthens our visibility and reinforces our confidence in the growth opportunity ahead. We have market-leading technologies that optimize our customers' operations, unmatched domain expertise to solve high-value problems and best-in-class channels to market. Growth within this end market was led by Environmental & Fueling Solutions with double-digit growth in both dispensers and aftermarket parts. Dispenser demand is strong, supported by the ongoing build-out and modernization of retail fueling infrastructure. The pull-through from advanced payment technology is helping to drive replacement and upgrade demand. As an example of this, we launched the next-generation FlexPay6 outdoor payment terminal in the first quarter. While bolstering our cloud-connected industry-leading payment security, it features a larger flush-mounted touchscreen along with an integrated card reader and PIN pad. It also enhances our unified payment solution by offering a more interactive consumer interface that helps reduce transaction times and improves engagement at the pump. We're also seeing strong momentum for our innovative technologies inside the store. Retail solutions, part of Invenco brand delivered strong growth in payment, media and point-of-sale systems. The convenience retail end market is resilient even in uncertain economic backdrops. Over the last 25 years, this end market has consistently demonstrated durability through periods of volatility. Higher oil prices have historically been a net positive as higher fuel margins drive improved profitability for C-store operators, enabling them to prioritize modernization, food and beverage offerings and invest in the consumer experience. Industry data suggests high retail fuel prices typically result in more frequent visits, which creates an opportunity for greater conversion for in-store sales as consumers place more emphasis on value. In prior cycles, higher fuel margins, combined with the trade-down effect as consumers shift toward lower-cost C-store options have created tailwinds to generate more cash flow for C-store operators. In turn, we see robust capital expenditures for multiyear storefront build-outs and retrofits. This is particularly true of larger regional and national C-store chains where we have higher share and they focus on delivering an elevated consumer experience. We're seeing this play out today. A good example is 7-Eleven's recently announced intention to remodel 7,000 stores across North America through 2030, standardizing around their more modern food and beverage focused format. This is in addition to the 1,300 new sites they expect to build over that same time horizon. This kind of long-term investment reinforces the strength of the category and the opportunity for Vontier. This morning, we also announced an important step in our portfolio simplification strategy. We've announced an agreement to sell our global fleet telematics business, Teletrac, for a total purchase price that values the business at $220 million. The purchase price consists of $80 million in cash proceeds and a $100 million seller's note, and Vontier will retain an approximate 30% equity stake in the business. We've outlined those details for you on Slide 4. The sale marks the completion of a successful multiyear turnaround of this business. At the time of our spin, Teletrac was churning out about 25% of customers with declining profitability and negative free cash flow. Since then, the team has meaningfully improved the business by launching a new platform, significantly reducing churn, accelerating ARR growth to mid-single digits, improving profitability and generating positive free cash flow. This has been a major effort for the Teletrac team, and we're grateful for their contributions. We believe Teletrac is well positioned for its next chapter of growth with better focus and access to capital under its new ownership. We expect this transaction to close in June, and we'll deploy the cash proceeds consistent with our disciplined capital allocation framework with a focus on additional share repurchases and selective bolt-on acquisitions. Before I turn the call over to Anshooman, I want to reiterate our confidence in the full year outlook. While the geopolitical backdrop added some uncertainty, demand trends remain constructive. We're also strengthening the foundation of our business to drive more profitable growth over time through commercial excellence and innovation and a relentless focus on execution. As we finalize the remaining organizational changes and implement our cost actions, we still expect incremental savings to ramp in the second half of this year. Combined with disciplined capital deployment, we are confident in our ability to deliver double-digit EPS growth. With that, I'll turn the call over to Anshooman to walk you through a more detailed review of the quarter's financials and our outlook. Anshooman Aga: Thanks, Mark, and good morning, everyone. Please turn to Slide 5 for a summary of our consolidated results for the quarter. Total sales of $751 million and core sales growth of 1.7% were above our guide, driven by notable strength at Environmental & Fueling Solutions with Mobility Tech and Repair Solutions generally performing in line with our expectations. As Mark mentioned in his remarks, adjusted operating profit margin fell short for the quarter, reflecting unfavorable mix and timing of operating expenses within both Mobility Tech and Repair. We expect full year margins to be consistent with our previous guidance. Adjusted EPS was $0.80, up 4% year-over-year. Adjusted free cash flow was below our normal seasonal pattern and prior year. The timing of our semiannual bond interest payment of approximately $19 million was in Q1 this year versus Q2 last year. Additionally, Q1 had an extra payroll run compared to the previous year, along with higher incentive compensation driven by the strong performance in fiscal 2025. We expect several of these timing differences to level out during the year, and we expect free cash flow conversion of around 95%. Turning to our segment results, beginning on Slide 6. Environmental & Fueling Solutions started the year off strong, benefiting from solid industry demand and an innovative product portfolio, driving higher new equipment and aftermarket activity. Total dispenser sales increased low double digits on a global basis, led by strength in North America. We saw notable bookings and sales strength from large national accounts, evidence of stable CapEx budgets. Segment margin was flat at nearly 30%, with volume leverage and ongoing productivity actions offset by less favorable mix. Moving to Mobility Technologies on Slide 7. Core sales declined by about 1% as strong underlying demand for convenience retail technologies was offset by more than a $25 million headwind associated with higher shipments for our Vehicle Identification Solution, or VIS in the prior year. Our commercial pipeline is robust, and we continue to win new business for integrated solutions, including orders for our unified payment point-of-sale and VIS offerings. The consolidated Mobility Technologies segment margin declined 260 basis points, driven by unfavorable mix and higher operating expense. On the OpEx side, we incurred higher R&D expenses in order to accelerate new product launches. At the same time, our cost-out activities are ramping in Q2, giving us momentum for the back half of the year. On the mix side, product and geographic mix impacted margins in Q1, which we expect to recover in Q2 and the balance of the year. When you combine this with stronger volume growth and incremental benefits from our cost initiatives in the second half, we remain on track for solid margin expansion this year. Additionally, the divestiture of Teletrac will be accretive to margin performance for the segment and Vontier overall. Finally, turning to Repair Solutions on Slide 8. Sales performance was in line with our expectations with progress on our growth initiatives successfully offsetting pressure on technicians' discretionary spending. This was most notable in our Tool Storage, Diagnostics and Power Tools categories. Additionally, we are focused on quicker payback tools that improve technicians' productivity. The lower segment margin can be attributed to unfavorable product mix and a discrete bad debt reserve of about $2 million related to delayed collections caused by the implementation of a new financial system. We're making good progress in collections and would expect to recover a majority of this reserve over the next several months. Turning to the balance sheet on Slide 9. Adjusted free cash flow of $28 million was impacted by the working capital items I highlighted earlier. We accelerated share repurchase in the quarter, buying back $70 million given the market dislocation. While we will maintain some flexibility on cash, given an increasingly actionable deal pipeline at current valuations, buybacks remain a very compelling use of cash. To address the $500 million bond maturity at the end of the quarter, we used about $200 million in cash on hand to repay a portion of the bond and issued a new 364-day term loan for the remaining $300 million at a relatively attractive spread. We ended the quarter with over $200 million in cash on the balance sheet and net leverage at 2.4x. Please turn to Slide 10 to discuss our guidance for 2026 and Q2. Beginning with a look at our full year guidance. What is shown here is what our guide would have been prior to the Teletrac divestiture, the impact that divestiture will have on our P&L, landing on our official guide, which includes the removal of Teletrac's results in the last column of this table. Importantly, there are no changes to the underlying fundamentals of our previous guidance, and we are only adjusting our guide to reflect the removal of Teletrac. We are assuming the transaction closes in early June, which means we remove about 7 months of contribution. Following this adjustment, relative to our previous guide, we lose about $110 million in sales, bringing the midpoint of our new range to just over $3 billion. Teletrac has little to no impact on our organic growth, but will be accretive to our margin rate by about 50 basis points. We now expect operating margin to expand by about 130 basis points to approximately 22.5%, which includes the contribution from the $15 million savings initiatives over the balance of the year. On a gross basis, the transaction will be about $0.05 dilutive to EPS for the full year. However, the interest received from the seller's note and the benefit from share buyback offset that EPS headwind, so we leave our full year range unchanged at $3.35 to $3.50. Our outlook for adjusted free cash flow conversion remains at 95%, representing around 15% of sales. Looking at our guide for Q2 on Slide 11, we follow the same format. We expect sales in the range of $730 million to $740 million, with core sales down about 1% at the midpoint, which implies the first half at roughly flat, in line with the initial outlook we outlined for you on the Q4 call. As you may recall, shipment timing of the vehicle identification system in the prior year drove high teens growth in Mobility Tech, along with 11% core growth for overall Vontier. This compare issue starts easing in the third quarter. Margins will begin to accelerate in the second quarter, expanding approximately 80 basis points, reflecting lower operating expenses. EPS will be in the range of $0.78 to $0.81, including a $0.01 headwind from the divestiture. As we highlighted on our last call, the year-over-year organic growth rates will look better in the second half, accounting for first half compare issues at EFS and Mobility Tech and the timing of shipments on projects in backlog, which favor Q3 and Q4. As always, we've included some other modeling assumptions on the right-hand side of the slide, which have also been updated to reflect the divestiture impact on the top line and adjustments still below-the-line items. With that, I'll pass the call back to Mark for his closing comments. Mark Morelli: Thank you, Anshooman. We're encouraged by the start to the year and by the underlying momentum across our most important end markets. I'd like to thank the entire Vontier team for their hard work and dedication to delivering for our customers and each other. As we look ahead, one of the most important evolutions underway at Vontier is how we operate the business. Historically, we've operated largely through individual lines of business. Over the past 2 quarters, we've reorganized significantly from the customer back, streamlining operations, raising the bar on operational excellence and becoming a more integrated enterprise. Today, our go-to-market strategy is deployed around 3 core end markets: convenience retail, fleet and repair. This shift is simplifying how we operate and setting the foundation for greater scale over time. By aligning around our customers, we bring more depth and expertise to enable integrated solutions. We believe this customer-led model strengthens our competitive advantage, improves how we innovate and sell and positions Vontier to deliver more consistent growth, margin expansion and long-term value creation. We believe our connected mobility strategy is the right long-term strategy for Vontier, and we are focused on executing with discipline to convert that strategy into durable top line growth, stronger profitability and greater value for shareholders. We have strong leadership positions in attractive and resilient end markets that offer significant opportunities. That means we need to continue to drive commercial excellence while also maintaining a relentless focus on execution, simplification and disciplined capital allocation. As we do this, we believe we are well positioned to deliver on our commitments and create meaningful long-term shareholder value. With that, operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from David Raso of Evercore ISI. David Raso: Two questions. One about the mobility mix moving forward and also the use of the proceeds on the divestiture. On the margin mix, can you help us a bit how you're thinking about the various pieces within Mobility, the growth the rest of the year? Just the margin in mobility was a little bit lower than I would have thought. And you mentioned also some costs involved. So maybe if you can help break out that margin decline year-over-year and again, how to think about the mix for the rest of the year? And then lastly, on the repo, the share count for the full year, it looks like maybe you are assuming it depends on the, obviously, share price, but maybe another $75 million, $100 million of repo after the $70 million guide in 2Q. I just want to make sure I'm thinking about that correctly. Anshooman Aga: David, thanks for the question. So for Mobility Tech margins for Q1, there were really 2 items that impacted margins. One was mix and mix really was product, customer and geographic mix played out differently versus our expectations and also historical norms. The second piece is higher R&D expenses in the tune of a couple of million dollars. And this was really accelerated spend on launch of new products. In the prepared remarks, Mark talked about the next-generation FlexPay6 products, which brings a lot of customer benefits that we launched, but also the redesign of some of our printed circuit boards for the memory chip shortage working around that, that drove the higher R&D expense. Coming back to the rest of the year for Mobility Tech, we've already seen in April, the mix normalize back to what we would expect in our historical norms. And also on the OpEx, we're confident that we'll get our $15 million savings. Part of it is obviously in Mobility Tech, and we're seeing traction on some of those saving actions in Q2 as we speak. So we feel pretty comfortable that for the full year, our guide for Vontier is unchanged other than the change for the divestiture of Teletrac. In terms of share buybacks, we've assumed about $150 million of buybacks for the year in the guide. We did $70 million already in Q1. So you can expect majority of the proceeds from the Teletrac divestiture would go towards buybacks at the current share price, buybacks remain extremely attractive from a capital allocation perspective. And additionally, we'll be generating a significant amount of free cash flow for the rest of the year. So that does give us optionality that's not built into the guide. David Raso: Okay. So to be clear, the $150 million, you'll have $140 million done by 2Q. So there isn't much baked into the second half at the moment? Anshooman Aga: Correct. David Raso: I appreciate it. Operator: And your next question comes from Julian Mitchell of Barclays. Julian Mitchell: I just wanted to start with maybe a longer-term question. So if I look at Slide 4, you've done another divestment today alongside a bunch of portfolio changes that you put on Slide 4. But I guess if I look at just the overall kind of history of this since it's spun out, the PE, I think, the first year after the spin was about 13, 14x. Now it's kind of 9 or 10x. Operating margins for the company are about where they were 5 years ago. So just I wondered to what extent the management, the Board are thinking about more radical portfolio options perhaps than shaving off one brand a year, adding another brand? Because certainly, the multiple doesn't seem to be reacting based on the last 5 years to these types of changes. Just wondered, again, the appetite to do something broader. Mark Morelli: Yes. Julian, this is Mark. Thanks for the question. Look, I think the way we've internalized the strategy and the pieces of the portfolio, I think we -- as a good example from the Teletrac one, you get accretive margin, you're left with a growthier space with less spend on R&D and a better drop-through. So I think when you take each piece incrementally, the portfolio is getting stronger. And we constantly look at our strategy. I think it's a step-by-step approach. I think the work we put into Teletrac Navman enabled a good transaction here and a good -- a better positioning for the overall portfolio. And I think we constantly look at the portfolio. We constantly look at what are the next set of actions that we think will drive greater shareholder value. And I think what we've got right now with the connected mobility strategy and a good backdrop with secular tailwinds from the majority of our portfolio here that, that strategy is working, and I think there'll definitely be a payoff as we continue to focus on that and improve the results. Julian Mitchell: Great. And then maybe a short-term one. So I think the operating margins are guided to be up 80 bps or so sequentially, and you have the expansion in Q2 year-on-year as well. Maybe just kind of flesh out how you're thinking about the segment level there, particularly repair, I guess, it looked like some of the headwinds you saw in Q1 in terms of lower price point tools that may be something that persists over the balance of the year just because of consumer wallets and so forth. Anshooman Aga: Thanks, Julian. And that's correct. So when you think of Q2 margins, our overall Vontier margins will be up 80 basis points. 20 basis points of that 80 will be because of the Teletrac divestiture. So core business up 60 basis points. That increase will be driven by Mobility Tech, which will be at somewhere north of 120 basis points in terms of margin expansion. EFS will also have margin expansion, probably 80 basis points or so, maybe a touch higher. And then repair, I expect will be down year-on-year. Just as you mentioned, we're seeing a higher percentage of the portfolio on the lower price point, higher -- quicker payback items being sold. So there will be a little bit of margin pressure that will continue into Q2. That will start easing towards the back half of the year, where some of the mix really coming into Q3, Q4, especially Q4 last year was in line with what we're trending towards. Operator: And your next question comes from Andy Kaplowitz of Citigroup. Andrew Kaplowitz: Mark, just back to Mobility for a minute. I don't think the memory chip shortage under inflation has been getting better, but it sounds like you're comfortable around that issue for Mobility. I just wanted to sort of double-click on that. And then obviously, comps in Mobility get easier. I think last quarter, you mentioned a number of wins though that ramp up in the second half. Is that still the case? So you've got good visibility to ramp up? And maybe do you need DRB to ramp up as well? Mark Morelli: Yes. So Andy, I'll give a little bit of color on the second half ramp. So first of all, the end market mostly tied to convenience retail. And I think our remarks there on the call is pretty resilient, and that certainly helps the Mobility Tech segment as well. And when you look at it, it's not only a good compare or a better compare for second half, our seasonality is definitely the same. Sales at 48% to 52% as that's our historical average. And then good bookings clearly in the quarter were pretty solid. And when we go into April, we're also seeing really good bookings as well. So I think to your point, we're getting better leverage for the second half. And while we over got a little bit better in Q1 on the revenue side, and we've got cost takeout actions in place that will carry through to the second half, we feel pretty good about the setup. Anshooman Aga: Yes. I would just add, as you mentioned, the compare does get easier in the second half. If you go back to the prepared remarks, we had over $25 million headwind in Q1, and it's about the same in Q2 tied to the vehicle identification system, which eases into Q3 and has definitely gone by Q4. Importantly, bookings in Q1 were up 5% on a core basis at a Vontier level. A couple of those were larger projects combined for $15 million and majority of that revenue based on our customer schedule is in the second half. So we are feeling incrementally better for the second half as we continue to book and how our compares also play out. Andrew Kaplowitz: That's helpful color, guys. And then I think you explained the trade-down effect kind of from high oil and gas prices when you were talking about the potential duration of the cycle for C-store CapEx and your EFS growth and your EFS growth in general. But maybe you could give us a bit more color regarding how to think about EFS moving forward. I think growth was even higher than you thought for Q1. Does that higher growth actually continue given C-store behavior such as what you mentioned with 7-Eleven? I think any color would be helpful there. Anshooman Aga: Yes. With EFS, we're very pleased with our team's performance. We remain bullish on a multiyear CapEx cycle that's playing through, and it's really driven by our innovation and our channel strength, which are both reading through. Dispenser shipments were up low double digits in North America, leading the way with especially strong national account bookings that we had in the first quarter. We expect dispensers will continue to play out strong for the year. We also expect strength in the build-out of convenience stores in North America to continue. So overall, we're feeling pretty good about the business in EFS, and we'll continue to see growth in line with what we're projecting for the year. Andrew Kaplowitz: Appreciate the color. Operator: And your next question comes from Joe Ritchie of Goldman Sachs. Luke McCollester: This is Luke McCollester on for Joe. Just curious if you can share any early data points on customer reception from the new outdoor payment terminal. How is this product fit into the broader connected mobility strategy? And is this a replacement cycle product? Or does it expand the addressable market? Mark Morelli: Yes. Luke, this is Mark. So thanks for the questions here. I think one of the things we showed in NACS in October or the fall of last year was unified payment, and this clearly extends our addressable market by providing a payment kit with more capabilities, order at the pump is a great example of that. It is incrementally better than the FlexPay6 that we recently launched and the uptake from our customers has been quite favorable. I think this is an outgrowth of our Invenco acquisition, where we've been able to build off that through integrating that platform. So I think we're seeing this also as an excellent example of the connected mobility strategy at work and differentiation that we can provide through launching new products where we're getting really good uptake from it. Luke McCollester: Got it. Helpful. And then within convenience retail, are you seeing any change in the pace of consolidation activity or capital spending plans there in light of the current geopolitical and macro backdrop? And this consolidation kind of tend to be more of a net positive or net negative? Mark Morelli: Yes. I think consolidation tends to go in our favor. The people that are doing the consolidators is where we have higher share in the marketplace, and they tend to buy up some of the smaller players where we sort of split share in the market. And so we tend to get more out of that as our -- as the folks consolidating in the industry are consolidating off typically our technology platform. There's no real change to that. I think there's been a backdrop of consolidation that's been sort of ongoing, I would say, over the years. and would anticipate -- of course, some of the prices have changed with interest rates and other things are ebbing and flowing. But I think you could just look at it as a long-term trend where there's plenty of opportunity for consolidation over the next 5 years. Anshooman Aga: And on the CapEx trend, keep in mind, while our bookings might be shorter term from a book-to-bill perspective, our customers are really planning out 2 or 3 years in advance. They're going through their site acquisitions, permits, build-outs. So they're really looking out 2 or 3 years from a CapEx plan, and there aren't -- oil price volatility doesn't really change their longer-term CapEx plans. Operator: And your next question comes from Katie Fleischer of Key Capital Markets. Katie Fleischer: Can we talk a little bit about the progress on the internal cost initiatives? I know that R&D is a focus there. So just how to think about incremental savings within that and potential upside kind of balanced against some of those higher R&D costs that you saw in Mobility Tech this quarter? Anshooman Aga: Katie, thanks for the question. We are very confident on the $15 million in-year savings that we guided to last quarter. We're reconfirming that. About $1 million in savings played out in the first quarter. The Q2 number will be $3 million, maybe a little bit higher and then the balance of it coming in the back half of the year. We're already through some of the savings plans, but I think we're progressing really well to our plans. Q1 was a little bit higher in R&D, timing of the launch of some products. We talked about the new FlexPay6 launch, but also the redesign on some of the printed circuit boards related to the memory chip. We're trying to stay ahead of the supply chain issues on memory chips. And as a result, there's some redesign work out there. But again, we're pretty confident in hitting our $15 million in-year savings target for the year. Katie Fleischer: Okay. That's helpful. And then on Matco, when we think about those customers recovering, what's really driving the spend there? Is it just delayed CapEx purchases? Is it more customer activity that's driving higher in days? Just help us think about what it will actually take to see a flow-through of spending from customers in Matco. Mark Morelli: Yes. So Katie, the backdrop on Repair is relatively attractive. The car park continues to age. It's about 12.8 years going to 13 years. So a lot more used cars out there in the market changing hands. That's good for Repair. The complexity for Repair is good. And the demand for tech and the wages are also strong. So we know from last year, actually, shop visits were up. So we -- that's a great underlying backdrop for Repair. I think the issue that has been underfoot is that the consumer has represented the working class for the shop technicians that buy our tools has had a harder time with their pocketbook. But the areas that we're getting traction is in the areas of diagnostics and toolboxes, and we had a good run of that in the quarter, which is indicative there can be strength there. And then also more value-added items where they can get more productivity. The technician gets paid based on a standard hour of work if they can be more productive and we say, well, how does the toolbox help with these are these productivity cards that help them on the job site. And so those type things, there's good payback for them. And as we continue to introduce and be more effective at selling those kind of things, even in a fairly rough backdrop, then we can have decent performance out of Matco. Operator: The next question comes from Andrew Obin of Bank of America. David Ridley-Lane: This is David Ridley-Lane on for Andrew Obin. Just sort of thinking about the full year guide here, did your expectations on Mobility Tech, have they shifted a little bit? What are you thinking for organic growth for that segment for the year? Anshooman Aga: Yes. Mobility Tech, their growth for the year will be low to mid-single digits versus the mid-single digits we said, but it's really on lower intercompany sales. If you look last quarter, we guided to north of $90 million of intercompany sales, and we dropped that down to $80 million. Part of it was every year, you update the transfer price, and we did that in Q1, where the transfer price intersegment came down a little bit, and then there's a little bit of mix between FlexPay4 and FlexPay6 products also that we updated for. So the underlying core business, no change to that. David Ridley-Lane: Okay. And I'm surprised I'm going to be the first person asked this, but the changes to Section 232 tariffs, IEEPA tariffs, can you just give us around the world on what the impact of Vontier is going to be inside 2026 as you see it? Anshooman Aga: Yes. The tariff remains a very dynamic environment. And there's -- we're continuously evaluating both where we are the importer of record and where our suppliers are the importer of record. We also are taking into account other dynamics that are playing out, for example, the memory chip pricing, oil and gas price and the impact on transportation costs, transportation routes. So net of all of this, while a lot of pluses and minuses, puts and takes, there's no material change to our view for the year, just playing out on aggregate as we'd expected. David Ridley-Lane: Got it. And just since it's been mentioned a few times on the conference call, can you quantify just in broad brush strokes, sort of memory chips like 1% of your total cost? Or is that -- do you have that number handy by any chance? Anshooman Aga: Yes, I'll give you last year's price or cost on memory chips because I think that's a little bit easier. The market is pretty dynamic. We -- it's in the mid- to high single-digit million dollars. So it's not material from an overall cost perspective, but it's -- every cost we control and manage to the best of our ability. David Ridley-Lane: I know there's -- when you have a small item that's doubling or tripling or quadrupling in price, it sometimes catch you up. Operator: And your next question comes from Rob Mason of Baird. Robert Mason: I wanted to see if you could just relative to the second quarter expectations on core growth in the down 1%. Kind of discuss how you think that may play out across the segments? Anshooman Aga: Yes. The EFS business will continue to grow. We expect that will be up low single digits for the quarter. Mobility Tech will be down low to mid-single digits on the compare issue. Just keep in mind the $25 million in shipments for the vehicle identification system order last year, both in Q1 and Q2. And then on Repair Solutions, we expect there will be also low single-digit growth, maybe low to mid-single-digit growth for the quarter in Repair. Robert Mason: Very good. Just a follow-up. Mark, just any quick thoughts on the decision to retain a minority stake in the telematics business and how we should think about how that plays out in the future as well? Mark Morelli: Yes. Thanks for that question, Rob. Look, we're pleased on the transaction. It's the result of a multiyear turnaround, launching a new product technology into the space. I think we're getting real momentum in that space. I think retaining a minority ownership there also gives us some upside on the trajectory they're on. They ended the year with strong bookings. They got past the 3G to 4G transition in Australia, which was a big headwind for them as well, and that's now in the clear. So we're optimistic also with more focus with the new owner and our partial ownership here and legacy knowledge of that business that we can unlock further value. Operator: Thank you. And there are no further questions at this time. I'd now like to turn the call back over to Mark Morelli, Chief Executive Officer, for closing comments. Mark Morelli: Yes. Thanks again for joining us on the call today. We're off to a solid start in '26. We're confident we can deliver above-market growth and in our ability to drive margin expansion and free cash flow. We're proactively managing the portfolio and staying disciplined on capital allocation, all through the lens of creating shareholder value. We appreciate your continued interest in Vontier and look forward to engaging with many of you over the next several weeks. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference. We thank you for participating and ask that you please disconnect your lines.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Codere Online First Quarter 2026 Financial Results Presentation. [Operator Instructions] I will now hand the conference over to Guillermo Lancha, Director of Investor Relations and Communications at Codere Online. Please go ahead. Guillermo Lancha: Thanks, operator, and welcome, everyone, to Codere Online's earnings call for the first quarter of 2026. Today, you will hear from our CEO, Aviv Sher; and CFO, Marcus Arildsson. Our Executive Vice Chairman, Moshe Edree, will also join us in the Q&A session. Please note that figures reflected in today's presentation are preliminary and unaudited and include certain non-IFRS financial metrics, which should be considered in addition to our IFRS results. Reconciliations and further details are available in the appendix. During this call, we will make forward-looking statements, which are subject to risks and uncertainties. While these statements reflect our current expectations, we undertake no obligation to update them after this call. A replay and transcript will be available at cohereonline.com, where investors can also sign up for e-mail alerts. Additionally, I would like to draw your attention to our recently filed annual report, where you can find detailed financial and other information regarding the company. With that, I will go ahead and pass the call on to Aviv. Aviv Sher: Thanks, Guillermo, and thank you all for joining us today. We are very pleased with how we started 2026, delivering a solid first quarter that reflects continued momentum in the business and good execution across our key markets despite a still demanding operating and regulatory environment. Starting with the highlights for the first quarter of 2026 on Page 8. We delivered a consolidated net gaming revenue of EUR 64.4 million, which represents a 13% increase versus first quarter of last year and 6% sequentially. This growth was supported by a healthy underlying trends across both casino and sports betting and confirms that the top line reacceleration we saw in the second half of 2025 has carried into a new year -- into the new year. Looking at the revenue mix, Casino once again accounted for the majority of our net revenue in the quarter, representing 63% of the total, with the remaining 37% coming from sports betting. This mix is very consistent with the recent quarters and continues to reflect the importance of casino as a key engagement and growth driver for our business. Turning to the operating KPIs. Performance in this quarter was driven by further expansion of our active customer base. Average monthly active customers reached approximately 183,000 in Q1, which is 14% higher than the same period last year. This reflects continued strength in acquisition, combined with a solid retention across our portfolio. Average monthly spend per active customer was EUR 117, around 1% below Q1 of last year. As we have mentioned before, this is consistent with a broader and more diversified customer base and does not change our positive view on the quality and long-term value of the players we are acquiring. Although we will cover later, we are working to optimize our active customer base in Mexico. On the acquisition side, during the quarter, we have acquired approximately 90,000 FTDs at an average CPA of EUR 212, which represents an increase both year-on-year and sequentially. This reflects a combination of more competitive marketing environment at the start of the year, particularly in our core markets and deliberately shift in mix towards higher-value cohorts and channels. As in prior periods, we remain disciplined in our approach and continue to prioritize customer quality, profitability and lifetime value over short-term volume. With respect to capital allocation, we did not repurchase any shares under our share buyback plan during the first quarter. As a reminder, the program remains in place through the end of 2026, and we will continue to evaluate repurchases based on market conditions and business priorities. Finally, looking ahead, our outlook for the full year of 2026 remains unchanged. We continue to guide net gaming revenue in the range of EUR 235 million to EUR 245 million and adjusted EBITDA between EUR 15 million to EUR 20 million. This guidance reflects both the strong start of the year and our prudent approach to planning, taking into account the regulatory and tax environment in our markets. As always, we will continue to assess performance as the year progresses. And if current trends and execution remain consistent, we would expect to visit our outlook after the first half of the year. Overall, we remain confident that our ability to deliver continued growth in both revenue and profitability in 2026. With that, I will now hand the call over to Marcus to walk you through the financial performance in more detail. Marcus Arildsson: Thanks, Aviv, and hello, everyone. If we turn to Slide 10, you can see our consolidated net gaming revenue and adjusted EBITDA performance by country for the first quarter of 2026. Starting with NGR. In Q1, we delivered EUR 64.4 million, representing, as Aviv mentioned, 13% year-over-year increase compared to the first quarter of 2025, driven primarily by our 2 core markets, Spain and Mexico, both which delivered solid performance. This also represented a 6% sequential increase versus an already very strong fourth quarter of 2025. In Spain specifically, NGR increased by EUR 3.6 million year-over-year to EUR 20.5 million, representing a growth of 16.4% and reflected a continued strong underlying trend. In Mexico, NGR revenue grew by EUR 4.1 million to EUR 34.6 million, an increase of 13.4% versus Q1 of last year, which further consolidates Mexico as our largest market and the key growth driver. In other markets, which include, as you know, Colombia, Panama and the city of Buenos Aires, we generated EUR 4.4 million of net gaming revenue in the quarter, broadly stable year-over-year. As expected, growth in these markets remain more volatile and continues to represent a smaller portion of the overall group, although we're seeing encouraging trends, both in Panama and Colombia. Looking at the last 12 months, net gaming revenue reached EUR 231.6 million, up 7.3% versus the prior period. Spain and Mexico continue to account for the vast majority of the business, together representing over 93% of LTM net gaming revenue with Mexico contributing approximately 53% and Spain, approximately 41%. This strong top line performance translated into a further step-up in profitability. In Q1 2026, we delivered adjusted EBITDA of EUR 6 million compared to EUR 1.8 million in the first quarter of last year. Spain contributed EUR 7 million of adjusted EBITDA in the quarter, up 27% year-over-year, reflecting continued operating leverage, while Mexico delivered EUR 2.9 million of adjusted EBITDA, also representing an increase of over 60% year-over-year as the country continues to inflict towards profitability. Our undistributed and headquarter costs were slightly lower in the quarter at EUR 5 million despite the increase in revenues. reflecting ongoing cost discipline and operating leverage as the business scales. On an LTM basis, adjusted EBITDA reached EUR 18 million compared to EUR 6.5 million a year ago, which already positions us in the upper part of our outlook range for the full year. Overall, the first quarter shows a solid start to the year with continued revenue growth in our core markets and further improvements in profitability, consistent with the outlook Aviv mentioned earlier. Turning to our consolidated P&L on Page 11. Marketing expense was EUR 25 million in the quarter, EUR 1.2 million above Q1 of last year. But noteworthy, it was 3 percentage points lower as a percentage of NGR. The rest of our operating expenses, namely platform and content costs, gaming taxes and personnel were in line, if not below the growth in NGR, resulting in adjusted EBITDA of EUR 6 million in the quarter. This translated into an adjusted EBITDA margin of around 9% compared to 3% in the first quarter of 2025. Now, turning to Page 12. We can see that the operating trends behind our Q1 performance. NGR increased 13% year-on-year, supported primarily by a continued expansion of our active customer base. Average monthly actives reached approximately 183,000 players in the quarter, up 14% compared to Q1 as of last year. This increase in player engagement was primarily driven by improvements in retention and reactivation of players as acquisition remained flat at around 90,000 FTDs, in line with recent quarters. The cost per acquisition increased approximately EUR 212 in the quarter. As discussed earlier, this reflects both a more competitive start to the year and a conscious shift towards higher-value channels and cohorts. Turning to Page 13 and Spain. Net gaming revenue in the first quarter of 2026 was EUR 25.5 million, up 16% versus Q1 2025 and 4% sequentially. This was a result of a 13% increase in the number of active customers to approximately 59,000 players. With Spain being a more mature and tightly regulated market, especially in terms of advertising, we're pleased to continue to growing our portfolio of customers while maintaining a strong profitability. Moving now to Mexico on Page 14. Net gaming revenue in the country increased by 13% year-on-year in the first quarter of 2026, reaching EUR 34.6 million. Growth in the quarter was primarily driven by a continued expansion of the active customer base, which increased by approximately 20% year-on-year to around 98,000 average monthly actives. This more than offset the lower average spend per active customer, reflecting the broader and more diversified player base we're continuing to build in the market. On a sequential basis, active customer levels were slightly lower compared to the fourth quarter and have continued to decline into the second quarter of 2026. This was expected and reflects the implementation of tighter promotional rules aimed at reducing the participation of bonus hunters who were taking advantage of short-term promotions. While these players had limited impact on net gaming revenue, they, so to speak, polluted our customer database and made segmentation more complex. We view this as a positive step that improves the overall quality and sustainability of our customer base as we head up into the World Cup coming up in the coming months. Overall, Mexico remains a key growth driver for Codere Online. We continue to invest in expanding our customer base, improving the product and customer experience and leveraging our scale. At the same time, we're being selective and disciplined in our marketing investments. For example, we have recently secured an opportunistic content partnership with a leading television broadcaster that provides brand exposure immediately following goals during football games. This has been very effective in terms of reach and visibility. And this approach reflects our focus on pursuing efficient, high-impact opportunities rather than chasing more expensive and increasingly crowded World Cup-related content that we're currently seeing across the market. And it supports our continued focus on marketing efficiency and return on investment. Now on Page 15, looking at the balance sheet briefly. We closed the quarter with EUR 56 million of total cash on the balance sheet, of which approximately EUR 51 million was available. As in prior quarters, our structural negative working capital position remained in line at EUR 22 million or approximately 10% of our LTM net gaming revenue and supported the cash generation we have seen in the quarter and that we expect going forward. Looking at cash flow on Page 16. We generated EUR 6.5 million of cash flow in the first quarter 2026. Please note that this quarter, we are breaking down how much available cash was generated or used by decreases or increases, respectively, in reserve cash. This was previously included within changes in working capital. Overall, we continue to see an encouraging trend, not only in delivering positive adjusted EBITDA, but also in converting most of it into cash flow. Having said that, the precise timing of certain cash flow items can impact the cash generation in any given quarter. Although across several quarters, this tends to even out. As a result, our available cash, as discussed, was EUR 51 million at the end of March. Very briefly on Page 18. We are maintaining our 2026 net gaming and adjusted EBITDA outlook. As Aviv mentioned, we're off to a strong start of the year, and we are comfortable in our ability to meet it. As opposed to last year, in 2026, we're enjoying some tailwinds, for example, in the Mexican exchange rate or in the Colombian gaming tax, which is more favorable this year and is helping us grow again our top line. If these trends and our strong execution in Spain and Mexico holds into the second quarter, we would expect to revisit our outlook with our second quarter results. That's all from my end. I will now hand it back to Aviv for closing remarks. Aviv Sher: Thank you, Marcus. Before we move on to the Q&A session, I would like to thank all Codere Online employees for their hard work in delivering a great start of the year. I would also like to thank the investors and analysts joining us today for their ongoing support and interest in Codere Online. With that, I will now hand the call back to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Jeffrey Stantial with Stifel. Unknown Analyst: This is [ Aidan Young ] on for Jeff Stantial. So starting off on guidance. If we look back historically, it looks like Q1 is typically one of the weakest quarters in terms of adjusted EBITDA seasonality. And then this year, you have the benefit of the World Cup coming in Q2 and Q3. So Marcus, can you help us think about the bridge from that EUR 6 million of EBITDA you generated in Q1 to the EUR 15 million to EUR 20 million for the year? Is it mostly marketing investment around the World Cup? Or how should we bridge those 2? Marcus Arildsson: Well, our -- I mean, it's undoubtedly, we've come up to a very strong start during the first quarter. And our full year forecast is the EUR 15 million to EUR 20 million that we had set out in the previous call as we began this year. The World Cup -- in past World Cups and in past similar events, we haven't seen a tremendous amount of impact on NGR. We have seen an uplift, and we expect that for this year as well. We expect an uplift in activity, but with a limited impact in NGR and on the financials. So the World Cup is there. It's going to impact a few weeks in Q2 and a few weeks in Q3. But at this stage, we don't expect a very substantial impact on our figures. Unknown Analyst: Great. Turning to Mexico. It looks like Stake recently entered the market. Could you update us on the competitive environment there and whether you're seeing any upward pressure to CAC heading into the World Cup? Aviv Sher: Well, we saw the announcements of Stake coming into the market. We didn't see them, for example, yet on TV or on Google PPC. I'm sure they will come strong on that. But at the moment, we are not seeing any of that. Some of our competitors are still down since late last year, as you all know. But other than that, we continue our activities as usual, continue to grow, continue to grow the database and the customer base. I don't think it has anything to any pressure on our CAC or LTV. The opposite, I think it helps us a little bit. And for us, we continue to comply with all regulations, all the taxes that we think required in Mexico to keep operating smoothly as before and to continue to deliver the results that you're seeing. Unknown Analyst: Great. And if I can just squeeze in one more. Can you update us on the implementation of AI into your processes? Where have you been able to see some benefits? And how should we think about that as a potential impact to the model, whether through cost mitigation or revenue-enhancing initiatives? Aviv Sher: Listen, to be honest, at the moment in the core business, we did not implement AI. Everything else, all the supporting areas, whether it's the last employee, everybody is using it. As a process right now, we are not using it in the core business. We don't -- we didn't see any AI trading benefit or anything like that, that you can right now imagine or have seen in the news. We didn't see a working product yet. We are already using it in the customer service and maybe some outbound calls. We see good results. I think we need a couple of more quarters before we can say that we found something really interesting in that area. It does support our operation in the day-to-day. I think every employee every few hours request another ChatGPT or Claude license. So it's not yet arrived to the core of the business, but in the surrounding, we are using. Moshe Edree: No, more than that. It's Moshe here. We already engaged with Google Israel that they are like supporting us in implementing tools that related to Google advertising tools, and they will start a process with us about implementing their tools into our system. Aviv Sher: But still early. I think 2 more quarters and we'll see something substantial. Operator: Your next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Unknown Analyst: This is Will on for Ryan. First, I wanted to ask on Spain. You've had relatively strong performance there this quarter relative to what we've seen in prior years. Curious if you think this trend can continue and what you're seeing in terms of the competitive environment there? Aviv Sher: Yes. I think in general, we -- I think for the last few quarters, we are already reporting Spain to -- that we see a growth, that we see good results. It's important to say that we also see that the market itself grows a lot, at least from the regulator we saw last year a big growth in the market for the full year. And we continue to push and optimize our customer acquisition to a higher value. We continue with that. We see good success with it. We also enjoy a couple of quarters of strong technology stability, which allowed us to cruise through a few big games with good results. Also important to say in the first quarter, trading margin was favorable for us, a lot of surprises along the way. And so we also enjoy a trading margin here. But overall, we are very happy with the result in Spain. And yes, we think it will continue with this trend. Unknown Analyst: Great. And then just a quick follow-up on Colombia. I know it's a relatively small exposure for you. But with the removal of the 19% VAT, you've got a new 16% consumption tax out of that. Curious how you think of investment maybe there going forward and as well as if you're looking into any potentially new markets? Aviv Sher: Yes. So basically, the 16% tax allows us to continue and operate the current database that we have, which we did with, I think, very good success. We see it in the results, although it's part of the other lines, but Colombia recovered quite nicely. Unfortunately, this current structure doesn't allow us to really invest again into marketing, only operate and reactivate the large database that we have. We are, like everyone, I think, waiting for the results, the political results of the elections that are coming by the end of the month. And hopefully, the political environment will change there and will be more favorable for the business, and then we will be able to invest. This is how we look at it. We are very encouraged by the results of activating the database, which we thought would be harder, but actually, we did pretty well with that. And I think if the business environment will change a little bit more or for example, when they removed completely the 19%, we were already ready to make new investments into Colombia and start considering it back as not a significant, but as a separate market, let's call it, with a separate investment line. And hopefully, the business environment will change after the elections. And then we can grow it faster than now. Regarding other markets, currently, no plans for new markets. Unknown Analyst: Hope it goes in your favor. Operator: [Operator Instructions] Your next question comes from the line of Michael Kupinski with NOBLE Capital Markets. Michael Kupinski: I was just wondering in terms of -- this obviously was a great quarter in terms of an inflection for EBITDA. And I was just wondering, at what scale do you believe the business can consistently generate double-digit EBITDA margins? And I have a couple of follow-ups. Marcus Arildsson: Can you repeat the question just to try to really get the gist of it? Michael Kupinski: Yes. I was just wondering in terms of what scale do you think the business can consistently generate double-digit EBITDA margins? Marcus Arildsson: Yes. Obviously, as you know, one of the key drivers of that is our marketing spend. The remaining cost items we have in the P&L, there are many of those like gaming taxes, platform costs, et cetera, which are quite variable in nature. And one of the most important expense line, of course, is marketing. And as you know, our strategy is to continue to grow the business, but over time, maturing into a lower percentage of NGR in terms of marketing spend. So we think to be able to get to a double-digit EBITDA margin, we need to probably be below 30% in terms of marketing as a percentage of NGR. When do we get there has to be seen. I don't think we're in a position to make a forecast on it, but I think that's the way we see it. When we start to get marketing below -- with the current cost structure we have and as we're looking forward, when we start to be able to get marketing below 30%, that's when our EBITDA margin can start to approach 20% or maybe go above 20%, but in that range. So I think that's sort of, I'd say how we look at it, just looking out a few periods. Moshe Edree: I would maybe add to that, Mike, that as you know, our marketing investment is pretty much entirely discretional. So it's a bit also of a decision that we take as a management team to sort of how much we want to keep on investing. And if the priority was at some point to deliver double-digit EBITDA, that's something that we could do by reducing the investment. But obviously, what we are managing for is a sustainable growth in EBITDA and for that percentage to increase over time organically as relative to NDR. Aviv Sher: I think the key here is to balance, right? We are balancing between the revenues and the EBITDA as we see fit to generate the highest company value. This is the goal here. Michael Kupinski: Fair enough. Obviously, you have EUR 56 million in cash and no debt. And I was just wondering in terms of how management is thinking about capital allocation priorities at this point. How much cash does the management believe is necessary to support its growth? So if you could just talk a little bit about capital allocation at this point? Moshe Edree: Okay. Just let me add something, Mike. It's Moshe. Well, so first and foremost, as a public company, we are -- we have a guidelines by the Board of Directors and our forecast based on the Board of Directors' decision about the target and the EBITDA and the organic growth that from time to time, we are looking, if there's anything that we do with the cash that it's more than just marketing. Obviously, up until now, there wasn't anything substantial that we brought to the Board. But as you know, it's not just about invest the money in marketing, but it's also to keep the same ratio on the CAC of the investment. And that's what we are keen for. I mean that any additional dollars that we spend in Spain or Mexico, which is our biggest markets and the major markets, that receive the same ratio of investment versus the ROI on this investment. And that's how we're managing the cash. Now although it seems that it's quite liquid, having like EUR 50 million in cash, but it's not still, I would say, a sufficient amount that we would do anything that just in the order of investing it. As you know, lately, we had like some buyback process that we use some of this cash. But other than that, there isn't anything that we are looking at in terms of acquisition. Marcus Arildsson: Maybe just to -- thanks, Moshe. Maybe just to add to that. The cash we have, obviously, a very significant part of it is invested in the business. It's working capital. As you know, we operate in 5 markets. We have a number of different payment alternatives for our customers, et cetera. And so a very substantial portion of our cash is invested in the business and it's working capital, and it's not sort of say, readily, readily available. I mean it's invested in the business, and it's -- and there is -- we are generating cash, as you know. So net, we're adding to our cash as we speak. So that's great news that we have turned the corner and we're adding to our position. And beyond the comments that Moshe mentioned, of course, we will look at and we are looking at certain expansion opportunities. If and when opportunities come around for either further investments in our current markets, we will look at that, and we can also contemplate entry into other markets. But at this time, I think the important piece is to think about that, yes, we are generating cash. Two, most of the cash today is invested in the business and as working capital. But as the quarters go by, we will amass a little bit more quarter or a little bit more cash. And one of the valves that we have to use that is to return to shareholders through our buyback. And I think that's the position we're in at this stage. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call back to Guillermo Lancha, Director of Investor Relations and Communications, for closing remarks. Guillermo Lancha: Thanks, Derek. If there are no further questions, I guess we will leave it here. If anyone has any follow-ups, you know where to reach us. And if not, we will be talking again with our Q2 results by the end of July. Thanks, everyone, for joining. Aviv Sher: Thank you. Guillermo Lancha: Thank you, Mr. CEO. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the Kulicke & Soffa Q2 2026 Conference Call webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Joe Elgindy, Senior Director, Investor Relations. Joe, please go ahead. Joseph Elgindy: Thank you. Welcome, everyone, to Kulicke & Soffa's Fiscal Second Quarter 2026 Conference Call. Lester Wong, Interim Chief Executive Officer and Chief Financial Officer, also joins me on today's call. Non-GAAP financial measures referenced today should be considered in addition to, not as a substitute for or in isolation from our GAAP financial information. GAAP to non-GAAP reconciliation tables are included within our latest earnings release and earnings presentation. Both are available at investor.kns.com, along with prepared remarks for today's call. In addition to historical information, today's discussion contains forward-looking statements regarding our future performance and outlook. These statements are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties that may cause actual results to differ materially. For a complete discussion of the risks associated with Kulicke and Soffa that could affect our future results and financial condition, please refer to our latest Form 10-K and upcoming SEC filings for additional information. With that said, I would now like to turn the call over to Lester Wong for the business market and financial overview. Please go ahead, Lester. Lester Wong: Thank you, Joe. Good morning, everyone. We are again pleased to report demand is improving at a faster and stronger pace than previously expected. Customer sentiment remains strong and utilization levels across our largest served market remain above average. This strength continued to be led by general semiconductor and memory demand, which directly supports data center capacity expansion globally. We also see improving condition in traditional markets such as premium smartphones. Over the past year, utilization rates have continued to increase and the need for incremental capacity continues to grow. As explained last quarter, data center growth required new forms of advanced packaging, which supports the most advanced logic and memory applications. Data center growth also requires new capacity for high-volume traditional packaging solutions, which support networking, communication, power management and storage requirements. Additionally, we have seen positive momentum within automotive and industrial end markets. During the March quarter, revenue increased by 21.5% sequentially. We have improved visibility within fiscal 2026 and anticipate a slight sequential improvement into fourth fiscal quarter. Our financial performance was above prior expectations, and we remain focused to aggressively ramp production in our core and advanced markets. Additionally, we continue to deliver new TCB, power semiconductor and memory solutions to support our customers' evolving production needs. Revenue recognized for our leading Fluxless Thermo-Compression solutions have increased sequentially, supported by OSATs, foundries and IDMs. Our fiscal year 2026 outlook remains strong for Thermo-Compression and supports aggressive sequential growth. In addition to Thermo-Compression, we recently announced several new and innovative offerings, which address additional packaging transformations within power semiconductor and memory. Our new Asterion-TW system announced in late March is well positioned to support increasingly complex high current and high reliability power applications. This new system complements our recently released clip-attach and pin-welding solutions. We also announced the ProMEM Suite of memory features and highlighted our growing portfolio of DRAM solutions supporting both cost-sensitive and high-bandwidth memory applications. Additionally, we have a growing base of customer engagements in advanced packaging as we accelerate next-generation programs. Two specific area of focus are around panel-level base system architecture and long-term industry development of true production capable hybrid solutions. Despite challenging market conditions over the past 3 years, we continue to invest in research and development in several exciting new growth areas. As we enter a period of high capacity additions across our served markets, we are pleased with the progress our team has made across these multifaceted opportunities. In addition to the industry's need for incremental near-term capacity in advanced packaging, we are also significantly ramping our own production capacity. Over the coming year, we anticipate to significantly expand our Advanced Solutions segment production capacity to support approximately $400 million of revenue. I will provide some additional details in the financial section. Turning to end market review. General semiconductor revenues increased by 19.4% sequentially to $148.9 million, driven by higher capacity and technology requirements for both ball bonding and advanced solutions segments. Memory shipments increased by 93% sequentially to $31.3 million. Our memory business is currently focused on supporting NAND technology and capacity requirements, although as advanced packaging trends continue to evolve throughout the memory market, we expect to gain market share in DRAM with our new solutions. Automotive and industrial shipments increased by 63% sequentially, driven primarily by high I/O and high-volume power and mixed signal packaging. We are also well positioned to benefit from the gradual long-term share growth in battery and plug-in hybrids, which require new power semiconductor technology and capacity requirements. Aftermarket Products and Services, or APS, end market demand decreased sequentially due to lower refurbished system sales during the March quarter. The broader consumables portion of APS has remained consistent sequentially. As we typically do during rapid changes in demand, we will continue to work aggressively to support our customers' capacity and technology needs. Our global R&D teams remain aggressively engaged on many new technology fronts supporting advanced packaging and power semiconductor trends while also extending our platform of advanced dispense solutions. Within advanced packaging, transitions to both vertical wire and thermal compression remain on track, and we continue to be positioned well. We are increasingly focused on hybrid bonding technology and are confident we can provide a very competitive solution within this emerging process. We continue to anticipate Hybrid will be commercially viable solution eventually, so it is now time to invest and accelerate market engagements. While Hybrid may be still a few years away from gaining broad market adoption, we are accelerating our research and development efforts to provide a solution that exceeds current capabilities available in the market today. In the interim, TCB is the production solution for today's most complex heterogeneous applications. Our TCB business is expected to grow at least 70% sequentially this fiscal year, generating over $100 million of revenue. We anticipate the majority of our sequential TCB growth will continue to stem from large applications and heterogeneous packaging trends. We will allocate additional resources towards emerging HBM opportunities as well. Our other unique memory opportunity continues to be addressed with vertical wire, which provides a highly capable alternative for cost-effective bandwidth through die stacking. We anticipate strong sequential growth in both TCB and vertical wire over the coming years. We introduced our latest ACELON dispense system in November at Productronica, which is now deployed with several customers for evaluation and progressing well. In addition, as well, during the March quarter, we recognized revenue associated with a new dedicated panel level dispense solution. With that said, I will now provide a brief financial update. My remarks today will refer to GAAP results unless noted. We again delivered revenue above guidance and continue to execute on our production ramp in our core markets and Fluxless Thermo-Compression while also maintaining a focus on operational efficiency. Gross margins came in at 49.3%, and we delivered $0.66 of GAAP earnings and $0.79 on non-GAAP earnings. Gross margin remained strong sequentially due to customer and product mix. Total operating expenses came in at $81.1 million on a GAAP basis and $73.8 million on a non-GAAP basis. And we continue to remain focused on controlling costs, although considering our growing base of opportunities, we also need to ensure resource availability. Tax expense came in at $7.4 million and anticipate our effective tax rate will remain slightly over 20% near term. For the June quarter, revenue is expected to increase by 28% sequentially to $310 million with gross margins of 48% -- non-GAAP operating expenses are expected to be $85 million, representing an increase in variable compensation as well as an increase in critical headcount to support our growing market opportunities. GAAP earnings per share is targeted to be $0.87 and non-GAAP earnings per share to be $1. As discussed earlier, we're expanding the Advanced Solutions segment production footprint by investing in capital expenditures. These investments have started in April and are planned to significantly expand our Thermo-Compression capacity by the first half of fiscal 2027. Total capital expenditures in connection with this expansion are expected to be $20 million. $12 million of the total investment is set to be deployed in fiscal 2026. In closing, we are capitalizing on near-term opportunities while continuing to execute long-term strategic priorities. We are confident in our future and remain competitively positioned in core and advanced packaging markets. We look forward to delivering strong results as we continue to grow the business. This concludes our prepared comments. Operator, please open the call for questions. Operator: [Operator Instructions] Our first question is coming from Krish Sankar from TD Cowen. Sreekrishnan Sankarnarayanan: Lester, congrats on the very solid results and nice to see a $300 million plus quarter again. I just have two questions, Lester. One is, in the past, you gave some color on how to think about utilization rate across geographies. I'm wondering how is that now given that demand is improving? Can you just give some color on like where China, Southeast Asia, rest of geographies are in terms of utilization rate? And then I have a follow-up. Lester Wong: Sure. So Krish, I think China has been very high utilization rate for the last couple of quarters now. So for this quarter, they're over 90%, around 92%. We're also seeing strong utilization in Korea, Japan and Taiwan, what we call other Asia. I think Southeast Asia is still a bit soft, but they have improved a little bit. And then I think North America and Europe also has improved. So I think it's still being led by China as well as Japan, Korea and Taiwan. Sreekrishnan Sankarnarayanan: Got it. That's very helpful, Lester. And then as a quick follow-up, it's nice to also see TCB revenues growing, and you said well over $100 million this year. I'm just wondering, I understand it's the logic vertical that's driving it. Is it actually the IDMs or the foundries? Or is it OSAT being the incremental buyer this year on TCB? Lester Wong: I think it's all 3, Krish. I mean we've always had a very strong position in IDM, right? And then over the last 1.5 years, we've moved into foundry. Now we see a lot of the OSAT interested. And also, we're also talking to some of the fabless customers. So I think it's -- the growth is across OSAT, IDM as well as the foundry. Operator: Next question today is coming from Denis Pyatchanin from Needham & Company. Denis Pyatchanin: Well, it's nice to see the growing demand. And maybe given the improving visibility across the industry, will you be able to provide some outlook on revenue in future quarters? Do you think we can sustain these new levels that we'll be experiencing in June? Lester Wong: Yes. Well, I think we did say that I think for the fiscal fourth quarter, we expect sequentially incremental maybe 5% to 10%. I think we're getting much better visibility now through FY '26. I think actually, there should be strength throughout the business -- the core business as well as our Advanced Solutions business through the rest of the calendar '26. Denis Pyatchanin: Great. And then for my follow-up about Fluxless Thermo-Compression, can you maybe give us an update on which of your end markets are kind of seeing the strongest adoption of your Fluxless Thermo-Compression technology? Lester Wong: Well, basically, it's general semi, right? And it's, again, at foundries, at the IDMs. We're obviously focused on logic, even though we did deliver our first HBM system in December and it's undergoing qualification. So again, it's general semi that's driving it for end markets. Operator: Our next question today is coming from David Duley from Steelhead Securities. David Duley: Congratulations on nice results. In the press release and in your prepared comments, you talked about increasing your thermal compression bonding capacity, I think, to $400 million annually. That's probably a 2 or 3x of total capacity. I'm wondering what has triggered that investment all of a sudden? Do you have line of sight to much higher growth in fiscal -- or calendar '27, however you'd like to fiscal or calendar '27. Because I think you were planning on doing around $100 million of TCB revenue for the year at this point. So why the incremental investment now? Lester Wong: Well, that's a great question, David. I think we're investing now because we definitely see a very bright future for us in Fluxless Thermo-Compression, right? We believe we have the best system in the market, right? We have a very flexible system. We have both formic acid as well as plasma. We're the only people who have that. We also have -- our material handling allows for a lot of different applications. There's also a lot or flexibility. I think our tool system has already been proven very robust and proven -- is a proven platform, both at the IDMs as well as the foundries and now into the OSAT. So I think we feel very comfortable with the solution. We have also gotten a lot of inbound interest, as I said earlier now from not just the foundry and IDMs, but also the OSATs and we're also talking to our fabless customers or customers' customers. So I think we believe that this is the time to be prepared for a significant ramp in our Fluxless TCB business over the coming years. David Duley: And do you think you'll be taking share from somebody? Or will your solutions be finding new market niches or -- because you have some established players in the sector that have, I think, bigger businesses. So how do you plan to fill up this capacity, so to speak? Where will the big orders come from first? Lester Wong: Well, David, I think it's both. I think we see the market expanding, right? For example, we're not in memory right now. We're not HBM. So if that market opens up for us, that's a significant -- very big market. I think within logic itself, I mean, we -- our solution is proving to be very robust as well as it's holding up against most of the competition. So we think we will also take market share, right? And also, we think additional customers will use the -- start qualifying more applications on the FTC. So both at the foundry and also at the OSAT. So I think we'll both take market share and the market will grow, and we'll enter markets that we're currently not in. David Duley: Okay. Then I think in your both in your prepared remarks and in the presentation, you talked about strength in the memory business. Could you just elaborate what you're seeing in memory? And what's behind the big bounce back, I guess, in that segment? And will we see some vertical wire revenue this year? I guess it's a 2-part question. Lester Wong: Yes. I'll answer vertical wire first. I think there will be a little bit of vertical wire, but I think that's more of a '27 and beyond play. We're very excited about that. As I think we've mentioned before, Vertical wire is something that we came up with, and it's the best way to stack and it's a focus towards low-power DDR, which is definitely going to be needed on on-premise AI as well as perhaps in the data center. So we think vertical wire has a very bright future. As far as memory in general, we do see a rebound in our memory business, particularly in China. I think a lot of the Chinese memory OSATs are expanding significantly, and that's really driving our business in China for ball bonding. Operator: Our next question is coming from Rebecca Zamsky from B. Riley Securities. Rebecca Zamsky: This is Rebecca Zamsky on for Craig Ellis. A&I was a positive surprise this quarter. Is this primarily automotive power device related industrial sensor-driven or broader mature foundry capacity adds? And does this guide assume A&I continues to accelerate through the rest of the year? And then I have one follow-up. Lester Wong: Sorry, I didn't -- Rebecca, sorry, I didn't quite catch. You said what was the application or the tool that you're asking about from us? Rebecca Zamsky: Yes. What was primarily driving the auto and industrial positive surprise this quarter? was it automotive power device related, industrial sensor driven or more broader like mature foundry capacity adds? Lester Wong: Okay. Well, I think it's more automotive. I think we're seeing, obviously, semiconductor content is going up in automotive, both around ADAS as well as in infotainment. Also, I think it's the high I/O count as well as, again, we need -- as the current increases, I think we -- our new tools are serving that market quite well. So it's mainly automotive. Rebecca Zamsky: Great. And OpEx declined quarter-on-quarter on an absolute dollar basis despite the revenue ramp. How should we think about the OpEx trajectory through the rest of the year? And is there a step-up in R&D or SG&A to support the TCB capacity build and new product qualifications? Lester Wong: Yes. So I think we guided for non-GAAP OpEx for $85 million. A big part of that increase from the Q2 OpEx is because of its variable incentive compensation as well as sales commission, that's tied to revenue, which has increased significantly. But we are also investing more in terms of our fixed costs, particularly around R&D, particularly around advanced packaging. We mentioned panel-level architecture as well as Hybrid bonding, which, as I indicated, we are going to try to accelerate that program. So yes, a big part of it is variable or move of revenue, but we are increasing our investments in what we believe is the critical growth areas. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Joe for any further closing comments. Joseph Elgindy: Thank you, Kevin, and thank you all for joining today's call. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. John Ciroli as he provides some important cautions regarding forward-looking statements and non-GAAP financial measures contained in the earnings materials or made on this call. John, please go ahead. John Ciroli: Thank you, and good day, everyone. Welcome to Montauk Renewables earnings conference call to review the first quarter 2026 financial and operating results and developments. I'm John Ciroli, Chief Legal Officer and Secretary of Montauk. Joining me today are Sean McClain, Montauk's President and Chief Executive Officer, to discuss business developments; and Kevin Van Asdalan, Chief Financial Officer, to discuss our first quarter 2026 financial and operating results. At this time, I would like to direct your attention to our forward-looking disclosure statement. During this call, certain comments we make constitute forward-looking statements, and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results or performance to differ materially from those expressed in or implied by such forward-looking statements. These risk factors and uncertainties are detailed in Montauk Renewables' SEC filings. Our remarks today may also include non-GAAP financial measures. We present EBITDA and adjusted EBITDA metrics because we believe the measures assist investors in analyzing our performance across reporting periods on a consistent basis excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide presentation and our first quarter 2026 earnings press release and Form 10-Q issued and filed on May 6, 2026. These are available on our website at ir.montaukrenewables.com. After our remarks, we will open the call to investor questions. We ask that you please keep the one question to accommodate as many questions as possible. And with that, I will turn the call over to Sean. Sean McClain: Thank you, John. Good day, everyone, and thank you for joining our call. I am pleased to announce that we have commissioned our Montauk Ag renewables project in Turkey, North Carolina and are producing gas. We expect the production and sale of renewable electricity from our syngas to commence in May 2026 with revenue generation triggered upon the calibration of the sales meter from the interconnection utility. We have operated the full production line as part of the commissioning process and expect to be able to produce our targeted first phase of 47,000 megawatts, and 120,000 recs annually with approximately 50% of our installed reactor capacity. Our capital investment expectation for this first phase of the project remains unchanged at $200 million. We expect a ramp up in production volumes throughout 2026 directly related to additional feedstock collection. Our joint venture, GreenWave continues to address the limited capacity of R&G utilization for transportation by offering third-party RNG volumes, access to exclusive, unique and proprietary transportation pathways. During the first quarter of 2026, GreenWave's matched available dispensing capacity with available third-party R&D volumes, separated RINs and distributed RINs to the partners of GreenWave. We received approximately $1.4 million in separated RINs and distributed from GreenWave in the first quarter of 2026. In April 2026 we sent a letter confirming termination of our contract with European Energy North America, EENA, for the delivery of biogenic carbon dioxide. The termination was due to EENA failure to provide certain contractual assurances and notices related to the construction of their Texas-based methanol facility. We are currently exploring alternative offtake arrangements with interested parties at our [indiscernible] location. The timing of capital expenditures will be [indiscernible] with the finalization of replacement offtake agreements. We continue to anticipate a capital investment of between $30 million and $40 million. While we continue to diversify the company, our production of renewable energy from landfill feedstock remains a priority focus. The U.S. EPA issued the final rules for the 2026 and 2027 renewal fuel standard on March 27, 2026. The 2025 cellulosic volume requirement was reduced from $1.376 billion to $1.210 billion D3 rents with cellulosic waiver credits also having been made available for 2025 compliance. Hinocellulosic biofuel volume requirements for 2026 and 2027 were established at $1.360 billion and $1.430 billion D3 RINs, respectively. These volumes also represent an increase of $60 million and $70 million, respectively, from the preliminary RVO previously issued by the EPA. These volumes reflect the EPA's assessment of expected regeneration capacity and the related pathway and strengths of the end-use demand for CNG LNG transportation fuels derived from biogas. The EPA did not provide reallocations of D3 RINs as part of the 2026 and 2027 RVO in the final rule. This is primarily due to the statutory conditions on cellulosic biofuel volume requirements which do not allow the EPA to set the total applicable volume of cellulosic biofuel at a volume that is greater than the projected volume available, which necessarily excludes carryover cellulosic rents. And with that, I will turn the call over to Kevin. Kevin Van Asdalan: Thank you, Sean. I will be discussing our first quarter 2026 financial and operating results. Please refer to our earnings press release Form 10-Q in the supplemental slides that have been posted to our website for additional information. Our profitability is highly dependent on the market price of environmental attributes, including the market price for RINs. As we sell market a significant portion of our RINs, a decision not to commit the transfer of their low RINs during a period will impact our revenue and operating profit. . We sold all of our 3.9 million RINs generated and available for sale from our 2025 RNG production in the first quarter of 2026 at a realized price of approximately $2.42. We will not be impacted by the EPA making available cellulosic waiver credits from 2025 production. We have entered into commitments to sell approximately 60% of our expected RIN volumes in the 2026 second quarter. Total revenues in the first quarter of 2026 were $46.4 million, an increase of $3.8 million or 9% compared to $42.6 million in the first quarter of 2025. The increase is related to environmental attribute revenue of approximately $4.2 million from RINs sold related to RINs distributed from Green Wave and the RINs related to pathway dispensing. We had no such RINs in the first quarter of 2025. Our first quarter of 2026 RNG volumes sold under fixed floor price contracts decreased approximately 82.1% as compared to first quarter of 2025 as a result of the expiration of fixed-price pathway contracts. Our RNG commodity revenue decreased approximately 49.3%, which was offset by an increase in RINs sold of 25.5%. Total general and administrative expenses were $8 million in the first quarter of 2026, a decrease of $0.7 million or 8.4% compared to $8.7 million in the first quarter of 2025. The decrease was primarily driven by vesting of certain restricted share awards in 2025. Turning to our segment operating metrics. I'll begin by reviewing our renewable natural gas segment. We produced MMBtu during the first quarter of 2026, flat compared to 1.4 million MMBtu during the first quarter of 2025. Our Galveston facility produced 41,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of 2025 as a result of the landfill host assuming responsibility of wellfield operations and maintenance beginning in the first quarter of 2026. Our [indiscernible] facility produced 43,000 MMBtu more in the first quarter of 2026 compared to the first quarter of 2025 as a result of landfill host well food operational and collection system enhancements. Our Apex facility produced 37,000 MMBtu more in the first quarter of 2026 as compared to the first quarter of 2025 as a result of the June 2025 commissioning of our second Apex facility and increased feedstock gas from improvements we are making to the landfill collection system. Our McCarty facility produced 88,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of as a result of landfill host well-filled bifurcation and changes to the wellfield collection system. Revenues from the Renewable Natural Gas segment during the first quarter of 2026 were $38.1 million, a decrease of $0.4 million or 1% compared to $38.5 million during the first quarter of 2025. Average commodity pricing for natural gas for the first quarter of 2026 was 38.1% higher than the first quarter of 2025. In the first quarter of 2026, we self marketed 12.4 million RINs, representing a $2.5 million increase or 25.5% compared to 9.9 million RIN self marketed during the first quarter of 2025. Average pricing realized on RIN sales during the first quarter of 2026 was $2.42 compared to $2.46 during the first quarter of 2025, a decrease of 1.6%. This compares to the average D3 RIN index price for the first quarter of 2026 of $2.41 being approximately 0.6% lower than the average D3 RIN index price for the first quarter of 2025 of $2.43. At March 31, 2026, we had approximately $0.4 million MMBtu available for RIN generation, 0.2 million RINs generated but unseparated to 79,000 RINs separated and unsold. At March 31, 2025, we had approximately 0.3 million MMBtu available for RIN generation, 1.5 million RINs generated but unseparated and 3.9 million RINs separated and unsold. Our operating and maintenance expenses for our RNG facilities during the first quarter of 2026 were $14.4 million, an increase of $0.3 million or 1.8% compared to $14.1 million during the first quarter of 2025. Our Rumpke facility operating and maintenance expenses, operating and maintenance expenses increased approximately $0.4 million, primarily related to preventive maintenance media changes. Our Apex facility operating and maintenance expenses increased approximately $0.3 million, primarily related to increased utility expense, which was partially offset by decreased preventative maintenance media changes. Our Itasca site facility operating and maintenance expenses increased approximately $0.2 million, primarily related to wellfield operational enhancements. Our Dowerston facility operating and maintenance expenses decreased approximately $0.6 million, which was primarily related to the timing of maintenance of gas processing equipment and preventative maintenance media changes. We produced approximately 43,000 megawatt hours in renewable electricity during the first quarter of 2026, a decrease of approximately 3,000 megawatt hours or 6.5% compared to 46,000 megawatt hours during the first quarter of 2025. Our PECO facility produced approximately 2,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to the decommissioning of one of our engines in the second quarter of 2025 due to the shift towards boiler heat digestion process. Our Bowerman facility produced approximately 1,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to original equipment manufacturer required life cycle maintenance of 1 hour engines beginning in the first quarter of 2026. Revenues from renewable electricity facilities during the first quarter of 2026 were $4.1 million, a decrease of $0.1 million or 0.8% compared to $4.2 million in the first quarter of 2025. The decrease was primarily driven by the decrease in production volumes. Our renewable electricity generation operating and maintenance expenses during the first quarter of 2026 were $4.5 million, an increase of $1.1 million or 33.8% compared to $3.4 million during the first quarter of 2025. The increase is primarily driven by an increase in noncapitalizable costs of $0.8 million at our Montauk Ag renewables project. Our [indiscernible] facility operating and maintenance expenses increased approximately $0.4 million, which was related to the timing of gas processing preventive maintenance. We recorded approximately $4.2 million in the first quarter of 2026 related to the cost of RINs distributed from GreenWave when sold and the cost related to pathway dispensing associated with the dispensing of R&D. There were no such expenses incurred during the first quarter of 2025. During the first quarter of we recorded impairments of $0.4 million, a decrease of $1.6 million compared to $2.0 million in the first quarter of 2025. The decrease primarily relates to the first quarter of 2025 impairment of an R&D development project for which the local utility no longer accepted RNG into its distribution system. We did not record any impairments related to our assessment of future cash flows. Operating loss for the first quarter of 2026 was $1.6 million compared to operating income of $0.4 million in the first quarter of 2025. R&D operating income for the first quarter of 2026 was $8.7 million, a decrease of $1.7 million or 15.7% compared to $10.4 million for the first quarter of 2025. Renewable electricity generation operating loss for the first quarter of 2026 was $2.2 million, an increase of $1.2 million compared to $1 million for the first quarter of 2025. Other income in the first quarter of 2026 was $1.3 million, an increase of $2.5 million compared to the first -- compared to other expenses of $1.2 million in the first quarter of 2025. In the first quarter of 2026, we recorded approximately $3.3 million in income related to our joint venture investment in GreenWave. There was no such income reported during the first quarter of 2025. We received approximately $1.4 million in RINs distributed from GreenWave in the first quarter of 2026, of which approximately $0.4 million remain unsold. We sold approximately 1 million RINs in recorded revenues from those RINs sold of approximately $2.4 million. Additional information on GreenWave can be found in the supplemental slides that have been posted to our website. On March 9, 2026, we entered into a 5-year new security credit facility with a wholly owned subsidiary, Hannon Armstrong Capital LLC, HASI that consists of up to $200 million in senior indebtedness. These proceeds were used to repay all our outstanding debt. We expect to have an additional $45 million in proceeds drawn upon the conclusion of certain engineering review and operational requirements of our Montauk Ag renewables project in North Carolina. As a result of this refinancing in the first quarter of 2026, we recorded debt extinguishment cost of $1 million. We are only required to make interest payments during the first 2 years of the agreement, which matures in March 2031. We expect to work with has in the future to secure additional project-based financing for our current and future development projects. Turning to the balance sheet. On March 31, 2026, $155 million was outstanding on our new security credit facility with [indiscernible]. For the first 3 months of 2026, our capital expenditures were $38.6 million, of which $33.1 million and $1.8 million, respectively, were related to the ongoing development of Montauk Ag Renewables and our Bauerman-RNG facility. We had approximately $19.6 million in capital expenditures included within our accounts payable at March 31, 2026. As of March 31, 2026, we had cash and cash equivalents net of restricted cash of approximately $25.9 million. Our new senior credit facility with [indiscernible] requires us to meet liquidity and have quarterly minimum cash balances as defined in the agreement. We had accounts and other receivables of approximately $5.2 million. We do not believe we have any collectibility issues within our receivables balance. As of March 31, 2026, we held approximately [indiscernible] distributed from GreenWave in inventory on our balance sheet. Adjusted EBITDA for the first quarter of 2026 was $10.8 million, an increase of $2 million or 22.8% compared to adjusted EBITDA of $8.8 million for the first quarter of 2025. EBITDA for the first quarter of 2026 was $9.4 million, an increase of $2.7 million or 40.3% compared to EBITDA of $6.7 million in the first quarter of 2025. Net income for the first quarter of 2026 was $5,000, an increase of $0.5 million as compared to a net loss of $0.5 million for the first quarter of 2025. The difference in effective tax rates between the first quarter of 2026 and the first quarter of 2025, primarily relate to the change in our pretax book loss for the first 3 months of 2026 as compared to the first 3 months of 2025. I'll now turn the call back over to Sean. Sean McClain: Thank you, Kevin. In closing, and though we don't provide guidance as to our internal expectations in the market price of environmental attributes, including the market price of D3 RINs we would like to provide a full year 2026 outlook. We are reaffirming our RNG production volumes to range between $5.8 and $6 million MMBtu with corresponding R&D revenues to range between $175 million and $190 million. We are reaffirming our renewable electricity production volumes to range between 195,000 and 207,000 megawatt hours, with updated corresponding renewable electricity revenues to range between $33 million and $37 million. that reflects our current expectations of production at our Montauk renewables facility in Turkey, North Carolina. And with that, we will pause for any questions. Operator: [Operator Instructions] Our first question comes from Matthew Blair at TPH. Matthew Blair: I was hoping you could talk a little bit about this fixed price contract that appears to have rolled off. And I think there was a mention of that in the release is there any prospects for renewing that contract? And can you say if that contract was above current market rates? Like should we think of that roll off as being dilutive to your ongoing margins? Kevin Van Asdalan: Thanks, Matthew. In short, if you -- I'm going to point you to our operating highlights table within our 10-Q the rolling off of the fixed price contract is consistent with our moving and our ability to find homes for our RNG volumes in the transportation market. It's in concert with a quarter-over-quarter reduction in RINs that we're sharing with counterparties through our pathway. That has come down in the first quarter of 2026 yielding increases in RINs sold in 2026 over 2025. That's sort of a general understanding of a product mix moving away from fixed pricing into a more commodity and merchant availability of RINs generated from the production that we're getting as we are dispensing volumes in the transportation space and retaining more RINs and able to sell more RINs related to the roll-off of those fixed price contracts. Operator: Our next question comes from Betty Zhang at Scotiabank. Y. Zhang: Can you talk about the Montauk ag renewables? It looks like the revenue generation seems to be pushed out by about a month and that's also factored into your annual guidance. Can you just speak to what may have contributed to that? Sean McClain: Yes. Thanks, Betty. The adjustment to the revenue guidance is solely attributed to the timing of the commissioning that was completed at the end of April as opposed to the end of the first quarter with revenue commencement activity starting in May instead of April. So that's the month shift that's reflected in that updated guidance. Operator: Our next question comes from [indiscernible] at UBS. Unknown Analyst: With the North Carolina project coming online and production expected to begin this month. Can you help us think about the ramp profile from here? I know you mentioned in your opening remarks and in the press release that you expect ramp up in production volumes throughout 2026. But can you give us additional color into that? Kevin Van Asdalan: Thanks, Richard. As we've alluded, we have a certain amount of hog spaces that we're targeting to support our production expectations under a first year. We had announced that there were some weather delays on our call in our first -- at the end of the year in March. Some weather delays have delayed some installation of the own arm collection equipment as well as delaying some of our ability to timely assemble our dewatering equipment related to those sort of weather delays in installment of our feedstock collection and dewatering equipment. Our ramp throughout 2026 is contingent upon us getting caught up and meeting some internal expectations associated with our own farm installation related to feedstock collection and transportation to our production facility. Operator: Okay. I'm showing no further questions at this time. I would now like to turn it back to Sean for closing remarks. Sean McClain: Thank you, and thank you for taking the time to join us on the conference call today. We look forward to speaking with you again when we present our second quarter 2026 results. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Charles River Laboratories First Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions] I would now like to turn the conference over to our host, Todd Spencer, Vice President of Investor Relations. Please go ahead. Todd Spencer: Good morning, and welcome to Charles River Laboratories First Quarter 2026 Earnings Conference Call and Webcast. This morning, I am pleased to be joined by Birgit Girshick, who became our Chief Executive Officer this week, and to introduce our new Executive Vice President and Chief Financial Officer, Glenn Coleman. They will comment on our results for the first quarter of 2026 as well as our financial guidance. Following the presentation, they will respond to questions. There is a slide presentation associated with today's remarks, which will be posted on the Investor Relations section of our website at ir.criver.com. A webcast replay of this call will be available beginning approximately 2 hours after the call today and can also be accessed on the Investor Relations section of our website. The replay will be available through next quarter's conference call. I'd like to remind you of our safe harbor. All remarks that we make about future expectations, plans and prospects for the company constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated. During the call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core operating results and guidance. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. In accordance with Regulation G, you can find the comparable GAAP measures and reconciliations on our Investor Relations section of our website. I will now turn the call over to Birgit Girshick. Birgit Girshick: Thank you, Todd. It is a privilege to speak to you today as the CEO of Charles River. I would like to acknowledge Jim Foster for building this company into an industry leader and reiterate my gratitude for the mentorship that he has provided to me over the years. I step into this role with a clear understanding of Charles River today, what we can become and the tremendous responsibility we have to our clients, to the patients who rely on us, to our nearly 20,000 employees worldwide and also to you, our shareholders. I'm not taking this responsibilities lightly, and I'm energized by what lies ahead as we continue to work to help create healthier lives to capitalize on the significant opportunities ahead of us, both in science and in the marketplace and to enhance shareholder value. Our teams have already put forth significant efforts to plan for the future, and I'm proud to lead the company into its next chapter of growth and evolution. The world is changing rapidly around us. Science is advancing faster than it ever has, and our clients require greater speed, best science and more collaboration. As the industry changes, Charles River will evolve alongside it and lead the way. Together as a company, we will create our own future by reimagining the way we operate and embracing the opportunities ahead of us. We will accomplish this through our refreshed strategic framework, which we are calling pathway to purpose. Pathway to Purpose is a disciplined approach to driving growth and shareholder value through the following key priorities: modernizing our company and the industry, strengthening our world-class scientific portfolio by enhancing our capabilities in strategic locations, while delivering a customized client-centric approach. We will also continue to maintain rigorous oversight on animal welfare, biosecurity and regulatory compliance as well as fostering an exceptional employee experience. We have already established a solid foundation, including through the execution of strategic initiatives and enhancements made over the past few years. And this refreshed focus pathway to purpose will enable us to realize our full potential and ensure our future success. This will lead us to drive profitable revenue growth and optimize our financial performance. We will also continue to take a balanced and disciplined approach to capital deployment, including organic investments, M&A and other uses of capital. We plan to take a much deeper dive into our overall pathway to purpose strategy and these priorities when we host an Investor Day in September. For now, I will provide a high-level overview of each priority as well as some of our recent accomplishments. First, we are diligently working on opportunities to modernize Charles River by building a future version of the company that will be faster, more agile and connected and data-driven. We endeavor not only to transform operationally by driving greater efficiencies and streamlining and simplifying processes, but by creating an environment that allows scientific insights and information to move more quickly. This will enable us to partner even more seamlessly with our clients and expedite the speed at which we're able to deliver solutions, supporting their goals and deepening our relationship with them. We have already made substantial progress in our efforts to drive greater operating efficiencies and optimize processes. As previously discussed, we expect to generate at least $100 million in incremental cost savings this year above the 2025 levels, primarily driven by efficiency initiatives. Cumulatively, we expect to generate over $300 million in cost savings on an annualized basis from actions taken over the past few years. However, our pursuit of operating efficiency does not stop here. We are evaluating new initiatives designed to enable us to continue to modernize the company and how we operate and drive additional savings to generate meaningful operating margin expansion in the future. We have already made great progress on our efforts to further strengthen our leading scientific portfolio, including through actions taken as part of our comprehensive strategic review last year. As we mentioned last quarter, our acquisition of the assets of K.F. Cambodia earlier this year, now Charles River Cambodia, further strengthens and secures the non-human primates supply chain for our Safety Assessment operations. Combined with Noveprim, in which we acquired a controlling stake in 2023, we own and expect to internally source most of our future NHP supply requirements for the DSA segment. In April, we completed the acquisition of PathoQuest to continue advancing our NAMs or new approach methodologies capabilities by adding this in vitro next-generation sequencing platform for quality control testing for biologics drugs. We are pleased to have completed the previously announced divestiture of the CDMO and Cell Solutions businesses on May 6. We also expect to complete the planned sale of our certain European discovery sites later this month in May. These strategic transactions will help us refine and refocus our portfolio on our core competencies and drive synergistic growth in areas in which we have differentiated scientific expertise, including drugs development testing. In addition to our efforts to modernize the company and drive incremental efficiency savings, these divestitures and the K.F. acquisitions are expected to be meaningful levers for future operating margin improvement, including the principal drivers of margin expansion for the year. As we move forward, providing the best science will remain paramount at Charles River. With the combined strength of our core capabilities and scientific rigor, we intend to set new standards for what modern science can achieve and to help our clients enhance the efficiency and speed to market for their life-saving therapeutic programs. We will continue to build our world-class portfolio by investing in core growth areas and providing scientific solutions that are critical to our clients. In particular, we will further strengthen our capabilities in a regulated testing environment, including early-stage drug development, where we remain the industry leader and in complementary testing opportunities to support the clinical and commercial phases. We have identified areas of future growth, including in vitro and related testing services to extend our existing capabilities as well as adding additional NAM solutions and continuing to evaluate our geographic presence, particularly in Asia. To further enhance our growth profile, we are doubling down on our client-centric approach with a go-to-market model that deepens and further customizes client relationships and reinforces our position as a preferred partner to the biopharmaceutical industry. We are leveraging technology, including AI, to improve sales effectiveness, KPI transparency, and lead generation while investing in collaborative tools that enhance how we engage with clients and generate insights. Our Apollo cloud-based platform has already been a core enabler of our client-centric strategy and differentiates us in the marketplace through the speed that we can work with our clients. Apollo delivers a seamless self-service client experience with real-time access to scientific data and decision support tools. Its scope has expanded from RMS e-commerce and DSA pricing into study design, CRADL and our manufacturing businesses with further expansion underway. Technology is embedded throughout our strategy and in everything that we do. We are investing in broadly using technology to help harmonize and streamline processes, including through digitizing core work streams and lab automation, which will enable us to gain better data insights, enhance connectivity with our clients and accelerate their speed to market. AI has been a particular focus in the recent months. Our view is quite simple. AI will support the work that we and our clients do. We believe the efficiencies gained from AI over time will be reinvested in R&D by our biopharmaceutical clients, enabling them to work on more programs throughout the regulated drug development process, including safety assessment. To support this constructive view, recent discussions with our clients and industry surveys indicate that large biopharmaceutical companies are primarily utilizing in R&D to enhance the speed and efficiency of the early discovery process, including target identification, drug design and screening capabilities and also around clinical trial monitoring and logistics. In addition, the Deloitte survey last year indicated that nearly 60% of surveyed biopharmaceutical R&D executives expect AI and lab automation investments will result in an increase in IND approvals due in part to a faster pace of drug discovery over the next several years. Like NAMs the use of AI will be an exciting but gradual evolution led by science and the proper validation of new capabilities. We are leveraging AI and machine learning across the company, including as part of our strategic priority to strengthen our NAMs portfolio through our pioneering approach to virtual control groups or VCGs for safety assessment studies. The recent independent scientific review demonstrated the effectiveness of our VCG process, which preserves scientific integrity with no observed adverse effects compared to traditional control groups while reducing reliance on animal models. The VCG program is guided by our Alternative Methods Advancement Project, or AMAP initiative, focused on reducing the use of animals in research and is also a key priority for our Scientific Advisory Board led by our Chief Scientific and Innovation Officer, Dr. Namandjé Bumpus. Before I discuss our first quarter financial performance, let me provide a brief update on the end market trends. The overall biopharma demand environment stabilized last year, and we are currently seeing pockets of improvement for both global biopharmaceutical and small and mid-sized biotechnology clients. Many of our global biopharma clients progress through their restructuring and pipeline reprioritization activities and demand trends have improved even so overall spending levels aren't yet back to historical norms. Revenue from our global biopharmaceutical client segment increased in the first quarter. From a biotech perspective, demand trends from our biotech clients improved over the past 2 quarters as a result of the reinvigorated funding environment as we exited 2025 and continued health in 2026. The recent increase in biopharma M&A activity has also provided another source of capital infusion for an exit strategy for biotechs, which we also feel favorably. Mid-sized for the more mature biotechs have better access to capital as they approach IND or enter the clinic, while demand from start-up biotechs remains tepid because the earlier-stage and seed funding environment remains constrained despite a recent uptick in IPO activity. Overall, revenue from our small and mid-sized biotechs declined in the first quarter, primarily reflecting softer DSA booking activity last summer and a normal lag between booking and revenue generation. However, even the recent biotechs KPIs, we expect the revenue trend to improve in the next upcoming quarters. Government uncertainty, including funding-based pressures at the NIH has modestly impacted client spending levels, but revenue from our global academic and government client base remained stable in the first quarter, reflecting the essential nature of research solutions that we provide to them. Moving to our financial performance. Let me start by providing several key takeaways from the first quarter. First, we delivered our first quarter results despite the anticipated pressure from several discrete margin headwinds and now have a clear line of sight into the meaningful operating margin improvement that we have forecasted in the second quarter and beyond. In addition, the DSA demand environment remains solid as demonstrated by a net book-to-bill of 1.04x in the first quarter and continues to support a return to DSA organic revenue growth in the second half of the year. And finally, due to the execution of our strategic initiatives around acquisitions, planned divestitures and efforts to modernize our operations, we continue to expect to generate significant operating margin expansion of approximately 120 to 150 basis points in 2026, which supports our goal of driving profitable growth for many years to come. Overall, the first quarter results were in line to slightly favorable compared to our prior outlook. In the first quarter and as expected, revenue declined 1.5% on an organic basis. The non-GAAP operating margin declined 280 basis points to 16.3% and the non-GAAP earnings per share declined 12% to $2.06. The quarterly operating margin earnings decline were largely driven by several discrete factors, including higher stock compensation expense, NHP study-related costs in the DSA segment as well as lower NHP revenue in the RMS segment, primarily due to the timing of shipments. RMS revenue declined 5.5% organically, driven principally by lower revenue for small models in North America and for NHPs due to the timing of shipments. However, these declines were partially offset by solid demand for small models in China from mid-tier biotech and CRO clients. DSA revenue declined 1.4% organically, driven by lower revenue for discovery services, although revenue for Safety Assessment services was essentially unchanged in the quarter. As previously mentioned, we are encouraged that the overall DSA demand environment is tracking to our expectation, resulting in a net book-to-bill of 1.04x and a slight sequential increase in backlog to $1.92 billion at the end of the first quarter. Net bookings totaled a solid $622 million, remaining above the $600 million threshold, driven by continued strength from our small and mid-sized biotech client base. Over the past 2 quarters, Biotech's net book-to-bill and net bookings were at the highest level in over 2 years, showing a resurgence in demand on the heels of the robust funding environment. Demand trends for global biopharmaceutical clients also remained solid in the first quarter, but declined moderately year-over-year after pharma bookings rebounded to start 2025 following a period of budget cuts. Proposal activity posted a healthy increase in the first quarter, a signal that the positive bookings momentum may continue. The strong bookings performance at the end of 2025 and a continuation of favorable trends to start this year leave us cautiously optimistic that the net book-to-bill will average above 1x for the year and support the upper end of our DSA outlook, including a return to organic revenue growth in the second half. However, as a reminder, our business isn't linear, so this does not mean net book-to-bill will be above 1x every quarter. Manufacturing revenue increased 2.9% organically, driven by continued solid demand for Microbial Solutions. Overall, underlying demand trends for Microbial Solutions and Biologics Testing, our manufacturing quality control testing business remains strong as clients continue to advance their late-stage development and commercial programs. The Biologics growth rate is expected to rebound as the year progresses after we anniversary a client-specific challenge that has been a headwind for the past several quarters. As we look ahead, I'm energized by our refreshed strategic vision, and I am confident in the path we are taking to create the future for Charles River. Our focus remains on enhancing our clients' experience, delivering results and increasing long-term shareholder value. I also want to thank our employees for their continued dedication, hard work and commitments to our clients and mission, as well as our shareholders for their continued support. I'm pleased to welcome our new CFO, Glenn Coleman, who joined Charles River on April 6. As I mentioned last quarter, Glenn is a seasoned financial leader and operationally oriented CFO with over a decade of experience in the health care industry. Glenn has been CFO for 3 public companies and also has extensive international operating experience. Glenn will help to ensure that we continue to take a balanced and disciplined approach to capital deployment, including M&A and also ensure we maintain the rigor to drive additional cost savings and efficiencies across the company. Now I will turn the call over to Glenn to provide more details on our first quarter financial performance as well as our 2026 guidance. Thank you. Glenn Coleman: Thank you, Birgit, and good morning. I'm pleased to be joining the Charles River team as Chief Financial Officer. I was joined to the company because of its mission-driven culture and is positioned as a leader in the life sciences industry. Over the past 3 decades, I have led global organizations through financial and operational leadership roles and have been committed to instilling operational and financial discipline, effective capital allocation and driving long-term shareholder value. I look forward to leveraging that expertise and experience as I partner with Birgit and the leadership team to build upon Charles River's strong foundation. As I step into this role, my priorities are clear and fully aligned with supporting our pathway to purpose strategy and driving profitable growth. I'll be focused on continuing to efficiently manage costs, including the delivery of over $100 million in incremental savings this year and identifying new areas of efficiency and process improvement to generate additional savings and drive future operating margin expansion. We will maintain a disciplined and balanced approach to our capital priorities and invest to drive our growth strategy forward. This includes executing on M&A opportunities that strengthen our core capabilities, ensuring the successful integration of acquisitions and regularly evaluating all areas for capital deployment, including organic investments, stock repurchases and debt repayment. Before discussing our financial results, I'll remind you that I'll be speaking primarily to non-GAAP results, which exclude amortization and other acquisition and divestiture-related adjustments, costs related primarily to restructuring and efficiency initiatives and certain other items. Many of my comments will also refer to organic revenue growth, which excludes the impact of acquisitions, divestitures and foreign currency translation. I'll now provide highlights of our first quarter 2026 performance. Overall, our financial performance in the quarter was in line or slightly better than expected across our key financial metrics. We reported revenue of $996 million, representing growth of 1.2% compared to last year. On an organic basis, revenue declined 1.5% and was in line with our February outlook of a low single-digit organic decline. The operating margin was 16.3%, a decrease of 280 basis points year-over-year. The expected decline was primarily driven by lower NHP third-party revenue in the RMS segment, the timing of stock compensation related to the CEO transition and higher NHP sourcing costs and study starts in our DSA segment. As I will discuss in more detail shortly, we do expect the second quarter operating margin to improve meaningfully from these levels as many of these first quarter discrete margin headwinds subside, and we begin to see a margin benefit from divestitures. Earnings per share were $2.06 in the first quarter, a decrease of 12% from the first quarter of last year, primarily driven by the lower operating margin. This exceeded our prior outlook of a high teens decline, largely due to better-than-expected operating performance in the Manufacturing and RMS segments. Another highlight from the first quarter is the repurchase of approximately $200 million in shares under the $1 billion stock repurchase authorization approved last October. This supports our balanced and disciplined approach to capital deployment as well as the confidence we have in our long-term growth and strategic plan. Moving to details on our segment performance. DSA revenue was $597 million in the first quarter, a decrease of 1.4% on an organic basis compared to the first quarter of 2025. Lower revenue for discovery services due in part to prior site consolidation activities was partially offset by stable revenue for Safety Assessment services. The DSA operating margin decreased 290 basis points to 21.0% in the quarter, mostly due to increased study-related direct costs, including higher NHP sourcing costs and study starts. In RMS, revenue was $208 million, representing an organic decline of 5.5% year-over-year due to lower sales of small and large models as well as research model services. Small models revenue was pressured by lower volume in North America, partially offset by a solid increase in China volume. As previously anticipated, large model revenue is primarily affected by the timing of NHP shipments with NHP unit volume in the first quarter expected to be the lowest point for the year. The RMS operating margin declined by 240 basis points to 24.7% in the first quarter due largely to an unfavorable revenue mix from the timing of NHP shipments and lower sales volume of small models in North America. The Manufacturing segment reported first quarter revenue of $191 million, an increase of 2.9% on an organic basis due to strong growth from the Microbial Solutions business, primarily driven by Endosafe and Celsis manufacturing quality control testing platforms. The segment operating margin improved by 280 basis points to 25.9%, driven largely by leverage from higher revenue and the benefit from cost savings. As a reminder, the first quarter CDMO growth rate was negatively impacted by the loss of a large commercial client last year. And as a result, the CDMO performance reduced the manufacturing organic revenue growth rate by approximately 350 basis points in the first quarter. However, this comparison will no longer have a meaningful impact going forward because of the completion of the CDMO divestiture this week. Moving on to other financial metrics. Unallocated corporate costs totaled $63 million in the first quarter or 6.4% of revenue compared to 5.3% last year. The anticipated increase was primarily due to the timing of stock compensation expense related to the CEO transition. For the full year, we continue to expect unallocated corporate costs will be approximately 5.5% of total revenue. Net interest expense was $26 million in the first quarter, a decline of $0.8 million year-over-year. For the full year, our net interest expense outlook has increased by approximately $8 million to a range of $103 million to $108 million, primarily attributable to short-term borrowings to fund stock repurchases in the first quarter. At the end of the first quarter, our net leverage was 2.6x. The non-GAAP tax rate in the first quarter was 22.5%, a decrease of 20 basis points year-over-year due primarily to the favorable impact from last year's enactment of OB3 or the One Big Beautiful Bill. Our non-GAAP tax rate guidance for the full year remains unchanged at 22% to 23%, although it's currently trending towards the lower end of the range due to a favorable geographic mix. Free cash flow was negative $15 million in the first quarter or a reduction of $127 million compared to the prior year period. This decline was expected and mainly driven by higher performance-based cash bonus payments for 2025, which are paid in the first quarter. CapEx declined modestly to $56 million or approximately 5.6% of revenue in the first quarter from $59 million last year. Our free cash flow outlook remains unchanged at $375 million to $400 million in 2026. Turning to 2026 full year guidance. We are reaffirming our organic revenue and non-GAAP earnings per share guidance, which have previously factored in the impact of the divestitures. All of our guidance referenced today assumes the planned divestiture of certain European Discovery sites being completed in May. And as Birgit mentioned, we have completed the divestiture of the CDMO and Cell Solutions businesses this week. We continue to expect an organic revenue decline of 0.5% to 1.5% and non-GAAP earnings per share of $10.80 to $11.30 or 5% to 10% growth over 2025. This guidance includes earnings accretion of approximately $0.10 per share from the divestitures. On a reported basis, we reduced our revenue outlook by 50 basis points to a 4.0% to 5.5% decline because FX rates have become less favorable this year due to the recent strengthening of the U.S. dollar. From an earnings perspective, this FX headwind compared to our original outlook will be essentially offset by the accretion from stock repurchases. As a reminder, the acquisition of the assets of K.F. or Charles River Cambodia, the divestitures and incremental cost savings from our efficiency initiatives are expected to result in meaningful operating margin expansion this year. We expect approximately 120 to 150 basis points of improvement in 2026, with most of the benefit generated in the second half of the year. Combined with the abatement of the discrete margin headwinds in the first quarter, we expect the second half of the year operating margin will be over 500 basis points higher than the first 6 months of the year, with over half of this improvement being driven by completed acquisitions and divestitures as well as the planned sale of certain European Discovery sites. From a segment perspective, our organic revenue outlook for each of the segments remains unchanged from February. Our reported revenue outlook for the segment has been updated to reflect the impact of the divestitures as well as less favorable FX impact. As a reminder, the divestitures are expected to reduce our reported revenue outlook by approximately 500 basis points in 2026. By segment, we now expect a reported revenue decrease in the low to mid-single digits for the DSA segment and in the mid-single digits for both RMS and Manufacturing segments. We expect the most significant margin improvement in 2026 will come from the Manufacturing and DSA segments. Moving to our second quarter outlook. As I mentioned earlier, we expect financial results to improve substantially on a sequential basis due primarily to operating margin improvement and normal seasonal trends in the DSA and biologic testing businesses. We expect reported revenue to decline at a mid- to high single-digit rate year-over-year due primarily to the impact of the divestitures, while organic revenue is projected to decline at a low single-digit rate year-over-year, similar to the first quarter. However, we expect second quarter earnings per share to improve significantly on a sequential basis, increasing at least 30% from the first quarter level of $2.06. The first quarter headwinds from the timing of NHP shipments in RMS and the NHP sourcing costs and study starts in the DSA segment are expected to subside in the second quarter. In addition, the manufacturing operating margin is expected to benefit from the CDMO divestiture. As a result, we expect all 3 segments will show a sequential improvement in operating margin in the second quarter. To conclude, as I step into the CFO role, I'm focused on driving initiatives to generate profitable growth through the disciplined execution of our pathway to purpose strategy. This includes advancing our M&A priorities, successfully integrating acquisitions and delivering on our efficiency initiatives. Collectively, these efforts will strengthen our foundation and position us to deliver long-term shareholder value. Finally, I look forward to meeting many of you in the coming months. As Birgit mentioned, we plan to host an Investor Day in September, where we will provide a more comprehensive update on our strategy, priorities and long-term financial outlook. Thank you. Todd Spencer: That concludes our comments. We will now take your questions. Operator: [Operator Instructions] We'll take our first question from Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: Welcome, Glenn. Nice to be with you again. And for my question, I wanted to just sort of double-click maybe on the demand environment. I appreciate all of the questions comments about the environment. Can you talk about the typical seasonality that we sort of think about in terms of the demand cycle? I know we've typically seen a little bit of a slower start to the year sometimes as people get ramped up in January and February. And then it sort of seems to do that plus obviously, what you were talking about, about some of the funding environment. And then as a funding -- follow-up question, I was wondering if you could comment on sort of NAMs and what you're sort of seeing, any updates in terms of demand conversation with clients? Birgit Girshick: Certainly. Thanks, Elizabeth. Happy to update on demand seasonality and names. So let me start maybe with the seasonality. So we have several of our business see somewhat seasonality in terms of bookings, even proposal volume. Our DSA business is one of them where we're seeing proposals and bookings starting a little slow in the beginning of the year, sometimes also on a revenue basis that we see a slow start. And it generally has to do with budgets being approved, our clients coming back to work, often in January, there's a reprioritization of programs. So it just takes a little while to ramp up. We have a couple of other businesses. Our biologics testing business definitely has a seasonality. They support manufacturing of biologics. And more often than not, the Christmas time is the time that manufacturing is closed down for maintenance and revalidations. And so we are not seeing the same amount of samples coming in. Our microbial business is another one where we see definite seasonality into the fourth quarter actually for this business, where the business is ramping up often in the fourth quarter because companies may have budgets they want to use up because this is there basically a range you can keep on the shelves in inventory often, we see a spike in businesses there. So nothing abnormal. We have seen the same seasonalities in some manner this year. It's expected, and we generally consider that when we do our budgets and our guidance here. As far as the demand environment, I think we all share cautious optimism. Biotech funding quite a bit better over the last couple of quarters, IPO reopening, again, cautiously optimistic that this will continue. And then our pharma clients have definitely worked through a lot of their restructuring, reprioritization of programs. Any discussions we have with them is about speeding up their work, getting more programs through the pipeline rather than holds and reprioritization. So from that perspective, we're quite comfortable with what we're seeing. But certainly, it's early stage, and we always will be cautious about going too far over on our skis. Then let me jump into the names or new approach methods. So names new approach methods are a part of what we do. So they are part of a toxicology study. And we have spent basically 3 decades on the reduction of animals. Names have always been a part of that. NAMs availability has accelerated a little bit over the last maybe decade we have made some acquisitions in this space. We just did one literally a month ago. So the PathoQuest acquisition is squarely in the names category. So as we continue to evolve our business, we will continue to bring names into our business model, either through organic development, in-licensing or M&A. And as technology evolves, as maybe AI -- the ability of AI to predict insights evolves, we will evolve our business model with it. It's an evolution. It's not a revolution. So it will take time, but you will hear more and more and more about us bringing those technologies in. What I want to point out, it's not a separate business. It will always be part of our DSA and other divisions revenue model, and it will just continue to grow. I hope I answered your question. Elizabeth Anderson: Yes, that was super helpful. Operator: We'll turn now to Max Smock with William Blair. Max Smock: Glenn, maybe just following up on that prior question around activity so far here. Start to hear there was some commentary in the deck around seeing a healthy increase in proposals in the first quarter. Wonder if we could just get some more color around what proposals looked like year-over-year and sequentially? And then just more detail around how proposals trended among each client segment would be helpful. Birgit Girshick: Yes, happy to. So we've been quite happy with the proposal volume year-over-year in both segments, so both in our global biopharmaceutical as well as in our biotech segment, proposals were up quite nicely in the, I would say, high single digits. And which would -- gives us a lot of confidence that our booking trend will continue and our net book-to-bill trends will continue. So it does show us that there is a lot of clients that are ready to get restarted on work and the smaller clients and that our pharmaceutical clients, as they have indicated verbally to us, are looking to put more work, more programs through the pipeline to get to more INDs, to get to more programs into the clinic. So quite happy to see that. Glenn Coleman: And I would just add there on a sequential basis, we've seen proposals come up 3 quarters in a row sequentially. So positive trends sequentially as well. Max Smock: Got it. So the high single digit was year-over-year for both cohorts. And then Glenn, you're saying you've also seen some improvement sequentially as well. Glenn Coleman: Correct. We're 3 quarters in a row. Max Smock: Okay. Maybe another unrelated question here on AI. Birgit, it sounded like your comments -- your prepared remarks, it sounded like you feel pretty comfortable with this idea that AI investments in drug discovery are going to lead to more preclinical testing longer term. Are you seeing that play out at all yet? Or is that more something that we really probably don't see until we get a couple of years into the future here? Birgit Girshick: Yes. Thanks for that question. So I'm actually personally very excited about AI and what it will do for the industry and for Charles River in particular. So right now, the sample set of AI discovered or assisted, I should say, drug programs is very, very small. So it's hard to make a real conclusion from that. What I can tell you is that AI-assisted drug discovery companies generally work on a lot of different programs rather than one program at a time. And as we're working with most of them or all of them on their programs as they are wet lab, I'm optimistic that this trend will show itself and that we will see more programs coming through from AI. It also should still need to be seen, lower the cost of early discovery. And with that, there's more money for reinvestment. But again, it's very early days. There's so few programs in the pipeline that are AI assisted. But just theoretically, hypothetically, we know that AI will have a nice impact on that. Operator: We'll move next to Patrick Donnelly with Citi. Patrick Donnelly: Glenn, maybe one for you on the margin side. Certainly appreciate the color on the 2H step-up. And again, it feels like you guys have real tangible reasons to kind of do that build. Can you just talk through a little bit? It sounds like half of it is M&A, half of it some of the other moving pieces. Can you just talk through kind of the bridge there on 2H? And then any reason why that momentum wouldn't kind of continue to build into -- obviously, it's early to talk '27. But just going forward, given the K.F. acquisition, what that means to margins, any reason that momentum wouldn't continue into the go forward? Glenn Coleman: Sure. No, thanks for the question. If we look at the first half of the year, obviously, year-over-year, we're expecting to be down, but we do expect a pretty significant sequential increase in our margins going from Q1 to Q2 that supports the greater than 30% increase in earnings per share. So we do expect a pretty meaningful step-up in our operating margins. That being said, when we look at the half-to-half numbers, we're going to be in the high teens margin-wise in the first half of the year and expect 500 basis points improvement in the second half of the year. I did mention in my prepared remarks, over half of that improvement just coming from acquisitions and divestitures. In addition, if you look at our corporate costs, the onetime discrete items in Q1 that don't recur and some cost savings initiatives, that will drive another big portion of the half-to-half improvement, coupled with the timing of the NHP shipments in RMS and some additional lower costs we're expecting to come out of DSA. So we've got clear line of sight. I know it's a big jump when you look at the half-to-half numbers, but we feel very confident in the numbers, and we've got a clear line of sight about how we get there. Relative to 2027, I think the only comment I'll make is from an acquisition and divestiture point of view, we've already given numbers around the annualized impact of acquisitions and divestitures. So we said for acquisitions on an annualized basis, about $0.60 from K.F. and for divestitures is $0.30. And for this year, in 2026, the equivalent numbers on a part year basis is $0.25 for acquisitions and $0.10 for divestitures. So said differently, if you take the $0.90 less the $0.35, you can expect roughly $0.50 to $0.55 of accretion just from the acquisitions and divestitures in 2027 versus 2026. I think that's the only comments we're going to make around the '27 margin numbers. Patrick Donnelly: Yes. Makes a lot of sense. And then, Birgit, maybe just on the demand side, I certainly appreciate all the color you've given. Can you just talk about that kind of small mid-sized early biotech portion, what you're seeing there? Obviously, to your point, the funding has looked really healthy here for a couple of quarters. How much improvement are you seeing in those conversations? Are those dollars really starting to show up? Where are we in the cycle of that early piece from your perspective? Birgit Girshick: Yes, happy to. So the -- when we talk about our biotech clients there's obviously considerable size differences between the clients. A lot of the funding we're currently seeing IPOs are a little bit bigger companies, later stage. They have easier access to funding. That's definitely also where we're seeing quite a bit of an uptick in their demand. I would say the smaller biotechs, very early stage, that is still a little sluggish, and we see that the funding is a little lower and then also the discussions are still more cautious in that regard. We do see that clients often when they see just general funding come in, get more confidence in their ability to get funding later on and start spending. So we're seeing that a little bit. But we still have this segment was that early company starts being a little bit lower than we would like to see. So we have areas of our business like our CRADL business unit where we don't see the demand being where we would like to see it yet. So still a little bit mixed and still opportunity for improvement there. Operator: We'll hear next from Kallum Titchmarsh with Morgan Stanley. Kallum Titchmarsh: Just as we think about the business review and some of the acquisitions and divestitures announced over the past 6 months or so, any incremental ambitions to add or subtract from the business today? Or can we assume most impactful changes have been actioned. And obviously, see the buybacks, too. So maybe just level set us on capital allocation ambitions from here. Birgit Girshick: Yes, happy to, Kallum. So we will continue and always have to look at our businesses to see which ones are synergistic to the business, which are profitable, where should we be located, what solutions should we provide to our clients. So that will be an ongoing review that we do with our Board. And at times, you will see certainly that we will either consolidate a site or close a site or divestitures could come up again. So that is just the nature of how we run our business. From an M&A perspective, you already saw a couple of M&As this year. We have a clear road map of where we believe the company should be investing in, in terms of M&A and a couple of other smaller partnerships. That is hard to predict as you quite never know when the target is available, can you actually acquire the target? Does it make sense from a returns perspective? And then we continue to invest organically in our business. And then you already mentioned the buyback. So we will continue to look at all areas of capital allocation and make decisions for the best returns for long-term strategy execution as well as shareholder value. Kallum Titchmarsh: Great. And I think you called out $200 million of annual DSA revenue from NAMs before. I'm not quite sure where that is post these acquisitions and divestitures, but could you just give us a sense of the latest slides and how that's been growing? Birgit Girshick: Yes. So that was the number we had provided, I think, in 2020 -- late 2024, 2025 and since then, we have added a few different programs and actually in M&A, so the PathoQuest acquisition is squarely in the NAMs space, where we are replacing in vivo virology work with next-generation sequencing, a really good technology. And then you're right, with the divestiture of the discovery assets in Europe, there is roughly -- we will retain roughly 2/3 of the NAMs revenues that we had called out. So if you take those 2 together, a little bit of organic investment we have done in other areas, we're probably kind of back to where we were. But we will continue to drive that and our focus is on the regulated space here where most of our business is. So it continues to be a very strong commitment of Charles River. And we have established a Scientific Advisory Board under Dr. Bumpus. And we have a lot of activities going on in that space right now. So you will continue to hear about technologies and how we look at this, how we bring new technologies in, what it will replace. We also just made an announcement on virtual control groups and was actually part of our remarks. Just another example of how we look at NAMs for our business and we see it as an integrated approach where we will bring in more and more technologies and run them as hybrid studies together with our conventional approach. Operator: We'll hear next from Justin Bowers with Deutsche Bank. Justin Bowers: So 2-parter for me. One, can you talk about the conversion rates and the velocity of decision-making that you're seeing across the increasing proposal volume over the last 3 quarters? And then part 2, I just wanted to clarify on the comment on large pharma verbally saying that they want to put more work into the INDs. Does that imply that pharma is increasing their overall budget or intend to for preclinical spend this year and beyond? Birgit Girshick: Yes, happy to. So let me start with the conversion rates. So if you look back to the, I guess, the COVID time lines where capacity was quite tight, companies had to plan way ahead. Discussions were like literally 2 years ahead of placing a study. So really long. customers booked out very long because they had to. What we're seeing currently is quite an acceleration of when clients come in, want a proposal and then book and place the study. Generally, when we model it, we're saying from a discussion to proposal to bookings, it's 1 to 2 quarters and then maybe 1 to 2 quarters to get to revenue. However, in some instances, particularly with customers we have a long-term relationship with, that often accelerates because they got scientific data or they're reprioritizing a program, and we sometimes see literally from a proposal to getting revenue within the same quarter. And so conversion rates are obviously generalized accelerated. And this is actually something that gives us a better quality of our backlog because we know that those programs are actually being run and not being canceled later on because reprioritization of budgets have changed. To the second question about the INDs, as you can imagine, every pharma company we talk to talks about more programs into IND, more programs into the clinic. And our counterparts, our contacts will always talk about, but we have to do it with the same budget. But you can imagine that's obviously not possible. But we do see a refocus on the preclinical and earlier-stage efforts in those companies. Otherwise, they would not get the programs to the clinic. Operator: We'll hear next from Joshua Waldman with Cleveland Research. Joshua Waldman: Birgit, I wondered if you could comment more on what you're seeing from global pharma accounts here to start the year? Were bookings from these accounts any better or worse than you expected? And then did the trend improve through the quarter? It sounded like you saw a slow start, but I'm curious if you were more encouraged based on what you saw here in March and April. Birgit Girshick: Yes. So for the Global Biopharma, bookings specifically was below last year's bookings. But let me take you back to last year. We had an incredible booking quarter last year because a lot of the global pharma companies had literally reprioritized for months and then they -- early in the year, they got their new budgets, and there was just a slew of bookings that came in. So this isn't something we didn't expect. We feel bookings are adequate and they are supporting what we're hearing from them that they want to do more work. So with that, I would say that overall, this is a segment that is quite stable and increasing for us. We also see proposals up for them, which will -- which tells us basically that in the next quarters, we should see that bookings rate to come up. Joshua Waldman: Okay. And then you mentioned more biotech M&A being favorable in terms of funding for these accounts. But I'm curious, in the past, have you seen higher M&A activity drive improved access to biotech wallet share? I guess just given your stronger share position in large pharma, do you think large pharma accounts acquiring small biotech ultimately means you get better access to these accounts? Is this a dynamic you've seen historically? Birgit Girshick: Yes. So a lot of times, we actually do work with those small biotechs before they get acquired from pharma. And in that case, we retain the work, and we'll continue to work with them. Some cases, they get acquired, and we actually -- we work with a pharma company and any new programs we get access to. So it's a little bit of a mixed model. So as long as they continue the program, and that's why they're actually acquiring them, we will get our share -- our focus is certainly on making sure that we get a higher and higher share of the wallet from our -- particularly from pharmaceutical companies. And that is why our client centricity program, our initiative of making working with our clients easy and easier, providing them with better solutions and faster time lines is so important. So it could go either way. But in general, it's not a headwind. It is either a tailwind or it's just net neutral. Operator: We'll turn next to Cassidy Vanepps with Jefferies. Cassidy on for David Windley today. Cassidy Epps: So digging a little bit more into margins. So with most of your NHP supply now internally owned, how should we think about the margin impact specifically within DSA? And does this change management's longer-term margin framework for the segment? Glenn Coleman: I'll jump in and take this one. Just keep in mind, we're still working through some higher NHP costs really for the first half of the year. It will get a little bit better in the second quarter, but the real big improvement is Q4 for our DSA segment. We're not going to specifically call out the margin improvement. I think a big part of the reason why we bought K.F. was the supply chain resiliency and giving us better predictability of the supply chain. And obviously, with that, you come improvements in our financial performance, but we'll give more guidance on 2027 and what it means when we get to February of next year. Cassidy Epps: Okay. Perfect. And then following up, so how much of the NHP supply from Noveprim and K.F. is still obligated to external customers? And then when does that fully become available to Charles River? Birgit Girshick: Yes, I can talk about that. So the external customer that you're referring to is actually from our Mauritius farms. And the -- and when we bought the Mauritius farm, we bought the external relationship with the supply. Ultimately, the goal is to use the animals on safety assessment studies and moving them over. And that will kind of be a transition over the next few years. And as you can see, you'll probably see that we already have more and more animals on our safety study. And then that will kind of end over the next few quarters. Operator: I'll turn now to Casey Woodring with JPMorgan. Sebastian Sandler: This is Sebastian Sandler on for Casey. I wanted to first double-click on expectations for biotech revenue pacing over the balance of the year. Within that bigger, later-stage client segment that's been benefiting from M&A and funding starting towards the end of last year, do you expect this specific segment to return to growth in 2Q, maybe ahead of smaller biotechs and biopharma? Or should we just expect more of a back half rebound consistent with your expectation for total DSA growth? Birgit Girshick: Yes. So if you -- so what we're currently seeing in Q1 is that this segment from a revenue perspective is still down. That is coming from the lower bookings last year. And we think -- we believe that will rebound over the next quarter or 2 because of the bookings we're currently seeing. So there's a lag of about a quarter to 2. And so we will definitely see this segment to rebound to more of a growth rate as we enter, I would say, Q3, Q4 for sure. Unknown Analyst: And then you called out strength in research models in China. Can you remind us of the revenue base in China within RMS, what that grew in the quarter and then just expectations for the full year? And then more broadly, how are you thinking about your current exposure to the China market within RMS and DSA outside of the recent NHP acquisitions? And what is your overall level of interest in expanding that through M&A in the future? Birgit Girshick: Yes. So our RMS China business is a small part of overall Charles River revenue. It's approximately 5% and -- or actually less than 5% but it is a critical asset for us as it provides us access to the Chinese market. So the Chinese RMS business is one of the leaders in the industry for providing research models as well as many services that are -- that we also offer here in the Western part. From other services and solutions, specifically the DSA that you asked, we currently don't have any facilities in China. We do get some work from companies that work in China or want to file INDs in China, but not a physical presence. We are continuing to watch this market very closely as a lot of the drug programs are in-licensed from China because of the accelerated innovation. And we certainly will continue to look at this to see if we should expand our structure in China based on customer demand growth rates, but also looking at geopolitical risk on that. Operator: Our next question will come from Ann Hynes with Mizuho Securities. Ann Hynes: Your $300 million cost program, can you remind us what you'll be annualizing as we exit 2026 and any incremental uptake for 2027 and 2028? And then secondly, just on AI, and there's been in the news a lot, some of the big pharma companies investing in AI. And I know during the Great Recession, a lot of the big pharmaceutical manufacturers closed their capacity for early development. Do you think there could be a risk that they increase their capacity again over the next few years? Birgit Girshick: Yes. Let me start and then on the cost savings, and then I will move over to AI. And if Glenn has any additional add-ons to the cost saving, I will ask him to chime in here. But -- so the cost savings are roughly $300 million of costs that we have taken out over the last several years, about 5% of our cost base. For this year, we said it's an incremental $100 million. It's too early to talk about '27 and '28. But as we said, we are continuing to look for cost efficiencies, modernizing the company, seeing how we can reduce time lines, making the operations more efficient. So you should continue to think that -- think about us having cost efficiencies, but we're not in a position right now to give you any specific numbers on '27 and '28. We will provide long-range financial numbers probably through in our Investor Day, and we will also talk more about where those cost efficiencies are coming from. AI is an interesting topic, both for cost efficiencies but then also for how drug development is being performed. So for us specifically, we invest in AI in multiple areas to, a, be more efficient, maximize our capacity, streamline our communication with our clients and also to reduce the number of animals needed on a drug program. Our clients are investing primarily in the early stage and a little bit in the clinical space. In the early stage, that is things like target identification, molecular design that will allow them, hopefully, at some point, if AI delivers to bring drugs into the regulated safety assessment space faster and maybe more programs. I do not think that our clients will want to in-source any of the work that we are doing. So our work that we do is very highly outsourced and not a lot of companies still have capacity nor the skill set to do the work. So -- and from what we're hearing with our clients and the discussions, they are actually looking more for a collaboration on how they can utilize AI in the earlier stage. So before we get the work rather than doing the work that we are doing. So you might see more of in-sourcing in the really early or even in the clinical trials. But definitely, I would not expect it in the preclinical stage. There's just so many complexities and capacity and regulated expertise that is required, it would not make any sense. Glenn Coleman: Birgit, the only thing I would add to your comments is a lot of the great work the team has done over the last couple of years of taking out all of these costs and $300 million of cost has been needed to preserve margins because the top line has not been growing. And so a lot of the cost increases that we see in the business for inflation and normal increases across the business have been offset by these initiatives and cost reductions. I just want to make that point. Operator: We'll turn next to Yujin Park with Baird. Yujin Park: You mentioned that for RMS, 1Q saw increased demand in small models from CRO clients. Was that comment specifically on China? Or was it broad-based geographically? And is this a normal pattern? Or could this be a signal of improving market dynamics? Birgit Girshick: So that comment was specifically to China. We have said that we saw much better demand in China and specifically for CROs and biotech. So we see this as an indication that the Chinese market is rebounding and accelerating and for the need and the demand of the research models that we're providing to them. So a positive indication for the business. Operator: We'll move next to Charles Rhyee with TD Cowen. Charles Rhyee: I'll just leave it with one question here, and this is just kind of going back to the demand environment. Birgit, you kind of mentioned in the slides, biotech kind of highest levels you've seen in the last 2 years, maybe more large pharma kind of slowly rebounding or maybe just more of a year-over-year comps. It kind of suggests maybe that biotech is going to present more opportunities perhaps over the next couple of years? And does that change at all sort of your go-to-market strategy? And maybe any kind of impact on how. Maybe give a sense of how any of those businesses are priced on either side of that? And any kind of comments on that and where you see that mix going? Birgit Girshick: Yes. So we are pretty balanced in our revenue stream from pharma versus biotech. So we have -- historically, we have a very big share with the pharmaceutical clients, but we are -- also have a considerable share with the biotech industry. So our go-to-market strategy for years has focused on a customized approach to make sure that we cater to both small as well as large companies, making sure that they get the collaboration they need and that our teams are basically on the same table with no matter if it's a small or a large company. So -- and that won't change. However, we are investing in a lot of tools and platforms and training to make sure that we are continue to improve this go-to-market customer centricity program that we have in place, so we can be an even better partner for our clients, but also get more of a share of their wallet. In terms of pricing, we see a pretty stable pricing environment. It has really not changed over the last couple of years. Discounting is still strategically, it's still happening. Pricing will change when capacity is changing. So something that will come probably automatically. But at the current time, we are making sure that we stay competitive and that we get the share of the wallet that we want from our clients. And from our proposal volumes, bookings and capture rates, I think we're on the right track here. Charles Rhyee: Great. Congrats on the results. Operator: Our final question will come from Ryan Halsted with RBC. Ryan Halsted: Maybe going back to the discussion on Asia, but asking it from a different perspective from a competitive standpoint. A lot of attention, I think, has been made on competition from Asia and drug development work. And just would appreciate your perspectives on the competitive landscape for the business. Birgit Girshick: Yes. Thanks, Ryan. Interesting question. So yes, so from an Asia perspective, specifically China, a little bit in India, there definitely has been a trend of more outsourcing, early-stage routine work outsourcing going to lower-cost countries. And this is something that we have evaluated for quite a while. We still don't see a lot of outsourcing going to China in complex work or regulated work where we do most of our revenues, but we are evaluating that. And that is also why we said a couple of times now that overall, we're looking at the Chinese market to see how or when we should play in a larger scale there and what are the solutions that we have the right to play with in a marketplace like that. From another perspective, obviously, the in-licensing of more programs from China into the U.S., into global biopharma is another area that we are watching. A lot of times, we actually get to work on some of those programs, but it will have an impact on the industry itself, and we'll need to see where this is playing out too. So definitely, China, a little bit of India outsourcing is a focus areas of us to make sure that we understand what's going on there. But at this point, our core market and our core relationships are very, very strong here in North America, the EU and a little bit in Asia, and we will continue to double down on that. Operator: With no further questions in queue, I will turn the conference back to Todd Spencer for closing remarks. Todd Spencer: Thank you for joining us on the call, and we look forward to seeing you at upcoming investor events. This will now conclude the call. Thank you. Operator: Thank you. That does conclude today's Charles River Laboratories First Quarter 2026 Earnings Call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by and welcome to the MasterCraft Boat Holdings, Incorporated Fiscal Third Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Alec Harmon, Senior Director of Strategy and Investor Relations. Please go ahead, sir. Alec Harmon: Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft's fiscal third quarter performance for 2026. As a reminder, today's call is being webcast live and will also be archived on our website for future listening. With me on this morning's call is Brad Nelson, Chief Executive Officer; and Scott Kemp, Chief Financial Officer. Brad will begin with an overview of our operational performance. After that, Scott will discuss our financial performance. Brad will then provide some closing remarks before we open the call up for questions. Before we begin, we'd like to remind participants that the information contained in this call is current only as of today, May 7, 2026. The company assumes no obligation to update any statements, including forward-looking statements. Statements that are not historical facts are forward-looking statements and subject to the safe harbor disclosure or disclaimer in today's press release. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude items not indicative of our ongoing operations. For each non-GAAP measure, we will also provide the most directly comparable GAAP measure in today's press release, which includes a reconciliation of these non-GAAP measures to our GAAP results. As a reminder, unless otherwise noted, the following commentary is made on a continuing operations basis and all references to specific quarters and periods will be on a fiscal basis. Today's outlook also excludes any impact from the proposed combination with Marine Products Corporation. With that, I will turn the call over to Brad. Bradley Nelson: Thank you, Alec, and good morning, everyone. We delivered third quarter results that exceeded our expectations driven by disciplined execution across the business and continued new product momentum. In a dynamic market environment, we remain focused on our strategy and core strength driving operational efficiencies, aligning production with demand and delivering differentiated innovation that is resonating with customers and dealers. Our team's ability to stay agile and extend our premium product leadership continues to be a competitive advantage and a key driver of momentum across our brands. As we move into the heart of the selling season, we remain focused on dealer health and pipeline discipline, keeping our wholesale plans measured and flexible while continuing to build momentum across our brands. As always, I want to thank our team members and dealer partners for their focus and dedication as we move through the remainder of this fiscal year. Now turning to results. Q3 net sales increased $2.2 million or 3% year-over-year and adjusted EBITDA rose more than $3 million, a margin improvement of approximately 380 basis points. This year's progress and performance are a direct outcome of our continued innovation and focused execution. As a result, we are raising our full year guidance, which Scott will cover shortly. During the quarter, spring boat show results were encouraging and improved from prior year with particularly strong results at large shows in Salt Lake City, Dallas-Fort Worth and Atlanta for our MasterCraft brand. Feedback from both dealers and consumers reflect the impact of our premium product innovation and targeted commercial actions in key regions. Customers are rewarding us as we are winning on product design, performance and quality and premium value. At the same time in the broader market, recent geopolitical and broader macroeconomic developments have weighed on consumer sentiment and we are factoring that into our outlook. Reflecting our balanced approach to dealer health, we've continued to maintain healthy pipeline inventory levels ending the quarter with a 28% year-over-year improvement with inventory turns better than pre-pandemic levels. This is providing both us and our dealers with confidence and flexibility to navigate the current environment and generally align wholesale to retail demand moving forward. Our ability to generate cash flow at these volumes and our flexible operating model combined with our strong balance sheet position us well to manage near-term uncertainty while supporting sustainable long-term growth. Our capital allocation priorities remain disciplined and consistent. We have a solid balance sheet with no debt, strong cash flow and liquidity, providing flexibility and leaving our strategic growth initiatives fully funded. Now turning to our core brands. Within MasterCraft, premium product momentum continues to build across the lineup. Last month we announced the reintroduction of the X23 marking the return of a historic name in our portfolio and completing the next-generation X Series. Building on the momentum of our flagship XStar, we're seeing strong market engagement and share gains that reinforce our leadership position in the premium ski wake category. With positive dealer and consumer feedback and production ramping as planned, the X Series will further improve product mix sequentially in the fourth quarter. We expect MasterCraft brand and product momentum to continue through the summer as we showcase our product portfolio through opportunities for consumers to experience our newest models firsthand. As discussed in prior calls, our original assumption for MasterCraft retail for the year was to be down approximately 5% to 10%. Based on current product momentum and year-to-date solid retail performance, we are more optimistic and now anticipate retail for MasterCraft to be roughly flat to prior year as we exit the fourth quarter selling season. Looking ahead, we have an exciting lineup of on-water events planned throughout the summer designed to showcase innovation and deepen consumer engagement. These events are intended to expand our reach among new and aspiring riders supported in part by our continued partnership with the WWA, including events such as Rider Experience and Rule the Water. In parallel, we are expanding owner meet-ups and dealer-hosted events nationwide, reinforcing our culture while strengthening our direct connection with customers and the broader boating community. Turning to our Pontoon segment. The Pontoon category remains highly competitive with elevated promotional activity and cautious retail behavior across the industry. In this environment, we're staying disciplined, prioritizing dealer health, aligning production with demand and continuing to drive operational improvements. Across both our Pontoon brands, our focus remains on supporting dealers through the selling season, managing pipeline levels and executing our product and commercial plans in a way that positions the segment for sustainable progress and growth. Before turning the call over to Scott, I'd like to share a brief update on our proposed combination with Marine Products Corporation, which includes the history Chaparral and Robalo brands. Our conviction in the strategic rationale and long-term value creation of this combination remains strong. Our integration and synergy planning efforts continue to progress with detailed work streams in place driving confidence. We are progressing towards closing, including advancing our regulatory and disclosure processes as planned. We will hold a special meeting of stockholders 5 days from now at 8:00 a.m. Eastern Time on May 12, 2026, and expect to officially close the transaction shortly thereafter subject to formal approval by MasterCraft and Marine Products shareholders and the satisfaction of customary closing conditions. As we move forward, I want to thank our team members and dealer partners for their continued focus and commitment as we head into the final quarter of our fiscal year and beyond. We're excited about the opportunity to strengthen our partnership with the Chaparral and Robalo teams and begin to realize the value creation potential of the combination. Now I'll hand it to Scott to review the quarter's financials and forward guidance. Scott Kent: Thanks, Brad. Before turning to results, I'd like to echo Brad's comments regarding the progress we have made towards closing the proposed combination with Marine Products Corporation. We continue to see compelling scale, diversification and earnings power in the combined company. With dedicated teams, structured work streams and capital ready to be deployed; we are fully resourced to execute identified synergies and look forward to providing further updates and combined company guidance in our next quarterly call. Turning to our fiscal third quarter results. We are pleased with this quarter's performance delivering results above our expectations for both net sales and earnings due to the strong operating execution across our business. Retail and boat show results within the quarter performed well. Our efforts to return pipeline inventories to healthy levels and maintain a strong balance sheet leave us operating from a position of strength and well-equipped to manage fluctuations in market activity. Focusing on the top line, net sales for our third quarter were $78.2 million, up $2.2 million or 3% year-over-year. The increase was primarily driven by favorable model mix and options, pricing and discounts, partially offset by unfavorable volume, which is in alignment with our planned production cadence for the second half of the year. Gross margins improved 420 basis points over prior year to 25%, a result of strong operating performance across both segments, pricing and favorable options. Operating expenses were $20.8 million for the quarter, an increase of $9.2 million when compared to the prior year due to the business development and advisory costs related to the Marine Products Corporation transaction. Adjusted net income for the quarter was $7.2 million or $0.45 per diluted share. This compares to adjusted net income of $5 million or $0.30 per share in the prior year calculated using an effective tax rate of 23% in fiscal year '26 compared to 20% for the prior year period. We generated $10.7 million of adjusted EBITDA for the quarter compared to $7.5 million in the prior year, a 43% increase. Adjusted EBITDA margin was 13.7% compared to 9.9% in fiscal '25, a 380 basis point improvement over the prior year period. We ended the quarter with $84.6 million in cash and short-term investments, no debt and ample liquidity. Before moving to guidance, I'd like to provide an update on the pro forma financials for the combined company following close. Last quarter we provided a cash range of $40 million to $60 million. Costs associated with the transaction have been slightly higher than expected, but we still expect to finish fiscal year '26 at or near the bottom of this range. A strong balance sheet following the combination remains a strategic priority and with $75 million revolver availability, no debt and strong cash flow generation; we expect to be fully funded with ample flexibility to fund strategic growth initiatives. Our capital allocation priorities have not changed. We maintain a healthy balance sheet while pursuing organic growth first followed by share repurchases when valuation is attractive and disciplined M&A where it makes sense. Now turning to guidance for the remainder of the year. As a reminder, today's outlook excludes any impact from the proposed combination with Marine Products Corporation. As we look ahead, based on our fiscal Q3 performance and current expectations, we are raising the net sales, earnings and adjusted earnings per share guidance for the full year. For fiscal 2026, consolidated net sales are now expected to be $312 million with adjusted EBITDA now expected to be $40 million and adjusted earnings per share to be $1.65. We now expect capital expenditures to be approximately $8 million for the year. The strong fourth quarter implied in the full year guidance reflects the strategic debut and launch of new products, which will continue to have mix improvement sequentially over Q3. I'll turn it back to Brad for closing remarks. Bradley Nelson: Thank you, Scott. As we reflect on the quarter, what stands out most is our team's credibility and discipline in executing our strategy and the fundamentals of our business. In a dynamic environment: we remain grounded in maximizing what we can control, aligning production with demand, supporting dealer health and continuing to invest in premium differentiated product innovation. That focus has translated into solid operating performance and meaningful margin improvement during the quarter. Across the portfolio, we're seeing the benefit of this approach. At MasterCraft, completing the next-generation X Series with the reintroduction of the X23 alongside the X22 and X24 building on the momentum of our flagship XStar reinforces the strength of our premium product road map and our leadership position in the category. In pontoons, we're managing with discipline, keeping focused on execution and positioning the business for the long term. We remain confident in our strategy and ability to navigate market variabilities by staying disciplined, agile and focused on our core strengths. With a strong balance sheet, flexible operating model and a premium product portfolio that continues to resonate; we believe we are well positioned regardless of foreseeable market dynamics as we move through the remainder of the fiscal year. Looking ahead, we will continue to deploy capital to drive both organic and inorganic growth. With market momentum and the timely combination with Marine Products Corporation on the horizon, we are well positioned to capitalize on the market upswing moving forward. Operator, you may now open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Joe Altobello from Raymond James. Martin Mitela: This is Martin on for Joe. Congrats on the strong quarter. First of all, I want to quickly touch on the MPX combination. Now that you're further along with the process, is there any updates to the synergies expected? Scott Kent: I think as we kind of alluded in the prepared remarks there, we've created work streams. We're frankly seeing the progress being made on those and we're probably more convicted towards the numbers we've put out in the proxy in the last quarter than we were even before. So things are progressing along pretty well. Martin Mitela: Okay. Great. I just really want to quickly touch on retail cadence. Would you mind providing what it looked like for the quarter and just exiting the quarter as well? Scott Kent: So obviously as Brad kind of mentioned in the call, we are a little bit more proactive or confident in our retail assumptions than we were even a quarter ago. So on the MasterCraft front, I think we've been saying we thought we'd be down 5% to 10% for the year. We're now saying we should be closer to flat on retail. Really the boat show results as we went through boat shows have remained pretty solid and given us a lot more confidence as we go out of the -- as we exit the year. The other thing that gives us a little confidence is I know we talk about our X Series launch and all of the X Series boats that are coming out. Going to be very heavily weighted in our fourth quarter towards that X Series product and largely, most of the X Series product that we're going to generate in wholesale is actually already retail sold as well. So again this gives us a little more confidence that our fourth quarter is going to hold up pretty well to give us that flattish retail for the full year for MasterCraft. Operator: Our next question comes from the line of Kevin Condon from Baird. Kevin Condon: I wanted to ask as we look out and you start to lap all this destocking activity, I think you noted dealer inventory was down 28% year-over-year so imagining this year fiscal '26 ends with wholesale well below retail. But just is there any way to think as we kind of roll into a more one-to-one wholesale to retail environment in terms of units, what that would look like in terms of the lift to wholesale shipments in your revenue growth? Scott Kent: So we're not prepared to give '27 guidance, but I think you've got the gist of the philosophy going into next year. We will end the year a little bit wholesale under retail again this year largely because retail is a little overperformed where we expected it to be. So next year -- as we go into next year, our goal is to certainly align wholesale and retail a lot closer. So we'll certainly need to get through the rest of the selling season, see how it ends, and then we'll be prepared to give guidance on that as we go into the '27 year. Bradley Nelson: Also, Kevin, this is Brad. We've got a lot to learn with the upcoming selling season. But coming out of boat show season and here in early spring, we've been generally pleased with the results. One thing I'd like to highlight is not only is our inventory better than pre-COVID traditional levels, inventory turns are also below those levels. So that together with the momentum coming out of boat shows, continued lean in from customers and dealers on our new products gives us that confidence as well as the visibility into our production model that Scott referenced earlier. Kevin Condon: Got you. And then I had 1 quick follow-up. Just the closer to flat retail assumption, is that for like total company retail or is that a ski wake MasterCraft brand-specific comment? Scott Kent: That's a MasterCraft specific comment. Operator: Our next question comes from Anna Glaessgen of B. Riley Securities. Anna Glaessgen: I'd like to ask on the gross margin performance in the quarter, really nice expansion, I think reached the highest level since 2023 in the quarter despite a lower sales growth. Could you maybe unpack the mix benefit or the contributors to that expansion and just generally how we should be thinking about gross margin as we assume greater parity between retail and wholesale? Scott Kent: There are several drivers to our margin. They are really more or less consistent that we've had through the entire year, but certainly affecting us in the Q3 as well. So in Q3, our margins are certainly improved a little bit by discounts. Our discounts have generally been lower as we go into -- have been all year. But certainly as we go into Q3, our margins are certainly impacted by that. We do have a little bit of segment mix as well as the Pontoons wholesale went down a little bit more than the MasterCraft units did as well. So we get a little benefit from the extra MasterCraft sales there. We've also been having really good operations improvements really throughout the year as we've had some cost improvements there. Our Pontoon business has had fairly flat sales for the year, but our margin improvement on the Pontoon business has been about $1.9 million of adjusted EBITDA. So that's helping our overall margins as well. Along with some quality improvements, we've been having a little bit of favorable warranty really throughout the entire year and that continued into the Q3 as well. So lots of things ultimately chipping away and adding to that margin improvement as we've gone through the quarter and the year. Anna Glaessgen: Okay. And then secondly, I know the acquisition hasn't closed, but anything you could share on MPX's retail this quarter and potentially into April, May? Scott Kent: Yes. Obviously I think you can go out on their website and you can see their kind of results for the quarter. I think they're publishing today as well. I'll leave the quarter to them to talk through. But you can certainly go out and look at that on their own website. Anna Glaessgen: Okay. And then 1 more follow-up on guidance. I believe in the prepared remarks, you said something to the effect of incorporating the current uncertainty into the guidance. I guess could you expand on what you're thinking there and how that's impacting the guidance? Bradley Nelson: Anna, that's really just driven around some of the macroeconomic and geopolitical issues that are happening. And there has been a little bit of a pausing or a downdraft at retail across the broader industry and broader categories. We've been generally pleased with our outperformance at the retail level inside of that, but it's more geopolitical in nature and which we view as temporary. Operator: Our next question comes from Brandon Rolle from Loop Capital. Brandon Rollé: First, just on general and administrative cost. It seems like that ticked up a little bit in the quarter. Is that expected to continue throughout 4Q and into fiscal year '27? Scott Kent: I realized that most of the pickup was really the onetime costs associated with the acquisition. So I think of the $9.2 million in the quarter, if you looked into our adjustments there, about $8.4 million of that was related to the acquisition. We also have some continued costs related to our ERP implementation for a couple of hundred thousand dollars as well. And then we do have some timing between quarters as well as just a little increase year-over-year in sales and marketing. I think those are the 3 main drivers that kind of are impacting that. Obviously the acquisition costs will go away, the ERP costs will go away and the sales and marketing are kind of timing related. Brandon Rollé: Okay. Great. And then just on the Pontoon category, I think you gave more optimistic retail expectations for the MasterCraft brand. Any update on kind of recent trends within the Pontoon segment and any updated retail expectations there? Bradley Nelson: Yes. Pontoon in general hasn't really got going yet. Of course that business traditionally is more of a payment buyer highly compressed in the summer selling season, of which we're just in the early rounds of that. We view '26 for us as really a stabilization year as we fight through just macroeconomic pressure and a promotional environment out there that's still elevated from traditional levels. And our brand -- using Crest as an example, that's a very proud brand with 68 years of brand equity. We're working hard on this business with discipline, aligning inventory, strengthening our dealer network. So overall, that category it's giant. It's the biggest subsegment within marine. We've got good tradition and history there, strong brands as well as a good dealer network. So as we stabilize going forward through the summer selling season, we do need to see sustained retail in that market. What we think will drive that is more macroeconomic attitude in general that would apply to the entire marine category as well. Scott Kent: So just remember, that stabilization was really done what we plan to do this year, right, and we really have seen that happening. So on a year-to-date basis, the adjusted EBITDA for the Pontoon segment has gone up about $1.9 million on relatively flat wholesale. So this year has done exactly what we wanted it to do, get that stabilization and now we've really got a platform set for the growth in the future. Operator: Our next question comes from Gerrick Johnson of Seaport Research Partners. Gerrick Johnson: Piggybacking on Anna's question, you did not mention anything about commodities. Wondering how those are trending for you, how you lock in price or hedge and what you're seeing and experiencing going forward on those commodities, resins and aluminum in particular. Scott Kent: So on the fuel petroleum-based products; resins, gels and really foam; it's still a relatively small portion of our entire bill of material. So we do have some implied increases coming into that in our fourth quarter guidance or our full year guidance. It's not significant. I think you can think of like 1% of our entire gross margin are material costs. It's just not that significant overall. We are doing what we can to work with our suppliers to mitigate that as best as possible, but not having a huge impact necessarily on our full year profitability. But again we do have some of that embedded in our guidance and margins assumptions for the full year. On the aluminum front, that's really more impacted by tariffs and the tariff -- even the past tariffs. As you might recall, we have at the MasterCraft level been putting a surcharge on our invoices for tariffs and that is largely doing exactly what we planned. We are offsetting the cost of those tariffs on an almost dollar-for-dollar basis through what we've been charging through that extra surcharge. So we have been kind of netting out the effect of the aluminum increases. Gerrick Johnson: Okay. Got you. And then on your pro forma, thank you for the pro forma examples. But you are issuing shares to consummate this deal. So are you able to provide us depreciation, tax rate and pro forma shares to help us get to an EPS? Scott Kent: We will give you more of that guidance when we get into the '27 year. Obviously the proxy that we sent out has some of that data in it and you can get a little bit of that data. But just keep in mind that there's going to be a lot of purchase accounting adjustments. So anything you see even in MPX's past numbers is going to change a bit as we move into getting finalized on purchase accounting and moving forward. So we'll give you a little bit more of that guidance when we finalize some of those entries going into '27. Gerrick Johnson: Okay. Got you. And 1 last one. You mentioned retail has overperformed. You've been launching new models particularly MasterCraft, the X Series. the X22 in November, the X24 in January, now the X23. Just wondering how much more of the market can you get with that 1 foot difference? Do you cannibalize from the X22 and X24 or can you get incremental customers? Just the rationale behind the X22, X23 and X24; 1 foot each. Bradley Nelson: Gerrick, in general our momentum there from dealers at the consumer level isn't just new products. This is about a customer experience and unrivaled support, quality products in general which are surging, a catalyst with new products certainly is helping. The new lineup, recall last year we launched the XStar at the top end, ultra-premium end of the space, which is garnering share. And now with X24, X22 and X23, as you mentioned, same thing is happening. What we're hearing from dealers and consumers alike is that these products are winning on 3 fronts: design, performance and quality and premium value. And we like how they're positioned against the competition and they're winning incremental share. Now the market continues to lean premium. That's an advantage for us with our premium brands. We expect that to continue especially until the mass market starts to recover. But there's no doubt that with our share capture momentum that we're pleased with, we're winning incremental business, but it's not just all on the backs of new products. We're seeing surges in pretty much all of our product lines. Scott Kent: And Gerrick, we do work really closely with our dealers and actually the dealers are the ones that requested to have a X23 in the lineup. They believe we believe that we will get -- by having all 3 of those products in the lineup, we will get incremental share and incremental sales from the combine of the 3 models combined. It gives us a really nice price point. Certain markets are better with a X23, certain markets are better with a X22 and some markets can sell the X24. So it does make a difference to our dealers. They have certainly requested it and we listened to them and put it back in the lineup. Operator: Thank you. I am showing no further questions at this time. I'd like to thank you all for your participation in today's conference. This does conclude the program. You may disconnect.
Operator: Hello, and welcome to the Aemetis, Inc. First Quarter 2026 Earnings Conference Call. Joining us today are Eric McAfee, Chairman and Chief Executive Officer; Todd Waltz, Chief Financial Officer; and Andy Foster, President of Aemetis Advanced Fuels. I will now turn the call over to Todd Waltz. Todd Waltz: Thank you, and welcome, everyone. Before we begin, I would like to remind you that during the call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risk and uncertainty that could cause actual results to differ materially from those expressed or implied. Please refer to our earnings release and SEC filings for a discussion of these risks. For 2026, revenue grew 27% to $54.6 million compared with $42.9 million in 2025, with growth across each of the three reportable operating segments. Gross profit was $2.8 million in the quarter, a year-over-year improvement of nearly $8 million from the gross loss of $5.1 million in 2025. Operating loss improved approximately 60% to $6.3 million compared with $15.6 million in the prior period. Net loss improved to $21.7 million compared to $24.5 million in 2025. Production tax credits under 45C contributed $4 million of operating income during the quarter, $1.4 million in dairy RNG and $2.6 million in California ethanol, representing our first quarter of ongoing credit generation tied to quarterly production since 45z eligibility was established in 2025. Adjusted EBITDA for the quarter was negative $1.3 million, reflecting typical winter seasonality with stronger revenue and margin performance later in the quarter. Adjusted EBITDA and a reconciliation of EBITDA to net loss are described in our earnings release issued earlier today. Cash and cash equivalents at the end of the quarter were $4.8 million, comparable to year-end 2025. Capital investments in carbon intensity reduction and dairy digester construction totaled $6.5 million during the quarter. With that overview, I will turn the call over to Eric. Eric McAfee: Thank you, Todd. I want to highlight three key takeaways from 2026. First, Q1 was a financial inflection point. We grew consolidated revenue 27% year-over-year, posted positive gross profit, and improved operating loss by more than $9 million. All three of our reportable operating segments contributed to this result. Second, we benefited from the California Air Resources Board approval of seven new Low Carbon Fuel Standard pathways for our renewable natural gas business at an average carbon intensity score of negative 380 compared with a negative 150 default, which has been providing additional revenue at the higher LCFS value each quarter since Q3 2025. Six additional biogas digester pathways are nearing approval. These LCFS pathway approvals substantially expand the LCFS credit generation per MMBtu of RNG produced and will continue to drive meaningful revenue increases as we scale production. Third, our capital projects are advancing. We received the initial deliveries of dairy biogas pretreatment skids in April under our $27 million fabrication contract. Major equipment for the $40 million mechanical vapor compression project at our Keyes, California ethanol plant has arrived on-site and construction has begun. In dairy RNG, we sold 110 thousand MMBtus in Q1, a 55% increase over the same quarter last year. With H2S cleanup and biogas compression equipment contracted for 15 additional digesters, and four of the equipment units already delivered by the vendor, we are on track to double our operating dairy network with construction into 2027. At our ethanol plant, the MBR project is on track for completion later this year. The system will use on-site solar and grid electricity to displace approximately 80% of the fossil natural gas consumption at the plant. We expect MBR commissioning later this year to add approximately $32 million in annual cash flow from operations, including additional 45z and LCFS uplift from the expected reduction in the carbon intensity of the ethanol produced by the plant and cost savings on natural gas. In India, biodiesel revenue rebounded to $10.5 million in Q1 with the resumption of Oil Marketing Company shipments under new contracts. This revenue growth supports our planned initial public offering of the India subsidiary, Universal Biofuels Private Limited, for which we have retained legal, accounting, and IPO advisers. Looking ahead, our focus for 2026 is scaling production, monetizing the stacked credit value of our renewable fuels platform, completing the India IPO, and the refinancing of existing debt into long-term financing. The principal catalysts we are tracking through the year include the publication of the updated 45z GREET model by the Department of Energy to significantly increase revenues and margins, commissioning the MVR at the Keyes Ethanol Plant, rising LCFS credit prices caused by continued quarterly credit deficits, and progress on the India IPO. Thank you to our shareholders, analysts, and partners for your continued support. Operator, let us take some questions. Operator: We will now open the call for questions. Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if you are listening on a speakerphone to provide optimum sound quality. Please hold for just a few moments while we poll for any questions. Your first question is coming from Matthew Blair with TPH. Please pose your question. Your line is live. Matthew Blair: Thanks, and good morning, Eric. Certainly a lot of things going on at your company, but I was hoping you could talk about the possibility of the RD and SAF plant that has been on the table for a few years now, just in light of the very robust 2026 and 2027 RVO that materially increased the biomass-based diesel requirements. How are you thinking about that RD and SAF project? And maybe you could refresh us on how much it would cost and what kind of capacity it would provide. Thank you. Eric McAfee: Thank you, Matt. The capacity is 80 million gallons a year of SAF, or if we run it only in renewable diesel mode, it is 90 million gallons. And as you know from previous reports, we have 10 different airlines we signed definitive agreements with, etc. We got full permitting approval for construction to begin in 2024. However, market conditions in renewable diesel and SAF were hampered by a new president being hired that, of course, happened in late 2024. That caused the financing markets to take a delay in looking at SAF and RD. You have done a very good job covering margins at renewable diesel producers. Just yesterday in California, Phillips 66 announced they are running above their nameplate capacity on their renewable diesel plant. And certainly, the events since March 1 have driven the price of the molecule up substantially. LA quotes SAF in neat form at $9.80 a gallon as of yesterday. So the market conditions have moved in our favor significantly compared to where we were in late 2024 with a new president being hired who certainly had a policy position that needs some clarification. We are definitely in a position right now in which there is frankly a lot of interest in new SAF production. I would say that the uncertainty in the last few months has given a new certainty to the need for domestic production of renewable fuel and a clarity that airplanes are not going to fly on hydrogen, batteries, nuclear power, or any other sort of energy source other than liquid fuels for the foreseeable number of decades. So we positioned this project specifically for the conditions we are in right now: high price of crude oil alternatives and, frankly, coalescing enthusiasm for the renewable version, which is sustainable aviation fuel. So we are definitely making progress on the financing; that is actually the only remaining part of this. We have the authority to construct permit in place for the facility, and market conditions continue to be in favor of that. That 80 million gallons, of course, if we are selling at $9.80 a gallon, is almost $800 million additional revenue. And I think the industry today is reporting roughly $1.60 a gallon of operating margin. So, obviously, a very positive improvement in our company’s overall revenue and EBITDA growth. But I am going to wrap this up by saying that there are actually four different sources of revenue for that plant, and 45z, the clean fuels provision, is still an unknown. We do not have the updated 45z. It is absolutely expected anytime soon, certainly before June, that the Republicans need to post it. And since there are four revenue streams—you sell the molecule, you sell the California credits, the federal credits, and then receive the 45z production tax credit—that is having an impact on the timing of our financing. Most lenders especially are interested in knowing what the 45z revenue is for this project. Federal law is passed. Treasury adopted their guidance in February 2026 for 45z, but the actual calculator on the Department of Energy website is going to be—that spreadsheet needs to be posted with the updated rules in the spreadsheet in order to finalize that fourth leg of the stool. I want to put that note on the table that that is having an impact. Of course, right now, the business works great without 45z, but people are curious to know what your total revenue is if we are doing a project of that size. Matthew Blair: Sounds good. And then the India biodiesel operations—nice to see them restarted in the first quarter. It looks like profitability is essentially breakeven, maybe a little bit below. Could you talk about your expectations for the second quarter? Do you think volumes will be in a similar range as the first quarter? And I think we typically see some margin improvement in the second quarter as you are able to shift different feedstocks. Do you think that will happen in the second quarter this time around? Thank you. Eric McAfee: Thanks, Matt. Let us talk about the overall trend in India, because it is very important for investors to understand that India is a socialist country, and they have elections that occurred in May. In order to support the existing government, a decision was taken by the government to set the price of diesel at the same price in March and in April as it was in January and February. There is no change in the price of diesel. I think most people on this call would understand that the price of diesel and crude oil dramatically increased in both March and April, but in India, it did not. So as of today, when you go to the pump in India, you do not know that the Iranian war happened from the price of the diesel at the pump. That means that the government is running a very large negative from their expected tax collections from diesel, and the Oil Marketing Companies are losing a very large amount of money every single day on selling diesel because they are buying crude oil at high prices and then selling it at prices below cost in India. That is about to change, and it should happen in the next few days that the price of diesel in India dramatically increases. The Oil Marketing Companies and the Ministry of Petroleum have known about this for two months and have been proactively meeting with the biodiesel and renewable diesel and sustainable aviation fuel producers—or to-be producers—in the country in order to come up with a much more solid program for us to be able to utilize all of our production capacity. We have an 80 million gallon plant that has been operating recently at 10% capacity. There has been a renewed focus on domestic renewable fuels in India. With the policies already in place, the National Biofuels Policy is 5% blended biodiesel in a 25 billion gallon market. That is about 1.25 billion gallons. Unfortunately, they are not at 5%; they are at a 0.5% blend right now, and that is rapidly changing. So you asked about second quarter. I would put it in the context of the trend of this year. We are seeing dramatic increases and, frankly, signing larger contracts and going back to the cost-plus contract model, which is what is in process right now in India. During the course of the next few months, I think you will see that kind of certainty come into play. Our IPO is really being built around us working on that reality that those policies need to be known and need to be adopted. We are setting up our IPO to be directly correlated with when those policies are adopted. I think it will have a very positive impact on not only the valuation of our business but how much money we raise. We are seeking for the IPO in India to be truly a breakout opportunity. We are looking to build the first global diversified renewable fuels business ever to go public in India and certainly anticipate that that will be the positioning we have and that the events of the last two months are having a very significant impact on India and focusing them on redirecting themselves to these policies that they have already got in the books but they have not been fully enforcing. Matthew Blair: Sounds good. Thanks for your comments. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Nate Pendleton with Texas Capital. Please pose your question. Your line is live. Nate Pendleton: Morning. Do you provide more color around the financing commentary from the release? Just looking to better understand some of the options that are available to you on addressing the debt broadly. And then more specifically, what are you looking at with regard to Keyes and then the status of the refunding for the dairy RNG projects? Eric McAfee: The improved margins and, frankly, now recovery of confidence in the need for domestic renewable fuels is directly expanding our refinancing opportunities. We have been funded and supported for the last 18 years by roughly a $3 billion fund out of Toronto that holds our senior debt, except for the $50 million of U.S. debt that we have, and our expectation is that we will continue to have very positive trends toward having municipal bond financings available to us. Municipal bonds have been used by the renewable fuels industry for a variety of basically greenfield projects. We, of course, are not greenfield; we are expansion. We are actively in the market right now working on a municipal bond type refinancing of our existing bridge financing we got from Third Eye Capital. The Renewable Energy for America Program at USDA is active, but they have slowed down their expansion in renewable fuels in a portfolio review process. The timing of that seems to be changing on a regular basis. As they make a review of their portfolio goals, they will be expanding or not expanding—it is really quite uncertain, to be frank with you. The rapid expansion of interest in the municipal bond and even commercial credit markets, certainly private credit markets, all of which we have had active discussions with, I think are going to overshadow our Renewable Energy for America Program funding. I think we will be seeing much larger financings and moving much quicker than what the USDA program currently looks like for our company. Nate Pendleton: Understood. Thanks, Eric. And then I just wanted to get your perspective on LCFS prices for a moment. While the market has flipped to deficit generation recently, prices have broadly remained quite muted. Can you talk about your expectations for that market going forward? Eric McAfee: I think we are going to see a rapid price increase during the summer and early fall. What muted the deficit—that is, we had our second quarterly deficit on April 30, and that was for the fourth quarter of last year. So there is a trailing deficit announcement. It is literally four months after the end of the physical quarter when the announcement happens. But the price being muted was an expectation by traders that people would not drive as much with high gasoline prices. Interestingly enough, on a formulaic basis, gasoline currently represents roughly 2% of the income of the average American, and I think traders over-traded on this one. They were not anticipating that the Iranian war would actually not be as big of an impact on driving as what it has—or they thought it would have a bigger impact than what it really did. It did not have as big an impact, especially in California. LCFS credit deficits, however, are not driven just by consumption of gasoline. It is also driven by how many credits come from renewable diesel. Renewable diesel is the reason we got such a large 40 million credit bank, and renewable diesel has underperformed in Q4 last year and the first part of this year. I expect it to underperform in credit generation. So if you have fewer credits being generated, quite frankly, it was a lot more of a deficit than what was expected because there were fewer renewable diesel credits generated. We think the LCFS price trend is absolutely upwards. The question of pace has been impacted by the Iranian war. That play did not quite work out, and so we do expect increases to continue. There are plenty of credits in the market; it is not that issue. The issue is: do you want to pay $200 for it 18 months from now when there are very few in the credit bank? So it is a question of major oil company traders over the next 18 months at some point in time reaching a tipping point at which they decide they do not want to have to be buying $200 credits. They might as well get out there and buy whatever they can on the market. When that happens, you will see a very rapid price rise. I would not be surprised at all to see $150 in 2027 as traders see the cap as $268, and they want to get their book filled up as soon as possible. Nate Pendleton: Got it. Thanks for the color, Eric. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Sameer Joshi at H.C. Wainwright. Please pose your question. Your line is live. Sameer Joshi: Hey, good morning, good afternoon, Eric. Thanks for taking my questions. On the MBR, I understand it is going to be deployed before the end of the year. Are there any additional certifications or verifications needed to be done before you can start generating that $32 million annualized return from it? I know some of it will be immediate because of lower natural gas consumption, but for the other incentive-based cash flows, do you need to do anything? Andy Foster: Thank you for your question. No, there are no additional certifications necessary. We received an authority to construct from the air district, which is really the big number that we have to get crossed off before we can proceed with the project, and that was received last year. We have some local permits that are sort of ongoing as you do construction, but we do not have any requirements for additional permitting or authorization in order to proceed. Construction has begun. We have begun demolition on existing concrete structures. As Eric mentioned in his comments, we have received most of the major equipment stateside now. We received the turbofans from Germany last week. The main evaporator was received from PRASH in India about a week ago. It is currently in transit to the Keyes plant. All of the big-ticket items that take a long time to fabricate are either on-site or will be on-site within the next week or so. Sameer Joshi: Got it. Thanks for that, Andy. Moving to the India OMC activity there—thanks for the color that you provided, Eric, to the previous question. But in terms of pricing that will be available for you, do you expect it to be premium pricing relative to what you got in the last year, for example, or are getting currently? Eric McAfee: Yes, there is definitely premium pricing, actually. The next contract is already being discussed. The structure of a cost-plus contract—which we did $112 million of revenue and about $14 million of positive cash flow last time we had a cost-plus contract—is being strongly considered as a replacement for what they have done in the last couple of years, which was this uncertain sort of pick-a-number-and-see-what-happens kind of structure. We covered this a couple of years ago with investors, but just a reminder: the cost-plus structure was after many years of working with the government to come up with something that was going to expand capacity utilization in India. It worked very well. Then the India government passed a 20% tariff on the feedstock that was being used by the industry, and therefore the price of the formula went up 20% after they had issued us a contract. The Oil Marketing Companies did not want to take a loss, so they just did not take delivery. That created confusion in the market. That confusion has now gotten more clarified because of the very high-cost diesel and the need for them to start getting utilization in the biodiesel industry, and that is the resolution that is being worked out right now. We do expect to return to better conditions for full capacity utilization. India imports over 90% of its crude oil and really needs to expand its domestic production of renewable fuels. Sameer Joshi: Understood. Thanks for that. And then just one last one. You did mention you got seven LCFS pathways approved for the negative 380. Six are being worked on. Should we expect those to occur in the first half, or is it a second-half event? Eric McAfee: There is a strange delay in the process. We expect the approvals to occur, but then they are a look-back a couple of quarters. If we get an approval, for example, at the end of the fourth quarter, it is a look-back to the beginning of the third quarter. So an approval by December is actually effective July 1. Strange situation, but the reality is, yes, we do expect by the end of the year to see appropriate progress here with a look-back that looks like a six-month look-back because they do it the quarter after the closing of the quarter. We will keep the market apprised of progress here, and of course, we are focusing on moving it through the process as quickly as possible. Sameer Joshi: Understood. So that would potentially be a lump sum that you get if it is approved in the fourth quarter for the previous quarter? Eric McAfee: Yes, there might be a one-quarter catch-up, but in essence, it is just the delayed approval for the previous quarter—the way the government looks at it. Sameer Joshi: Thanks a lot. Thanks for taking my questions. Eric McAfee: Thank you, Sameer. Operator: Your next question is from Dave Storms with Stonegate. Please pose your question. Your line is live. David Joseph Storms: Good morning, and thank you for taking my questions. I wanted to stick with the dairy digesters. I believe you mentioned on the call you are expecting another 15—doubling your digesters by 2027. Can you just remind us when you actually get the investment tax credits related to those investments, and maybe just your thoughts around the monetization of those net credits? Eric McAfee: Good question. We get the tax credits upon the completion—the what they call in-service date—for each single digester. So we do not have to build all 15 of them and then add six months to that or anything. As we build each digester and it goes in service, we generate the section 48 investment tax credits. We have sold about $95 million of these tax credits. We tend to sell them in $5 million or higher increments, though that is not absolutely required, and we do expect to have a single party this year acquire each one of the investment tax credit projects that we generate. We will be seeking to do at least once a quarter. There is a potential to do it more than once a quarter depending on how many new units are completed. We expect this to be probably a third-quarter contribution but could be quicker than that. The market is moving quickly, and we have some refinancing activities going on that certainly are very positive for the business. We have already fully financed the construction of $27 million of H2S and compression skids. The process is going on; we have received four of them already and have more coming. We are rapidly executing on portions of this project right now. The investment tax credit delay is a month or so after the in-service date if we were doing it in the ordinary flow of business, so not a whole lot of delay between when the project is completed and when we get the cash. David Joseph Storms: Understood. That is very helpful. And then just sticking with those potential new digesters, do those come online at the negative 380 qualification status? Or how does that process look? If they do not come on at the negative 380, what do you think the current timeline is from the negative 150 to the negative 380? Andy Foster: Are you speaking about the new digesters that are not built? Correct. Given the temporary pathway score of negative 150, then once we go through the process with CARB—which hopefully now that they have moved to a Tier 1 approval process will be significantly shorter than what we have experienced in the last few years, which is this kind of 24- to 36-month approval process—it should be more like nine months. Then we would get the benefit of that higher—or lower, however you want to look at it—CI score. So initially it is a negative 150, and as you work your way through the approval process, then you go to the blended rate of the negative 380. David Joseph Storms: That is perfect. Thank you for taking my questions. Eric McAfee: Thank you, David. Operator: Your next question is coming from Ed Woo with Incendiant Capital. Please pose your question. Your line is live. Edward Moon Woo: Yeah. Congratulations on all the progress, guys. My question is, as we are getting closer to the India IPO, what are your priorities, or what have you allocated in terms of what you are going to do with the capital raised? Eric McAfee: The India IPO is primarily designed to support the expansion of the existing projects in India and in California. Our existing projects in California, specifically focused on dairy RNG, would be a use of some of the proceeds of our India business. That is one of the reasons why it will be the first global diversified—not just biodiesel, but multiple different fuels—company to go public in India that offers the India investor access to a very well-established incentive environment here in California called the Low Carbon Fuel Standard. The federal government support of the Low Carbon Fuel Standard in California is matched by the Renewable Fuel Standard at the federal level and the 45z production tax credit and the value of the molecule. So the Indian investor has access to arguably one of the best markets in the world for renewable fuels, and that is a diversification of the growth in the India business. Another point we have made publicly is that as the largest biodiesel producer in India, we happen to be very well-positioned to build the conversion of a biodiesel facility into sustainable aviation fuel. So our India IPO not only is biodiesel and dairy renewable natural gas, but also a conversion into a SAF producer in India in addition to expanding biodiesel. It is a diversified business. The India market is very deep and wide and right now is about to have the shock of its diesel life with an incredible percentage increase in diesel costs as a result of what has been going on in the world. It is a perfect storm in favor of us as a producer in India who has been there for 18 years to open our opportunity to the public markets. We are making excellent progress, and certainly market conditions will determine the actual timing of what we do, but market conditions are trending in our direction. Edward Moon Woo: Great. Well, thanks for answering my questions, and I wish you guys good luck. Eric McAfee: Thank you, Ed. Operator: There are no further questions in queue at this time. I would now like to turn the floor back over to Eric McAfee for closing remarks. Eric McAfee: Thank you to Aemetis, Inc. stockholders, analysts, and others for joining us today. We look forward to talking with you about participating in the growth opportunities at Aemetis, Inc. Todd Waltz: Thank you for attending today’s Aemetis, Inc. earnings conference call. A written and audio version of this earnings review will be posted to the Investors section of the Aemetis, Inc. website. Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the First Quarter 2026 Financial Results Conference Call and Webcast for Zoetis. Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis. The presentation materials and additional financial tables are currently posted on the Investor Relations section of zoetis.com. The presentation slides can be managed by you, the viewer, and will not be forwarded automatically. In addition, a replay of this call will be available approximately 2 hours after the conclusion of this call via dial-in or on the Investor Relations section of zoetis.com. [Operator Instructions] It is now my pleasure to turn the call over to Steve Frank. Steve, you may begin. Steven Frank: Thank you, operator. Good morning, everyone, and welcome to the Zoetis First Quarter 2026 Earnings Call. I am joined today by Kristin Peck, Chief Executive Officer; and Wetteny Joseph, Chief Financial Officer. This morning, we issued a press release announcing our first quarter 2026 financial results. Before we begin, I would like to remind you that the release and corresponding earnings presentation, which we will reference during this call, are available on the Investor Relations section of our website and that many of our statements today may be considered forward-looking statements and that actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements in today's press release and in our company's reports filed with the SEC. Additionally, today's remarks will include certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures can be found in our earnings press release and our company's 8-K filing dated today, May 7, 2026. We also reference reported and organic operational growth. Organic operational growth excludes the effect of foreign currency as well as acquisitions and divestitures, which individually impact Zoetis growth by 1% or more. Unless otherwise stated, all revenue growth performance metrics will be based on organic operational performance. And with that, I turn the call over to Kristin. Kristin Peck: Thank you, Steve. Good morning, everyone, and welcome to our first quarter 2026 earnings call. I'll start with the headline numbers we reported today. On an organic operational basis, revenue was flat and adjusted net income grew 1%. Our International segment delivered 10% organic operational revenue growth, while the U.S. declined 8%. By species, livestock delivered 12% organic operational revenue growth, while companion animal declined 4% operationally. To level set, the quarter unfolded differently than expected, particularly in companion animal. We saw a convergence of interconnected dynamics shaping decisions at the point of care. I'll outline each along with their impact and what we're doing about it. First, pricing in veterinary clinics continue to rise, though at a slower pace, adding to a multiyear increases and lower clinic traffic. Second, pet owners demonstrated increased price sensitivity with softer demand for premium products in preventative and chronic care, where Zoetis leads amid a more cautious spending environment. Third, competition intensified across key pet care categories, including dermatology and parasiticides with additional pressure in vaccines from certain generics. While competition is not new to us, what was different in Q1 was the pace and level of activity, more entrants across more markets with competitors leaning more heavily and aggressive pricing and incentives for extended periods of time to drive share, particularly in a softer end market. And fourth, in contrast to what we've seen historically, these new entrants have not yet translated into overall market expansion. Taken together, the result is a more price-sensitive and competitive environment. Pet owners delayed routine visits, extended dosing and had new lower-cost options, compounded by winter storms that further reduced clinic visits, all without the benefit of underlying market growth. As the market leader with significant share in premium products, we are at a point where our growth is less driven by new product cycles as we progress our blockbuster pipeline, which we expect to begin delivering significant value for the end of '27 and into '28. These dynamics increased our exposure, particularly compared to new entrants just launching into these categories and competing primarily on price. You see these dynamics most clearly in our key dermatology and Simparica franchises, where we saw declines in the quarter. In key dermatology, even with the industry's broadest and most differentiated portfolio, we were not able to fully offset the combined impact of increased pet owner price sensitivity and the lack of market expansion, which drove share pressure. That said, we do see a path for the market to return to growth over time, and we continue to invest in long-term growth, while taking decisive near-term actions to compete more effectively. We also remain on track advancing Cytopoint Plus, which we expect will further strengthen our dermatology leadership. In parasiticides, the Simparica franchise saw similar dynamics but more pronounced in the U.S. Fewer patient visits drove lower prescription volumes and impacted new patient starts and compliance with retail growth also moderating. Importantly, in the U.S., while competitive launches earlier in 2025 put pressure on share, largely through aggressive promotion, we saw that stabilizing with share levels nearing prior year by quarter end and puppy share still well above our overall patient share. International markets continue to deliver strong growth in the quarter, supported by the ongoing geographic expansion of our portfolio, partially offsetting the U.S. Despite pressure on revenue, we are pleased with the improving U.S. share trends and our ability to maintain a leadership position in a more constrained market, and across both franchises, while you can see these impacts geographically in today's results. This is more fundamentally about portfolio mix against the backdrop of the shifting demand trends I mentioned. Demand softness across key developed pet care markets underscores that this is not isolated, while emerging markets continue to provide runway for expansion. Now turning to OA Pain. While the broader trends for this category are consistent with what we saw in derm and paras, competitive dynamics are less of a factor here. In the quarter, Solensia continued to perform well, while Librela drove the year-over-year OA decline. That said, sequentially, Librela has stabilized in the U.S. with roughly flat growth. This U.S. stabilization reflects the continued execution across our multipronged strategy with a strong emphasis on medical education and specialist engagement, which is helping build veterinary prescribing confidence. Findings like those published by the Veterinary Medicines Directorate in the U.K., confirming Librela's positive benefit risk profile are important inputs into the education effort, and we saw an improvement in our conversations with vets in that market following the report. And as mentioned on previous calls, we expect additional label updates. These are a normal part of the ongoing regulatory review and provide more information to support appropriate use. We are also in the early phases of our Lenivia and Portela launches in certain European markets and Canada, which will expand the OA Pain franchise and support the long-term growth trajectory and early feedback continues to be encouraging. Looking more broadly across companion animal, diagnostics continues to be a source of strength. Performance in the quarter was driven by strong international momentum with modest U.S. growth against a strong comparison period and slower placement activity. Expansion in reference labs drove performance alongside strength in chemistry and hematology with continued progress in images. This is consistent with the broader shift we see across pet care, where spending remains resilient in areas tied to urgent and diagnostic care. Turning to livestock. We again delivered broad-based performance. Underlying market conditions remain favorable with sustained protein demand, driving stronger producer profitability and enabling continued investment in herd health and productivity. Performance was supported by our bios portfolio, particularly in cattle and poultry, where disease outbreaks and increased adoption reinforce the importance of prevention alongside strong performance in fish, benefiting from favorable vaccination timing and in swine. As a result, livestock remains a strong source of growth with solid end market demand and a more focused portfolio following the MFA divestiture. Our performance this quarter underscores the value of our diversified portfolio while also highlighting where we need to take action to maintain our leadership and regain momentum in pet care markets, where the consumer is under pressure and the competition is increasing. We are doing this on multiple fronts. First, we are sharpening execution across our core commercial levers with a clear focus on capturing demand more effectively. That starts with how we engage veterinarians, where we are focusing on integrated solutions that make better use of our broad portfolio and help strengthen clinic economics. We're also focused on improving execution in priority markets through localized action plans to more consistently convert demand into prescriptions. For pet owners, we're investing in targeted DTC activity, simplifying point-of-sale choices with clear loyalty and affordability options and ensuring convenient authorized access across clinics, retail and home delivery. And in livestock, we're reinforcing continuity of supply and responsiveness in key products and markets, ensuring demand is not constrained by availability. Second, we're accelerating our science to scale model, shortening time from approval to launch and translating that into growth. That includes prioritizing near-term launches and advancing convenience-led life cycle innovations with our portfolio to create new ways to compete, including long-acting mAbs, Procerta and the recent Canadian approval of Convenia RTU, which expands access through a ready-to-use, cost-effective formulation. Third, we announced an agreement to acquire Neogen's animal genomics business, expanding our capabilities in livestock genetics. This reflects our broader approach to targeted business development, where we continue to be strategic in pursuing opportunities to unlock new sources of growth over time. Finally, we are sharpening our approach to capital allocation, while continuing to invest in our key growth priorities. As reflected in our adjusted net income, we acted decisively as growth softened in the quarter and launched a comprehensive cost and productivity program, further tightening discretionary spending, driving procurement and operating efficiencies and assessing organizational levers to deliver a leveraged P&L in 2026 and beyond. We have clear priorities and a proven track record of execution, and we are confident these actions will position us to better navigate the current environment and improve performance over time. Looking ahead, our focus is on improving our trajectory over the balance of the year. Zoetis is providing updated guidance based on the current operating environment and the presentation of its financials for fiscal year alignment. For the full year, on an organic operational basis, we expect revenue growth of 2% to 5% and adjusted net income growth of 2% to 6%. This quarter reflects pressure in parts of our companion animal portfolio where market growth has slowed and competition has intensified. As we bridge to Zoetis' next wave of innovation-driven growth, execution, commercial effectiveness, portfolio optimization and enhanced cost discipline will play a greater role in driving performance, especially in this environment. We are actively managing through this period and our conviction in the underlying strength of our business and what enables Zoetis to win has not changed. Animal health remains a durable and essential industry, underpinned by the strength of the human animal bond and sustained global demand for protein. We operate from a position of strength with leadership in the categories we've helped build a diversified portfolio across species, geographies and channels and the colleagues and capabilities to compete effectively in a dynamic environment. Our near-term focus is clear: sharpen commercial execution and compete with precision while positioning the business to deliver the next wave of innovation. We are doing this with a pipeline that includes 12 potential blockbusters and more than $7 billion in additional market opportunity as we extend our leadership into entirely new categories of care. We have helped define the standards of care that exist today, and we expect to play a leading role in what comes next as we deliver our next wave of innovation. We've demonstrated our ability to perform in different environments, and we will do so again. And we remain committed to delivering long-term value for our shareholders by executing with discipline today while continuing to invest in the innovation that will drive tomorrow's growth. With that, I will hand it over to Wetteny. Wetteny Joseph: Thank you, Kristin, and good morning, everyone. As Kristin highlighted, our quarterly performance reflects multiple converging dynamics, macro-driven price sensitivity weighing on certain aspects of pet owner spending, ongoing pressure on vet clinic visits and an increasingly competitive landscape in which price continues to be a key differentiator. These dynamics have led to performance that is below our expectations this quarter, but we are confident in our near-term efforts to drive demand and cost discipline as well as our industry-leading portfolio and pipeline, which we believe will continue to drive growth in the longer term. Now I'll walk you through our financial results for the first quarter, which, as a reminder, are reflective of an aligned calendar year. For the first quarter, we reported global revenue of $2.3 billion, growing 3% on a reported basis and flat on an organic operational basis, with 2% growth coming from price, offset by 2% decline in volume. As we previewed last quarter, our Q1 2026 financial results were positively impacted by certain operational changes made in connection with our fiscal year alignment for subsidiaries outside of the United States. As referenced in our press release this morning and now posted under supplemental materials in the Quarterly Results section of our Investor Relations website, we have provided additional information in connection with our fiscal year alignment, including recast financial information on a quarterly basis for 2025 and annually for 2024 and 2025 to help with comparisons. You will note that for most quarters, the overall differences are relatively immaterial. However, I draw your attention to the $128 million revenue decrease on a recast basis from our previously reported Q4 2025 revenue. See the recast information on Page 3 of the supplemental material. As we described last quarter, certain operational changes made in connection with our fiscal year alignment resulted in the acceleration of the timing of sales, which led to an approximate $30 million increase in the sales that we reported for our International segment for Q4 2025. The balance of the $128 million decrease in recast Q4 2025 revenue or approximately $100 million resulted in a corresponding increase in Q1 2026 sales in our International segment. This $100 million difference was driven by the change that we previously referenced in the timing of price increases in certain international markets and the delayed processing of customer orders that we referenced in our full year 2025 results as well as by differences in the performance of the business when comparing Q4 2025 to a stronger Q4 2024. Excluding the approximately $100 million that shifted from Q4 2025 to early 2026 as a result of our fiscal year alignment, globally, we would have seen a 5% organic operational decline in the quarter. Adjusted net income of $646 million grew 2% on a reported basis and 1% on an organic operational basis. Turning to our franchises. Our global companion animal portfolio posted $1.5 billion in revenue, declining 4%. Key dermatology recorded $347 million in revenue, down 11% versus the prior year. Consumer sentiment is pressuring aspects of pet owner spend in several key markets as we are facing increased competition globally for Apoquel and despite our strong label, price has played a larger role in the decision process. While Cytopoint is also impacted by the vet clinic dynamic as a monoclonal antibody with a longer duration of treatment, Cytopoint switching to recent JAKi competitors has been low. Our OA Pain mAbs, Librela and Solensia posted a combined $140 million in revenue, declining 8%. Librela sales were $101 million, declining 13%. Librela trends have stabilized in the U.S., where we saw encouraging signs that our efforts are gaining traction. Solensia posted $39 million in revenue, growing 6%. Our Simparica franchise contributed $385 million globally, declining 1%. Simparica Trio declined 1% on sales of $297 million, while Simparica declined 3% on sales of $88 million. Additionally, we have seen recent generic competition impacting 2 companion animal products, Convenia, an antibiotic treatment for bacterial skin infections and Cerenia, the market-leading small animal antiemetic. While not considered part of our innovative core, these brands are both blockbusters and have lost meaningful share in the quarter due to price-driven generic competition. Our global companion animal diagnostics business posted $113 million in revenue, growing 10%, driven by expansion of our reference lab business as well as growth in chemistry and hematology, driven by our recently launched Vetscan Opticell. Moving on to livestock, which performed well in the quarter on $720 million in global revenue, growing 12% with broad-based growth across geographies and species as well as price and volume. Favorable producer economics drove higher demand, particularly in cattle. Combined with improved product supply and commercial wins, this provides solid foundation for sustained livestock growth, further supported by the long-term secular tailwind of rising global protein consumption. While our performance is driven by the declines in our companion animal business in the U.S. and certain developed markets internationally, this quarter highlights the benefit that having a global cross-species portfolio can have in challenging market conditions. Now let's move on to our segment results for the quarter. U.S. revenue was $1.1 billion in the quarter, declining 8%. U.S. companion animal posted $865 million, declining 11%. Before going into our brand performance, I wanted to highlight some of the broader impacts we've seen across our U.S. companion animal business. The global trends we have mentioned around competition and consumer price sensitivity are very prevalent in the U.S. market. Additionally, distributor and retail channel purchasing patterns were also a headwind this quarter, reflecting the lower end market demand. Historically, Q1 distributor inventories start the quarter higher than they ended as distributors typically buy ahead of price increases and promotions. This quarter, our promotions underperformed expectations and end market demand softened. So distributors and retail partners took longer to work through their opening inventories and engaged in less replenishment activity. As a result, our sales into distributors and retail partners lagged their sales out to customers compared with prior year quarters. These overarching drivers have impacted much of our U.S. companion animal portfolio. Our key dermatology products posted $215 million in revenue, declining 13% in the U.S. Apoquel has continued to face competitive headwinds consistent with our expectations with price remaining the primary differentiator, driving some shifts toward lower-cost alternatives. However, the impact has been more pronounced than we had expected. Share loss is being amplified by a derm market with declining patient volume in the clinic. Unlike prior competitive cycles, we do not currently have the benefit of underlying market expansion to cushion the revenue effect of competitive share shifts, though we do see a path for the market to return to growth over time with significant untreated and undertreated dogs in the space. Cytopoint trends were consistent with the global picture, primarily impacted by the vet clinic dynamics rather than JAKi competition. The U.S. Simparica franchise reported $238 million in revenue, declining 8% in the quarter. Simparica Trio posted $222 million in sales, declining 8%. Despite modest year-over-year declines due to additional entrants, our share has improved sequentially versus the second half of last year when we saw the impact of competitive launch promotions, which pressured our share, but also expanded the triple combination market, the dynamic that is not providing the same market tailwind in the quarter. We continue to see market contraction with softness in the clinics driven by lower flea tick and heartworm visits as well as a slowing of alternative channel sales driven partly by script denials in retail. Our market-leading share in puppies remains stable. In the U.S., our OA Pain mAbs posted $55 million, declining 15%. Librela contributed $37 million, declining 22%. U.S. Librela revenue increased sequentially for the first time in 6 quarters, and vet and pet owner satisfaction ratings remained stable. Additionally, despite declines in the canine OA pain market, our patient share has remained stable since the second half of 2025. Looking ahead, the comparative periods become more favorable as the year progresses. And combined with the stabilization we are seeing, we believe the underlying foundation of the business continues to strengthen. Solensia grew 2% in the quarter on $18 million in sales with feline OA visits holding relatively flat year-over-year. Generic competition in Convenia and Cerenia also contributed to the U.S. companion animal decline. Our U.S. livestock business posted broad-based growth of 7% in the quarter, reporting $225 million in sales. We saw growth across all species, driven primarily by cattle on improved supply of Septicure as well as the impact of strong demand generated from our spring promotions. Poultry and swine also delivered meaningful contributions with poultry growth driven by increased vaccine adoption and disease outbreaks and swine benefiting from improved supply. Moving on to our International segment for the quarter. Revenue grew 17% on a reported basis and 10% on an organic operational basis, posting $1.1 billion in revenue. Excluding the impact of the previously noted $100 million in sales that shifted from Q4 2025 to early 2026 as a result of our fiscal year alignment, our International segment growth was flat for the quarter. International companion animal reported $654 million in sales, growing 7%. The competitive and macroeconomic headwinds we have seen in the U.S. do exist in parts of our international business, but are largely concentrated in developed markets where conditions more closely resemble the U.S. environment. In many of our emerging markets where the standard of care is still maturing, we believe that meaningful market expansion opportunities remain, and that distinction is evident in our international results this quarter. Our international Simparica franchise grew 14% on $147 million in sales. Simparica Trio posted sales of $76 million, growing 29%, driven by key account penetration in major markets and the benefit of our recent launch in Brazil. Simparica reported $71 million in revenue, which was flat on the quarter, impacted by conversion to Trio in Brazil. Partially offsetting our growth in the quarter, key dermatology posted $131 million in revenue internationally, down 5%. For Apoquel, similar to the U.S., competitive pressures and macro price sensitivity, which are more pronounced in developed markets where Apoquel has a larger presence are having a compounding impact on sales. Similar to the U.S., Cytopoint performance is holding up better than Apoquel. Our OA Pain mAbs posted $85 million in sales internationally, declining 2%. Librela reported $64 million in sales, down 7%. As Kristin noted, positive benefit risk findings have helped strengthen our medical education effort around Librela, and we have seen a meaningful improvement in our conversations with veterinarians. Solensia grew 10% on $21 million in sales. Additionally, our international small animal vaccines products grew 13% in the quarter, driven by increased usage of FeloVax in China. International livestock contributed $495 million with growth of 14% with broad-based growth across all of our core species. We saw growth in cattle, swine and poultry, driven by disease outbreaks, commercial wins, especially in vaccines and improved supply. In fish, we continue to benefit from improved pricing on our Moritella vaccine as well as volume growth from market expansion into the Faroe Islands. Now let's move down the P&L. Adjusted gross margins of 71.8% declined approximately 10 basis points on a reported basis. Foreign exchange had an unfavorable impact of approximately 150 basis points. Excluding FX, we saw a 140 basis point improvement in margins due to benefit from price and lower manufacturing costs, partially offset by product and geographical mix. Adjusted operating expenses increased by 3% operationally due to higher compensation-related expenses as well as increased freight and logistics costs. Adjusted net income grew 1%. Adjusted diluted EPS grew 7%, including a 3% benefit from our convertible debt funded share repurchases. Now moving on to guidance for the full year 2026. Our updated guidance is reflective of the current operating environment as well as the presentation of our financials on an aligned fiscal calendar basis. Foreign exchange rates used in our guidance are as of late April. We are revising our full year revenue guidance to a range of $9.68 billion to $9.96 billion, with growth of 2% to 5% based on the current operating environment. It is worth noting that our fiscal year alignment was anticipated to provide approximately 200 to 250 basis points of tailwind to full year revenue growth. However, the challenging operating environment we experienced in Q1 and the expectations that carries for the remainder of the year more than offset that contribution. We now expect adjusted net income to be in the range of $2.87 billion to $2.95 billion with growth of 2% to 6%, reflective of the comprehensive cost and productivity programs Kristin mentioned earlier. Finally, we are updating our reported diluted and adjusted diluted EPS guidance ranges to $6.35 to $6.50 and $6.85 to $7, respectively. While Q1 reflected a more challenging environment than we anticipated, particularly in U.S. companion animal, where the convergence of price sensitivity, lower clinic traffic and intensified competition was more pronounced than expected, our path forward is clear. We are taking decisive action to sharpen commercial execution and drive cost discipline. Looking ahead, while we have appropriately reflected the near-term environment in our updated guidance, we remain confident in the underlying strength of our diversified portfolio and our ability to deliver the next cycle of innovation-driven growth in the years ahead. We remain committed to delivering long-term value for our shareholders. Now I'll hand things back to the operator for your questions. Operator? Operator: [Operator Instructions] We'll take our first question from Michael Ryskin with Bank of America. Michael Ryskin: I'm going to throw a couple in here real quick. So one, Kristin, for you, just maybe a high-level big picture one. From what we see in the market, competition appears to still be at a relatively early point. We think it's only going to get worse from here. You've got a number of competing products that are still early in the launch cycle or haven't even launched yet at all. And with this increased competitive landscape, the macro consumer pressures, we think that's going to persist for some time, maybe as much as 1 or 2 years, if not longer. So when you talk about working through the challenges you're seeing, you call out pipeline innovation as an offset. From what we can tell, some of the bigger product launches you have are still a couple of years out. So what can you specifically do more in the near term to turn the ship around in the face of this growing competitive pressure and the consumer challenges? And then, if I could squeeze in a second one real quick for -- more for Wetteny. The math is a little bit messy given the calendarization impact, maybe bear with me, but you called out the 200 bps, 250 bps impact from calendar. For 1Q specifically, you did 0 organic under the new math, under the old calendar, maybe that comes out to something like down 4% or down 5% given the $100 million benefit. And yet you're guiding to something like low-single to mid-single-digit growth for the full year. That seems like a pretty aggressive ramp. You've got easier comps in the second half. You do have the 4Q benefit from the calendar switch. But can you just bridge that for us? Is there anything else factoring in that will get you to that full year number after this 1Q print? Kristin Peck: Thanks, Mike. I'll start and then Wetteny can build on your second question. Essentially, what we saw in the quarter was sort of the economic and sustained price increases that the pet owner has experienced in the clinic. This has obviously made them much more sensitive, but also, as you saw, led to a decrease in vet visits, especially in some of the key therapeutic areas that we're in, such as paras, OA Pain, derm, et cetera. And I think this combined with an increase in price-driven competition as people saw the pressures of the pet owners on, I think you saw more promotions and more price competition there. And really, what that happened is that the market did not grow. Historically, as you've seen over the last few years, when we had competition increasing in paras, the market grew. And I think what I think changes is that with new competition, we didn't see that market grow. I think the difference, I think we might have with you as to what we see in the future is we are seeing positive trends. As Wetteny and I mentioned in our remarks, if you look at paras, for example, we have actually gained share from the end of last year into this year. And we ended the quarter, as we mentioned, pretty close to where we were last year before the competition entered. So again, our focus will be on expanding the markets. But as I think as you look at paras, we're pleased with the progress that we continue to make there. We're also pleased that with Librela, we saw stabilization of that product. As we look to the rest of the year, we continue to believe we can return that product to growth overall. Obviously, in the first half of the year, we have some tough comparable periods. But I think as we move through the year, we'll continue to gain share there and to grow. Obviously, in derm, we do have continuing to see new entrants, but we think we have a strong differentiated portfolio there. We're also excited to be adding long-acting Cytopoint as we look to the end of the year. And look, we are sharpening our focus on execution of our commercial strategy. We're going to continue with veterinarians, leveraging the broad portfolio that we have and providing them integrated solutions to help capture share. We're going to focus with pet owners, as I mentioned, leveraging DTC to help broaden that market. But importantly, focus on affordability, which is clearly a major issue for them at the point of sale through loyalty and some affordability options we're providing. We'll also focus as well as retail and home delivery to optimize access there. So we think we've got a strong portfolio there that we can continue to build on. And I also don't want to undermine the strength we saw in diagnostics and livestock in the U.S. and across the globe. But with that, Wetteny, I'll turn it over to you. Wetteny Joseph: Yes, Mike. The first thing to really note here and importantly, is that our initial guidance already contemplated some first half to second half dynamics. Now clearly, the quarter ended up below our expectations. But this dynamic around the persistence of competition and macro was something we contemplated and we are seeing. And so we expect those to continue in the guidance that we give today. But to the point Kristin just raised, we do see stabilization in a number of areas, including Librela with our OA Pain franchise as we are launching our long-acting products in a couple of markets -- in a few markets here in the quarter as well and across our Simparica franchise and so forth. Now as we noted in our prepared commentary, you heard that this end market demand softness also caused purchasing patterns to be a headwind for us in the quarter. But we ended the quarter at a level that we believe is also normalized for how we go from here versus being a headwind given they ordered less during the quarter that they were shipping out to clinics. So with those and the actions that we are taking, we have widened the range in the guidance given we do see a remaining uncertainty in the markets that we operate, but we're also executing against those, hence, the guidance that we have issued today. Operator: We'll move next to Erin Wright with Morgan Stanley. Erin Wilson Wright: I want to dig into that a little bit more. So what does guidance imply now for the quarterly progression for companion animal, I guess, given the implied ramp here, even backing out the easy realignment comp in the fourth quarter, which is about 1 point, like are you baking in some distributor or retail then restock? Is that what you're implying after the destock? And why is that just given the increasing competition? And how much of a headwind was that in the quarter? And were there significant changes in purchasing patterns, I guess, at retail as well? You mentioned script denials. Can you talk a little bit more about that? And is that that's now going back to their typical conflicts of interest there with online scripts and denying scripts there? And can you clarify a little bit more about what we're lapping here from last year in terms of stocking and destocking dynamics? Because I want to make sure just we're aware, given some of the unforeseen dynamics in the current quarter on stocking, destocking dynamics and how much you're leveraging the channel. And I guess one bigger picture question just on guidance as well. You talked about the 200 basis point benefit from the accounting change now embedded in the guide. I just want to confirm one point of that will not recur in 2027, right? So as we think about 2027 and beyond, how do you kind of mitigate that? And when could we get back to your typical 6% to 8% operational revenue growth? Wetteny Joseph: Sure, Erin. Look, with respect to unpacking the guidance, starting with companion animal and then we'll get to your bigger picture question in terms of comps going into 2027. We are not embedding an assumption that inventory picks up in terms of the level of inventory that is in distribution. We typically don't do that. As you may recall, you've been around with us for a long time. In '23, we saw quite a step down in terms of level of inventory that distributors take. We have not assumed that those would come back into the channel, and they have not. We've been operating at a range that is well below where we were pre-2023. And within that range, we're now operating at the low end of that new range, if you follow, as we exit the first quarter of '26. So we are not baking in some rebound in that. It is reflective of what the end market demand has been and is reflected in the performance that we shared today with respect across our key franchises. And so what we are embedding here -- and by the way, we are also assuming headwinds related to competition that is to launch and continued pressure from a -- in terms of what we're seeing from a competitive, similarly in macro perspective. And so the script denials have been an impact as we look at retail. Retail continued to grow faster than the clinic, though, but not at the rate that it had been over the last couple of years. I mean, if you go back to last year and the year before, you were seeing retail growth somewhere in the 25% to 30% range. That growth rate in retail is in the low double digits as we look at this quarter, somewhere in the 10% or so range in retail. So clearly, a step down and part of that is what we're seeing in terms of script denial. Again, we're not assuming those necessarily come back. It's really the actions that we're taking to drive commercial execution as well as the easier comps that we face as we get into the back half of the year that's playing here. Now we won't get ahead in terms of what 2027 looks like. Clearly, the 200 to 250 basis points that we're talking about is a combination of coming into Q1 and then what the Q4 comp is versus the prior year. And so that will clearly be a headwind you go into 2027, all else being equal. However, we are executing to what the market is showing, both in the top line to drive performance there as well as the bottom line, which is why you see a guidance that shows leverage through the P&L down to the bottom line. Operator: We'll take our next question from Brandon Vazquez with William Blair. Brandon Vazquez: Maybe I can start with a high-level question. Kristin, you were talking a lot about kind of the headwinds you guys are seeing from a macro perspective, right? Let's just ignore some of the competitive and company-specific issues, but we're talking about price being a lever here. We're talking about markets not expanding. We're talking about more competition, even generic competition. These are all very uncharacteristic, I think, of what this market historically used to be. It used to be resilient. It used to take price. It used to not really have a lot of generics and it used to be powered by brand. And so the question being, it feels like what you're describing is entering a new world in this market, one that maybe is less durable and less attractive for Zoetis. Is that true? What is -- I mean, clearly, you guys are assuming something improves. What is it that's giving you hope that this kind of reverses back into the old animal health market we used to know? Kristin Peck: Sure. I mean for starters, I'd say, look, the demand for veterinary care remains structurally very strong given the importance of the human-animal bond and the large number of untreated populations. That's clear. If you look and as I mentioned in my prepared remarks, we're continuing to see strength in urgent care, and we're continuing to see strength in diagnostics and areas like that, which says to me the pet owners still wants to get care. I think they're in a period where they're a little bit struggling with the price increases over the last few years. We ultimately believe that will stabilize. I think that clinics are really trying to address that and trying to get the pet owners back in. As us and others have mentioned, we saw about 3% growth of revenue in the clinic, but that was all driven continued by price, with clinic visits down about 3%. Ultimately, that will stabilize. We firmly believe that. We're also really optimistic as we've seen of the sequential trends we've seen in areas like OA Pain and in paras. We think that the strength of our portfolio, the differentiation, the innovation we provide will endure. I don't think we're moving to a world of generics. We are not expecting generics in any of our key categories. We're not expecting it in derm. We're not expecting it in pain or in paras in the near term. So for the next many years, we will not see that. There's certainly, as we saw in Cerenia and Convenia, which are blockbuster products, but not ones we talk about, we did see some increased competition from generics there. The competition we see today is not generic in our major therapeutic areas. It's products that have launched that we've been -- in categories we've been in for a while. We ultimately believe some of these price-driven promotions will stabilize over time. And we also believe the differentiation, I think we have with our portfolio, the strength of our brand and importantly, the strength of the service we provide veterinarians will endure. So no, I don't see it the way you do. I think innovation matters. I think the service we provide matters. And I think ultimately, given the strength of the human-animal bond and the structural demand for veterinary care that this will stabilize over time. Operator: We'll take our next question from Chris Schott with JPMorgan. Christopher Schott: Just 2 for me. Can you just comment on your latest assumption around pricing this year given some of the comments you're making around the promotional activity you're seeing from your competitors. Is that something you're reacting to on price on your side? Or is that more -- we should be thinking about share loss as we think about those near-term dynamics? And the second question, sorry if I missed this in the remarks, but when I think about U.S. companion growth and what's reflected in guidance, can you just talk a little bit about how we should be thinking about growth for this year? I know you're assuming a recovery from the down 12% this quarter. But is this a business we should assume is down this year within livestock and some of the international dynamics driving growth? Or do you think this is a business that can kind of get back to flat or growing as we go through the year? Kristin Peck: Sure. I'll start on the price one and then Wetteny can take the guide. As we've always said, we are not planning to compete through price as our main strategy. Our focus, as always, will remain on our differentiated portfolio, the breadth of it, the service we provide and execution. We are a premium innovative brand, and that is not going to change. We did take price, as you saw in the quarter. I think we can continue and Wetteny can talk where it is relative to historic price challenges. Obviously, in areas where we've seen generic competition, we have taken selective price actions there. We'll obviously continue to leverage promotions. But our priority remains innovation, differentiation and service to our customers. And we continue to believe we can take price, albeit maybe at lower levels than right now given the challenges we're facing right now. But I'll let Wetteny put that into perspective and also talk about an impact on the guide. Wetteny Joseph: Chris, as you know, we don't typically provide guidance down to the species, but I would share a couple of things that I think might be helpful for you. Just keep in mind, we are running a global diversification business with companion animal both in the U.S. and outside the U.S. And in the quarter, our International segment, companion animal grew 7%. I would add also, given the dynamics that we described and the headwinds that those created in the quarter, including how distributors order pattern and retail had a more pronounced effect on the first quarter. We do see stabilization across companion animal as we go with the key franchises. And what we're seeing now is we expect our key franchises to grow in the low to mid-single digits, which is a step down from what we said when we initially issued guidance. And so, when you take all that into consideration, yes, we do expect livestock to continue to drive momentum here. I put livestock in the mid- to high single-digit growth range for the year, but the balance would be growth across companion animal without getting into specifics on guidance. Operator: We'll move next to Jon Block with Stifel. Jonathan Block: Maybe just the first one, Wetteny, I believe you said the channel is now normalized. I do think that U.S. Pet Health number surprised everyone. So is there a way of calling out the impact in 1Q '26 from the channel, what that was specific to U.S. Pet Health. And then, Kristin, just to back up at a higher level, I'm just trying to dig in on the competitive response and maybe I was a little confused. So is anything changing from Zoetis among your approach to, call it, the atopic derm or the Trio franchises regarding price? If it's not sort of unilateral, are there any targeted promotions or no? Because it seemed like you acknowledge the consumer wants a cheaper alternative or is looking for that. And then I was a bit confused if Zoetis is pivoting there and trying to deliver on that or just really focus on the bundling and the services. Wetteny Joseph: Yes. Perhaps, Jon, I'll take the normalization point around inventory. Clearly, it is, I would say, difficult to separate out the macro and the soft end market demand versus what the patterns are and what distributors and retailers did in terms of adjustments. Again, they ordered less from us than they were shipping out to customers given the softer end market demand and promotions that did not execute to the level that we expected coming into the year, right? And so that certainly had a pronounced impact, but I would put that back to the macro and the competitive dynamics that we're seeing and the impact it has in terms of end market demand. Kristin Peck: So Jon, I'll build off the second part of your question. My point is we're not overall lowering our list price on products. We continue to run promos as we always have seasonal promos for paras. We can do cross-portfolio promos in the United States, leveraging both derm and other categories. But I think what I was really focusing on is addressing the affordability issue, which is actually a pet owner. That's not what we sell into the vet. It's the pet owner at point of sale. We've always had loyalty programs, as you know, but those loyalty programs are you scan your receipt and then you get a cashback card to spend later. Given the affordability issue that is more urgent, we're looking at more point-of-sale loyalty programs, more ability to deal at point of sale with the challenges the pet owner may be having economically. So our real focus there is not as much on the vet but on the pet owner issue. We have these programs today. But as I said, we're looking to alter them to make sure we can do that more at point of sale versus just over time where they can use it in 1 month or 2 months, et cetera. We're really trying to make sure we address that with our programs both in the United States and across the globe. Operator: We'll move next to Steve Dechert with KeyBanc. Steven Dechert: I guess just first, on price sensitivity, is that still limited to the Gen Z and Millennial age groups? Or is that spread more into other age groups now? And then just on Lenivia, as you move closer to U.S. launch next year, how tied is the performance of that drug? Do you expect it to be tied to Librela? Just -- or should we view those as 2 completely separate products? Kristin Peck: Sure. So I'll start with your question with regards to Lenivia. With regards to Lenivia, we did get approval in the -- in certain markets in the EU and in Canada, and we just launched that product. So we look forward to having more information on how that launch is going as we go into the next quarter. As we talked about, this is not long-acting Librela. We think the efforts, the multipronged strategy we've been executing across OA Pain, really focusing on awareness that treating OA Pain as a serious condition is important, making sure we spend time with vets and specialists understanding OA Pain will continue to be important. Also making sure we share the science and the positive experience that many of our customers have and investing in that Phase IV research. We think building this understanding in OA Pain will be important as we launch long-acting. Certainly, that's what we're experiencing right now in certain markets in the EU and in Canada. And we think that long-acting provides, again, to the issue that pet owners are having on just convenience as well as affordability, a great new option. So we're excited for that. I think you asked the second question with regards to demographics on Gen Z and Millennials. I mean, I think affordability is more based on the economic situation that a pet owner is in. It's not just based on age, to be honest. So we're really targeting the affordability issue, not at generations, but just at pet owners overall who are facing those challenges. Operator: And we'll move next to Navann Ty with BNP Paribas. Navann Ty Dietschi: A follow-up on the pricing strategy. So you discussed the pricing against that price sensitivity. And I'm also curious of your pricing strategy to defend against the competitive pressure in derms, which is further intensifying and also your pricing strategy for your upcoming innovation in renal oncology and cardiology, that price sensitivity environment is maintained? And then I have a second question on derm specifically because we are seeing that the competitor has raised prices on the JAK. So would you say that the competition is now not only on price, but also some efficacy in frontline use as well? Wetteny Joseph: Sure, Navann. I'll take your question on pricing strategy. And look, the way we approach pricing is always down to each market, each product and what is the value that we bring and what is the competitive landscape at the time. And as Kristin referenced earlier, we now have an aggregate price expectation. This is not by product, of course, for the company that's in the 1% to 2% range when we started the year at 2% to 3%, and we've been higher than that over the last couple of years. So clearly, we have adjusted our expectations, not getting down to specific pricing actions and strategy on a specific product for competitive reasons here on this call. But certainly, we are taking those into consideration. And as we launch new products, which we do extensive market research on prior to launch, we, of course, will be looking at what is the value that we're bringing clinically and what is the willingness to pay for that, which we continue to see sustaining across the industry. So that will be what we'll put into place. In terms of competitors' prices, look, as you've said, historically, we've seen competitors come in with list prices that are somewhat slightly below where ours are, but with aggressive promotions initiated to get the products embedded into clinics and so forth. So we've certainly seen that. The price sensitivity in the market is translating to that lasting longer, I would say, than we've seen historically. But they are, in many instances, and including you referenced one, are raising prices well above where we're raising. It still remains that there's a gap between where our pricing is versus where theirs is, but it is closing in effect. And so we'll continue to monitor those, but also executing on our actions against those, including the breadth and strength of our portfolio. Operator: We'll move next to Daniel Clark with Leerink Partners. Daniel Christopher Clark: Also I wanted to ask about the 2026 updated guide. How are you thinking about the macro and sort of competitive intensity as we head through the year? Should we expect similar levels of both as we saw in 1Q through the rest of the year? I guess, how are you thinking about that? And then secondarily, I just wanted to quickly ask, how did -- how much did key derm grow ex U.S. if we strip out any of the alignment impact? Wetteny Joseph: Sure. In terms of our expectations on the macro, we are expecting that to persist. And so we're not expecting a rebound nor a significant deterioration in terms of what the macro looks like. We've seen the impact that it has both in terms -- in terms of end market demand and then therefore, directly impacts to where distributors and retailers are replenishing their inventory levels, which created a headwind for us. And so that's the answer on that one. In terms of -- keep derm and what the implications might be related to FIA, we have not broken those down to individual products -- to individual markets to be able to get to that level. We believe we've been very helpful in our comments, which is what the overall impact is and what we would have expected to be the guidance impact, which is around 200 to 250 basis points lift in our guidance. And clearly, given the performance we've seen and the persistence that we're expecting in the macro and competitive dynamics, that has not come to fruition in the guidance that we're giving today. Operator: We'll move next to Andrea Alfonso with UBS. Andrea Zayco Narvaez Alfonso: I just have a quick question around margins. So on gross margins, you did 71.8% this quarter, and it looks like your updated guidance calls for 71.5% for the full year. I know you don't provide quarterly guidance, but just sort of looking at the trajectory for the remainder of the year, it does look like you're lapping a pretty tough comp in 2Q. I guess more broadly, how do you think about that trajectory and sort of frame the levers that you have at your disposal to deliver there given that pressure on some of your higher gross margin products? And then, if I could squeeze in a separate housekeeping question. If you could just confirm that the 2% to 5% revenue growth outlook constant currency does not include any benefit from Neogen potentially closing in the second half? Wetteny Joseph: Sure. I'll take both of those. If you look at our gross margins in the quarter, they were down about 10 basis points. But if you strip out the impact of FX, they're actually up about 140 basis points. So we have been very pleased with the execution across our manufacturing enterprise. And certainly, you see that reflected in our performance in the quarter. We will continue to drive actions across the company, including in this segment that will contribute to the performance for the year and the leverage that we have on the P&L. Do keep in mind that the mix in terms of products is an element to consider here. As you've seen in our guidance, and as I shared just a moment ago, we expect livestock to continue to drive momentum here and grow faster than companion animal. There is some mix impact to that with respect to what you see in gross margins. And in terms of FX, you've seen the U.S. dollar impact in terms of revenue, but that has some converse effects when you get down to cost of sales. So that is a consideration here as well in terms of where you're comparing in terms of comps as we go through the rest of the year. But very pleased with the performance in terms of what we're doing on cost of sales despite the mix that we see in some geographical implications as well. With respect to the guidance range on 2% to 5%. We do take a number of factors into consideration, including when competitive launches are going to come in, how aggressive they'll be. And so that range, which we widened by a point here for the uncertainty associated with those is in here. And so within the guidance range, you could have the impact of potential the closing of the deal with Neogen within that range. Operator: We'll move next to Steve Scala with TD Cowen. Christopher LoBianco: This is Chris on for Steve Scala. First, what is Zoetis' level of interest and confidence in FTC approval of large-scale transformational business development? And second, do you see any opportunity to significantly pull forward launch time lines for products for new markets like renal and oncology, e.g., by changing trial designs or filing based on surrogate endpoints? Kristin Peck: So sure, let me start with your BD question. As always, our focus is on incremental BD. We don't see transformational BD as a major strategy for the company. As we've spoken about before, from a capital allocation perspective, first and foremost, we are investing in our business. We obviously will continue to look at business development. And I think Neogen is a great example where we think there's incremental technologies or additional portfolios such as what we've done in Australia for sheep, et cetera. So we'll continue to look for that. I wouldn't -- you should not expect large transformational BD. I think the deal like Neogen is what our sweet spot has historically been and will continue to be. Was there a second part of your question? Christopher LoBianco: Just on launch time lines and potential to pull forward filings for some of the newer market products like renal and oncology. Kristin Peck: Sure. We're always focused as we think about our pipeline of how we can pull forward. I would say anything that you see in the next few years is already in clinical trials. We're certainly partnering with the FDA, myself and the other industry leaders to look at ways to speed innovation and to find new innovation pathways with the FDA. We're certainly leveraging AI, as I've spoken about before, within our portfolio, both in discovery, research, development and importantly, preparing our dossiers for submission. We think all that can certainly speed it up. And we're also focused on once we get approval, how we can speed time from approval to in market across our portfolio. Operator: Thank you. At this time, we've reached our allotted time for questions. I'll now turn the call back over to Kristin for any additional or closing remarks. Kristin Peck: As always, everyone, thank you for your questions and your continued interest in Zoetis. I do want to recognize before we close our colleagues around the world whose commitment to their customers and their resilience has really helped us navigate this environment. We will continue to keep you updated on our progress and our priorities. We are focused on executing with discipline to position the business to return to growth, and we remain committed to delivering long-term value for our shareholders. Thanks so much for joining us today. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.