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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.
Operator: Thank you for joining our LANXESS's Q1 Results 2026 Conference Call. [Operator Instructions] First, we will hand over to Eva Husmann, Head of Investor Relations, for opening remarks. Eva Frerker: Yes. Thank you, and welcome to our Q1 call. Before we start, please take note of our safe harbor statement. And as always, we have our CEO, Matthias Zachert here; as well as Oliver Stratmann, our CFO. Matthias will start with a quick presentation before we answer your questions. Matthias, please go ahead. Matthias Zachert: Thank you, Eva, and welcome all of you to our conference call on first quarter '26. I start the presentation straight on Page 4, where we comment on the key financial indicators. So as far as Q1 is concerned, we guided in March already that it will be a soft start to the year. We've seen lower volumes, especially in January, February, a positive tone on March where business started to improve from the volume side, and was clearly a difference compared to the previous months and also towards the fourth quarter. Please take note of the fact that, in the comparison base last year, we have a relatively strong dollar and still the contribution from our urethanes business units, both has changed. In first quarter this year, urethanes is no longer consolidated and the dollar has visibly weakened. That we put a lot of attention on cash flow and financial balance sheet strength is something that we have reinforced over the last few quarters, and you can clearly see that also in Q1. Cash flow is still negative, but that's the normal seasonality. We start off with negative cash normally in first and second quarter and then improve afterwards. And as far as net working capital is concerned, we clearly manage that pretty tightly. So compared to previous year, it's lower. I do expect a gradual increase now in Q2, also driven by the fact that the precursors in energy will move up. But nevertheless, we will continue running it tightly. Net debt beginning of the year normally sees an increase of EUR 100 million to EUR 200 million. And in light of the good cash management, you see that we, by and large, keep net debt at comparable level. Now, let's turn the attention to Middle East. Middle East escalation or conflict has swiftly changed market conditions. We clearly see that value chains are under pressure. We clearly see that customers have concern on delivery security. And therefore, let me give you the following color on what we would like to shed light on. And here, I clearly would like to stress that the conflict that we have seen, the war that we have seen in the Ukraine area, in the Ukraine situation massively impacted Europe and definitely led to a disadvantage as far as the European chemical industry is concerned. The Iran conflict is different. Whilst true Ukraine, Russian gas and oil was reduced in Europe. The Iranian gas and oil is primarily being a supply source to Asia. So while we were suffering in Europe through the Ukraine war implications, in the current Middle East conflict, we clearly stress it will put pressure on the worldwide economy, definitely as far as energy price inflation is concerned, but the region that suffers most is going to be Asia according to our analysis. Now logistical chains are definitely under pressure as well, but here, I can give you comfort. We have agreed contracts in place on ocean freight, on other logistical chains that are needed. And for that very reason, we had until now, no negative impact through supply that was being shipped to us or to our customers. Of course, we took note of the fact that prices were on the rise as far as chemical precursors and energy costs are concerned. So we saw the reaction on the oil markets, gas markets beginning of March. And that was the reason why we swiftly analyzed our market situation. And I think we were one of the first chemical companies that went out with a series of price increases in order to at least mitigate the current input cost inflation. On working capital, I alluded to the fact that we expect an increase in Q2, but it will be tightly managed. You can bet on this. Now let's turn the attention to Page 6. What we try to do here is simply to give you some facts on hand so that you can better understand how we look into our segments into current trading vis-a-vis Q1 and the last 2 quarters of 2025. When we look at the current conflict in Middle East, our assumption is that the Consumer Protection segment will, by and large, not be really affected. There will be some precursors on the rise, but the Consumer Protection segment is not so much impacted through oil derivatives. Here, basically, consumer demand is essential. And we do have some precursors coming here from China, so that is a watch out. But all in all, I don't expect that this will change the current trading vis-a-vis the past 2 to 3 quarters. On additives, we see a moderate upside potential. Of course, you need to take into consideration that flame retardants or bromine, for instance, is also coming and is shipped from Middle East. We don't depend on that primarily. We have sources in El Dorado, which is not affected at all. So here, we do see upside potential in trading, but the strongest momentum we clearly see in Advanced Intermediates. This segment and here notably the business unit, AII, was suffering through competition coming from China. And of course, we had a substantial amount of pressure on some of the value chains here. This should change. Here, customers are clearly looking for delivery security, 1. And second, we have seen over the last 4 to 6 weeks that even the chemical pricing on these products in China have been on the rise. And guess what, they are on the rise in our business as well. So this should give you some qualitative color on how you should look at the segments compared to the last 3 quarters. So let's see if you can then better model second quarter, and it's up to you how you look into '26 in total. What we would like to give you comfort for, or comfort on is our full year guidance. The world is in quite a turmoil for various reasons that are all known to you. We clearly see positive momentum for Q2. So we try to here give you a quantitative corridor of EUR 130 million, EUR 150 million, which would be a strong sequential improvement versus Q1, which we clearly see either driven through volume or through pricing, in some cases, driven by both in respective business units. But we don't change our yearly guidance in light of the turmoil that we see in the world. If Q2 momentum continues, of course, that could give further comfort to potentially go into the upper range of the guidance. But please take note of the fact that, escalation in the Middle East could accelerate again, and then we potentially look at demand crush and then we look into the lower end of the guidance. For that very reason, we give you a broad range where you slot in yourself is in your hands, but we want to give you comfort on the full year guidance and definite comfort that second quarter will come out sequentially clearly stronger than the first one. And here, we see that the business is moving accordingly. This is what we would like to give you as entry presentation on Q1, and we now open up the floor for your questions. Operator: [Operator Instructions] We have the first question from Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: A couple of questions, if I may. Just focusing on -- thank you for the guidance range that you've given for 2Q. That's very helpful. But how much visibility do you actually have into your order books? Do you have to make this solely on what you're seeing in April and make a best guess for the next few months? And any sense of how you think those volumes will continue through the quarter? Second question, if I may, just coming on to -- so one of the things that we've seen and it's in the context of Saltigo has been a significant spike in glyphosate and I assume glufosinate as well, which would suggest that maybe some of the generics from Asia are going to have less market presence for crop protection chemicals. I appreciate that Saltigo makes the API, but maybe this will see -- could we possibly see a rotation from customers away from generics given supply chain risk back towards more branded products, which probably have more LANXESS-orientated products embedded in them. So just kind of keen to get the crop protection picture, both from a disruption and actually, if you add any color around the seasonality, that would be helpful as well. Matthias Zachert: Tom, very valid questions, indeed. Let me take them one by one. As far as visibility is concerned, we have clearly April strong clarity as far as volumes and pricing is concerned. So sales are known to us. And we have a good order book for May. So a very reasonable visibility and of course, a softer but already a reasonable indication for the month of June. We see in April that the momentum from March continued. Of course, we know when our price increases will more and more contribute to quarterly support. Of course, we are still in the rollout of the announced price increases of March. So once you do a price increase, you afterwards go to your customers. In some cases, you have contractual agreements that you cannot change on a quarterly basis, but you then go for the spot markets and afterwards, you adjust for the quarterly contracts in the following quarter. So this is an ongoing process. But we know definitely that volume are at the same momentum that we've seen in March with a slight uptick for April and May. And then, of course, we know ourselves what price initiatives are ending up in the P&L and when this is going to occur. So as far as visibility is concerned, I think we have, for the next quarter, a reasonable good indication. Now your question on Saltigo is operationally very focused and smart. In the last 12 months, we have seen in the crop protection space and here I'm not alluding to glyphosate, but to Crop Protection specifically that the commodity products in Crop Protection were under severe generic pressure from India and China. And I think that was being mentioned by the big agro company themselves. They all alluded to pricing pressure, and that was definitely not on the innovative products, but on the commodity grades. Now with China facing substantial freight issues and cost explosion on trades and some areas also pressure in their supply chain, we definitely have to monitor the markets. We don't see an immediate reaction here in Europe, but that is likely to come in the weeks and months to go. And that could change, of course, the competitive landscape for the European crop protection companies, which we don't see at this point in time, but normally, we would see that 3 to 6 months later. So this is something high on our radar, and I'm very impressed that you have spotted that as well. Operator: The next question comes from Christian Bell from UBS. Christian Bell: So I just have a couple. My first one, I guess, picks up following the discussion in the previous question on April customer demand dynamics. Are you able to just please give a sense of how much of the volumes that came through in April were at the higher prices that were implemented in mid to late March. I'm just trying to understand, how much of those volumes that have come through are getting ahead of prices or whether they are -- what percentage is actually effective at the new pricing? And then my second question would be just to help us bridge to your EBITDA guidance -- at the midpoint, your second quarter guide is roughly 7% below last year, which implies you need to do about 20% growth in the second half to reach the midpoint of the full year guidance, which is quite an acceleration. So just what do you think underpins that acceleration? Is it largely price cost normalization? And then if possible, if you could sort of speak to any potential demand deterioration that you're thinking about that may offset some of that margin improvement? Matthias Zachert: Thank you, Christian, for these thoughtful questions. I would take them in the same sequence as you asked them. So as far as April is concerned, we basically see same to slightly modestly higher volume pattern compared to March. So this is positive because April is -- if you look into holiday seasonality, that was main impact here as far as Europe is concerned, in April Easter holiday season, la, la, la. So as far as underlying trading volume-wise is concerned, slight uptick versus March. On pricing, as I said before, we made the announcements in March, in course of March. And then afterwards, you -- wherever you have spot contracts, or spot pricing, you can then adjust customer by customer. This takes normally something like 4 to 6 weeks, depending on the customer base, depending on, of course, the sensitivity, elasticity they have, and then you change the pricing one by one. On the contract establish quarterly contract pricing, you basically can take that only with a certain delay, but that follows afterwards. So on pricing, generally, you should assume that this will ramp up first steps in April. Then, I would say, 2/3 will be reached in May and then the full effect you will see or should see in June. Of course, we have to monitor what implications that has on the volume side. But from the pure pricing side, there will be a gradual buildup at cost of Q2. And then, of course, if momentum remains healthy, the contract, the quarterly contract pricing would then be also a driver for Q3 going onwards. All this having this assumption that the underlying momentum on volumes will not change, and with all questions on geopolitical tensions. So that should hopefully answer your first question. Now on second quarter, I think my answer on the volume and pricing side will give you also some color on Q2. If you look into second half of this year, of course, our cost savings that we've initiated will gradually ramp up as well. And that should give you the indication that we are still not falling in euphoria for the second half. We are clearly very, very straightforward and not modest, but we take the current geopolitical tension very seriously. And therefore, we keep here our assumptions in a normal environment and not into a gradually improving environment. And with this, I think you have the best basis for modeling the full year implications for our company. Christian Bell: If I could just quickly follow up on that last point. Are you able to -- like given second half cost savings are important to the full year guidance, are you able to give us -- tell us what the net cost saving you are expecting in the second half will be from your cost saving programs, given that there should be a relatively, I guess, concrete level of foresight over there? Matthias Zachert: Yes. We've given you the yearly number, and I think this should suffice with the comments that I've made that this will gradually build up. And therefore, please take this as basis. Operator: The next question comes from Anil Shenoy from Barclays. Anil Shenoy: Just 2, please. The first one is a little difficult question on your unconditional put on Envalior in 2028. So you have mentioned that the put obligation sits at the Holdco level and not Advent. And I know you have a confidentiality agreement, and so you cannot give a lot of details. But just theoretically, what are the funding pathways that the Holdco will have in 2028? From what I understand, it's either refinancing from Advent or taking on external debt or dividends upstream from Envalior. Would that be the right way to think about it? And finally, on a sort of pessimistic note, if -- what happens if the Holdco declares bankruptcy? I mean, does -- in that case, does LANXESS end up becoming an unsecured creditor? In other words, basically, what I'm asking is, is there a risk to this unconditional put in 2028? Matthias Zachert: Yes. Let's take it step by step. First question is a question I cannot answer due to confidentiality reasons. And I stick to that 100%. Your second question, I've read your report. This basically shed at 100% concern on our company and completely hence one-sided. I was very much surprised about this. And therefore, let me simply come on a higher level. You said, it's a theoretical question. So I give you a theoretical answer. In insolvencies or bankruptcy, the party going insolvent loses everything. Everything is gone. It is normally by somebody who runs the insolvency afterwards, any possible areas where you can get proceeds is going to the lenders. So if there is a company holding shares, they lose everything, 100% loss. This is the consequence. Taking such a hit for any investor who might have a major investment is a complete disaster. Next to this, the company theoretically that goes into bankruptcy, loses its global reputation. That might be even a bigger damage. And therefore, that's my answer on your theoretical question with a theoretical answer, food for thought. Operator: The next question comes from Chetan Udeshi from JPMorgan. Chetan Udeshi: My first question was, you said you've already seen April sales. And I was just curious, you talked about volume versus March, but are you able to provide some clarity on when we think about year-on-year, how are we tracking in terms of volumes? Is it now up 5%, 6%, 7%? Any sort of color in terms of how you see the volume momentum building on a year-on-year basis, that would be helpful. The second question was LANXESS was one of the companies that was more active, I would say, over the last 18 months in pushing the European Union to do more of these antidumping investigations. Some of these investigation actually went into your favor last year with Adipic Acid, phosphorus additives and all those stuff. But I'm just curious, have you seen any benefit from these antidumping investigations in your numbers given that some of those were already decided and ruled into your favor in second half of last year? And the last question I have is, you mentioned about customers coming to LANXESS for security of supply. Is that because you actually -- based on your conversation with these customers, do you actually see that your Asian competitors are not able to supply right now? So in other words, some of your Chinese or Indian competitors, are they having supply issues? Or are customers coming to LANXESS just to make the supply chain more resilient rather than not necessarily driven by short-term supply shortages? Matthias Zachert: Thank you, Chetan. We will take them one by one, and Oliver will start on price and volume, and I take the other 2 questions. So Oliver? Oliver Stratmann: Many thanks, Chetan. Actually, I'm thinking about, what I could add because Matthias has already been pretty diligent here in outlining how volumes have picked up in March and what we have seen in April. And to be absolutely frank here, I wouldn't like to go into a monthly reporting now. I would just like to remind you that there is an awful lot of uncertainty out there. And I think the commentary that you've received so far is a positive one with regard to going into Q1 and going into Q2 and the volume development. And beyond that, we really need to see how things evolve, but the positive impetus is there. Back to Matthias. Matthias Zachert: So thanks, Oliver. Then on European dumping, I think, been very clear at the outset when we mentioned it that this is taking time. And we said that, this normally lasts 12 to 18 months. So this is the normal duration of an antidumping case or antidumping trial. You mentioned a typic asset. So that was one that was decided in, I think it was August last year, summertime. What you need to take into consideration is that the antidumping once it's declared is, of course, positive for any supplier operating in this market like us. But in the first antidumping cases, like on Adipic Acid, we have seen that China was loading up the value chains before the antidumping declaration was imposed. So China was loading this value chain by around about 6 to 9 months with capacity. And only once this capacity is absorbed, you truly see volume momentum rising and pricing rising. For Adipic Acid, this is now happening. So we have seen the declaration on antidumping last summer. The value chains and stocks were loaded immediately before the declaration became effective. I have to say, fortunately, the European Commission has realized this practice in many other similar cases and have now basically put the volume buildup under scrutiny as well. So this will be retroactive impacted by price adjustment or antidumping cases as well, which is a positive move. So this gives you the color. And I do expect that further antidumping cases will be decided in the course of this year. I know that many chemical companies have cases that are filed in the European Commission. We keep a close eye on this. And I do support that one and the other products could positively be impacted by us as well, which will help us going forward in areas where we see dumping being practiced. So that should address your second question. Now on the third question, there are basically 2 drivers. First, European customers want to protect their supply chain. They want to have security. They are concerned that similar disruptions could happen that they've seen in Corona times. So we've seen over the last 6 to 9 months that customers went to China because of pricing, pricing, pricing benefits. We had a very tough economic situation here in Europe. So pricing was essential. But now for many customers, supply security is higher in the priority and some of the customers that left for China in the last 9 months are coming back into our order book. We also see completely new customers, which is a positive sign. Second point is, I think also China and Chinese companies have realized that the pricing level of last year has also ruined the pricing level in China itself, which is not liked by the administration. And of course, long term, no company can generate losses. So we also see that the pricing level now in China is moving upwards, which is a clear difference to the last 12 months. And when the pricing level in China moves upwards, you can assume that then, of course, pricing in the European area is also being positively impacted by that. So you have 2 perspectives on this, and I think this answers your third question. Operator: The next question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Two questions, please. The first one is coming back to your comments that you made on pricing timings. I was just wondering kind of high level, do you generally see net pricing is likely to be a positive? Or kind of how do you expect the phasing to be there? Is it, for example, negative net pricing in Q2 and then positive in Q3 if all current conditions stay the same? And then second question is, could you maybe elaborate a bit on the current dynamics in bromine? Because I think there was a price spike and the China price has fallen back. And obviously, I appreciate that you don't necessarily have direct exposure to the China price, but what kind of underlying dynamics are going on there? And has the demand fallen off versus what it was? Matthias Zachert: Thank you, Christian. Let's take that also step by step. So on your first question on pricing, I would like to give you the indication on a sequential basis, so not vis-a-vis previous year, but versus Q1. What we should see in second quarter that prices versus Q1 are -- should be up. The tendency, if the momentum continues, like I explained, and you assume that there is no insanity happening in geopolitics anymore or no further escalation, and current trading continues, you should also see a sequential price increase in Q3 vis-a-vis Q2. But with all the nonsense that is happening on the geopolitical side, I take that, of course, with some -- with a pinch of cautiousness, and I hope you understand the rationale for this. Now on bromine, I would like to allude again or come back to the stated seasonality we see in China on the spot market. We always have a seasonal price increase in bromine prices notably in Q4 and Q1 because of the bromine extraction methodology, i.e., water vaporization. So therefore, when in the colder months, Q4, Q1, you normally see that bromine prices are on the rise, and they go down again Q2, Q3. If you now look at the last 6 months, that was exactly what happened. Bromine prices went up. They went up to a high level of EUR 60,000, EUR 70,000 and are now moving down to around about EUR 38,000, EUR 39,000, EUR 40,000. This is the normal seasonal pattern. But overall, the pricing level is clearly still in the healthy territory. EUR 40,000 is 100% up compared to 1 year ago or 2 years ago, when the prices were more depressed. So now the pricing level despite having fallen now in the last 4 weeks is still at a reasonably high level. I hope that clarifies the points on bromine, Tristan. Tristan Lamotte: And maybe just a follow-up on the pricing question. I understood your comments on the kind of price rises timing. How does that align to the cost increases, i.e., what kind of net impact should we think about modeling? Or is that just too many moving parts to comment on? Matthias Zachert: No, no. This is a smart one, Tristan. I think we've always stated that a lot of our input costs are basically set up in a way that like in Q1, when you have a rise in input costs, you adjust in the quarter afterwards. So you've seen the increase in precursors on raw materials, on oil derivatives on energy. You've basically seen that already in March, with no real implication on our P&L because we clearly stressed that in March, we rather had a positive momentum, profitability-wise, turnover-wise. And this was volume driven, but not because input costs have been falling. They have rather been on the rise, but not impacting the first quarter P&L. The implications of the higher input costs will be visible in second quarter. That's the reason why we've given you the financial guidance. So we basically -- in our guidance of EUR 130 million, EUR 150 million, we absorb the rising costs that we have now seen in March, which will roll into our P&L in the second quarter. So that's the reason why we tried to give you a good hard landing so that you understand that we are sequentially clearly managing the situation and manage the input cost increases. Operator: And the last question comes from Georgina Fraser from Goldman Sachs. Georgina Iwamoto: Given the situation, I was wondering how your relationship with your distributors might be evolving. Are you kind of selling through the same distribution channels as historically? Or are you seeing more direct to customer sales? Matthias Zachert: May I understand more of the backgrounds to this question, Georgina? Georgina Iwamoto: Well, I wanted to understand if every single chemical company is discussing the fact that security of supply is #1. And the question is, are customers seeing the manufacturers as the most likely source of secure supply? Or are distributors being seen as being able to source from lots of different places. Does that make sense? Matthias Zachert: Yes, that makes sense. So I mean, the distributor world in chemicals is very broad. In parts, you have niche distributors, then you have specialized distributors in certain chemical value chains, then you have the bigger distributors that have the broad reach. You have some that only pack and ship, others give service like finishing, like analytics, et cetera. So the world in chemical distribution is very, very broad. So giving a general answer that solves everything is, I think, not possible. But I would like to give you the following. In our interaction, we use distributors basically globally, wherever we see that the size of the order level is simply too small for us or the customer is too distant away for us. So we use distributors. But companies like ourselves, of course, are more and more reinforcing the direct contact to customers as well. So this is a trend on our side, and I cannot speak for the industry, but what we are doing, we use distributors. But also we would like to have a better market transparency, market dynamics, customer trends, et cetera, on our end. And therefore, we strengthen the relationship also to the next level of manufacturing. And therefore, of course, also a question if we do need a distributor or not. So that is the one thing I can say for our group. Then for customers, we do see customers that want to have the direct access to the manufacturer in order to have clarity. and also preferred treatment. When we are selling to a distributor, there are some that are very, very close to us, but some that we simply used to pack and ship. If a customer is ordering from a distributor, he does not get the same preferred treatment that direct customers often have. And therefore, on the customer side, we also see that for very important precursors and chemicals, they also tend to establish more direct relationships. But I say again, this is this is an answer that does not apply to this huge distribution network that you have in the chemical space. There are different kind of distributors with different business models. So the specific answer I have given will not be an answer for the general industry. I hope that clarifies the point. Any further questions? Operator: So there are no further questions, and I will now hand back to Matthias Zachert for closing remarks. Matthias Zachert: Well, thank you so much for orchestrating this conference call, and thank you to everybody who listened in. I hope this was giving you enough color on current markets and trading environment. We will be now heading on the road to speak to investors and looking forward to the exchange. And if you have follow-up questions, please don't hesitate to touch on my Investor Relations team, and they would be very happy to take any questions and provide answers. Thank you so much. Take care, and bye-bye.
Operator: Good day, everyone. Welcome to Optimum Communications Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Sarah Freedman, Vice President of Investor Relations. Please go ahead. Sarah Freedman: Thank you, and good morning. Welcome to the Optimum's First Quarter 2026 Earnings Call. I'm joined today by Optimum's Chairman and Chief Executive Officer, Dennis Mathew; and Chief Financial Officer, Marc Sirota. Dennis and Marc will walk you through the first quarter results and then be available for a question-and-answer session. Before we begin, I'd like to remind everyone that today's presentation contains forward-looking statements. Please take a moment to review the cautionary language regarding forward-looking statements included on Slide 2 of our presentation as actual results may differ materially from those expressed or implied. We will also reference certain non-GAAP financial measures today. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release, which is available on the Investor Relations section of our website. With that, I'll turn the call over to Dennis. Dennis Mathew: Thank you, Sarah, and good morning, everyone. As we entered 2026, we were clear that this needs to be a year of sharper execution, smarter competitive response and continued transformation. To accomplish this, we laid out 3 priorities: improve broadband trends, maintain financial discipline, and invest for long-term value creation in addition to evolving our capital structure. In the first quarter, we took deliberate steps to advance each of these areas, and our results reflect both the reality of an intense competitive environment and the impact of those strategic actions underway. Total revenue was $2.1 billion, and adjusted EBITDA was $789 million. Broadband subscriber net losses totaled 64,000 in the quarter or 56,000 excluding a subscriber adjustment taken in the quarter related to prior periods. Mobile delivered its strongest quarter in the past 6 years with 52,000 line net adds. And we saw progress on video churn, which improved by over 400 basis points year-over-year on an annualized basis, supported by the adoption of our tiered offerings and streaming solutions. Operationally, we are focused on improving the stability and quality of our subscriber base. Customers today are making more thoughtful choices about where they spend and were meeting that moment by continuing to adapt our go-to-market approach. We are remaining nimble in adjusting our offers to lead with value without compromising on quality. As I will cover in more detail shortly, we are simplifying our go-to-market model to compete more effectively on entry pricing. At the same time, we are focused on providing customers with more value, strengthening loyalty, expanding product penetration and mix, and increasing sell-through within the base. The clearest validation of this approach is the momentum we are seeing in convergence. Customers who take both broadband and mobile churn at a meaningfully lower rate and generate higher lifetime value compared to broadband-only customers. To better capture this impact, we are evolving how we measure performance through the introduction of convergence ARPU as a new metric this quarter, which reflects the value of these relationships. We believe this is the right lens through which to track our progress because it demonstrates the value that broadband plus mobile relationships create value that is increasingly not visible in stand-alone product metrics. On cost, we remain disciplined. We are continuing to optimize direct costs and operating expenses and make targeted investments in AI and automation, reducing truck rolls, improving first call resolution and enabling our teams to serve customers and manage our networks more efficiently and proactively. Together, these actions are what we expect to drive margin expansion and structurally lower our operating cost base over time. Lastly, as Marc will speak to in more detail shortly, addressing our balance sheet remains a top priority. As we move forward, we continue to evaluate opportunities to strengthen our capital structure, to better position the business for long-term value creation. I'll cover each of our priorities in a moment, but the common thread is this. We are taking the right steps to build a more resilient business and we remain focused on executing with the urgency that this environment demands. With that, let me turn to the 2026 priorities, which we introduced last quarter and provide more detail on the progress we are making. The theme across everything we are doing this year is applying simplification to drive acceleration. As we continuously evaluate both the business and competitive environment, we have taken a step back to identify where complexity is slowing us down across pricing, products and operations and we are consciously working to simplify the business so we can move faster, execute more consistently and compete more effectively. Starting with broadband. The broadband environment in the first quarter remained as competitive as any we have seen. Across our footprint, ILECs fixed wireless providers and fiber overbuilders all continue to lean aggressively into lower entry pricing, extended price locks and promotional incentives. In the West, in particular, the competitive profile has shifted considerably with the expansion of fixed wireless availability as well as fiber overbuilders further intensifying market dynamics in an already challenging landscape. This is the backdrop against which we are executing. That said, we remain focused on what we can control. Our response has been to simplify and establish a more consistent and competitive product and pricing structure across our footprint. While this may lead to near-term pressure on broadband ARPU from gross additions, it is a deliberate step to stabilize subscriber trends. In practice, our simplified approach is based on standardizing pricing and core offers national while driving incremental sales of value-added services like mobile, our new video products, Whole Home WiFi and Total Care to partially offset this pressure. Our next priority, maintaining financial discipline is embedded in how we run the business every day. We are focused on making consistent, deliberate decisions that protect and strengthen the economics of the business for the long term, even when that means absorbing near-term pressure. As Marc will highlight, we are focused on minimizing the rate of non-video revenue declines and are taking deliberate steps to improve video margins through driving higher attach of our new video packages, continuing our approach to analytic-based programming contract negotiations and growing video ARPU. In the first quarter, adjusted EBITDA declined by 1.3% while margins expanded year-over-year, reflecting revenue decline of 4% and a continued focus on cost management and operational efficiency. Within direct costs, we are benefiting from favorable programming cost trends and continued video ARPU growth, which is driving sustained video gross margin expansion of almost 350 basis points year-over-year and nearly 1,000 basis points in the last 3 years. Importantly, these efficiency gains have strengthened our cost structure without compromising the customer experience as reflected in our transactional Net Promoter Score, which has remained at a 2-year high. Finally, we ended the quarter with $1.3 billion of liquidity, providing us with the flexibility to continue executing on our key priorities and investing in the business in the near term. Building on that, the discipline we apply to how we operate also guides how we invest for long-term value creation. In short, we are prioritizing capital allocation in the areas with the strongest opportunity to drive sustained growth and returns. A big part of that, of course, is our award-winning network. We remain focused on building fiber, selling fiber and continuing to migrate customers organically within our base, having expanded our network by over 500,000 homes passed over the past 3 years. As we think about where to direct our resources, growing broadband is the top priority, and our operational decisions reflect that. While fiber migration remains an important part of our long-term road map, we are currently prioritizing new builds and new broadband customer trends over migrations of existing customers to fiber. Over time, we expect to reengage more proactively to transition customers to fiber. But in the current environment, we are focused on investing where we see the highest near-term returns and greatest impact on long-term value creation. Lightpath remains a meaningful growth engine, delivering over 8% year-over-year revenue growth and almost 10% adjusted EBITDA growth. We are also investing in the customer experience by improving self-install capabilities, improving the My Optimum digital platform and continuing to build tools that make it easier for our teammates to serve our customers and for our customers to do business with us. Taken together, our capital investments are targeted at the areas where the returns are clearest, and we continue to manage our overall capital intensity with the same discipline we apply across the rest of the business. Next, on Slide 5, I'll spend some time on our go-to-market and base strategies around driving improved trends. On the acquisition side, it starts with making it easier for customers to understand our value through simpler offers and more competitive entry pricing. On the sales side, we are providing clear pathways to upsell into higher speed tiers and value-added services and are beginning to leverage AI-driven performance management. While we are still in the early stages, this collective approach is driving channel improvements. Year-over-year gross add decline is moderating. Sales channel yield has improved meaningfully, and we're seeing relatively stable gross add ARPU, all reflecting a healthier acquisition model. Importantly, our lower, more competitive entry pricing serves as a strong acquisition generator, bringing in customers through lower speed tiers advertised, while the majority continue to choose 1 gig speed at sign-up. You can see that pull-through in our residential broadband base. The portion of customers taking 1 gig or higher has grown to approximately 47%, up from 37% a year ago and 21% in 2023. We are leveraging a lower entry price point to drive multiproduct upsell, increasing bundle adoption among new customers and supporting stronger lifetime value. At the same time, we are starting to take a more proactive approach to base management to improve churn. Over half of our residential broadband customers have been with us for more than 5 years and over 1/3 have been with us for more than 10 years. We are being deliberate about reinforcing customer loyalty and protecting our long tenured base. We recently launched the Optimum Thank You loyalty program which focuses on customer engagement and value adds, such as speed upgrades and price lock offerings. We are beginning to see encouraging early indicators from these efforts, including improved customer perception and retention in select markets. Together, we expect that strengthening our competitiveness combined with improved sales conversion, marketing execution and better base management provide the right road map to improve subscriber trends over time. Turning to Slide 6. Our broadband and mobile convergence momentum continues to build as customers increasingly look for simplicity, value and a single provider for their connectivity needs. Broadband remains the anchor product in the home, while mobile plays a critical role in enhancing that value. By bundling mobile with broadband, we're increasing customer stickiness, improving retention and driving higher lifetime value. We delivered strong mobile growth in the first quarter, reaching 674,000 mobile lines. This is supported by continued improvement in our go-to-market execution, including stronger sales quality, better experience, more competitive offers with everyday low pricing and discounts on broadband and a focus on multiline adoption, all of which are driving higher value customer additions. This is reinforced by our recently launched UnBIG Your Bill campaign which highlights meaningful annual savings compared to the major carriers. Mobile customer penetration in our broadband base reached almost 9% in the first quarter, while we have steadily grown convergence in our base we still see significant runway to continue to drive mobile attachment and deepen penetration among existing customers. More broadly, our entry offer plus attach model is central to our strategy and how we go to market. Every new broadband customer is an opportunity to deepen the relationship and attach mobile as well as video, Whole Home WiFi, Total Care or other value-added services. This approach allows us to balance more competitive entry pricing with stronger lifetime value. Moving to Slide 7. Video continues to play an important role in how we create value across customer relationships helping drive retention and add value within the bundle. We recognize that customer behavior has evolved and our approach reflects that. We're focused on giving customers more choice and flexibility while improving the overall economics of the business. We're seeing that shift play out in the adoption of our simplified video tiers, Entertainment, Extra and Everything TV, which we scaled last year. These packages are better aligned with how people consume content today and represented the majority of sell-in during the quarter with adoption within our residential video base increasing from 6% of the base in Q1 '25 and to 17% in the first quarter of '26. Importantly, these new tiers are demonstrating upwards of 20% churn improvement within video compared to legacy packages, reinforcing their role in improving retention and long-term customer value. We are also continuing to enhance how we merchandise these tiers, better showcasing the breadth of the included streaming apps and the inherent value customers received as part of their Optimum TV subscription. For example, our top-tier Everything TV includes access to over 50 apps representing significant streaming value compared to purchasing these services separately. We are also emphasizing the simplicity of a unified login and billing relationship through Optimum, helping to drive greater engagement and product attachment across our base. By more tightly integrating broadband and streaming directly into our go-to-market approach, we are creating a seamless and connected customer experience that is beginning to show early retention benefits. With that in mind, we are optimizing the video business for margins and long-term value, while it continues to play an important role in reducing broadband churn. So while video revenue continues to be under pressure, driven by a declining video subscriber base, we are, however, growing video unit economics on ARPU while stabilizing programming cost inflation per subscriber. As a result, we have seen an expansion of residential video gross margin by 1,000 basis points from approximately 14% in the first quarter of '23 to 24% in Q1 of '26. In summary, we've strengthened video subscriber trends by better aligning with evolving customer preferences, while simultaneously enhancing profitability. Stepping back, we are focused on executing against what we can control, simplifying the business, strengthening our competitiveness and taking a more proactive approach to improving retention and driving greater lifetime value. While the environment remains challenging and our near-term results reflect these headwinds, we're encouraged by early signs in go-to-market execution and continued convergence momentum. Combined with our ongoing focus on cost discipline and targeted investment, we believe these actions position us to improve trends and build a more durable, resilient business over time. With that, I'll turn it over to Marc to walk through our financial and operating results in greater detail. Marc Sirota: Thank you, Dennis. Starting on Slide 8, I'll review our subscriber trends. Before going into the details, our first quarter 2026 results include subscriber adjustments taken in the quarter, which relate to prior periods. The impact of these adjustments was not material for any one period presented, and as such, prior period metrics were not restated. The performance presented on this slide excludes this adjustment, which affects broadband and video trends. The underlying trends I'll walk through are consistent with the performance we see in the business. While Dennis covered some quarterly subscriber results, I want to highlight a few additional points. First, on broadband, net subscriber declines 56,000 in the quarter, excluding the adjustment, ending the quarter with 4.1 million broadband subscribers. Trends in the quarter reflect continued competitive intensity, which resulted in muted gross add activity as well as elevated churn year-over-year amid intensified promotional activity across the market. In response, we're taking targeted steps, including remaining agile in our go-to-market approach, staying competitive in our pricing and continuously evolving to meet the market dynamics. In mobile, we continue to build momentum in the first quarter. We added 52,000 net lines, our best quarterly performance in approximately 6 years, growing mobile lines by 33% year-over-year. Importantly, the quality of those additions is improving. We are seeing stronger multiline attach, higher device financing rates and more customers porting their phone numbers, all of which are indicators of deeper, more durable customer relationships. This is contributing to a meaningful churn improvement with annualized mobile churn improving by over 790 basis points in the quarter. Video subscriber net losses were 51,000, excluding the adjustment noted earlier. Underlying trends remained improved from the prior year losses. And as Dennis noted, these trends are consistent with our strategy to enhance customer choice and flexibility while also improving margin profile on video. Finally, on fiber, we added 13,000 customers in the quarter, bringing our total to 729,000 fiber customers, up over 20% year-over-year. As expected, net additions moderated year-over-year, reflecting a more intentional and disciplined approach to migrations. We continue to see fiber as a meaningful long-term value driver and remain focused on deploying capital where we can generate the strongest returns. Moving to Slide 9. I'll review our Q1 financials. Total revenue of almost $2.1 billion declined 4% year-over-year. As with recent quarters, the decline is concentrated in residential video, which declined approximately 10%. Excluding video, revenues declined 1.6% year-over-year. Business services revenue of $364 million grew slightly year-over-year, driven primarily by Lightpath revenue growth of 8%. News and advertising revenue grew approximately 17%, driven by advertising strength related to the Super Bowl and the Winter Olympics. Residential connectivity and all other, which includes residential broadband, mobile, telephony as well as all other revenue, declined year-over-year by 4.1%, reflecting broadband subscriber pressure, partially offset by mobile revenue growth. As we expect total subscriber volumes to continue to impact our top line performance, we anticipate total revenue to decline mid-single digits in the full year 2026. Turning to ARPU. Residential ARPU of $132.32 declined by 1.2% year-over-year or by $1.61 driven primarily by product mix shift away from video. Video's contribution to the year-over-year decline was $2.36, which was partially offset by non-video ARPU growth of $0.75, mainly tied to convergence. This quarter, we introduced convergence ARPU as a metric that captures our underlying focus of selling more products to our broadband customers. Specifically, it captures broadband and mobile service as well as our other high-margin broadband products, such as Whole Home WiFi. As Dennis mentioned, we are driving multiproduct sell-in, which is allowing us to maintain ARPU discipline while remaining competitive on our go-to-market broadband pricing. Given the increasing importance of convergence in our strategy, we believe this provides a more meaningful view of customer value by capturing the combined economics of the relationship and the impact of bundling on unit economics. Convergence ARPU grew 1.2% year-over-year to $79.32. Convergence ARPU is calculated by dividing the average monthly revenue from broadband and mobile services by the average number of residential broadband relationships and excludes mobile-only customers. We expect convergence ARPU to become an increasingly important metric on how we evaluate the business. That said, we will continue to balance rate and volume throughout the course of the year as we push to improve the underlying trends on broadband customer results, we do anticipate pressure on ARPU in the full year, particularly from broadband growth additions as we focus on prioritizing volume stabilization and multiproduct penetration. We believe this shift will ultimately drive stronger attach and improve the overall value of the customer relationship, supporting more durable revenue and ARPU growth over time. As a result, we would expect both broadband ARPU and convergence ARPU to decline on a year-over-year basis for the full year. We will remain nimble and adjust our rate strategy based on the individual market dynamics we see throughout our footprint and over the duration of 2026. Continuing on Slide 10. Gross margin reached 69.4%, expanding 60 basis points year-over-year. This reflects both the product mix shift towards higher-margin products such as broadband as well as disciplined execution to improve all product margins, particularly in video. Adjusted EBITDA of $789 million declined 1.3% year-over-year and adjusted EBITDA margin expanded 110 basis points to 38.2%. This reflects lower revenue, partially offset by lower programming and direct costs and lower operating expenses. Programming and direct costs declined by almost 6%, driven by programming costs down almost 13% year-over-year. Other operating expenses, excluding share-based compensation, was down 5% year-over-year in the first quarter. We maintained tight controls over operating expenses driven by meaningful operational efficiencies. Call volumes declined by 23%, contributing to 39% fewer truck rolls and a 16% reduction in service visits. In addition, salary costs were reduced by over 13% year-over-year. Building on this momentum, we are deploying additional tools and initiatives to further optimize operating expenses over time with a continued focus on enhancing the customer experience. Net loss in the quarter was approximately $2.9 billion, which includes a noncash impairment charge of $2.7 billion related to our indefinite live cable franchise rights. This was a noncash charge and does not affect our cash flow, liquidity or ongoing operations. A full reconciliation of adjusted EBITDA to net income is available in the earnings release posted on our website. Given the expected declines in revenues, partially offset by continued discipline on both direct costs and OpEx, we expect adjusted EBITDA to decline low to mid-single digits in the full year. Turning to Slide 11. I'll walk through our capital expenditures and network investment. As we execute on our strategic priorities and focus on strengthening the balance sheet, capital efficiency remains a key priority. Consistent with that approach, we anticipate total capital expenditures in 2026 in the range of $1.2 billion to $1.5 billion. This quarter, we've broken out our capital expenditures between maintenance, growth and Lightpath capital. As you recall, in prior years, we had a more significant fiber overbuild program across our existing footprint. And we have since pulled back on that activity as we have shifted our investment focus. As a result, growth capital, excluding fiber overbuild and maintenance capital, have remained relatively steady over the last few years, and we expect similar ranges in the full year 2026. On Lightpath, we continue to invest in growth, with expected annual capital expenditures in the range of $200 million to $300 million, primarily supporting construction tied to recently announced hyperscale contracts. Looking ahead, our broader capital envelope will remain focused on building fiber in new markets, simultaneously growing our fiber footprint and our total footprint, which will continue to be recaptured in growth CapEx. Alongside this, where we do not have fiber, we are investing in our HFC network, leveraging mid-split frequency allocations to increase bandwidth, and we are testing new technologies and architectures to improve the efficient use of capacity to enable higher speeds across certain markets. Our fiber network offers up to 8 gig symmetrical speeds, and we have a path to deploy multi-gig speeds across portions of our HFC network. We began launching these capabilities in select communities late last year and now offer download speeds of up to 2 gigabits per second in parts of our West Virginia HFC markets. Overall, we're taking a disciplined and return-focused approach with growth capital, making strategic investments to support long-term top line performance while retaining the flexibility to adjust the pace of investment as operating conditions evolve. For Q1, capital expenditures of $308 million represented approximately 15% capital intensity. We ended the first quarter with approximately 10 million total passings and 3.1 million fiber passings, with 190,000 total passings added over the last 12 months. We expect total passing expansion in the full year 2026 to be consistent with prior year trends of 150,000 to 175,000 passing additions. Finally, I want to turn to our capital structure, which remains a critical priority for us and one we are actively working to advance. We ended the quarter with approximately $1.3 billion in liquidity, giving us the financial flexibility to run operations, serve our customers and invest in our key priorities without disruption in the near term. Over the past several quarters, we have taken a series of deliberate steps to strengthen our balance sheet and extend financial flexibility. In January, we completed a $1.1 billion refinancing of our asset-backed loan facility through a transaction with JPMorgan. In addition, in March, Lightpath closed on an approximately $1.7 billion ABS transaction. The proceeds of the transactions were used primarily to repay existing Lightpath indebtedness and extend maturity. At the end of the first quarter, our weighted average cost of debt is 6.8%. Our weighted average life of debt is 3.1 years and 81% of our total debt stack is fixed and our leverage ratio is 7.5x the last 2 quarters annualized adjusted EBITDA. Looking ahead, we are aware of the upcoming maturities, and we are focused on addressing them proactively and with urgency. Our priority is putting the right long-term capital structure in place, one that supports our operating goals, reduces leverage and maximizes value for all stakeholders. While we were not in a position to share specific details today, this is an active process, and we will provide updates as there is news to share. We continue to believe that meaningful debt reduction and a balance sheet reset are essential to the next phase of our transformation, and we are committed to getting there. While we continue to operate in a highly competitive environment, we remain focused on the disciplined execution and the actions within our control to drive more consistent and sustainable performance, supported by the evolution of our go-to-market approach and our base management strategy. Underpinning this is a continued focus of ARPU discipline, cost management, capital efficiency and strengthening of the balance sheet alongside a more deliberate approach to capital allocation and investment to support long-term value creation. Taken together, these actions reflect the progress we've made over the past several years in gaining greater command of the business and positioning it for more durable performance over time. While there is more work ahead, we are confident in the strategy we have in place and the progress we are making, and we remain committed to consistent execution as we move through 2026. With that, we will open the line for questions. Operator: [Operator Instructions] Our first question is from Frank Louthan from Raymond James. Frank Louthan: Great. Can you give us a little more color on the overlap of fixed wireless in your territory and specifically the overlap fixed wireless in the West? That would be my first question. And then given the importance of the pay TV base, I understand ARPU is up a little bit, but talk to us about how you can continue to use that base to minimize churn. And is there any way to lean into that and maybe expand that base to reduce churn going forward? Dennis Mathew: Thanks, Frank. Fixed wireless and the competitive intensity remains high. As we think about the overlap, it's about 85% overlap of our footprint in the East, almost 80% in the West. We have all the players across the board, T-Mobile and AT&T fixed air as well as Verizon. We compete very heavily with T-Mo in the East and AT&T in particular, and T-Mo in the West. That being said, we feel really good about our product portfolio. We see that customers are demanding quality and value and pricing transparency, and we're providing that. We've invested heavily over the last few years in terms of investing in the network and now winning awards for the quality and the speeds that our network is providing. And our new go-to-market strategy has helped us simplify our pricing and packaging to provide great value and to provide great transparency with the 5-year price locks that we're making available to customers. And so the intensity is high, but we are in the early innings with our new strategy. And we know that customers are demanding faster speeds. We're selling at the point of sale, gig plus multi-gig speeds at 50% plus, which is great, and we see that usage is higher than ever. And so we're going to continue to drive that. And we're excited about our video strategy. We've taken a lot of time to reimagine video. We've improved profitability. We've also had a focus on customer -- the evolving customer needs. And we've developed these new e-tiers that are resonating with our base and at the point of sale, the new tiers are delivering 20% churn benefit relative to the legacy tiers. And we're making available streaming products and the streaming products are resonating with our customers, and we're excited about how we're able to meet the customer needs as well as drive profitability. As we mentioned, we are driving higher gross margins across the video portfolio, and we're delivering churn benefit and value to our customers, and so we're going to continue to lean into that across both the East and the West. Operator: Our next question is from Vikash Harlalka from New Street Research. Vikash Harlalka: Two, if I could. Dennis, I just wanted to clarify one of your key priorities. You mentioned that you're targeting an improvement in broadband subscriber trends this year? Are you targeting an improvement in broadband subscriber loss as compared to last year? And if that's the case, how do you get there given 1Q was worse than last year? And then on EBITDA, it seems like EBITDA decline is going to be similar to last year or maybe slightly worse, is the reset in broadband pricing impacting EBITDA growth this year? And where are you on the cost reduction of 4% to 6% that you outlined last year for us? Dennis Mathew: Yes. The good news is that 3.5 years in, we have more command of the business than ever. As I mentioned in the last quarter, our objective was to land our EBITDA objectives and really drive efficiency in the business so that we could reinvest and get back to broadband growth. And we're excited about the strategy that we've launched. It's very early innings, very early. We have some key success metrics that we're focused on in terms of driving call volume, driving shoppers on the site, driving conversion in our sales channels, which is at the highest levels ever, particularly in inbound sales and retail, being able to manage our base more effectively. And so our objective is absolutely to get back to broadband growth. And we are thoughtfully investing so that we can get there. And so the EBITDA decline and where we are is absolutely something that we're in command of because we invested in ARPU to be able to drive different results. And we know our customers are demanding more quality, more value, more pricing transparency, and part of that was providing value with mobile, providing value with Total Care, with Whole Home WiFi, with the new video products. And so we are executing that play. And I'm really proud of the team in terms of how we're executing. As I mentioned last quarter, we had to take a step back on mobile. And we really had to evolve that playbook, and we see the results now. The highest quarter in mobile in the last 6 years. And so we're going to continue to be disciplined in terms of driving our go-to-market strategy, but doing that in a financially disciplined fashion. But I'll throw it over to Marc, if you want -- Marc, if you want to share a little bit more on the EBITDA and cost reduction plan. Marc Sirota: Sure. We are pleased on how we're managing gross margin. You see that accelerating in the quarter, up 60 bps year-over-year, and we continue to drive down costs from both direct costs and our OpEx cost down 5% year-over-year. So I think our guidance suggests that we continue to believe that we'll see continued discipline around both of those. And as you know, video is a main contributor of what's weighing down, some of our video top line revenue pressure, but we're being deliberate there and offsetting most of that decline and improving gross margins in the video space. And so pleased how the teams are operating and we expect to continue to drive efficiency into the business. We're launching and continue to launch AI technologies. We're seeing meaningful reductions in call volumes, truck rolls, service visits rates. We're managing our workforce more efficiently. Cost down 13% year-over-year. So pleased on how we're managing the bottom line. And again, we'll continue to update you as we go throughout the year. Operator: Our next question is from Kutgun Maral from Evercore. Kutgun Maral: Two, if I could. Maybe first on mobile, results there continue to be quite strong. You're already at almost, I think, 9% penetration of the broadband base. This might be a hard question to answer since we don't get a lot of visibility into mobile profitability. But I'd be curious at what level of penetration or scale do you think you need to be at for the mobile strategy to have a more meaningful uplift to consolidated EBITDA? And then is there any color you could provide on free cash flow for the full year? Dennis Mathew: Sure. I'll start, and then I'll let Marc jump in. But just in terms of our strategy for mobile, we're very pleased with the progress. As I had mentioned, we needed to take a step back to ensure that we were delivering the highest quality sales and highest quality customers. And so we're laser-focused on driving porting phone numbers, device financing, unlimited plans, and we see that in the results. We see a meaningful improvement in our churn. In the mobile churn, we also see a meaningful impact more broadly in terms of impact on broadband churn, a 20% churn benefit when folks take both broadband and mobile. And so we're still in the early innings. We're almost at 9% penetration, but we're not taking the foot off the accelerator. We have all of our channels now participating, and we're doing it in a way that's really high-quality and we're excited for the growth potential and the churn benefit and the value that we can provide to our customers. And as Marc mentioned, we're really focused on converged ARPU because that is a key indicator of how we're managing the business, selling in broadband, selling in mobile, selling in these value-added services to provide the most value to our customers. Marc, do you want to talk a little bit about the profitability piece? Marc Sirota: Sure. I mean we're pleased on trajectory. As we grow scale, we do continue to see that our margins are improving within the product line of mobile specifically. And so as we gain scale we expect that trend to continue. Specifically on your free cash flow question, we did see slight improvement year-over-year in the quarter. Again, weighing down free cash flow is really tied to the interest costs that we're bearing, but we're not going to provide specific guidance on full year free cash flow. There's a lot of factors at play. And so we'll certainly update you as we go throughout the year. Operator: Our next question is from Sam McHugh from BNP. Samuel McHugh: Sorry about that. Just two questions, if I can. One on the EBITDA decline this year. Does that include the benefit of the sale of i24? And then if we strip out political advertising, is it fair to think about underlying EBITDA declining maybe high single digits? And then secondly, on the ARPU side, is kind of the Q1 decline of 1.7%, a pretty good run rate to think about for the rest of the year? Any extra color there would be helpful. Dennis Mathew: Sure, I'll throw it to Marc. Marc Sirota: Sure. The EBITDA guidance, again, reflects mainly the revenue pressure that we see from volume losses, again, tied mainly to the video subscribers. Again, our focus continues to be on driving gross margins on video. And certainly, as Dennis mentioned, we're taking deliberate steps around stabilizing broadband. So that may, in the near term, continue to weigh on ARPUs. Again, our focus there is deliberate. We're driving multiproduct sell-in including mobile convergence and other value-added services to mitigate some of that pressure. But certainly, the volume pressures will continue to weigh on revenue. And then certainly, as we talked about EBITDA, will benefit from disposing of the i24 asset. Last year, our guidance contemplates that as well. The advertising business, we expect we had some strength in the quarter tied to the Super Bowl and the Olympics. We expect political in the back half of the year to kick in as well with the midterms, and so that's how we're thinking about it. Dennis Mathew: Yes. But ultimately, as we had mentioned, coming off of the last call, we're investing to stabilize broadband, and that's a deliberate strategy and plan we have made a thoughtful decision that we're going to get back to broadband stabilization, and we've learned a ton over the last year. As we see the competitive landscape continue to evolve, we made a thoughtful decision to invest in our pricing and our packaging. And at the same time, ensure that we have the discipline of being able to upsell mobile, upsell value-added services, drive in our new e-tiers so that ultimately, we can moderate that investment as we see, as we learn, as we look at the data, as we see stabilization. And so we're going to remain flexible and nimble. The good news is that we have more command of our OpEx than ever. We have clear line of sight as to where we can continue to drive efficiency, and we're going to do that, leveraging AI, driving down contact rate, driving down truck rolls. Our dispatch rate is at an all-time low. We're investing in self-install. That's another opportunity to improve the customer experience while driving efficiency. Customers want simplicity. They want transparency. They want value, and we can provide that and we'll manage that in a financially disciplined fashion. Samuel McHugh: Can I just follow up on i24, is there an assumption that deal closes in the first quarter? Apologies if it's already closed. Marc Sirota: Yes. That deal has actually closed. Operator: Our next question is from Kannan Venkateshwar from Barclays. Kannan Venkateshwar: Maybe just on the balance sheet side. Could you give us a sense for the cash that you have, the $1.3 billion that you mentioned, I mean, how long can that last to run operations? I mean when do you need to refinance? And then the debt maturity coming up. I mean, I know you can't talk a lot about it. But conceptually, when you think about the way you're thinking about alternatives to refinance your maturities, should we broadly think about more asset-based options rather than other alternatives? Any sense that you can give us will be helpful. Marc Sirota: Yes, I can take that, Dennis. Yes, we ended the quarter with about $1.3 billion of liquidity. That does give us the financial flexibility to run our operations, serve our customers, invest in key priorities without disruption in the near term. As it relates to debt, certainly, as we've communicated, it's one of the company's key strategic priorities is really ensuring that we have the right capital structure to support our long-term objectives. As we've mentioned, we believe a meaningful debt reduction is required and a reset of the balance sheet are essential to this continued transformation, being given us the ability to compete effectively, invest thoughtfully to maximize really value for all stakeholders. Beyond that, Kannan, we're not going to today in a position to share more specifics, but we'll certainly update the market when we have something to share. Operator: Our next question is from Craig Moffett from MoffettNathanson. Craig Moffett: We all focus a lot on the broadband ARPU trend of percentages and that sort of thing. But I wonder if you could just comment on what your long-term expectation is for broadband price levels. You've got prices now in the market in the sub-$50 range that are promotional, not clear where they're going to end up in kind of long-term pricing. What do you think is kind of the North Star that you think about for where prices are likely to settle out in your markets? Dennis Mathew: Yes. We have launched this new strategy to ensure that we are hyper competitive across our footprint, both in the East and the West. As you've seen, we are competing at the highest level, but then also making sure that we're disciplined about driving mobile, driving value-added services and really driving converged ARPU. We're in the early innings in terms of being able to drive attach of these products. I think we have a lot of upside opportunity when we look at converged ARPU and how we can even more effectively in the days to come, attach mobile at the point of sale, attach mobile into our base, be able to drive these new value-added services like Total Care, like Whole Home WiFi and also leverage our video products even more effectively as we move forward. And now that we have streaming also available, just making it very simple for our customers to be able to have one relationship for their connectivity in the home, outside the home and also for their entertainment purposes with robust video solutions. And so we'll find the right balance in terms of being able to manage converged ARPU as a whole and making sure that we're maximizing customer lifetime value. That's what this is all about. We need to be able to show up differently than we have in the past. There's been this focus on, of course, broadband ARPU, but ultimately, our customers are looking for value. They're looking for value and transparency and clarity on their pricing, and it's our job to earn the trust of our customers, which we've been doing over the last 3.5 years, rebuilding quality, rebuilding the customer experience and now making sure they have transparency into their pricing and packaging and providing them not just broadband, but other incredible products to be able to drive our converged ARPU goals and objectives. Operator: Our next question is from Steven Cahall from Wells Fargo. Steven Cahall: Maybe first, just a follow-up on Craig's question. Is there a way in dollar terms to think about where residential broadband ARPU needs to settle? I'm just thinking about where fixed wireless and fiber compete in the market today, especially some of those new ones probably closer to $70 to $75. So curious if that's right. And if broadband ARPU has that kind of trajectory over the next few years. And then also, we're increasingly hearing about some of the plans of satellite and how satellite will compete in the market. It seems like a less likely competitor in your East footprint. But I'm wondering if in the West, where I think you've seen more impact from fixed wireless. If you think satellite will be an incremental competitor or sort of just another layer in an already competitive market so less of an impact? Dennis Mathew: Yes, I'll talk a little bit about satellite and let Marc talk to ARPU. But on the satellite front, I have no doubt that satellite will be a fierce competitor in the future. But as of right now, we're not seeing that satellite meaningfully across our footprint in the East or the West. Our primary focus right now and as we look at win share and loss share and flow of share, we see much more prominently competitors like the fiber overbuilders, the telcos and fixed wireless, but I have no doubt over time we may see satellite. But at the end of the day, our ability to compete with the incredible network and product portfolio is going to be what ultimately sets us apart. Marc Sirota: And Steven, just back on ARPU, again, I would just continue to reiterate what Dennis talked about around convergence ARPU being what we believe is the key metric to measure success. And I pivot away from just looking at individual product of broadband, it eliminates the noise between the allocations of revenue between those products as we sell bundled services in. It is -- speaks to just directly how we're actually selling the product on the ground with our customers, with our agents. So we're pleased with the growth that we saw in the quarter, up nearly $1 year-over-year, up 1.2%. We won't give a specific target as far as dollars. But again, we're going to be nimble on how we manage convergence ARPU. We're making deliberate investments, as we talked about to drive a better performance on broadband subscribers. But beyond that, we think convergence ARPU is the right metric to really anchor our business. That's how we're anchoring it and how we feel others should anchor. Operator: Our final question is from Michael Rollins from Citi. Michael Rollins: So two, if I could, please. So first, you have a lot of markets and a number of them, particularly in the East have experienced fiber competition for a longer period of time than most. And so within that context, are you seeing micro market level turnaround where you're achieving stabilization or improvement in broadband that can inform you on the formula and the timing to get the broader portfolio to that opportunity? And then the second question is what are you learning -- and this kind of relates, I think, to some of the past questions. But maybe to ask it this way, what are you learning about the long-term earnings power or EBITDA power for the Optimum portfolio when you evaluate all the things that you talked about today, the investments in customer pricing, it could also be OpEx and CapEx? And what you think you need to do to stabilize the broadband base and defend a reasonable share across your markets? Dennis Mathew: Yes. Let me take the first portion of that, and then I'll throw it over to Marc, but that's exactly right. It's taken us some time, but we've had to build the infrastructure to be able to look at performance at the market level. We -- when I started, we formed 6 regions where we can have local level management and ensure that we have a local presence. And the good news is that we are seeing improvements. As we think about certain markets, particularly in the East, we're seeing that we are moving the needle exactly the way we want to move the needle when we think about call volumes, when we think about shoppers, when we think about yield in our sales channels. And so this is the level of data that we have now and the level that we're managing at to help inform the broader strategy. At the same time, as I think about year-over-year, the competitive intensity in the West has ratcheted up. And so we need to continue to look at what it's going to take to win there and how we evolve. The good news is that in certain markets. Again, we're seeing that the new pricing, the new packaging, the product portfolio is really starting to resonate. We do need to make sure that we're optimizing our media spend across the footprint, which is also very different when you think about the East versus certain markets in the West to make sure that we're on the ground telling that story most effectively so that we can see a differentiated outcome market by market. And that's the level that we're managing the business today. We're seeing some of those wins, and we're working to extrapolate that across the footprint so that we can do that at scale in a meaningful fashion. Marc Sirota: And Mike, we won't provide specific long-term guidance as far as EBITDA is concerned. But certainly, we're trying to control what we can control. We're making deliberate steps to improve our broadband trends. We're controlling our direct costs and accelerating gross margin. We're controlling OpEx. We believe that there's continued runway to be more efficient, leverage AI to drive efficiency. So again, we'll control what we can control, and we won't provide longer-term guidance as it relates to EBITDA at this point. Operator: Thank you. This concludes our Q&A session. I will now turn the call back to management for closing remarks. Sarah Freedman: Thank you all for joining. Please reach out to Investor Relations or Media Relations with any additional questions. Operator: This call has concluded. Thank you for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fluence Energy, Inc. Q2 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Shelton, Vice President of Investor Relations. Please go ahead. Unknown Executive: Good morning, and welcome to Fluence Energy's Second Quarter Earnings Call. Joining me on this morning's call are Julian Nabrita, our President and Chief Executive Officer; and Ahmed Pasha, our Chief Financial Officer. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, along with supporting statements, schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Investor Relations section of our website at fluenceenergy.com. During the course of this call, Fluence's management may make certain forward-looking statements regarding various matters related to our business, including, but not limited to, statements related to our future financial and operational performance, future market growth and related opportunities, anticipated growth and business strategy, liquidity and access to capital, expectations related to pipeline, order intake and contracted backlog future results of operations, the impact of the -- on e Big Beautiful Bill Act, projected costs, beliefs, assumptions, prospects, plans and objectives of management and the timing of any of the foregoing. Such statements are based upon current expectations and certain assumptions and are, therefore, subject to certain risks, uncertainties and other important factors, which could cause actual results to differ materially. Please refer to our SEC filings for more information regarding these risks, uncertainties and important factors. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. Also, please note that the company undertakes no duty to update or revise forward-looking statements for new information. This call will also reference non-GAAP measures that we view as important in assessing the performance of our business, including adjusted EBITDA, adjusted gross profit and adjusted gross profit margin. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is available in our earnings materials on the Investor Relations website. Following our prepared remarks, we will conduct a question-and-answer session with our team. Thank you very much. I'll now turn the call over to Julian. Julian Jose Marquez: Thank you, Chris, and welcome to everyone joining us today. Turning to Slide 4. Since our February call, we made meaningful progress on order intake, our U.S. domestic supply chains and our product road map as we position Fluence to capture expanding global demand for energy storage. Our business model keeps us close to customers so we can anticipate their needs early and respond quickly with the right products, applications and commercial structures. This morning, I'll highlight our momentum across the business, and then Ahmed will review our financial results for the quarter and our current fiscal '26 outlook. Here are the key highlights for the quarter. First, order activity is accelerating versus fiscal '25. As of today, we signed approximately $2 billion of orders this year, which is double the amount signed through the same period last year. Our record backlog was $5.6 billion at the end of the second quarter, and we expect it to grow further based on execution so far this year. Second, second quarter adjusted gross margin was 11.1% which is within our full year expectation of 11% to 13%, a meaningful improvement versus Q1 and more reflective of the disciplined execution we delivered historically. Third, based on our first half performance and visibility into the remainder of the year, we are reaffirming our fiscal '26 guidance for revenue, ARR and adjusted EBITDA. And fourth, we ended the quarter on March 31 with approximately $900 million of total liquidity, reinforcing our strong financial position. Please turn to Slide 5 for more details on order intake. Our expanded commercial effort is translating to stronger conversion into signed orders. During the quarter, higher lithium prices temporarily slowed some customer decisions, but momentum reaccelerated as prices stabilized. For third quarter to date, we have signed over $600 million of additional orders. For the first 7 months of this fiscal... Year order intake totals approximately $2 billion, and we expect the total for all of fiscal '26 to significantly exceed the level from fiscal '25. Most of the orders this year have come from our core customer segment, developers and utility. It is important to note that 50% of our orders this year come from new customers, a signal of the early results from our expanding commercial app. Please turn to Slide 6, as I detail our progress with new customer segment. Since our February call, we executed master supply agreements with 2 major hyperscalers. The selection process for both of these MSAs was subject to multiple rounds of review, and in each case, Fluence was chosen after meeting criteria specific for each customer. In 1 case, the customers process began with 26 different best vendors, -- and Fluence was the first to complete all qualifications to sign a global MSA. In the other case, the customer had requirements which made it hard for many competitors to comply with. In both cases, we believe Fluence understanding of customer requirements, rapid response time and the peretiated products were key in driving this engagement. These MSAs established Fluence as a qualified supplier, positioning us to build on expected near-term data center projects for both hyperscalers with additional progress with 1 of these customers over the past few months, we expect to find the initial order from 1 of the data center projects within the third quarter. In addition, since our prior call, we have successfully developed a proprietary solution to handle the extreme power usage fluctuations experienced in data centers. Fluence excels at this based on our deep experience with advanced controls and track record managing fast response systems. Based on our discussion, we believe these capabilities will be an important differentiator for data center customers concerned with quality of power. Finally, we're seeing increase in interest in Smartstack for applications requiring longer duration energy storage. Smartstack density provides a competitive advantage for these applications because of its smaller footprint. Please turn to Slide 7, as I discuss our growing pipeline. A key piece of our commercial strategy have been the growth of our pipeline, which has increased by 35% in so far this fiscal year. We are seeing opportunities in the U.S. market beginning to outpace our other market with projects concentrated in California and Arizona, as well as the MISO market in the mid 1. Most of the growth is from our core customer base, as I mentioned earlier, but also in part by new customer segments, including data centers and other large energy users increasingly adopt historic solutions. Since our last call, our data center pipeline has increased by over 30%, including projects from both major hyperscalers, I just discussed. We expect data center projects to make an increasing contribution to order intake during the fourth quarter of this year, building on the initial order we expect in the next few weeks. Fluence business model is intended to keep us close to customer, which we believe puts us in a previous position to stop evolving needs early and to respond quickly. That insight informs our product design, the applications we support and the technical operational and commercial terms our customers require back by a sales organization with deep long-standing relationships. In short, we have positioned Fluence to be on the leading edge of best. We view the components with use as commodities, which we integrate into finished products to meet customer needs. Combined with our long-standing technical expertise, and hands-on experience and our deep understand of different markets around the world, we believe Fluence is uniquely positioned to deliver and help our customers maximize the benefit of invested in battery projects. We have evolved our product to accommodate a growing number of customer demand, including market-leading density, digital solutions, optimizing operations and profitability, reduce total cost of owners, large-scale fire testing and industry-leading reliability. Fluence was also the first to offer a complete U.S. domestic supply chain and important advantage for our U.S. customers. We offer a one-stop solution primarily project development through delivery and installation and continuing over the full operating life of each project. We combine in-house EPC expertise with a dedicated service organization that optimizes performance and extend asset life resulting in industry-leading operational net. Please turn to Slide 9 for an update on Smartstack. Product innovation remains another key differentiator for Fluence. Smartstack set the industry standard for energy density, enabling customers to feed more than 500-megawatt hours of storage per acre with additional improvement plan. With a science Smartstack to lower total cost of owners through modular architecture, easier maintenance accidents and more than 98% reliability delivering more electricity and more value to our customers. And a flexible design supports a broad range of cell types across multiple manufacturers, including pouch cells, commonly used in electric vehicles. Importantly, smart packaging and modular architecture addresses the density challenges. Typically associated with pouch form in stationary stores. I'm pleased to report that our first Smartstack has reached substantial completion and commence commercial operations. Our growing Smartstack backlog reflects this market's strong interest in our product. Please turn to Slide 10 for an update on our domestic supply strategy. As I just mentioned, we recognize the importance of a U.S. domestic supply chain early. Today, we have U.S. production for all major components, including battery cells from our supplier in Smyrna, Tennessee, which has been operating since '25. Building on our existing U.S. supply, as we announced in February, we signed an agreement with another source of domestically produced battery health beginning in fiscal '27. We believe this incremental capacity strengthened our supply position and supports delivery against our growing order book. We're also evaluating additional supply options to help support Fluence growth beyond '27. Our current position gives us flexibility as additional proposed U.S. supply comes online. Based on our experience, converted EV battery production to best cells can take a year or more. When exploring additional proposed supply lines, we plan to evaluate each facility stand line to first production, is run speed. It's technical characteristics and how its location could strengthen and optimize our core in U.S. domestic supply network. Let me also update you on PFE compliance for our cell supply in Smyrna, Tennessee. ASC closed a deal to sell a majority interest of its facility to fixed energy, a subsidiary of Lombard Capital. Ownership changed on March 31, 26 and the facility continues to produce sales that qualify for tax credits under the 1 Big Beautiful Bill act. We moved quickly to establish a relationship with a new owner and have signed a new supply agreement covering the next few years. We are confident in their plan to sustain the strong production level we see this year. Looking ahead, we believe we are well positioned to benefit from growing diversity in U.S. sales supply and the impact additional capacity may have on battery price internationally, we competed in markets that have seen meaningful declines in average sales prices for several years. And those lower prices expanded demand by enabling new applications. It's reasonable to expect similar dynamics in the U.S. Importantly, we have executed successfully through the inflationary pricing cycles before. With an approximate 50% decline in ASPs over the past 2 years we more than doubled adjusted gross margin. Although we expect ASPs to continue to decline for the balance of fiscal '26. We are forecasting approximately 50% revenue growth with adjusted gross margins in the range of 11% to 13%, reflecting the strength of our execution and operating mode. To conclude, we are seeing accelerating demand improving execution and expanding opportunity across both our core and emerging customer segments with a record backlog, a strengthening U.S. domestic supply position. and a differentiated product platform, we are committed to delivering for customers and creating long-term value for shareholders. With that, I'll turn the call over to Ahmed to discuss our financial results. Ahmed Pasha: Good morning, everyone. Since our previous earnings call, we have continued to capitalize on strong demand trends in our industry while maintaining our disciplined focus on delivering on our fiscal year 2026 commitments. We also maintained a strong liquidity that provides us flexibility to execute on our growth petitions. More specifically, starting with Slide 12. We generated Q2 2026 revenue of $465 million, up 8% year-over-year. Approximately $80 million of revenue was pushed into Q3 due to 2 issues. Specifically, roughly half was attributable to a customs issue in Vietnam, with the remainder due to shortage of loading equipment in Spain, both issues have self been resolved. The delayed shipments have been received, and we are current on the quarter's deliveries with no further delays. Also to confirm, we do not have any material exposures to the Middle East conflict as none of our shipments utilize the Strait of Hormuz. Our adjusted gross profit for the quarter was $51 million, representing an adjusted gross margin of 11.1%, this result is within our full year expectations of 11% to 13% and reflects a meaningful improvement from the first quarter level as well as comparable quarter for fiscal 2025. The primary driver of the improvement was consistent execution and operational discipline across our portfolio. Adjusted EBITDA for the second quarter was negative $9 million an improvement of $21 million compared to the second quarter of last year. The improvement reflects higher gross margin, lower operating costs and $6 million gain from unwinding and FX derivative. This offset a $6 million loss on the same FX derivatives recorded in the first quarter of 2026, with no net year-to-date impact. Turning to Slide 13 for an update on our adjusted gross margin progression and how disciplined execution translates to returns for our stakeholders. As you can see, our rolling 12 months adjusted gross margin is 12.4%, marking 2 full years of consistent double-digit returns. We believe this progression underscores the durability of our margin profile. -- even in the dynamic pricing environment. Importantly, it reflects the product, commercial and supply chain actions we have taken across the portfolio. These actions position us for continued margin improvement beyond this year. Turning to Slide 14 for an update on our liquidity position. We ended the second quarter with total liquidity of approximately $900 million, which includes approximately $430 million in total cash. During the quarter, we invested $220 million in inventory to support deliveries that underpin our second half fiscal 2026 revenue. In addition, we will invest approximately $100 million in inventory during Q3 to support second half deliveries. Liquidity is expected to return to $900 million levels by the fiscal year-end, driven by execution on our backlog and new orders. Bottom line, our lability position fully supports delivery of our fiscal 2026 commitments. Turning to Slide 15 for our fiscal year 2026 guidance. We are reaffirming our guidance ranges for revenue, ARR and adjusted EBITDA reflecting our strong visibility into the year and continued momentum we see across our business. More specifically, we expect revenue in the range of $3.2 billion to $3.6 billion, with a midpoint of $3.4 billion. We expect approximately 70% in the second half, consistent with the rating of revenue last year. We expect roughly 30% of second half revenue in Q3 and the remainder in Q4, again, consistent with last year. With all equipment ordered and production tracking as planned, we are confident in delivering on our customer commitments and our full year revenue goals. We expect annual recurring revenue, or ARR, to reach approximately $180 million by the end of fiscal 2026, up from $148 million in fiscal 2025. And we continue to expect adjusted EBITDA in the range of $40 million to $60 million for the full year. In summary, we are submitted to achieving core revenue and profitability outlook for fiscal 2026. We remain rather focused on ensuring disciplined execution for our customers and delivering value to our shareholders. With that, I will now turn the call back to Julian for his closing remarks. Julian Jose Marquez: Thanks, Ahmed. Let me close with a few key takeaways. First, strong execution. Our second quarter performance, record 5.6 billion backlog and on track production levels support our content in our fiscal '26 guide. We ended the quarter with approximately $900 million of liquidity, which we believe provides always the flexibility to fund growth. Second, all the momentum accelerated. Order intake has doubled year-to-date, led by orders from both new and existing customers, an indication of strong demand in the U.S. and the positioning of our business. And third, expanding customer base. We are in an excellent position to capture a portion of the rapidly expanding data center demand with the signing of MSC with 2 major hyperscalers after meeting all of their commercial and technical requirements. We expect to execute the first purchase order with 1 of these customers within the third quarter. In conclusion, we are positioning our company to continue profitable growth and to deliver value to our customers and shareholders. With that, we are now prepared to take your questions. Operator: [Operator Instructions] Our first question comes from George Gianarikas from CG. George Gianarikas: My first 1 is on the competitive landscape. How are you viewing the recent trend of some cell manufacturers vertically integrating? And specifically, how are you looking at their push for market share and any impact on pricing? . Julian Jose Marquez: We have seen both CATL and BYD become common and integrate particularly we have not worked in the past would be way, but we have worked with the CAPL. It hasn't really changed the intensity of the market, if you talk the truth. The value the ability to meet customer needs at a reasonable price that hasn't changed effectively. So we continue -- we're growing our backlog. We're growing our winning projects the same as we are. And so we feel confident we haven't really made a big difference in the competitive American. So we attracted 50% of our new sales are new customers. So we are -- I don't see it as a challenge. It's not new, by the way. I mean, it has happened in the past. The change of CTL was they bought, but not a major change in the competitive landscape from our point of view. George Gianarikas: And maybe as a follow-up, first, congrats on the 2 hyperscaler MSAs. If you could -- you did this a little bit, but if you could pull back the curtain a bit on the mechanics of those wins? What did specifically what did the validation process look like? And what do you think was the primary differentiator for you that larger win theres? Julian Jose Marquez: Yes, two things. We went through a very strict commercial and operational and technical evaluation. In 1 of the cases, there were 26 players, I would say the majority would not make it -- so there's a limited number of people or companies that could meet this very stringent requirements. Our ability -- our deep knowledge, our deep experience managing fast response systems in Europe as special. And having the infrastructure and the technology capability to prove their case to them very, very quickly is a negative. We have the lab, we have the termination we do this every day. We know how the applications work. We understand how the critical work globally. And that made a big difference as we were the first one. So I think that we believe that will continue to be what will keep us ahead of the market because we are now -- some of our competitors are still trying to figure out how to meet the criteria. We're thinking how to exceed their what they need and trying to offer them more value and more capabilities, and that's what we bring to the table. Operator: Our next question comes from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: I got to hand it to you guys really kudos here, I'm seeing it through. In particular, look, I wanted to ask you, in particular here, as it pertains the hyperscale orders, what specific product are they following up with you guys with? I know there's been some ambiguity in the marketplace as to whether or not you have the right product and the product positioning for the hyperscalers to get this kind of confirmation with 2 as you guys have flagged, in particular, is quite notable. Can you speak to the specific deployment permutation that they're using you guys with. Is it a BTM FTM, -- is it a capacity support load shifting? And then also, how do they think about the domestic content or fiat compliance. Is that another nuance that we should consider? Just can you speak to the product and more broadly in these wins? And whether this is a leading indicator for further orders like this in coming quarters? Julian Jose Marquez: Yes. So in terms of what they're asking for different what I said in the last call, when we had, we're looking at a portfolio that was a little bit more mixed. Now that we concentrated in the hyperscalers, their main need is quality of power, helping them manage the fluctuation of the data centers and happen so quickly and effectively. So -- and that's what they need, and that's what we proved with our advanced controls and our products, we can prove very, very quickly to them that we can do it. I will say, if I can brought better than anyone else. And that's what is driving this. If you go beyond the hyperscalers into kind of the developers of the world, it seems to be that -- or seems to be what we have experienced more of speed to power and meeting great calls and and is a little bit more mixed, but when it's too hyperscale, it has been quality of power they may ask. In terms of domestic content, it wasn't a requirement from them or something that we're specifically looking at we clearly are selling it. And I think that as we have explained to them the competitive position of domestic content, the value it can create. And the tremendous branding opportunity of having a product that is built here by American for America here especially as this to hyperscalers most of the businesses in the U.S. I think they have -- they are seriously considering as -- but their objectives were meeting the quality of power, meeting their technical commercial objective, and that's where they concentrated on, and that's how we move it. In terms of these 2 MSAs, they have behind a significant pipeline, that we expect that within the next year, will convert into the orders. We won't necessarily win them all, but it will be a significant amount of demand that we see behind this that we will convert having these MSAs gives us puts us in a very, very good position to capture. This is the hard in order to compete. Now many people can do it. And I think this was a stop of approval that when we make an offer, they know that we will deliver what we are promising. Julien Dumoulin-Smith: Awesome guy. And quickly, Ahmed, can you speak to this slide has this interesting commentary that says you're going to invest additional inventory during the third quarter. but you're going to rebuild liquidity towards $900 million by fiscal year-end. When you say rebuilding liquidity, is that going to capitalize in some ways? Or is that just kind of cash flow? Ahmed Pasha: I would not. Julien, I would not read too much in between the lines there. I think it was more as we invest because we have roughly $2.5 billion of revenue in the second half. So we will be delivering that. We're building up the inventory. But as we deliver the inventory, we will be collecting -- so at the end of the day, our liquidity will be back at $900 million levels by the end of the year, consistent with what we told you when we gave our guidance for the year. So that was the intent there. Julien Dumoulin-Smith: Awesome. And just to clarify from earlier, how many other supplied MSAs with you guys? Julian Jose Marquez: I mean, very, very selective, Julien, they all fit in my hand, I think, and have fingers left. We don't know we have the significant information, but we understand they are very, very selective, very few people. I've been able to go to it, they might -- they're probably working on it, but let's see if they get it. Operator: Our next question comes from Brian Lee from Goldman Sachs. Brian Lee: Congrats on the strong backlog here in the hyperscaler updates. I had a couple of questions, I guess, on the hyperscaler MSAs. I'm not sure how much you can provide, but would love to maybe get some detail around quantification of the size of the deals, how many megawatts over what years -- and is it over multiple sites that are already identified? Maybe just if you could elaborate a bit more on kind of the scope of these 2 MSA deals and how meaningful they are in terms of quantitative impact? Julian Jose Marquez: SP1 Yes. So I'll tell you, the majority -- or the great majority of our pipeline is supported by deals that are behind these two MSAs, and these deals will -- and those -- that pipeline is several different data centers around that they have around the U.S. mostly. So that's what it is. In terms of financial -- and our current paper is 12 giga, so that'll give you a sense. We're not providing the financial numbers around it. As it's too early, and we are competing, as you know. So we are not providing those numbers today, but -- my expectation is that as we end the fourth quarter and bring hopefully, a good number of these projects, and I can offer numbers in included in everything and do not necessarily be providing commercial, I will provide you more financial metrics of this. Brian Lee: Okay. Fair enough. Yes, we'll look forward to that. And then maybe just zooming out a little bit because this is a new business for you, and obviously, very, very high growth potential. What's sort of the deployment schedule, I guess, can you help us kind of visualize as you go into some of these, whether they're RFPs or bake-offs -- what's the time line for submitting your design and your proposal to when 1 is finalized? And then when you get a PO to when you're going to deliver to sit kind of what are the the sequence of events and how long is that. Julian Jose Marquez: They are in a hurry, generally. Most of these projects, as I said, that -- I don't know if I mentioned about the pipeline we have, we believe will convert into orders during the year, evening a year, so quicker than generally, we're in a pipeline that comes into our things. And very, very tight schedules for delivery that we commit because we've been working on our speed for some time. So I cannot give you today a specific rule. This is the one. But generally, I will say a lot faster than the conversion rate we have for our order from pipeline to orders and a lot faster on the conversion rate for orders to revenue, than what we do in our normal utility developer to, especially with these 2 hyperscalers. The case of the developers, and it's a little bit different as those are more project tied they are looking for pyramids and stuff. So those will probably take a little . Brian Lee: Okay. Understood. Maybe last one, if I could squeeze in just on the gross margin bounce back. I know that's been a focus for you guys for a little while. So nice to see it back to the range, even on the lower volume here in 2Q, that was a pretty impressive gross margin rebound. What does that maybe entail for the back half of the year? Is there volume leverage and some of the efficiencies from this quarter that can spill over? And is there any potential upward bias to margins as you kind of move through the rest of the year? Ahmed Pasha: So in terms of the gross margin, you're right, an 11% gross margin we earned, which is higher than what we had in Q1. In year to go, we just reaffirmed our guidance where we said 11% to 13%. So we will be somewhere in the middle of that range a year to go. I think at least that is our goal is about 12%. So we will definitely be better than what we earned in Q2. Operator: Our next question comes from Dylan Nassano from Wolfe Research. Dylan Nassano: Just wanted to check on the broader data center pipeline. Any updated thinking there in terms of how much of that kind of fits your previous criteria of pipeline versus leads? And then I noticed there's this 6 gigawatt hour kind of target for what gets included -- just how did you come up with that number? Any thinking around there would be helpful. Julian Jose Marquez: I'll tell you that there a number for our pipeline it. Our pipelines went up like 30% from last quarter. we concentrated a lot on the hyperscalers. And so a good driver of that has been the hyperscalers who are roughly at 12 gig. And our leads are 3x generally the same as close to where essentially the same as we had last quarter, we come to some into pipeline and we were able to replenish as a rule. The 6 gig, I don't know what the you're referring to Dylan, sorry,. Dylan Nassano: It's on Slide 6 at the bottom, and just classified the system 6 gigawatts hours or more. Julian Jose Marquez: Let me check. But in any event, strong growth great opportunity here. And I think that by concentrating on hyperscale extra, we get the point on this. we are in a market segment that we expect will test faster and that we will convert into execution quick. Unknown Executive: Yes. Dylan, that's 6 gigawatt hours. That's -- it's not a pipeline, how we classify an LDS project. So anything over 6 gigawatt hour. Sorry. . Julian Jose Marquez: Yes, for long duration storage, yes, those are loan duration stores, so they need to be more than 6 hours, in order to be long duration as a definition of loan duration for 6 and more. Dylan Nassano: Yes, my mistake. And then just a follow up on the quarter. I mean, it looks like revenue was kind of lower than analyst expectations even kind of including this $80 million. So I just wanted to check, was there any other seasonality in the quarter beyond or other disruptions beyond the shipping stuff some guys noted. Ahmed Pasha: No, there was none. I think if you recall, when we gave our guidance in Q4, we did see about 1/3 of our revenue in the first half and the rest given fact that we don't give quarterly guidance, I think that was the only reason what is the difference. But overall, from an internal perspective, as I mentioned, the $80 million of this shipping delay was the only reason why we were lower on the revenue for Q2, but that we have the shipment we have already received. So we feel pretty good on year to go. . Julian Jose Marquez: And if I can add 1 point, our indication of where we see revenue divided among quarters more indicative, so you can model it and so, but we don't run the company on a quarterly basis to be very clearly. We'll run it on a yearly basis. That's why we intend to meet our yearly numbers. We try clearly to what we indicated to me about is not -- we do not provide quarterly guidance. I know it creates some confusion, but -- it's a way of try to help you model and at the same time, keep the flexibility to manage things effectively and efficient within the company. . Operator: Next question comes from Joseph Osha from Guggenheim Partners. Joseph Osha: I wanted to drill down a little bit on 2 product details. Julian, you said that hyperscalers and data center more broadly, tends to be more about product quality or power quality. So is the implication then that we're seeing shorter duration configurations, say, an hour or 2 as opposed to 4? That's my first question. And the second question, just to confirm, thinking about the inverters, are you generally being asked to deliver a response time of 10 milliseconds or less. Those are my 2 questions. Julian Jose Marquez: Yes. On the first one, they tend to be shorter duration, you're right. So they are -- I'll say, we don't provide anything smaller than 2 hours or 2 hours is what we and general that's where the market is trading, but they tend to be shorter than even though our main point to the data centers as we engage with them and the developer have test the great beauty of that our technology compared to other technologies that are trying to resolve is that we can stack business models on top. And we can do quality of power, help them with to some of the work of resolving some of the efficiencies of interconnection or backup. We can help them on solve them voltage. We can help them on many, many fronts. So -- that's -- I think that as we're looking at the assets, they are expanding also their view of what is on that was on that point. On the second one, generally, I will say that -- sorry, the second 1 can. We need to -- we're not providing the actual number, but it's very short, not the way over it. So we're not providing the actual number because it is proprietary to the solution and to the people we're working with, but it is very, very short, significantly shorter than 100 milliseconds, we tend to do for transmission systems and European Valifications. Joseph Osha: And just to follow up on that very quickly. That would probably assume create the need for inverters with wideband gap MOSFET you've got it off SP-5. Julian Jose Marquez: Yes. You need inverters. I can provide that. That capability is very much dependent on the inverter you use. We work with inverter companies that -- we have done this in Europe for many years, so we're not exactly who leave, how they do it and their strategy very well. So we have that. And our advanced controls work very well with these Abertis and have the processing time to ensure the whole system, response on that, not behind the inverter as healthy suppose. Operator: Our next question comes from Jon Windham from UBS. Jonathan Windham: Nice result. I was wondering if you could talk about the U.S. storage market continues to grow at a rapid pace. Where are you -- are you able to provide us sort of where you are on being able and sort of capacity in gigawatt hours to provide over the next 12 months? And then just sort of thoughts on the road map to keeping up with the market growth over the next 2 or 3 years. Julian Jose Marquez: Yes. Yes, we see the U.S. market growing expanding significantly. So that's right. What we have, we have, as you know, our domestic products, our flagship solution in the U.S. We have the ASE capacity, we enter with another supplier for additional capacity, and we are looking at additional capacity for the '28 going forward. So we have enough capacity to forward the pipeline we see and the conversion rate we affected we don't provide specifically the numbers, but we -- it's multigigacapacity, and we have seen no problems getting the -- and we are putting the whole infrastructure that delivers that multidealer the U.S. with our domestic content offer. We can also import equipment if we need to, but our preference is to do the domestic content solution. Jonathan Windham: Perfect. And maybe just a quick follow-up. There's been a lot of commentary on the gross margin. But historically, some of the issue has been that operating OpEx as a percentage of revenue has basically been offsetting the positive gross margin. So just your thoughts on internal initiatives to get the OpEx number down to drive bottom line profitability and free cash flow. Julian Jose Marquez: Yes. The operating costs are percentage of revenue is essentially a function of growth or growth of the top line. So if you follow it carefully, you'll see that our operated revenue goals it's very much vital. Our costs are very, very stable and how much of our cost represents that of our revenue depends on how much we can grow revenue. So we have seen -- and we have an operating leverage that we believe that we can grow this company that we can keep our costs down and half the rate of growth of our top line, which will be -- which adds tremendous value. And you'll see when you look at the numbers, it's very, very clear. It's an operating leverage formula. Unfortunately, as you know, last year, we didn't grow. So that's where the operating revenue -- the percentage of revenue of cost of revenue was a little higher than what we had parted. Ahmed Pasha: Our goal is that we basically create the operating leverage and we do have that as the revenue grows, our costs, we will maintain that cost discipline and cost will be reduced -- increasing less than half of the growth in our revenue as Julian just mentioned. So I think that's our key focus from my perspective. Operator: Our next question comes from Ameet Thakkar from BMO Capital Markets. Ameet Thakkar: It looked like ASPs, if we'll get revenue and kind of your revenue recognition megawatts for the quarter were up nicely quarter-over-quarter. And I was just wondering, was there a lot more EPC work this quarter? Or is this kind of maybe the level we should be thinking about for the balance of the year for modeling purposes? Julian Jose Marquez: This number, as you said, it moves up and down quarter after quarter based on the mix of the cells. So I wouldn't read too much on it. We are designed to meet our financial objectives independent of where the ASPs go up or down. And our planning assumptions that they will continue coming down. And we are deciding to make money and make it successful. And I'll say even more every time we have seen ASPs come down, what happens that demand is plans at a rate that is much bigger. -- the reduction in revenue at on the lower ASP. So we -- I wouldn't read too much on it. I know that something that you care about a lot, I mean, the analysts care a lot about, but -- it is not a big driver of our business financial results. . Ameet Thakkar: Great. And then I know you had mentioned earlier in answering 1 of the kind of questions before about kind of your long -- and I think you said that the vast majority of that is data center related. Is that right? Is it a little bit over half? Or is it substantially all of that 1 gigawatt pipeline is data center related. Julian Jose Marquez: Yes. Now we have a 12 gigawatt pipeline of data -- all of its data center related. What I said that a great majority was connected to the 2 MSAs that we just signed. So the 12 gigawatt hours are -- all of it is data center related, of which the great majority of more than 1 or been a good portion of it. I want to give a number come from the -- supports these 2 MSAs, which is high. Operator: Our next question comes from David Arcaro from Morgan Stanley. David Arcaro: I was wondering, are there other MSA opportunities that you're currently working on? Is that something that you would expect most hyperscalers to be pursuing on the storage front. Julian Jose Marquez: Yes. We're looking at it. These are the 2 that we have more urgent needs. And so -- but we're looking to work with all of them. So we believe the problems are similar and that we can meet their needs with our capacity. So we hope to work with all of them. David Arcaro: Yes, makes sense. Any -- are there any active now or any sense of timing as to when those opportunities might pop up? It seems like they're all very active on the data center side of things, and I imagine looking at storage. So is that also a near-term opportunity? . Julian Jose Marquez: I think that -- well, I cannot give you a real sense of time when it will happen as it would depend on where they are and what they do. I mean, -- the tool that we have signed are people are very clear what they need. They are in a hurry to win, and they seem to be ahead of the market if you ask -- so -- but we're working with everybody. We are contacting all of them, working with them, and the chassis to are ahead. David Arcaro: Got it. Okay. Great. And then the 50% proportion of new customers, I thought was notable. I was just wondering, could you give any characteristics of kind of who those customers are? What type of customers they are? Is it the traditional profile of developers and utilities that you would see or any specific locations? Curious if it's a new profile. Julian Jose Marquez: This is a result of the great work that Jeff Monde, who joined us as our VP of Growth has done since he arrived. It really had invested significant business development identify all these customers, which are -- I would say, we're not a typical we used to work before, for our deal developers or utilities, that we have not contacted in the past and now we have made significant progress. And this is a global effort that we're doing, not only in the U.S. but outside of the U.S. So -- but I would say that, as we said during the call, these are customers that are within our normal or core customer segments, utilities and developers growth. But great calls to our sales organization that has really invested into developing and bringing these new customers and into the mix. . Operator: Our next question comes from Ben Kallo from Baird. Ben Kallo: Could you just talk a little bit because of the specific product they're looking for in the size. If you could talk about just pricing and margin, how we should think about that all these better deals? And then also my second question just outside the U.S. where you see pockets of demand and then just remind us how margin compares internationally versus the U.S. Julian Jose Marquez: In terms of data center, I will say, as we said, duration shorter term. And I'll say the margin is in line with our guidance of 10% to 15%. That's what we'll say. So generally, that's what it is. And both of their needs are quality of power, which we do this for grades globally, we're doing for them here, and I think it worked well and versus -- so in terms of margins, margins changed market for market depends on the competitive environment. As we go in our 10% to 15% range, but there are markets that are a little bit more -- they go through more competition than us. I will say that markets like the U.S. and the U.S. is probably a little bit on the high side, the U.K. on the lower side. And so it changes a little bit on changes market per market. But our 10 to 15 range works for all these markets. . Operator: Our question comes from Maheep Mandloi from Mizuho. Maheep Mandloi: A question on the MSAs with the hyperscalers. Do they have any special requirements on the battery types is like the general batteries you have for the best industry? Or is it high searate? Just curious if -- on the supply side, if you need to make any changes on the sales sourcing of that. Julian Jose Marquez: We make any battery grade. We make any battery grade. So the battery is a commodity whatever they need. I think the main driver is Nitsure, and that comes our packaging, our capabilities. So no real need on -- clearly, the LFP to nobody as to the M&C for many reasons, but a brand or supplier is not relevant for them. Whatever battery we put in our systems, we can make it to [ Gen 6 ]. Maheep Mandloi: And then separately, like we saw some battery deployers proposing high ceded batteries, which go inside the data center for 800 volt TCs? Is that something of interest are you exploring? Or your're looking at outside that did so. Julian Jose Marquez: Yes, yes. We're looking at our product road map includes not only these many other elements that we're looking at to continue improving our offering to data centers and to our solutions, 1 option is this high seed rates batteries that will go into that. And they don't have some limitations, but it's part of our program that we have for the will happen or not, we'll see, but it's not any time soon. . Operator: Our next question comes from Moses Sutton from BNP Paribas. Moses Sutton: Congrats on the great update. Have these data center opportunities convert into reality, how do we think about the ratio at for what, meaning the loss of load to the watts of storage. We've seen examples out there of gig data center might need 800 megawatts of batteries and examples that could be of that, right, depending on their need. So what do these projects start to look like right now as we're connecting sort of a data center TAM in gigawatt terms do the storage opportunity that you're converting against? Julian Jose Marquez: Too early to give you a rule of thumb that we can calculate clearly have some views, but it's too early to give you -- too premature to give you a rule of thumb. How do you think a gigawatt would take this amount of battery. So we we will -- over time, I think that we'll be able to develop that as it becomes more clear, but today, we -- that we cannot do. What we have, as I said, 12 giga pipeline ahead of us, which we want to convert into orders a good portion of it within the next 12 months. So -- that's what we're concentrated on. And as we learn more about this and we see how the industry develops, we'll provide you a rule of thumb that will give you a better sense of the whole market. Moses Sutton: Got it. Got it. That's helpful. We'll look forward to that. And then on the MSAs, what's the nature of the exclusivity from what you've won? Are there multiple vendors? I couldn't tell if you were answering that in some of the earlier questions. So for those hyperscalers, are you 1 of the few players? Are you exclusive? Is that a geographic exclusivity... Julian Jose Marquez: One of a few players, 1 of a very, very limited number of players. But this is a competitive process. These are not directed at least not yet. I may be able to take them there and so forth very limited players and a competitive process as we moveforward. Well, thank you, everybody, for participating today, and we'll be available. Chris will be available, I also will be available to answer any questions you may have. Bye-bye. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver First Quarter 2026 financial results conference call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Allison Pettit, Vice President, Investor Relations. Please go ahead. Allison Pettit: Thank you, operator, and good morning, everyone. Before we get started, I ask that you view our MD&A for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A and financial statements are available on our website at edrsilver.com. On today's call, we have Dan Dickson, Endeavour Silver's CEO; Elizabeth Senez, our CFO; and Luis Castro, Endeavor's COO. Following Dan's formal remarks, we will open the call for questions. And now over to Dan. Dan Dickson: Thank you, Allison, and welcome, everyone. Endeavour Silver delivered excellent results in the first quarter of 2026, setting new records in both production and revenue. The strong performance generated significant cash flow, underscoring the company's remarkable growth trajectory. With the [ Cubo ] plant expansion substantially complete and Terronera's operations performing near design expectations, we are entering an exciting phase for the company, and we look forward to building on this momentum as we progress throughout the year. In Q1, Endeavour produced nearly 2 million ounces of silver and 12,000 ounces of gold with base metals, totaling 3 million silver equivalent ounces. This represents a 78% increase compared to Q1 2025 with the additions of [ Copa ] and Terronera. We reported revenue of $210 million, an increase of 23% compared to prior year with cost of sales of $160 million, mine operating earnings of $94 million and mine operating cash flow of $115 million before taxes, a 400% increase from Q1 2025. Our all-in sustaining costs net of byproduct credits were $37 this quarter. This represents a 51% increase compared to Q1 2025 when [ Copa ] and Terronera had not yet joined Endeavour's production portfolio. It's also worth noting that these costs were 9% lower than Q4 2025 primarily due to the ramp-up of operations at Terronera with gained efficiencies throughout the quarter, and we anticipate further reductions in these costs as we continue to optimize operations throughout the year and capital expenditures become normalized. In Q1, Endeavor recognized adjusted net earnings of $59 million or an adjusted earnings per share of $0.21. Both direct operating cost per tonne and direct costs per tonne were elevated this quarter. To clarify how we define these costs, our direct operating cost per tonne include direct input costs associated with mining, milling and site level G&A. Our depiction of direct costs per tonne includes royalties, mining duties and purchase of third-party material. Changes in the metal prices have a meaningful impact on our direct cost per ton. For an example, a $1 increase in silver, cost per tonne rise by about $0.90 at Terronera, Guanacevi is $3.80 and $0.50 at [ Copa. ] Obviously, due to the higher royalties the mining duties, third purchase costs and federally required profit sharing. Our direct operating cost per tonne rose by 30% in Q1 compared to Q1 last year as a result of the inclusion of [ Copa ] and Terronera into our portfolio. Both assets carried higher operating costs in Q1 than what is expected going forward. During the first quarter, [ Copa ] installed and commissioned a new three-stage crusher in ball mill, increasing plant capacity to above 2,500 tonnes per day. It remains additional plant expansion expenditures. However, these will dissipate as we move through 2026, and we expect to see benefits on cost metrics starting this quarter. In Peru, we've experienced pressures on attracting and retaining skilled labor impacting labor costs, training costs and overall efficiencies. We expect this to continue, but the additional costs will be offset by the efficiencies of an updated and expanded operation. At Terronera, we're in the infancy of operations. In Q1, we made a significant transition from a construction and start-up team to an operations team, adjusting and reducing personnel. Mine and plant metrics have steadily improved through continuous measurement, review and adjustments. As the operation settles into consistent day-to-day rhythm, cost efficiencies are expected. As onetime capital investments are completed in the first half of the year, we expect operating cost metrics to decrease with higher ore grades expected in the second half. We also expect significant improvements on a cost per ounce basis. Exploration drilling has restarted at Terronera, and we expect to provide an update later this quarter. I should note, we have not transitioned our power generation to the LNG plant, but expect to before the end of this quarter. We have the necessary authorizations and plan to commission the LNG vaporization plant this month. At Guanacevi, cash flows were north of $20 million this quarter. The mine incurred higher operating cost per tonne, largely due to lower throughput with minor increases in our absolute costs. As an operation, the royalties, purchased ore mining duties and profit share is a significant part of that cost structure, and thus, we saw increases. Step-out drilling has commenced and also, we expect to provide results later this quarter. As of March 31, our cash position was over $232 million. Working capital was north of $173 million, which gives us a strong and stable foundation to drive our ongoing initiatives. We remain committed to advancing progress at Pitarrilla, where studies -- where steady investment in exploration, studies and economic evaluation continues to move forward with the expectation to provide economic evaluation in the third quarter. In closing, our strong financial footing and successful expansion of the Pulpa plant and the steady improvements at Terronera put Endeavour in an excellent position to meet our production targets this year. These achievements reflect our unwavering focus on operational excellence and our ongoing dedication to delivering long-term value for our shareholders. I would like to thank everyone for their continued support and engagement. And with that, I'm happy to open up to questions. Operator, let's proceed to the Q&A session. Operator: [Operator Instructions] The first question comes from Heiko Ihle with H.C. Wainwright. Unknown Analyst: This is [indiscernible] filing in for Heiko. He's on a [indiscernible] right now. First question, the great step up at Terronera. Next week, we'll be halfway through the second quarter. Any views of what you've seen with grades at site during this period so far? Dan Dickson: Yes. We have Q1 and Q2 grades a little bit similar. Q2, we expect to be slightly higher than Q1. Ultimately, the real step-up in grade in the back half of Q3 and into Q4. Unknown Analyst: Okay. Great. And second question, maybe a bit of a philosophical one. The Terronera approaches name plate capacity. Could you maybe talk about what you saw and learned during the ramp-up phase that maybe will be useful as you move other assets into production? And I guess, as a sweetener to that anything you expect to add to the Pitarrilla feasibility study that you may not have expected a year ago? Dan Dickson: Yes. I mean, how much time do you have on things that we learn during the Terronera build-out phase. I mean I think as an organization, it's our first build from scratch and there's a lot of learning. And I think we can apply a lot of that. And in fact, in Q4 and into Q1, we did a post mortem or post review of construction of things that we can improve. So we can take that over to Pitarrilla. Obviously, continuity is a very important part. And this year, Don Gray retired and we replaced Don with Luis Castro, who's been with the company for 21 years. But there are a lot of people that remain in the company that were involved with the construction in Terronera. If we can move Pitarrilla along in accordance with what we think is our time line sometime in 2027, starting that construction, we can benefit from it. From processes and protocols and procedures that would be put in place at Terronera, I think those will be stronger going forward. And a lot better positioned as a company to take on a second build, so to speak. And so we're well positioned. The biggest part of that is really understanding all the permits and permits that are required. I mean as we went through, we originally got our EMEA at Terronera about 2015, 2016, Pitarrilla already has MEA. There are some other permits that are required around MEA specifically around the tailings storage facility, and we're going through that process to try to obtain that by Q1 of next year. But behind all that, there's about 100 other 30-some-odd permit that you learn to go through and how to navigate that through the government. And I think we have the ability to do that a lot quicker than what we did at Terronera. So we're excited about what we gained from a knowledge standpoint at Terronera, and we think we can apply it up to Pitarrilla. And then for your second part of that question. At this point, there's nothing new that's surprising at Pitarrilla. There's a lot of work that was done. SSR and invested $145 million. They've done a pre-feasibility study on underground operation O9. They did a lot of work on an open pit operation in the feasibility study that was 2012. I mean we've been looking at this now for 3 years. And so there hasn't been anything, I'd say, in the last 6 months to 8 months have jumped out that's been surprising to us. We have a good indication of what the plant is going to look like, and what the capacity of the mine is, and that will come out in due course when we put out effectively the feasibility study or 43-101 feasibility study later this year. Operator: The next question comes from John Tumazos with John Tumazos Very Independent Research. John Tumazos: Congratulations on all the increased production and raining cash and all those good sense. Some other companies in Mexico have had bumps in the road, one company had their plane shot down a month ago. Another company has a very tragic incident in January. You've got at least four locations where you're operating, is there any particular secret to your operational success and good security results. I get to some parts in Mexico are so much better than others. Dan Dickson: Yes. But I think that's the specifics to it all is there are parts in Mexico that are more secure than others. And I mean it's hard to say that we haven't had our issues. In February, there was a code red in the State of Lisco, when one of the captains of the cartel was killed. And that on the Sunday following, they put blockades into 22 different states. And part of the State of Lisco and around Portovarta was significantly impacted with blockades of the highways. Now I don't think there is a lot of there is some unfortunate incidents with citizens. But generally, citizens weren't targeted. It was just the target to the government to show power, I guess, of that cartel. And for us, it impacted our supply chains, and we shut down operations for three days to make sure that if we had any safety incidents, so we could get to a hospital. So like I say, it's not to say that we have not been impacted. But I'd say, generally, our areas that we operate haven't had significant violence, but we're -- we've got a team in place, a security team in place provides us intelligence, and we make various decisions based on what's happening in Mexico and what's happening in various states. So again, we've been at Guanacevi for 20 years and very low impact to all that. We actually sold our Bolanitos operation in January. So we're no longer in Guanajuato. And then in Helisco, like I say, we're an hour in Porte Varta, which is considered a very safe area in that 2-day event. And there's about 3 million Americans and Canadians that visit that area on an annualized basis, and we're very happy to operate there, but we keep our eyes open and ears to the ground and just trying to understand what's all happening. John Tumazos: Are there any variations in cost between your locations due to logistical costs where you maybe avoid a bad neighborhood or anything like that? Dan Dickson: Yes. Nothing that would be significant I can recall back in '08 or '09, we made sure we didn't drive by a certain town, which added about 35, 45 minutes of driving time up to Guanacevi, which was about 4 hours away. But ultimately, the costs associated with our security between Terronera and between Guanacevi and ultimately also now at [ Copa, ] are very similar. I mean a lot of the same procedures and protocols are in place. So from a significant standpoint, I would say no. John Tumazos: And I apologize for even asking these questions, but... Dan Dickson: No, those were fair questions. John Tumazos: Investors' minds. Dan Dickson: Yes. No, it's a very fair question. We get them often in our meetings with investors. So happy to answer them. Operator: The next question comes from Soundarya Iyer with B. Riley. Soundarya Iyer: Congratulations on the quarter. Was with another call, so I don't know if this question has been answered. But so on Guanacevi, I mean the grades have come pretty low year-over-year. So -- and like third-party material purchase have also increased and its almost 1/3. At what point does this or economics change and start to dilute margins there to purchase in third-party or we continue doing that? Dan Dickson: Yes. I mean, with the higher prices, obviously, allows us to go after lower grade material. And the great thing is we mined Guanacevi now for 20 years, and there's areas of the old parts in the mines, North Provenir, and what we call Santacruz, South central propane that would have material left behind that would have been running 225-, maybe even 250-gram silver equivalent material that you can go back and and mine. And as prices go up, your cutoff grades come down. Some of the grades that we're pulling right now, where we had 275 grams more from the depth depth of El Curso, which is on Frisco ground. We pay significant royalty there, too. As we move through the year, we're going to be going into an area called Malache, which is 100% controlled by us. We've got an area near propane dose, which we mined up in 2015. We've been working in there. Some of that's on is ground, some of it's on ours. Obviously, as a management team, we continually look at grades and cut off grades and ultimately, margins. And has provided that Guanacevi is going to still continue to be profitable. And as I say, we did north of $20 million of free cash flow there this quarter. We're going to continue to operate it. So right now, we don't have a huge reserve base. We know we can get into and maybe into 2027 and maybe into '28, probably extend that. We're going through that work. We started some drilling and various areas. We start to go back into other areas and build out our resources, and we'll have a plan in place for the end of the year of how long -- much longer will be at Guanacevi. And I suspect we can get there for quite a while, especially at these prices. Soundarya Iyer: Got it. That's really clear. And just 1 more on Pitarrilla FS. So is it still on -- I mean, is it still targeted before 3Q 2026, I mean given that the spend -- $1.8 million spend in 1Q was pretty low. So how do we... Dan Dickson: Yes. We've made a lot of commitments. Our spend is a little lower in Q1 than we expected, but we've started to push that work. we would be probably a handful of weeks behind, not a significant amount. We're still hoping Q3 of 2026. Maybe it ends up being more of the back half of Q3 rather than the front half of Q3, but we'll see how all that progresses over the next couple of months. Operator: The next question comes from Craig Stanley with Raymond James. Craig Stanley: I think you indicated you expect grades to pick up a bit at Terronera in the second half of this year. Is that -- are you going to be mining a little lose? Dan Dickson: Yes, Craig, good question. We're actually drilling La Luz right now. As you probably know, it's about 150,000 to 250,000 tonnes in our mine plan -- in our feasibility mine plan. So right now, we're actually drilling a little bit to depth, so we can come up with a more efficient mine plan just because of the scale and trying to figure that out. So we took the rigs out. We were drilling Terronera this past quarter, and those rigs are going back to La Luz now that we have assays, and that will drill a loose probably until midyear and then start building a mine plan for that. So I suspect because of how things are going in Terronera that La Luz will get pushed to Q1 or Q2 of next year. But again, we'll have drill results out before this quarter is out at Terronera and maybe some La Luz as well. Craig Stanley: Okay. And then were you saying on Pitarrilla, you're sort of hoping to get the final permits in the first half of next year and then start construction later in 2027? Dan Dickson: Yes. Ultimately, we have a very good idea because of what Pitarrilla is and the resources that there in the underground sulfide resources that we'd be mining it from an underground standpoint, I don't necessarily think the economic evaluation is going to be that far off than what we've historically known. But really, the gating item is the permit to build the tailings storage facility, which is going to be a dry stack facility. We've been going back and forth with the authorities on that, hoping we can get through it relatively quickly. Now at the beginning of the year, we thought maybe Q1 2027, we could get that permit. Things have seemed to be still sticky when it comes to permits in Mexico. We've heard a lot of our peers expecting permits in Q1, and that never came to fruition, then it was going to be early Q2, and we're almost halfway through Q2. So I'm getting a bit nervous on time lines when it comes to permits, just because it still have -- we haven't seen a real floodgates open, so to speak. But that's what we were targeting. And then if we could start building in next year, that would be great. Now we are still continuing forward with our construction cap this year. So we have ultimately a plan of 800 beds. I don't -- I think we're putting in maybe a little bit less than that to start with 250 to 300 beds, and we're still making our movements to purchase mobile equipment and plant equipment, so we can do the basic and detailed engineering properly when it comes to the plant. So we're still pushing ahead, but the real kicker for a construction decision is that tailings and permit. Craig Stanley: Okay. And then just the last thing for me. When you're out talking to institutional investors, does M&A come up more in regards to Endeavour Silver being a potential target? And because when you look at the silver space, you have a lot of these companies with much larger market caps like Pan American core HACA First Majestic and then it sort of drops off and you're sort of in this sort of middle stage before you get that into sort of the real smaller producers. Just curious like Terronera has now ramped up. Is that something that's in discussion. Again, more with clients. Dan Dickson: Yes. I mean, with the investors, people always ask, like how do we want to grow? And we say we want to be a senior silver producer and Terronera has ramped up hitting criteria through the plant. I think once those grades really start coming through, and we get our costs down to expectations, I think there's a lot more value in our shares there. We want to build that value in our shares. Ultimately, we're a pretty young management team. I think we're pretty still hungry to grow and find things, never say never. But it's such a small space. There's only a handful of people that can actually look at us, and there's only a handful of things that we can look at. So we have a pretty good corporate development guy. Some days, he works hard. He's sitting right in front of me. So we are always looking at things and trying to figure out the right combination for Endeavour. Operator: We have a follow-up question from Soundarya Iyer with B. Riley. Soundarya Iyer: Sorry for just about getting another question. Just curious on the capital... Dan Dickson: No problems at all. Soundarya Iyer: Curious on the capital allocation part. You had $200 million -- $250 million in cash. And then this has been a record operating cash flow. Is it -- how are you thinking about like some dividend buybacks, not this year, maybe, but in the future... Dan Dickson: Yes, I think it's very clear -- yes, that's a fair question. I mean, for us, we're still on a growth trajectory. We're really excited about what we have at Pitarrilla. I think the market is going to understand that when a feasibility study comes out in Q3. The expectations, the cost to build is going to be somewhere between $500 million and $600 million. If we keep generating cash at this rate, we'll have a good chunk of that built into our balance sheet by the end of the year and then obviously, cash flows into 2027. Until Pitarrilla is built and operating and providing its cash flow is probably the time we'd start looking at dividends or share buybacks. But at this point in time, our -- we feel like the rate of return that we can get out of Pitarrilla will be very valuable for our shareholders, and that's what the cash that we're generating is going to be used for. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Dan Dickson for any closing remarks. Please go ahead. Dan Dickson: Well, thank you, operator, and thanks for all our listeners today. I think Q1 was a good quarter for Endeavor, but we still have more expectations going back to the year. As you say, Terronera's grade should pick up in the second half of the year, [ Copa ] will be operating close to 2,500 tonnes per day. And we'll get more rhythm at Guanacevi, Terronera and [ Copa ] that ultimately, we expect a very strong next 3 quarters and specifically the second half of the year. So we're excited with what we have. We're excited where we're going, and I look forward to getting the feasibility to say out of it in the second half of the year as well. So thanks for joining today. Operator: This brings to end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Hello everyone. Thank you for joining us, and welcome to the SandRidge Energy, Inc. first quarter 2026 conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Scott Prestridge, Senior Vice President of Finance and Strategy. Scott, please go ahead. Scott Prestridge: Thank you, and welcome everyone. With me today are Grayson R. Pranin, our CEO; Jonathan Frates, our CFO; Brandon L. Brown, our CAO; as well as Dean Parrish, our COO. We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risk and uncertainty, and actual results may differ materially from those projected in these forward-looking statements. These statements are not guarantees of future performance, and our actual results may differ materially due to known and unknown risks and uncertainties, as discussed in greater detail in our earnings release and our SEC filings. You may also hear references to adjusted EBITDA, adjusted G&A, and other non-GAAP financial measures. Reconciliations of these measures can be found on our website. With that, I will turn the call over to Grayson. Grayson R. Pranin: Thank you, and good afternoon. I am pleased to report on a strong quarter for the company. Production averaged 18.6 MBOE per day during the first quarter, an increase of 4% on a BOE basis versus the same period in 2025. Oil production increased 31%, and total revenues increased 17% during the quarter versus the same period in 2025, driven primarily by new production from our operated development program. Before getting into this and other highlights, I will turn things over to Jonathan for details on financial results. Jonathan Frates: Compared to 2025, the company saw increases in the market price of both oil and natural gas. We grew production by 4% year-over-year and generated revenues of approximately $50 million, which represents an increase of 26% compared to last quarter and 17% compared to the same period last year. Adjusted EBITDA was $33.7 million in the quarter compared to $25.5 million in 2025. We continue to manage the business with a focus on maximizing long-term cash flow while growing production and utilizing our NOLs to shield us from federal income taxes. At the end of the quarter, cash, including restricted cash, was approximately $104 million, which represents over $2.80 per common share outstanding. Cash was down compared to the prior quarter due to an increase in noncash working capital, primarily related to the timing of payables versus receivables from our one-rig drilling program. Working capital, as represented by current assets less current liabilities, was up by $3.7 million compared to the prior quarter. The company paid $4.4 million in dividends during the quarter, which includes $600 thousand of dividends to be paid in shares under our dividend reinvestment plan. On May 5, 2026, the Board of Directors increased the regular-way dividend by 8%, declaring a $0.13 dividend as well as a one-time special dividend of $0.20 per share, both of which are payable on June 1 to shareholders of record on May 20, 2026. Shareholders may elect to receive cash or additional shares of common stock through the company's dividend reinvestment plan. Following these dividends, SandRidge Energy, Inc. will have paid $5.05 per share in regular and special dividends since the beginning of 2023. Commodity price realizations for the quarter before considering the impact of hedges were $71.11 per barrel of oil, $3.13 per Mcf of gas, and $18.64 per barrel of NGLs. This compares to fourth quarter 2025 realizations of $57.56 per barrel of oil, $2.20 per Mcf of gas, and $14.92 per barrel of NGLs. Our commitment to cost discipline continues to yield results, with adjusted G&A for the quarter of approximately $2.4 million or $1.42 per BOE compared to $2.9 million or $1.83 per BOE in 2025. Net income was $18.7 million for the quarter, or $0.50 per diluted share. Adjusted net income was $21.6 million, or $0.58 per diluted share. This compares to $13 million, or $0.35 per diluted share, and $14.5 million, or $0.39 per diluted share, respectively, during the same period last year. The company generated cash flow from operations of $19.8 million during the quarter compared to $20.3 million during the same period last year. Adjusted operating cash flow was $34.4 million during the quarter compared to $26.3 million in the same period of 2025. Lastly, production is hedged with a combination of swaps and collars representing just under 30% of the midpoint of our 2026 guidance. This includes approximately 37% of natural gas production and 43% of oil. These hedges will help secure a portion of our cash flows and support our drilling program through the year. We continue to monitor prices and take advantage of favorable opportunities, but plan to maintain meaningful upside throughout the remainder of the year. Before shifting to our outlook, you should note that our earnings release and 10-Q will provide further details on our financial and operational performance during the quarter. Now I will turn it over to Dean for an update on operations. Dean Parrish: Thank you, Jonathan. Let us start with a review of the first quarter and discuss recent drilling and completion results. Total capital spend for the quarter, excluding A&D, was $19.9 million, which is better than expectations for the quarter, mostly due to drill schedule adjustments. A rigorous bidding process focused on driving drilling and completion costs down in the Cherokee play and longer artificial lift run times from previous years of improvements kept us on budget. Additionally, we have been securing critical well components needed for the remainder of the year to minimize any supply or inflationary pressures that may affect our capital program. Lease operating expenses for the quarter were $10.8 million, or $6.45 per BOE, which falls right in line with expectations. We are also securing the needed equipment and services that will be critical for production operations in 2026, similar to the capital program. We expect to continue to see pressure on diesel fuel through fuel surcharges passed on through service providers that have strict internal protocol to reduce surcharges when diesel prices begin to decrease. During the quarter, the company successfully completed three wells and brought two wells online from our operated one-rig Parakeet drilling program. We recently brought online the ninth well in our program and are drilling the eleventh, while the tenth well awaits final completion. Our operations team continues to execute, with the tenth well that was just drilled being the fastest, lowest cost to date, driven by the team's focus and ingenuity to reduce costs. It is early, but we are seeing some incremental efficiencies on our eleventh well drilling now, and we will have more to share next quarter. Moving to our 2026 capital program, we plan to drill 10 operated Cherokee wells with one rig this year and complete eight wells. The remaining two completions are anticipated to carry over to next year. A majority of the remaining wells in our development program this year directly offset proven or in-progress wells in the area, and we continue to monitor offsetting results. Gross well costs vary by depth but are estimated to be between approximately $9 million and $11 million. We intend to spend between $76 million and $97 million in our 2026 capital program, which is made up of $62 million to $80 million in drilling and completions activity, and between $14 million and $17 million in capital workovers, production optimization, and selective leasing in the Cherokee play. Our high-graded leasing is focused on further bolstering our interest, consolidating our position, and extending development into future years. With that, I will turn things back over to Grayson. Grayson R. Pranin: Thank you, Dean. Let us start with commodity prices. We started the year with strong natural gas prices, which benefited January and February revenues. During this period, our largest natural gas purchaser elected to move to ethane rejection. This means that more ethane is sold as natural gas and less is separated as NGLs. This typically results in fewer barrels of equivalent in volume, which impacted both our NGL and overall BOE volumes for the quarter, but it benefited natural gas volumes and revenue as the gas was sold at relatively higher prices with an increased BTU factor. This had a positive effect on revenue due to the dynamics of high natural gas and lower relative ethane prices during the period. However, natural gas prices have since declined and, with it, the spread between natural gas prices and ethane. Our largest natural gas purchaser returned to ethane recovery in March and plans to maintain recovery until there is further benefit otherwise. Also, while natural gas prices increased during January, we did experience increased production deferment during Winter Storm Fern, which negatively impacted volumes. Despite this challenge, our team did an amazing job operating through the extreme cold weather and minimizing downtime as much as possible—and, most importantly, doing so safely. Now shifting to oil, the year began with oil prices in the mid- to upper-$50 range, which changed dramatically over the quarter. Despite seeing spot rates reach up to triple-digit levels recently, WTI averaged $72.74 per barrel in Q1 because the shift occurred in late February and early March. For the same reason, the increase in WTI prices only partially benefited our revenues during the quarter, as the entire oil price increase occurred in the back half of the quarter. Thus far, oil prices have remained high in the second quarter and could benefit revenues further. Our commodity prices are driven by market dynamics outside of our control. We have used our favorable position and came into the year with minimal hedges to take advantage of the increases year-to-date, the details of which can be found in our earnings release and 10-Q to be filed later today. Combined with our prior hedges, we have hedged a meaningful portion of our PDP volumes for the remainder of the year, which allows us to secure a portion of our cash flows at prices that are materially above where we started the year and where we budget. The remainder of our PDP oil volumes and all of the volumes from our current drilling program will participate at the market with exposure to current high prices. We have endeavored to balance securing cash flows while maintaining an appropriate level of exposure to commodity upside. That said, there has been a lot of volatility in WTI pricing over the last few weeks and much speculation over futures, with the forward curve remaining in steep backwardation. We are content with the current level of hedging this year. We will continue to monitor geopolitical events and future pricing for further adjustment, with specific focus on longer-term periods. Now let us pivot over to our development program. As Dean discussed, we had first production on two wells this past quarter. One well targeted the Cherokee shale in our core area, consistent with wells last year. These wells had an average peak 30-day of approximately 2 thousand BOE per day, made up of 45% oil, including the newest seventh well. The other well turned in line this quarter and tested the Red Fork formation, a sandstone in the Lower Cherokee group. This was an initial well in a new area for us that offset and delineated a very productive well drilled by a reputable operator. This well allows us to better establish performance expectations in a new target in a new area. The leasing costs have been very attractive. Currently, we do not have any Red Fork wells planned for the rest of the year. However, we plan to monitor the performance of this well, industry and offsetting activity—which has increased over the past year—as well as commodity prices and other factors while evaluating the go-forward plan in the new area. Given the tailwind of WTI prices and the enhancement to returns, we plan to continue our Cherokee development with one rig and further grow oily production. While the program is attractive in a range of commodity environments, our team will continue to be diligent by prioritizing full-cycle returns, monitoring reasonable reinvestment rates, and, when needed, exercising drill schedule flexibility to make prudent adjustments to our development plans in different economic environments. Also, we do not have any significant near-term leasehold expirations and have the flexibility to defer these projects if needed for a period of time. I am very pleased with our team for their continued focus on safety, execution, and cost focus in development and production optimization programs. They have truly championed safety, resulting in the continuation of a record of more than four years without a recordable safety incident. In addition, they continue to operate at a high level with a lean, but very engaged and experienced staff with peer-leading operating and administrative cost efficiencies. I would like to pause here to highlight the optionality we have across our asset base. Coupled with the strength of our balance sheet, it sets us up to leverage commodity price cycles. The combination of our oil-weighted Cherokee and gas-weighted legacy assets, as well as a robust net cash position, gives us multifaceted options to maneuver and take advantage of different commodity cycles. Put simply, we have a strong balance sheet and a versatile kit bag, which makes the company more resilient and better poised to maneuver and adjust, no matter the commodity environment. I will now revisit the company's advantages. Our asset base is focused in the Mid-Continent region with a PDP well set that provides meaningful cash flow, which does not require any routine flaring of produced gas. These well-understood assets are almost fully held by production, have a long history, a shallowing and diversified production profile, and double-digit reserve life. Our incumbent assets include more than a thousand miles each of owned and operated SWD and electric infrastructure over our footprint. This substantial owned and integrated infrastructure helps de-risk individual well profitability for the majority of our legacy producing wells under roughly $40 WTI and $2 Henry Hub. Our assets continue to yield free cash flow. This cash generation potential provides several paths to increase shareholder value realization and is benefited by a low G&A burden. SandRidge Energy, Inc.'s value proposition is materially de-risked from a financial perspective by our strengthened balance sheet, including negative net leverage, financial flexibility, and advantaged tax position. Further, the company is not subject to MVCs or other off-balance-sheet financial commitments. We have bolstered our inventory to provide further organic growth opportunities and incremental oil diversification, with low breakevens in high-graded areas. Finally, it is worth highlighting that we take our ESG commitment seriously and have implemented disciplined processes around them. Not only do we continue to operate our existing assets extremely efficiently and execute on our Cherokee development in an effective manner, but we do so safely. Shifting to strategy, we remain committed to growing the value of our business in a safe, responsible, efficient manner while prudently allocating capital to high-return growth projects. We will also evaluate merger and acquisition opportunities while maintaining financial discipline, consideration of our balance sheet, and commitment to our capital return program. This strategy has five points. One, maximize the value of our incumbent Mid-Con PDP assets by extending and flattening our production profile with high rate-of-return production optimization projects, as well as continuously pressing on operating and administrative costs. Two, exercise capital stewardship and invest in projects and opportunities that have high risk-adjusted, fully burdened rates of return while prudently targeting reasonable reinvestment rates that sustain our cash flows and prioritize a regular-way dividend. Three, maintain optionality to execute on value-accretive merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, complement its portfolio of assets, whether it utilizes approximately $1.5 billion of federal net operating losses or otherwise yields attractive returns to its shareholders. Four, as we generate cash, we will continue to work with our board to assess paths to maximize shareholder value to include investment and strategic opportunities, advancement of our return-of-capital program, and other uses. To this end, the board continues to focus on the company's return of capital to stockholders as a priority in capital allocation, and as a result, expanded its ongoing dividend program by 8% and declared a one-time dividend. The final staple is to uphold our ESG responsibility. Now, shifting to administrative expenses, I will turn things over to Brandon. Brandon L. Brown: Thank you, Grayson. As we close out our prepared remarks, I will point out our first quarter adjusted G&A of $2.4 million, or $1.42 per BOE, continues to lead among our peers. The consistent efficiency of our organization reflects our core values to remain cost disciplined and to be fit for purpose. We will maintain our efficient and low-cost operation mindset and continue to balance the weighting of field versus corporate personnel to reflect where we create the most value. The outsourcing of necessary but more perfunctory functions such as operations accounting, land administration, IT, tax, and HR has allowed us to operate with total personnel of just over 100 people for the past several years while retaining key technical skill sets that have both the experience and institutional knowledge for our business. In summary, at the end of the first quarter, the company had approximately $104 million in cash and cash equivalents, which represents over $2.80 per share of our common stock outstanding; an inventory of high rate-of-return, low breakeven projects; low overhead; top-tier adjusted G&A; no debt; negative leverage; a flattening production profile; double-digit reserve life; and approximately $1.5 billion of federal NOLs. This concludes our prepared remarks. Thank you for joining us today. We will now open the call for questions. Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to MACOM's Second Fiscal Quarter 2026 Conference Call. This call is being recorded today, Thursday, May 7, 2026. [Operator Instructions] I will now turn the call to Mr. Steve Ferranti, MACOM's Senior Vice President of Corporate Development and Investor Relations. Mr. Ferranti, please go ahead. Stephen Ferranti: Thank you, Olivia. Good morning, and welcome to our call to discuss MACOM's financial results for the second fiscal quarter of 2026. I would like to remind everyone that our discussion today will contain forward-looking statements, which are subject to certain risks and uncertainties as defined in the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For a more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the SEC. Management's statements during this call will also include a discussion of certain adjusted non-GAAP financial information. A reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release and related Form 8-K, which was filed with the SEC today. With that, I'll turn over the call to Steve Daly, President and CEO of MACOM. Stephen Daly: Thank you, and good morning. I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, will review our Q2 results for fiscal year 2026. When Jack is finished, I will provide revenue and earnings guidance for the third quarter of FY '26, and then we will be happy to take some questions. Revenue for the second quarter of fiscal 2026 was $289 million, and adjusted EPS was $1.09 per diluted share. Demand for our products is strong across our 3 end markets, and our backlog continues to build. Our sequential financial performance improved across most key metrics in Q2, including gross and operating margins. Our Q2 book-to-bill ratio was 1.5:1 and orders booked and shipped within the quarter was 18% of total revenue. All 3 end markets had exceptional bookings with notable outperformance in the Data Center. Our backlog remains at a record level, and we believe this strength reflects that we are in the right markets with the right products at the right time. Turning to recent market trends. Q2 revenue performance by end market was as expected, with all end markets growing sequentially. Industrial and Defense was $120.7 million, Data Center was $98.2 million,and Telecom was $70.1 million. Data Center was up approximately 14.5% sequentially, Telecom was up 3% sequentially and I&D was up 2.5% sequentially. Both I&D and Data Center revenues are at record levels. As we look to the second half of our fiscal year, we expect Data Center and I&D revenues to continue to lead our growth. With the exceptional first half bookings, we are positioned for a strong second half. Additionally, we expect to see momentum from our Telecom segment as we enter our fiscal 2027 due to the anticipated timing of LEO space production programs and associated revenues. We believe our growth strategy of strengthening our core technologies and expanding our product portfolio around 3 central themes: Highest power, highest frequency and highest data rate, is working. We believe we are establishing ourselves as a differentiated strategic supplier to our customers. Next, I'll quickly summarize progress on our 5 goals for FY '26, which we outlined on our last call. First, taking advantage of the data center opportunity. We continue to enhance our design and manufacturing capabilities to support our customers in this market. And we are pleased to raise our Data Center FY '26 revenue growth base case from 35% to 40% to over 60%. Second, expanding our 5G market share. We have developed 2 new process technologies, which will provide us with both performance and cost benefits. GaN 4 is our next-generation process for high-power linear amplifiers for 5G base stations, and we expect our new IPD processes will enable us to in-source these components while achieving better electrical performance at a lower cost. Our technology teams have done a great job making these processes a reality. Third, extending our leadership in I&D. I am pleased that we recently received a Defense Manufacturing Technology Achievement Award sponsored by the Joint Defense Manufacturing Technology panel. The panel includes members from various armed services and the Office of the Secretary of Defense. This award reflects our progress to increase manufacturability of advanced GaN technology. Our team continues to innovate, and we look forward to introducing a wide range of advanced GaN MMIC products in the next 12 to 18 months. Fourth, continued development of advanced III-V semiconductor technologies. We continue to strengthen our semiconductor processing expertise and capabilities. As an example, our team has done amazing work on OMMIC regrowth for advanced high-efficiency GaN amplifiers. In addition, we are developing advanced indium phosphide epitaxial stacks for our next-generation optical products for the data center. And last, management of our capital and investments. As we discussed last quarter, we have numerous strategic investment activities that we believe will support our fiscal 2027 and 2028 revenue growth objectives. We take a disciplined approach to managing capital investments for near- and long-term success. Next, I'll take a moment to review each of our 3 core markets in more depth. Data Center. Based on customer engagements and general market trends, we expect 1.6T deployments inside the Data Center to continue to be strong throughout calendar 2026. Today, our revenue growth is primarily being driven by increased pluggable optical modules and optical cable production volumes using our 800 and 1.6T PAM4 products. As a reminder, our portfolio is highly diversified, supporting NRZ, PAM4 and coherent modulations across EML, silicon photonics and VCSEL-based architectures. We are also seeing modest growth from our lower data rate 100G single-mode and multimode products. Demand for our 200 gig per lane photodetectors continues to grow, supporting 800G and 1.6T optical connectivity. Part of our near-term and long-term growth strategy is to expand our photonics portfolio with both higher-speed photodetectors and CW lasers. We are seeing growing interest in coherent light solutions as coherent modulation can enable higher bandwidth performance with significantly improved power efficiency, especially in shorter-reach applications. We believe coherent light solutions will expand, and we are well positioned to support this trend. We continue to promote linear equalizer products to help extend the reach of copper interconnects at 800G and 1.6T. We are working closely with customers to address their specific program requirements and various use cases. In many cases, our newest products are designed for co-packaged and highly integrated architectures like CPO and NPO. We can differentiate in this market based on our strong customer relationships, IC and system design expertise as well as our unique photonic materials. In summary, as we look ahead, we see many new large opportunities in the Data Center. We believe our SAM is increasing due to the combination of AI-driven market growth, combined with our product portfolio expansion. Our strategy is to collaborate with the leaders in the industry and support their connectivity needs, whether it's scale up, scale out or scale across. Turning to our I&D business. We are seeing many growth opportunities across the Industrial and Defense markets, primarily in the Defense segment. Comparing our first half results of FY '26 with the first half of FY '25, our I&D business grew by 22%. Overall demand remains healthy and notably, we expect revenues from our top 25 defense customers to significantly increase from FY '25 to FY '26. Our Defense customer base is large and very broad, and we typically support radar systems, missile and missile defense systems, drone and drone defense systems, communication systems and wideband electronic warfare systems. Today, we support a wide range of production programs across a diverse range of applications. We are also involved with redesigns and upgrades of existing platforms to improve performance against new threats and to improve overall system performance with more capable and modern electronics. Finally, the DoD is pushing our customers for rapid design and deployment of new systems and capabilities, spanning from modern radars to better electronic warfare systems, new space-based sensors and even more secure communications. These systems are typically using higher frequencies, higher RF or microwave power levels and higher levels of integration. In some cases, high-performance optical systems are deployed such as RF over fiber for remote antenna systems. The pace of innovation in the Defense market is accelerating by both the traditional defense primes and the newer, more nimble defense companies. These demanding requirements play directly to MACOM's strengths, and we offer our customers turnkey support from custom chip design to subsystem solutions. All of this is driving incremental semiconductor content growth opportunities and opening up new design win opportunities. MACOM has numerous competitive advantages within the I&D market. At the heart of these is MACOM's deep expertise in high-performance IC design capabilities spanning RF, microwave, millimeter wave and optical domains. We have a growing team of system designers with architectural knowledge, which enable us to engage much earlier in our customers' project design cycles, and we present the full scope of MACOM's capabilities to help solve the customers' technical challenges. MACOM also offers European and U.S.-based wafer fab and U.S.-based hybrid manufacturing capabilities at scale with proven technology, reliability and long-term supply assurance, factors that are increasingly important as defense customers prioritize domestic sourcing and supply chain security. Within the Telecom end market, satellite-based broadband access and direct-to-device, or D2D, opportunities remain robust with numerous LEO networks in the planning and production stages. The number of LEO satellites planned to be launched continues to grow as more companies compete to provide commercial broadband data, voice and video communications by satellite. These networks typically use microwave or millimeter wave frequencies and free space optics or FSO communications for satellite-to-satellite or satellite-to-ground communications. Today, we are supporting LEO broadband constellations and D2D programs that are either in development, low rate initial production, or LRIP, or full production. LEO and MEO constellations have many key areas where MACOM can contribute, including large phase array antennas with active beam steering, D2D links operating at UHF or S-bands, data center-like electronics with high-speed optical links transferring data within or across the satellite, free space optics for satellite-to-satellite communications and ground terminal and gateway linearization for high-power transmitters. I'll note the backhaul networks for these constellations continues to move higher in frequencies. The 40-nanometer GaN technology, which MACOM recently licensed from Hughes Research Lab, HRL, is being transferred to MACOM's fab. This technology will enable high-capacity satellite links using E-band, W-Band and D-band. Ground stations and gateways are also a key part of the LEO networks. MACOM specializes in designing products and solutions that overcome nonlinearity of RF, microwave and millimeter wave signal transmission for satellite communication systems. In many cases, ground-to-satellite links prefer linearization of SSPAs or TWTAs to boost the linear power efficiency of the link. Turning towards the 5G segment of Telecom. Our global team continues to secure new business and macro base stations, driven by the need for high-performance amplifiers and multiband radios. Our RF power team is now sampling our new GaN 4 products to customers, which we believe will further improve our competitiveness. We expect the global RAN market will be flat in 2026 with some regional variations. However, for MACOM, we expect our future 5G growth will be driven by content and market share gains as we have; one, recently added new resources; two, roll out new products and technologies like GaN 4, SOI control products and power amplifier modules or PAMS; and three, gain market share in high and low-power macro and MIMO amplifiers. We are making good progress improving the overall performance and competitiveness of our base station portfolio, especially in the 2.7 to 3.5 gigahertz bands. And last, we believe the cable TV infrastructure market segment is also improving. We have been releasing new products and working with customers on design wins to support the upgrades from DOCSIS 3.1 to DOCSIS 4.0. Before turning it over to Jack, I would like to quickly highlight how teamwork across the organization directly impacts our financial results with operations and engineering being a great example. Our North Carolina fab has been increasing wafer production while simultaneously improving yields and lowering cycle times. This performance is driving improved customer satisfaction and contributing to new business and enabling us to win new customers. Our Massachusetts fab has been installing complex processing equipment to support production ramps in some areas while maintaining production continuity in other areas. Seamlessly adding this capacity is enabling us to gain market share from our competitors. Our global planning team continues to partner with key suppliers and partners to ensure that customers are getting the deliveries they need on time. This results in brand loyalty and enables us to fully leverage our entire technology portfolio into the market and capture market share. These examples illustrate how dedication, commitment to excellence, teamwork and coordination of our manufacturing, engineering and planning community is directly leading to market share gains and revenue growth. In summary, our strategy is to continue to build a best-in-class diversified semiconductor portfolio that will enable MACOM to capture a larger share of the 3 markets we focus on. Our agility and strong teamwork across our organization helps us address opportunities and ultimately beat the competition that are often larger and have more resources. Jack will now provide a more detailed review of our financial results. John Kober: Thanks, Steve, and good morning to everyone. The results from our second quarter improved from Q1, and MACOM again achieved multiple new quarterly records associated with our financial performance. We have seen operational improvements across the organization, which is driving increased revenue growth and profitability. Fiscal Q2 revenue was $289 million, up 6.4% sequentially and up over 22% year-on-year, driven by growth across all 3 of our end markets, with Data Center leading followed by I&D and Telecom. The strong bookings across all our end markets resulted in a book-to-bill of 1.5:1. This was the largest quarterly bookings in the company's history. Adjusted gross profit for fiscal Q2 was $169 million or 58.5% of revenue. This represents a gross margin increase of 90 basis points over the prior quarter. We continue to make solid progress to increase our capacity and improve product yields, and we expect to see ongoing incremental progress across our fab operations during the remainder of fiscal 2026. The increase in product demand across the business have resulted in improved utilization of our operations and supported the recent gross margin improvement. As we move forward, we expect ongoing sequential gross margin improvements through the remainder of fiscal 2026. Total adjusted operating expense for our second quarter was $88.6 million, consisting of research and development expense of $59.1 million and selling, general and administrative expenses of $29.5 million. The anticipated sequential increase in adjusted operating expense compared to Q1 was primarily driven by ongoing R&D investments and employee-related costs. As our business expands, we expect associated OpEx growth will be primarily related to increased R&D investments and higher variable costs. Consistent with past practice, we will remain very focused on managing our OpEx to balance long-term revenue growth and profitability with continued investment in the business to support all of our end markets. Depreciation expense for fiscal Q2 2026 remained relatively stable at $9 million, slightly above the prior quarter. Adjusted operating income in fiscal Q2 was another record coming in at $80.5 million, up 8.8% sequentially from $74 million in fiscal Q1 2026 and up 34.5% year-over-year. I would like to note that our Q2 adjusted operating margin was 27.8% and has increased over the last 3 fiscal quarters. We expect our adjusted operating margin to be approximately 30% next quarter, highlighting the leverage in our financial operating model. For fiscal Q2, we had adjusted net interest income of $6.5 million, a decrease of approximately $200,000 sequentially from $6.7 million in Q1. The slight decrease was primarily due to the planned repayment of $161 million of our 2026 convertible notes during the quarter. We are pleased to have been able to retire this debt and further delever our balance sheet. Our adjusted income tax rate in fiscal Q2 was 3% and resulted in an expense of approximately $2.6 million. We expect our adjusted income tax rate to remain at 3% for the remainder of fiscal 2026. As of April 3, 2026, our deferred tax asset balances were $202 million. We anticipate further utilizing our deferred tax asset balances, including R&D tax credits through the remainder of fiscal 2026 and beyond. Depending on the jurisdictional mix of our income, we expect the U.S. government's recent tax legislation to support a low to mid-single-digit adjusted tax rate for the next few fiscal years. Fiscal Q2 adjusted net income increased approximately 7.8% to $84.3 million compared to $78.2 million in fiscal Q1 2026. Adjusted earnings per fully diluted share was $1.09, utilizing a share count of 77.6 million shares compared to $1.02 of adjusted earnings per share in fiscal Q1 2026. We continue to optimize the business' performance, which has contributed to sequential increases in our adjusted operating income and EPS over the past 11 quarters. Now on to operational balance sheet and cash flow items. Our Q2 accounts receivable balance was $160 million, consistent with our Q1 2026 balance. Our days sales outstanding averaged 50 days compared to the previous quarter at 54 days. Inventories were $252.2 million at quarter end, up sequentially from $238.9 million, largely driven by additional work-in-process inventory at our fabs as well as higher balances to support increasing demand across the business. Inventory turns remained steady at 1.9x, the same level as the preceding quarter. Fiscal Q2 cash flow from operations was approximately $78.7 million, up $35.8 million sequentially. The sequential change was primarily due to the typical timing of supplier payments and other changes in working capital balances. We expect that our Q3 cash flow from operations will be in excess of $80 million. As our business continues to grow, there will be variations in cash flow from quarter-to-quarter. MACOM's business model has demonstrated strong cash flow from operations over the past few years. As an example, our cash flow from operations was $163 million in fiscal year 2024, $235 million in fiscal year 2025, and we believe we are on track for our cash flow from operations to exceed $300 million for fiscal year 2026. Capital expenditures totaled $13.2 million for fiscal Q2. We estimate fiscal year 2026 CapEx to be in the range of $55 million to $65 million as we expand capacity to meet demand requirements across our end markets and also upgrade and enhance our production and engineering equipment as well as our facilities. Next, moving on to other balance sheet items. Cash, cash equivalents and short-term investments as of the end of the second fiscal quarter were $664.9 million. We view our cash balance as a strategic asset that can be used to help fund ongoing investments to support our growing business. We are in a net cash position of approximately $325 million as of April 3, 2026, when comparing our cash and short-term investments to the book value of our remaining $340 million of convertible notes, which mature in December 2029. Our strategy has been to focus on growing our profitability and managing our operating asset base, which has supported an improved return on invested capital over the past several years, demonstrating our goal of building long-term financial strength for the company. During the first 2 fiscal quarters of 2026, the entire MACOM team has contributed to helping achieve these record financial results. This hard work has established a strong foundation for us to build upon, and I look forward to the second half of our fiscal 2026. I will now turn the discussion back over to Steve. Stephen Daly: Thank you, Jack. MACOM expects revenue in fiscal Q3 ending July 3, 2026, to be in the range of $331 million to $339 million. Adjusted gross margin is expected to be in the range of 59% to 60% and adjusted earnings per share is expected to be between $1.31 and $1.37 based on 78.5 million fully diluted shares. We expect sequential revenue growth in each of our 3 end markets. We expect that Data Center will achieve approximately 35% sequential growth, and we expect Industrial and Defense to achieve growth approaching 10% and Telecom to achieve low single-digit sequential growth. As Jack highlighted, we are excited to deliver more growth and profitability during the second half of FY '26. As we continue to scale the business, we expect to see increased operating margins and profitability. I would now like to ask the operator to take any questions. Operator: [Operator Instructions] Our first question coming from the line of Blayne Curtis with Jefferies. Blayne Curtis: Great results. Maybe I want to start on gross margin. Obviously, there's a lot of revenue drivers, but 100 basis points in the quarter. Can you just talk about volume and then mix? And obviously, Data Center is outperforming, so that must be a driver. I just want to see how to think about it, particularly as you go through the rest of the calendar year. Stephen Daly: Yes. Thank you for the question, Blayne. So certainly, volume is contributing to the improvements in the gross margins. We are seeing that our Lowell fab as well as our North Carolina fab have been increasing outputs, and so that's certainly having a positive effect on gross margins. The other thing I'll add is you're correct to notice that our Data Center revenue as a total percentage of our revenue is increasing. In some instances, that's contributing to the improvements in gross margins. And in other areas, it isn't. So we -- in all of our market segments, we have a normal distribution of gross margins. But generally speaking, the team has been very focused on yield enhancement, efficiencies, cost reductions as we're scaling across a whole wide range of technologies, some of which I talked about in the prepared remarks. So generally speaking, a lot of great work. As Jack mentioned in his commentary, we expect continued improvements in gross margin. A few quarters ago, we had said publicly, we were setting a target to exit the year around 59%. And I think today, we're updating that number to be most likely closer to 60%. And Jack, maybe you can comment further. John Kober: I think you covered off on it, Steve. There's definitely multiple factors that are helping to drive our gross margin improvements that we've seen here in the March quarter, where we were up 90 basis points. And then if you look to the midpoint of the guide being up 100 basis points. It does become a bit more challenging as the gross margins go up to squeeze more savings out of it, but our teams are continuing to work hard. And as Steve had mentioned, we expect to see further gross margin improvements as we work our way through this year and into next year. Blayne Curtis: And then I wanted to ask, you mentioned coherent light. There's a lot of talk about scale across these days. Kind of just curious your thoughts on how that market is developing? And then maybe a silly question, is it in Data Center or Telecom? Stephen Daly: So we would put coherent light in the Data Center category. And as you know, historically, we have put the metro/long haul, which is more DCI in the Telecom segment. So we are definitely focused on that, and this is an area where MACOM has really nice differentiation. And so historically, there's been more ZR type platforms, and now they're moving to really higher data rate, higher gigabaud data rates. And just in the last 3 years, you've seen platforms go from 64 gigabaud all the way up to 128 gigabaud. Now even people are talking as high as 192 gigabaud. So this is an area of strength for MACOM. And depending on what hyperscalers do in terms of deploying coherent light, we want to participate. So we are in a very good position. It does touch a number of our product lines where we really have differentiated technology. Operator: Our next question coming from the line of Tom O'Malley with Barclays. Thomas O'Malley: My first is on the SATCOM business in LEO. Through the earnings period here, you've heard companies talk about 7,000 to 10,000 launches over the next 3 years. Would you agree with that number? And then maybe if you could spend some time talking on the content per satellite, if that's possible. You mentioned a lot of the different products, the phase array antennas, optical electronics, et cetera. But just some framework for thinking about the upside that could offer you. And then on the timing of that, it looks like Telecom is up low single digits in June, but you mentioned it improves in the back half of the fiscal year. Do you see a substantial step-up in the September quarter there? Stephen Daly: Thanks for those questions, Tom. There's a lot there. Let me try to address as many as I can. I think it's important to put in perspective that MACOM has been servicing the space market for decades. And so we are a known entity, not only on the defense side, but more and more so on the commercial side. I think you're correct to highlight that there's growth in terms of the pure number of LEOs being launched, and these are typically smaller satellites going on affordable launch vehicles and whether it's servicing broadband, direct to sell or even future talk about data centers in space, we want to participate in those. So we don't necessarily want to comment on what the absolute quantities are. I think there's a lot of information in the market about how much this market is growing. So I think there's good information out there that's probably more accurate than ours. But I would just highlight that we are absolutely engaged with the major players across the market. And as I mentioned in my commentary, it really plays to our strengths. So yes, there's certainly huge demand, and we're trying to focus on getting wins as best we can. In terms of the timing of our various programs, I would just say that we have active LEO production programs today. We have more that are in the sort of LRIP phase. One of the larger programs that we've talked about in the past is in the phase of delivering what we call EM modules. So basically, our customers sort of finalizing their system design. And we do expect that to go into full rate production later this year or early next year, which is consistent with what we've said in the past. I don't think you should expect a step-up. You're going to see a ramp-up, and that will happen during the course of calendar 2027. And just as a reminder to everybody, we're involved in really 3 pieces of the puzzle for these networks. The first is on the satellite, what people refer to as the payload. The second is the gateways. And then the third is that we are seeing opportunities in the terminals with some of our components. And so a very exciting time for MACOM to be participating across so many different customers and our module and our chip design team is very busy satisfying the requirements in this market. Operator: Our next question coming from the line of Tore Svanberg with Stifel. Tore Svanberg: Congratulations on the strong results. I had a question on the Data Center growth now basically targeting more than 60%. Just curious, above and beyond just higher CapEx from some of your end customers, what's some of the delta here, some of the new revenue that's layering in? Stephen Daly: Very much the expansion of our product portfolio. And we have talked about really over the last 12 months, the ramp-up of some of our optical components. And so that has certainly helped drive some of the growth. But I would say, generally speaking, our focus is on 1.6T, 800 gig. These are areas where we're seeing a lot of strength. We expect that strength to continue. And in fact, we're seeing more and more demand as we sort of enter our second half. In terms of the new revenue or the new categories of revenue for our fiscal '27, certainly, the higher data rates, so 3.2T, possibly some coherent light ramp-ups. And also depending on the work that we're doing with our laser portfolio, we may be able to add some revenue to our fiscal '27 or even fiscal '28 on CW lasers. So a lot of good activity there. We have been also, as everybody knows, engaged with people that are deploying copper and providing equalizers not only onboard the PC boards, but also cable-based. So very excited about those opportunities as well. Tore Svanberg: Very good. And as my follow-up, Steve, you talked more than usual on this call about team collaboration, making sure capacity is in place. It sounds like your operations execution is allowing you to gain some share. Just curious why you brought that up on this particular call. Are you seeing competitors perhaps not have enough capacity and not good planning to keep up? Or is there something else that's driving that inflection point? Stephen Daly: Well, I think Jack and I are just privileged to be able to represent our employees. And so I think it's important to highlight the work that they're doing in collaborating to make these results happen. And so as you know, last year, the company grew by over 30%. And this year, we're on a path certainly to be in that range or higher. And we have a lot of different technologies ramping at the same time. And that absolutely requires coordination, collaboration, good, clean discussions with customers to set proper expectations. So we just wanted to highlight that. In terms of sort of opportunities, I'll just note that because there is certainly some constraints within the Data Center market, we believe that's opening up interesting opportunities for MACOM, including, by the way, what I would consider the legacy class of lasers as med customers are, and competitors, are pivoting to more, let's say, the higher power or CW lasers to support silicon photonics, that's creating a little bit of a gap in DFB lasers. And we have a very strong broad DFB laser portfolio that can support what I would consider legacy data center 100-gig modules. And so that could be a great business for us over the next 1 to 2 years, and those products are ready today. Operator: And Our next question in queue coming from the line of Quinn Bolton with Needham & Company. Quinn Bolton: Steve, I just wanted to follow up on the laser question. I think in the past, you said you had a couple of customers that were evaluating your CW lasers. You thought it would still sort of be a 6- to 12-month eval process. But could you give us any update on how you're feeling about the CW laser opportunity? Are you more confident that those could ramp and contribute to fiscal '27 growth? Stephen Daly: Yes. I don't think too much has changed in the last 3 months. We have excellent optical performance of our 75-milliwatt class lasers. Customers have tested and validated performance. What our fab is doing today is dialing in a process of record. That work is not complete. So we continue to tweak the process to optimize really reliability. It's all about reliability. Typically in these systems, the weakest link is the laser. And so you need to make sure you have a very robust laser. So there's a lot of qual work running in parallel with developing a process of record. And so that work continues, and that's all MACOM internal work. When we're ready and we feel like we have a reliable product, then we'll start working with module customers so that they can start their module quals. And then after that comes the hyperscaler qualification. So when you add all that up and look at the time line, you're really talking about potentially, and this is assuming everything goes well and oftentimes it doesn't, a fiscal '27 or '28 time frame of contribution. We are absolutely getting pull from the market. We know there's demand. And so we just have a lot of work to do to convince ourselves that we're ready to ramp this kind of a product into high volume. So I would, at this stage, not put your CW laser in your models, certainly not for fiscal '26 or I would say even '27. I think there's going to be a lot of other great things happening that will allow us to perhaps not only do as well as we've done this year in terms of growth, but maybe even exceed it next year because we have a lot of other irons in the fire. Quinn Bolton: And then I guess I wanted to come back on the utilization rates. I think over the past couple of years, you had mentioned the Lowell utilization rate was sort of suffering from some puts and takes in a couple of the larger defense programs and I think lower demand on the industrial side, MRI in particular. Has that utilization rate come back with the I&D business recovering? Or do you still feel like there's further room for improvement in the utilization rates of Lowell and obviously, that could be a margin tailwind as utilization increases. Stephen Daly: I think you're correct in those comments, and we are seeing increased utilization on our traditional Lowell-based defense business. And our Defense business this year is trending to certainly over 20% full year growth. And that -- much of that, not all of it, but much of it is coming out of our Lowell fab. So that is beneficial to the sort of gross and operating margins. Your commentary about our MRI business, which we categorize as industrial, is also improving. And we have a very strong franchise for high-voltage, nonmagnetic really kilovolt level diodes that are used in these MRI coils. We are seeing positive trends on that business, and we expect those trends to continue. So yes, those 2 things are definitely helping the Lowell utilization. There's 2 other important things going on in our Lowell fab as well. The first is developing the advanced GaN that I talked about in my prepared remarks. And the second is the ramping up of our optical product line within the Lowell, which is an indium phosphide-based product. Operator: Our next question coming from the line of Sean O'Loughlin with TD Cowen. Sean O'Loughlin: Congrats on the really solid results and momentum. First question, I just wanted to get maybe an update or offer you the opportunity to update some of your comments on the fiscal '26 segment growth other than datacom. We got the 60% growth, but I think last quarter, we talked about high teens growth in I&D. You kind of just alluded to maybe over 20% and high single digits in Telecom. Any updated thoughts there? Is that still what we should be thinking about? Stephen Daly: Yes. I'll make some comments and then maybe Jack can also talk about sort of P&L-related items. So I do think we have a solid plan for 2026. As I mentioned, our revenue growth is going to be driven by Data Center and Defense. Today, we're definitely trending towards top line in that sort of 30% range. I can tell you that last year, we did about 32%, and it would be nice to beat that. And we also ideally would like to exit the year with at least 60% margin. We're not sure if that's going to happen. We still have a lot of wood to chop between now and the end of September, which is the end of our fiscal year. But we do see a path to having strong revenue and earnings growth. Earnings growth should be quite nice this year, certainly coming from the second half. In terms of your commentary specifically about I&D and Telecom, I think we're thinking above 20% today for I&D, and we're going to try to push Telecom to be low double digit. John Kober: I think the only other item I would add, and obviously, the Defense piece has been quite strong for us over the past year plus. Industrial, we've been working our way through that. We touched upon the medical piece of Industrial with the last question. But more broadly, within Industrial, it is a fairly broad category. We have seen a bit of an uptick there that's helping out with our Lowell utilization. It's also driving some of that revenue or top line improvement that we see in that combined Industrial and Defense end market. And really, as we look at filling out the rest of the P&L with some of that revenue growth, we are very much focused on improving those earnings and improving the leverage and the drop-through from an operating income and also from an EPS perspective as we work our way through the remainder of '26 and then focus more on '27 as well. Sean O'Loughlin: That's helpful color. A quick follow-up. Just on the input side, I know that indium phosphide is one of the materials that you use. And so I don't want to over-index to these comments, but we've had some comments from public substrate suppliers about price increases and just maybe generally across your manufacturing footprint, is that something that you're either having to absorb and there's a timing mismatch? Or is the pricing environment for a lot of these products such that you're able to sort of pass those through? Or is that not really something that you're seeing outside of the indium phosphide? Stephen Daly: I'm not sure we want to get into the cost basis of any materials we buy. We're constantly buying gases, precious metals, gold, indium phosphide substrates, silicon carbide substrates, and we have a very strong supply chain that works very closely with our partners to make sure we're getting what we want when we need it at a fair price. Although I will mention maybe one thing. You may have seen recently where MACOM announced a small investment in a company called IQE. We put out a press release on April 27, and this is sort of somewhat related to your question. And people may not be familiar with IQE. So they are a U.K.-based company that provides epitaxial services, and they went through a -- recently, they went through a fundraising event where MACOM participated. They raised GBP 80 million. We participated with a GBP 45 million investment. And just to break that out very quickly, it was GBP 30 million in equity for about 11% ownership and a GBP 15 million convertible note. And ultimately, what we did as part of this transaction is put in place a long-term supply agreement to make sure that we have adequate supply of the technologies that we're currently acquiring from them and from others. And so the why we did it really revolves around your question, which is what is MACOM doing to ensure we have strong supply chain security and resiliency. And I think this is a great example of a strategic transaction, which is going to shore up not only our business regarding indium phosphide, but also the silicon carbide. And so where we stand right now with that is it's going through regulatory approval. There will be a shareholder vote, and it's expected to close in the next 30 to 60 days. And so this is sort of an example of MACOM proactively looking at risk and retiring risk. And so this will backstop our expected growth, not only as it relates to indium phosphide-based products, but also silicon carbide-based products and some other technologies as well. Operator: And our next question coming from the line of Will Stein with Truist Securities. William Stein: Congrats on the very strong outlook. The main thing I wanted to ask about was, Steve, in your prepared remarks, you talked about addressing the user terminal market within the LEO satellite industry. And this is, I believe, a pretty big change in strategy, at least relative to what I've heard the company talk about. We had the message previously that your focus was going to be essentially in infrastructure, the satellites and the gateways. User terminals, of course, look more like it's customer premise equipment, right, and sort of the consumer market. That's sort of uncharacteristic for you. So can you talk about what changed? What makes you want to address that market? What products you're selling and sort of timing to ramp there? Stephen Daly: Yes. I think that's a great question. And to be clear, when we look at that market, we're looking to be opportunistic. And so we are seeing some AESA technology basically using a wide range of control products, which would fit very nicely into our AlGaAs diode-based portfolio. So you're correct to conclude we're not chasing SoCs or receivers or highly-integrated customized chips for user terminals. That is not the case. But we are seeing inbound requests for some of our control products. And so we will opportunistically look at that. William Stein: Great. And then as a follow-up, I guess, the big-picture question is you had a huge book-to-bill this quarter. Obviously, that's not all for delivery in fiscal Q3. Can you talk about the spread across end markets and the duration of that? What's changing there? Stephen Daly: Well, certainly, as I mentioned, the strongest portion of our new orders was in the Data Center. But I will say that all 3 markets had a very strong booking event. Typically, these orders will be spread out over multiple quarters. And so I don't really want to get into any more detail than that. We typically, just as a practice, only recognize bookings that are within a 12-month period as well. So this 1.5 book-to-bill really reflects orders that would be delivered within 12 months. Operator: And our next question in queue coming from the line of Christopher Rolland with Susquehanna. Christopher Rolland: Congrats. I wanted to drill down on Data Center, particularly in June. So it's just absolutely inflecting. I don't think we've seen this kind of growth before. And so my question is, why now? It sounds like a lot of it is optical. When it comes to discrete components, I'm just trying to figure out kind of why the inflection? Is it just a units play? Is there something here like new DSPs that don't contain TIAs and drivers? Or is it really this move to 1.6? What's really driving that over $30 million inflection in Data Center sequentially? Why now? Stephen Daly: Yes. Thank you for the question. And so if we pull back and look at the general trends of our Data Center business over the last 3 years, in 2024, we grew our Data Center business by 35%. In 2025, we grew it by 48% and now we're, in '26, forecasting over 60%. So the trend is there to see in terms of the long-term growth. And clearly, we're investing in a variety of technologies that would be suitable for this market. We tend to gravitate towards the highest data rate type products. We were one of the early suppliers to the 1.6T rollout, and that is paying big dividends right now as that use case expands across the data center and various hyperscalers. And so we're able to solidify strong positions there. And of course, we're overlaying our optical components. We talked about the PDs, the photodetectors. We're working on the lasers. They're not quite there yet. So I don't know that there's an inflection point rather than a trend. And the trend is that our portfolio is broad in nature, and we're gaining traction at a wide range of customers selling a variety of functions. And as part of our strategy, we want to be diversified. So as you know, we don't sell DSPs just for the record, but we want to support module manufacturers that are, for example, using LPO or if a particular customer wants to electrify copper or maybe they want to experiment with coherent or coherent light. So these are all things that we're very focused on. These are long-term activities that are now starting to pay dividends. So it's not really an inflection point. I would say it's consistent with really the unit growth within the market as well. And so we're just trying to keep up with the growth, and that's some SAM expansion as well as portfolio expansion. John Kober: The only other item I would add, Steve, is, yes, the higher speeds are definitely helping to contribute to the growth that we've seen, but also some of the lower speeds, 100G and below has continued to hang in there over the past number of quarters and would expect that trend to continue as well. Christopher Rolland: Excellent. Perhaps as a follow-up on copper this time. If you could talk about engagements, particularly on kind of large-scale architectures, whether they're trending towards ACC or LE and kind of your outlook for this market? Do you think this is kind of the next big thing? Or this is, at this point, a little bit more of a TBD? Stephen Daly: Yes. I would put it in the category of a TBD, and we are seeing real demand, real hardware, real production ramps on the optical side. And that is certainly the vast majority of our revenue today. So the electrified cable is a great opportunity for us and will be additive in the future. And of course, as I mentioned, we are going after equalizers not only for sort of traditional high-speed 1.6T, but also PCIe and other applications that are closer to compute, let's say. So we are very active with our equalizer portfolio at various accounts, and there is a wide range of use cases that we're chasing. Operator: And our next question coming from the line of Timothy Savageaux with Northland Capital Markets. Timothy Savageaux: And I'll add my congrats on that guide, pretty spectacular. My question or at least first is just trying to understand more about the size of your photonics or optical device business, which we're talking about more and more here. And I don't know what kind of color you're able to provide. Does that business get to 10% of Data Center revenue in any one of these quarters in the second half? That seems possible? Or is it already there? Or as you look at your sequential growth here in Q3 and heading into the second half of the year, is that a meaningful proportion coming from the optical device side? And then I'll follow up. Stephen Daly: Great. Thanks for the question. And just to highlight that we don't typically break out revenue by product line, and that would be a very -- mainly for competitive reasons. And that -- so that would -- what you're asking is a very specific question that we would prefer to not answer so directly. I will say that we have a very strong product. I think our PD has definite advantages over what we're seeing in the market in terms of our ability to mass produce these with industry-leading dark currents, [indiscernible] chips, lens integrated onto the device. We have developed in our Ann Arbor fab, a very strong epi recipe that is providing the industry with very high levels of sensitivity. So all of those things are certainly playing into some of the successes we're having with the PDs. The other thing I'll note is we demonstrated, I think, a year ago at OFC, the idea of stacking the PDs on our TIAs. And so that has certainly been beneficial in terms of supporting not only TIA growth, but also PD growth. But we do have a diversified portfolio. We're not going to break out how much is concentrated on any one product at any one time because it's constantly changing. Timothy Savageaux: Okay. But it sounds like it's getting to be material. Maybe we can get a binary answer on that. But either way, I do have a follow-up about kind of the inflection. And the question is about within Data Center, customer diversification, right? I mean you have a very big customer in China is doing extremely well, and that could be a lot of it. But could you address maybe your reach throughout other major module suppliers in other places? And to what extent is that a big factor versus growth in your current major module customers? Stephen Daly: Right. And I think embedded in that question is really what's your exposure to the hyperscalers because that -- and so it really starts there in understanding what their needs are and understanding who they're using within their supply chain, and then we try to align ourselves with both. And depending on the hyperscaler, the platforms, the technology they're working, we try to align ourselves either directly to their road maps or to their vendors' road maps. I will say that from maybe a year or 2 years ago, our diversity today is far stronger. And so we see revenue today in scale up, scale out and scale across. So we are actively positioned in each one of these different areas. And that exposure varies by the module manufacturers, certainly varies by the hyperscaler. But at the end of the day, a lot of this is 1.6T. That is sort of the main event. Today, it's going to continue, as I mentioned, throughout the course of our fiscal '26, calendar '26 and even into '27. And if we pull back and we look at the work that we're doing there, as I mentioned earlier, I think we have potential to do really well in our fiscal '27, where obviously, we'll have to wait and see how things go. But we are getting large orders that go out in time that support real production programs. Operator: And our next question coming from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: I have two, if I may. Steve, your book-to-bill of 1.5 appears to be a record, certainly multiyear record anyway. Should we expect meaningful capital investments in fabs to support this backlog? Or do you have the necessary capacity and assurance of supply to address this growth? Stephen Daly: So we are investing in our fabs, and that's -- I think that's a very interesting question to ask, and let me just very briefly talk about that. So about a year ago, we talked about increasing the wafer production capacity in our North Carolina fab by 30%. We said that would take 15 months. That work should be done by the end of this calendar year. And so we invested less than $20 million. That was about $15 million to $16 million. We had the opportunity to buy heavily discounted fab equipment from the market. So that's baked into our numbers and the capital numbers. When you look at our Massachusetts fab, we are investing in equipment for advanced GaN. We're investing in equipment to expand indium phosphide capacity and production, and we're doing general modernization. And then in our French fab, we're moving the entire product line from 3-inch to 6-inch. That equipment is already in place. There's been very little money spent to do that. However, we are installing a new MOCVD reactor in France to support some of the volumes that we anticipate in the next couple of years. So there is definitely moderate investments. As we think about our business and being diversified, you will not see us greenfielding -- building a new fab, building a new factory. We think -- we have a target. Now that we hit $1 billion of revenue, we want to hit $2 billion. And we don't need to buy a fab or build a fab to do it. What we need to do is expand incrementally capacity within the walls of our existing facilities. And that's a very -- and that's why, as Jack mentioned in his commentary, you're going to start to see tremendous earnings growth. Capital should be in that 4% to 5% of revenue range, and we have no major big investments planned. Do you want to add to that, Jack? John Kober: That's correct. So we're -- I think the guide that we put out for the remainder of our fiscal year '26 was $55 million to $65 million, depending on the timing of the completion of some of these items and when the capital was purchased. But we've been very disciplined and don't expect the CapEx number to exceed that 5% of revenue. And I think history has demonstrated that we'll be very prudent with what we're doing, but also opportunistic to make sure we can meet the capacity requirements that are out there. Karl Ackerman: Yes. Very clear. For my follow-up, last quarter, you spoke about how one of your competitors had exited the RF power game market. Do you believe that remains a tailwind for you throughout the second half of this year? Or has the benefit now largely been realized? Stephen Daly: So the benefit has not been realized, and it won't -- if there is a benefit, right? If there is -- so it won't -- it hasn't been realized yet. It won't happen in '26. The revenue will start to shine through in '27. And the reason for that is as we see some of the customers pivot and engage MACOM on new platforms, it takes time for those design wins to translate into revenue. So it's really, I would say, best case, a back half of '27 contribution. And as that competitor exited the market, they put in place last time buys, they built inventory for customers. They're doing it very responsibly. So really, what we're intersecting is new programs and new opportunities as opposed to existing programs that are in flight or in production. Operator: And our next question coming from the line of Vivek Arya with Bank of America Securities. Unknown Analyst: This is [indiscernible] on behalf of Vivek. Congrats on the results as well. A follow-up on earlier gross margin question. And clearly, you said you're investing a lot in incremental capacity. At the same time, you're really scaling a lot in volume and you're improving yields. So I just wanted to know the puts and takes into what really goes inside gross margin medium to long term as you're already kind of at that target model level? John Kober: Yes. Not sure if we've put a target model out there, but definitely been working to try and improve our gross margin. As I've stated previously, there's a lot of moving pieces that contribute to the gross margin, right? We've got some of the normal costs that are out there, including labor, facility costs, equipment depreciation, those types of things as well as material costs that's all working its way through our gross margin. So yes, we've been pleased with the progress we've made over the past few quarters. And as we look out to the remainder of '26, look for continuing improvements on gross margin and also as we work our way through 2027. Unknown Analyst: Got it. And then more of a longer-term question. So obviously, fiscal '26 is really looking exceptional. As we look into '27, and I think a lot of the same drivers should relatively remain. So the 1.6T transition, the 200G PDs and et cetera. So do you see any other potential risks that would lead to results otherwise? So for example, I think an earlier question to supply availability, maybe some component cost increase or any quarterly lumpiness or just your customer exposure mix. Any help in understanding how next year should traject should be helpful. Stephen Daly: Thank you. And I think, yes, to all of those elements that you described, that those are things we deal with on a regular basis. And that's also why we're always hesitant to talk about long-term targets and growth because there's a lot of variables that are outside of our control. But that said, we are in a position where we have -- as I mentioned on my script, we're in the right place at the right time with a great product portfolio, and we have a lot of interest across the 3 markets. So we do expect our fiscal '27 to be a strong year. And we don't think that this growth we're seeing in this quarter is sort of a onetime event. We expect to see solid growth in 2027. I think it's the normal list of risks that you brought up. There's always geopolitical, supply chain type issues that you have to deal with, and we think we do that reasonably well. So that's also, of course, offset by new growth opportunities. And the Defense market right now is very active, not only here in the U.S., but also overseas. We have a growing customer base in Europe. When we were looking at our recent growth rates, between North American and European Defense customers, they're both growing at the same rate, and we are very pleased to see that. So the Europeans are spending more money on electronics and defense systems, and we're participating in that. So that's certainly going to help next year. The Data Center, we're not expecting a slowdown. The hyperscalers continue to invest. That's clear. And on the Telecom side, we're well positioned in SATCOM to have a very strong year in our fiscal '27. Operator: Thank you. And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Daly for any closing comments. Stephen Daly: Thank you. In closing, I would like to thank all of our dedicated and talented employees who made these results possible. Have a nice day. Operator: That does conclude our conference for today. Thank you for your participation, and you may now disconnect.
Operator: Good morning, everyone, and welcome to the Inspired Entertainment First Quarter 2026 Conference Call.[Operator Instructions] Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the first quarter 2026 earnings press release and in the accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. This also applies to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead. A. Weil: Thank you, operator. Good morning, everyone, and thanks for joining our first quarter conference call. Once again, we've prepared a slide deck to help focus the conversation, and Brooks and I will be using that for the balance of the program. So beginning with Slide 3. We continued in the first quarter to see the benefits of steps taken in 2025. As been reported previously, we took 2 important actions in 2025 to alter the balance of our portfolio. We sold the holiday park business, which we've discussed a number of times, and we restructured the pubs business to significantly reduce both capital and labor requirements. Overall, we've reduced company headcount by about 1/3 from over 1,500 to around 950 and cut our annualized capital spending from the mid-$40 million to the low $30 million. Adjusting for the onetime impact of the holiday park and pub restructuring, which I'll discuss a little bit more in a moment, our continuing revenue grew by 15% year-to-year, driven in large part by 38% revenue growth in Interactive. Our Q1 reported EBITDA grew by 29%. Our EBITDA margin expanded by 1,100 basis points. We paid down $13 million in debt, and we bought back close to 400,000 shares. So it was a very busy quarter. Slide 4 illustrates a little more clearly what's going on with revenue. The actions taken in holiday parks and pub together had the effect of reducing revenue in the first quarter of 2025 by about $10 million from $60 million to $50 million, as illustrated in the slide. And then driven importantly, but by no means exclusively by Interactive growth, discontinuing revenue of $50 million grew by 15% to a little more than $57 million in the first quarter of 2026. Interactive is certainly the primary growth driver, but as Brooks will discuss in more detail in a minute, our retail business has been performing very well in all its worldwide markets. The sustained interactive growth illustrated in Slide 5 has in turn been driven importantly by superior content development as has the retail business, though obviously to a lesser extent. In the retail business, the markets themselves are growing less quickly and particularly in the U.K. and Greece, our market share is much higher. In just a moment, Brooks will elaborate on our content strategy, including the bringing on stream of the new studio. But along with the focus on content development, we've been entering new markets, winning new customers, strengthening our accounts management team in order to maximize the benefit of our content. And with that, I'll hand it over to Brooks. Brooks Pierce: Okay. Great. Thanks, Lorne. And moving to Slide 6 and to build on the points you made. Our core strength and focus is on developing the best content and delivering it wherever it's consumed, including retail, online or in any number of geographies worldwide. One of our key markets is North America, which is now over 30% of our interactive GGR overall and continuing to grow. And as you can see on Slide 6, we continue to climb the ladder in the Eilers U.S. online report, moving up to fourth in the April report from #8 just a year ago. We're continuing to increase our share in both North America and the U.K. This is not-- is driven not just by content alone, but by a consistent road map of high-performing new game releases -- we've also enhanced our account management teams to work more closely with our operator partners on securing prime placements and supporting promotional activity for exclusives as a key part of our offering. On Slide 7, you can clearly see that we've built a portfolio of high-performing content across the last few years with growth accelerating since January of 2025. We've seen these trends continue into April, where we ended the month on a high note with our highest ever single day total value played. These continuing results validate our strategy, and we're excited to bring an additional studio online in the second half of the year to continue to feed our operator partners with more great content that they've come to count on. Turning to the U.K. As of April 1, the increased tax rate from 21% to 40% came into effect in our Interactive business. With just over a month of data, the impact we are seeing tracks exactly with what we had forecast. Importantly, despite the step-up, we saw our U.K. Interactive revenue grow in April, driven by our continuing share gains. Our U.K. GGR in April was more than 40% higher than a year ago, offsetting the tax increase and net-net resulting in our revenue growing by more than 10%. Where we see others retrenching in the U.K. market, we see opportunity to continue to grow our share, and we're committed to the resources to leverage this opportunity. Even with the tax headwind, the U.K. continues to demonstrate strength and resilience of this segment. Moving to Slide 8. We're seeing the benefits of both strong content and the rollout of new machines across several key customers and geographies in our Retail Solutions business, proving that this phenomenon exists beyond Interactive. In the U.K., William Hill, in particular, but frankly, our entire U.K. LBO business showed positive momentum in the first quarter, and we expect that to continue. We also added 2 new customers, Jenningsbet and Corbett's and signed a multiyear contract extension with Paddy Power early in the second quarter. In Greece, our win per unit per day increased 11%, led by our recently introduced Valor Slant top machine, and we will continue upgrading over the rest of 2026 and into 2027. We believe that this machine refresh will continue to drive growth in the Retail Solutions segment. In North America, we're cautiously optimistic about the expansion into Chicago and see the broader Illinois market as a good opportunity for us over the next 12 to 18 months. And combined with our growing footprint across several Canadian provinces, we're starting to see the beginning to -- of the--providing the scale that we really need in North America. So moving to Slide 9. As we've talked about over the last year, we've seen stabilization in Virtual Sports despite the ongoing headwinds in Brazil, which remains a key market for us. Unfortunately, growth we are seeing in other regions is currently being offset by performance in Brazil. However, we see a clear path to growth supported by additional key customers and upcoming product releases as well as the tailwind from the World Cup. Moving to Slide 10, which I think really validates what we've been talking about for some time, optimizing our portfolio is delivering the outcome we expected, divesting the lower margin, more capital-incentive -- Lorne keep your phone off -- Divesting the lower margin, more capital-intensive and less strategic holiday parts business, along with the restructuring of our pubs estate to be less capital and labor-intensive which had the exact impact we are expecting. As a result, the shift to higher-margin digital businesses, combined with improved retail performance is leading to overall growth in EBITDA, margin expansion and significant improvement in cash flow. And all of this is underpinned by our continued focus on delivering the best content to support this strategy. So I'll turn it back over to Lorne. A. Weil: Thanks, Brooks. Just to refocus a little on the numbers, Slide 11 is once again a snapshot of where we were at the end of the first quarter. Year-to-year growth in EBITDA was 29%. Digital accounted for about 60% of our EBITDA and our leverage had declined to 3x. More importantly, Slide 12 analyzes what happened with cash. We generated about $16 million in free cash flow, which we used to both repurchase stock and repay debt. Obviously, this won't occur every quarter because every other quarter, we have a semiannual cash interest payment to make. But over the course of the year, with cash generation being fairly steady and annual cash interest in the mid-30s and declining as we deleverage, our leverage free cash flow conversion as a percent of EBITDA is comfortably in the 20s and hopefully growing. Cash flow conversion and other key metrics are summarized in the targets on Slide 13. As we move through this year, we're projecting the underlying trends we've been seeing will continue. We expect to see steady sequential growth in EBITDA from Q1 onward now that most of the seasonality has been removed with the holiday park sale. And in parallel, we're targeting strong cash flow conversion and declining leverage driven by both the paydown of debt and growing EBITDA. In terms of asset allocation, we will look to continue to both debt repayment and share repurchase. And with that, we'll open the program up to questions. Operator: Your first question is coming from the line of Barry Jonas of Truist Securities. Barry Jonas: Thank you for all the helpful color so far. Just a couple for me. I think we've heard from some competitors about macro and geopolitical issues impacting the top line and perhaps the cost environment. But just -- I think I asked this last quarter, but I wanted to see if you had any updated thoughts there you could share. Brooks Pierce: No. I think we're probably aligned with pretty much everyone else, and it's something that we're watching very closely. We're not seeing the impact of it thus far, but we're obviously mindful of it. And I think the first quarter is kind of positively reinforcing that. But as we all know, you kind of have to keep your head on a swivel about this stuff. Barry Jonas: Got it. Okay. And then I think the ramp of Interactive has been fairly impressive over the past few years. But the Virtual business is one where I think years ago, we maybe had higher expectations. And maybe just wanted to kind of get your thoughts. I think before we saw some of the near-term challenges, we were thinking kind of like a mid-teens percentage of OSB handle was a decent long-term target for Virtuals. But curious if you have any updated thoughts about the longer-term opportunity here. Brooks Pierce: Yes. I think it's an interesting question. I think I would say that we're probably a little frustrated in the growth that we would have expected from Virtual Sports. Just to put it in a little bit of context, at least as it relates to North America, obviously, online sports betting is in 39 states. And right now, we're technically only allowed to go in a couple of states. So obviously, one of the things that we would hope is to add both additional states, but also additional operators. I think we have some product initiatives that are coming out that will help. We obviously expect to get some tailwind from the World Cup. That might have been aggressive to think that it was going to be a mid-teens percentage as a part of online sports betting. It's probably more like maybe mid- to high single digits is probably the right number to think about. A. Weil: I think there's another issue that I think is very important, Barry, too, which is that the opportunity for virtual sports is certainly in North America is not limited to basically a companionship with online sports betting. And that is in the lottery space. Without going into a lot of detail right now, I can tell you that we're seeing some very interesting developments with some of the most important lotteries in North America regarding the opportunity for virtual sports there. And I think definitely, as we move through this year, we'll see a couple of very meaningful developments that I think will be a tipping point for the virtual sports. Operator: Your next question is coming from the line of Ryan Sigdahl from Craig-Hallum Capital. Will Yager: This is Will on for Ryan. First wanted to ask on the guide. You reiterated adjusted EBITDA but increased the margin. So it implies that revenue a little bit lower than you expected. Curious what's the main factor going into that? Is it mostly U.K. iGaming taxes, Virtuals? Or is it something else entirely? Brooks Pierce: I think it's -- I guess, how I would characterize it is just a slight tweak. We're seeing the margins continue to increase. And obviously, you've done the math on the revenue, but I think that's it's just a guide. But we certainly feel very confident, and that's why we've upped the EBITDA margin targets. But I don't see this as a big fundamental shift of it by any stretch of the imagination. Will Yager: That's fair. And then just a quick follow-up. I wanted to ask sort of on the Interactive expansion you ended up launching in South Africa, Fanatics and West Virginia. Curious what the future expansion opportunities look like and how much more you think you have to run? Brooks Pierce: Yes. Sure. I think we've talked about this a number of times, and Lorne may want to add to my commentary because I know he talks about it a lot is look, we're going into the regulated markets where we think it makes sense, expanding in markets like West Virginia and South Africa. But I think what we feel over the longer term is there's going to be a large opportunity for expansion of iGaming in North America. Particularly with everything that's happening in terms of the states not getting the kind of support from the federal government that they've gotten in the past, and we think that there's going to be an opportunity for more and more states. Obviously, there was a whole big thing about this in D.C. recently. Virginia has talked about it. So I think it's an underappreciated -- no one knows what the timing of that is going to be, but we feel like there's going to be more states that will come on board. And frankly, if that were the case, that really takes no more for us from an infrastructure or cost standpoint to deliver these additional states other than a little bit of bandwidth cost. So we see that -- we don't know when, but we see that as a huge opportunity to be transformative for us. Operator: Your next question is coming from the line of Chad Beynon of Macquarie. Chad Beynon: Brooks and Lorne, I wanted to stick on Interactive, just given the -- how important this is and the growth that you highlighted here in the first quarter. Just thinking about the new studio, new game launches and how AI can build upon that. Could you help us think about maybe some of the tried and true games that have done well? And then with this new studio, will that all be incremental and how we use AI to just get games quicker to market for your partners? Brooks Pierce: Yes. No, thanks, Chad. That's a great question. And I think the reality is, yes, I think the single biggest thing from the Interactive side that we've been talking about for a while, and I think we've talked about this. We've looked long and hard for potential acquisitions in the space as a tuck-in to add more capacity and didn't find anything that made sense for us and finally decided that we were going to build the studio ourselves, and that's well down the path, and we'll start producing games in the second half of the year. And on your comment on AI, yes, I mean, for sure, the utilization of AI across the business, but certainly in the game development side of things accelerates the ability for us to deliver games faster, which is something that I think is going to be important for us as we go forward. So adding capacity, adding kind of different types and styles of games to broaden our portfolio and getting more games out faster through utilizing AI is clearly a big strategy of ours. Chad Beynon: Okay. Great. And then on the Retail business, focusing on units in North America. I know there were a few bills to grow the distributed gaming markets in a few states that didn't get across the end line, but you mentioned Chicago, which I think is coming in the fourth quarter. Where else can you go in the U.S.? Are you looking to get licensed in other markets? I know Louisiana, Georgia, Nebraska, et cetera, have similar types of markets that are growing on a same-store basis. But just wanted to know if you could help us on the TAM in that market. Brooks Pierce: Yes. I think what we've consciously tried to do here is to build at the right pace for us. We obviously mentioned in the release, we've got multiple Canadian provinces that are now kind of ordering machines on a yearly basis, and that's very important for us. Illinois and in particular, Chicago, assuming everything goes as expected, we will start in the fourth quarter and then will be a bigger part of next year. And I think we mentioned on a prior call that we had done or at least in a press release that we've developed in concert with Gaming Arts, a game that will go on their Class III cabinet. So we think that should be a proof point for us that our content will work in Class III. And then obviously, that opens up a number of opportunities across Class III and Class II. And then specifically, on the distributed question that you had, we kind of have to take it on a market-by-market basis. So each one has its own nuances. Montana, Nevada, Louisiana, each have their own kind of unique attributes. So we went with what we thought was the best and most likely place for success first, but we certainly are looking at not only the North American market for distributed gaming, but frankly, distributed gaming on a worldwide basis. At this time, there are no further questions. Operator? Operator: Your next question is coming from -- it's coming from the line of B. Riley Securities. Matthew Maus: This is Matthew on for Josh Nichols from B. Riley. I guess just on the Virtual Sports side, I was wondering, how should we think about the Playtech deal alongside the World Cup? Is the timing going to allow you guys to have content live on Playtech's network ahead of the tournament or maybe during it? Or is that more of like a second half and 2027 revenue driver? Brooks Pierce: Yes. I'd say it's more of a second half. We look -- we think this is a great opportunity for us to get our product into the Playtech network. I think our first customer should go live here shortly. But I would say it's much more of a second half and going into 2027 opportunity for us. Matthew Maus: Got it. And then also, I guess, in terms of like BetMGM Sportsbook tab integration in New Jersey, I mean pretty sure it's been live for a couple of months now. I'm wondering like is there any early reads that you see there on player engagement and how that can possibly lead to future operator signing with you guys? Brooks Pierce: Yes. I mean I think it's probably a mixed bag. I think the results from BetMGM in Ontario have been very good, probably not quite as good as we had hoped so far in New Jersey, but we're working with BetMGM in particular, about where we're positioned on the site and some promotional stuff. So I think it's a little early. I think maybe it's 4 to 6 weeks that we've been out with them. So it doesn't happen overnight, but we certainly feel very bullish, and we're having some conversations some of the other big sports betting operators, I think, that are looking to broaden their portfolio. And to just add on to Lorne's comment, we do think both on an online basis and importantly, in a retail basis that virtual sports or monitor gaming, as they call it, in the lottery industry is a very big opportunity for us that's underappreciated. So we would expect over the next kind of 6 to 12 to 18 months, having some pretty meaningful contribution coming from that as well. So even though the Virtual Sports business is relatively flat, there's a number of opportunities that we see that we think can get that business back to growing. Matthew Maus: Last question for me, just on the Interactive side. Maybe on the hybrid dealer pipeline, -- if I remember correctly, I think DraftKings and Betfred were expected soon to be signed. I'm wondering like where that stands and how the rest of the funnel is shaping up. Brooks Pierce: Yes, you're right about both of those. I would have expected that we would have them live at this point, but it's probably going to be June for that. So we'll start. And as we talked about before, this is the games that have the combination with our slot content that has done very well. The Wolf it Up game is the first one that will go out. And we'll be rolling it out to a number of customers starting in June. So when we have our next call in August, I guess, we'll be able to talk about that in a little bit more detail. Operator: There's no other questions in queue at this time, and that concludes our Q&A session. I will now turn the conference back over to Lorne Weil for closing remarks. Please go ahead. A. Weil: Thank you very much, operator. And again, thanks, everyone, for joining the call this morning. I think you can tell we're feeling very positive about where the business is. The one issue that had been a concern had been this issue of the U.K. tax, but at least so far in the second quarter, we've been able to more than offset the impact of the tax by our growth in gaming revenue in the U.K. So the business is really in very good shape. We're buying back stock. The leverage is coming down. The margins are going up, all the things that have been our objectives for a while. So hopefully, this will continue through the second quarter. And we'll look forward to reporting in 3 months. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia's Results Conference Call for the First Quarter of 2026. [Operator Instructions] With us today are Francis Dufay, CEO of Jumia; and Antoine Maillet-Mezeray, Executive Vice President, Finance and Operations. We'll start by covering the safe harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the Risk Factors section of our annual report on Form 20-F as published on February 24, 2026, as well as our other submissions with the SEC. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website. With that, I will hand the call over to Francis. Francis Dufay: Good morning, everyone, and thank you for joining Jumia's first quarter 2026 earnings call. 2025 was the year we demonstrated the resilience and scalability of our model and '26 is the year we plan to demonstrate our path to profitability. Q1 '26 showed that our momentum towards profitability is continuing and in several important ways, accelerating. Over the past few years, Jumia has been building an e-commerce model designed specifically for Africa, adapted to the unique structural supply, logistical and consumer realities of our markets. In 2025, we proved that this model delivers scale with improving economics and Q1 '26 confirms that the flywheel is turning. This foundation drove our strong operating momentum in the first quarter. GMV grew 32% year-over-year adjusted for perimeter effects. Growth was broad-based across our core markets, reflecting the continued strengthening of our marketplace fundamentals and efficient execution. Profitability metrics continue to move in the right direction. Adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. The business absorbed higher volumes with increasing efficiency while maintaining a disciplined approach on costs. Excluding the onetime costs related to our Algeria exit in February '26, adjusted EBITDA loss would have been $9.7 million, reflecting an underlying improvement of 38% year-over-year in our core business. Based on the progress we made in '25 and the momentum continuing into Q1 '26, we remain focused on achieving our target of adjusted EBITDA breakeven and positive cash flow in the fourth quarter of '26 and delivering full year profitability and positive cash flow in '27. I should also note that we are monitoring the broader macro environment, including cost increases in memory chips and the ongoing geopolitical tensions in the Middle East as well as the potential effects on global supply chain, shipping costs and commodity prices. While we have observed limited impact on our business to date, we remain attentive to downstream risks, including potential pressure on smartphone components availability and transport costs. We believe the resilience of our model and the diversity of our supplier base positions us well to navigate this uncertain environment. Notwithstanding these external matters, we reiterate our guidance for 2026. Let me walk you through the key highlights of the quarter. Usage trends remain strong across our platform. Adjusted for perimeter effects, physical goods orders grew 31% year-over-year, driven by expanding in-country geographic coverage, improved assortment and sustained consumer demand. Our focus remains clearly on physical goods, which accounted for nearly all orders and GMV this quarter. Digital transactions through the JumiaPay app now represent a residual share of our orders as we continue to prioritize transactions with stronger economics. Relatedly, TPV and Jumia Payments gateway transactions have become less meaningful as indicators of our operating performance and effective as of the first quarter of '26, we will discontinue the quarterly disclosure of these KPIs. Adjusting for perimeter effects, quarterly active customers increased 25% year-over-year, reflecting continued traction in both acquisition and retention. Repeat behavior continued to improve with 47% of new customers from Q4 '25 making a repeat purchase within 90 days, up from 45% in Q4 '24. Demand was broad-based across electronics, home & living, fashion and beauty and consistent across most countries, reflecting a similar quality of execution and inputs across our markets. Adjusted for perimeter effects, GMV grew 32% year-over-year in reported currency. Average order value for physical goods increased to $36 from $35 in Q1 '25. Revenue totaled $50.6 million, up 39% year-over-year, driven by higher usage and improved monetization. First-party sales represented 46% of total revenue, supported by continued strength from international partnerships, including Starlink in Nigeria and Kenya. Now turning to profitability. The progress made over the past 3 years continues to translate into measurable operating leverage. Cost improvements across general and administrative, technology and fulfillment are structural. In addition, we renegotiated third-party logistics contracts in February and March and implemented increases in commissions and take rates across most countries in mid-January '26. This reflects the scale of our platform and improved service levels delivered to sellers. Importantly, these commission increases had limited impact on growth, validating our strategy of progressive monetization increases on the back of greater volumes and better seller experience. We also drove meaningful growth in higher-margin revenue streams with marketing and advertising revenue up 44% year-over-year and value-added services revenue nearly tripling, which both reflect improved platform monetization. These changes are consistent across markets and reflect stronger marketplace fundamentals. Fulfillment cost per order was $2.06, flat year-over-year on a reported basis or down 10% year-over-year on a constant currency basis. This reflects productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Most fulfillment operating expenses are incurred in local markets and denominated in local currencies. Technology and content expenses declined 8% year-over-year, reflecting ongoing headcount optimization, automation, platform simplification and the benefit of renegotiated seller agreements, including cloud infrastructure. As a result, adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Quarterly cash burn increased to $15.3 million in Q1 '26 compared to $4.7 million in Q4 '25. The shift from the previous quarter is consistent with typical seasonal dynamics. This compares favorably to the $23.2 million decrease in liquidity in Q1 '25, demonstrating the improvement in our financial trajectory. Now turning to operational highlights and execution at the country level. Q1 '26 demonstrated continued execution strength across our markets. Supply fundamentals remain solid with improvements in both local and international sourcing. Growth was supported by strong performance across multiple categories with fashion and beauty among the top contributors to items sold growth year-over-year and with international items continuing to gain share. Efficient marketing deployment, including CRM, paid online, SEO channels, supported customer acquisition at attractive unit economics. In the first quarter, we sold 4.9 million gross items internationally, up 87% year-over-year adjusted for perimeter effects. This reflects the continued scaling of our Chinese seller base as well as growing volumes from our supply base from affordable fashion in Turkey. Operationally, we continue to extend our reach beyond major urban centers. Orders from upcountry regions accounted for 62% of total volumes, up from 58% in the prior year quarter, both adjusted for perimeter effects. These regions are delivering strong growth while benefiting from a cost structure that scales efficiently with volume. In secondary cities, we are addressing clear customer pain points, including limited product availability and elevated prices from local traders. As a result, our value proposition continues to resonate strongly, driving both adoption and repeat purchase. Now at the country level. Nigeria delivered a strong quarter. Physical goods GMV increased 42% year-over-year. Sustained growth was driven by a broad range of categories with home & living performing particularly strongly alongside continued traction from a country expansion, where a large part of the addressable market remains untapped. We opened over 80 additional pickup stations during the quarter, further extending our delivery network. I should note that Nigeria experienced a significant increase in local fuel prices during March, which created headwinds in our 3PL cost negotiations. However, consumer demand remains sustained and strong. Kenya performed strongly with physical goods GMV up just below 50% year-over-year. Performance was driven by continued strong supply fundamentals and efficient marketing despite similar headwinds to other countries in the phones category. Strong performance in home & living driven by local suppliers and in fashion, driven by international suppliers more than offset the tighter supply in phones. Kenya remains a relatively underpenetrated market for Jumia with vast opportunities up country and we continue to invest in expanding our reach. Ivory Coast growth gradually moderated over the course of the quarter. Physical goods GMV was up 16% year-over-year. Growth was affected by 2 converging headwinds. First, supply disruption in appliances, which is market specific and in smartphones, which is a global dynamic, both felt directly in the market where we have our highest penetration levels. And second, a sharp decline in regulated cocoa farm gate prices down nearly 60% effective in March '26, which reduced the purchasing power of a large share of the upcountry population. Cocoa is the primary export of Ivory Coast and approximately 6 million people depend on it for their livelihoods. This is a meaningful demand side headwind that we expect to persist in the second quarter. However, we remain confident in the fundamentals of our business in Ivory Coast, where we hold a very strong position with a trusted brand and healthy monetization. Egypt's performance this quarter confirmed sustained recovery. Physical goods GMV grew 3% year-over-year, excluding corporate sales, which were still material in Q1 '25, but has since been deprioritized. Physical goods GMV grew 56% year-over-year, confirming genuine market level recovery. Very strong dynamics on the supply side of our marketplace are driving top line acceleration, supported by improved assortment and seller engagement. Our buy now, pay later offering continued to gain traction with strong penetration in high-value categories. Egypt experienced a fuel price increase in March as well, which we are monitoring. However, core marketplace dynamics remain positive. We are also expanding our delivery network through pickup stations in more remote regions, which are poorly served by physical retail. Ghana delivered an exceptional first quarter with physical goods GMV increasing 142%, driven by a country expansion, the scaling of local marketplace and strong supply from international sellers. Ghana was largely unaffected by the disruption in the electronics segment. Our current focus is to continue building logistics capacity to sustain this rapid expansion with stronger customer experience and cost efficiency. Our other markets portfolio also performed well, collectively delivering 10% physical goods GMV growth. Uganda experienced a nearly 1-week internet blackout during the quarter, temporarily impacting volumes, though the market still delivered growth for the period. In February '26, we completed our exit from Algeria, which represented approximately 2% of GMV in '25. The winddown resulted in total onetime exit costs of approximately $1 million, reflecting employee termination benefits and asset impairment, which were all recognized in our Q1 '26 results. Over the medium to long term, this decision simplifies our footprint and improves operational focus, allowing us to allocate resources more efficiently towards markets with stronger growth and profitability profiles. We have not seen significant changes in our competitive environment in Q1 '26. The softening of competitive intensity trends observed in the second half of '25 has continued with competitive intensity remaining subdued across our core markets. The recent disruption of air freight going through the Middle East is expected to create headwinds for non-resident platforms that rely on direct international shipping, contributing to a more level playing field for locally embedded operators like Jumia. Most of our supply comes via sea freight, which was not impacted. We are also seeing increased regulatory scrutiny on cross-border platforms across several of our markets, further reinforcing this dynamic. We are navigating an international environment that is evolving quickly with 2 main developments having the potential to impact our business. First, the memory chips and CPU price increases. We saw a delayed impact on entry-level phone prices and the availability of components for products like smart TVs taking place gradually over Q1. Phone prices increased by approximately 20% between late '25 and early April. We do not see this as a fundamental long-term shift, but it is impacting our business in the near term as supply chains reorganize. Distributors remain temporarily reluctant to release fresh inventory, while prices may increase further and older, cheaper inventory in some markets is still temporarily competing with our more recent supply. We are mitigating this by diversifying our supplier base for smartphones and scaling our marketplace across both local and international sellers. Second, the war in the Middle East. The most immediate impact was the disruption of air freight through the UAE from Asia, which affected some smartphone distributors. Supply routes have since reorganized through other hubs. There are also delayed effects. Disruption to helium supplies creates additional uncertainty for chip production and the majority of our markets have seen fuel prices begin to rise from March, which is expected to weigh on local logistics costs, particularly for middle-mile trucking operations run by our local partners. The impact on our Q1 P&L has been limited with extra costs primarily in Nigeria. If high fuel prices persist, we should expect greater pressure in Q2, potentially partially offsetting the savings from our 3PL rates renegotiations. That said, our strategy of building pickup stations throughout countries is very helpful in this regard as it means that we have already decorrelated a significant share of our delivery costs from fuel prices. In particular, 74% of our ship packages are fulfilled through pickup stations rather than door delivery in Q1 '26, up from 67% in Q1 '25, both adjusted for perimeter effects. We have also taken steps to electrify our last-mile delivery fleet in Uganda and we are looking to replicate this successful pilot in more countries as we continue to reduce our dependence on fuel in logistics operations. '25 was the year when we showed that our business model is on the right track. It delivered growth and improved economics at the same time. '26 is the year when we intend to show that this model will take us to profitability. In this regard, Q1 is a strong data point that is consistent with Q4 '25 trends. We see sustained growth despite an uncertain environment, continued operational leverage and improved unit economics across the whole P&L, resulting in significantly reduced losses. We are committed to delivering trajectory to breakeven by chasing more scale in a disciplined way, improving operational execution and further streamlining our fixed cost base. While we are currently navigating an uncertain international environment, we believe that our business fundamentals, which were rebuilt from '22 to '25, mostly in much tougher times than this are strong. We do expect some temporary disruption, but it does not change our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. With that, I will now turn the call over to Antoine to walk you through the financials in more details. Antoine Maillet-Mezeray: Thank you, Francis, and thank you, everyone, for joining us today. I will now walk you through our financial performance for the first quarter. Starting with revenue. First quarter revenue reached $50.6 million, up 39% year-over-year or up 28% on a constant currency basis. Results reflect sustained customer demand and consistent execution across our platform. Marketplace revenue for the first quarter totaled USD 27 million, up 50% year-over-year and up 35% on a constant currency basis. Third-party sales were USD 23.2 million, up 45% year-over-year or up 31% on a constant currency basis. Growth was driven by solid performance in the marketplace, including healthy usage trends and higher effective take rates. Marketing and advertising revenue was USD 2.2 million, up 44% year-over-year or up 31% on a constant currency basis. The improvement was driven by continued growth in sponsored products, supported by strong tools rolled out in mid-2025 that increased seller adoption, improved return on ad spend and drove greater density and competition on our marketplace. With advertising revenue currently representing roughly 1% of GMV as we are improving this figure, we see meaningful opportunity to scale this profitable source of revenue. Value-added services revenue was USD 1.7 million in the first quarter of 2026, compared to USD 0.6 million in the first quarter of 2025, driven by strong growth in warehousing fees, reflecting higher volumes flowing through our storage infrastructure, largely driven by demand from Chinese sellers and improved monetization of our warehousing services. Revenue from first-party sales was USD 23.1 million, up 30% year-over-year or up 21% year-over-year on a constant currency basis, driven by strong momentum with key international brands. Turning to gross profit. First quarter gross profit was USD 29.4 million, up 48% year-over-year or up 33% year-over-year on a constant currency basis. Gross profit margin as a percentage of GMV increased by 160 bps to 13.9% for the quarter compared to 12.3% in the first quarter of 2025, reflecting continued progress in marketplace monetization. As we enter 2026, we implemented broad-based increases in commissions across most countries, leveraging the scale and improved service levels we have built with sellers. Q1 2026 was already tracking the expected impact with gross profit margin expanding by 160 bps year-over-year, marketing and advertising revenue up 24% and value-added services revenue nearly tripling. We expect these trends to continue supporting gross profit growth going forward. Now moving to expenses. We continue to see the benefits of our cost initiatives in the first quarter with additional improvements expected to materialize over the coming quarters. Fulfillment expense for the first quarter was USD 12.2 million, up 29% year-over-year and up 17% in constant currency, primarily due to higher volumes. Fulfillment expense per order, excluding JumiaPay app orders, was $2.06, flat year-over-year or down 10% year-over-year on a constant currency basis, reflecting productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Sales and advertising expense was USD 5.1 million for the first quarter, up 64% year-over-year and up 54% in constant currency. We view this increase positively. We are scaling high ROI marketing investment on the back of stronger product fundamentals, improved quality of service and higher platform reliability, driving not only top line growth, but also better unit economics as higher volumes and improved customer retention contribute directly to operating leverage and margin improvement. Technology and content expense was $8.9 million for the first quarter, representing a decrease of 8% year-over-year or a decrease of 10% on a constant currency basis, driven primarily by continued headcount optimization and ongoing renegotiated seller contracts. First quarter G&A expense, excluding share-based compensation expense, was $16.8 million, up 4% year-over-year and down 3% on a constant currency basis. The year-over-year increase was primarily driven by staff costs with general and administrative expense, excluding share-based compensation expense, which increased by 16% to USD 9.1 million, driven by approximately USD 0.8 million in onetime termination benefits related to our Algeria exit and the appreciation of local currencies against the U.S. dollar compared to the first quarter of 2025. We continue to streamline the organization. The total headcount has declined by 8% since December 31, 2024, with just over 1,980 employees on payroll as of March 31, 2026. At the end of the fourth quarter of 2022, when current leadership was installed, we had 4,318 employees. We are actively working to further reduce headcount, continue process automation and leverage AI tools. We expect to reduce our headcount by at least an additional 200 full-time employees over the next 2 quarters. More broadly, AI and automation are becoming meaningful drivers of efficiency across Jumia. We are deploying AI tools across our operations, finance processes, headcount efficiency programs in our technology organization, encompassing cybersecurity monitoring and software development, which supported the net FTE reduction and drove efficiency gains year-over-year. Importantly, AI is also helping us solve problems on the ground. In logistics, it improves routing and reduces failed deliveries. In customer services, it enables faster resolution with fewer agents and in sellers operation, it streamlines onboarding and compliance monitoring. This is not only reducing cost but also improving the quality of service we deliver to customers and sellers, reflecting our ongoing commitment to structural cost efficiency. Turning to profitability, adjusted EBITDA for the quarter was negative $10.7 million or negative $10.9 million on a constant currency basis. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Turning to the balance sheet and cash flow. We ended the first quarter with a liquidity position of $62.6 million, including USD 61.5 million in cash and cash equivalents and $1.1 million in term deposits and other financial assets. Our liquidity position decreased by $15.3 million in Q1 2026 compared to a decrease of $23.2 million in Q1 2025. Net cash flow used in operating activities was $12.5 million in the quarter, including a broadly neutral working capital contribution. The improvement reflects the continued strengthening of our marketplace flywheel driven by higher volumes, improved payment flows and stronger bargaining power with large third-party accounts. In summary, we delivered another quarter of solid execution and strong top line growth while continuing to improve cost efficiency. Progress on structural cost reductions, automation and cash discipline reinforces our confidence in meeting our near-term objectives and moving closer to profitability. Looking ahead, we remain focused on operational discipline, margin expansion and prudent and informed capital allocation, positioning Jumia for sustainable growth and long-term value creation. I now turn the call back over to Francis for a discussion of our updated guidance. Francis Dufay: Thank you, Antoine. Let me now turn to our expectations for 2026. Our focus for '26 remains on accelerating growth, driving further operating efficiency and continuing our progress towards profitability. We are seeing continued strong momentum validated by our Q1 results, which give us confidence in reaffirming our full year '26 outlook. We are navigating an evolving international environment. While we expect some temporary disruption from memory chips and CPU price pressures and the ongoing conflict in the Middle East, our business fundamentals are strong. Our Q1 '26 results demonstrate continued execution and we have not changed our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. For the full year '26, we anticipate GMV to grow between 27% and 32% year-over-year adjusted for perimeter effects. On profitability, we expect adjusted EBITDA to be in the range of negative $25 million to negative $30 million. We confirm our strategic goal to achieve breakeven on an adjusted EBITDA basis and positive cash flow in the fourth quarter of '26 and to deliver full year profitability and positive cash flow in '27. Looking specifically at the second quarter, GMV is projected to grow between 27% and 32% year-over-year adjusted for perimeter effects. Thank you for your attention. We will now be happy to take your questions. Operator: [Operator Instructions] Your first question for today is from Jack Halpert with Cantor Fitzgerald. John Halpert: I just have 2, please. So on the memory chip inflation, are you maybe able to quantify this at all in terms of the impact in the quarter? And maybe how much of this has been resolved already versus expected to continue in 2Q and beyond? And just is it more about consumers like deferring purchases trading down? Or is it more of a supply availability issue? That's the first question. And then the second question, just on the AI efficiency you guys mentioned and I think the planned 200 reduction in headcount. First, just how much of this headcount reduction is tied to the Algeria exit, if at all? And then maybe on the AI side, what are a few examples of areas you're seeing the most efficiency in the business from AI currently? Francis Dufay: Let me take the 2 questions and Antoine will also comment on the AI impact across our business. Starting with memory chips, CPU prices inflation. So to quantify the impact, you can look at our presentation where we show the share of smartphones category in our mix. You'll see that the whole smartphones category, I mean, is directionally roughly 10% of our sales in GMV. This is usually a category with lower unique contribution. It's lower margins than, let's say, fashion, for example. So it definitely has -- I mean, it's not 10% of our gross profit, as you can imagine. It's not the whole category that's in danger. Obviously, it can impact the growth of the category and it has in the first quarter. It's likely to continue in the second quarter. But we're not talking of a major impact over the whole top line of Jumia, okay? It's something that we have to flag because it's global trends and it's relevant for our business, but we're talking impact on a fraction of our total business and it will not wipe out like half of the sales, obviously. It's limited. And most importantly, we see it as temporary. The timing here is that we had delayed impact really. A lot of people asked us questions, sorry, late 2025 and in the first month of '26 and really not much was changing on the market at this time. And then prices -- the price increase of directionally 20% that we've mentioned on entry-level smartphones was mostly felt in the month of March across key countries. So that's directionally what happened. We believe it's a matter of timing. I mean we're used to those kind of supply disruptions and market reorganizations. So it doesn't last forever, but we know that for a couple of months, supply may be disrupted. Some brands may be doing better and some brands may be more disrupted, which we've seen in the market. Some brands will be running out of stocks. Some brands will still be available with sometimes lower price increases. For example, we see that Samsung has had lower price increases because they have much better integration of the whole supply chain. But basically, we see it as temporary disruption as the supply chain reorganizes. And when it comes to consumer impact that you were asking, we see a mix of both, right? We see a mix of, of course, prices increasing, so consumers are trading down. When people are still buying smartphones, that will never change, but they are buying lower specs with the same amount of money in their pocket. And on the other hand, we also see supply -- I mean, pure supply availability issues on very specific brands in very specific markets. So as we mentioned in the -- earlier in the call, we've been more impacted in the Ivory Coast, for example, than in Kenya in terms of pure supply availability. So all of that is having an impact, some level of impact, but we see it as clearly temporary. It's not -- I mean, it's not a long-term challenge. We will keep on selling smartphones and the market will reorganize. And what matters is that we have access to the best supply, the best prices and our distribution is a huge advantage when it comes to selling smartphones across Africa. And then to your second question about headcount, the 200 target is not tied to Algeria. So most of the impact on Algeria is already behind us. So the 200 headcount reduction that we mentioned has nothing to do with the exit from Algeria. Antoine, do you want to comment on the use of AI across our team? Antoine Maillet-Mezeray: Yes, I can take this one. Thank you. Obviously, we're using AI in tech, be it in cybersecurity or coding. We are able to be much, much more productive thanks to the different tools that we are using. We pay a lot of attention to be agnostic in terms of tools so that we don't end up with 1 or 2 suppliers that will change pricing policy overnight. But we are going much further than pure tech. We're using AI in accounting, for instance, to automate bank reconciliations. If you want a very pragmatic example, we're also using AI in HR. Basically, we have a lot of database, which are very structured and ready to be used consumed by AI, allowing us to produce smarter reporting in a much faster way and being able to share the information across our very large footprint, resulting in better efficiency. Operator: Your next question is from Brad Erickson with RBC Capital Markets. Bradley Erickson: Just a couple of follow-ups on that first question. I guess with maintaining the full year guide, it looks like maybe a little bit of deceleration built in there through the year. I guess would you say that outlook kind of reflects this idea that some of these headwinds you're talking about are sort of dynamic and adjusting and reflected in Q2, but then sort of stabilize through the year? Or is there any contemplation in the range that maybe things get worse? Francis Dufay: Well, in the current international environment, if you -- Brad, if you know for sure what's going to happen, please tell me. We could make a lot of money. Well, more seriously, we acknowledged some level of uncertainty in the international environment with very specific aspects that can have a negative impact on our P&L. We mentioned chip prices and fuel prices. We remain confident in the range that we have given as guidance for the full year and for the second quarter. It accounts -- I mean, it covers, it includes some level of uncertainty. But I think it reflects -- I mean, the fact that we stabilized that range reflects our opinion that most of the disruption we're seeing is temporary. So we're seeing real headwinds like the demand side headwinds in the Ivory Coast due to cocoa prices is real and can be felt on the ground. Smartphone price increases and supply disruption is real and can be felt on the markets. But we all see that as quite temporary and really not disrupting the fundamentals of our business, neither the midterm or long-term opportunity. So we -- and we're also seeing continued strength in the trends in several countries, especially Nigeria, which is still growing over 40%; Ghana, which is growing over 100%. So in short, those headwinds and that level of uncertainty is not structurally challenging our business and it's not something we expect for the long run. So this range of 27% to 32% top line growth that we're giving for the second quarter as well is our best assessment in the current environment based on the early results of the quarter that we're already seeing and reflects the level of confidence in our business model. Bradley Erickson: Got it. And then you called out marketing and being a strong point in your prepared remarks. I guess just within your outlook, how much kind of flexibility do you think you have on marketing given some of these other headwinds you're talking about? And I guess how much kind of like offense do you feel like you can play here in 2026 in terms of putting your foot down on marketing? Or is it still fairly measured given how some of the macro factors you're talking about? Just kind of the upside, downside considerations there with marketing spend. Francis Dufay: Yes. I think 3 things on the marketing side. So first of all, I think we remain at spend ratios that are very reasonable for an e-commerce company of our size, right? Our ratio of spend is slightly lower than much, much bigger peers in emerging markets, which shows frugality and efficiency in that field. So we were very -- I mean we're confident in our ability to spend very efficiently our marketing budget and driving strong returns. Second, we still have major improvements coming over the year in terms of efficiency and the better use of our marketing channels, especially online. And third, we are very reactive as well. A large part of those budgets are spent on online channels where it's very easy to pilot on a monthly, weekly, daily basis. So we are able to make decisions if needed, if we see lower traction in a given market. We're very dynamic in reallocating budgets when we need to on a daily or weekly basis. At this stage, we believe we still have -- I mean we do have sufficient traction and that justifies the amount that we're spending. But we are very flexible and we can be extremely reactive if we see different trends. Bradley Erickson: Got it. And then one last one. Just when you think about the journey to cash flow positive in the next year, you talked about the headcount reduction here in the next few quarters. Besides that, just what are kind of some of the major pain points on reaching that goal that you still -- you feel like you still have to get through? Francis Dufay: You mean the goal of cash flow positive? Bradley Erickson: Correct. Francis Dufay: I would not talk about pain points. I mean I'll let Antoine comment as well, but I think the path is pretty clear, right? I mean if you look at our numbers, now it's just -- it's not just us talking. You have very clear verifiable numbers showing that we're able to scale, we're able to improve the unit economics, get operating leverage and further reduce the fixed costs. So that's a very clear trajectory that takes us to breakeven. It's mostly an execution game. It's mostly an execution game. I would not say we have blockers or pain points. We know very much what we're working on. We need to keep on scaling the top line and keep on delivering those improvements in the unit economics and further reducing in absolute terms of fixed costs. I think you can see a clear trajectory in the last 2 quarters. It's extremely consistent. It's all about execution unless there would be a major macro disruption that we're not seeing at this stage, it's really about execution. Operator: Your next question for today is from Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: Very nice quarter and execution. Laundry list of, let's call them, crosswinds, some headwinds in Q1 into Q2. Outside of those, it feels like the business is actually outperforming because you reiterated the guide, you outperformed in Q1. Q2 guide is in line despite kind of all of those challenges. So I guess trying to take a step back and maybe normalizing for a lot of those outside factors, how you feel about the progress thus far in the year internally? Francis Dufay: Yes. Thanks, Ryan, for putting it this way. I mean we -- Antoine and I are very deeply in the business and we -- it's sometimes good to step back and realize the progress. I mean we have a tendency to look more at the problems than the successes, but it's how we managed to push it forward. But yes, I think there are very clear bright side this quarter. It's very clear and that's what you see in our presentation on the operating leverage. And we see that we, again, this quarter, just like in the fourth quarter of '25, we're able to show significant GMV growth. So the business model is working while clearly improving all the unit economics. So 31% GMV growth that translates into a significant improvement of 64% of all gross profit after fulfillment and marketing costs. So that's real operating leverage and we're able to further reduce our fixed cost, thanks to pretty hard work on tech specifically this quarter, but also a lot happening in G&A that will pay off in the coming quarters. You see the 1/3 32% improvement in adjusted EBITDA. So I think the bright -- I mean, the key message of this quarter is we're able to show very consistent improvement after Q4 with significant growth that's sustained in spite of the environment and continued progress on the unit economics and fixed costs. And we expect that to continue. There's no reason why the trend should change in the coming quarters. Ryan Sigdahl: Very good. We've noticed -- you mentioned Nigeria strength. We've noticed an expanded pickup station footprint there, particularly in secondary cities. Can you talk about Nigeria, but also you mentioned it in Kenya and others, but kind of the upcountry expansion, how you think about that strategy with pickup stations? And then if maybe that strategy has evolved or changed in recent kind of months as you guys have rightsized the cost structure, infrastructure and overall company? Francis Dufay: So I'll talk about Nigeria right afterwards. But overall, across countries, we keep on expanding our reach. So basically opening new pickup stations in new cities that we're not covering or densifying the network in existing bigger cities. This is a very important component of our growth plan because it basically increases the addressable market, right? We are building our distribution network and partnering with local entrepreneurs. And if we don't have -- I mean, if we do not build the distribution network in a given city, it means that city is outside of our addressable market. So by expanding this network of pickup stations, we are increasing our addressable market, which is arguably one of the easiest and cheapest ways to grow our top line. This is happening across all countries, but Nigeria is the most striking example. A few months back, Nigeria, we are still covering about 1/3 of the addressable market of the population. If we look at the cities where we had established distribution, the total population was about 1/3 of total population, which is massive room for improvement. In our more mature markets, we're close to 60% in Ivory Coast, for example. So it gives you an idea of the potential that's still untapped in a country like Nigeria. So we're very -- I mean, we're happy about the growth in Nigeria. We believe we can still get more than that. The growth in Nigeria is largely driven by up country. So distribution expansion, that's a big driver. But we're also seeing very favorable trends across categories and supplies. We mentioned home & living as a strong category this quarter in Nigeria. We're seeing strong engagement on our local marketplace. We're seeing increased supply from international vendors, mostly from China, but also from Turkey in Nigeria. So I think we have lots of tailwinds in Nigeria and the hard work of the past couple of years is really paying off, which is critically important in a market where, first of all, there's so much potential to address. Second, the competitive intensity has reduced around us. And third and quite importantly, it's a market where we have good unit economics after -- especially after the devaluations over the past few years, local unit costs are fairly low and while it's quite profitable to scale in Nigeria to put it this way. Operator: Your next question is from Fawne Jiang with Benchmark Company. Yanfang Jiang: First of all, your international seller growth appeared very strong. Just wonder how should we think about the merchant ramp-up and the typical lead time from onboarding to more meaningful GMV contribution, particularly considering you are opening a new sorting center [indiscernible] and how would that potentially impact your take rate going forward? Francis Dufay: Yes. So that's an important question, guess -- so how can I put it? So the growth we're seeing today in volumes items sold and the whole business from international sellers is actually the result of the last 3 to 4 years of work. Typically, the timelines when a supply -- when a new Chinese vendor is onboarded, we expect meaningful contribution after more than a year, sometimes 2 years or more to deliver volumes and margins. It's because we onboard vendors who don't always -- I mean, don't know very well our markets. They need to test the waters first, they send small supply to the countries. And then gradually, they will scale their inventory in our most important countries. So this process does take time. So they learn the market and they commit more and more working cap and inventory to our countries. And so what you see today is really the result of like 3 to 4 years of real hard work. What we see on the ground in China, I mean, since the whole tariff thing last year, we've seen that strong -- I mean, much stronger enthusiasm and strong engagement with Chinese vendors. We've seen more and more vendors willing to join our platform and sell on Jumia. The trend has been very well maintained over the past quarters and consistent now. And this increased -- this increased volumes of onboarding of vendors is going to reflect over time, but it's not yet fully felt in the numbers. So the good news here is that we really have a pipeline of vendors and the pipeline of supply coming to Africa that will get -- should get stronger over time due to the medium- to long-term structural nature of the work we're doing with our Chinese vendors. And in terms of margins, as we mentioned in the past, the rise of international supply is accretive to our margins. These vendors typically operate in categories that have higher -- sorry, gross profit ratios such as fashion, accessories, home & living and so on. They are also much better contributors to our margins when it comes to purchasing advertising services and using our storage services. So at the end of the day, it enables us to get higher monetization from those sellers and from the local marketplace. Yanfang Jiang: Understood. Another, I guess, topic I want to touch upon is actually your fulfillment leverage. You guys continue to show the leverage there. Just given you are going to very high growth momentum, especially in some of the countries, how sustainable is, I think, the fulfillment leverage? Are any logistic capacity constraints or upcoming investment we should be mindful? Francis Dufay: I'll spend some time on fulfillment. It's an important one because it's our biggest cost bucket. So first of all, I mean, we're still seeing some leverage on costs this quarter with the fulfillment cost per order that's declining 10% in local currency and it's almost all local OpEx. So the local currency view is relevant. But we're not happy with the progress, right? In dollars, we're flat year-over-year at $2.1 per gross order. We want to do better than that. So just to set the stage, we're not happy with the progress here, although there is some leverage that visible in local currency. We believe those cost per order should keep on going down going forward. And scale should play in our favor. There can be very specific temporary cases where like very high volumes lead to some level of inefficiency, but that's really not what should happen across countries and over the long run. So looking specifically at the improvements and the leverage we have on that fulfillment cost per order, we have a lot of work that has -- well, that has been ongoing over the past 2 quarters already. On the fulfillment -- so on fulfillment staff cost, which is about 1/3 of the cost here, we have a big push for higher productivity and more automation. We're rolling out at the moment, for example, new tools at the warehouse to increase productivity and tracking of the workforce. So we believe we have some potential to improve there. And on the transport side, which is around 2/3 of the fulfillment staff cost, about 60%. So on transport, which is basically all the money we're paying to our local logistics partners. We have recently implemented a renegotiation of all the fees, I mean, a reduction of all the fees. Some of that will be partly offset by the fuel price increases, which will lead to surcharges in some countries. But over the long run, as prices will normalize, we expect the surcharges to go away. And we are working to improve also the efficiency of our local partners for logistics, so we can renegotiate their fees. So we're working on new tools to make middle-mile trucking more efficient for our partners so we're able to split the savings with them. And this will be operational later this year. So we still have a lot to do and we still have a lot of efficiencies to capture there. It's a lot of hard work, right? We're using more and more AI to make it more efficient in supply chain as well. Part of it depends on tech progress, which we're seeing on the ground and scale should be a tailwind in this regard. Yes, I hope that answers the question. Yanfang Jiang: Yes, that's very helpful. Lastly, more on housekeeping. Can you provide some color on the FX -- latest FX trends for your key countries? Francis Dufay: Yes, Antoine, do you want to take FX? Antoine Maillet-Mezeray: Yes. So you can see that we've had a disconnect between the progress we made on the adjusted EBITDA basis and the net loss before tax. And this was driven by Forex exchange, which was noncash. If you compare to Q1 '25 last year, we had a net FX gain of USD 2.1 million. And this year, we have recorded a loss of $3.5 million. Again, that swing is not cash-based. There is no cash impact. And this reflects the impact of FX swing on intercompany balances that we have between the total holding and the operations. We are working actively on this one to reduce the impact of the Forex by accelerating repatriating cash and other restructuring operations. This was for the finance and accounting part. On the business side, before Francis comments, if you want, we see some impact, but what is important for us is that the movements are not too violent so that our vendors do not hesitate to import in the countries, which has been the case this year. So so far, we are able to handle properly the FX swing that we are seeing. Francis Dufay: Yes. I'll just add briefly on that. We've seen huge swings in FX over the past 4 years across our key countries like Nigeria and Egypt. There's no such thing happening right now. Local currencies have been behaving much more strongly even over the past few months. And as Antoine mentioned, the most important part here is that it's not impacting suppliers' confidence. It's not impacting customers' purchasing power in any significant way and we're not seeing any disruption in the business because of this. Operator: We have reached the end of the question-and-answer session and conference call. You may disconnect your phone lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Griffon Corporation Fiscal Second Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brian Harris, CFO. Please go ahead, sir. Brian Harris: Thank you. Good morning, and welcome to Griffon Corporation's Second Quarter Fiscal 2026 Earnings Call. Joining me for this morning's call is Ron Kramer, Griffon's Chairman and Chief Executive Officer. A press release was issued earlier this morning and is available on our website at www.griffon.com. Today's call is being recorded, and the replay instructions are included in our earnings release. Our comments will include forward-looking statements about Griffon's performance. These statements are subject to risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our SEC filings. Finally, some of today's remarks will adjust for items that affect comparability between periods. These items are explained in our non-GAAP reconciliations included in our press release. With that, I'll turn the call over to Ron. Ronald Kramer: Thanks, Brian. Good morning, everyone. Thanks for joining us. On February 5, we announced a series of strategic actions to focus Griffon into a pure-play North American building products company. These actions included the formation of a joint venture involving our AMES North America businesses and the strategic review of our AMES Australia and AMES United Kingdom businesses. As a result of these actions, starting with our second quarter earnings release today, our continuing operations from financial performance is presented as a single segment. The Global AMES businesses are now reported as discontinued operations. We're very pleased with our financial results at the halfway point of our fiscal year. Our team's performance has been solid, showing resiliency managing through uncertain global economic conditions. We continue to perform well in soft U.S. housing and commercial construction markets. I'm proud to report Clopay continues to assert its position as the leading garage door provider with best-in-class product innovation. This year, Clopay was recognized for the second year in a row as one of the best in show for its pioneering innovation at the International Builders Show. As a reminder, last year, Clopay was recognized as the best of IBS across the entire building products industry for its groundbreaking VertiStack Avante garage door, an innovative system that replaces traditional overhead tracks with a compact vertical stacking design, resulting in a cleaner aesthetic and open ceiling space. This year, Clopay won a best of IBS award in the window and door category for its Avante door with C-Power enabled click-to-conceal panels. The patented C-Power technology delivers electrical power directly to the garage door panels, opening up a new world of potential for these doors. The first products to use C-Power is Clopay's Click-to-Conceal panels, which allows the door to instantly transition its windows from clear to opaque. This is an ideal solution for homeowners who use their garage as flexible living space or design forward commercial spaces like restaurants and automotive showrooms, offering daylight and outdoor views when desired and privacy and security when needed. We're excited about the bright future we see for powering the garage door panels and the C-Power product. We congratulate our Clopay team for this remarkable achievement of receiving prestigious recognition from the international builder products industry for 2 years in a row. Even beyond VertiStack and C-Power, we have a deep pipeline of future product innovations to maintain our position as a leader of mission-critical door solutions. Okay. Let's go to strategic actions. We continue to expect to close our joint venture with ONCAP, which will include our AMES U.S. and Canadian businesses by the end of June 2026. Griffon will receive $100 million of cash proceeds when the joint venture formation is completed as well as $161 million second lien paid-in-kind notes from the joint venture. Griffon will also own 43% of the joint venture and will have representation on the joint venture's Board of Directors. The strategic process for AMES Australia is active and ongoing, and we'll update you when we have more to report. With respect to the AMES United Kingdom business, after careful consideration of our available options, we've made the difficult decision to exit the business because of persistent economic challenges. We expect all of these strategic actions to be completed by the end of the calendar year. Let's go to capital allocation. During the second quarter, we repurchased $33 million of stock or 422,000 shares at an average of $78.03 per share. At March 31, $247 million remained under the repurchase authorization. We continue to believe that our stock is a compelling value. Since April 2023 and through March, we've repurchased $611 million worth of stock, 11.5 million shares at an average price of $53.21. These repurchases have reduced Griffon's outstanding by 20% relative to the total shares outstanding at the end of the second quarter of fiscal '23. Also yesterday, the Griffon's Board authorized a regularly quarterly dividend of $0.22 per share payable on June 17 to shareholders of record on May 29, marking the 59th consecutive quarterly dividend to shareholders. Our dividend has grown at an annualized compounded rate of more than 19% since we initiated dividends in 2012. These actions reflect the strength and resiliency of our business as well as our continued confidence in our strategic plan and outlook. I'll turn it over to Brian for a bit more financial detail. Brian Harris: Thank you, Ron. I want to reiterate these financial results reflect Griffon's reporting structure as a single segment. All results are presented on a continuing operations basis with prior periods restated on the same basis. More details are provided in our earnings release and will be provided in Griffon's 10-Q filing. Second quarter revenue of $422 million reflected our typical seasonally low volume. Year-over-year revenue decreased 1% with a 6% reduction in volume driven by residential being partially offset by a 5% improvement in price and mix. Second quarter adjusted EBITDA of $98 million decreased 4% year-over-year, driven by the decreased revenue, the unfavorable impact of decreased volume and overhead absorption and increased material costs, including steel. EBITDA margin was 23.2%, a decrease of 60 basis points from the prior year quarter. Gross profit for the quarter was $192 million with a 45.5% gross margin compared to $198 million in the prior year quarter with gross profit margin of 46.5%. Second quarter selling, general and administrative expenses were $105 million or 24.8% of revenue compared to prior year of $107 million or 25% of revenue. Second quarter GAAP income from continuing operations was $47 million or $1.03 per share compared to $50 million in the prior year quarter or $1.06 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income from continuing operations was $48 million or $1.05 per share compared to the prior year of $49 million or $1.05 per share. Year-to-date free cash flow from continuing operations was $101 million compared to $114 million in the prior year. Year-to-date net capital expenditures were $18 million compared to $26 million in the prior year. We expect free cash flow from continuing operations for the full fiscal year to be in excess of income from continuing operations. Regarding our balance sheet and liquidity, as of March 31, 2026, we had net debt of $1.3 billion and net debt-to-EBITDA leverage of 2.4x as calculated based on our debt covenants. This compares to 2.6x leverage at the end of last year's second quarter. Our net debt and leverage are in line with our year-end September 2025, even after returning $72 million to shareholders through dividends and stock buybacks during the first half of the fiscal year. Regarding our expectations for the year, we are maintaining our fiscal 2026 guidance based on the results we have seen through the first half while presenting it to reflect our new reporting structure. We continue to expect revenue of $1.8 billion for fiscal 2026 on a continuing operations basis and adjusted EBITDA of $458 million, which excludes certain charges that affect comparability. We continue to expect free cash flow from continuing operations to exceed income from continuing operations. We also expect capital expenditures to be $50 million, depreciation to be $27 million and amortization to be $15 million. Fiscal year 2026 interest expense is expected to be $93 million, excluding any interest income that may be recognized this year from our anticipated AMES joint venture. Normalized tax rate should be 28%. I'd like to reiterate that our guidance, as stated, is unchanged from expectations for the former Home & Building Products segment, Hunter Fan and unallocated costs that we originally outlined in November and again in February. Now I'll turn the call back over to Ron. Ronald Kramer: Thanks, Brian. Our fiscal 2026 remains on track with our guidance. Our teams are executing well as evidenced by our solid operating performance this quarter and year-to-date. We remain confident in our financial outlook. We're optimistic that the residential and commercial markets will return to growth and expect to realize substantial operating leverage as activity improves. With respect to capital allocations, we're committed to using our strong operating performance and free cash flow to drive a capital allocation strategy that delivers long-term value for our shareholders. This includes supporting our quarterly dividend, opportunistically repurchasing shares and reducing debt. In closing, I'd like to express my sincere appreciation for our Griffon employees who've continued to drive the success of our business. We're grateful for their contributions. Operator, we're ready for questions. Operator: [Operator Instructions] And our first question will come from Trey Grooms with Stephens. Ethan Roberts: Brian Harris: Sure. We expect the second half quarters to be similar to what we've seen over the last several quarters. As you mentioned, residential volume will continue to be soft. Commercial roughly flat, and we'll see benefits from price and mix. I will point out that Clopay had price increases recently issued, mid-single digit that were effective at the end of March. So we have another price increase that has started. And overall, we expect second half to look similar to the second half last year. Ronald Kramer: And the only thing I'd add to that is I'll remind everyone that the second half is our strongest free cash flow part of our cycle. Ethan Roberts: Brian Harris: Sure. So the cash flow of our businesses was and is primarily generated by the Clopay business, and we still have the Hunter business, and we'll get the cash flow from that as well. It will be slightly less than historical as we've taken out the AMES tools businesses, but those were not significant cash generators. Ronald Kramer: And there's a balance sheet impact from all of the discontinued operations, strategic planning that we're doing that will continue to delever. Operator: And our next question will come from Bob Labick with CJS Securities. Bob Labick: Congrats on the strong operations and on the awards of HBP you talked about earlier. Yes. So I wanted to kind of stick with the innovation pipeline, and thanks for the info on VertiStack. And is it C-Power as well. Can you talk about the -- your innovation pipeline and what's helping you drive growth kind of beyond the market? Because obviously, we're in a lull in the market a little bit, but how does this innovation compare to your past innovation cycles? And how should this help you outpace the market in terms of growth? Ronald Kramer: So I'd just say that the fundamentals of our business have not changed. And our execution of the plan that we've laid out over the last several years continues. Clopay is the leading brand with the best dealer network and the best big box distribution. It's a business that has evolved that is both residential and commercial, that has very low exposure to new home construction. We, long term, would love to see the housing markets recover and see new home construction expand. But the core of our business on the residential side has been repair and remodel, and that continues to be the driving force behind Clopay's profitability. The commercial business that we bought 7 years ago, integrated into our business and have come to position to be a leading commercial rolling steel security products and in the future, mission-critical infrastructure solution provider is in development. This is an excellent business with very low CapEx, 2% CapEx that has growth ahead of it in both the residential market, the commercial market, and we just are going to continue to execute that plan. The result of that is the housing markets, while they have not gotten better, they continue to be a repair and remodel driven for us. Bob Labick: Got it. Okay. Great. And then regarding steel, you mentioned it briefly in the prepared remarks. Steel prices have obviously crept up a little bit. It's in the middle of a long multiyear range still. But could you just remind us kind of inventory that turns the impact of steel and your ability to price and just the timing and the lag if there is still one and how that tends to work? Brian Harris: There generally is a 4- or 5-month lag of purchase to actual realization of the cost. Operator: We'll hear next from Collin Verron with Deutsche Bank. Collin Verron: Price/mix continues to be very favorable. I guess I just want to dive into maybe parsing out the difference between price and mix. And I think that there is a lot of room for mix. So I guess I was just curious as to sort of your long-term expectations on driving mix improvement and how meaningful of a lever that could be for you guys, call it, the next couple of years? Brian Harris: Sure. So for the quarter, we saw the benefit being more price than mix. And going forward, and I point back to Ron's comments from a few moments ago, we continue to innovate those products that we come out are generally higher-end new technology products that generally will provide better revenue and mix metrics. Collin Verron: That's helpful. And I guess just from a homeowner perspective, I guess, or an end user perspective, have you seen a bifurcation or continued bifurcation in sort of high end versus low end that's supporting this? Or is it pretty consistent across the sort of different price points in terms of demand strength? Ronald Kramer: Sure. Clopay is a better, best solution. So we address the higher end of repair and remodel. And while there's no question that there is weakness in the consumer, particularly at the lower end, our business and our ability to sell through both big boxes and the dealer network continues to meet our expectations. Operator: We'll hear next from Tim Wojs with Baird. Timothy Wojs: Maybe just kind of first question, Ron, now that you've kind of -- we're kind of focusing on kind of the HBP business on a go-forward basis. Is there any sort of change to how you think about allocating kind of capital going forward between buybacks and potentially acquisitions? Or is there no real change in your eyes at all? Ronald Kramer: Well, I'd say look at what we've done. We bought back 20% of our outstanding. Our cash flow is substantial over the last several years, and our expectations is for it to continue to build. We have a combination of businesses that we've streamlined and brought into focus that is going to give us a strong cash flow position to make choices about share repurchases deleveraging. I will say M&A is not on the table because our view is the cheapest and best acquisition we can make is in the market on a daily basis. Timothy Wojs: Okay. Okay. That's really helpful. And then I guess just on the retail portion within the business. I know parts of that, specifically the fan business have been challenged over the last 18 months. Have you seen any sort of improvement in that business on a sequential basis? Or is it still pretty tough? Brian Harris: It's at the moment stable. We have seen, as you said, softness over the last several years now with the consumer being weak. But at the moment, it's stable and the business is in very good shape and ready for when the consumer returns. Operator: [Operator Instructions] We'll go next to Julio Romero with Sidoti & Company. Justin Mechetti: Brian Harris: Yes. So we have been and will now with those businesses working closer together, continue to realize the benefits of leveraging on the commercial side, the Hunter Commercial fan and share projects with the Clopay side of the business. There has been a project where we have created a garage type fan that has gotten very good reception from our dealer network, and it's in early stages, but we're looking forward to that continuing. Early days, and we have expectation that we're going to be able to build both the residential and commercial. Justin Mechetti: Brian Harris: We will have $161 million of PIK notes with a 10% interest rate. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Ron Kramer for closing comments. Ronald Kramer: Thank you for joining us today. We're excited about the road ahead, confident in our strategy and committed to continuing to deliver superior returns for our shareholders. We look forward to updating you in August. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Thank you for joining our LANXESS's Q1 Results 2026 Conference Call. [Operator Instructions] First, we will hand over to Eva Husmann, Head of Investor Relations, for opening remarks. Eva Frerker: Yes. Thank you, and welcome to our Q1 call. Before we start, please take note of our safe harbor statement. And as always, we have our CEO, Matthias Zachert here; as well as Oliver Stratmann, our CFO. Matthias will start with a quick presentation before we answer your questions. Matthias, please go ahead. Matthias Zachert: Thank you, Eva, and welcome all of you to our conference call on first quarter '26. I start the presentation straight on Page 4, where we comment on the key financial indicators. So as far as Q1 is concerned, we guided in March already that it will be a soft start to the year. We've seen lower volumes, especially in January, February, a positive tone on March where business started to improve from the volume side, and was clearly a difference compared to the previous months and also towards the fourth quarter. Please take note of the fact that, in the comparison base last year, we have a relatively strong dollar and still the contribution from our urethanes business units, both has changed. In first quarter this year, urethanes is no longer consolidated and the dollar has visibly weakened. That we put a lot of attention on cash flow and financial balance sheet strength is something that we have reinforced over the last few quarters, and you can clearly see that also in Q1. Cash flow is still negative, but that's the normal seasonality. We start off with negative cash normally in first and second quarter and then improve afterwards. And as far as net working capital is concerned, we clearly manage that pretty tightly. So compared to previous year, it's lower. I do expect a gradual increase now in Q2, also driven by the fact that the precursors in energy will move up. But nevertheless, we will continue running it tightly. Net debt beginning of the year normally sees an increase of EUR 100 million to EUR 200 million. And in light of the good cash management, you see that we, by and large, keep net debt at comparable level. Now, let's turn the attention to Middle East. Middle East escalation or conflict has swiftly changed market conditions. We clearly see that value chains are under pressure. We clearly see that customers have concern on delivery security. And therefore, let me give you the following color on what we would like to shed light on. And here, I clearly would like to stress that the conflict that we have seen, the war that we have seen in the Ukraine area, in the Ukraine situation massively impacted Europe and definitely led to a disadvantage as far as the European chemical industry is concerned. The Iran conflict is different. Whilst true Ukraine, Russian gas and oil was reduced in Europe. The Iranian gas and oil is primarily being a supply source to Asia. So while we were suffering in Europe through the Ukraine war implications, in the current Middle East conflict, we clearly stress it will put pressure on the worldwide economy, definitely as far as energy price inflation is concerned, but the region that suffers most is going to be Asia according to our analysis. Now logistical chains are definitely under pressure as well, but here, I can give you comfort. We have agreed contracts in place on ocean freight, on other logistical chains that are needed. And for that very reason, we had until now, no negative impact through supply that was being shipped to us or to our customers. Of course, we took note of the fact that prices were on the rise as far as chemical precursors and energy costs are concerned. So we saw the reaction on the oil markets, gas markets beginning of March. And that was the reason why we swiftly analyzed our market situation. And I think we were one of the first chemical companies that went out with a series of price increases in order to at least mitigate the current input cost inflation. On working capital, I alluded to the fact that we expect an increase in Q2, but it will be tightly managed. You can bet on this. Now let's turn the attention to Page 6. What we try to do here is simply to give you some facts on hand so that you can better understand how we look into our segments into current trading vis-a-vis Q1 and the last 2 quarters of 2025. When we look at the current conflict in Middle East, our assumption is that the Consumer Protection segment will, by and large, not be really affected. There will be some precursors on the rise, but the Consumer Protection segment is not so much impacted through oil derivatives. Here, basically, consumer demand is essential. And we do have some precursors coming here from China, so that is a watch out. But all in all, I don't expect that this will change the current trading vis-a-vis the past 2 to 3 quarters. On additives, we see a moderate upside potential. Of course, you need to take into consideration that flame retardants or bromine, for instance, is also coming and is shipped from Middle East. We don't depend on that primarily. We have sources in El Dorado, which is not affected at all. So here, we do see upside potential in trading, but the strongest momentum we clearly see in Advanced Intermediates. This segment and here notably the business unit, AII, was suffering through competition coming from China. And of course, we had a substantial amount of pressure on some of the value chains here. This should change. Here, customers are clearly looking for delivery security, 1. And second, we have seen over the last 4 to 6 weeks that even the chemical pricing on these products in China have been on the rise. And guess what, they are on the rise in our business as well. So this should give you some qualitative color on how you should look at the segments compared to the last 3 quarters. So let's see if you can then better model second quarter, and it's up to you how you look into '26 in total. What we would like to give you comfort for, or comfort on is our full year guidance. The world is in quite a turmoil for various reasons that are all known to you. We clearly see positive momentum for Q2. So we try to here give you a quantitative corridor of EUR 130 million, EUR 150 million, which would be a strong sequential improvement versus Q1, which we clearly see either driven through volume or through pricing, in some cases, driven by both in respective business units. But we don't change our yearly guidance in light of the turmoil that we see in the world. If Q2 momentum continues, of course, that could give further comfort to potentially go into the upper range of the guidance. But please take note of the fact that, escalation in the Middle East could accelerate again, and then we potentially look at demand crush and then we look into the lower end of the guidance. For that very reason, we give you a broad range where you slot in yourself is in your hands, but we want to give you comfort on the full year guidance and definite comfort that second quarter will come out sequentially clearly stronger than the first one. And here, we see that the business is moving accordingly. This is what we would like to give you as entry presentation on Q1, and we now open up the floor for your questions. Operator: [Operator Instructions] We have the first question from Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: A couple of questions, if I may. Just focusing on -- thank you for the guidance range that you've given for 2Q. That's very helpful. But how much visibility do you actually have into your order books? Do you have to make this solely on what you're seeing in April and make a best guess for the next few months? And any sense of how you think those volumes will continue through the quarter? Second question, if I may, just coming on to -- so one of the things that we've seen and it's in the context of Saltigo has been a significant spike in glyphosate and I assume glufosinate as well, which would suggest that maybe some of the generics from Asia are going to have less market presence for crop protection chemicals. I appreciate that Saltigo makes the API, but maybe this will see -- could we possibly see a rotation from customers away from generics given supply chain risk back towards more branded products, which probably have more LANXESS-orientated products embedded in them. So just kind of keen to get the crop protection picture, both from a disruption and actually, if you add any color around the seasonality, that would be helpful as well. Matthias Zachert: Tom, very valid questions, indeed. Let me take them one by one. As far as visibility is concerned, we have clearly April strong clarity as far as volumes and pricing is concerned. So sales are known to us. And we have a good order book for May. So a very reasonable visibility and of course, a softer but already a reasonable indication for the month of June. We see in April that the momentum from March continued. Of course, we know when our price increases will more and more contribute to quarterly support. Of course, we are still in the rollout of the announced price increases of March. So once you do a price increase, you afterwards go to your customers. In some cases, you have contractual agreements that you cannot change on a quarterly basis, but you then go for the spot markets and afterwards, you adjust for the quarterly contracts in the following quarter. So this is an ongoing process. But we know definitely that volume are at the same momentum that we've seen in March with a slight uptick for April and May. And then, of course, we know ourselves what price initiatives are ending up in the P&L and when this is going to occur. So as far as visibility is concerned, I think we have, for the next quarter, a reasonable good indication. Now your question on Saltigo is operationally very focused and smart. In the last 12 months, we have seen in the crop protection space and here I'm not alluding to glyphosate, but to Crop Protection specifically that the commodity products in Crop Protection were under severe generic pressure from India and China. And I think that was being mentioned by the big agro company themselves. They all alluded to pricing pressure, and that was definitely not on the innovative products, but on the commodity grades. Now with China facing substantial freight issues and cost explosion on trades and some areas also pressure in their supply chain, we definitely have to monitor the markets. We don't see an immediate reaction here in Europe, but that is likely to come in the weeks and months to go. And that could change, of course, the competitive landscape for the European crop protection companies, which we don't see at this point in time, but normally, we would see that 3 to 6 months later. So this is something high on our radar, and I'm very impressed that you have spotted that as well. Operator: The next question comes from Christian Bell from UBS. Christian Bell: So I just have a couple. My first one, I guess, picks up following the discussion in the previous question on April customer demand dynamics. Are you able to just please give a sense of how much of the volumes that came through in April were at the higher prices that were implemented in mid to late March. I'm just trying to understand, how much of those volumes that have come through are getting ahead of prices or whether they are -- what percentage is actually effective at the new pricing? And then my second question would be just to help us bridge to your EBITDA guidance -- at the midpoint, your second quarter guide is roughly 7% below last year, which implies you need to do about 20% growth in the second half to reach the midpoint of the full year guidance, which is quite an acceleration. So just what do you think underpins that acceleration? Is it largely price cost normalization? And then if possible, if you could sort of speak to any potential demand deterioration that you're thinking about that may offset some of that margin improvement? Matthias Zachert: Thank you, Christian, for these thoughtful questions. I would take them in the same sequence as you asked them. So as far as April is concerned, we basically see same to slightly modestly higher volume pattern compared to March. So this is positive because April is -- if you look into holiday seasonality, that was main impact here as far as Europe is concerned, in April Easter holiday season, la, la, la. So as far as underlying trading volume-wise is concerned, slight uptick versus March. On pricing, as I said before, we made the announcements in March, in course of March. And then afterwards, you -- wherever you have spot contracts, or spot pricing, you can then adjust customer by customer. This takes normally something like 4 to 6 weeks, depending on the customer base, depending on, of course, the sensitivity, elasticity they have, and then you change the pricing one by one. On the contract establish quarterly contract pricing, you basically can take that only with a certain delay, but that follows afterwards. So on pricing, generally, you should assume that this will ramp up first steps in April. Then, I would say, 2/3 will be reached in May and then the full effect you will see or should see in June. Of course, we have to monitor what implications that has on the volume side. But from the pure pricing side, there will be a gradual buildup at cost of Q2. And then, of course, if momentum remains healthy, the contract, the quarterly contract pricing would then be also a driver for Q3 going onwards. All this having this assumption that the underlying momentum on volumes will not change, and with all questions on geopolitical tensions. So that should hopefully answer your first question. Now on second quarter, I think my answer on the volume and pricing side will give you also some color on Q2. If you look into second half of this year, of course, our cost savings that we've initiated will gradually ramp up as well. And that should give you the indication that we are still not falling in euphoria for the second half. We are clearly very, very straightforward and not modest, but we take the current geopolitical tension very seriously. And therefore, we keep here our assumptions in a normal environment and not into a gradually improving environment. And with this, I think you have the best basis for modeling the full year implications for our company. Christian Bell: If I could just quickly follow up on that last point. Are you able to -- like given second half cost savings are important to the full year guidance, are you able to give us -- tell us what the net cost saving you are expecting in the second half will be from your cost saving programs, given that there should be a relatively, I guess, concrete level of foresight over there? Matthias Zachert: Yes. We've given you the yearly number, and I think this should suffice with the comments that I've made that this will gradually build up. And therefore, please take this as basis. Operator: The next question comes from Anil Shenoy from Barclays. Anil Shenoy: Just 2, please. The first one is a little difficult question on your unconditional put on Envalior in 2028. So you have mentioned that the put obligation sits at the Holdco level and not Advent. And I know you have a confidentiality agreement, and so you cannot give a lot of details. But just theoretically, what are the funding pathways that the Holdco will have in 2028? From what I understand, it's either refinancing from Advent or taking on external debt or dividends upstream from Envalior. Would that be the right way to think about it? And finally, on a sort of pessimistic note, if -- what happens if the Holdco declares bankruptcy? I mean, does -- in that case, does LANXESS end up becoming an unsecured creditor? In other words, basically, what I'm asking is, is there a risk to this unconditional put in 2028? Matthias Zachert: Yes. Let's take it step by step. First question is a question I cannot answer due to confidentiality reasons. And I stick to that 100%. Your second question, I've read your report. This basically shed at 100% concern on our company and completely hence one-sided. I was very much surprised about this. And therefore, let me simply come on a higher level. You said, it's a theoretical question. So I give you a theoretical answer. In insolvencies or bankruptcy, the party going insolvent loses everything. Everything is gone. It is normally by somebody who runs the insolvency afterwards, any possible areas where you can get proceeds is going to the lenders. So if there is a company holding shares, they lose everything, 100% loss. This is the consequence. Taking such a hit for any investor who might have a major investment is a complete disaster. Next to this, the company theoretically that goes into bankruptcy, loses its global reputation. That might be even a bigger damage. And therefore, that's my answer on your theoretical question with a theoretical answer, food for thought. Operator: The next question comes from Chetan Udeshi from JPMorgan. Chetan Udeshi: My first question was, you said you've already seen April sales. And I was just curious, you talked about volume versus March, but are you able to provide some clarity on when we think about year-on-year, how are we tracking in terms of volumes? Is it now up 5%, 6%, 7%? Any sort of color in terms of how you see the volume momentum building on a year-on-year basis, that would be helpful. The second question was LANXESS was one of the companies that was more active, I would say, over the last 18 months in pushing the European Union to do more of these antidumping investigations. Some of these investigation actually went into your favor last year with Adipic Acid, phosphorus additives and all those stuff. But I'm just curious, have you seen any benefit from these antidumping investigations in your numbers given that some of those were already decided and ruled into your favor in second half of last year? And the last question I have is, you mentioned about customers coming to LANXESS for security of supply. Is that because you actually -- based on your conversation with these customers, do you actually see that your Asian competitors are not able to supply right now? So in other words, some of your Chinese or Indian competitors, are they having supply issues? Or are customers coming to LANXESS just to make the supply chain more resilient rather than not necessarily driven by short-term supply shortages? Matthias Zachert: Thank you, Chetan. We will take them one by one, and Oliver will start on price and volume, and I take the other 2 questions. So Oliver? Oliver Stratmann: Many thanks, Chetan. Actually, I'm thinking about, what I could add because Matthias has already been pretty diligent here in outlining how volumes have picked up in March and what we have seen in April. And to be absolutely frank here, I wouldn't like to go into a monthly reporting now. I would just like to remind you that there is an awful lot of uncertainty out there. And I think the commentary that you've received so far is a positive one with regard to going into Q1 and going into Q2 and the volume development. And beyond that, we really need to see how things evolve, but the positive impetus is there. Back to Matthias. Matthias Zachert: So thanks, Oliver. Then on European dumping, I think, been very clear at the outset when we mentioned it that this is taking time. And we said that, this normally lasts 12 to 18 months. So this is the normal duration of an antidumping case or antidumping trial. You mentioned a typic asset. So that was one that was decided in, I think it was August last year, summertime. What you need to take into consideration is that the antidumping once it's declared is, of course, positive for any supplier operating in this market like us. But in the first antidumping cases, like on Adipic Acid, we have seen that China was loading up the value chains before the antidumping declaration was imposed. So China was loading this value chain by around about 6 to 9 months with capacity. And only once this capacity is absorbed, you truly see volume momentum rising and pricing rising. For Adipic Acid, this is now happening. So we have seen the declaration on antidumping last summer. The value chains and stocks were loaded immediately before the declaration became effective. I have to say, fortunately, the European Commission has realized this practice in many other similar cases and have now basically put the volume buildup under scrutiny as well. So this will be retroactive impacted by price adjustment or antidumping cases as well, which is a positive move. So this gives you the color. And I do expect that further antidumping cases will be decided in the course of this year. I know that many chemical companies have cases that are filed in the European Commission. We keep a close eye on this. And I do support that one and the other products could positively be impacted by us as well, which will help us going forward in areas where we see dumping being practiced. So that should address your second question. Now on the third question, there are basically 2 drivers. First, European customers want to protect their supply chain. They want to have security. They are concerned that similar disruptions could happen that they've seen in Corona times. So we've seen over the last 6 to 9 months that customers went to China because of pricing, pricing, pricing benefits. We had a very tough economic situation here in Europe. So pricing was essential. But now for many customers, supply security is higher in the priority and some of the customers that left for China in the last 9 months are coming back into our order book. We also see completely new customers, which is a positive sign. Second point is, I think also China and Chinese companies have realized that the pricing level of last year has also ruined the pricing level in China itself, which is not liked by the administration. And of course, long term, no company can generate losses. So we also see that the pricing level now in China is moving upwards, which is a clear difference to the last 12 months. And when the pricing level in China moves upwards, you can assume that then, of course, pricing in the European area is also being positively impacted by that. So you have 2 perspectives on this, and I think this answers your third question. Operator: The next question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Two questions, please. The first one is coming back to your comments that you made on pricing timings. I was just wondering kind of high level, do you generally see net pricing is likely to be a positive? Or kind of how do you expect the phasing to be there? Is it, for example, negative net pricing in Q2 and then positive in Q3 if all current conditions stay the same? And then second question is, could you maybe elaborate a bit on the current dynamics in bromine? Because I think there was a price spike and the China price has fallen back. And obviously, I appreciate that you don't necessarily have direct exposure to the China price, but what kind of underlying dynamics are going on there? And has the demand fallen off versus what it was? Matthias Zachert: Thank you, Christian. Let's take that also step by step. So on your first question on pricing, I would like to give you the indication on a sequential basis, so not vis-a-vis previous year, but versus Q1. What we should see in second quarter that prices versus Q1 are -- should be up. The tendency, if the momentum continues, like I explained, and you assume that there is no insanity happening in geopolitics anymore or no further escalation, and current trading continues, you should also see a sequential price increase in Q3 vis-a-vis Q2. But with all the nonsense that is happening on the geopolitical side, I take that, of course, with some -- with a pinch of cautiousness, and I hope you understand the rationale for this. Now on bromine, I would like to allude again or come back to the stated seasonality we see in China on the spot market. We always have a seasonal price increase in bromine prices notably in Q4 and Q1 because of the bromine extraction methodology, i.e., water vaporization. So therefore, when in the colder months, Q4, Q1, you normally see that bromine prices are on the rise, and they go down again Q2, Q3. If you now look at the last 6 months, that was exactly what happened. Bromine prices went up. They went up to a high level of EUR 60,000, EUR 70,000 and are now moving down to around about EUR 38,000, EUR 39,000, EUR 40,000. This is the normal seasonal pattern. But overall, the pricing level is clearly still in the healthy territory. EUR 40,000 is 100% up compared to 1 year ago or 2 years ago, when the prices were more depressed. So now the pricing level despite having fallen now in the last 4 weeks is still at a reasonably high level. I hope that clarifies the points on bromine, Tristan. Tristan Lamotte: And maybe just a follow-up on the pricing question. I understood your comments on the kind of price rises timing. How does that align to the cost increases, i.e., what kind of net impact should we think about modeling? Or is that just too many moving parts to comment on? Matthias Zachert: No, no. This is a smart one, Tristan. I think we've always stated that a lot of our input costs are basically set up in a way that like in Q1, when you have a rise in input costs, you adjust in the quarter afterwards. So you've seen the increase in precursors on raw materials, on oil derivatives on energy. You've basically seen that already in March, with no real implication on our P&L because we clearly stressed that in March, we rather had a positive momentum, profitability-wise, turnover-wise. And this was volume driven, but not because input costs have been falling. They have rather been on the rise, but not impacting the first quarter P&L. The implications of the higher input costs will be visible in second quarter. That's the reason why we've given you the financial guidance. So we basically -- in our guidance of EUR 130 million, EUR 150 million, we absorb the rising costs that we have now seen in March, which will roll into our P&L in the second quarter. So that's the reason why we tried to give you a good hard landing so that you understand that we are sequentially clearly managing the situation and manage the input cost increases. Operator: And the last question comes from Georgina Fraser from Goldman Sachs. Georgina Iwamoto: Given the situation, I was wondering how your relationship with your distributors might be evolving. Are you kind of selling through the same distribution channels as historically? Or are you seeing more direct to customer sales? Matthias Zachert: May I understand more of the backgrounds to this question, Georgina? Georgina Iwamoto: Well, I wanted to understand if every single chemical company is discussing the fact that security of supply is #1. And the question is, are customers seeing the manufacturers as the most likely source of secure supply? Or are distributors being seen as being able to source from lots of different places. Does that make sense? Matthias Zachert: Yes, that makes sense. So I mean, the distributor world in chemicals is very broad. In parts, you have niche distributors, then you have specialized distributors in certain chemical value chains, then you have the bigger distributors that have the broad reach. You have some that only pack and ship, others give service like finishing, like analytics, et cetera. So the world in chemical distribution is very, very broad. So giving a general answer that solves everything is, I think, not possible. But I would like to give you the following. In our interaction, we use distributors basically globally, wherever we see that the size of the order level is simply too small for us or the customer is too distant away for us. So we use distributors. But companies like ourselves, of course, are more and more reinforcing the direct contact to customers as well. So this is a trend on our side, and I cannot speak for the industry, but what we are doing, we use distributors. But also we would like to have a better market transparency, market dynamics, customer trends, et cetera, on our end. And therefore, we strengthen the relationship also to the next level of manufacturing. And therefore, of course, also a question if we do need a distributor or not. So that is the one thing I can say for our group. Then for customers, we do see customers that want to have the direct access to the manufacturer in order to have clarity. and also preferred treatment. When we are selling to a distributor, there are some that are very, very close to us, but some that we simply used to pack and ship. If a customer is ordering from a distributor, he does not get the same preferred treatment that direct customers often have. And therefore, on the customer side, we also see that for very important precursors and chemicals, they also tend to establish more direct relationships. But I say again, this is this is an answer that does not apply to this huge distribution network that you have in the chemical space. There are different kind of distributors with different business models. So the specific answer I have given will not be an answer for the general industry. I hope that clarifies the point. Any further questions? Operator: So there are no further questions, and I will now hand back to Matthias Zachert for closing remarks. Matthias Zachert: Well, thank you so much for orchestrating this conference call, and thank you to everybody who listened in. I hope this was giving you enough color on current markets and trading environment. We will be now heading on the road to speak to investors and looking forward to the exchange. And if you have follow-up questions, please don't hesitate to touch on my Investor Relations team, and they would be very happy to take any questions and provide answers. Thank you so much. Take care, and bye-bye.
Operator: Good morning, ladies and gentlemen, and welcome to the CrossAmerica Partners First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. I would now like to turn the conference over to Randy Palmer, Investor Relations. Please go ahead. Randy Palmer: Thank you, operator. Good morning, and thank you for joining the CrossAmerica Partners First Quarter 2026 Earnings Call. With me today are Maura Topper, CEO and President; and Jon Benfield, Interim Chief Financial Officer. We'll start off the call today with Maura providing some opening comments and an overview of CrossAmerica's operational performance for the first quarter, and then Jon will discuss the financial results. We will then open up the call to questions. Today's call will follow presentation slides that are available as part of the webcast and are posted on the CrossAmerica website. Before we begin, I would like to remind everyone that today's call, including the question-and-answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics and opportunities and expectations of the organization. There can be no assurance that the management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations. Please see CrossAmerica's filings with the Securities and Exchange Commission, including annual reports on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results. Forward-looking statements represent the judgment of CrossAmerica's management as of today's date, and the organization disclaims any intent or obligation to update any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to U.S. generally accepted accounting principles or GAAP. We have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast, and a recording of this conference call will be available on the CrossAmerica website for a period of 60 days. With that, I will now turn the call over to Maura. Maura Topper: Thank you, Randy. Thank you to everyone joining us this morning. We appreciate you making the time to be with us today. I would like to lead off by saying that I'm excited and grateful to be with you today in my first call as CEO. Stepping into the CEO role over the past 2 months has been both humbling and energizing. I'm grateful for the opportunity to lead this organization and to keep learning alongside our team every day. I also want to take a moment to thank Charles Nifong for his care and thoughtfulness as our CEO over the past 6 years. We have become a larger and stronger organization under his leadership. I have learned much from him over the years that we have worked together, and I deeply appreciate his mentorship. I'm also happy to introduce Jon Benfield as our Interim Chief Financial Officer, who will be going through the quarterly financials in more detail. Jon has been with the partnership since 2012 and has worked in various capacities in our accounting and finance team over the years. Jon's deep familiarity with the partnership makes him exceptionally well suited for this role, and I'm glad to have him with us on the call today. We are working with a strong foundation here at CrossAmerica. Over the past few years, we have been deliberately shaping the partnership, increasing our exposure to retail operations and retail fuel pricing through our class of trade conversion activities and utilizing targeted real estate asset sales to generate capital to reinvest in the business. These portfolio optimization efforts have positioned CrossAmerica to perform well across a range of economic environments as I think our first quarter results demonstrate. Our team remains focused on ensuring the competitiveness of our sites in the markets where we operate with continued investment to drive growth and enhance the durability of our earnings. The result is an organization that is both disciplined and flexible and one that we believe is well positioned to capitalize on the opportunities ahead. If you turn to Slide 4, I will review some of the operating highlights of our first quarter. Overall, we had a strong first quarter, generating $35 million of adjusted EBITDA, a record amount for the first quarter and a 45% increase when compared to the first quarter of 2025. We benefited from strong gross profits from our retail segment, driven by motor fuel margins and merchandise sales and focused expense control across our operations. For the first quarter of 2026, our retail segment gross profit increased 18% to $74.3 million compared to $63.2 million in the first quarter of 2025. The increase was driven by an increase in motor fuel gross profit due to higher retail fuel margins for the quarter compared to the prior year, along with strong growth in merchandise gross profit. For the quarter, our retail fuel margin on a cents per gallon basis was $0.437 per gallon compared to $0.339 per gallon in the first quarter of last year. We experienced a strong start to the year on a fuel margin cents per gallon basis during a relatively benign pricing environment in January and February, helped by better sourcing costs and a favorable retail market conditions. As we entered March and continuing into April, we, along with the broader industry, have experienced a generally rising but also very volatile price environment. Historically, that type of rising fuel environment would have resulted in fuel margin compression, though with pockets of volatility providing margin opportunities. During this period of rising prices, however, fuel markets have generally remained rational with retailers quickly transmitting their increased costs to the pump, providing a practical floor to fuel margins during this period, which benefited our results. The corollary to our fuel margin cents per gallon results is obviously fuel volume. On a same-store basis, our retail segment reported a 7% decline in volume year-over-year, though with fuel gross profit ultimately $8.7 million higher than last year as a result of our strong cents per gallon results. Our team remains focused on ensuring our retail locations are competitively priced to balance long-term customer loyalty with the day-to-day volatility we are currently experiencing. Our volume results differed between the two classes of trade in our retail segment, company-operated locations and commission locations, which I'll spend a few moments talking about. Same-store volume at our company-operated locations was down approximately 4% for the quarter, with January and February experiencing less of a decline and March, a higher decline as we and the industry began to feel the impact of the higher fuel price environment we find ourselves in. This volume performance is relatively in line with reported industry averages for the first quarter of 2026 from the sources we review. For our commission class of trade, our commission same-store site volume was down approximately 14% for the quarter. As we have noted for the last 2 quarters, the decline was due in part to our decision at select sites to adjust our pricing strategy to better balance volume and margin while ensuring competitiveness within our markets whenever possible. Our commission location volume was also impacted by the overall volume decline in the market. Moving from our retail fuel operations to our store sales. Our first quarter 2026 results continued a series of important positive performance trends in this critical area of our business. On a same-store basis, our overall inside sales were up 2% for the first quarter compared to the prior year, with growth in the areas of packaged beverages, other tobacco products and food, both branded and proprietary. As we've noted in a number of our recent quarterly calls, during 2024 and 2025, we made important investments to expand our food operations at locations across our company-operated footprint with those investments contributing to both our results and customer traffic at this point in their life cycle. The first quarter of 2026 was also a high watermark for the partnership for our merchandise margin percentage. We reported a merchandise margin gross profit percentage of 29.7%, up 180 basis points from the prior year. We benefited from a better merchandise mix and better execution that improved margins on some of our core categories. This includes such promotions around breakfast sandwiches and chicken tenders that we ran during the quarter. A good example of our team leaning into growth, a focus on execution and providing value to our customers. The strong sales and margin percentage results contributed to an increase in our merchandise gross profit of 8% to $27 million. Jon will touch on this more in his comments, but we also had a very positive quarter focusing on expense control in our retail locations. Our results in this area [ took ] great amount of focus from our operations team as well as technology-assisted improvements that are benefiting our operations. Closing out my comments on the retail segment, we finished the quarter with 340 company-operated retail sites, down 12 sites from the fourth quarter of 2025 and 36 sites relative to the first quarter of last year due to our asset sale and class of trade conversion activities. We remain up 85 locations from the end of 2022 when we began our strategic activities to increase our retail operations. While the pace of our class of trade conversions has slowed in recent quarters, we continue to focus on maximizing the value of each site through class of trade conversions while focusing on being in retail in the right markets. In the period since the quarter end, we have benefited from continued strong fuel margins through April in spite of the rising price environment, so with volumes experiencing more pressure than our first quarter results. Moving on to the Wholesale segment. For the first quarter of 2026, our wholesale segment generated gross profit of $23.3 million compared to $26.7 million in the first quarter of 2025. The decrease was primarily driven by a decline in fuel volume and rental income, primarily driven by our class of trade change activities. As a reminder, our wholesale segment rental income declines when we convert sites to our retail class of trade and when we divest locations. Wholesale segment fuel volumes are also impacted by conversions to the retail segment, though less so by divestitures as we look to maintain a supply relationship with most sites we are divesting. Our wholesale motor fuel gross profit decreased 8% to $14.5 million in the first quarter of 2026 from $15.8 million in the first quarter of 2025. This was driven by a 3% decline in fuel margin per gallon and a 6% decline in volume for the quarter. Our first quarter fuel margin of $0.094 per gallon was a generally strong quarter as we continue to benefit from our fuel sourcing efforts. With regards to our volume performance, our same-store volume in the wholesale segment was down approximately 2% year-over-year, with the remaining decline primarily due to the net loss of independent dealer contracts. Our same-store volume performance in the first quarter of 2026 continues our outperformance relative to national benchmarks that we have seen for several quarters in a row now for our Wholesale segment. I'll close out my comments with a few words on the asset sale portion of our portfolio optimization activities during the first quarter. We continued with our real estate rationalization work during the first quarter, selling 16 properties and realizing approximately $12.7 million in proceeds that we primarily used to pay down debt. As we discussed in February, 2025 was the biggest year ever in regards to property sales for the partnership. We are continuing our targeted real estate sales efforts in 2026, and we continue to have a strong pipeline for the balance of the year, though at a lower level than 2025. Jon will touch on this more during his comments, but I did want to mention that we reduced our credit facility balance by approximately $10 million during the quarter and decreased our credit facility defined leverage ratio from the prior year. These both highlight our disciplined approach to our balance sheet in conjunction with our strong first quarter. The first quarter was a solid quarter for the partnership with a material increase in our EBITDA versus the prior year and solid operational results across the business. Our priorities remain paying down debt, generating strong and durable cash flow for our unitholders and investing in the quality and competitiveness of our network. And I believe our first quarter results reflect exactly that continued focus. Before I turn it over to Jon, I want to be sure to thank our team members around the country for their hard work and dedication this quarter. We navigated the winter months in a volatile fuel price environment together, and our results speak for themselves. Our organization succeeds because of our people, and we thank all of you for your hard work. With that, I will turn it over to Jon for a more detailed financial review. Jonathan Benfield: Thank you, Maura. First of all, I am humbled and grateful for the opportunity to serve as Interim CFO, and I'm excited to work more closely with the broader organization in this expanded role. Now if you would please turn to Slide 6, I'll go over our first quarter financial results. We reported net income of $10.7 million and adjusted EBITDA of $35.1 million for the first quarter of 2026 compared to a net loss of $7.1 million and adjusted EBITDA of $24.3 million for the first quarter of 2025. Adjusted EBITDA increased 45% or $10.8 million year-over-year. Net income increased primarily due to the increase in adjusted EBITDA and a decline in interest expense from $12.8 million for the first quarter of 2025 to $10.8 million for the first quarter of 2026. Net income also benefited from lower impairment charges included in depreciation, amortization and accretion expense. As I mentioned, adjusted EBITDA increased significantly compared to the prior year period. As Maura noted in her comments, this increase was driven by a series of positive factors across the business, including an increase in motor fuel margin per gallon and an increase in merchandise gross profit in the retail segment as well as a decline in operating expenses. Our distributable cash flow for the first quarter of 2026 was $21.5 million, more than double over the $9.1 million for the first quarter of 2025. The increase in distributable cash flow was primarily due to higher adjusted EBITDA, along with lower cash interest expense and lower sustaining capital expenditures. The decline in interest expense we experienced during the quarter was due to a lower average interest rate and a lower average outstanding debt balance on our credit facility during the period due to our strong results combined with our asset sales. Our distribution coverage ratio for the first quarter of 2026 was 1.07x compared to 0.46x for the same period of 2025. For the trailing 12 months, our distribution coverage ratio was 1.25x compared to 1.04x for the trailing 12 months ended March 31, 2025. During the first quarter of 2026, the partnership paid a distribution of $0.525 per unit. Turning to the expense portion of our operations. In total across both segments, we reported operating expenses for the first quarter of 2026 of $56.4 million, a $2.4 million decrease year-over-year and our sixth consecutive quarter of declining operating expenses across the organization. Retail segment operating expenses for the first quarter declined $1.7 million or 3% and wholesale segment operating expenses declined by $0.7 million or 10%. In our Retail segment, our average segment site count was down approximately 4% year-over-year. On a same-store, store-level basis, operating expenses in our retail segment were down approximately 3% for the first quarter of 2026 compared to the first quarter of 2025. The decline was primarily driven by reduced store-level employment costs as we remain focused on efficient staffing in our stores as well as continued reductions in repairs and maintenance spending year-over-year at both our company-operated and commissioned class of trade locations due to realized ongoing efficiencies in our maintenance operations. As we have touched on during the last few quarterly earnings calls, we have cycled through the first year of operations at many of our locations in their new classes of trade, which typically results in elevated expenses to onboard and upgrade the converted locations. As a result, we are experiencing a stabilization of our expense profile in our current class of trade site count. We will, of course, continue to experience seasonality of certain types of operating expenses in our stabilized portfolio, like increased labor in the summer and increased snowplowing in the winter. Returning to our Wholesale segment. Operating expenses declined by $0.7 million or 10% for the quarter. This decline was driven primarily by a 23% decline in lessee dealer or controlled site count within the segment year-over-year due to asset sales and to a lesser extent, conversions to our retail class of trade. We reported G&A expenses for the quarter of $6.5 million, a $1.2 million decline year-over-year, primarily driven by lower legal fees and equity compensation expense. We remain focused across the organization on efficient expense management at our locations as well as at the corporate level, ensuring that we are investing in customer-facing areas at our locations that will drive the long-term health and sustainability of our sites and driving operating efficiencies in our above-store operations. Moving to the next slide. We spent a total of $3.4 million on capital expenditures during the first quarter with $2.1 million of that total being growth-related capital expenditures and $1.3 million of that being sustaining capital expenditures. The decline in sustaining capital expenditures versus the prior year and the 2025 quarters is in line with our expectations as we experienced a stabilization of our current class of trade site count as well as a reduction of our real estate assets controlled site count. Regarding our growth capital spending, we remain focused on our company-operated locations, especially in food-related investments that will contribute to our merchandise sales and margin results. One additional item I wanted to touch on is that we entered into an amendment of our lease with Getty in January of this year that covers 106 of our leased sites and extends the term by 10 years to April 2037. The amendment triggered a reassessment of our lease accounting, which resulted in us accounting for this lease fully as a finance lease. While the economics overall are not all that different, the change in accounting will result in $3 million of the rent payments under this lease being accounted for as principal and interest, whereas previously, that $3 million was accounted for as rent expense. For the same reason, we will have higher interest expense on lease financing obligations going forward, although the impact to the quarter was negligible. Lastly, our finance lease obligations on the balance sheet increased $56 million from the December 31, 2025, balance. Turning to our balance sheet. The asset sale activities that Maura noted in her comments helped us reduce our credit facility balance by approximately $10 million during the quarter. The decrease in our balance, along with the gains on sale generated from our asset sales resulted in a decrease in our credit facility defined leverage ratio to 3.35x compared to 4.27x as of March 31, 2025. Our management team remains focused on the cash flow generation profile of our business, utilizing our normal course operations and our targeted real estate optimization efforts to manage our leverage ratio at approximately 4x on a credit facility-defined basis. Our asset sale activities during the quarter reduced our credit facility balance and the lower average interest rate environment also helped improve our cash interest expense during the first quarter of 2026. Our cash interest declined from $12.4 million in the first quarter of 2025 to $10.3 million in the first quarter of 2026. Our existing interest rate swap portfolio continues to benefit us as well. At this time, more than 55% of our current credit facility balance is swapped to a fixed rate of approximately 3.4% blended and our effective interest rate on the total credit facility at the end of the first quarter was 5.6%. In conclusion, the partnership has started the year with a strong first quarter and with the portfolio positioned for continued success as we move deeper into 2026. Our strong results, along with our asset sales, enabled us to reduce our debt by $10 million this quarter while also positioning our portfolio to generate durable and consistent cash flows into the future. We are looking forward to the summer driving season, maintaining a strong balance sheet and generating value for our unitholders. With that, we will open it up for questions. Operator: [Operator Instructions] Maura Topper: As it appears we don't have any questions coming in at the moment. We want to thank everybody for joining us here this morning and for your interest in the partnership. If you do have any follow-up questions, please feel free to contact us, and have a great day. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Turning Point Brands First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Andrew Flynn, Chief Financial Officer. Please go ahead, sir. Andrew Flynn: Good morning, everyone. Earlier today, we issued a press release covering our first quarter results available in the Investor Relations section of our website at www.turningpointbrands.com. During this call, we'll discuss consolidated and segment operating results, the operating environment and our progress against our strategic plan. Before we begin, please refer to forward-looking statements and risk factors in our press release and SEC filings. We'll also reference certain non-GAAP financial measures. Reconciliations and explanations are included in today's earnings release. With that, I'll turn the call over to our CEO, Graham Purdy. Graham Purdy: Thanks, Andrew. Good morning, everybody, and thank you for joining our call. We started the year with strong momentum, led by accelerating growth in Modern Oral with gross and net sales up 167% and 133% year-over-year and 30% and 26% sequentially. These results are driven by ongoing growth in both brands' D2C platforms, FRE early expansion into larger, higher-volume chain accounts and [indiscernible] very early move into bricks and mortar. In the quarter, Modern Oral accounted for 42% of our total revenue, up from 21% in Q1 2025. Before we dive into details of the quarter, I want to step back and frame the opportunity in front of Turning point brands. We believe we are in the midst of a greater than $50 billion generational shift in nicotine consumption, and we are positioning the business to capture meaningful share of nicotine users in this evolving high-barrier category. We are strengthening that position through foundational investments in our sales force, marketing and commercial capabilities. These investments are critical to building a durable growth platform that can scale into a leading player in the post-cigarette nicotine market over time. While this infrastructure will ultimately allow us to compete across the modern nicotine ecosystem, our priority today is clear: winning in nicotine pouches. We believe the nicotine pouch category is still in its nascent stages of development and can become the dominant revenue and profit driver of the company over time. As we've said before, we expect the market to consolidate around a limited number of scaled brands, and we are increasingly confident that FRE and ALP will be among them. Our confidence is grounded in execution. We continue to see encouraging consumer response across both FRE and ALP, supported by product quality, brand positioning and repeat purchasing behavior. Our outsized share of direct-to-consumer sales, coupled with our continued market share gains in bricks and mortar are evidence that our plan is working in the early innings. Based on our Q1 performance, we believe our results captured mid-single-digit category share of both gross and net sales, giving confidence that we are on track to achieve our long-term goal of double-digit market share by the end of the decade. We are using that momentum to build scale across channels. FRE Continues to expand in the larger regional and national convenience chains. while ALP has moved from a strong direct-to-consumer base into retail faster than we originally expected. We've had several notable chain wins, driving confidence in our growth. We expect our chain store count to increase 70% by the end of 2026 versus the prior year. As you know, we are building an operational foundation to further support scale in Modern Oral. Commissioning our Louisville manufacturing facility is an important step in localizing production, improving supply control and reducing freight and tariff exposure over time. As we build production, we expect that work to strengthen unit economics and support margin improvement as domestic inventory moves through the P&L. At scale, we believe our margins should approach 70% in this category by the end of the decade. We also continue to invest in the commercial infrastructure needed to support growth, including sales force expansion, chain account support, enhanced consumer visibility and manufacturing capabilities. In 2026, we plan to continue investing in our sales force and marketing to secure chain placement, build brand awareness and support our growing distribution footprint. Based on achieving our sales and financial objectives, we expect total sales and marketing investment for the year to range from $80 million to $105 million. Given the strong gross sales growth we have experienced, we are confident that these investments will provide attractive returns for investors over the long term. In short, we are making front-loaded investments in a category where acquiring brand-oriented adult consumers can drive repeat purchasing and strong margins over extended periods. Over time, we believe our investments in physical execution, particularly sales force expansion, distribution support and retail presence will become a more important source of competitive advantage. Overall, we are encouraged by the momentum we are seeing, the progress we are making and the platform we are building to scale profitably. With that, I'll hand the call over to Summer to walk through the progress of our key go-to-market initiatives. Summer Frein: Thank you, Graham, and good morning, everyone. I'll focus my comments on our go-to-market execution in the nicotine pouch segment. This remains our top commercial priority. And as we scale the business, we continue to benefit from the strength of our legacy distribution relationships and broader commercial capabilities. Our strategy is to build demand across both online and retail channels with retail expansion as the key lever to scale the business. To support that effort, we are investing in sales coverage, merchandising support and brand-building programs to help us win distribution and improve in-store execution. That includes securing the right assortment, shelf placement and visibility to support trial, repeat purchase and long-term performance. These investments support both near-term execution and the broader foundation we need to scale the business. In the first quarter, we made progress against that plan. We secured new wins across critical top chain convenience stores that will expand distribution across our portfolio. Our brands are designed to resonate with distinct consumers, and we will continue to promote the expansion of both FRE and ALP into retail stores. We believe our brand credibility, market performance and ongoing marketing support were important drivers of those wins. While nicotine pouch gross sales grew nearly 500% in 2025, we still have meaningful room to build brand awareness relative to category leaders. Our early strategy was to establish distribution first using our existing retailer relationships to build a strong retail foundation. With the progress we made in 2025 and the additional distribution we have secured, we believe we are now at a point where increased brand investment can drive stronger returns. Over time, that should improve consumer awareness, support retail productivity and increase the value of the nicotine pouch opportunity. Accordingly, we are investing aggressively in brand building to support future scale. Last month, we announced a partnership between 3 and 6 TKO properties, including UFC, Zuffa Boxing and PBR. This expansion is a result of the demand and brand alignment success we validated through our initial partnership with PBR, which started in May of last year. We believe this broader platform will help accelerate brand awareness and consumer engagement with adult consumers. We are off to a solid start, already having executed a few events since the announcement, and we'll share more as the partnership unfolds. Building on ALP's success in direct-to-consumer, this was the first quarter that TPB sales organization started to sell ALP on retail shelf. We began with a manageable launch and expect to incrementally add stores this year through our new chain account wins. While it's early innings, we are encouraged by the initial results. With regards to Zig-Zag, we continued executing against our core brand pillars, strengthening the core business while scaling new product innovation and expanding brand presence in target markets. We accelerated growth in new products, including Natural Leaf Flat Wraps by expanding retail distribution through targeted merchandising programs. At the same time, we are growing brand awareness with a focus on under-indexed markets through integrated marketing campaigns and in-store activations that embodies Zig-Zag's new Life's Fast, Burn Slow tagline. Overall, we are seeing encouraging early proof points across both brand building and retail expansion, and we believe that progress positions the nicotine pouch segment to become a major contributor to growth over time. Let me now turn the call over to Andrew to go through our financial results. Andrew Flynn: Thank you, Summer. Starting with consolidated results. Sales were up 17% year-over-year to $124.3 million for the quarter. Growth was driven primarily by Modern Oral. Gross profit of $68.3 million increased 14.6%, driven by Modern Oral. Gross margin was 55%, which was down 100 basis points versus last year. Reported SG&A was $55.8 million for the quarter, which was up $8 million sequentially. The increase was driven primarily by our nicotine white pouch investments, including approximately $1 million of incremental spend tied to expansion of our sales force. We also spent approximately $7 million on increased marketing investment and broader brand-building initiatives. Adjusted EBITDA was $25.9 million for the quarter at a 20.8% margin, which exceeded the midpoint of the guidance. This was primarily attributed to accelerated growth in Modern Oral, offset by our strategy to increase sales and marketing investment and softness in Zig-Zag. Stoker's segment net sales increased 48% year-over-year to $88 million for the quarter. The Stoker's segment now accounts for 70% of consolidated net sales. Regarding Modern Oral, I want to briefly address our disclosure of gross sales. Because most contra revenue investments relate to slotting-related distribution fees, we believe both gross and net sales provide the clearest view of underlying business performance. Support of our growth investments, Modern Oral nicotine pouch net sales [ free and out ] were up 133% year-over-year, achieving net revenue of $52 million. Gross revenue was $69 million, up 167% year-over-year. For the quarter, Modern Oral accounted for 42% of consolidated net sales, up from 21% a year ago. Legacy Stoker's brands net revenue decreased 3.5% year-over-year to $36 million for the quarter, driven by continued share growth in MST that was partially offset by anticipated declines in loose leaf. Stoker's gross profit increased 39% to $47 million. Gross margin decreased 350 basis points to 54% due largely to the impact of tariffs. Zig-Zag segment net sales were down 22% year-over-year to $36.7 million for the quarter. For the quarter, Zig-Zag gross profit decreased 18% to $20.9 million and gross margin was 57.1%, which was up 300 basis points versus last year. First quarter free cash flow was negative $27.4 million, reflective of our investments in trade and brand marketing programs as well as working capital and U.S. manufacturing CapEx. We ended the quarter with $192.4 million of cash. Our expectation is to be approximately cash flow breakeven for the remainder of the year. Our capital allocation approach remains disciplined and aligned with the opportunity we see in nicotine pouch. As we invest behind growth initiatives, the timing of those investments and the timing of their benefits may not always align evenly within a given quarter. That reflects our effort to position the business to capture incremental share in a category with substantial long-term annuity value. Today, we are increasing full year 2026 Modern Oral guidance. We now expect gross sales of $280 million to $300 million, up from a previous range of $220 million to $240 million and net sales of $210 million to $225 million, up from our previous range of $180 million to $190 million. Implied gross revenue growth at the midpoint is 83.7%. We are also introducing full year EBITDA guidance of $70 million to $90 million, inclusive of increased nicotine pouch investments in sales force expansion, merchandising support and consumer marketing. For modeling purposes, we expect the effective income tax rate to be 23% to 26% on a go-forward basis. Budgeted 2026 CapEx is $4 million to $5 million, excluding projects related to Modern Oral, and we expect to spend an additional $3 million to $5 million this year to support our PMTAs. Additionally, as we focus on strengthening our market presence, we expect to spend between $80 million to $105 million to expand our sales force and bolster our marketing strategy in 2026. As we continue to scale, we expect the overall cost structure of the business to become more efficient. Many investments we are making today, [ slotting ] related, brand building and go-to-market spend are tied to building distribution and driving initial trial and growth of our products. As our consumer base grows, these costs should become a smaller percentage of sales. Now let me turn it to Graham. Graham Purdy: Thanks, Andrew. We are encouraged by the momentum we see in the business and by the progress we are making against our strategy. As I said at the outset, we believe we are in the midst of a generational shift in nicotine consumption, and we believe Turning point is uniquely positioned to capture meaningful share in that transition. Our focus remains on winning in Modern Oral by investing in the brands, commercial capabilities and infrastructure needed to scale. We are seeing continued proof points in both consumer traction and distribution growth, and we believe that positions us well to build a meaningful and profitable business over time. And with that, I'll turn it over to questions. Operator: [Operator Instructions] Our first question today will come from Eric Des Lauriers from Craig-Hallum Capital Group. Eric Des Lauriers: Congrats on the strong results. Very encouraging to see nicotine pouch sales reaccelerating into Q1 here. So you raised guidance for Modern Oral net sales by about $30 million and then gross sales by about $60 million. So suggesting a big increase in contra revenues with these national chain wins. How did these wins announced today compared to your expectations coming into the year? Have you won more chains than initially expected? And any national chains that we should expect both FRE and ALP? Or is it mostly FRE right now? Summer Frein: Great question. Thanks, Eric. We were really, really excited about the springtime negotiations that we worked through over the past few months. As Graham noted in his comments, we expect our store count to increase by nearly 70% by the end of the year. I think as you know, every chain account is different. So we're currently in the process of determining the rollout schedule and the doors will come online over the balance of the year. Where we have opportunities to bring both brands in, we will. So you'll hear more about that as the year rolls out, and we're encouraged and excited about the success that we had over the past few months. Eric Des Lauriers: Yes. No, it certainly sounds very exciting. And I guess, Summer, you touched on this in your answer there. And maybe it's just sort of, we'll see over the next couple of quarters. But how should we think about the timing from these wins? When should we expect to see them on shelves? And then how should we think about the sort of impact on gross versus net sales? Should we look for net sales to sort of pick up from these in the back half? Or is that more of a 2027 thing? Summer Frein: Yes. I'll answer the first part, and then I'll turn it to Andrew to answer the second part. But you'll start seeing some of these chain wins roll out over the next few weeks. But as the progress of rolling out these chains requires resets of fixtures and different dynamics that they're sorting out with getting everything situated in store, it just takes time. So you'll see those stores sort of fill out across the balance of the year, but I'll turn it to Andrew to explain how we thought about the dollar impact. Andrew Flynn: Yes. As we think about the net sales trajectory over the course of the year, we would expect to see some pickup in the back half as it relates to the modern oral category. Eric Des Lauriers: All very encouraging. Congrats again on the strong results. Summer Frein: Thanks, Eric. Operator: Your next question comes from Ian Zaffino from Oppenheimer. Ian Zaffino: Great guidance on that [ DMO ] side. So question would be on the PMTA process. How is that going? I know there's articles about that. And any kind of change in discussions there or thoughts about getting kind of final approval? And then how are you thinking about the Louisville plant, which I guess they're kind of [indiscernible]. Graham Purdy: Yes. Great question, Ian. Look, the PMTA process is -- it's a rigorous scientific process. We're not surprised by the timing, to be frank. And our approach is, we respect the process and any additional commentary around sort of where we're at on that [indiscernible] probably wouldn't be appropriate at this time. In terms of Louisville manufacturing, we're threading a bit of a needle here with respect to the PMTA process, and scaling our infrastructure here in Louisville. We've made really great progress relative to laying down the infrastructure to support manufacturing here in Louisville. We've certainly got equipment in Louisville, and we feel really good about where we're at from a throughput on those machines in the early innings. Ian Zaffino: Okay. And then I guess maybe a question for Summer is when you're going to market portfolio, I guess you now have a newly expanded portfolio. And so how are you going to market? Are you going to market as far as 3 being your higher nicotine pouches and ALP being your lower nicotine pouches? Is that the strategy? And also, can you maybe talk about this portfolio -- expanded portfolio, which has significantly more SKUs, how that's resonating with retailers bringing them incremental SKUs? And any other kind of color you could give us maybe about the maybe synergistic effects of having those 2 brands together? Summer Frein: Yes, sure. So I would say the retailers, our consumers and our sales organization are all very excited about us having both brands in the portfolio and in the sales bag to bring to market. And what's been great about both of these brands is that they've built a strong base with consumers, especially ALP, they've created a really strong D2C presence, and there was some pent-up demand at retail that we were really able to start leveraging. And as these brands are being put into market, we're really thinking about the end consumer. So while the product itself is important and they certainly have their differences, what's resonating with retail, what's resonating with consumers is that these brands are really focused on 2 very distinct consumer bases. There is room in this category for both brands to win, and we've seen some really encouraging early results as we've been bringing them to market. Operator: Next up is Nick Anderson from ROTH Capital Partners. Nicholas Anderson: Congrats on the quarter. First for me, just on the rising fuel price environment, have you seen any impact on [ C-store ] visits or consumer behavior? Tobacco is typically more resilient when it comes to higher fuel prices. Are you seeing the same trend emerge within nicotine pouches? Just any discernible changes [indiscernible] would be helpful. Graham Purdy: I think given the backdrop of our results, we feel really good about sort of where we're at today with the consumer. As Summer had mentioned in the last question with Ian, we're really focused in on building brand equities, building brand identity and really winning on the premium front over the long haul. We view the fuel prices as transient. We think where we generally see that more so is in the heritage businesses. And I think what's an interesting aspect of that, historically, consumers tend to not move out of the categories. They tend to look for more value. And I think we feel very well positioned with our Stoker's heritage products with respect to spiking gas prices. Nicholas Anderson: Great. That's helpful. Second for me, just on the retail landscape. With the momentum from TKO and brand awareness obviously ticking higher here, have you seen a different appetite for [indiscernible] to change the carry FRE and ALP? As brand recognition grows, I would assume your negotiations should become smoother, but any color there would be helpful. Summer Frein: Great question. We are really excited about the TKO deal. As you know, we invested in PBR last year. We learned a lot, and that gave us some momentum to build upon because I think having this TKO deal really has us show up as a credible partner that's investing for the long term to win with our brands. And so certainly, while it's early, it has been part of the conversation with retail. We've seen some early consumer excitement. We have some events under our belts and more to come as that partnership unfolds, but encouraged about the credibility it brings to us and sort of the proof point that comes to the table of us being a brand and a company that's investing in the long term here. Operator: The next question is from Gerald Pascarelli, Needham & Company. Unknown Analyst: This is Jack on for Gerald. You've [indiscernible] EBITDA guidance obviously implies a decline relative to last year, which at this point, I think is well understood, but the range is pretty wide. So could you just kind of go through some assumptions that get you to the high end versus the low end? Andrew Flynn: Sure thing. So look, what's driving the EBITDA guide is, as we discussed, we've got big investments in terms of sales force, retail distribution as well as marketing spend. And so those are the big drivers of the year-over-year change. Also, as you know, our freight -- our outbound freight costs are captured in SG&A. That's also up on a year-over-year basis. And so what's kind of driving the range here is, one, the biggest driver is our ability to get that spending and what we will spend on in the future. And so that spending is dependent on what we see in terms of sales because we'll be able to pivot if needed. And we're being judicious about that investment. And so as we monitor it, we may make some changes. So that's really the reason for the guide. And also, there could be a real upside opportunity in terms of the TKO agreement that we just launched, this is very new. And also some of these chain wins are also very new, and that can provide a very large upside for us as well. Unknown Analyst: Okay. That's helpful. And then for the UFC sponsorship, it looks like it can be pretty transformative. It's incremental to your OpEx outlook relative to last time you presented. So as we kind of look forward, is there the potential for Turning Point to enter into some more of these sponsorships? And then if so, can that imply another leg down on EBITDA? Or do you think the low end is the floor at this point? Summer Frein: I'll take the first part of that question, and Andrew may want to chime in on the dollar aspect. But as you know, investing in TKO is a bet for us, we're really excited about. We are also doing other marketing activities, other consumer engagement building activities like with [ motor sports ] and other avenues. And so I think to Andrew's point, we will invest prudently as we go and make changes as we may need to, but excited about the awareness opportunity this gives for the brands, and I'll turn it to Andrew on the dollar aspect. Andrew Flynn: Yes. In terms of what that may mean for the low end of guidance, as I said before, we're going to be judicious about our spending. And so if something makes sense for us to gain incremental market share, we will do that. And so that's really how we think about these opportunities. Operator: And everyone, at this time, there are no further questions. I'd like to hand the conference back to Mr. Graham Purdy for any additional or closing remarks. Graham Purdy: Thanks, operator. I really want to thank everybody for joining the call today. Look, in closing, I think, ultimately, I want to emphasize a couple of points to our investors. For one, I've been in this industry for -- I'm closing in on my 30th year, and I can't tell you how excited I am about the opportunity in front of us with the generational transformation that we spoke of earlier in the script. And what -- how TPB fits into that long term, I think, is incredibly exciting. The Modern Oral opportunity, it's real. It's gaining momentum. I think you're seeing early progress from our company that across our D2C platforms and progress we're making in bricks and mortar gives us a lot of enthusiasm around where we're at in terms of harvesting that long-term opportunity. As Andrew mentioned, our investments in this category are going to be incredibly disciplined and ultimately tied to our sales objectives in this category. And I think lastly, the heritage business for us is still very important. It provides strong cash flows for the company, and it gives us cash flow to invest in the future and ultimately harvest the opportunity that we see in front of us. So it's really exciting times at Turning Point Brands. And with that, I'll sort of close by saying, I look forward to talking to you all in a few months here and updating against our progress against the plan. So thank you so much for joining. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Viatris First Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Bill Szablewski, Head of Capital Markets. Please go ahead. William Szablewski: Good morning, everyone. Welcome to our Q1 2026 earnings call. With us today is our CEO, Scott Smith, Interim CFO, Paul Campbell; Chief R&D Officer, Philippe Martin; and Chief Commercial Officer, Corinne Le Goff. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2026 and various strategic initiatives. These statements are subject to risks and uncertainties. We'll also be referring to certain actual and projected non-GAAP financial measures. Please refer to today's slide presentation and our SEC filings for more information, including reconciliations of those non-GAAP measures to the most directly comparable GAAP measures. When discussing 2026 actual or reported results, we will be making certain comparisons to 2025 actual reported results on an operational basis, which excludes the impact of foreign currency rates. When comparing our 2026 actual or reported results to our expectations, we are making comparisons to our 2026 financial guidance. With that, I'll hand the call over to our CEO, Scott Smith. Scott Smith: Good morning, everyone. We're pleased to report another strong quarter. We're off to an exceptional start to the year. Before I get into the results, we recently presented our plan for long-term sustainable growth, driven by 3 strategic imperatives: driving our base business, fueling our innovative portfolio, and modernizing for sustainable growth. What you're seeing in our results is proof that, that strategy is working. In the first quarter, we delivered total revenues of $3.5 billion, up 3% from a year ago, adjusted EBITDA of $1 billion and adjusted EPS of $0.59 per share. Our overall performance reinforces the growth trajectory of our business. And based on what we're seeing, we're confident in our outlook for the remainder of the year. Let me briefly touch on what's driving that confidence. First, on the commercial side, execution remains strong. Notably, Greater China was a significant contributor this quarter. We're seeing strong execution and our commercial investments are leading to accelerated growth. In Japan, momentum is building following the launch of EFFEXOR for generalized anxiety disorder. We're expecting to see a return to growth with the EFFEXOR launch and several more launches expected in the coming years in this strategically important market. Second, on the pipeline, we're continuing to make progress. We've already achieved regulatory approval for 1 of our 6 product candidates we're anticipating this year, EFFEXOR for GAD in Japan. We remain on track for the remaining 5 regulatory decisions in the second half of the year, including our weekly contraceptive patch XULANE LO and our fast-acting meloxicam. We are excited about these upcoming U.S. launches, which we believe will be important for patients and also accelerate our growth. We have a highly experienced and talented leadership team in place with a strong track record of successful launch execution and we're confident we have the right people and capabilities to deliver. Our Phase III programs for selatogrel and cenerimod remain on track and represent important potential longer-term growth drivers. That said, our near-term focus is squarely on execution, securing approvals, launching products effectively and building momentum. Third, capital allocation. We continue to take a disciplined approach. We intend to deploy our capital in a balanced way, returning capital to shareholders through dividends and share repurchases and investing in the business to support sustainable growth. Business development is an important component of our strategy. We're focused on opportunities that are in-market, accretive and aligned with our capabilities to strengthen the durability of our growth profile. And finally, on the organization. We're making progress on the opportunities identified through our enterprise-wide strategic review to optimize our cost structure, improve resource allocation and drive operational efficiency. We are on track to deliver those savings while also reinvesting in the business to support future growth. In summary, it's a great start to the year. There's strong momentum in the business, and we are well positioned for sustained revenue and earnings growth. Before I turn it over to Philippe, I want to thank Doretta Mistras for her significant contribution as CFO over the past 2 years. Her leadership has played an important role in helping prepare the company to enter a period of sustainable future growth. With Doretta's transition, I'm pleased to have Paul Campbell step into the role of Interim Chief Financial Officer. Paul brings deep experience, a thorough understanding of our business and a long tenure with the company, making him ideally positioned to ensure continuity and maintain operational discipline. With that, I'll turn it over to Philippe to go through some pipeline updates. Philippe Martin: Thank you, Scott. We've had a strong start of the year, continuing to advance our value-added and innovative portfolio while executing on our generic pipeline. Let me begin with fast-acting meloxicam for the treatment of moderate-to-severe acute pain. Our NDA has been accepted for review by FDA. We remain confident that we will receive the regulatory decision by year-end, pending confirmation from FDA on a PDUFA goal date. We continue to believe that the strength of our data supports inclusion of opioid-sparing language in our label, acknowledging that this will be subject to review and discussion with FDA. Regarding [ XULANE LO ], our low-dose estrogen transdermal contraceptive patch. We remain on track against the expected PDUFA goal date of July 30, 2026, and continue to see strong engagement at key medical congresses. Most recently, at ACOG, the American College of Obstetricians and Gynecologists Annual Meeting, we presented 6 abstracts, including positive results from our previously announced Phase III study as well as new data on adhesion performance under both normal and extreme conditions, pharmacokinetics and cycle control. Within our eye care portfolio, the phentolamine ophthalmic solution Phase III data for the treatment of presbyopia has been presented at multiple congresses and our sNDA remains on track against an assigned PDUFA goal date of October 17, 2026. I will now highlight key milestones in Japan. In March, as anticipated, we received approval for EFFEXOR in adults with generalized anxiety disorder. For pitolisant, with regulatory reviews progressing well, we expect PMDA regulatory decisions for 2 indications in the second half of this year for excessive daytime sleepiness associated with obstructive sleep apnea and associated with narcolepsy type 1 and 2. Lastly, we continue to progress our Phase III study of Nefecon for the treatment of IgA nephropathy in Japan and remain on track for a top line readout in the first half of this year. These milestones underscore the successful execution of our strategy to advance a differentiated and increasingly innovative portfolio in Japan, bringing forward value-added therapies that address significant unmet needs. Turning to Creon in Europe, which is considered the standard of care for pancreatic exocrine insufficiency treatment due to different underlying conditions and is another value-added medicine in our pipeline. We conducted a Phase III study in non-cystic fibrosis patients to determine whether dose escalation to double or triple the currently approved dose allows for the achievement of better symptom control and nutritional status. The interim analysis showed that approximately 76% of patients were not adequately treated with the maximum approved dose of Creon for this indication and benefited from a further dose increase. The study medication was well tolerated at these higher doses. Based on this data, together with an increased body of real-world evidence and in consultation with German Health Authority, we intend to file a type 2 variation in Europe before the end of the year and anticipate an approved label update in the first half of 2027. This will be followed by additional submissions outside of Europe where applicable. Together with significantly expanded manufacturing capacity, we expect this will position Creon for sustainable growth and bridge an important unmet medical need for patients. Regarding INPEFA, we continue to progress our regulatory applications and anticipate additional regulatory decisions in key markets this year. Turning to our innovative global Phase III program, selatogrel and cenerimod. For selatogrel, we continue to maintain an enrollment rate of approximately 1,200 patients per month in our SOS-AMI Phase III study, keeping us on track to potentially reach full enrollment by the end of 2026. For cenerimod, our Phase III studies in the SLE OPUS-1 and 2 are fully enrolled, and we expect results for both studies in the first half of 2027. And importantly, regarding our generic portfolio, we continue to drive excellence in execution and are making significant progress in meeting our submissions and approval goals for the year. In particular, with regard to our complex generics pipeline, we remain on track for FDA regulatory decisions this year on our iron ferric carboxymaltose injection and rotigotine patch. Additionally, we have already secured approval of our generic to Abilify Maintena, which is on track to launch in the U.S. before the end of the year. Our continued pipeline momentum reinforces our confidence for the rest of the year and beyond, driven by disciplined execution across our innovative value-added and generic programs and a clear focus on advancing meaningful medicines for patients. With that, I'll turn it over to Paul. Paul Campbell: Thank you, Philippe, and good morning, everyone. Let me begin by briefly introducing myself. I have served as the company's Chief Accounting Officer and Corporate Controller for nearly 10 years. I've been with the company, including legacy Mylan for more than 23 years. With that perspective, I can honestly say that I've never been more excited about the future of the company, and I'm very happy to be with you this morning. Regarding our results, I am pleased to report that we're off to a strong start this year, reflecting the strength of our global portfolio and continued execution of our strategy to enable us to deliver sustainable revenue and adjusted earnings growth. This morning, I'll cover the drivers of our strong first quarter performance and how this performance provides us with confidence in delivering our outlook for the remainder of the year. Beginning with our first quarter results. Total revenues were $3.5 billion, representing operational growth of 3% year-over-year. This performance was driven primarily by accelerated growth in our cardiovascular portfolio in Greater China and strong generics performance in North America. Now let me walk you through the segment performance. In developed markets, net sales increased by 1% versus the prior year, which was roughly in line with our expectations. North America grew 3%, driven by increased demand for estradiol, continued strong performance from Breyna and new product revenue contributions from complex generic launches. In Europe, net sales declined approximately 1% versus the prior year, mainly due to softer market conditions in select countries, anticipated competitive pressure on Dymista and certain supply constraints. That said, the underlying fundamentals in Europe remains strong, driven by the performance of key brands such as Creon, contributions from new product revenues and solid growth in Italy. Turning to emerging markets. Net sales were flat year-over-year, which was below our expectations. Performance was supported by continued strength in our established brands across certain key markets. This was offset by supply constraints in our lower margin ARV portfolio. Within JANZ, net sales decreased approximately 2% versus the prior year, but coming in above our expectations. The decline was driven by anticipated increased competition in Australia and the impact of government price regulations in Japan. This was partially offset by solid performance from key brands, including Creon and Amitiza. Lastly, we delivered a very strong quarter in Greater China with growth accelerating ahead of expectations at 18% year-over-year. The main drivers of this performance were favorable market fundamentals, including an aging population and increasing demand for cardiovascular products, the cumulative impact of our strategic selling and marketing investments and growth across all channels and more specifically, our continued focus on growing demand through e-commerce platforms, where sales more than doubled compared to the prior year. Moving to the remainder of the P&L. Adjusted gross margin was 56% in the quarter, flat versus the prior year. Margins were slightly better than expected driven by favorable product mix. Operating expenses were also favorable versus the prior year, reflecting our disciplined cost management, cost savings from the implementation of our enterprise-wide strategic review and from the phasing of spend. In addition, we continue to generate strong and durable free cash flow. During the quarter, we generated $348 million of cash, inclusive of transaction and restructuring-related costs and taxes. Excluding these items, free cash flow would have been about $459 million. Turning to capital allocation. We continue to expect more than $2.5 billion of cash available for deployment during 2026, providing meaningful flexibility to execute against all of our stated capital allocation priorities. During the quarter, we returned $140 million of capital to shareholders through our dividend. Based on our strong first quarter performance and favorable trends, we are reaffirming our guidance ranges. As we think about our outlook for total revenues, we now expect stronger growth in Greater China in the range of mid- to high-single digits, and delayed competition for Amitiza in Japan. These tailwinds are expected to be partially offset by certain temporary supply constraints related to lower-margin generics and additional competitive pressure across generics in developed markets. Lastly, a comment about foreign currency exchange rates. If current rates were to hold for the remainder of the year, we would expect an incremental 1% tailwind on total revenues and adjusted EBITDA. Turning to phasing for the remainder of the year. Total revenues, adjusted EBITDA and adjusted EPS are still expected to be weighted to the second half at approximately 52% of our full year outlook. This reflects normal product seasonality and the timing of new product launches and takes into account the expected ramp-up in operating expenses through the year. Free cash flow is also expected to be higher in the second half, reflecting the timing of working capital and benefiting from a step-down in onetime operating cash costs. In closing, we are highly confident in the strength and durability of our business. The first quarter demonstrates continued strong execution against our strategy to deliver sustainable revenue and adjusted earnings growth while generating substantial free cash flow for our balanced capital allocation framework. Because of the strong momentum of the first quarter results, we believe we are well positioned to meet or potentially exceed our expectations for the remainder of the year. With that said, I'll hand it back to the operator to begin Q&A. Operator: [Operator Instructions] The first question comes from Glen Santangelo with Barclays. Glen Santangelo: Scott, congrats on finally getting to the point where the quarters are sort of clean year-over-year and it's a lot easier to interpret. When you look at these results, it looks like you've got very strong incremental contribution from both brands and generics and then on the geography side, from China in particular. And in your prepared remarks, you suggested it was strong execution and commercial efforts. But the growth rate doubled in that geography. And so I'm trying to get a better sense of the stability of -- or I shouldn't say stability, the durability of that strength and the momentum that you've seen and trying to reconcile that with maintaining the guidance given that 1Q is already sort of running ahead of, I guess, your overall expectation for the year? And then I just had a follow-up for Philippe. Scott Smith: Yes, relative to maintaining guidance, so I guess I'll take it a little bit backwards, right? It's early. We're really, really pleased with the quarter, clean quarter, as you say, strong quarter. We're pleased that it's just early, and we'll continue to monitor and when we get to Q2, we'll update you at that point in time. But I feel very, very good about it. Yes, it was a clean quarter, driven a lot by revenue in China and North America. You asked about China. I've been involved with business in China since the late '90s. I actually ran China operations for a prior company, and so I'm close to that market. It's the strongest China market over the last 12, 18 months that I've ever seen, both on the innovative side and on the total side. So China is very, very strong, and we're very, very pleased with our performance there. So -- but it's not just the market, right? We also have a very strong team in China. We've made a lot of investments in China, particularly on the e-commerce side, and we're starting to see those pay off now. So we're very, very pleased with the China performance. Paul Campbell: Yes. Maybe I'll just add -- sorry, Glen. Glen Santangelo: No, go ahead. Paul Campbell: Yes, on your question about the durability, I mean, we -- you've heard from my remarks, we've increased our expectation from the beginning of the year of low-single digits to now mid- to high-single-digit growth in China. However, there's always the policy risk that's very dynamic and unpredictable. And as Scott said, it's too early in the year for us to really be that bullish on it, but we'll monitor through Q2, and we'll let you know. Corinne Le Goff: And maybe I can add in terms of the outlook for China, we are very confident that we will see no policy change this year. One thing we have done, and Scott just mentioned it, is that we have consistently invested in our commercial platforms. And switching the -- transitioning the business from hospitals that are most susceptible to policy changes to retail and e-commerce. And e-commerce this year, in this first quarter we've seen a doubling of our sales in this channel. So good success from our perspective. Glen Santangelo: Okay. Maybe if I could just ask a quick follow-up to Philippe. Philippe, thanks for all the detail on all the pipeline stuff. But what I was hoping to try to do is maybe just sort of boil it down a little bit for investors in terms of what you think the biggest opportunities are here over the next 12 months. And I think you said you expect to get a decision on the estrogen patch by the end of July and on fast-acting meloxicam sometime in 4Q. And then I think as we look to 27, we have cenerimod, the readouts coming in the first half of the year and selatogrel maybe behind that in late '27. Are those sort of the 4 biggest opportunities that you see? Or is there something else you'd add to that mix? And I'll stop there. Philippe Martin: Thanks for the question. So as you point out, importantly, in the U.S., we have meloxicam and [ XULANE LO ] this year. I think these are 2 key important launch for us, supported by very strong clinical data. The review process for these 2 assets with the agency, with the FDA is going as planned. And so we have good confidence that we'll get the approval by the time of the PDUFA for [ XULANE LO and later in the second half for meloxicam, we're still waiting for FDA to give us that PDUFA date. It should be coming very, very soon. Japan remains very important for us. As you heard from Scott, we have a number of readouts and approvals in Japan this year, particularly pitolisant is our next approval in the second half of the year, early second half and that will be followed also by important data for Nefecon in IgA nephropathy. So Japan is -- we're getting the approvals we need, and we'll -- we have a strong team there that has experience in launching these types of assets. And then finally, to your point, selatogrel, cenerimod, everything is on schedule. Everything is behaving like we have planned. So everything is working according to plan and we'll get data very, very late this year, early next year for cenerimod and followed by selatogrel in the first half of the year is what we anticipate. Scott Smith: I just want to -- before we go to the next question, just to wrap it up here on meloxicam and [ XULANE LO ]. Very, very pleased with the data, as Philippe pointed out. But I also feel great about the commercial teams we're putting in place to commercialize both those assets. strong teams, a lot of experience in launching blockbuster products in the U.S., and I think they're going to execute really, really well on these products. So we're very focused on making sure that we execute those couple of launches. And then, of course, the opportunity to have readouts on selatogrel, cenerimod, et cetera, is going to be very, very strong for us. Operator: The next question is from Umer Raffat with Evercore. Umer Raffat: I have 2, if I may. First, if you could just expand on the free cash flow year-over-year and what some of the drivers are. But secondly, and perhaps more importantly, I just wanted to expand on the selatogrel trial in the cardiovascular setting. And specifically, I feel like there hasn't been an appropriate amount of discussion on the endpoint. So the way I understand it, and Philippe, I would love for you to correct me. The way I understand it is it's not a composite endpoint. Instead, it's 1 of 6 things that could happen on an ordinal scale. And per patient, the worst thing is taken forward. So I guess my question is, if someone has a STEMI versus a death, how -- is there like a score that's assigned to those 2 different events? But also, I would imagine because there's 5 different things that could contribute into this primary endpoint, and there's probably a score assigned to each one of them, what happens if you have more NSTEMIs and less deaths than you were anticipating in your sample size, would you need to do a sample size reestimation and when will that happen? Scott Smith: Thank you, Umer. Thank you for your questions. First, I'll have Paul talk a little bit about -- to give some detail around the cash flow and then Philippe can get into the selatogrel endpoints, the study design and beyond. Paul Campbell: Sure. So as far as the change year-over-year in Q1, I think it's important to point out that even though it's down, it exceeded our expectations, what we thought was going to happen for the quarter. But essentially, the drivers are timing and net working capital, which is both the timing and then we had business growth this year and last year's comparative period, we had a decline. And then our onetime cost did increase year-over-year. Those are the main drivers. Philippe Martin: Okay. So regarding selatogrel. So maybe we need to spend some time together to go over the actual design and the primary endpoint. But it is an endpoint that we designed in collaboration with the FDA and with our KOL. So we -- it's a ranking endpoint where we have -- where we're ranking the severity of the MI and it can go from a scale of death all the way to an acute MI without a significant impact. And in the middle, you have, as you pointed out, STEMI, non-STEMI as severity of the acute MI. The way it's calculated, it is the worst outcome for the patient that is taking into account. So if you're -- a patient has 2 events, as death and STEMI, for instance, then the death will be the adjudication that will be taken into account for the calculation of the endpoint. What we're intending to see is a relative risk reduction of about 20%. That's how the study is powered, and that's what we anticipate to see as part of the assumption to designing the study. So I think it's relatively straightforward from that standpoint. Adjudication is happening by blinded -- by an unblinded committee that looks at the severity of the outcome and determine which one is for us to take into account. The outcome we anticipate to see is that patients -- you will see a reduction -- if the study works as advertised, you will see a reduction of severity in the selatogrel arm versus the placebo arm, right? So there will be less patient with death, less patient with severe acute MI versus placebo. That's -- that risk reduction, if you will, that will be characterized that way. So a lot more to go -- we can go into a lot more detail about this endpoint, but I think that should answer your question at this point. Scott Smith: Yes. And before the next question and on a much less granular level, I'm really pleased with the execution from a clinical development perspective for selatogrel and for cenerimod, but we've accelerated the enrollment of obviously, both of those fully enrolled now with cenerimod, and right now, we are enrolling approximately 1,200 patients a month in the selatogrel study, which is a pretty strong number. So we're very pleased with how those are progressing. We're looking forward to turning over those cards and seeing those results and see what we get, but very, very pleased with the clinical development execution thus far. Operator: The next question is from Matt Dellatorre with Goldman Sachs. Matthew Dellatorre: Congrats on the strong quarter. Maybe coming back to fast-acting meloxicam just briefly, could you comment on whether priority review is still a possibility there? And then anything further you could share regarding the expected label? I know you said in the prepared remarks, you do expect opioid sparing to be on the label to some degree, but just anything kind of further you could share would be helpful. And then maybe with regard to the cost savings, could you comment on progress with regard to achieving -- I think you've put out an estimate of 30% of that $400 million in net savings this year. And then I realize there's some offsets this year in terms of mix shift and LOEs that you don't expect that to flow through to margins. But perhaps walk us through what the base case and the upside case looks like in '27 and '28 with respect to EBITDA margins. Scott Smith: Thanks, Matt. So let me just overall say we'll address the second question first around the enterprise-wide strategic review and I'll kick it over to Paul for some discussion around margins, but we are completely on track at this point in time to deliver the savings that we outlined before. So you can really see the effect of that as we're starting to get some significant EBITDA leverage with 3% growth and 10% EBITDA growth in the quarter. We are on track to deliver the savings this year and also for '27 and '28. Paul, around the margins? Paul Campbell: Yes. So I think it's important, as Scott said, part of our beat in the quarter was related to OpEx. And OpEx comes -- lower OpEx comes from our disciplined cost management. And then, obviously, there's a little bit of phasing in there. And then the cost savings program, as you pointed out, I think it's about $120 million. If you do the math on what we expected for this year, we're on track to deliver that for this year. And we do expect that operating leverage to continue as the savings flow in, not only the rest of this year but into the next few years also. Scott Smith: Philippe, around meloxicam regulatory and label? Philippe Martin: So we anticipate that the agency -- we're expecting that the agency will be giving us the PDUFA date and timing of review within the next couple of weeks. So we should get much more visibility on that timing, and we will let you know. In terms of the label, there is clearly based on the data our expectation is that the opioid-sparing language will be included as part of the label, where it is exactly in the label will be a matter of review and discussion with the agency. But our expectation is that the data that supports opioid sparing will be included as part of the label, they were our key secondary endpoints. They were discussed and designed in collaboration with the agency. So we have -- we believe that they will be included in the label. Corinne Le Goff: And Matt, this is Corinne. And as it comes to the commercial opportunity for fast-acting meloxicam, having no opioid sparing in the indication section, it's helpful but not essential, I would say. It will be in the label, as Philippe said. And the opportunity is driven by the total clinical profile of this product. And we have demonstrated that fast-acting meloxicam can deliver very fast, rapid, meaningful pain relief. It's a non-opioid option, and that's really what will make a difference in the moderate-to-severe acute pain market. Scott Smith: No, that's a great point, Corinne, that overall, the data is very, very strong. The opioid sparing is an important part of the data, but it's just part of the overall data, which, again, really looks very, very strong, and we're very hopeful about -- and anxious in a good way about getting to the launch and getting it out there. We think it's going to be a very important product for us in '27 and beyond. Operator: The next question is from Les Sulewski with Truist Securities. Leszek Sulewski: Congrats on the progress. I appreciate you providing the new product contribution figure of $71 million. Could you comment on that? How much of that was tied to product sales versus onetime channel stocking? And is this a figure you intend to provide moving forward? And then on the BD front, it appears the market has been -- is a lot more active now. Has the bar for BD changed, given the strong start to the year and the $2.5 billion cash available? And then lastly, how should we think about the CFO transition? Should investors expect any change in capital allocation or disclosure or on the cost savings side? Scott Smith: Maybe we'll just take it from the bottom and go forward. So first of all, on the CFO question, we should expect no changes to capital allocation or financial policy with no expectations at all. And since it's been brought up, the first thing besides the fact there will be no changes, I'd like to thank Doretta for being a great partner to me. She's leaving to pursue another opportunity on the West Coast and her leadership played an important role in helping prepare the company to enter a period of sustainable growth. Having said that, I'm thrilled to have Paul sitting here beside me, I've got tremendous confidence in him as the interim CFO. He's got a long tenure, a tremendous understanding of our business, and we're very, very lucky to have him. So I feel very good about the CFO transition and how that's going. From a BD perspective, yes, it's a little -- there seems to be a lot of activity going on right now. BD priorities have not changed. We're looking for in-market accretive assets that can help fuel our growth as we go into the future. There's lots of things out there, I think, that are sort of in our sweet spot, right, that may be a little bit too small for the big pharma world, but the right size for us. And so we want to -- embedded in the BD question is capital allocation. We want to remain balanced, right? We're going to continue to return to shareholders through dividends and share repurchases, but we're also going to be aggressive in business development and we want to be able to, over the next period of time, continue with the internal efforts on the pipeline, build a portfolio of growth assets to help fuel our future sustainable growth. So we're excited about having the cash available to enter into business development and support the strong base business and the pipeline that we're developing. Paul Campbell: Okay. Yes. On the new product revenue, so I think that's a figure that we generally give out each quarter so that we can all track against it. The $71 million included the launches of iron sucrose and octreotide for us, and it was actually in line with our expectations. We've always said or we said at -- in February that we expected a ramp over the course of the year in the new product revenue. So it's definitely more heavily weighted to the second half. And then as far as the question on channel inventories, our channel inventories are very normal and standard. There's no significant impact or increase in those inventories that drove any of the results for the first quarter. Scott Smith: I think you also said in your question, we're going to continue to give the figures for new product revenues. And yes, we are. However, we're probably going to have to evolve that over time as we're evolving the portfolio. That works really well for the generic and complex generic pipeline. But as we start getting more value-added products, 505(b)(2)s and others, and particularly the innovative portfolio, new product revenue is not just year 1 or 12 months, right? It's -- those are new products for 1, 2, 3, sometimes 4 years that you're developing them. So we're going to have to think a little bit about how we characterize our success in introducing new molecules into the portfolio. Operator: The next question is from Jason Gerberry with Bank of America. Unknown Analyst: This is Melanie on for Jason. On fast-acting meloxicam, can you discuss your specialty sales force strategy? And what percent of the market are you -- do you think you'll be able to access given your HCP and outpatient focus? Scott Smith: Thank you for the question. Corinne? Corinne Le Goff: Yes. Thank you, Melanie. So for the launch of fast-acting meloxicam, we've done a lot of work to really identify the key target for us. We have a specialty approach, meaning that we are going to go after the patients that are treated in the outpatient setting, but really postoperative pain as a start. And in terms of sizing of our sales force, we are thinking of building a sales force of about 150 to 200 reps. And potentially going beyond this through partnerships as we develop this product further and target more nonoperative pain at this point, dentistry and other type of pain. And this we would do in partnership very likely. Operator: The next question is from David Amsellem with Piper Sandler. David Amsellem: So at a high level, Scott, I want to get a better sense of what Viatris is aspiring to be regarding the innovative business in the United States. You've got an immunology program. You've got a cardiovascular program. You've talked about pain. So there's a number of different therapeutic verticals that potentially you're going to have your hands in commercially. So can you help us better understand how you're thinking about leveraging those verticals? And I realize that's a high-class problem to the extent that cenerimod and/or selatogrel work. But I think it would be helpful to illuminate us on how are you thinking about that? And then secondly, I know you talked about accretive M&A, commercial stage M&A. But can you also talk about the extent to which you want to take on additional R&D risk via in-licensing, the kinds where you have relatively small upfront payments, and you're not really doing anything to your capital structure, but you're bolstering the pipeline. Is that something that's going to be a priority in parallel to your priorities related to commercial stage M&A? Scott Smith: Thank you, David. I wouldn't say a priority. I think over a 5-year period, we will likely put some things into the pipeline that are early clinical. But right now, we're focused on in-market accretive assets that we can be good owners of. And so that's our focus. Again, over the next 5 years, there may be some things that come into the pipeline, but it's not the same priority as focusing on things which are in-market accretive and can help drive our revenue and EBITDA in the short term. Philippe Martin: Therapeutic indication. Scott Smith: On the U.S., yes, therapeutic indications. Again, we're a little less focused on therapeutic indications than we are about can we be good owners of these assets? Do we have the right people? Do they fit the portfolios going forward. Even though there may be a couple of different, as you said, a high-class problem, of Phase III programs being successful and also launching in the U.S., we're going to have a specialty focus. These are not huge from a spend perspective. We're not going into primary care. We're not going to have thousands of sales reps out there. We feel we can build strong therapeutically focused sales forces that are able to deliver good results. And the way that I look at it is if you had a positive, for example, result with cenerimod and we're launching cenerimod, that's a cornerstone product in that therapeutic area. We launched that successfully, and we continue to add products there. We don't want to be in everything, right? And we're trying to find good assets that can be cornerstone products, and then we'll build on those from a therapeutic perspective as we move forward. Corinne Le Goff: And David, if I can comment also on how we build infrastructure in the U.S., I think it's very important to understand, and I mentioned it for fast-acting meloxicam that we have a very targeted specialty-driven approach, so the sales force will never be beyond 200 people. It's really what we are looking at doing. And I can give the example of women's health as well where we have a portfolio of products that go to launch with [ XULANE LO ] first, but then we have other products that will launch in a couple of years. Again, a sales force that will be maybe 70 people at the most and that's how we're going to look at launching those products. Beyond this, as I said, it will be in partnerships. Operator: The next question is from Chris Schott with JPMorgan. Ethan Brown: This is Ethan on for Chris Schott. Congrats on the great quarter. Just starting off maybe with generic semaglutide beginning to enter in some specific markets. Just wondering if there's any learnings that you've been taking away thus far and more broadly, how you're thinking about that generic GLP-1 opportunity, including potential sizing and timing of any contribution to Viatris. And then my second question is just on the ARV business. How are you thinking about the go-forward impact of the supply constraints that you highlighted this quarter? Scott Smith: So Philippe, talk a little bit about our GLP-1 strategy, which is going to be important to our future. It's a driver more in the 2030 and beyond time frame than in the short term. But very important to our long-term strategy, the GLP-1 strategy. Philippe? Philippe Martin: Yes. So we are -- we intend to be a significant player in the GLP-1 space. We are developing every GLP-1s that are currently approved. This is, as you know, a market that is very dynamic. And so we got to be ready for whatever changes may be coming and leverage that. I think we are particularly focusing on the U.S. because this is an area -- this is a region where we believe we have the opportunity to differentiate versus other potential generic players, in particular, around our ability to come up with the right auto-injector to be substituted for instance. So we are -- we have developed a significant strategy for GLP-1s and we'll be supplying a significant part of that market with a hyper focus on the U.S. going forward. That does not mean we're not going to launch in other regions, but we'll do that selectively based on the dynamics of a specific region. Scott Smith: It's a complicated area, right? There's a number of molecules out there. There's a number of indications, there's different dosage forms. There's different applications. And so it's very, very complicated out there, but we want to be thoughtful on where we go. We want to make the right kind of investments. And I think as a company, given our device expertise and other things, I think we are uniquely qualified to participate in this marketplace in the future. Paul Campbell: Yes. As far as the ARV business, from a supply disruption perspective, it's important to note that we've mitigated by moving production to additional sources if we can. The team is working very hard to alleviate those constraints. And I think we're getting -- making significant progress there. We're going to hopefully ramp up supply sooner rather than later. But I think it's also very important to point out that in our updated forecast, we've included all the risks that we currently see. So it's all baked into the numbers that give us confidence that we're going to deliver for the rest of the year. And as I said in my remarks, it might be some upside to those numbers. We'll see how the rest of the year goes. Operator: The next question is from Ash Verma with UBS. Ashwani Verma: Circling through a few calls here. And congrats on the revenue growth, particularly strong. I know at the Investor Day, you had outlined the long-term goal of growing 4% organic. And here, you're doing pretty well at 3% in 1Q, just trying to get a sense of how soon can we get there at the 4% run rate. Is that something that's feasible, let's say, later this year or 2027? Or is that more of a subject of some of the branded pipeline kicking in, and that would enable that growth? Scott Smith: Yes. The 4% number is where we expect to get by 2030. And along the way, starting off this quarter with 3% growth, I think, is a strong start to that. We feel very confident in our ability to deliver those long-term targets that we put out there. And again, the strength of this kind of first quarter, it's early, right? relative to long-term targets, but we feel very, very good about where those targets sit and about our performance and our ability to hit those targets. And again, we will have, in this period, significant cash to be able to supplement what we're doing. We've got a very large number of clinical readouts coming, and we've got a lot of launches right now. So we expect to see that growth ramp up as we go into '27, '28, '29. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Scott Smith, CEO, for any closing remarks. Scott Smith: Thank you very much, and thank you all for participating in the call this morning. Obviously, I'm really excited about the exceptionally strong performance this quarter and the momentum that we're seeing in our business. We delivered 3% revenue growth and 10% adjusted EBITDA growth this quarter. We are expecting multiple near-term pipeline catalysts and product launches and we have significant financial flexibility to execute our capital allocation plan and accelerate shareholder value. As we move through 2026, our focus remains on disciplined execution and continuing to build a more durable, higher-quality growth profile. Thank you very much for your time today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the MDU Resources Group, Inc. Q1 2026 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Brent Miller, Treasurer. Brent, please go ahead. Brent Miller: Thank you, Operator, and welcome everyone to the MDU Resources Group, Inc. First Quarter 2026 Earnings Conference Call. Our earnings release and supporting materials for this call are available on our website at mdu.com under the Investors section. Leading today's call are Nicole A. Kivisto, President and Chief Executive Officer, and Jason L. Vollmer, Chief Financial Officer of MDU Resources Group, Inc. During today's call, we will make certain forward-looking statements within the meaning of the federal securities laws. Please refer to our SEC filings for a discussion of risks and uncertainties that could cause actual results to differ. I will now turn the call over to Nicole for her prepared remarks. Nicole? Nicole A. Kivisto: Thank you, Brent, and good afternoon, everyone. We appreciate you joining us today and for your continued interest in MDU Resources Group, Inc. This morning, we reported first quarter 2026 earnings of $80.8 million, or $0.39 per share. Results reflected strong operational performance across our businesses, offset by mild winter weather impacts, which reduced earnings by approximately $0.03 per share. At the same time, rate relief and recent investments such as the Badger Wind Farm and other pipeline expansions contributed positive results, and we continue to see encouraging demand trends, including interest tied to data center development. During the quarter, we concluded our binding open season for the proposed Bakken East pipeline project with continued strong interest received. As a reminder, we have not yet reached a final investment decision on this potential project, but we are certainly encouraged with the approximately 1.4 billion cubic feet per day of submitted interest received in the open season. Of that total, approximately 40% has been signed under precedent agreements, with additional precedent agreements in active negotiation. Included in the signed precedent agreements is a firm capacity commitment of $50 million annually for 10 years from the state of North Dakota. With these results, we are now expecting the design of the potential project to include approximately 353 miles of 42-inch, 36-inch, and 30-inch diameter mainline pipe; approximately 21 miles of 30-inch, 24-inch, and 20-inch diameter lateral pipelines; additional compression at three existing compressor stations; and the construction of three new compressor stations. Based on these assumptions, we are projecting total capital investment for the potential project in the range of $2.7 billion to $3.2 billion, which would be incremental to our current $3.1 billion capital investment forecast. We are encouraged by the level of interest and ongoing commercial discussions that demonstrate continued demand for additional takeaway capacity from the Bakken region, which the Bakken East project could provide. This potential project would also provide natural gas transportation service to meet growing customer demand from industrial, power generation, and local distribution companies in the region. As we look to finance a project of this size and scope, we will evaluate all options, including using our balance sheet to finance the project, pursuing potential partnerships, and various other options. Also during the quarter, we saw continued ramp of our data center load. We currently have 580 megawatts under signed electric service agreements, of which 180 megawatts has been online since mid-2023. Fifty megawatts from the second data center is currently online, with an additional 50 megawatts currently ramping online. An additional 150 megawatts is expected online later this year, with another 100 megawatts expected online in 2027, and the remaining 50 megawatts expected online in 2028. Our current approach to serve these large-load customer opportunities is with a capital-light business model, which not only benefits our earnings and returns but also provides cost savings to our other retail customers. Currently, our average retail customer receives an approximate $70 per year credit on their bill from this approach, and we anticipate this credit to increase to potentially over $200 per year when all volumes are fully online. We do continue to pursue additional discussions with potential data center customers, and we will provide further updates when we reach executed electric service agreements. Depending on the structure of future agreements, we would consider investing capital into new generation, substation, and transmission assets to serve the increased load. Aside from data center load, we also continue to evaluate other potential capital projects related to safely and reliably meeting existing customer demand as well as grid resiliency. On the regulatory front, we are continuing to execute on our plan of filing three to five rate cases annually and working to achieve constructive outcomes in all jurisdictions. At our electric segment, our Wyoming rate case was approved with rates effective April 1, 2026. In our Montana case, interim rates were approved for an annual increase of $10.4 million, with rates also effective April 1, subject to refund. We also anticipate filing a general rate case in North Dakota yet this year. On a slightly separate but related note, during the quarter, the South Dakota legislature approved legislation enabling utilities to reduce wildfire risk through the submission of wildfire mitigation plans and providing associated liability protection. With this action, all four states in which we provide electric service now have wildfire mitigation and liability relief frameworks in place. Moving on to our natural gas regulatory update, new rates from our Idaho case were effective January 1, reflecting an annual increase of $13 million. In Washington, year two rates under our approved multi-year rate plan, representing an annual increase of $10.8 million, were effective March 1, 2026. In April, we filed a revision to decrease revenue by $2.1 million annually due to forecasted capital investments that were not placed in service as of December 31, 2025. Our Oregon rate case is still pending before the Commission, where we requested an annual increase of $16.4 million. As we look ahead, we anticipate filing another multi-year rate case in Washington this year and also plan to file a general rate case in Minnesota later in 2026. Moving on to our pipeline segment, we filed our FERC Section 7(c) application in March for our Align Section 32 expansion project, marking an important regulatory milestone in this project's development. This expansion will provide natural gas transportation service to an electric generating facility being constructed in northwest North Dakota. The project is dependent on regulatory approvals, with construction targeted to be complete in late 2028, with a total capital investment of approximately $70 million, which is included in our $3.1 billion capital plan. We also extended the signed agreement to support the early-stage development of the potential Minot Industrial Pipeline project through late 2026. This project would be approximately a 90-mile pipeline from Iola, North Dakota, to Minot, North Dakota, and would provide incremental natural gas transportation capacity for anticipated industrial demand should we decide to proceed. This project is included in the outer years of the $3.1 billion capital plan, and we will continue to provide updates as the project progresses. Looking ahead, continued strong customer demand at our pipeline segment and progress in our utility regulatory schedule should provide opportunities to meet our long-term EPS growth rate target as we move forward. In addition, our utility experienced combined retail customer growth of 1.4% when compared to this time last year, which is within our targeted annual growth rate of 1% to 2%. This demand and growth provide investment opportunity for customer-driven growth projects at our pipeline and in our utility infrastructure. I am proud of our employees whose dedication to our core strategy continues to drive our business to deliver exceptional performance and positions MDU Resources Group, Inc. with compelling long-term growth prospects. Despite the mild weather headwinds experienced in the first quarter, we are affirming our 2026 earnings per share guidance range of $0.93 to $1.00 per share. We remain confident in our ability to execute our long-term growth strategy and believe our operational focus and financial strength continue to position us well for delivering safe and reliable energy, customer value, and strong stockholder returns. We also continue to anticipate a long-term EPS growth rate of 6% to 8%, while targeting a 60% to 70% annual dividend payout ratio. As always, MDU Resources Group, Inc. is committed to operating with integrity and with a focus on safety. We remain dedicated to delivering value as a leading energy provider and employer of choice. I will now turn the call over to Jason for a financial update. Jason? Jason L. Vollmer: Thank you, Nicole. This morning, we announced first quarter earnings of $80.8 million, or $0.39 per share, compared to first quarter 2025 earnings of $82 million, or $0.40 per share. As Nicole mentioned in her opening comments, milder weather had an approximate impact of $0.03 per share on a consolidated basis for the quarter. Turning to our individual businesses, our electric utilities reported first quarter earnings of $14.5 million compared to $15 million for the same period in 2025. The first full quarter of the Badger Wind Farm being in service was a benefit in the quarter but was more than offset by lower retail sales volumes from 10% to 30% milder weather across our service territory, which impacted earnings results by approximately $2 million when compared to 2025. Our natural gas utility reported earnings of $44.2 million in the first quarter compared to $44.7 million in 2025. Similar to our electric results, warmer weather impacted volumes for the quarter, resulting in approximately a $5 million impact to earnings compared to last year, including temperatures 20% warmer in Idaho, 30% warmer in Montana, and 10% to 30% warmer across the rest of our service territory when compared to the prior year. Weather normalization mechanisms in certain states helped offset the warmer temperatures experienced in the quarter. Largely offsetting the lower volumes was rate relief in Washington, Idaho, Montana, and Wyoming. The pipeline reported earnings of $15.3 million compared to first quarter record earnings of $17.2 million last year. The decreased earnings were driven by lower interruptible natural gas storage withdrawals, along with higher operation and maintenance expense primarily due to increased material costs and payroll-related expenses. Higher Montana property tax accruals also contributed to the decrease in earnings. Partially offsetting the impacts was strong customer demand for short-term natural gas transportation contracts as well as contributions from the Minot expansion project placed in service late last year. Finally, MDU Resources Group, Inc. continues to maintain a strong balance sheet and has ample access to working capital to finance our operations through our peak seasons. In connection with the company's December 2025 follow-on equity offering, a portion of the related forward sales agreements were settled in March 2026, resulting in the issuance of 4.3 million shares of new common stock for proceeds of approximately $81.3 million. That summarizes the financial highlights for the quarter. We appreciate your interest in MDU Resources Group, Inc., and we will now open the call for questions. Operator? Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is open. Please go ahead. Julien Dumoulin-Smith: Hey, team. Thank you very much for the time, and, again, congratulations. Just really great outcomes here of late, so kudos to you. If I could kick it off here, it is just a remarkable backdrop. I wanted to talk a little bit more about this 40% signed in a precedent agreement relative to the remaining 60%. I know you talk about a $3 billion-plus number here now, but just kind of backing that with customers, investors have been really focused on that today. Can you talk a little bit about the timeline to really zip that up, if you will? Nicole A. Kivisto: Yes, and thank you, Julien, for the question. As we think about where we are today, maybe we will just take a step back. When we entered into the binding open season from the start, what ended up showing up, and what we reported today, is what we expected. We feel really encouraged in terms of where we are and our initial expectations on the overall project. In terms of the 40%, we are very encouraged that we have 40% of that under signed precedent agreements as of this date. As we mentioned on the call and in the earnings release, we are in active negotiations on the remaining interest. We believe we have agreed in large part to many of the key business terms with these remaining customers, but we will continue to work through those. In terms of the overall next steps following that, as we move forward with executing the remaining agreements, the next step is to finalize design based on what shows up there, and then work with our board on a final investment decision. As you know, we did pre-file this project with FERC in December. In that filing, we laid out a schedule that would indicate that we would file the Section 7 application in the third quarter of this year. I am comfortable with the schedule to date. Certainly both WBI and our potential customers hope to reach an FID as soon as practical. Julien Dumoulin-Smith: Got it. So you feel pretty good about getting it done if you are still on track with that third-quarter target timeline, I suspect. Maybe if I can follow this up real quickly here. How do you think about laterals here, whether it is Ellendale or, frankly, other potential customers? And related to that, as far as laterals go, how do you think about the gas strategy perhaps leading an electric or electric gas generation strategy on the utility side as well? I appreciate what you are doing and the expanding scope with this pipeline, but how do you think about that marrying up with what you have on the utility front at the same time? What do you think about the laterals or actually building gas generation? I will note your comments in the remarks about being capital light thus far. How do you think about that being more capital intensive, prospectively? Nicole A. Kivisto: There are a couple of questions packed in there. I will take them in the order that I heard them. On the utility, our method has really been to come forward to the market when we have signed ESAs. We did talk today that we continue conversations with others. Noting those conversations, we also leaned into the fact that we may consider changing that strategy a bit and leaning into some investment. More to follow in terms of those final decisions being made, but we are continuing to discuss with potential customers the ability to serve them from a large-load perspective. As it relates to the pipeline, one of the things we have talked about that is beneficial for our company is, as we think about the data center theme and that buildout, whether our utility can serve that or not is obviously some upside, but the pipeline has the opportunity to serve that whether the utility would be the provider of that data center or not. So, as you are referencing our proposed Bakken East pipeline, we continue to think about how to serve some of that data center load, but even if we do not, it still is a benefit to the overall potential project at large. The theme of data center development is certainly a benefit on both sides of our business, whether that be the utility or the pipeline. On laterals, as we finalize our precedent agreements with our customers, we will keep those in mind. What we have seen across the country is once these pipelines become announced, to the extent we get to a final investment decision, other opportunities may come forward. We will be thinking about that also. It looks like, Jason, you might want to add something here. Jason L. Vollmer: Thanks, Nicole, for that lead-in. You mentioned specifically the Ellendale lateral, Julien, as part of your question. If you look at the updated map, you will not see that lateral built into that map. As we think about the open season process, we did not get interest at that location. We are delivering gas to that site, but the volumes we are seeing on the initial pipe compared to what we had expected going into the open season showed up along the mainline and get us to the same point along the way. We will see additional laterals develop over time off of this pipe, should we decide to proceed. It is a good growth platform going forward, but that Ellendale lateral is currently not contemplated in the design and the new map you would see today. Julien Dumoulin-Smith: Right. So the current CapEx budget does not necessarily include, and could be upsized yet again in the context of any laterals, it would seem. But quickly, Jason, while you have the mic, with respect to financing this, this is an incredibly big bite now that you are contemplating. How do you think about financing this? Are there partnerships? Are there sell-downs to get this done? Jason L. Vollmer: I appreciate the question, Julien. We have been clear with the market that we would provide a range once we had more clarity around the size, scope, and design of the project. By coming out with a range today, we have a much better view. It is a very large number, especially considering our current capital plan of $3.1 billion without this project included. This would be a significant addition. All options are on the table as we look at ways to finance this. A FERC-regulated project with contracted demand for a long period of time will have a lot of ways of getting financing done, whether that is doing it ourselves, incorporating partnerships, or various other structures. Our primary focus is to find an option that provides the best return for our shareholders over the long term, and also gives us the ability to have a majority stake in this project that will be connected to our existing system. It is very important that we would sit in a majority partnership if we go down the partnership path. Julien Dumoulin-Smith: Absolutely. Thank you very much. Best of luck. Operator: As a reminder, if you would like to ask a question, please press 1 to raise your hand. Your next question comes from the line of Ryan Michael Levine with Citi. Your line is open. Please go ahead. Ryan Michael Levine: Regarding the Montana rate case, any color around if you are still pursuing a settlement there given the deadline is coming up later this week? Jason L. Vollmer: Thanks, Ryan. I can take that one. On the Montana rate case, we are encouraged that interim rates were approved and went into effect on April 1, subject to refund until we get through the actual rate case process. As of right now, we have a hearing scheduled for July, or later this summer, for the next steps. Typically, we look for potential settlements along the way where we can, and we will continue to be in discussions on that. Nothing further to state here other than that a settlement would be something we would be open to, but we are proceeding to the next hearing date and will continue to update once we find out more. Ryan Michael Levine: In terms of the Bakken East more broadly, given crude price evolution as negotiations continued and the potential increase in associated gas production from the region, how is that impacting your contracting conversations from the supply side, and any incremental opportunities that could enable? Jason L. Vollmer: Great question. Market dynamics are interesting right now in the commodity space. All of the interest we have talked about with the Bakken East project has been demand pull. This is industrial customers, power generation, and LDCs—not driven by supplier push. I certainly think this is a project that will have interest from suppliers once it is in service, but we are not relying on supplier push to get to the volumes we are talking about here today. This is all demand pull. Ryan Michael Levine: In the cost estimate outlined in your slides, what are the key variables that push you to the higher or lower end of that range? Jason L. Vollmer: The construction period is in the 2029–2030 timeframe for the first in-service in late 2029 and the second phase in late 2030. We have not reached our final decision yet, so we have not locked up contractors. There could be variability in labor as we progress. Steel prices have been moving a bit. We wanted a range that could encapsulate some of that. We now have a better view from the customer demand side regarding where facilities would be located and interconnect with their projects. We have approximately 97% of the route with permission to survey. We are in a good spot from that perspective. The remaining uncertainty is around locking in steel prices for the pipe itself, ordering compression to understand costs, and finalizing labor for construction. There are variables until we get those locked down. We wanted a range to help the market understand the size and scope of how exciting this project can be, while being thoughtful that things can move around a bit before we lock it down. Ryan Michael Levine: Great. Thanks for taking my questions. Nicole A. Kivisto: Thank you. Operator: Your next question comes from the line of Aiden Kelly with JPMorgan. Your line is open. Please go ahead. Aiden Kelly: Hey, thanks for the time today. I want to pick up on the Bakken East project from a different angle. Could you talk about the data center opportunities on top of what you have already been discussing on the pipeline—specifically, the power plants to be built off laterals in certain towns? Are conversations occurring with large-load customers around this opportunity? Nicole A. Kivisto: Yes, certainly. One of the things to think about, as Jason mentioned, is the scope of what showed up in the binding open season and those with signed precedent agreements is demand pull. What is in that number? Some of that is power generation. A piece of what is showing up is power generation to serve potential data centers. Your question goes beyond that, in terms of the utility working with some of these customers or whether there could be additional power generation that shows up after we make a final investment decision on this pipeline. That is yet to be seen in terms of where those things land. Where we are today, this is a demand-pull project, and there is power generation showing up within the binding open season. Aiden Kelly: Separately, on the equity side, it is a big CapEx project and you mentioned potential partnership opportunities. Could you comment on the extent you see that as a possibility? And if so, how should we think about that—another utility or a private equity arrangement? Any thoughts on your appetite to partner up? Jason L. Vollmer: Thanks. As I mentioned earlier, all options are on the table as we think about financing a project of this size and scope, given how significant this project could be for the company. Right now, the team is focused on getting to a final investment decision. That is the primary focus—getting the remaining precedent agreements executed and getting to a position where we can get in front of our board on an FID. If we decide to go down the partnership path, we will step back and look at what makes the most sense for shareholders over the long term. A strategic partner could have a fit, and financial partners would likely have appetite too. We will analyze it carefully to determine what makes the most long-term sense for our shareholders for what would be a very long-lived and important project for the company, should we decide to proceed. Aiden Kelly: Great. Appreciate the insight. Thanks for the time. I will leave it there. Nicole A. Kivisto: Thank you. Operator: There are no further questions at this time. I will now turn the call back to Nicole A. Kivisto, President and CEO, for closing remarks. Nicole A. Kivisto: Thank you again for joining us today and for your thoughtful questions. We appreciate your continued interest in and support of MDU Resources Group, Inc. As we move through the remainder of 2026, we remain focused on disciplined execution of our capital plan, constructive regulatory engagement, and delivering safe, reliable, and affordable energy for our customers. Finally, I want to thank all of our employees for their dedication and commitment. We look forward to staying engaged with you throughout the year. Operator, you may now conclude the call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the Company's first quarter 2026 results. This call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5:00 p.m. Eastern Time and run through May 14 on the company's website at www.aswater.com. The slides that the company will be referring to are also available on the website. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. This call will be limited to one hour. Presenting today from American States Water Company are Mr. Bob Sprowls, president and chief executive officer, and Ms. Eva Tang, senior vice president of finance and chief financial officer. As a reminder, certain matters discussed during the conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees or assurances of any financial results, levels of activity, performance, or achievements, and listeners are cautioned not to place undue reliance upon them. Forward-looking statements are subject to estimates and assumptions and known and unknown risks, uncertainties, and other factors. Listeners should review the company's description of the company's risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. Statements made on this conference call speak only as of the date of this call, and except as required by law, the company does not undertake any obligation to publicly update or revise any forward-looking statement. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles, or GAAP, in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I would like to turn the call over to Robert J. Sprowls, president and chief executive officer of American States Water Company. Please go ahead, sir. Robert J. Sprowls: Thank you, Chuck. Welcome, everyone, and thank you for joining us today. I will begin with a discussion of the quarter. Eva will discuss some financial details, and then I will wrap it up with updates on regulatory activity, ASUS, and dividends, and then we will take your questions. We started 2026 with strong financial results, and I am pleased to report consolidated earnings per share for the quarter of $0.76 compared to $0.70 for the same quarter in 2025, an increase of 8.6%. All three of our operating business segments performed well and reported year-over-year increases. Our regulated utilities are on pace to invest a combined $185 million to $225 million in infrastructure investments this year as we continue to invest in our water, wastewater, and electric utility systems for the long-term benefit of our customers. We saw the benefits this quarter of step rate increases for both our water and electric utilities. We filed a new electric general rate case in January covering 2027 through 2030 and are poised to file a new water general rate case in July covering 2028 through 2030. In addition, our cost of capital application was deferred for another year, which I will discuss later. Our contracted services segment performed with much higher construction activity during the quarter, and we continue to have strong water utility, electric utility, and contracted services businesses. American States Water Company remains a leader with our strong earned return on equity and dividend histories, and we continue to deliver value and returns to our shareholders. Lastly, we were recently recognized on Newsweek's list of Most Trustworthy Companies in America and ranked number one in the energy and utilities industry. It is an honor to be recognized based on the views of our key stakeholders made up of customers, employees, and investors. With that, I will turn the call over to Eva to discuss earnings and liquidity. Eva G. Tang: Thank you, Bob. Let me start with our first quarter results. Reported consolidated earnings were $0.76 per share, as compared to $0.70 per share for 2025. For our water utility, Golden State Water, reported earnings were $0.55 per share compared to $0.52 per share for the first quarter of last year. The $0.03 per share increase was largely due to new water rates for 2026, including additional revenues associated with an advice letter project approved last year, partially offset by higher water supply costs overall, operating expenses, interest expense net of interest income, other expense net of other income, and income taxes. Lastly, there was a decrease in earnings of $0.01 per share due to the dilutive effect from shares issued under the parent company's at-the-market offering program. Our electric segment reported earnings of $0.08 per share for the quarter as compared to $0.07 per share for the same quarter last year. The $0.01 per share increase is primarily related to rate increases, partially offset by higher overall operating and interest expenses. Earnings from ASUS were $0.15 per share for the quarter, compared to $0.13 per share for the same quarter last year, an increase of $0.02 per share largely due to higher construction activities and lower interest expenses, partially offset by an increase in operating expenses. Slide 8 shows consolidated revenue for the first quarter. Revenue increased by $21.2 million compared to the same quarter of 2025. Revenue for the water segment increased by $11.1 million largely due to new 2026 water rates. Revenue for the electric segment also increased by $3.7 million, mainly due to fourth-year rate increases and additional revenues from approved advice letter projects in 2025. Revenues from ASUS increased $6.4 million, largely driven by higher construction activities during the quarter due to timing. Turning to Slide 9. Supply costs increased by $5.1 million, mostly driven by higher overall per-unit purchased water cost, included in water rates in 2026 with no impact to net earnings, and higher purchased water volume when compared to the same quarter last year. Looking at total operating expenses other than supply cost, consolidated expenses increased by $10.2 million compared to 2025. The increase was due to higher ASUS construction expenses resulting from an increase in construction activity and an overall increase to operating expenses, some of which is due to timing. In addition, there was an increase in interest expense net of interest income, largely from the impact of capitalizing debt costs related to certain advice letter projects approved by the CPUC in the latest water general rate case that was recorded in 2025 with no similar items in 2026, and reduced interest income from a decrease in regulatory balances for both regulated utilities, partially offset by a decrease in overall interest expense. Slide 10 shows the earnings per share bridge comparing reported earnings per share for 2026 against the same period for 2025. Turning to liquidity, net cash provided by operating activities was $71.6 million for 2026, compared to $45.1 million for the same period in 2025. The increase is largely related to the implementation of new rates at our regulated utilities from approved general rate case proceedings as well as various approved surcharges and additional base rates from advice letter filings. In addition, the increase also resulted from billing and cash receipts for work at ASUS's military bases and timing of its standard payment terms. For investing activities, our regulated utility invested $42.1 million on company-funded capital projects in the first quarter of this year. We project company-funded capital expenditures to reach $185 million to $225 million for the full year of 2026. For financing activities, American States Water Company, under its at-the-market offering program, raised proceeds of $6.2 million during the quarter net of issuance and legal costs, leaving a remaining balance of $34.3 million available for issuance under the program. We do not expect to continue the ATM program once the remaining balance has been fully utilized. With that, I will turn the call back to Bob. Robert J. Sprowls: Thank you, Eva. On the regulatory front, we are in the process of preparing our next water rate case, expected to be filed by July 1. As a reminder, the California Public Utilities Commission, or CPUC, issued a final decision on 01/30/2025 on Golden State Water's prior general rate case requiring the company to transition from a full revenue decoupling mechanism and a full supply cost balancing account for water supply, which were requested again in that general rate case application, to a modified rate adjustment mechanism known as the Monterey-style water revenue adjustment mechanism, or MRAM, and an incremental cost balancing account for supply cost, effective 01/01/2025. As a result, the company may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by its customers and changes in water supply source mix. Golden State Water's earnings have been and will be subject to future volatility from favorable and unfavorable changes in the water supply source mix compared to the adopted mix incorporated in the revenue requirement. Golden State Water's earnings for this first quarter were impacted by an actual water supply source mix that included more purchased water than in the same period of 2025 due in part to certain wells being temporarily offline in a few service areas. In December, Golden State Water received approval from the CPUC to implement its full second-year rate increases, which were effective January 1. This approval results in higher adopted operating revenues less water supply cost for 2026 of approximately $32 million compared to 2025 adopted operating revenues less water supply cost. Included in the 2026 increase is nearly $11 million related to advice letter capital projects under the approved settlement agreement that Golden State Water had with the Public Advocates Office at the CPUC on the general rate case. Beginning in 2025, all of the advice letter projects were allowed to accrue in a memorandum account interest during the construction period at Golden State Water's adopted cost of debt until the assets are in service, and the full rate of return that includes a debt and equity component and all applicable components of the revenue requirement for the projects from the period the assets are in service until the date of the filings for the step increases. The assets from the advice letter projects and the related amount in the memorandum account were added to the adopted rate base for inclusion in the revenue requirement effective 01/01/2026. In comparison, the net change in adopted operating revenues less water supply cost in 2025 over 2024 adopted levels was $23 million. Also, as mentioned on prior earnings calls, the CPUC approved a request by Golden State Water and the three other large investor-owned California water utilities to defer the cost of capital application by another year. CPUC's approval postponed the filing date of the application by one year until 05/01/2027 with a corresponding effective date of 01/01/2028. CPUC also approved the joint parties' request to leave the current water cost of capital mechanism in place through the one-year deferral period. Golden State Water's current authorized rate of return on rate base is 7.93%, which includes a return on equity of 10.06% and a capital structure with 57% equity and 43% debt, based on its weighted average cost of capital, which will continue in effect through 12/31/2027. Turning our attention to Slide 14, we present the growth in Golden State Water's adopted average water rate base. From 2021 through 2026, it increased from $980.4 million in 2021 to [inaudible] in 2026. That represents a compound annual growth rate of 11.3% over the five-year period using 2021 as the base year for the calculation. Golden State Water anticipates robust and sustained growth in its rate base over the next few years. The annual increase in rate base reflects, among other things, the net effect of capital investments less depreciation. The water general rate case decision issued in early 2025 authorized the company to invest $573.1 million in capital infrastructure, which includes $17.7 million of advice letter projects for the 2025 through 2027 rate cycle. In addition, the decision required Golden State Water to treat $58.2 million of capital projects as additional advice letter projects rather than including them in the base rates for 2025. Some of these projects had been under construction since 2023. As a result, you do not see a higher increase in rate base from 2024 to 2025 as these projects were not included in rate base in 2025. However, as noted earlier, all advice letter projects were permitted to accrue either a full rate of return or interest expense in a memorandum account prior to the filing for recovery. As agreed to in settlement, Golden State Water completed these projects and filed them concurrently with the step increase filings in November 2025. CPUC approved the filings in December. As a result, the project costs and accumulated memorandum account balances totaling $80 million have been added to the 2026 adopted rate base, generating an incremental revenue requirement of approximately $11 million beginning in 2026 and onward. Accordingly, you see a healthy increase in rate base in 2026. Now turning our attention to Bear Valley Electric, which continues to be a strong contributor to the company's results. The current general rate case set rates for 2023 through 2026. In January, Bear Valley Electric implemented new rates for 2026, which is the last year of its four-year rate cycle. There were also increases in base rates in 2025 to recover the revenue requirement associated with $23.8 million for capital projects approved for recovery through advice letters that were completed and placed in service, including allowance for funds used during construction, or AFUDC. In January, Bear Valley Electric filed a general rate case application that will determine new electric rates for the years 2027 through 2030. Among other things, Bear Valley Electric requested capital budgets of approximately $133 million for the four-year rate cycle and another approximately $17 million plus AFUDC for capital projects to be filed for revenue recovery through advice letter projects when the projects are completed; a requested return on equity of 11.3% and embedded cost of debt of 5.92%; a capital structure of 60% equity and 40% debt; and a requested return on rate base of 9.15%. Let us continue to ASUS, which contributed earnings of $0.15 per share for the quarter, which was $0.02 per share higher than last year. This was a result of an increase in construction activities, higher management fee revenues resulting from the resolution of various economic price adjustments, and lower interest expense from lower borrowing levels and lower average interest rates, partially offset by higher overall operating expenses. ASUS is projected to contribute $0.63 to $0.67 per share for this year. In addition, we remain confident that we can effectively compete for new military base contract awards in the future based on our strong reputation with the military and our expertise. I would like to turn our attention to dividends. Our quarterly dividend rate has grown at a compound annual growth rate of 8.5% over the last five years. We continue to exceed our policy goal of achieving a compound annual growth rate in the dividend of more than 7% over the long term. I would like to conclude our prepared remarks by thanking you for your interest in American States Water Company. We will now open the call for questions. Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. To assemble our roster. As there are no questions, this concludes our question-and-answer session. I would like to turn the conference back over to Robert J. Sprowls for any closing remarks. Robert J. Sprowls: Thank you, Chuck. Thank you all for your participation today, and we look forward to speaking with you next quarter. Eva G. Tang: Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Good afternoon. My name is Chloe, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance, Inc. First Quarter 2026 Earnings Conference Call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and Joyson Thomas, Chief Financial Officer. Today's call is being recorded, and a replay is available through a webcast in the Investor Relations section of our website at whitehorsefinance.com. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. Please press star 1 on your telephone keypad. If at any point your question has been answered, or if you should require operator assistance, please press 0. It is now my pleasure to turn the call over to Robert Brinberg of Rosen & Company. Thank you, Chloe, and thank you everyone for joining us today to discuss WhiteHorse Finance, Inc.'s First Quarter 2026 earnings results. Robert Brinberg: Before I begin, I would like to remind everyone that certain statements which are not based on historical facts made during this call, including any statements relating to financial guidance, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. WhiteHorse Finance, Inc. assumes no obligation or responsibility to update any forward-looking statements. Today's speakers may refer to material from the WhiteHorse Finance, Inc. First Quarter 2026 Earnings Presentation, which was posted to our website this morning. With that, allow me to introduce WhiteHorse Finance, Inc.'s CEO, Stuart Aronson. Stuart, you may begin. Stuart Aronson: Thank you, Rob. Good afternoon, everyone, and thank you for joining us today. As you are aware, we issued our earnings this morning before the market opened, and I hope you have had the chance to review our results for the period ending 03/31/2026, which can also be found on our website. On today's call, I will begin by addressing our first quarter results and current market conditions, then Joyson Thomas, our Chief Financial Officer, will discuss our performance in greater detail, after which we will open the floor for questions. At a high level, our first quarter results reflected three main themes. One, previously flagged credit marks drove net realized and unrealized losses for the quarter. Two, core earnings moderated, reflecting a lower portfolio yield in Q1 driven in part by one additional investment being placed on nonaccrual. And three, share repurchases provided a meaningful offset through NAV accretion. More specifically, our results for 2026 included net realized and unrealized losses that were largely consistent with the markdown we had forewarned investors about on our last shareholder call. As we shared on that call, we had three accounts where we expected markdowns this quarter, Honors Holdings, Outward Hound, and Lumen Latam, and those positions drove the bulk of our net realized and unrealized losses for the quarter. Q1 GAAP net investment income and core NII were $5.6 million, or 25.3¢ per share, compared with Q4 GAAP net investment income and core NII of $6.6 million, or 28.7¢ per share. NAV per share at the end of Q1 was $11.47, compared with $11.68 at the end of Q4, a decrease of approximately 1.8%. The change in NAV reflected net realized and unrealized losses of approximately 28.4¢ per share, partially offset by share repurchases that were accretive to NAV by approximately 8¢ per share. NAV was also impacted by distributions paid during the quarter, which included a $0.01 per share supplemental dividend. We will continue our distribution policy framework that was previously discussed, where the company intends to distribute a quarterly base distribution of 25¢, as well as make potential supplemental distributions above the base level in the future pursuant to our distribution policy. Turning to shareholder value, our shares have continued to trade at a meaningful discount to NAV, and both management and the board remain focused on actions that we believe can help enhance shareholder value over time. So far, that focus has included disciplined portfolio positioning, selective capital deployment, accretive share repurchases, and steps to support distributable earnings. As we discussed on our last call, the board expanded the company's share repurchase program, and late in the first quarter, we also implemented a 10b5-1 plan to allow us to continue executing on that authorization outside of our normal trading window. In accordance with the plan's terms, we remained active under the program during Q1 and into Q2, and those repurchases were accretive to NAV as I mentioned earlier. Joyson will provide additional detail on the quarter's repurchase activity. More broadly, while our stock continues to trade at a substantial discount to book value, we believe repurchasing shares remains one of the most attractive uses of capital available to us. At the same time, we are continuing to balance that opportunity against new investment activity and our targeted leverage levels. In addition, the adviser has agreed to extend its temporary voluntary waiver of the incentive fee for 2026, reducing the applicable fee rate from 20% to 17.5%. We view that extension as another constructive step to support distributable earnings and shareholder value. As we have said previously, this fee waiver is temporary and any decision regarding future periods will be revisited based on the current conditions and in consultation with the board of directors. We have been encouraged by the alignment shown through open market purchases by certain officers and directors, which we believe further reflects confidence in the underlying value of WhiteHorse Finance, Inc. Turning to our portfolio activity, we had gross capital deployments of $25.4 million in Q1, which was more than offset by repayments and sales of $38 million, resulting in net repayments of approximately $12.6 million before the effects of transferring assets into the STRS JV. Gross capital deployments consisted of three new originations totaling $18.5 million, and the remaining amounts were deployed to fund add-ons to 12 existing investments. In addition, there was $700 thousand in net fundings on revolver commitments during the quarter. Of our three new originations in Q1, one was a non-sponsor deal and two were sponsor. The sponsor deals are targeted to be transferred to the STRS JV. Our new originations in Q1 had an average leverage of approximately 5.5x EBITDA. All of our Q1 deals were first-lien loans. Pricing reflected competitive market conditions; our focus remained on structure and credit quality. Total repayments and sales were primarily driven by complete or partial realizations in three portfolio companies: Trimlight, Monarch Collective Holdings, and Lumen Latam. During the quarter, the BDC transferred two new deals and two existing investments to the STRS JV totaling $18.9 million. At the end of Q1, the STRS JV portfolio had an aggregate fair value of $327.1 million and an average effective yield of 9.9%. We continue to successfully utilize the STRS JV and believe WhiteHorse Finance, Inc.'s equity investment in the JV continues to provide attractive returns for our shareholders. After net repayments and JV transfer activity, as well as realized and unrealized losses recognized during the quarter, total investments decreased from the prior quarter by $35.6 million to $543 million. This compares to our portfolio's fair value of $578.6 million at the end of Q4. During the quarter, we recognized $4.7 million in net realized losses and approximately $1.6 million of net unrealized losses, for an aggregate total of $6.3 million in net realized and unrealized losses in Q1, approximately 28.4¢ per share. The net mark-to-market losses were primarily driven by a $2.8 million unrealized loss in Honors Holdings and a $2.1 million unrealized loss in Outward Hound, partially offset by a $2.6 million gain from the reversal of unrealized losses on investment realizations and approximately $400 thousand of net markups across the portfolio. In addition, we recognized realized losses primarily driven by approximately $3 million from the Lumen Latam sale, as well as $1.1 million from a foreign exchange loss on the repayment of the Trimlight Canadian term loan and approximately $2.2 million from the sale of the ThermoDisc asset. Importantly, the markdowns on Honors Holdings, Outward Hound, and Lumen Latam were the same three credits we identified for investors on our prior call as situations on which we expected to incur markdowns in the quarter. At the end of Q1, 98.8% of our debt portfolio was first-lien, senior secured, and our portfolio continued to reflect a balanced mix of sponsor and non-sponsor investments, with non-sponsor representing approximately 38% of the portfolio at fair value. Weighted-average effective yield on our income-producing debt investments decreased to 10.8% at the end of Q1 compared to 11.0% at the end of Q4. The weighted-average effective yield on our overall portfolio also decreased to 8.7% at the end of Q1, compared to approximately 9.1% at the end of Q4. Yield was affected by the one new investment being put on nonaccrual during the quarter. With respect to nonaccrual status, Outward Hound was placed on nonaccrual during the quarter, and with the final sale of our residual position occurring this quarter, ThermoDisc was removed from our nonaccruals. Excluding the impact of those changes, nonaccruals represented approximately 3.0% of the total debt portfolio at fair value, compared with 2.4% at fair value at the end of the prior quarter. The four issuers on nonaccrual at quarter end were Honors Holdings, New Cycle Solutions, Outward Hound, and PlayMonster. As always, we continue to actively manage our underperforming credits, leveraging our dedicated restructuring resources and the broader capabilities of H.I.G. With respect to Outward Hound, we continue to work with the borrower and believe a debt restructuring is likely in coming months, with an expectation that part of that asset will return to accrual status based on the new structure. Given the complexity of the process, we believe that outcome is more likely to occur next quarter than this quarter, although there can be no assurance until the restructuring is completed as to what will happen and when. On Honors Holdings, also known as Camarillo Fitness, the company continues to struggle; we do not yet know whether we will have a further markdown this quarter. Lumen Latam is now completely exited, so that situation is resolved. At this time, we are not aware of any further material markdowns beyond what I have just described. Aside from the credits on nonaccrual, our portfolio continues to perform well, and in our portfolio reviews on any companies where there is underperformance, we are seeing private equity owners support those credits with new equity, which is an indication from the private equity firms that they have confidence in those companies and borrowers. I would also note that, consistent with what we shared last quarter, we have modest exposure to Internet or software companies. The BDC’s software exposure across six portfolio names represents approximately 11.1% of the portfolio at cost and 9.9% at fair value. Market conditions remain competitive, although for several months, geopolitical events had slowed the M&A market, with transaction volume being lower than normal. That said, over the past few weeks, we have seen a recovery in deal flow volumes, and our team is currently working on deals at close to 100% of capacity. Negative press around direct lending and private credit has resulted in a shift in supply and demand, particularly on larger deals. On the smaller deals, as a result, pricing is up 25 to 50 basis points, and on the midsize and larger deals, pricing is up more like 50 to 100 basis points, with most of that movement being on the sponsor side, where prices had compressed. We had previously shared with the market that pricing was very aggressive. In the lower mid-market, we are seeing pricing of SOFR plus 475 to 525. In the mid-market sponsor segment, pricing is SOFR plus 500 to 550, and in the larger-cap market, pricing is SOFR plus 500 to 575. The non-sponsor market remains stable at pricing of SOFR plus 600 and above. We are also highly focused on minimizing liability management execution risk in new investments and our portfolio. For investors less familiar with the term, LME risk refers to the risk that a borrower can move assets away from the existing lenders and pledge them to new lenders, effectively subordinating the original senior debt. We are working to ensure that structures and documentation provide adequate protection against this risk. Looking forward, there is too much geopolitical and consumer sentiment uncertainty to have any clarity as to where the market is going to be in the balance of the year. What I would say is that the mid-market and lower mid-market that we participate in continue to function. Other than the slight price increase and conservatism on credit standards, including extremely high conservatism on anything software-related, the markets are functioning. In the non-sponsor market, conditions remain stable and less competitive than in the sponsor market. Average leverage is approximately 4.0x to 4.5x, and pricing continues to be generally at SOFR plus 600 and above. With our non-sponsored portfolio performing as well as or better than our sponsored portfolio, we continue to focus significant resources on the non-sponsored market, where there is better risk/return in many cases and much less competition than what we are seeing in the sponsor market. We currently have 21 originators covering 12 regional markets. Given market conditions, we are looking for good risk/return across the market and finding surprisingly good opportunities. Additionally, we continue to expect a normal level of repayment activity over time, although actual repayment timing will be driven by M&A, refinancing activity, and company-specific situations. As for our pipeline, we currently have 10 deals mandated. Of those 10 deals, four are non-sponsor and six are sponsor. All of the non-sponsor deals are priced at SOFR plus 600 or above, and all of the sponsored deals will be targeted for the STRS JV. All of the non-sponsored deals are targeted for the balance sheet of the BDC. While there can be no assurance that any of these deals will close, or whether we have room in the BDC for any or all of those deals, we will be assessing capacity based on repayments and the availability of capital to continue the share buyback. Subsequent to quarter end, no deals have closed in the BDC. With capital reserved for share buybacks, the BDC's remaining capacity is very limited—approximately $15 million for new assets on the balance sheet after reserving roughly $11 million for the share repurchase program. At the end of the first quarter, the STRS JV's remaining capacity was approximately $35 million, and pro forma for recently mandated deals eventually being transferred and anticipated repayments, the JV's capacity is approximately only $10 million. With that, I will turn the call over to Joyson for additional performance details and a review of our portfolio composition. Operator: Joyson? Joyson Thomas: Thanks, Stuart, and thanks everyone for joining today's call. During the quarter, we reported GAAP net investment income and core NII of $5.6 million, or 25.3¢ per share. This compares with Q4 GAAP NII and core NII of $6.6 million, or 28.7¢ per share, as well as our previously declared first quarter base distribution of 25¢ per share and a supplemental distribution of $0.01 per share. Q1 fee income was approximately $400 thousand, compared with $800 thousand in the prior quarter, driven primarily by a $100 thousand prepayment fee from Monarch Collective and a $100 thousand amendment fee from U.S. Petroleum Partners. The prior quarter's fee income included a nonrecurring prepayment fee of $300 thousand received in connection with the prepayment exit of ELM in that quarter. For the quarter, we reported a net decrease in net assets resulting from operations of $700 thousand. Our risk ratings during the quarter showed that approximately 88.3% of our portfolio positions carried either a one or two rating, an increase from the 85.9% reported in the prior quarter. Upgrades during the quarter included our investments in Claridge, which were upgraded from a three to a two rating, while downgrades were primarily driven by moving our position in UserZoom from a two to a three rating. As a reminder, a one rating indicates that a company has seen its risk of loss reduced relative to initial expectations, and a two rating indicates the company is performing according to such initial expectations. Regarding the JV specifically, we continue to utilize the platform as a complement to the BDC. As Stuart mentioned earlier, we transferred two new deals and two existing investments during the first quarter to the STRS JV totaling $18.9 million. During the quarter, the JV had three portfolio investments fully repaid, and as of 03/31/2026, the JV's portfolio held positions in 42 portfolio companies with an aggregate fair value of $327.1 million, compared to an aggregate fair value of $323.6 million as of 12/31/2025. Leverage for the JV at the end of Q1 was 1.08x, compared with 1.07x at the end of the prior quarter. Investment in the JV continues to be accretive for the BDC's earnings, generating a low-teens return on equity. During Q1, income recognized from our JV investment aggregated to approximately $3.6 million, compared to approximately $3.8 million reported in Q4. As we have noted in prior calls, the yield on our investment in the JV may fluctuate period over period as a result of a number of factors, including the timing and amount of additional capital investments, changes in asset yields in the underlying portfolio, and the overall credit performance of the JV's investment portfolio. Turning to our balance sheet now, we had cash resources of approximately $49.4 million at the end of Q1, including $37.6 million of restricted cash representing interest and principal proceeds received at quarter end, as well as approximately $11.8 million at the fund level reserved for the quarterly distribution that was paid in early April as well as for share repurchases. Cash balances at the end of Q1 were elevated due to realizations on our investments as well as the JV transfers outpacing deployments during the quarter. As of 03/31/2026, the company's asset coverage ratio for borrowed amounts as defined by the 1940 Act was 176.2%, which was above the minimum asset coverage ratio of 150%. At quarter end, gross leverage was 1.31x, compared with 1.26x in the prior quarter, while our net effective debt-to-equity ratio after adjusting for cash on hand was 1.12x, compared with 1.15x in the prior quarter. The decline in net effective leverage relative to the increase in gross leverage primarily reflected higher cash amounts on the balance sheet at quarter end as a result of the repayments that Stuart and I noted earlier. In regards to our share repurchase program, the company repurchased approximately 412 thousand shares during Q1 at a weighted-average price of approximately $7.31 per share, which was accretive to NAV by approximately 8¢ per share. Subsequent to quarter end, and through the market close of yesterday, the company has repurchased an additional approximately 210 thousand shares. Cumulatively, since the inception of our share repurchase program beginning in 2025, we estimate that our buybacks have contributed approximately 31¢ per share of NAV accretion, demonstrating our commitment to creating shareholder value. As Stuart noted earlier, certain company insiders and affiliates also purchased shares in the open market during the quarter, further demonstrating our view of WhiteHorse Finance, Inc.'s current market valuation. Before I conclude and open up the call to questions, I would like to discuss our recent distributions and corresponding distribution policy. This morning, we announced that our board declared a second quarter base distribution of 25¢ per share. The distribution will be payable on 07/06/2026 to stockholders of record as of 05/21/2026. As we said previously, we will continue to evaluate our quarterly distribution both in the near and medium term based on the core earnings power of our portfolio, in addition to other relevant factors that may warrant consideration. With that, I will now turn the call back over to the operator for your questions. Operator: Thank you. If you would like to ask a question, press star 1. Once again, that is star 1 to ask a question. We will move first to Heli Sheth with Raymond James. Your line is open. Heli Sheth: Good afternoon. Thanks for the question. On the buybacks, how are you considering repurchasing shares on a go-forward basis in terms of weighing buybacks versus deployments, especially if the more muted M&A market that we have seen recently persists? And then on the pipeline, what are you expecting for the remainder of the year? Are you seeing anything different there in terms of industry sector mix, or incumbent versus new borrowers? Stuart Aronson: Yes. Again, the M&A market has picked up in the last three to four weeks. Pricing is higher than we have seen on deals in about two, two and a half years, so the assets that we are seeing right now are, on a relative basis, pretty attractive. That said, with our shares trading at roughly a 35% discount to NAV, we do get more lift from deploying money into share buybacks. So, with the shares where they are now, or close to where they are now, my anticipation is we will continue to buy back shares, and we do have plenty of capacity left after having increased the allocation to share buybacks last quarter. We are seeing a good flow of opportunities in both the sponsor and non-sponsored market. It is a little bit surprising that, due to market liquidity issues, the pricing on smaller deals is as low or lower than the pricing on larger deals, and that has us currently biased towards the mid-market and upper mid-market deals, where the structures are more conservative based on geopolitical disruption, and the pricing, again, is higher than on the smaller deals. That said, we think the geopolitical situation is highly unpredictable and, notwithstanding the fact that until today the stock market has been very optimistic about what is going on, we think there is a lot of volatility risk. As I mentioned in my prepared remarks, we really cannot give you an assessment of where the market will be going forward. The only assessment I can offer is that today’s market, in terms of pricing and deal structures, tends to be more conservative than what we have seen in the past couple of years, so, again, it is more attractive. In terms of industries, we are not seeing very much on the software technology side, and the things we are seeing we are being very, very cautious about given the ongoing concerns with what AI will do to displacing existing leaders in the technology community. We are seeing a nice mix of both industrial credits and business service credits, with volatility and economic cyclicality risk that ranges from anywhere moderate down to very low. But, again, we are seeing better deal flow now by far than what we were seeing two or three months ago. Operator: Got it. Thanks for the time. Once more, that is star 1 to ask a question. We will move next to Christopher Nolan with Ladenburg Thalmann. Your line is open. Christopher Nolan: Hi. Is there any limit to what you can take the percentage of the total portfolio occupied by the JV? Stuart Aronson: The equity in the JV is considered a bad asset vis-à-vis the 30% bad asset limit we have, and all BDCs have. That said, we are nowhere near that limit right now, and we have the BDC representing most of the use of the capacity of that 30%. We think it would be unlikely that we would change the size of the JV in the near future, though. Christopher Nolan: Alright. Well, if your portfolio is $578 million, 30% of that is $173 million, and your equity in the JV is roughly $55 million, so you have a lot of space to grow that JV. I guess my real question is, it seems that you are running off first-lien loans, and so the percentage that the JV occupies is higher. And, also, given the JV is generating attractive returns, you are in this interesting spot where it is accretive to actually not only buy back your own shares, but, because of the increasing percentage from the JV, you are getting a higher yielding asset overall. Is that the way you are looking at it, or am I missing something? And should we expect the overall size of the BDC investment portfolio to decline in coming quarters? Stuart Aronson: We see the JV as positive and accretive, which is why we have grown the JV over time. And yes, as we buy back shares using on-balance-sheet liquidity, the JV is a slightly larger percentage of the overall portfolio. But, again, in terms of dollars committed to the JV, at the moment, we do not intend to make any changes. At current share price levels, we see buybacks as highly accretive. If we start running short on buyback capacity, the management company and the board will discuss whether it makes sense to allocate additional capital into share buybacks. But at the moment, as I mentioned earlier, there is plenty of capital for the share buybacks, and so we have not taken any additional actions from last quarter. Joyson Thomas: Chris, I was just going to add with respect to the JV specifically, it is a total $175 million program between ourselves and STRS Ohio. Of the $175 million commitments, we still have $14 million uncalled, and that includes both the traditional equity investment as well as the subordinated debt investment that is structured as part of our $175 million commitments in total. Christopher Nolan: Okay. Is the plan to tap that additional equity? Joyson Thomas: That is correct. For instance, in the prior quarter, we had three realizations in the STRS JV portfolio, so by and large, the transfers that we sent down to the JV were funded by those excess proceeds. As we kind of tap out on leverage and any excess cash available at the JV level, we would then call and deploy that remaining $14 million. Christopher Nolan: Okay. Thanks, Tristan. Operator: It does appear that there are no further questions at this time. Thank you. This does conclude today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, and welcome to the Tronox Holdings First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Jennifer Guenther, Chief Sustainability Officer, Head of Investor Relations and External Affairs. Thank you. Please go ahead. Jennifer Guenther: Thank you, and welcome to our first quarter 2026 conference call and webcast. Turning to Slide 2. On our call today are John Romano, Chief Executive Officer; and John Srivisal, Senior Vice President and Chief Financial Officer. We will be using slides as we move through today's call. You can access the presentation on our website at investor.tronox.com. Moving to Slide 3. A friendly reminder that comments made on this call and the information provided in our presentation and on our website include certain statements that are forward-looking and subject to various risks and uncertainties, including, but not limited to, the specific factors summarized in our SEC filings. This information represents our best judgment based on what we know today. However, actual results may vary based on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements. During the conference call, we will refer to certain non-U.S. GAAP financial terms that we use in the management of our business and believe are useful to investors in evaluating the company's performance. Reconciliations to their nearest U.S. GAAP terms are provided in our earnings release and in the appendix of the accompanying presentation. Additionally, please note that all financial comparisons made during the call are on a year-over-year basis unless otherwise noted. It is now my pleasure to turn the call over to John Romano. John? John Romano: Thanks, Jennifer, and good morning, everyone. We'll begin this morning on Slide 4. But before turning to our first quarter highlights, I want to address the situation in the Middle East. First and foremost, we offer our thoughts to those affected. Since the conflict began, the safety of our employees has been our top priority. With respect to our operations in Saudi Arabia, our teams continue to operate safely and responsibly throughout the quarter, and I want to recognize their focus and professionalism during this challenging period. While the situation remains fluid, we're seeing significant impacts across the chemical sector and specifically the TiO2 industry. While various costs such as natural gas, diesel, freight and insurance are rising, one of the most meaningful cost increases has been sulfur and sulfuric acid. I mentioned on our Q4 earnings call that sulfur prices in China had increased approximately 160% since the end of 2024 due to supply tightening and demand increases. Now that figure is almost 300% as the conflict has exacerbated impacts to the industry. This is having significant impacts on TiO2 producers that produce sulfate TiO2 predominantly in China, where approximately 80% of the production capacity is sulfate technology. This challenge is not only increasing costs, but also availability, which we believe will have a negative impact on Chinese producers' ability to produce and ship TiO2, the extent of which will depend on how long the conflict lasts. While many TiO2 producers are challenged by various aspects of the recent conflict with our broad geographic footprint and more than 90% of our capacity being chloride technology, Tronox is well positioned to reliably supply our customers despite the challenging geopolitical backdrop. We'll review this in more detail throughout the call. Turning to the quarter. We delivered a strong and better-than-expected top line performance and achieved EBITDA above the midpoint of our guidance. Volumes exceeded our expectations across both TiO2 and zircon with TiO2 reaching its highest Q1 level since 2022 and zircon delivering its strongest performance since Q4 of 2021. This is the result of disciplined commercial execution, enhanced customer engagement and the strategic positioning of our products in key markets supported by our global presence. We continue to see meaningful structural benefits from antidumping measures in protected markets, particularly in Europe, Brazil and Saudi Arabia. With the announcement of antidumping investigations against Chinese TiO2 in the U.K. and Australia, we hope to build on the gains we are seeing in countries that have already acted to strengthen their domestic producers. These measures are having a significant impact on trade flows and positive volume trends for Tronox. Combined with our global footprint and reliable supply, this allowed us not only to serve our customers effectively, but also capture the upside as the supply dynamic shifted. While Asia Pacific volumes were impacted by the temporary stay on duties in India, performance in the region was more resilient than we expected, reflecting the value customers place on Tronox as a key supplier to the region. On pricing, we saw a clear inflection during the first quarter. TiO2 price actions took effect as planned, and we announced additional pricing actions and targeted surcharges that are beginning to roll through in the second quarter. Zircon pricing was stable in Q1, and the announced price increases for Q2 are being implemented as communicated on our last earnings call. Planed and unplanned production curtailments in the industry have led to tighter supply dynamics, supporting price momentum, which we expect will continue throughout the year. From a cost perspective, we continue to see the benefits from actions underway, including our cost improvement program, which remains on track to deliver $125 million to $175 million of run rate savings at the end of 2026. These benefits helped to offset a portion of the headwinds we faced during the quarter, including higher sales volumes pulling forward sales of higher cost inventory. That was the direct result of deliberate actions we took late last year to preserve cash and manage inventory, some of which continued into this year, including lowering operating rates and idling 2 mines in one of our furnaces in South Africa. In Q1, we ramped up operating rates at our pigment plants to meet the increased demand for our products, which we will touch on a bit later in the call. In addition, we saw higher cost inflation late in the quarter as the conflict in the Middle East impacted raw material prices. Our commercial team has implemented increases through surcharges, though there will be a lag between when these take effect versus the more immediate impact to our operations. We will continue to assess cost headwinds and take the necessary targeted actions as needed to avoid margin erosion. We continue to prioritize free cash flow and working capital efficiency, reducing inventory by approximately $75 million in the quarter. Due to our strong commercial performance, we upsized our AR securitization facility by $25 million in the quarter and added an additional $20 million earlier this week. We expect free cash flow to improve in the second quarter, largely offsetting the seasonal cash used in Q1, and we expect to deliver meaningful positive cash flow for the full year 2026. I'll speak to our expectations for the second quarter and the full year in more detail in the call. But for now, I'm going to turn the call over to John to review our financials for the first quarter in more detail. John? John Srivisal: Thank you, John. Turning to Slide 5. We generated revenue of $760 million, an increase of 3% versus the first quarter of 2025, driven by higher TiO2 and zircon volumes. Loss from operations was $41 million. Net loss attributable to Tronox is $103 million. These results include $15 million of restructuring and other charges, net of taxes, primarily related to the closures of Botlek and Fuzhou. Adjusted diluted earnings per share was a loss of $0.55. Adjusted EBITDA was $62 million, and our adjusted EBITDA margin was 8.2%. As is typical for the first quarter, free cash flow was a use of $135 million. Capital expenditures were $67 million. Now let's move to the next slide for a review of our commercial performance. As John mentioned, volumes were stronger than anticipated across both TiO2 and zircon and pricing increased in line with our expectations. Sequentially, TiO2 revenues increased 7%, driven by a 4% increase in volumes and a 3% increase in average selling prices, including mix. Volumes exceeded our expectations, driven by stronger demand on the back of the structural shifts that John mentioned earlier. Zircon revenues increased 14% sequentially, driven by higher volumes predominantly driven by customers realigning suppliers in a capacity-constrained environment. Zircon pricing remained stable during the quarter, in line with expectations and price increases were announced in the first quarter that will take effect in the second quarter as we referenced on our last earnings call. Revenue from other products decreased 27% sequentially and 35% compared to the prior year, mainly driven by timing of pig iron bonds, which we will recover in Q2. Turning to the next slide, I will now review our operating performance for the quarter. Our adjusted EBITDA of $62 million represented a 45% decline year-on-year as a result of unfavorable pricing, including mix, exchange rate headwinds, higher production costs and higher freight costs. This was partially offset by the increase in sales volumes and SG&A savings. Year-over-year production costs increased $7 million, driven by deliberate actions taken over the last year to improve cash generation, along with a higher mix of higher cost tons released from inventory as sales volumes increased. Sequentially, adjusted EBITDA increased 9%. Favorable pricing, including mix, higher sales volume and improved production costs were partially offset by exchange rate headwinds, higher freight and SG&A costs. Turning to the next slide. We ended the quarter with total debt of $3.3 billion and net debt of $3.2 billion. Our weighted average interest rate in Q1 was 5.95%, and we maintained swaps such that approximately 74% of our interest rates are fixed through 2028. Importantly, our next significant debt maturity is not until 2029. We do not have any financial covenants on our term loans or bonds. We do have one spring financial covenant on our U.S. revolver that we do not expect to trigger. Liquidity as of March 31 was $406 million, including $126 million in cash and cash equivalents. This amount excludes the GBP 50 million Emirates Revolver, which is undrawn and not expected to be renewed following its expiration in June. We also repaid our $40 million Saudi EXIM facility in the first quarter. We have been in discussions with Saudi EXIM and are confident in getting a renewal. It just has taken a bit more time given the conflict in the Middle East. This amount has not yet been included in our liquidity figures. Additionally, as we have said in the past, we will continue to be proactive with our capital structure. And towards that end, as John mentioned, we upsized our AR securitization facility by $25 million in the first quarter by an additional $20 million earlier this week. Working capital was a use of approximately $59 million in the first quarter, excluding $19 million of restructuring payments related to the closures of Botlek and Fuzhou. First quarter working capital was better than expected, driven by stronger-than-anticipated sales lines and better-than-planned inventory reductions from targeted working capital initiatives. Capital expenditures of the $67 million in the quarter were primarily related to maintenance and safety, and we returned $8 million to shareholders in the form of dividends during the quarter. And with that, I'll hand it back to John to review our capital allocation priorities. John? John Romano: Thank you, John. Turning to Slide 9. Our capital allocation priorities remain unchanged and focused on cash generation. We continue investing to maintain our assets, our vertical integration and projects critical to furthering our strategy, including rare earths. As the market recovers, we'll resume debt paydown, targeting long-term net leverage of less than 3x. We'll do that the same way we navigated this downturn, by staying focused on what we can control and influence, reinforcing the business through cost reduction and cash improvement actions. While prioritizing cash has meant a near-term trade-off to EBITDA, these actions strengthen the foundation of the company. With that, I'd like to turn to 2026 guidance and walk through some of the assumptions that will drive our performance for the year. So turning to Slide 10. For the second quarter of 2026, we expect TiO2 volumes to increase sequentially in the high single-digit range. The volume momentum we're seeing is primarily driven by the structural shift in supply dynamics in addition to seasonal demand improvement. This is supported by our ability to reliably serve customers across our global operational footprint. On pricing for TiO2, we saw an improvement in the first quarter, and we expect that momentum to build through the second quarter. We're now gaining significant traction on announced increases in every region. We expect TiO2 pricing to increase in the mid-single-digit range in the second quarter compared to the first quarter, and we will continue to evaluate additional price actions and targeted surcharges depending upon the supply-demand dynamics and the evolving situation in the Middle East. We expect zircon volumes levels to moderate slightly due to inventory availability following a very strong first quarter. On zircon pricing, our previously announced increases have been implemented in the second quarter. And as John mentioned earlier, the zircon market has seen increasing capacity constraints, which we do not expect to abate in the near term. As a result, we expect the pricing momentum to carry through into the third quarter. From an operational standpoint, as planned, our west mine and 1 furnace in Namakwa as well as our Wonnerup in Australia remained idled. We also had 2 meaningful planned outages in the second quarter, one on the pigment side and one on the feedstock side to conduct statutorily required and routine maintenance. These actions will carry a near-term cost impact to EBITDA. This will be partially offset as we start selling through lower cost tons in Q2 that were produced in Q1. The net effect of these changes will be a $10 million to $15 million cost headwind in Q2 versus Q1. As a result, we expect second quarter adjusted EBITDA to be in the range of $65 million to $85 million. We expect free cash flow to be positive in the second quarter, clawing back a large majority of the cash used from the first quarter. With our pricing momentum, combined with our inventory reductions and continued operating discipline, we are well positioned as we move into the second half of the year. Based on what we know today, we are confident that we will generate meaningful positive free cash flow for the full year 2026. Incorporated into our positive cash flow guide for the year are the following assumptions on cash. Net cash interest of approximately $190 million, net cash taxes of less than $10 million, capital expenditures of approximately $260 million, and we expect working capital to be a source of cash well in excess of $100 million. Turning to Slide 11. From a broader perspective, we're operating in a volatile environment. In that context, our focus remains firmly on the things we can control and influence. Over the last several quarters, we've taken deliberate steps to strengthen the business, improving our cost structure, optimizing mix and reinforcing pricing discipline while maintaining flexibility in how we run our operations. These actions are already positively impacting volumes and pricing even as external conditions remain dynamic. Global supply chains have been affected by the conflict in the Middle East, resulting in shortages across certain regions. As a result, customers are turning to dependable suppliers contributing to the growth in our order book. At the same time, overall supply remains tighter, though uneven across regions and products, which reinforces the need to continually assess how the supply picture develops. Trade defense remains an important part of the equation. Antidumping measures are in place across several key markets. And as I noted earlier, trade defense agencies in the U.K. and Australia have also opened investigations on Chinese dumping, including the possibility of provisional duties. We are also taking definitive actions on pricing. As I mentioned earlier, we are implementing price increases in all regions in addition to select surcharges in markets impacted by cost escalation from the conflict in the Middle East. Against that backdrop, we are managing inventory while maintaining flexibility. While we are not bringing all idle mining assets back online, we are evaluating selective ramp-ups where it makes sense, particularly for products where inventory levels are low, such as zircon. Our disciplined and adaptable approach positions Tronox to manage through the current environment and capture meaningful step-up in earnings momentum. Turning to the next slide, I'll provide a brief update on the rare earth initiatives we have. During the quarter, we continue to make significant advancements in our rare earth strategy. Our primary objective remains to move further downstream into the production of separated rare earth oxides, all while maintaining a disciplined approach to capital management. Meaningful progress has been achieved in advancing towards our definitive feasibility study, and we are actively evaluating various development pathways. These pathways are being considered with a clear focus on prioritizing returns and limiting any incremental leverage on our balance sheet. At the same time, we're engaging broadly with stakeholders, including potential customers, strategic partners and funding sources to identify the most viable and responsible way forward for the project. These ongoing discussions are instrumental in shaping our approach and ensuring that we pursue opportunities that align with both our strategic vision and our values. Earlier in the week, the Australian government awarded us federal major project status, which was posted on the Australian government site this morning, and this was a significant acknowledgment of the viability of our project. Our approach remains steadfast in its dedication to generating long-term shareholder value. We are carefully balancing strategic opportunities with prudent financial management. We believe that the rare earths represents a compelling growth platform for Tronox, leveraging our existing mining footprint and our expertise in hydrometallurgical and chemical operations to create new avenues for sustainable growth. So that concludes our prepared remarks. We'll now move to the Q&A portion of the call. So I'll hand the call back over to the operator to facilitate. Operator? Operator: [Operator Instructions] Our first question comes from David Begleiter from Deutsche Bank. David Begleiter: John, on your Q2 EBITDA guidance, even taking into account the cost headwinds you laid out there, how is the low end of that guidance range play out for you? What would you need to see to get there sitting here today? John Romano: Well, maybe I'll speak more towards how I get to the high end of the range as opposed to the low end of the range. A lot of that's going to depend on volume. So we've got that -- I made the reference that our order books -- maybe I'll just back up. When we entered the year, if you think about supply-demand globally, there was a deficit with all the capacity that had been pulled out. So when I say that deficit, there was less supply than there was demand. So we were already expecting, as I mentioned in the last call, that we were starting to see volume improvements. We had a 9% increase in volume in the fourth quarter, 5% increase -- improvement in the second quarter -- I mean in the first quarter, and I've just given you an idea of what our volume increase looks like for the third quarter -- I mean, the second quarter. That number that I referenced, high single digit, could be in the teens if we have the inventory to actually fill those orders. We preposition inventory globally to make sure we can meet our customers' demand, and we've done a very good job. Our commercial team has done an excellent job of doing that. There has been -- with the conflict in the Middle East, a little bit of delays in shipping. That's not the bigger issue. The bigger issue is that we depleted a lot of our inventory, and we've got more orders on our order book than we can fill. So to the extent we can fill those orders, we'll be closer to the top end of that range. There's other elements that will kind of fill into that range that we provided on EBITDA. I mentioned we had 2 major outages, one on the pigment side and one on the mining side of the business. Both of those -- one of those is a statutorily required maintenance project that is done every 10 years. To the extent we come out of that outage on track or earlier, that could have a positive impact on the EBITDA and the same thing with the SR kiln, which is on the mining side. So we have a reline of our SR kiln. That happens about every 4 years. Again, those were planned. Those weren't unplanned outages. The SR kiln is about halfway through the process. We're making good progress. And we have a very good plan for our outage at our pigment plant to work through that as well. So lots of puts and takes on where we are on that guide. Hopefully, that answers your question. John Srivisal: Obviously, as you know, this is a very volatile market. And so raw material costs have escalated significantly and are very volatile in the quarter. So while generally our guide range is informed more heavily by our commercial side of it, as John mentioned, we do see some volatility on the raw material side. And as you know, we are implementing surcharges as well. So we expect over the fullness of time to recover that and be margin neutral around it, but there is some delay, particularly in Q2. John Romano: And specifically, that delay. So again, when we think about when the conflict started, we got more cost improvement or increases and we had inventory that we had to work through with our customers. So not all of our inventory was impacted by that conflict immediately. But when we made reference on the prepared comments that the surcharges that we're implementing, which are largely driven by sulfur, so the biggest surcharge that we're actually implementing is for our Bahia facility that went into effect May 1. So that's kind of the delay. We had all of April where we didn't actually get the benefit of that. And then in May and June, we will get the benefit of that surcharge. David Begleiter: No, very helpful. And John, just on European capacity situation with Lomon buying Greatham and announcing a restart of production. Why do you think these former Venator assets are largely still running or up and running in this weakened demand environment? John Romano: Yes. Great question. Thanks. So Scarlino and Palva, I think those assets will come back up. It will take time to do that. It's hard to say if we were starting a brand-new or starting a plant that had been down for a period of time. Those are 2 separate buyers. I do believe one of them was a previous sulfuric acid producer. So there was kind of a strategic reason why they brought that plant back up. Both of those plants were a nameplate capacity of 80,000 tons. So 80,000 tons, that's 160,000. On the announced closure, I guess, with Lomon buying the facility at Greatham, I believe that's going to take longer. The reality is that plant has been down since September. They made an announcement that they had hired back 132 people. We've got a plant not far from there that's equivalent size, 132 people is not going to run the full breadth of that production. So there's lots of assumptions on what Loman may do. As I mentioned in the prepared comments, the U.K. has now officially launched an antidumping initiative for the U.K. and we have good confidence that we're going to get good results and possibly get provisional duties in place maybe sometime in the third quarter. The reality is that's not only on finished pigment, that's on products for TiO2 that are as low as 80%. So rumors out there that they may bring in finished pigment or unfinished pigment and finish it at the plant. If antidumping is effective, that would prohibit them from doing that as well. So hard to say. That is a chloride facility. Chloride facilities that have been down for extended period of time are harder to bring back up. And that is very unique technology. It's plasma arc chloride technology on the oxidation side, which Huntsman created that technology. It took about 8 years to develop it, and it's the only technology of its kind. So not to say they won't, but it's not without its challenges. Operator: Our next question comes from John McNulty from BMO Capital Markets. John McNulty: So just because of past, I guess, changes in the mine, operations getting shut down like at Botlek as an example, there's a lot of kind of volatility on the cost of product, cost of inventory kind of working through your P&L. I guess, can you help us with some kind of a benchmark on how to think about how those costs improve as we go through the year, whether it's on like a cost per ton basis? Or I guess, can you help us to kind of get a little peek behind the curtain in terms of how to think about how the cost side flows through because I think you were pretty clear on the price and how you're thinking about volumes. But admittedly, the cost side seems to be a big part of the equation that's a little bit opaque right now. John Romano: Yes. So maybe I'll start and John, and then I'll let you add to it. So for a lot of reasons in the fourth quarter of last year, we were slowing down production. We weren't running assets as hard. We made reference to Stallingborough going down for extended maintenance. That had an impact on our cost. And in the first quarter, we sold more of that high-cost inventory than we expected, which had an impact on our earnings. We do believe that, as I mentioned on the call, that as we get into Q2, we'll start to sell more of the inventory that we made in Q1, which was, in fact, lower cost than what we made in the second quarter. So look, there's lots of reasons why our costs have gone up. You've got escalations most recently around the war. We don't think those are going to last forever. But if the war ends tomorrow, there will be collateral damage from that for a period afterwards. So I'm not going to speculate on when the war ends. But we do believe that we are making good progress on cost. The cost improvement program is moving in the right direction. So 2026 forecast for costs for lots of reasons. One, we're going to be running our assets at much higher rates. And we've done a lot of work to mitigate some of the costs. And in areas where we're getting escalations on cost, we're also putting in surcharges to cover it. So it's a little bit, I'd say, mix. But John, if you want to add. John Srivisal: Yes, I think John mentioned that the impact of shutting down and idling some of those facilities for planned maintenance and otherwise was a $10 million to $15 million net of higher cost inventory being sold in the Q2. So you can imagine that the Q2, if you just isolate those operating impacts, it is going to be probably in the $20 million to $25 million. So we obviously expect as you roll through the second half of the year to have a pretty meaningful earnings uplift in the second half of the year, each Q3 and Q4. So we don't have any significant unplanned outages in the second half of the year. So you would expect that type of adjustment back in Q3 and Q4. John McNulty: Got it. Okay. No, that's helpful to kind of fill in some of the color there. And I guess the second question is just on cash flow. So you had $135 million use of funds in 1Q, and you think you get the bulk of that back in 2Q. So you've got -- EBITDA is up whatever, $10 million, give or take. I guess, help us to bridge the rest of that. What are the kind of the bigger puts and takes there? Presumably, it's going to be in the working capital area, but can you help us to kind of unpack that a little bit? John Srivisal: Yes. So for Q2, we do have some structural things in Q2 and Q4 that are different because primarily related to our interest upon interest payments of $50 million. So Q1 -- Q2 and Q4 are $50 million, just lower based on that. But yes, the rest of that really relates to our inventory conversion and then cash. We obviously set out on this strategy to operate more for cash proven itself out, $75 million reduction of inventory in Q1, and we do expect a significant amount in Q2 and then a little bit less throughout the year, but still generating a huge cash inflow for the full year. And inventory is the biggest driver of getting to our full year comments that we will have meaningful positive free cash flow. Operator: Our next question comes from Duffy Fisher from Goldman Sachs. Duffy Fisher: First question just on zircon. Zircon for 3 years in a row in Q1 has been down on price/mix. And collectively, that's down 56% on your published numbers over that period. But yet you sold 57% more volume at that level. So if your commentary that things feel like they're tightening, why wouldn't you hold back supply and try to push for more price? It feels like you're selling a lot of volume to your customers at kind of rock bottom prices that allow them to build some inventory that may make prices harder later in the year. But just the strategy there, why not take a value over volume strategy in zircon similar to TiO2? John Romano: Yes. Thanks for the question. And what I would say is we had opportunities to sell more in the first quarter than we actually acted on. So there is a balance. We've got customer requirements. We've got pricing that we've announced and have already implemented. So there, in Q2, as I mentioned, we've got a price increase that was announced and implemented. I signaled that on the prior call that we were announcing increases. So if we could always get it perfect where we could hold the inventory until the highest price, that would be a perfect situation. So we're trying to balance that. The reality is we have got customer requirements. We are seeing some lift in the market. I mentioned that there were some outages, and we don't expect those outages to abate anytime soon. So you've got about 131,000 tons of zircon production that are roughly offline right now. That's why we believe there will be price upward movement beyond the second quarter. So it wasn't perfectly balanced in a perfect world, I could have waited and sold all of it when the price was higher, but we don't live in a perfect world. We're trying to manage our customer requirements and commitments at the same time, pushing price. Duffy Fisher: Fair. And then to jump to TiO2, you talked about the Chinese potentially getting impaired in some markets or boxed out with ADD and things like that. Their sulfur price is up, but yet the export number from March was extremely high. So one, do you think that month was an aberration and you'll see the export numbers come down meaningfully? Or I guess, how do you triangulate those numbers where their exports are growing in what should be a more difficult market for them to export into? John Romano: Great question. And we'll know that probably May 28 when the numbers come out. But I do believe the war started 1:15 in the morning on February 28. So a lot of those shipments were already on water. So again, India stay on duties, you saw a bump up in India. You saw a bump up in Europe and all those things are right. I would expect, based on what we're seeing in the market today that those numbers will move down not only in April, but they're going to move down in May as well. So I mean let's just talk a little bit about sulfur. Sulfur prices, and we've got some anecdotal questions even before the call around, are there -- the price increases that China announcing, is that covering cost and giving them additional margin? And the answer is with what they've announced and implemented, it's barely covering the additional cost of sulfur. So we have a plant in Brazil that consume sulfuric acid. So we know well what you need to do to cover the cost of the sulfur increase. And sulfur prices, as I mentioned, there's been a structural shift in sulfur over the last 2 years with pricing going up since the end of 2024 by 160%. And there's just not as much sulfur. There's more demand for it. 78% of sulfur goes into fertilizer. So where are you going to push the sulfur? You're going to feed people? Are you going to make products like TiO2. So it's not only price, it's availability. Second and third-tier producers are curtailing production, not because of price because they can't get it. They can't get the sulfur to produce the TiO2. And we're seeing that inflection in our order book. So right now, I mentioned previously, there are certain regions of the world where we're not able to fill orders. If we're able to fill those orders, we'll be able to be closer to the top end of that range. So things are very dynamic. We talked about on an inflection point when the market is going to turn, you'll see a bump up in demand. I'll go back to the point I made earlier or the point that was referenced earlier. So let's just assume Scarlino, Cueva and Greatham come back online. You've still got 800,000 to 900,000 tons of capacity that's left the system. And when the market inflects, which it has, and as I mentioned earlier in the call, we walked into 2026 with a supply deficit to demand. There's a very quick movement. Pricing is moving up at a rate that was much higher than what we expected, and we're very well advanced into negotiations for pricing into the third quarter and have a high level of confidence we're going to make progress on that as well. Operator: Our next question comes from Jeff Zekauskas from JPMorgan. Jeffrey Zekauskas: In thinking through the Chinese export data, for the first 3 months of the year, sulfate exports were flat to down. The growth in exports was in chloride in that their chloride exports went from, I don't know, 100,000 tons to about 135,000, 138,000 tons. So where is that chloride going? Or what are the markets where Chinese exporters seem to be more aggressive in chloride-based tons? John Romano: Thanks, Jeff. It's a great question. And I think right now it's going where most companies that are buying sulfate TiO2 are wanting to flip to chloride. So at this particular stage, companies like Lomon Billions are selling everything that they're making. So chloride production, I'd say, is a bit more reliable. At the end of the day, chloride production on the Chinese side is only 20% of what is produced in China. 80% of it is sulfate, and that's heavily impacted by what I've been referencing, and that's the sulfur move. So there was a clip up in the last month on exports. I do believe when we see the exports coming in the next couple of months, it's going to reverse the other direction. Jeffrey Zekauskas: Okay. When you talked about a mid-single-digit price increase for the second quarter in TiO2, what part of that is surcharge? And what part of that is price? And all things being equal, do you expect your prices to cover your costs in the second quarter, cost inflation or not to cover the costs? John Romano: Yes. Great question. So when we think about surcharges versus price increases, we're getting price increases in every region. And the large percentage of our surcharges are in Brazil to cover sulfur. So the sulfur -- that's where we're seeing the majority of the increase on sulfur. That's where the majority of the surcharges are. And from a proportional standpoint, less than 1/3 of what we're doing is surcharges and everything else is price increases. And as we start thinking about moving into the third quarter, we haven't announced any additional surcharges yet. And the price momentum that we're announcing for the third quarter is all price increases, not related to surcharge, not to say that we won't have surcharges if the raw material prices continue to fluctuate, and we'll do that to prevent margin erosion. Just quickly on India. There has been a stay on the duties, and we're still confident that that's going to come back. But we saw a significant lift in exports out of Asia into India when that stay happened. And now based on what we're seeing from our customer order book, our engagement with customers in India is that, that's going to flip the other direction. Interestingly enough, even with the stay on those duties, our volumes in India did not go down where we expected them to be. And I think a lot of that has to do with our position in the market, our relationship with the market. We had another question that came up later in the quarter from another investor about what -- we talk a lot about this structural shift in supply/demand, what gives you confidence that your volumes are going to stick around if duties don't stick -- if duties were not to come back, which we do believe they'll come back in India. And a lot of that is because we're not just moving volumes to spot buyers. We're moving our volumes to customers that we have strategic relationships and doing that through contractual discussions. And this has a lot to do with customers not wanting to have some of that variability and pulling some of the variability of buying back and forth from China. So not to say that there won't be any risk there, but our commercial team is doing a good job of making sure they're securing volumes not on a spot basis, but on a long-term basis. Operator: Our next question comes from Hassan Ahmed from Alembic Global. Hassan Ahmed: John, just curious about, you guys obviously made a fair number of comments around the rise in sulfuric acid prices, what that's done to the cost curves and the like. So just kind of curious that if we go to the pre-conflict time, right, I mean, there was a large chunk of capacity on the cost curve that was sort of in the red, right? And as you guys rightly pointed out, some of the price hikes that we've seen in China, in particular, are barely just covering the incremental cost. So I'd like to imagine that on a cost curve basis, still that chunk of capacity is in the red, right? So what are you guys seeing in terms of the rationalization side of things? Again, in prior calls, you guys would throw a certain number out in terms of how much capacity rationalization you think is going to happen. So just help me sort of put that together in light of where we are on the cost curves, where we are with obviously now sulfur being sort of tricky to attain and also with some of the goings on with Venator's assets. John Romano: Thanks, Hassan. So it's always hard to estimate when Chinese companies are actually going to take TiO2 production offline permanently. But Tier 2 and Tier 3 have already pulled back on production, and a lot of that has to do with just availability of sulfur, not necessarily the price. I would agree with you that the price increases that have been announced by the Chinese are barely covering the cost of the sulfur prices that have gone up. When you think about sulfuric acid as price for sulfur goes up or acid goes up $100, it's like a 3:1 add on TiO2. So you all know how much has been announced. It's barely covering the cost. I would expect they'll continue to move that cost of that price up. That being said, we have seen some smaller plants idle capacity in the last 6 months. We idled up -- we permanently closed our plant. So I think it's going to happen. You've still got subsidies that are happening in China. At the end of the day, it's hard for me to actually give you a good answer on when all this capacity is going to come offline and if it will. But I do think that this is going to create more stress. And not only on sulfur, but TiO2 prices are moving up. Raw material prices are moving up. And the high tide floats all boats. So what prices are starting to move up now, ilmenite. We've seen that as recently in the last 3 weeks, ilmenite prices are starting to go up. So there are a lot of headwinds, and it's typically what happens, TiO2 pricing will kind of lead into it, and then you'll start to see feedstock move up as well. It's another reason why our vertical integration in an inflationary environment will be beneficial for Tronox. Hassan Ahmed: Understood. And then again, you made some comments around Q2 volumes and how they could actually be higher depending on regional inventory availability. So in which regions are you guys seeing the leanest inventory levels? And are you guys prioritizing volume growth or price protection in those regions? John Romano: Yes. So I would say in Asia Pacific right now, predominantly in India because we're seeing a significant inflow of orders there, along with a lot of price improvement. Less inventory there. We're having obviously, in Brazil, we've got inventory limitations. In Europe to a certain extent. North America, you're running into an uplift in demand, which is seasonally driven. So I would say that we've got a shortage of inventory across the entire portfolio of assets, probably a little bit more focused on Asia. And when we start thinking about how we're going to prioritize that, we don't have a lot of spot volume. And I mentioned earlier, as we start to get into these discussions with the structural shift in TiO2 and customers coming to us to offset some of what Chinese produced -- or we used to be supplied by the Chinese. We're looking at strategic customers that want to align with us for the long term. So it's not like we're moving out of regions that are strategic. We're maintaining strategic volumes in every region. But every region on pricing is moving up. So to the extent there is volume available, that may shift to a region that's generating higher margin. So problem at this particular stage, it's repositioning that inventory is taking a little bit more time than it would have historically due to the conflict in the Middle East, which is also playing favorably for us. I mentioned our operation in Saudi Arabia, which is kind of right in the hot bed of all of those -- the conflict in the Middle East. And that plant has operated unbelievably well. It's running at higher rates than it's run in, I'd say, the last 1.5 years. Costs are in a very good place. And with the Strait of Hormuz being closed, there's a lot of volume that Chinese suppliers typically were selling in the Middle East, and they're not able to do that anymore. So our volumes, not only in the Middle East, but out of the Middle Eastern plant moving into Europe is being supported by that plant. So lots of great work going on there in a very difficult environment. Operator: Our next question comes from Josh Spector from UBS. Joshua Spector: I actually wanted to ask a similar question. It's just really when you're talking about that extra demand that may not be filled, I'd just be curious what region is that coming from? And not thinking about where you're prioritizing your tons, understanding you're doing that for profitability, but where are you kind of maybe upside surprised on where volumes coming in? And is that more orders from existing customers or new customers? John Romano: Thanks, Josh. So yes, we're getting a lot of inquiries from new customers, most of which we're not filling because, again, I make that reference, we don't have a lot of spot volume. So we're looking at strategic customers. So is there some shift around where we may be going where customers, quite frankly, don't want the price increase, then yes, we may shift volume around. But again, Asia is very impacted by the conflict in the Middle East because a lot of what they're getting is coming from the Middle East. So I would say that's the area where we're seeing, I think, maybe the most inbound on orders, and it's where we're seeing the highest increase in prices as well. But it's not just Asia. We're seeing increased demand in lots of different markets. I mentioned them earlier. But I'd say, from Q1 to Q2, that volume increase is probably more focused on Asia and where we're limiting volume because we're just getting a lot of inquiries into India, that may be the area where we're having the hardest filling orders. Not that we're not filling existing orders, but customers wanting more than we can provide. Joshua Spector: That's helpful. And if I could follow up on pricing. I'm just wondering with some of the contract structures you have now, do you have any lagged pricing implementation so that you've already had conversations with customers, perhaps you know pricing is going up in 3Q or 4Q because of that lag. And I mean, is that any different than what we may have seen prior cycles? I think some of the reactions this earnings season have been, investors expected kind of some faster pricing implementation. And I wonder if this dynamic is impacting this in any way. John Romano: Great question, and you're right. So we still have margin stability agreements largely in the Americas. So when we think about the price increases that we've announced. We do have agreements that there's a bit of a lag on when those actually will be implemented, which is impacting our price increase in the second quarter and will play favorably to what we do in the third quarter. So that's exactly right. It hasn't changed significantly. I would say we have less margin stability agreements than maybe we did in APAC. Majority of them are in the Americas, and they're -- I can't -- you stated it exactly correct. Operator: Our next question comes from Frank Mitsch from Fermium Research. Frank Mitsch: As I think about last year, it was obviously a difficult year for Tronox. I look back and it was the lowest earnings level since 2016. And it does seem that things are set up a bit better in 2026. However, using the midpoint of your 2Q guide, you're starting at the first half down $68 million year-over-year, again from a difficult overall year. I mean, how realistic is it to expect that '26 would be up over 2025? John Srivisal: Yes. Thanks, Frank. Great question. Again, I'll make reference to the planned outages we have in the absence of -- and again, I say those are planned, those were planned for a long period of time, specifically the statutorily required ones. So if you pull out that $10 million to $15 million, that midrange of $75 million gets to $90 million. When we think about what happens in the third quarter moving into the fourth quarter, very confident that we'll start to get into triple-digit numbers. And again, pricing is going to play into that. Our cost improvement program is going to play into that. John made reference that we've made progress on our costs, so we'll start selling lower-cost tons in the second half of the year. Our mining projects are going to start gaining traction. And again, I won't keep stressing price, but the fact that prices are moving up, price moved up in the first quarter, it's moving up in the second quarter. We're well advanced in negotiations into the third quarter. And every time pricing goes up, call our capacity 800,000 tons with the 2 outages. $80 million every time it goes up $100, then we've got a lot of run room above $100 a ton for pricing to move. And that doesn't include zircon. Zircon 220,000 tons a year of sales. We've got a lot of run room on zircon as well. So it's not all on the back of price, but price has been something that's kind of been missing in the discussions we've had on calls for the last 3 or 4 years, and it's happening now. Frank Mitsch: And by the way, I don't mind you at all putting a stress on price. Speaking of stress, however, Mr. Srivisal, if I think about your cash level, where you ended the first quarter, it's relatively low compared to your historic. So how do you -- what sort of cash levels do you feel comfortable maintaining in terms of running the company? John Srivisal: Yes. I mean I think we look at it from a liquidity perspective. We do have a lot of different facilities around the world and cash accounts everywhere that we can move around pretty significantly. But we've said we can operate in the $75 million to $100 million of cash over the long term, but we can move it pretty easily over the quarter. But we are in the $406 million in Q1. That's pretty much what I've mentioned is more than what we feel comfortable operating in. We have operated in that in the past Q1, past couple of years. So we feel confident about our ability to manage our cash flow and cash balances. And as John mentioned, we do expect a pretty significant Q2 and rest of the year cash flow. Q1 is always a big use. And so we will be generating a lot of cash, as I mentioned earlier, primarily through bringing down our inventory. We took a concerted effort late last year to operate for cash. We've proven that we can turn it into cash with $75 million from inventory in Q1. And so we feel like we're in a very good position as we move forward in the year. Operator: Our next question comes from Roger Spitz from Bank of America. Roger Spitz: Your 2026 working capital guide of well in excess of $100 million inflow. My question is, is that on a reported basis? For instance, you increased your off-balance sheet AR securitization by $45 million. Presumably, you're going to fill that up and get $45 million of inflow, but that's just financing your receivables. Is that net of that? Or is that $45 million helping on your way to getting to greater than $100 million? John Srivisal: So we haven't greater than $100 million. So there's a wide range of it. When we look at it, we do include the AR securitization in our working capital number. But obviously, if it's $100 million versus $200 million, it could be in around of that number. Roger Spitz: Got it. And then in terms of sulfate prices -- sulfur prices going up so much, you can't -- I understand for decent paint, you can't just swap chloride versus -- process versus sulfide process because of the different paint colors. But do you think your customers will push more on their formulations that are based on chloride formulations because of the price increase on sulfate? Or how much can that shift? Or in certain regions, people like, this is the color we like at how much you make your sulfate and we'll paint less because it's more expensive. John Romano: Yes, that's a great question. And look, they're already doing that, right? So one of the reasons that people buy from Chinese -- or companies buy from Chinese producers because the majority of the sulfate production comes from China because there's been a significant price gap. So when you think about the announced price increases that have happened on the sulfate side of the equation, that gap has narrowed. So it does push them to look at more chloride capacity. Chloride capacity is constrained as well, constrained from the standpoint that there is not enough supply to meet the demand. So we're talking about a structural shift in supply base, which started at the beginning of the year where we had less supply than we had demand. This has only exacerbated the situation. So yes, customers -- again, the majority of our capacity is chloride. We do have less than 10% of it sulfate out of Brazil. And we have customers wanting to move to more chloride. The problem is we don't have more chloride to ship them. And I don't think we're on an island. So not to say that there won't be a shift, but 2 things are happening. One, prices are going up to your point, the gap that's narrowed, which gave them the incentive to buy from the Chinese producers is disappearing. It's not disappearing that much because we're moving our price up as well. But that sulfur price has moved up a lot. Those price increases that they've announced are to try to cover that cost. And I think there's going to continue to be an imbalance. But I think the short answer to your question is, yes, customers are trying to do that, but there's not enough supply to do that because there's not enough supply to fill that demand. John Srivisal: And sorry, Roger, going back to your first question, I just wanted to clarify that even though we -- when we report, we include AR securitization in our free cash flow and working capital numbers. Our increase in our guide for working capital was not driven by our AR securitization activities. It's primarily inventory. Operator: Our next question comes from John Roberts from Mizuho. John Ezekiel Roberts: On the mid-single-digit Q-over-Q improvement in TiO2 prices for the June quarter, how much of that is surcharge versus base prices going up? And is that mid-single digits a blend of low single digits in the U.S. and mid- to high single digits outside the U.S. John Romano: Yes. Thanks for the question. I'm not going to give a lot of breakdown on regional pricing. It's going up everywhere. What I -- I think I'll reiterate what I said a few minutes ago, and that is pricing is the majority of that mid-single-digit increase. There is an element of surcharges, the majority of which are sulfur-based out of Brazil. So less than 1/3 of what we're implementing is surcharges. The majority of it is pure price increases globally. And to the point that Josh made earlier, there is some margin stability agreements that will temper how much we get in the second quarter, which will come in the third quarter. So when we start thinking about Q3 pricing, Q3 pricing will likely be moving up at a step rate that's higher than what we're doing in Q2. John Ezekiel Roberts: And then why is zircon volume moderating a little bit here in the June quarter? John Romano: Because our inventories are lower than what they should be and repositioning inventory, remember, everything we produce, zircon is a bit different, right? We're on the TiO2 side, we've got plants that are located kind of where our customers are. Our zircon inventories are a bit different. They're in South Africa and Australia, and we have to ship that material. So some of the inventory that we had in the inventory warehouses has been depleted in the first quarter. Some of the consignment inventory was higher than we expected. So it's only a function of having less inventory to fill the orders. It's not an order book thing. So... John Srivisal: It's still a very strong quarter if you take a look at the tonnage. And it is more than what our average production quarterly for the year is. So it is a very strong quarter still. John Romano: Yes, moderate. I said slightly moderate. We're not talking about a significant step down. It's just going to be a bit lower than the fourth quarter -- the first quarter, and pricing will be up. Operator: Our next question comes from Vincent Andrews from Morgan Stanley. Justin Pellegrino: This is Justin Pellegrino on for Vincent. I have 2 quick questions on sulfur. First being, have you had any difficulty procuring sulfur in Brazil? And then second, in the event of a conflict resolution, how quickly do you think the Chinese production ramps back up? And do you think there would be any sort of a risk premium remaining in the pricing for sulfate? John Romano: Thank you. So I do believe there'll be a risk premium that's going to go up. I mean, at the end of the day, the Chinese weren't making money to begin with. It's not to say that there won't be an adjustment on sulfur pricing as sulfur goes down. I can't really tell you when the war is going to end. But what I can say is that there's going to be a longer-term impact on sulfur. What this war has done is just really shot -- I talked about a structural shift in supply of sulfur and demand for sulfur. Sulfur was up 160% from the end of 2024 to the end of 2026. It's gone up almost -- that's almost 300% now. So it's having a meaningful impact on anybody that's making sulfate TiO2 if you're not pressing the price. You asked the question about our plant in Brazil. We are not having trouble getting sulfuric acid. It's all of the negotiation of the price. So when we start thinking about every time that price moves up, we have to make sure customers understand where it's moving so that we can move that price accordingly. So for us, it's not an availability issue. It's getting it. In China, basically there are no more exports of sulfuric acid going out to China any longer. There's limitations on where that sulfur can be sent. And we are seeing limitations of sulfur, not just pricing in China. How long that's going to impact -- 8% of the sulfur is produced in Qatar. Qatar has been down since the war started. When is that going to start back up? When is heavier crude going to become available, so when they refine it more sulfur is available? These are all the structural changes that over time have taken sulfur production down and demand has continued to move up. So my personal opinion is the war impact depends on when the war ends. There's an awareness around sulfur that I think is going to be highlighted moving forward, which will tend to drive sulfur prices and TiO2 prices higher than they would have been historically even before the war. Operator: And our last question comes from Pete Osterland from Truist. Peter Osterland: First, just across your TiO2 production footprint, are there any mismatches regionally between where you have pricing power and where the cost inflation is being most strongly felt? And how has that impacted your strategy on operating rates in the current environment? John Romano: Thanks for the question. So look, at this particular stage, we're ramping, we've ramped up all of our assets. The only plant that we're continuing to ramp up, which has been running very well, as I mentioned, was our facility in Saudi Arabia, and that's adding one more line to the 5 that we're currently running. That's a sixth-line operation. We'll be bringing the sixth line on. As I mentioned, from a pricing perspective, surcharges predominantly have been around sulfur, and that's in Brazil. So we're getting pricing in every region. It was a little bit lower in some areas, as I mentioned earlier, based off one of the other questions around some of the margin stability agreements. And so we'll start to get that inflection more in the Americas region, specifically North America as we move into the third quarter, which will only add to the additional pricing that we'll see in Q3 over Q2. Peter Osterland: Okay. Great. And then just as a follow-up, just given how diversified you are, I mean, are there any regions where you're seeing elevated risk of demand destruction that could impact your volumes as you implement pricing surcharges if we stay in an inflationary environment? John Romano: Yes, it's a great question. I think that's the part that's really hard to understand. I think a lot of that's going to depend on the war. I don't think TiO2 price going up is going to create demand destruction. It's been down well longer than it should have been, which has been an advantage to everybody that's buying it. So pricing going up on TiO2, I do not believe is going to have an impact on demand destruction. But could the war and extended engagement in the Middle East create some kind of demand destruction because there's inflation in all the other raw materials out there, that's possible, and we're continuing to monitor that. That's why we've got to be agile in how we look at our production and operating units moving forward. But that's a question that will continue to be evaluated depending upon how long the war lasts. Operator: We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Park-Ohio First Quarter 2026 Results Conference Call. [Operator Instructions] Today's conference is also being recorded. If you have any objections, you may disconnect at this time. Before we get started, I want to remind everyone that certain statements made on today's call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of the relevant risks and uncertainties may be found in the earnings press release as well as the company's 2025 10-K, which was filed on March 5, 2026, with the SEC. Additionally, the company may discuss adjusted EPS, adjusted operating income and EBITDA as defined. These metrics are not measures of performance under generally accepted accounting principles. For a reconciliation of EPS, adjusted EPS, operating income to adjusted operating income and net income attributable to Park-Ohio common shareholders to EBITDA as defined, please refer to the company's recent earnings release. I will now turn the conference over to Mr. Matthew Crawford, Chairman, President and CEO. Please proceed, Mr. Crawford. Matthew V. Crawford: Thank you, and thank you all for joining our first quarter earnings conference call. I'm pleased with the momentum which is building across our business. Not only are we observing growth in many of our end markets, both traditional and new, this strength comes in products and services, which are our most durable and innovative offerings. We've worked hard to transform all aspects of our business over the last several years by carefully allocating capital towards our goals of faster growth, higher sustainable margins and more consistent cash flow. Our progress is beginning to connect to the results. We will continue to invest in people, products and processes where we can accelerate these changes. We are just at the beginning of seeing these improvements. Regarding our strategic review of Southwest Steel Processing, we will respect the long-term contributions of our partners and associates who have created incredible value over the last 25 years. This fully automated forging site is one of the finest of its type anywhere, and we will find a way to optimize the hard work and investment of the SSP Park-Ohio team while improving the overall results of Park-Ohio. Thank you to all of our associates for their contributions to the start of 2026, and I look forward to answering questions after Pat reviews the quarter. Thanks, Pat. Patrick Fogarty: Thank you, Matt, and good morning. Overall, our first quarter results exceeded our expectations and are highlighted by sales growth across all 3 of our business segments on a year-over-year basis and sequentially. Sales in the quarter totaled $421 million compared to $405 million a year ago, an increase of 4%. Sales growth in Supply Technologies was driven by increased customer demand in several key end markets. In our Assembly Components segment, sales growth of 3% was driven by new program launches throughout last year and increased year-over-year demand from various automotive platforms in each of our product lines. In Engineered Products, sales growth was 4% year-over-year, driven by strong capital equipment demand from several end markets in North America and Europe and continued strong aftermarket demand. Our consolidated gross margin was 17.3% in the quarter, up 50 basis points compared to a year ago, driven by flow-through from the higher sales levels and profit enhancement initiatives implemented in several business units. Excluding restructuring and other special charges of approximately $1 million in both periods, consolidated operating income was $21 million, up 6% versus last year. Sequentially, adjusted operating income increased 4% compared to the fourth quarter. SG&A expenses were approximately $52 million or 12.3% of sales compared to 11.9% of sales a year ago. The percent to sales increase was driven primarily by general inflation and increases in personnel costs. First quarter interest costs were $1.3 million higher than a year ago due primarily to the higher interest rate on our senior notes that we refinanced in the third quarter of last year. The increase was partially offset by lower interest rates on our revolving credit facility compared to a year ago. Our effective income tax rate improved to 17% in the quarter compared to 20% a year ago, driven by higher estimated federal research and development tax credits. We expect our full year effective income tax to range between 17% and 20%. GAAP earnings per share from continued operations for the quarter was $0.58 per diluted share and on an adjusted basis was $0.65 per share, both exceeding our internal expectations due to higher levels of segment operating income. During the quarter, cash flow from operations was a use of $8 million to fund working capital, primarily to support sales growth during the current year. Capital spending totaled $12.5 million, which included investments in information systems, automation equipment to help drive higher levels of profitability and improve plant floor efficiencies and growth capital. We expect our full year CapEx to be approximately $35 million. Our liquidity continues to be strong and totaled approximately $200 million at the end of the quarter, which consisted of approximately $47 million of cash on hand and $153 million of unused borrowing capacity under our various banking arrangements. Turning now to our segment results. In Supply Technologies, net sales totaled $195 million during the quarter compared to $188 million in the first quarter of last year, an increase of 4%. Higher sales were driven by strong customer demand in powersports, semiconductor, aerospace and defense, electrical and agricultural end markets. Our supply chain business continues to benefit from the increased demand from the semiconductor, technology and data center sectors, which in total increased 13% year-over-year. In addition, aerospace and defense demand in the first quarter continued to be strong and increased 15% year-over-year. We expect continued growth in these end markets throughout the year in addition to improved demand from certain industrial end markets, such as heavy-duty truck and consumer end markets as they recover from historically low levels in the prior year. During the quarter, the construction of our new state-of-the-art North American distribution center remained on track and is expected to be operational in the third quarter of this year. We believe this state-of-the-art distribution center once fully operational, will result in a highly efficient service center with automated sorting, kitting and packaging and provide additional value-added services to our customers. Our fastener manufacturing business performed well in the quarter. Net sales grew 18% sequentially and were slightly down compared to sales in the prior year quarter. Global customer demand for our proprietary products is expected to grow, resulting from the expanded use of lightweight materials and global production of EV and hybrid vehicles. Adjusted operating margins continued to be at historically strong levels and were 9% during the quarter, slightly down compared to last year, primarily due to product sales mix and higher personnel costs. In our Assembly Components segment, sales for the quarter totaled $100 million compared to $97 million a year ago, an increase of 3%, driven by new product sales launched last year in each product line and higher customer demand from various automotive platforms. Adjusted operating income in the quarter totaled $5.3 million compared to $5.5 million a year ago. And compared to the fourth quarter of last year, sales increased approximately 10% and adjusted operating income increased 23%. We continue to focus on improving operating margins in this segment. Several initiatives such as increasing our rubber mixing production to support sales growth of our molded and extruded products and plant floor automation investments are expected to improve segment operating margins. In our Engineered Products segment, sales of $126 million reached their highest quarterly level in recent years and were up 4% compared to last year and up 8% sequentially compared to last quarter. The increase in sales was driven by our industrial equipment group, which continues to maintain strong backlogs. Higher sales of new equipment in North America and Europe and strong customer demand for aftermarket parts and services resulted in a very strong quarter for our industrial equipment business. The increased capital equipment sales in the quarter were driven by strong customer demand in defense, steel production, data center, oil and gas and industrial cooling end markets. New equipment bookings were strong in the quarter and totaled approximately $62 million in the quarter compared to a quarterly average bookings of $54 million last year, an increase of 15%. Backlogs as of March 31 totaled $196 million compared to $180 million last quarter, an increase of 9%. During the quarter, our adjusted operating income in this segment improved 35% compared to a year ago to $6.2 million and $3.6 million from the fourth quarter of last year. This segment is experiencing strong demand from the aerospace and defense, power generation, steel production and data center sectors. Key products supporting these high-growth end markets include transformers, power generators, induction heating and forging-related equipment and pipe bending equipment. For example, our industrial equipment, which includes induction hardening and melting and forging-related equipment is used to support a broad range of defense-related activities, including the production of munition shells, armored plate and the hardening of high-strength defense materials. And finally, within this business segment, we commenced a formal review of strategic alternatives for our Southwest Steel Processing business, which is included in our forged and machine products group. We have engaged an investment banking firm to assist us with our review, which may result in an ultimate sale of this business. With respect to our first quarter results, adjusted earnings from continuing operations, excluding Southwest Steel, would have increased from $0.65 per diluted share to $0.77 per diluted share. Turning now to our full year guidance. We are reaffirming our outlook provided last quarter, including net sales of $1.675 billion to $1.710 billion, an increase of 5% to 7% over last year. Adjusted EPS of $2.90 to $3.20 per diluted share, an increase of 7% to 19% over last year. EBITDA as defined of 8% to 9% of net sales and free cash flow of $20 million to $30 million. This outlook includes the impact of Southwest Steel, which is expected to generate $17 million in revenue and a net loss of $0.53 per diluted share. The outcome of the strategic review process with respect to this business represents potential upside to our current guidance. Now I'll turn the call back over to Matt. Matthew V. Crawford: Great. Thank you very much, Pat. And now we'll open up the line for questions. Operator: [Operator Instructions] And our first question comes from Steve Barger with KeyBanc Capital Markets. Jacob Moore: This is Jacob Moore on for Steve today. First one from us is on backlog. It's really nice to see that up strongly again. And I think you gave some pretty good color on the end markets that's coming from, which seems pretty broad. Do any one of those end markets stand out to you right now? For example, are defense orders coming in stronger than usual or electrical infrastructure? Any color you could give there? Patrick Fogarty: Yes, Jacob, this is Pat. I would comment on all of the above. I think when you look at our business, historically, our capital equipment business was very strong in the automotive, in the steel production space. But what we're seeing is continued interest in using our equipment for aerospace and defense applications, for data center-related activities. And in the first quarter, we saw an uptick in bookings relative to the oil and gas sector, which historically has been at pretty low levels. So we're excited about the diversity of the orders that we're getting and the quoting activity from many different end markets compared to historical end markets. Matthew V. Crawford: Jacob, I would only add, as you know, some of these jobs take a while to complete. So the backlog continues to have a significant amount of strength in battery steel and some of the big orders we talked about recently. I do think there's been a nice migration, as Pat mentioned, to other industries, which typically can be smaller dollar amounts, but can be executed a little more easily. So that's a good rotation. We love the big jobs. We love the innovation around battery steel, but a more diverse set of customers and some smaller jobs is great for our product mix. So I would also say that we talk a lot about power management these days. A big part of our business is making power supplies and transformers. So while we cut our teeth, I think, in maybe one of the most difficult places to learn the business, which is heating and melting of steel and other conductive metals. Increasingly, we're seeing demand for people who understand how to manage large amounts of power and need components related to it like transformers. So the backbone of this business without question is the induction business, but power supplies are important, too. Jacob Moore: Yes. Okay. That makes a lot of sense. And Matt, to your point about longer-dated projects, the quick follow-up there would be just could you give us a sense for the expected conversion time line of the backlog? Just thinking about how much is shippable in 2026 versus '27 and beyond? Matthew V. Crawford: Great question. We've actually talked a little bit about the length of some of the conversions coming out of the last few years. So I think our speed of execution is better today than it's been probably for 4, 5, 6 years. So I've talked in the past about good backlog and bad backlog. I think we're in a much better position regarding execution than we've done in the past. We've made some really important investments in people and process at our key locations. Having said that, there's a number of projects, particularly the battery steel project that will take a couple of years to fully complete. But I would say, on average, the completion time is 9 months-ish. Pat, would you agree with that? Patrick Fogarty: Yes. Yes, Jacob, the other comment I would add is that the diversity of our brands allows us to manage production in several manufacturing sites, whether it be here in North America or in Italy or in Spain. And so that allows for a quicker turnover. But to Matt's point, 9 to 12 months is a reasonable production time line for the backlog that we currently have. Jacob Moore: Okay. Great. Yes, that's really helpful. And then last one for me before I jump back in queue. Just you guys said that you're in the early innings of electrical infrastructure spending. Could you maybe help us paint the picture for what you envision the middle and late innings could look like for Park-Ohio? Matthew V. Crawford: I'll let Pat address explicitly that end market since it's grown so explosively, both in the U.S. and globally. One of my comments, I think, about early innings is more broad-based, candidly, than electrical infrastructure. We're seeing stabilization and increasing demand in a number of end markets. So I don't just want to focus too much on that, aerospace in particular, defense in particular. So I'll let Pat talk some numbers, but I just want to be clear, this is more broad-based than just that end market, although there are some new names there that are particularly exciting. Patrick Fogarty: Yes, Jacob, I would comment that going back 3 years, we saw very little activity on the electrical side in both Supply Technologies and in our Engineered Products segment. Today, that revenue base starts at about $150 million and continues to grow north of 10% per year. So it's unclear as to how much we could expect that to grow over the next 5 years. But clearly, the market is telling us there is a huge demand for our products in both Supply Tech as we manage different switchgear manufacturers needed for data center build-outs, but also on the industrial equipment that is providing power management-related equipment as well as different component parts for the cooling systems needed in these data center activities. Operator: And our next question comes from the line of Dave Storms with Stonegate. David Storms: I wanted to maybe start with just the consolidated margin on the adjusted side. I know you've been talking about some of the supply tech automation initiatives. Just maybe any color as to what the time line is to really getting those completed and maybe what that could do to the consolidated margin? Any thoughts there? Matthew V. Crawford: Yes. I mean I would start by saying we are on the front edge of that. We're in a multiyear investment cycle around people, process and the use of information technology. So to be quite candid, I don't think we've seen much, if any, impact to some of those investments at this point. So I would say that's really probably more of a 2027 opportunity where it could start to move the needle. So no, we have not benefited from those, maybe a little bit later this year, but we view those as really being 2027 investments for Supply Technologies. And beyond, I mean, again, these are very durable investments. We're not just making ROI investments, we're fundamentally changing the way in which we manage information and in which we go to market for our customers and manage the sort of value add on the operations side as well. David Storms: Understood. I appreciate that. And then I know, Pat, in the prepared remarks, I think you called out some of the changes in AC between some program launches last year. I think your release mentioned volumes being a driver there. Just curious as to maybe what you're seeing in terms of the business acquisition environment in the remainder of 2026, given some of these new program launches and maybe potential for increased volumes there. Patrick Fogarty: In terms of business acquisitions, Dave, I think our focus, at least within the Assembly Components segment, given the active quoting activity and the launches of new business that we're seeing that business that launched in 2025 and new business that is being launched in the current year, I would not expect any business acquisition activity within that segment, given our investments that we're making in the automotive space. The products that we sell in that space, as you probably remember, is fuel filler-related products, fuel rail products, molded and extruded rubber products, tremendous opportunities for us to grow organically in that segment. And so our current initiatives around margin enhancement are critical in this business, and we continue to be focused on that. Matthew V. Crawford: Yes, let me add a follow-on on that. Again, we are always looking for highly accretive, thoughtful acquisitions. ACG, though, I think, has been extremely focused on their product innovation, their vertical integration and their new business launches. So it has been a challenging environment. There has been huge new launches by every major OE, certainly here in the U.S. and globally. There has been challenges in the supply chain. I mean, the Novelis' fire, which has affected the Ford 150, the F-150 product line as well as others. So as well as I think the conversion and the shifting landscape for EVs, particularly in Europe and China. So we're metabolizing a lot right now. But at the same time, we're getting through these product launches. We are, again, launching and working inside of our best products and services. So the operating leverage in that business is really teed up, and we couldn't be more excited, I think, about the latter half of this year. To the extent SAAR holds up at all, I think our most exciting days are ahead. So again, we're always sort of on the prowl for the right kind of acquisition, but our best opportunities are right in front of us given the investments we've made there. Unlike Supply Technologies, many of those investments have been made over the last few years. So this is when we start to see the real operating leverage in the growth we're going to see in that business relative to the new business launches. And not only are they metabolizing a number of launch costs, they're also having to metabolize some of the challenges I just outlined in the -- navigating sort of the ups and downs of the industry, so to speak. David Storms: Understood. And I do apologize. I said business acquisitions, I should have said customer acquisitions or new business acquisition. So that was poor phrasing on my side. Maybe one more for me. And you mentioned the fire. Obviously, there's a conflict in Iran that we didn't have the last time we talked. Just curious as to what you're seeing on the supply chain side and if you're seeing any ripple effects that may be impacting your ability to procure materials. Matthew V. Crawford: Broadly speaking, the only impact we've seen so far are freight costs. So those are, of course, real and require being addressed. In some cases, the mechanics of addressing it are inside the customer relationships and some may have to be addressed separately. To date, that is all we've really seen in terms of impact. I, like most other people, suspect that if this goes on longer, we could see more material impacts to availability, but we're not hearing that from our supply base at this point. Operator: And our next question comes from the line of Steve Barger with KeyBanc Capital Markets. Jacob Moore: I just had a couple on the Southwest Steel strategic review. I mean, bluntly, the EPS drag that you called out seems pretty stark. I guess, do you think that the business can transact at that $45 million asset value you called out? And maybe relatedly, if it doesn't transact in an acceptable time frame for you, is there a plan B for getting out or downsizing it over time? Matthew V. Crawford: We're at the beginning of that journey, not the end. So Jacob, I'm reluctant to say more. I do want to comment that this business, and I alluded to it in my comments, over 25 years, the first 20 or 21 of them, this business was not only profitable but was meaningfully accretive to overall profits, so -- or overall margins, excuse me. So we have a good business there. The business model is outstanding. The equipment we have, the 2 fully automated forge lines. So this is a good business. And again, we've been penalized a bit with the rail market being down as much as it is for an extended period of time. We have tried to expand the product offering a bit with some limited success, but not fast enough. So this is not -- this is a good business. And I think we need to explore and think through what the right situation is for it because I agree with you. The purpose of the disclosure today was to let you know that we're -- we understand the drag and the size of the drag to point to the overall earning power of the underlying business without this $17 million in sales. But I don't want you to leave this call thinking that this isn't a tremendous business that has been profitable over a very long period of time. So I anticipate. And by the way, I will also say, and this will probably not be received totally well, the business is improving, which I know it is hard to say, but the earnings drag that's in it, but it is getting better every day, and we are executing at a higher level. So I'm -- I don't have an answer to your question other than to say this is a good business, a good business model with good employees and good customers and good partners. So I'm going to stop there and just say this business has inherent value, and we, again, have benefited from this company over a long period of time. Jacob Moore: Okay. Yes, that is helpful. And maybe a follow-up to that is, if it does transact, do those proceeds go to debt pay down? And honestly, maybe that's just a broader question on your thoughts for incremental capital allocation going forward? Matthew V. Crawford: Yes. I think Pat and I have made it -- I hope we've made it abundantly clear over the last 2 to 3 years that reduction in leverage is a key priority of this company. We have set an intermediate goal of 3x net debt to EBITDA. And again, we're not going to forego critical investments in our business. We are spending somewhere between 2 to 3x our maintenance capital in the business right now for some of the investments we're doing. So I'd like to say the first parts of the trough is making us better at what we do every day in our key businesses. But right at the top of that list, our whole management team, not just Pat and I are aware, that it is a priority to allocate capital towards reducing the leverage in this company. So again, it's not our #1 goal because we've got plenty of liquidity, but it's not lost on us that, that is an important goal for our shareholders, of which our entire management team is, so. Operator: And with that, there are no further questions at this time. I would like to turn the floor back over to Matthew Crawford for any closing remarks. Matthew V. Crawford: Great. Thank you very much for the questions today and for your attention and most notably your support of Park-Ohio. We are quite anxious to continue through this year. Thank you. Operator: Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.
Operator: Good morning, ladies and gentlemen, and welcome to the Murphy Oil Corporation First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Atif Riaz, Vice President, Investor Relations and Treasurer. Please go ahead. Atif Riaz: Thank you, Rebecca. Good morning, and welcome to our first quarter 2026 earnings conference call. Joining me today are Eric Hambly, President and CEO; Tom Mireles, Executive Vice President and CFO; and Chris Lorino, Senior Vice President, Operations. Yesterday after market close, we issued our first quarter earnings release, a slide presentation and a stockholder update. These documents can be found on Murphy's website, and we will reference them today throughout our call. As a reminder, today's call contains forward-looking statements as defined under U.S. securities laws. No assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please refer to our most recent annual report filed with the SEC. Murphy takes no duty to publicly update or revise any forward-looking statements, except as required by law. Throughout today's call, production numbers, reserves and financial amounts are adjusted to exclude noncontrolling interest in the Gulf of America. I will now turn the call over to Eric for opening remarks. Eric Hambly: Thank you, Atif, and thanks to everyone for joining us this morning. I hope you've had a chance to review our stockholder letter, which provides a detailed overview of our first quarter operational and financial performance. Before turning to results, I want to touch on the broader context. Ongoing geopolitical developments, particularly in the Middle East, contributed to elevated volatility across energy markets during the quarter. While Murphy does not have direct exposure to the region, these global dynamics influenced realized pricing and reinforce the importance of operating with discipline and a long-term mindset. On today's call, I will briefly discuss this market environment, review our first quarter performance and provide an update on our exploration and appraisal program. Against the backdrop of significant commodity price volatility, Murphy delivered a strong quarter. Our oil-weighted unhedged portfolio allowed us to fully capture prices as they moved materially higher. We generated cash flow of $429 million and adjusted net income of $47 million, including $67 million of exploration expense related to 2 unsuccessful wells in Cote d'Ivoire. Cash flow was supported by higher oil prices late in the quarter with realized prices exceeding $90 per barrel in March. It's worth noting that March prices were not representative of the full quarter as prices rose roughly 50% from January to March. Our average realized oil price for the full quarter was $72 per barrel. Given the ongoing commodity price uncertainty, we view flexibility as a competitive advantage and have chosen to remain unhedged at this time. This reflects the strength of our balance sheet and our ability to manage through cycles without relying on market timing or hedging for financial stability. On activity and capital, our approach continues to be driven by market fundamentals and our long-term strategy, not short-term price movements. Accordingly, we are maintaining our capital guidance range of $1.2 billion to $1.3 billion. Externally, as our non-operated partners evaluate how to respond to the current environment, we're seeing a range of approaches emerge. We're engaged with our partners on their plans, and we'll assess the merits of participating in any new activity on a case-by-case basis where it clearly creates shareholder value. Turning to operations. What stands out most this quarter is our execution, and that execution starts with our people. I want to recognize our teams for once again delivering robust, consistent execution across our portfolio. We delivered production above the high end of guidance, operated efficiently and advanced key projects across the globe in line with schedule and within budget. Our production outperformance was driven roughly evenly by our onshore and offshore operations. Onshore, Eagle Ford exceeded expectations by nearly 3,000 barrels of oil equivalent per day, supported by strong performance from the 15 new wells brought online during the quarter. Longer laterals and continued innovation in drilling and completions are delivering strong wells efficiently, reinforcing the quality of this asset. Offshore, the Gulf of America also outperformed by about 3,000 barrels of oil equivalent per day, driven by high facility uptime and efficient execution of planned maintenance. Turning to exploration and appraisal. We are making meaningful progress across our program. In Cote d'Ivoire, drilling continues at the Bubale exploration well. We recognize the interest in this well and remain committed to disciplined, transparent communication. We will provide an update once operations are complete and the data have been fully evaluated. In Vietnam, at our Hai Su Vang, Golden Sea Line field, we are finishing operations on the HSV-3X appraisal well and we will move next to the HSV-4X well, the final well in the appraisal program. Together, these wells will help define the field's full potential and inform next steps on development. As we have previously communicated, we will provide results and an updated resource range at the conclusion of this appraisal program. To close, this quarter was a real-world test of our strategy. In an environment defined by rapid price movement and elevated uncertainty, our focus remains unchanged. We executed with discipline, exceeded production expectations and delivered solid financial results while continuing to create long-term shareholder value. Looking ahead, our strong balance sheet positions us effectively across a range of outcomes, providing resilience in a weaker environment and full participation if prices remain strong. With that, we will open the call for your questions. Operator: [Operator Instructions] Your first question comes from the line of Arun Jayaram with JPMorgan. Arun Jayaram: Eric, totally understand how you're not yet at TD and Bubale. But I was wondering if you could maybe comment a little bit on just your overall geologic concept for that well. And we did note that it is taking a bit longer to reach TD. So I was just wondering if you could provide just a little bit more color on your geological concept, how drilling is going and just overall, how you'd characterize progress on that well? Eric Hambly: Yes. Thanks, Arun. Thanks for the question. We are actively drilling Bubale. We have -- the main objective of the well is the Cenomanian target. There is a secondary objective in the Turonian, which is shallower. We are currently drilling the well in the Turonian section. We have experienced slightly slower drilling progress than we had hoped for. So the well is taking a little longer to announce a result because we're still drilling it, and we've had a little bit slower rate of progress drilling. It's just a bit of hard rock to drill in part of that Turonian section. It's taking a little longer than I had hoped. I can assure you, there's no one in the world who would like more than to be able to give an update on Bubale because I'm watching it very closely. I'm happy with our team's progress. We just don't have a definitive result to talk about as we're actively drilling it and have not yet reached the primary objective. Arun Jayaram: I was wondering, as we look forward to your updates on the third and fourth well in Vietnam, and appreciate, obviously, the 3-part series that you held on exploration and the PSC, et cetera. But talk to us about some of the development options that you're thinking about in Vietnam for HSV, which obviously has a lot of promise at this point. Eric Hambly: Yes. We talked a little bit about this on our webinar series. So for anyone who's listening, if you haven't listened to our webinar series, I'd recommend you do that. The concepts that we're currently evaluating for HSV, while it's still early days, are 2 primary opportunities. The first would be an FSO paired with a series of platforms that would be processing platforms and/or wellhead platforms. And the alternative to that would be an FPSO concept, either a new build FPSO or a potential redeployment of an existing FPSO. We don't yet know the ideal approach forward. But we're hoping after we collect the data from our appraisal program, we will use that information we collect to design a field development plan. We will seek an optimal development based on capital efficiency and timing. And we'll probably about a year from the conclusion of our appraisal program, we'll likely have clarity on our path forward. So FPSO or an FSO with some wellhead platforms and processing platforms. Operator: Your next question comes from the line of Carlos Escalante with Wolfe Research. Carlos Andres E. Escalante: I'd like to ask first on your reinvestment rate framework moving into the end of the year into 2027. It looks like the collective aggregate of the estimates of my peers and I have you at around 185,000 barrels of oil equivalent per day for 2027. I know I'm being very specific here, and I'm not asking you for any type of guidance. But if I layer in Chinook first oil at LDV and then you recently sanctioned Banjo and Cello plus your incremental efficiencies in the Eagle Ford, it starts to look like a very conservative read into your 2027 number. So I would ask you to help us calibrate the production versus capital efficiency equation, particularly as nonproductive CapEx converts into producing assets that are free cash flow positive in 2027. So help us think about your reinvestment rate into 2027 relative to 2026. Eric Hambly: Yes. Obviously, Carlos, we don't have a budget for 2027 yet, but I'll give you a little color around what I think is going to be constructive for us as we head toward the end of this year and into next year. The volume addition from the Chinook 8 well that we expect to come online in the second half of this year will be significant. And Lac Da Vang Golden Camel field starting up in the fourth quarter of 2026 and ramping through 2027 will add to additional volumes in 2027. What we haven't yet come up with is a detailed plan for exactly what to do with our onshore assets. I think we have a lot of thinking to do around how much we spend on exploring next year. We have a target-rich environment to explore in Vietnam and some exciting opportunities to test in the Gulf of America in 2027. So we have work to do before we form a 2027 budget around how much we spend on exploration in the Gulf and Vietnam versus deploying for investing in Eagle Ford, Tupper Montney, Kaybob Duvernay. So I don't have clarity yet on exactly what our forecast of production will look like for '27 because we have a lot of choices to make. I think we're fortunate to be in a mode where we can choose all those trade-offs. But just circling back, I think production additions are pretty significant from Chinook and then ramping up with the addition of Lac Da Vang field being online. And then Cello and Banjo is, we expect that will be a 4,000 barrel a day net contribution in 2028, not 2027 because we're expecting to bring it online late in 2027, just for clarity. Carlos Andres E. Escalante: That actually does help a lot. And then if I can come back to Cote d'Ivoire real quick. Following your development plan submitted to the Ivorian government in 2025 for Paon specifically, is that in your mind still -- well, first of all, can you give us a brief overview of what may be taking a bit longer than you expected? What's the sticking point perhaps you're having with conversations with the government? And then second, is that still progressing in your mind as a stand-alone development? And I know this is too much to ask because it's hypothetical, but in the event of a discovery at Bubale, would that underpin a joint development to add scale? Eric Hambly: Yes. Great question, Carlos. So we did submit the field development plan as part of our work obligation. We -- in parallel with preparing and submitting that field development plan, we negotiated with various Ivorian parties to try to come up with a gas pricing arrangement that would allow that development to move forward. The Paon field is an oil field with a relatively thin oil column and a large gas cap. So roughly 2/3 of the BOEs produced from the field, based on our estimation, will be gas and the rest will be oil and gas liquids. So gas pricing is really critical for that project having economics that meet a threshold that we're willing to invest. We were so far unsuccessful in agreeing with the Ivorian government on a gas pricing structure that would inspire us to sanction the project. So while we know what we'd develop, how we would drill the wells and the facilities we would install, pipelines we would install, et cetera, we didn't get to a point where we were ready to move forward with the development. We're not obligated from our agreements with the Ivorians or the PSC to do the project, we are obligated to submit a development plan, which we've done. We're interested in doing the project if it can make money at a threshold we're willing to invest in. Going back to your question in a bit more detail, any resource that is discovered near Paon could help add scale that could make the project commercial at a gas pricing structure that could be maybe lower price, which is in line with Ivorian desire and make the project move more economically. Resource density would help justify the cost of a gas pipeline from the field or fields to the shore to deliver gas for power generation in Cote d'Ivoire. So any discovery even by third parties nearby might also be helpful for bringing that project forward at some point. Carlos Andres E. Escalante: Just to clarify, so would -- does Paon lower the threshold of your consideration of commercial hydrocarbons at Bubale? Eric Hambly: It would, yes. Operator: Your next question comes from the line of Chris Baker with Evercore ISI. Christopher Baker: Eric, hoping you could just maybe help frame up the opportunity in Cameroon, what you guys are seeing there and what sort of next steps we should expect? Eric Hambly: Yes. Thanks, Chris. We are interested in Cameroon for a few reasons. It has attractive geology and allows us to do what we are -- in communicating we're trying to do with frontier and emerging international exploration, which is get into opportunities that are at a relatively low cost of access and allow us to test prospects with relatively low-cost wells that target large resource. Cameroon is a bit interesting and unique in that it offers both shallow and deepwater exposure with a variety of play types, attractive geology, a proven source rock system and discoveries in the country, particularly in shallower water. And it also -- we recently acquired and analyzed some newly reprocessed seismic data, which points to some prospectivity that was not obvious to us when we were previously in Cameroon about a decade -- over a decade ago. And so we see some opportunity that's attractive, and we get into the country relatively cheaply and can assess it. And at some point, if we decide to drill a well, we think we can test large opportunities with low well cost, which is what we're trying to accomplish. That's kind of the setup, Chris. Christopher Baker: That's great. Just as a follow-up, the macro has obviously changed quite dramatically here. It sounds like for the most part, the '26 program has been seeing some early wins and remains largely on track. I guess one of the big themes you've seen from some of your peers this quarter is a focus on flexibility when it comes to cash returns. I'm just curious, as you guys look out for the rest of the year, under a strip scenario, there's obviously quite a bit of excess cash. And I saw in the release, obviously, remain committed to the 50%. Can you just help frame up some of the flexibility and how you're kind of thinking about share buybacks from here and how that fits into the story for the rest of the year? Eric Hambly: Yes, it's a great question. We are committed to delivering a competitive dividend to our shareholders as we've done since 1961. And we also have a desire to be a somewhat consistent repurchaser of our stock so that we can concentrate wealth in our existing shareholders. Having said that, we are not attempting to be very rigorous around a target of share buyback per quarter. We will likely approach share buyback with a bit of a more opportunistic assessment. And if we think that our share price is really cheap, then we'll probably move more quickly. If we think our share price is a little higher in the range, we may be a little more patient. So we'll sort of watch where we think that's heading. If you look at Murphy's share price trading performance over the last several years, even maybe longer, we tend to trade in a very tight correlation with oil price. I think that most prognosticators would guess that oil price will likely come down after resolution of the conflict in the Middle East. And so we're going to kind of watch that and see, does it make sense to move quickly or does it make sense to wait because I anticipate it's likely oil price falls significantly that our share price may come down with it. And so it maybe makes sense. So we're going to be a bit careful and disciplined around that, and we'll act if it makes sense, and we'll wait until a better opportunity if we think that is coming in the future. Operator: Your next question comes from the line of Greta Drefke with Goldman Sachs. Margaret Drefke: My first, I'm just wondering is if Murphy has any exposure to the Gulf specific crude pricing that has seen an outsized positive move in recent weeks and months? And if so, what's the lag on earnings impact to realized pricing that we should be mindful of? Eric Hambly: So we don't have any direct exposure to crude in the Middle East. We benefited from higher oil prices, and we've seen a little bit around pricing differentials move a little bit. I may let Tom, our CFO, who also oversees our marketing team, just give a little more color around differentials and part of our production from the U.S. Thomas Mireles: Yes. We are definitely seeing some more constructive pricing in the U.S. Gulf. Some of our crudes that benchmark to WTI, but the differentials are starting to show more strength than where we were a few months ago. So those lag by about a month. Usually with WTI, our benchmarks, we see those average prices as we market our crude. But the diffs -- the differentials are set. There's a bit of a lag on those. So through April, going forward, we'll start benefiting from those more constructive diffs in our crudes. Margaret Drefke: Great. I appreciate that color. And just my second question is just if you can speak to how the exploration blocks that Murphy was awarded for the new federal lease sales compete for capital relative to other prospective areas in your existing Gulf of America position. Eric Hambly: Yes. The blocks that we picked up in the most recent lease sale from December of last year are a combination of blocks near our existing infrastructure where we'll target what are likely high chance of success, but not very large opportunities that allow us to put additional future volumes over facilities that we own and operate today. And the other part of the blocks we picked up are a little more sort of emerging part of the basin. And we are going to assess and evaluate the optionality we have there and think about an exploration program in '27, '28 that balances near field versus a little more emerging part of the Gulf. Operator: Your next question comes from Leo Mariani with ROTH Capital. Leo Mariani: I wanted to just follow up a little bit on Bubale. I think, obviously, the well is taking longer than expected. You did mention there was some kind of harder rock in Turonian. Was that kind of the primary driver around the well taking longer? Is it just slower drilling? Or was there any other kind of like mechanical snafu or did it get started late? Anything like that? And then I also wanted to ask, it sounds like you're drilling through the Turonian, have you seen any shows in that zone at this point? And do you have kind of an updated estimate in terms of when you think the well is done? Are we just a couple of weeks away? Is it relatively imminent? Just any more color would be great. Eric Hambly: Sure, Leo. Unfortunately, the issue is we've had slower drilling than we'd hoped for. It's not shocking because there are offset wells drilled by other people that have also seen some slow drilling in the section. It is a little slower than we were hoping for. And as I said before, we don't have any definitive conclusive results to talk about, and I don't want to speculate as we're still drilling through and have not even seen the primary objective. So we'll wait until the well is done, and we'll give you an update. Leo Mariani: Got it. Okay. And then just sticking with exploration. Obviously, you announced Cameroon. It seems like it wasn't too long ago where you guys talked about Morocco as well. So it definitely seems like the company is kind of stacking up some opportunities internationally. Clearly, you've had success in Vietnam, which looks very promising. Should we really be thinking about just Murphy kind of continuing to, maybe I'll just say, move some of these exploration priorities come up in the stack. I know you're drilling with more exploration dollars this year. And obviously, that will depend on the oil price environment, but should people just generally think that perhaps over time, Murphy will continue to spend a little bit more on exploration than maybe it has in past years? Eric Hambly: Yes. I think this year, we're spending a little more than typical because we were quite excited about the prospectivity in Cote d'Ivoire, and we felt it made sense to drill those prospects at 100%. So our spend this year is a little higher percentage of our overall capital. And then if you pair that with our Vietnam appraisal program, which is quite active, it's just a bit of a heavier year than normal. I think if you look longer then we're likely to spend probably 10% to 15% of our capital program on exploration, and that would be all forms of spending, that would be on our people, our seismic data and our drilling wells. So that could change if we had a compelling reason in the future, but I think that's a pretty good way of modeling us. We're trying to keep opportunities in front of us. So where we find attractive entry points, where we can do what I said before, which is get in relatively inexpensively and test prospects that have large resource with relatively low-cost wells, we want to set up a stack of opportunities that can do that for us. And these things take time to progress and mature. So we want to have a program where every other year or so, we have a new thing we're testing because we think the world needs ongoing exploration and exploration success to supply demand growth that's expected in crude oil. So that's what we're trying to do. Leo Mariani: Okay. That makes sense. Maybe just last one for me here, Eric. So obviously, Murphy had a bit of a rigorous capital return framework that was laid out a handful of years ago. You commented on this on the call. It sounds like you're kind of moving a bit away from that when maybe that framework made sense when oil was a little bit more range bound. Now that oil has seen just tremendous volatility, should we kind of assume that the rigorous framework is somewhat abandoned here and you guys are just going to be kind of opportunistic and not necessarily give 50% of adjusted free cash flow back? Eric Hambly: Yes, Leo. I think I wouldn't characterize our framework as still fully in place. The only thing that I think we'll try to do is be a little more opportunistic around timing of execution of our framework. We still want to buy back our stock. We still want to occasionally increase our dividend. We still want to use part of our cash flow to target to our balance sheet. Obviously, with our debt towers now, it's very difficult for us to remove -- reduce long-term debt, but we can build cash on the balance sheet to affect net debt. Those are all things we want to do. There's no change to our framework, although I think that we are in the face of what I would characterize as extreme commodity price volatility, we'll probably be a little more opportunistic around timing of executing what we desire to do. Operator: Your next question comes from Phillip Jungwirth with BMO Capital Markets. Phillip Jungwirth: I had a couple of questions on the Eagle Ford, where well performance continues to be really strong. First, can you just talk about what's changed in the program over the last year to drive the better results? Would it make sense to kind of revisit the 30,000 to 35,000 a day plateau for this asset given the inventory? And then just lastly, I wanted to ask if the planned Catarina wells later this year are mostly Lower Eagle Ford? Or does this also again include the Upper and Austin Chalk? Eric Hambly: Yes. I'll give you my high-level thoughts around how we're allocating capital, and then I'll let Chris Lorino provide more context on what's driving well performance. So we have guided kind of a midterm perspective of Eagle Ford in the 30,000 to 35,000 barrel a day range net to us. Last year, we exceeded that on the back of really strong new well performance. This year, our guide is also higher than 35,000 barrels a day, around 38,000 barrels a day because we're kind of carrying that performance in from last year. We did allocate less capital to Eagle Ford in '26 than prior because we saw strength of performance, and we've seen some early strong performance from our Eagle Ford program this year. So really happy with how that's going. We haven't decided yet if we're going to allow that asset to decline back down to a 30,000 to 35,000 range in future years or if we'll try to keep it at 38,000 barrels a day or close. I have a guess that we're likely to try to keep it a bit higher, but that's something that we have choices to make on as we formulate a budget for next year. And so that's kind of how we're thinking about the asset. It's not quite clear to us yet the best use of capital. It will compete for capital with other opportunities we have across our portfolio. So we have to think about that as we formulate a budget for next year. And I'll let Chris Lorino give a little context on what's driving well performance and maybe the well mix that's left the rest of the year. Chris Lorino: Phillip, yes, the performance has been a pretty simple story. It's been a lot around the capital efficiency improvements that we've made, a lot about longer laterals and taking advantage of the additional footage and driving down our cost per foot. So -- and also, we continue to tailor each location to specifics around the rock and all the things that go into what's nearby and what adds up to those locations. So that's -- we've really got down to where we've got it down to a science in each location and continue to see surprises to the upside. And if you look on the earnings deck, you can see some of the Catarina performance, a really great shallow decline that we're seeing there. So we've got a lot of running room in Catarina and continue to have some running room for longer laterals as well to take advantage of these capital efficiency stories. Phillip Jungwirth: And then I also wanted to ask about the Gulf of America lease sale, but more specific to those Alaminos Canyon blocks that you kind of referenced there. I know it's early, but I was wondering if you could at least be able to talk about what drew you to this part of the basin as far as seismic or anything else just because it is a newer area. Eric Hambly: Yes. We acquired some seismic data in advance of the lease sale that pointed us to some opportunities that we thought were compelling enough that we should target those blocks. And we're excited about the potential. We have more work to do to work through our exploration prospect assurance process and get comfortable that we've done everything we can to make a decision around drilling what looks like an interesting prospect or 2, and that work is ongoing. And I think there's a good chance that we may have a well out there in Alaminos Canyon in our '27 or '28 exploration programs. Operator: Your next question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Timothy Rezvan: I want to ask first on expected oil prices in Vietnam. Eric, when I last saw you and the team in Houston in March, you mentioned a $12 premium to Brent you were seeing for oil in Vietnam. And you sort of suggested this wasn't sort of a one-off issue with like refinery demand. So I know volatility is really high across the globe. But can you kind of give some context on what you're seeing on oil pricing in Vietnam and maybe how you think that could look by the time you get first production there? Eric Hambly: Yes. I really wish I knew what oil prices would do in the future. What we expect from Vietnam on a long-run basis is based on location and crude quality, we would expect Brent plus maybe $2 or $3. Right now, there is a significant disruption to oil flows to Asia and physical deliveries of crude in the region have been seeing elevated differentials to Brent. So Brent plus $12 was what was on the market in March, which obviously, that's a fairly -- we expect that to be a short-run thing. I don't know what Brent pricing will be when we come on stream in the fourth quarter. And I don't know how limited physical cargoes will be in Asia in the fourth quarter of this year when we come online. But I do think that we expect to see Brent plus something. I don't know if that will be Brent plus $2 or $3 or Brent plus $12. I think we are fortunate to have a growing business in Vietnam, where there's strong demand for crude. And I think the world is likely to price in crude deliveries to Asia with a little more geopolitical risk premium than maybe they were before the conflict. So I think that sets us up for some success. Timothy Rezvan: Okay. I appreciate the context there. And then as my follow-up, I just want to ask on the CapEx cadence for the year. It's very front-end loaded. It looks like about 68% of the spend in the first half, those of us with gray hair are used to seeing companies really struggle to hold the line on spending when they have such a heavy front-loaded skew. So can you talk about your confidence that you can stick to that budget? And perhaps I know you talked about non-op opportunities, like what may cause you to deviate if Brent does hold at such a high price? Eric Hambly: Sure. I'm very confident in our ability to deliver a capital program that's in line with our guided range. I think if you look at our performance over the last few years, we've been pretty good at coming in really close to the range. Last year, we actually underdelivered on the range. We came in a little lower on CapEx. Our program is front-loaded a bit for 2 reasons, we have a heavy onshore program that's weighted to the first half of the year in terms of drilling and completing wells. And our exploration and appraisal program in Vietnam and Cote d'Ivoire is heavily weighted to the first half of the year. So I feel good about the things that are in our control allowing us to deliver capital within the range. We do think it's possible there may be non-operated opportunities in our Eagle Ford business that come up that may be something that makes sense for us to participate in. I think those things would not be very significant. And I think today, when I look at what may develop, I feel good that our range covers what is likely to happen. I will caveat that with one thing, if we are fortunate enough to have a success at Bubale, we are likely to drill an appraisal well at Bubale immediately. We have a rig available and equipment available to do that. We've signaled that in the past investor engagements that that's something we would likely do if we were fortunate to have success. I don't know what we have yet, so I don't know if that will happen. But another well at Bubale this year is not in our capital range, and it would push us either to the high end or maybe perhaps beyond the high end of that range. [ indiscernible ] Operator: Your next question comes from the line of Josh Silverstein with UBS. Joshua Silverstein: In Vietnam, I wanted to see if you could talk a little bit about the LDT exploration prospects there. I think you guys are set to spud in the back half of the year. Maybe just some similarities and potentially if a discovery, a quick tieback opportunity to LDV. Eric Hambly: Yes. The LDT North prospect is White Camel North. That prospect is targeting the same age reservoir as the Lac Da Trang or White Camel discovery that we made in 2019. It's a different compartment, but the same age reservoir. We are expecting it to have a mean to upside gross recoverable resource range of 40 million to 80 million barrels oil equivalent. Again, our expectation in this basin is it's quite oily. With success there, it would likely be a tieback to the infrastructure that we're developing for Lac Da Vang or Golden Camel. If it happened to be extremely on the large end, it could anchor an additional hub. But I think the most likely outcome is that it will be tied back to the FSO that we're using to develop the Lac Da Vang field, which will be installed later this year. Joshua Silverstein: And then just maybe on the new country entry front, Cameroon this quarter, Morocco earlier this year. Can you just talk about kind of broadly the strategies for entering these new countries and areas versus, say, doing a bit more in the Gulf versus, say, Alaska or other parts of Africa that have kind of established basins there? And maybe along the same lines, how would you kind of think about the risking of these prospects versus, say, what you were doing in Cote d'Ivoire? Eric Hambly: That's great. What we're trying to do is use regional study to guide entry into opportunities that we like. So instead of saying, hey, there's a prospect in one block in one country, let's go get it. We're actively assessing opportunities over a large geography, doing detailed regional study and identifying opportunities where we think we can assess -- cheaply assess and test large opportunities. Those are going to be mostly in what we would characterize as emerging basins. So there's a working petroleum system identified by either past discoveries or other exploration wells that allow us an opportunity to test large resource with low well cost. That's what we're trying to do. If I characterize our portfolio today, I would say that we have a limited ability in the Gulf of America to identify large opportunities. The well costs in the Gulf are expensive because of the complexities of drilling, either the depth or the sub-salt, et cetera, and the resource ranges are becoming smaller and smaller in the Gulf as a trend. We do have some compelling larger prospects in our portfolio. Most of our opportunity set in the Gulf is going to be smaller opportunities near infrastructure, whereas internationally in Vietnam, and Cote d'Ivoire, in Cameroon and Morocco, we have an ability to test larger things with cheaper wells, which is kind of what we're trying to do. I think we're fortunate to have a capability that we've maintained to be an international explorer and we execute generally quite efficiently in our well programs. If you look at the risk profile across our business, the near infrastructure prospects in the Gulf of America are our highest chance of finding hydrocarbons. The opportunities we're drilling in Cote d'Ivoire and the kind of things we'll test in Cameroon are likely to be kind of the next up on the risk profile. I would characterize the Morocco opportunity as frontier and the highest risk profile in our portfolio now. We are planning to do some seismic reprocessing in Morocco, which may help us derisk that prospect. And that's kind of the setup for how we're going to move through assessing the portfolio we have to explore in West Africa and in the U.S. Operator: Your final question comes from the line of Charles Meade with Johnson Rice. Charles Meade: Forgive me if I'm -- I missed the few minutes of your call, I don't know hard time getting on, but -- so forgive me if I'm asking something you already covered. But I wanted to ask you to speak kind of at a high level about Chinook because it's going to be at that 15 MBOE a day gross, that's going to be a big increment to your Gulf production. And I think an earlier caller was asking about that. But can you give us the big setup here? I mean, this field has been producing over a decade. It used to produce a lot more. This looks like it's going to be a big new producer. Can you just give us a reminder, what is the setting of this -- of your reservoir here? Are there follow-up opportunities that are contingent on how this #8 well performs? And how much capacity is there available at the Pioneer FPSO? Eric Hambly: Yes. So the well is targeting the Wilcox, 2 Wilcox sands that are currently producing in another well in the field in the same fault compartment, the same reservoir section. There was a well that had produced back in 2019, and that well had a mechanical issue, and we have not produced that well since. And we believe that the well is something that we cannot effectively produce going forward. So we planned a development well to go develop the reservoir. I would characterize the reservoir as having a large in-place volume and a low current recovery factor. It is underdeveloped and needed additional wells to produce the field. We have identified this opportunity many years ago, but we didn't want to act on it for a couple of reasons. First was we were leasing the FPSO that is used to produce the field. And we identified that the terms were not that great after we took on the assets from our Petrobras joint venture deal, MP GOM. When we got it into our operatorship, we realized it wasn't a great lease agreement, and we worked to purchase the FPSO, which we did last year, which allows us to have improved economics on any future activity in the field. We also have a very expensive well that takes a long time to drill and complete. And while we were on a debt reduction journey to get close to our ultimate debt target, we didn't want to allocate capital to this just because it was a singular very large thing, and we wanted to wait until we had the FPSO purchased. So we've really done a great job, I think, of setting up this field to have a good financial outcome. Again, it's a development well in an existing reservoir. It will add additional production from the same reservoir that's already producing. So we don't really have a contingency plan. It's just an additional development well, kind of effectively replacing a well that had previously been producing in the field, but in a more optimal location. There's probably additional opportunities in this field, both exploring untested fault blocks and maybe an additional production well that we are currently evaluating and the results from this well will also help inform whether or not we think an additional well will be necessary. Charles Meade: Got it. That is great color. And then just as a quick follow-up. I think it was a couple of years ago, we were wondering what was going to happen with the Petrobras assets, your NCI volumes. And that just kind of seemed like it fizzled out. Is there still any process underway or any chance for you guys to acquire that? Or would you have a pref on that if someone else announced a deal for it? Eric Hambly: Yes. We would love to acquire it at the right price. Today, I don't believe that Petrobras is actively marketing their ownership in the joint venture. We do have a pref right if such a deal was struck. So at the right price, it would be great. Operator: I will now turn the call back over to Eric Hambly for closing remarks. Eric Hambly: Thank you all for another engaging Q&A session. Paul Cheng, if you're listening, we had expected you to pop up with a question on this call. Paul covered Murphy as an analyst for over 30 years and just retired from Scotiabank in March. We always appreciate his thoughtful questions, and I'm sure the incoming team will be happy to carry the baton. Thank you all for tuning in, and thank you to our shareholders for their ongoing trust. This concludes our call. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.