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Operator: Hello, everyone. Thank you for joining us, and welcome to the Amcor Third Quarter Results 2026. [Operator Instructions]. I will now hand the conference over to Tracey Whitehead, Head of Investor Relations. Tracey, please go ahead. Tracey Whitehead: Thank you, operator, and thank you, everyone, for joining Amcor's Fiscal 2026 third quarter earnings call. Joining today is Peter Konieczny, Chief Executive Officer, and Steve Scherger, Chief Financial Officer. Before I hand over, let me note a few items. On our website, amcor.com, under the Investors section, you'll find today's press release and presentation, which we will discuss on this call. Please be aware that we'll also discuss non-GAAP financial measures and related reconciliations can be found in the press release and the presentation. Remarks will also include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause future results to be different than current estimates. Reference can be made to Amcor's SEC filings, including our statement on Form 10-K and 10-Q for further details. Please note that during the question-and-answer session, we request that you limit yourself to a single question and then rejoin the queue if you have any additional questions or follow-ups. With that, over to you, PK. Peter Konieczny: Thank you, Tracey, and thanks to everyone for joining us as we review Amcor's fiscal 2026 third quarter results. As always, on Slide 3, we will start with safety, our #1 priority. The health and well-being of our colleagues remain a core value at Amcor, and that commitment will not change. In Q3, we continued to deliver industry-leading safety performance. 71% of our sites remained injury-free through the quarter. Our total recordable incident rate at 0.49 is a modest increase compared with last year's performance. This is not unusual after we acquire businesses, and we are pleased to see this key metric improve for the third consecutive quarter, following the Berry acquisition. Slide 4 highlights the key messages for today. First, I want to take a moment to highlight an important milestone. We've just reached the first anniversary of the combination between legacy Amcor and Berry. Reflecting on the past year, I'm genuinely pleased with the progress we've made on the initiatives we set out to achieve. The integration process itself went very smoothly. We kept our colleagues safe, maintained a strong focus on our customers and structured the organization around a robust leadership team, allowing us to quickly deliver on the synergy commitments we made. In addition, we were swift in identifying noncore businesses, and I'm happy to report that we're making substantial progress on those divestitures. We're navigating through a challenging and ever-changing environment, but it is clear that our uniquely positioned diversified global portfolio and the strength of our customer and supplier relationships have positioned us well. Our ability to stay focused on what we can control and execute effectively continues to drive resilient financial results. In the face of the Middle East conflict, securing supply and responsibly managing cost and pricing to counter inflation are key priorities for us, just as we've done successfully in the past. We have again taken swift action, and as such, we're not expecting the Middle East conflict to have any material impact on our Q4 earnings. We're confident in the underlying strength of our business, and that assurance comes from always putting our customers at the center of our decisions. Additionally, we're excited about the significant opportunities ahead as we work to realize the additional synergy benefits identified from the integration of legacy Amcor and Berry. Second, our financial performance in the third quarter was in line with expectations. Adjusted EPS of $0.96 per share was up 6% year-over-year. For the first 9 months, adjusted EPS increased 11% to $2.79 per share. Our ability to continue growing earnings through turbulent economic times reflects our focus on execution, synergies, cost and productivity improvements and responsible pricing actions while responding quickly and in a coordinated way as global market conditions abruptly change. I am proud of the way our teams around the world have come together again to face challenges with energy, agility and maturity. We are leveraging the unique position of Amcor's strengthened global portfolio to meet evolving customer needs. Our core portfolio continues to perform with another quarter of strong synergy capture and earnings stability in a modestly challenging volume environment. We are pleased to see a step-up in financial performance across our noncore businesses, which we anticipated and discussed last quarter. Third, we made important progress on our portfolio optimization actions with 4 additional sale agreements reached over the last 3 months, adding to the 2 agreements previously announced in Q1. The combined transaction value from these 6 divestitures is approximately $500 million. All cash proceeds will be used to reduce debt, consistent with the capital allocation priorities we have highlighted over the last several quarters. These actions sharpen our focus on higher return and higher growth opportunities across the $20 billion core portfolio as we continue to improve the overall quality, resilience and earnings profile of the business. Fourth, synergy delivery continues to accelerate, reaching $77 million in the quarter and $170 million for the first 9 months. Our proven integration capabilities, a strong synergy pipeline and consistent delivery at the upper end of expectations leaves us confident we will deliver $270 million of synergies in fiscal 2026, ahead of our initial $260 million year 1 target. And finally, we expect adjusted EPS to be in the range of $3.98 to $4.03 per share for fiscal year 2026, representing strong growth of roughly 12% at the midpoint, driven primarily by synergy realization. We have experience in successfully navigating supply disruptions and resulting inflation, and we do not expect the current conflict in the Middle East to have a material impact on Q4 earnings. The midpoint of our Q4 adjusted EPS implies more than 20% year-over-year growth and reflects the near full lap of the Berry acquisition on May 1. With input cost inflation significantly exceeding historical norms, our teams have acted fast, implementing responsible price and cost actions to maintain expected dollar earnings as we have in the past. In this environment, continuity of supply is a critical priority for our customers. And to meet that need, we have made choices about working capital management, primarily inventory through the fourth quarter. This will impact the timing of our previously assumed fiscal 2026 working capital improvements. And as a result, we now expect free cash flow to be in the range of $1.5 billion to $1.6 billion. Steve will talk more about the actions we have taken and the temporary impact on free cash flow in more detail shortly. Turning now to Slide 5 and financial performance for the third quarter and year-to-date. The business generated quarterly revenue of $5.9 billion, EBITDA of $892 million and EBIT of $687 million. This is significantly higher than the prior year as a result of the Berry acquisition, disciplined cost management, improved productivity and accelerating synergy benefits. Adjusted EPS increased 6% to $0.96 per share for the quarter, in line with our expectations. This includes benefits from tax-related synergies that lowered our effective tax rate, partially offset by a $25 million unfavorable impact related to the January and February winter storms in the U.S. And after funding $78 million of Berry transaction, restructuring and integration-related cash costs, free cash outflow was $39 million for the quarter. Today, the Board also declared a quarterly dividend of $0.65 per share, which is modestly up over the prior year and aligned with our capital allocation framework and long-term commitment to annualized dividend growth. Moving to Slide 6. Taking advantage of a unique opportunity to optimize the portfolio was one of the key commitments we highlighted after announcing the Berry acquisition. As mentioned earlier, we're making important progress and have now closed or reached agreements for the divestiture of 6 noncore businesses, representing approximately $500 million of combined annual revenue. A combined transaction value of approximately $500 million implies an average multiple of around 6x. In line with our previous commitments, all cash proceeds will be used to reduce debt and the net impact on EPS is not expected to be material. We're making good progress exploring alternatives for the remaining noncore businesses, including further encouraging discussions related to the North American beverage business. As mentioned, financial performance across the noncore businesses improved in the third quarter as expected, supporting our confidence that the remaining noncore businesses will be divested in line with our commitments. With that, I turn the call over to Steve. Stephen Scherger: Thank you, PK. Let me start on Slide 7 with an update on our synergy progress. Synergy delivery continued to accelerate in the third quarter, and we continue to expect to exceed our initial year 1 target of $260 million. In Q3, we delivered approximately $77 million of synergies. And for the first 9 months, synergies totaled approximately $170 million. We are confident that we will deliver $270 million in fiscal 2026 and $650 million cumulatively over 3 years. G&A and procurement synergies continue to ramp up as planned, and we have clear line of sight to achieving our targets of approximately $160 million in year 1 and approximately $325 million by fiscal 2028. We have started to see a modest contribution from operational synergies and the majority of these benefits are expected to contribute to earnings growth in years 2 and 3. Financial synergies were approximately $20 million for the quarter and $30 million for the first 9 months, reflecting ongoing optimization of our debt and tax structures. Finally, growth synergies continue to track well against our $280 million 3-year annualized revenue target with annualized revenue now exceeding $110 million. Third quarter earnings benefited by a few million dollars as a result of these wins, which are expected to ramp up further in the second half of calendar 2026. Moving to Slide 8, which highlights the performance of our $20 billion core portfolio. As a reminder, the core portfolio includes 6 focus categories: healthcare, beauty and wellness, proteins, liquids, foodservice and pet care. These represent approximately 50% of core portfolio sales. Focus category volume performance continues to exceed the portfolio average. These represent the most attractive, defensible and innovation-led markets where we hold leadership positions, where advanced solutions drive differentiation and where long-term consumer demand is most durable. From a performance standpoint, the core portfolio continues to outperform the total company. While overall volumes were similar, down approximately 1.5% in the quarter, the core portfolio maintained stronger EBIT margins of approximately 12.3%, reflecting favorable mix, a higher concentration of advanced solutions and the benefit of year 1 synergies. Volume and financial performance in the noncore business improved, as PK mentioned, with margins expanding meaningfully on a sequential basis. Year-to-date across the core portfolio, EBIT dollars were up approximately 4% relative to last year despite modestly lower volumes. As we simplify and focus the business, exit noncore businesses and invest in our focus categories, the overall growth profile, quality and resilience of Amcor will continue to improve. Turning to Slide 9 and the Global Flexible Packaging Solutions segment. Sales for the segment increased 29% on a constant currency basis, driven primarily by the Berry acquisition. On a comparable basis, volumes were down approximately 1.5%, an improvement of 100 basis points compared with Q2. In the developed markets of North America and Europe, volumes were down low single digits compared with the prior year and similar overall to the second quarter. Volumes across emerging markets were up, mainly reflecting mid-single-digit growth in Asia. By market category, volumes were higher in pet food and proteins, offset by lower volumes in healthcare and other nutrition. Adjusted EBIT was up 28% on a constant currency basis to $452 million, driven by $78 million of acquired earnings, net of divestitures. On a comparable basis, adjusted EBIT was up approximately 3% and adjusted EBIT margin of 13.9% reflects synergy benefits in line with our expectations. Excluding synergies, comparable earnings were broadly in line with the prior year. Turning to Slide 10 and the Global Rigid Packaging Solutions segment. Sales for this segment increased significantly on a constant currency basis, mainly as a result of the Berry acquisition. On a comparable basis, volumes were down approximately 1.5% in both the core and noncore businesses. This was modestly weaker sequentially due largely to the winter storm impact in the U.S. The business continued to deliver volume growth across emerging markets, mainly reflecting mid-single-digit growth in Latin America. By market category, volumes were higher in liquids, foodservice and beauty and wellness, offset by declines in healthcare and other nutrition. Adjusted EBIT was $276 million, up over last year on a constant currency basis, driven by approximately $175 million of acquired earnings net of divestitures. On a comparable basis and excluding noncore businesses, adjusted EBIT was broadly in line with the prior year. Synergy benefits were offset by an unfavorable $25 million impact from the winter storms in January and February. A concentration of plants in the most weather-impacted areas across the Midwest and Northeast resulted in a large number of lost production days. Adjusted EBIT margin, excluding winter storm impact, was approximately 13%, 100 basis points higher than the second quarter. Moving to free cash flow and the balance sheet on Slide 11. After funding $78 million of Berry transaction, restructuring and integration-related cash costs, free cash outflow for the quarter was $39 million, broadly in line with our range of expectations for the quarter and resulting in a first 9-month outflow of $93 million. Capital spending of $687 million is up compared with the prior year, and we continue to expect fiscal 2026 capital spending to be in the range of $850 million to $900 million. Adjusted leverage at the end of the quarter was 3.8x. This is aligned with our expectations and consistent with prior year sequential movements between the second and third quarters. Stronger fourth quarter free cash flow is expected to drive this metric down at fiscal year-end. Our commitment to an investment-grade credit rating, a strong balance sheet and a modestly growing dividend annually remains unchanged. Substantial annual free cash flow generation fully supports our capital allocation priorities. Turning to Slide 12. As PK stated, we are uniquely positioned and proactively mitigating the impact of the Middle East conflict. We are well positioned to support our customers through reliable supply and service. We have no operations in and minimal polymer sourcing from the region. Our broad global network and supplier base gives us important flexibility to source materials from different regions and suppliers and flex production locations. We also have the capabilities to quickly reformulate and qualify alternative structures. These factors, together with making a choice to hold more inventory than we previously assumed, help us ensure supply continuity for our customers. We have well-established pass-through mechanism in place, which function effectively in a business-as-usual environment. When conditions move outside normal operating ranges, additional actions can and should be implemented to fairly reflect higher cost in our pricing. Our teams have acted quickly to mitigate cost inflation with balanced and fair price actions. In prior cycles, this approach enabled us to successfully mitigate the impact of substantial inflation with very minimal earnings implications. Moving to our fiscal 2026 guidance on Slide 13. As PK highlighted earlier, we expect full year adjusted EPS to be in the range of $3.98 to $4.03 per share. This implies fourth quarter adjusted EPS growth of approximately 20% and will result in EPS growth of approximately 12% for fiscal 2026. Earnings growth will be driven primarily by synergy capture and strong execution. We expect fiscal 2026 free cash flow of $1.5 billion to $1.6 billion, including the impact of our decision to hold more inventory at higher costs. This compares with original guidance of $1.8 billion to $1.9 billion, which assumed a meaningful reduction in working capital in Q4. As supply conditions normalize, we expect to deliver the inventory and working capital improvements we previously anticipated, reversing the temporary timing impact we have now factored into our range. Taking into account updated earnings and free cash flow expectations, we now expect year-end leverage to be approximately 3.4 to 3.5x. Importantly, our commitment to deleveraging and to an investment-grade balance sheet has not changed. We remain confident in our ability to deliver significant and growing annual free cash flow, and we continue to see a clear pathway to operating within a 2.5 to 3x leverage range. Before handing the call back to PK, I would like to briefly highlight an announcement we made earlier today. Effective in 2027, we will transition our fiscal year-end from June 30 to December 31. We believe this change will enhance comparability with peers and simplify modeling for investors and analysts. Our first full calendar fiscal year will begin on January 1, 2027, and end on December 31, 2027. As part of this transition, we will have a 6-month reporting period from July 1, 2026, through December 31, 2026, and we plan to provide guidance for this transition period alongside our June 2026 Q4 and full year results in August. In addition, beginning in 2027, we will initiate the migration and consolidation of select corporate functions to a new U.S. headquarters in Miami, Florida, aligning resources more closely with our operating footprint. Switzerland and Australia will remain important parts of our corporate footprint as key hubs for our business. With that, I'll hand the call back to PK. Peter Konieczny: Thanks, Steve. To close, in spite of challenging market dynamics, Amcor is a uniquely positioned global packaging leader, and we are proactively mitigating impacts of the Middle East conflict. Execution remains disciplined and Q3 results were resilient and in line with expectations. Portfolio optimization continues to progress, sharpening our focus on higher value, more resilient end markets and improving the overall earnings profile of the business. Synergies are tracking well, and we expect to exceed our initial year 1 commitment. And with clear visibility to additional synergy benefits and a proven ability to navigate through volatility, we're confident in our outlook and the continued strength of our business. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Just going back to your comments on the Middle East impact on 4Q, which sounds sort of immaterial. Can you just give us a sense as to whether there'll be any sort of residual impact on the back half of '26 from a calendar year standpoint? And the reason I ask is, obviously, resin is up close to 100% in a very short period of time. And legacy Amcor had a pretty good track record of passing it through quickly, but Berry as a public company did have lags in their contract structure, et cetera. So just curious as to what's changed and how you've been able to mitigate the impact? Peter Konieczny: Thanks, Ghansham. This is PK. It's a good question. Let me provide a bit of background here. So first off, I think it's important for us to keep in mind that the collective new Amcor between legacy Berry and Amcor does not really have a lot of exposure to the Middle East. We have no operations in the Middle East nor do we have any employees, and we actually source very little resin from the Middle East. And actually, it's less than 5% of sourced resin from that region. So -- now we are operating in a global market, and therefore, we do have the 2 challenges of: one, keeping ourselves in supply and our customers in supply; and on the other hand, dealing with the inflation. Now you're asking sort of for the impact of inflation post the fourth quarter. The fourth quarter, we've essentially pretty much covered in our introductory comments. Here's the reality. First off, nobody knows what the inflation in the fourth quarter -- in the back half of the year is going to be like. We have a view on the fourth quarter, but there's lots of volatility out there. And I would just be speculating right now to throw an inflation number out there. And that's also important in terms of how to take the information on the fourth quarter. I'd be very, very careful and would suggest that nobody just annualizes that number because of the volatility that we're seeing. So I don't know what the inflation is. What I do know is the process that we are following in a very structured and disciplined way. And somewhere in our prepared comments, we said we didn't really have any impact of the Middle East on the third quarter. Financially, that is true. We had a significant impact in the third quarter from the Middle East in terms of our managerial activities that kicked into gear as we saw the Middle East crisis sort of develop. And the big efforts were on both sides, securing supply and then also going to customers and making sure that we would be able to offset the inflation. Now on that part, keep in mind that the combined business between Amcor and Berry roughly splits between 70% and 30% of contracted versus noncontracted business. The 30% is something that we handle through general price increases. So we're able to go to the market pretty quickly and recover that. On the 70%, we have a pretty good pass-through clauses, some of which have -- or I would say, generally, they have all become even better after we've gone through significant inflation periods in the past, recall '22, '23. But they're all designed for business-as-usual situations. Now what we're doing here, and that is across the whole portfolio is we're going to customers on the back of a collaborative approach. And this is driven by keeping everybody in supply, which is a significant concern across the whole value chain. We justify the additional cost that we have, and we're able to sit and come to conclusions in terms of relief, which is appropriate and matches the inflation and also appropriate in terms of the timing. That's sort of the way how we go about it, and we do that across the portfolio. Stephen Scherger: And Ghansham, it's Steve. Just to kind of follow on with PK. In terms of beyond Q4, our planning assumption is that our pass-through mechanisms and the relationships we have with our customers will continue to offset the cost environment. So on a Q4 basis, as we talked, no material impact, and that would be the same assumption as we look beyond Q4, given the mechanisms that are in place to offset either in an inflationary environment or if it were to revert to the other direction. So as you look beyond Q4, that's the assumption for a continuation of an offset. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: You talked about your inventories rising and your free cash flow moving down by about $300 million. And that's really a 1 quarter effect. I would imagine that your inventories have to be relatively higher over the next several quarters. So as a base case, should we also expect some kind of free cash flow penalty in your -- in the 4 quarters that follow the June quarter of 2026? Stephen Scherger: Jeff, it's Steve. I'll be glad to take a cut at that. I think relative to our prior guidance, which assumed an inventory reduction, which was what we were planning to do, you're absolutely right. We are maintaining inventory levels kind of volumetrically, if you will, and the cash flow implications are driven by the inflation on the inventory. And so that is the Q4 impact that we're sharing with you. Moving beyond Q4, I think it will depend, obviously, if the markets stabilize relative to supply chains and value, the cash flow implications could be modest on a move-forward basis. So I think it's probably a little unpredictable to determine whether that cash flow impact is -- continues to rise or kind of stabilizes as the supply chains stabilize. So I think I wouldn't necessarily assume that there's an ongoing cash flow headwind. I think it will depend upon supply chain normalization in the environment. Operator: Your next question comes from the line of Ramoun Lazar with Jefferies. Ramoun Lazar: Maybe if you can shed some light on how you're seeing the consumer through your customers, particularly given some of those recent cost impacts on the consumer. I guess maybe if you can talk us through how the quarter panned out, that would be useful? Peter Konieczny: I'll take that, Ramoun. I'll talk to the quarter first and then make a couple of comments on the consumers, if that's okay. So the quarter that we're referring to is the third quarter, obviously, which is the one that we're reporting on. And we made a couple of comments already, but I'll try to give it my spin here and summarize it. So the company was down 1.5% in the third quarter, and that is 100 basis points improvement sequentially versus the prior quarter. The 1.5% is equally split between the core and the noncore business. So the core was 1.5% down and pretty much on the same level as in the prior quarter. So the improvement we saw -- we've seen a substantial improvement in the noncore business in terms of volumes. They were high single digits down in the prior quarter, second quarter and now 1.5% down in the third quarter. So very pleased with that. And that actually has driven also a significant improvement in the financial results of the noncore business, which was expected by us and is important also in the context of the progress that we're seeing in terms of selling it. Now back to the volumes. If I double-click on that by volumes -- sorry, by geography, North America and everything that I'm now saying is just focused on the core business. So North America is a little weaker than it has been in the second quarter, and that is due to the winter storm situation that we've seen in January and then to a lesser effect in February and hit particularly the Rigids business. Europe is better than in the prior quarter sequentially, very low single digits down. And we've seen our emerging markets actually kick back in and come back to growth with mid-single-digit growth across both regions, LatAm and Asia Pacific. And final comment is that the focus categories in the core business outperformed the company overall by about 150 basis points. So they're collectively flat. So that's the commentary on the quarter. When I think about the consumer, look, we think the quarter -- third quarter was probably not that much impacted by the Middle East crisis and that the inflation has found its way through to the consumer. I think it will be prudent to assume that it will happen over time. The consumer, we've talked about it many times in prior quarters, is stretched as a result of that value seeking. The last thing that the consumer is looking for is additional inflation at this point in time. What I will say, though, is that our customers have performed actually quite well in the third quarter. When you take a look at their performance, it's encouraging. And there is also a continued commitment to supporting volumes across the customer base, which I find encouraging, and we'll have to see how that plays out. Obviously, again, that goes against a consumer that's already stretched, and we'll have to see that it plays out. Our best guess at this point in time is and that applies to the fourth quarter, at very high level, I would also say that about the second half of the calendar year would be that the market, the consumer will be down low single digits. That's sort of our high-level base assumption. Operator: Your next question comes from the line of Mike Roxland with Truist Securities. Michael Roxland: PK, you mentioned continuity of supply critical for your customers. So obviously, it's one of the reason you're keeping the inventory elevated. We've heard that from other companies during reporting season thus far. Coming at it from a different angle, have you been able to gain any share given your global presence and product availability? Peter Konieczny: Thanks, Mike. It's a great question. First off, I believe that we're pretty well positioned in terms of supplies. And the reason for that is that we have a broad supply network across the globe. I was making a comment earlier that we buy very little from the Middle East region, less than 5%. Another reference point is that we buy about 65% of our resin from North America or in North America, where the supply chain obviously is more stable. We do have a global procurement team, obviously. We have the opportunities to swing volumes between suppliers because we're, in many cases, qualified across different formulations. And even when that's not the case, we have an excellent technical capability in order to get to qualifications quickly. So that is one of -- that is probably the core -- those are the core reasons why we feel good about our supplies right now. While I will not hide from you that it's -- we're laser-focused on it because we want to keep our customers, obviously, in supply. Now to the question of share gain, it's probably a bit early still. The only thing I can tell you is that in some cases, we have heard -- we've had conversations with customers that came to us and said, "Hey, can you help out because we are seeing some issues with incumbent suppliers in some cases?" And we obviously try to help where we can, and that gives you an indication. But I will say, overall, it's still early. Operator: Your next question comes from the line of John Purtell with Macquarie. John Purtell: Steve, thanks for the earlier comments, and PK, as well. Just had a question on sort of the gearing, Steve, and just how you see it profiling over the next sort of 12 months. In particular, sort of what are the key drivers that you see to drive that gearing back to target? Stephen Scherger: Yes. Thanks for that, John. I appreciate you raising that. As we shared, a modest uptick in our year-end leverage from our original guidance, a range now 3.4 to 3.5 pretty well chronicled in terms of the modest movements up there relative to the original guidance. It's a combination of modestly less EBITDA from the original guidance, given our volumes have been down 2% versus an original guidance, assuming more flattish and then the impact of the inventory, the $300 million. So that's a bit of the march towards the end of the year. I think very importantly, our commitment to our investment-grade rating, our commitment to deleveraging back to 3x or below is absolute. And given the actions that we're taking, both in the form of the divestitures that we've completed, those which we expect to complete as well as continued synergy capture as we look out over the next 12 to 18 months, we can see line of sight back towards that 3x leverage range as we look out towards really fiscal -- the new fiscal and calendar 2027. So while there's some short-term temporary impacts, it really hasn't altered our conviction and line of sight to deleveraging using our cash flows as well as our divestiture cash inbound to move ourselves towards that 3x and below. And I think the new fiscal calendar 2027 will be an important year for that inflection. Operator: Your next question comes from the line of Matt Roberts with Raymond James. Matthew Roberts: We might have a new fellow Floridian soon. So welcome. PK, the color you gave on volumes previously to a question just a minute ago, could you maybe [Technical Difficulty] the March exit rate looked versus what you saw in April? Was there any evidence of prebuying in certain markets given those cost increases that you discussed? And then additionally, maybe on nutrition and foodservice, are you seeing any changes in the promotional environment that could help drive sequential improvement? Or just what's driving [Technical Difficulty]? Peter Konieczny: Yes. Thanks, Matt. The line was a bit choppy there, but I think I got it all. So first off, you asked for the exit volumes in March and what we're seeing in April. Look, I think I'm on record. I don't really like to comment too much on short-term volume performances of the business or anything that goes back to a month, I think, is very risky to read too much into it. What I will tell you is on the back of what I mentioned earlier, too, we're expecting the fourth quarter to play out pretty much in terms of volumes just like what we've seen in the third quarter. So that's our assumption. I will tell you that as we sit here today and we look back to April, April looked better than that. And that doesn't change our expectations at this point in time, but it's just a fact. And when you ask me where that comes from, I'm not across it enough at this point in time to really give an indication here in terms of whether our customers are trying to increase stock a bit on the back of the overall situation. It could be the case, but I don't think it's a lot. I will also remind everybody that the supply chain is tight. So whenever they're asking these questions, you have to make sure that you're actually in the position to respond to that and to satisfy that request. So that's the situation on March and April. I think at the end, you also spoke about promotional activities and in general. I made a comment earlier, and I said we're very encouraged with what we're hearing from our large customers in their own results, earnings results. We hear what you hear and the commitment to supporting their volumes continues to be very solid. And that, I guess, will also -- that will translate in different initiatives, one of them being the promotional activities. So we were carefully listening to that and wondering how they deal with it in terms of making choices between protecting margins and driving volumes. But I think we are in a position where we see more consistency on that. Operator: Your next question comes from the line of George Staphos with Bank of America Securities. George Staphos: Appreciate the details. A lot of my questions have already been answered. My question, I want to go back to how you and your customers are mitigating the resin effect. On the additional pricing, PK and Steve, that you're contemplating with customers. Are these really an aggregation of one-off discussions? Or are you triggering any extraordinary clauses in your contracts, so it's a little bit more mechanical than negotiation? And how much does the extra inventory that you've built in not only allow for supply continuity, but maybe act as a buffer against the higher resin pricing and allowing you to, thus far from what we're hearing, Steve, manage second half -- or excuse me, the stub year relatively consistently with what you're seeing in the fourth quarter, which is not that big of an effect? Peter Konieczny: Thanks, George. I'll take the first part of your question, and then maybe Steve handles the inventory part, if that's okay. You were going back to the dynamics that we're seeing currently in dealing with our customers in order to get offset for the inflation. Look, as I said before, 30% is not contracted. So that's not the issue. 70% is contracted. In that 70%, we have a few contracts where we have opening clauses, which we can refer to given the situation that we're currently seeing. And this is all with a common understanding that this is not business as usual, what is happening. But it is an exception rather than rule. The other conversations, I go back to what I said earlier, they are conversations on a very collaborative approach with the customers where everybody understands we're seeing significant inflation hitting the business really hard in a very short period of time. We believe ourselves, we have made it very clear and everybody understands that in our business, we need to have an alignment on the commercial side between the buy and the sell side. And therefore, that requires support and help from our customers in order to keep us in business and make sure that we can supply them going forward. That's really the common interest driver that gets us to the table. And this is not a one-off conversation. It is a -- you can call it a one-off and it's not a one-off because as the situation changes with regards to inflation, we will have a continued dialogue with the customers in order to adjust ourselves to the market side of our inputs. So everybody understands it's not a one-off. It's not a destination here. It's a journey. So with that said, Steve, if you want to comment on the inventory side? Stephen Scherger: Yes. Thanks, PK. I think, George, it's a good question just relative to our inventory. As I mentioned earlier, we're not building necessarily volume of inventory. We're more maintaining what we had as opposed to the guidance of it declining. And obviously, we're carrying it at a higher cost. But to your point, what it does allow us to do because we had ample inventory at a volume level is to mitigate some of the timing of some of the cost increases. And those get factored into the collaborative conversations that PK was referencing with customers. We're working to be just very fair and very reliable and very consistent on servicing our customers and having the pricing that we execute with them, be in line with the actual realities of how pricing is coming through the business. As you indicate, some of the inventory that you have helps to mitigate. It also helps to mitigate some of the pace of the pricing and our intent for that to continue to be offset as we see movements. So it does actually help with those negotiations, those discussions with customers because we're able to mitigate some of the abruptness of what we're seeing on the cost side, and it's all part of that good collaborative dialogue with customers to help keep them in supply. Operator: Your next question comes from the line of Nathan Reilly with UBS. Nathan Reilly: Just a question about the synergy target as we roll into '27. Obviously, you've got the challenges in relation to tight procurement and supply chains. And of course, I guess, a more uncertain consumer environment just given the volatility and the potential for inflation. Can you just talk to me about how that impacts your ability to deliver on the procurement and also the growth synergy targets into FY '27? Peter Konieczny: Nathan, it's PK. I'll kick off here, and then I'll see if Steve wants to build. So first off, taking a step back, we reconfirmed our target of $650 million synergies over a period of 3 years, and we're guiding to a year 1 result in synergies, which exceeds our expectations of $270 million. That number in year 1 has a significant contribution of procurement in there. Otherwise, we would have not gotten there. And that was delivered in a situation where we are facing where we were facing the supply side. And we have many conversations on these calls before that with facing a pretty low margin situation on the supply side. As we go forward, particularly with regards to procurement, we're going to see a different situation. A lot of inflation is happening. I would assume that the margin situation on the supply side is going to somewhat improve. And we just believe that we will continue to be able to extract value. And that is on the back of certain characteristics that Amcor now has that we had in the past and that we will have going forward. That is we are a big buyer. We're a global buyer, and we're important to our suppliers. Therefore, the confidence in extracting synergies from the resin side has not changed. I will also say, and this is important for calibration, we've said this many times, resin is a portion of our procurement spend, right? We have overall $13 billion procurement spend, $3 billion of that is indirect. And from the remaining $10 billion, about half of that would be resin. So you have the other half is non-resin direct spend from procurement. Overall, we are pretty confident that we can deliver those numbers. Stephen Scherger: Yes. Nathan, just to add to PK's comments briefly. I think we certainly remain committed to the year 2 synergies, which are $260 million in year 2 coming off of the $270 million that we're committed to here in year 1. And so our line of sight to that remains positive and consistent. And then if you just kind of take it to what will be the stub year as was referenced earlier, we don't see anything that would change having half of that kind of roll through -- roughly half of that roll through during that 6-month upcoming period of time. So no change to our commitments and no change to the relative timing overall. Operator: Your next question comes from the line of Anthony Pettinari with Citi. Anthony Pettinari: I just had a quick question on the noncore portfolio. During the fiscal year, did the number or the composition of businesses that you consider noncore change? Did you sort of add or remove any businesses from that group? And then did the Middle East conflict, has it impacted time line or discussions for the divestitures? Peter Konieczny: Yes. Thanks, Anthony. It's a great question. The answer to your first question is, has the portfolio of the noncore businesses changed? The answer is no. And we never intended to do that. Just a few words on this. Look, we did a strategic assessment of our whole portfolio after we combined Amcor with Berry, and we had a number of parameters that we had on the table. We looked at growth, margin profiles, cyclicality of the businesses, industry structure, just to mention a few, and there were a couple of others. But those were strategic reviews that we had. And therefore, we singled those businesses out and we said, look, we do not -- we believe that there's better owners for that business, and we want to focus elsewhere. So that gives the whole process a certain solidity, which doesn't make it sort of erratic or opportunistic when you see a market dislocation like as what we're seeing currently with the Middle East crisis, right? So the perimeter has always been the same. We're very encouraged with the progress that we're making. We announced a number of other agreements over the last 3 months, which is great. And we're also encouraged with the conversations that we have around the North American beverage business, which is where we do not have an agreement yet and some adjacencies to that business in the specialty containers sort of space. It's encouraging conversations, particularly because these businesses are on a very nicely improving trend. We said that we saw improved performance in the third quarter, which was certainly driven by some relative volume performance sequentially, but even more so by us getting those businesses back on a very productive footing. And I have a lot of time for the teams that have done an excellent job in getting that done. Remember that we had a number of customer interactions that also addressed some challenging margin situations, and we have made good progress with that, and that's what you're seeing right now. So that has helped the business in the third quarter to perform better. We expect even more so sequentially of profitability in the fourth quarter. So in terms of timing, I cannot be specific around that as you would expect me to, but we're pretty encouraged that we will be able to get that done. Stephen Scherger: Yes, to your question, Anthony, and to PK's point, our actual performance in the North American beverage perimeter, that is the component of that. We're still working on a sale process. The actual performance financially was in line with prior year and margins were in line with our expectations. That was a good outcome and it's probably the most relevant component of the sale process, nothing that really is impactful relative to the Middle East conflict. It's more around the improvement in the performance year-over-year EBIT in line with prior year. Operator: Your next question comes from the line of Hillary Cacanando with Deutsche Bank. Hillary Cacanando: So you're making great progress on your synergy targets. Could you go over maybe some example of growth synergies where you were able to win a new contract because of a combined product using both Amcor and Berry's products? I would love to hear that. Peter Konieczny: Yes. Thank you, Hillary. Look, we have made really good progress on the growth synergies. Let me just recalibrate as we are on a year-to-date basis. So since we've had the acquisition, we have been able to close deals now up to $100 million annualized. Those businesses are ramping up, and they have started to impact the bottom line in the third quarter with a couple of million. That's perfectly as we expected. We got out of the chute pretty quickly here because we were expecting $280 million of growth synergies over 3 years, and we're essentially now at $110 million. So we made really good progress. The growth synergies, again, they're driven by the fact that we are able across the product portfolio, which is very complete now between Amcor and Berry to sell systems rather than components. We have very complementary technology footprint. We have additional capacity on the table. So these are just some examples. Now in terms of in terms of examples, there's various ones here. I wasn't quite expecting the question, but I want to go back to one that I've highlighted on an earlier call, global pharma customer actually in line with the oral dose GLP-1 drug was looking for different packaging formats for Europe and North America. In Europe, it was a blister format. In North America, it was a container format -- a rigid container format. So almost an opportunity that was made for the combined Amcor-Berry. We had the opportunities. We had the product. We were multiregional, and that has led to the closing of a good contract. This is just one example. There's many others out there, happy to follow up offline, but that gives you a feel. Operator: Your next question comes from the line of Gabrial Hajde with Wells Fargo Securities. Gabe Hajde: Lots of questions. But I'm curious on the healthcare and nutrition, which I think are focus areas for you all. Both, I think, were called out as being areas of weakness. And I think health care specifically was intended to improve kind of beginning in the middle of 2026. Can you comment on that? Peter Konieczny: Yes. Gabe, I'll give you some more color here. So I think what Steve was saying was, look, within the core business, we have our 6 focus categories. They actually outperformed the overall core business, right? And they were flat while the overall company was 1.5% down. So -- and the focus categories, which make up about 50% of the business, they include certain categories in nutrition, and then they also include healthcare. I'm not sure if we mentioned it on the call yet, but 5 out of the 6 focus categories were actually either flat. There was one that was flat. The others were low to mid-single digits up. And we had a bit of a weaker situation in healthcare. And just maybe commenting on healthcare because you specifically asked. I continue to believe that healthcare is a great end market category for us and a great business. We've had a number of positives also in the third quarter. We actually had wins with several pharma customers. We have a great partnership entered with a generics player around sustainability. We opened a coating facility in Malaysia in April with the first air-knife coating technology, which we've made a separate announcement on. So all of that is good. The volumes in healthcare were slightly down, but we have good positive mix. And when you go to the volumes, the U.S. winter storm impacted a few sites in terms of both our production, but also the customer pull-through. And when you look to our customers, you will see that we also had a bit of a weaker cold and flu season. And then in terms of outside of the focus categories, when you look at what's driven the rest is the other nutrition category, where you see more discretionary categories down. We've spoken about some [ natural ] confectioneries in the past. That's a market and also a customer sort of driven issue and then some weakness on the fresh and frozen food. And we also see some, I would say, generally trends to value-oriented essentials in that category. So that should give you a feel. But it's not that overall Nutrition is down. It was a particular segment of Nutrition outside of the focus category. So I hope that makes sense. Operator: Your next question comes from the line of Keith Chau with MST. Keith Chau: I can go back to the leverage point and maybe one for Steve. At the end of the year, the guidance is for a leverage ratio of 3.4 to 3.5x. Typically, heading into the September quarter, your leverage goes up by, call it, anywhere between 0.3 and 0.4x. Given you'll finish the year at an elevated level already, are you expecting to see that step up? And given the higher working capital at the moment and the investment in working capital, should we see an over recovery of cash in calendar year '27? Stephen Scherger: Yes. Thanks for that. I think the recovery of the cash will definitely occur once we see supply chains normalize and kind of see some of the consistency rather than a little bit of the volatility. The timing of that, of course, will be dependent upon when we actually see that occur. But the probabilities of it happening, certainly -- as you look out of calendar '26 into calendar '27, we would certainly see that as the likely case. But there's, of course, some unpredictability to that if the supply chains generally have volatility in it. But I think your planning assumption, our planning assumption, that would be relatively consistent with that. Relative to this fiscal year-end leverage being modestly up, we'll see some inflection, as you indicated, kind of in a normal, I'll call it, Q1 of the stub period, but we wouldn't expect to end the now stub period with leverage necessarily above where we're finishing. And then as we mentioned earlier, we would expect real improvement on the leverage as we look into the fiscal and calendar 2027, particularly given the things that will be very focused on for us, synergy capture being at the levels that we've expected and would see improvement both at the EBITDA and EPS level from synergy capture during that period of time. Obviously, our price and cost relationships will maintain themselves as neutral for today's conversations. And so no, I think you'll see really some very positive deleveraging as we look out of calendar '26 and into now calendar and fiscal '27. It's important to us and our commitment to deleveraging as we've previously discussed and highly committed. Operator: We have reached the end of the time we have for the Q&A session. I will now turn the call back to Peter Konieczny for closing remarks. Peter Konieczny: Yes. Thank you, operator. Thank you again for joining us, everyone. I'm sorry, we could not get to everyone today. But I -- and we certainly appreciate the interest, and we hope to see you soon. Thank you very much. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, and welcome to Enact's First Quarter Earnings Call. Please be advised that today's call -- conference call is being recorded. I would now like to hand the conference over to your first speaker, David Kohl, Vice President of Finance. You may begin. Daniel Kohl: Thank you, and good morning. Welcome to our first quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer; and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions. The earnings materials we issued after market close yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today will include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation and our upcoming SEC filings on our website. With that, I'll turn the call over to Rohit. Rohit Gupta: Thank you, Daniel. Good morning, everyone. Enact delivered a strong start to 2026 amid a volatile rate environment. This performance was underpinned by the disciplined execution of our strategy, resilient credit performance and our clear focus on long-term value creation. For the first quarter, we reported adjusted operating income of $172 million or $1.21 per diluted share. Adjusted return on equity was 13%, and we generated strong new insurance written of $13 billion, resulting in total insurance in force of $272 billion. The housing market remained dynamic with mortgage rate volatility impacting mortgage activity in the quarter. Overall, purchase application volumes followed seasonal trends, while lower rates early in the quarter supported elevated refinance applications. Additionally, recent loan vintages with lower embedded equity have contributed to increased mortgage insurance penetration in refinance activity. Conversely, as rates increased during March and April, the refinance trend slowed, but we have seen the impact of the spring selling season on purchase applications. Against this backdrop, persistency remained elevated at 80% in the first quarter. Additionally, across our portfolio, 58% of loans in our book have rates below 6%, providing continued support for elevated persistency. While the macro environment remains uncertain and inflationary pressures accelerated as gas prices have risen, the consumer continues to show resilience. Overall, labor market conditions remain supportive and credit performance remains healthy. Importantly, we are not seeing any meaningful impact within our credit portfolio and overall credit trends remain in line with our expectations. We will continue to monitor these dynamics closely and believe that the underlying credit fundamentals of our business remain strong. In fact, our Insurance-in-Force portfolio remains resilient with a risk-weighted average FICO score of 746, risk-weighted average loan-to-value ratio of 93% and layered risk was 1.2% of risk in-force. Pricing remained constructive in the quarter, and our dynamic risk-adjusted pricing engine, Rate360, is enabling us to prudently target the right risk for the right price at a granular level with changing market conditions. Turning to losses. Total delinquencies were down 1% sequentially, with new delinquencies down 1% and cures up 13%, both consistent with seasonal trends. Our strong cure performance was driven by favorable credit trends and our effective loss mitigation efforts. This drove a net reserve release of $39 million in the quarter, and our resulting loss ratio was 15%. Credit performance continues to be strong, and we are well reserved for a range of scenarios. Turning to expenses. We delivered another quarter of prudent expense management, putting us on track to achieve our 2026 expense guidance range of $215 million to $220 million, excluding reorganizational costs. We continue to execute against our capital allocation priorities, including maintaining a strong and resilient balance sheet to support existing policyholders, investing in our business to drive organic growth and operating efficiencies, funding attractive new business opportunities and returning excess capital to shareholders. At the end of the quarter, our PMIERs sufficiency ratio was 162%, providing significant financial flexibility and our credit and investment portfolios are in excellent shape. Our strong capital position is further reinforced by our CRT program and the backing of our undrawn credit facility. We continue to execute on our growth and diversification efforts. Our growth efforts in Enact Re continued to deliver consistent and strong performance in the first quarter, generating attractive risk-adjusted returns. Enact Re remains a long-term growth and diversification opportunity that is both capital and expense efficient. Our strong performance supported robust capital returns to our shareholders. During the first quarter, we returned $123 million through share repurchases and dividends and are pleased to announce that our Board of Directors approved a 14% increase to our dividend from $0.21 to $0.24 per share, which also marks the fourth year that we have increased our quarterly dividend payment. We continue to expect to deliver capital returns in 2026 of approximately $500 million. Turning to recent housing policy announcements. We applaud the FHFA and the GSEs for their thoughtful approach to credit modernization through the announced limited rollout of VantageScore 4.0. Enact supports ongoing efforts to modernize credit evaluation in ways that responsibly expand access to sustainable homeownership. We remain committed to supporting our customers and to staying operationally aligned as the GSEs advance this initiative and provide additional information. Overall, we have had a great start in 2026 that positions Enact for long-term success. I want to thank our entire team for their relentless commitment and outstanding performance. With that, I will now hand the call over to Dean. Hardin Mitchell: Thanks, Rohit, and good morning, everyone. We began 2026 with another quarter of strong results. Adjusted operating income was $172 million or $1.21 per diluted share compared to $1.10 per diluted share in the same period last year and $1.23 per diluted share in the fourth quarter of 2025. Adjusted operating return on equity was 12.9%. A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release. Turning to revenue drivers. New insurance written was $13 billion in the first quarter, down 11% sequentially and up 30% year-over-year as rate trends and seasonal dynamics played out across the period. Persistency was 80% in the quarter, flat sequentially and down 4 points year-over-year on lower prevailing mortgage rates. While rates were volatile over the quarter, only 21% of mortgages in our portfolio have rates at least 50 basis points above March's average of 6.2%, providing support for continued elevated persistency. Primary Insurance-in-Force was $272 billion in the quarter, down $1 billion from the fourth quarter of 2025 and up $4 billion or approximately 2% year-over-year. Total net premiums earned were $243 million, down $3 million sequentially and down $2 million year-over-year, primarily driven by higher ceded premiums. Our base premium rate of 39.4 basis points was down 0.2 basis points sequentially, in line with our expectations. As a reminder, our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter-to-quarter. Our net earned premium rate was 34.3 basis points, down 0.5 basis points sequentially, driven by higher ceded premiums. Investment income in the first quarter was $71 million, up $2 million or 3% sequentially and up $8 million or 12% year-over-year. Our new money investment yield of 5% contributed to an increase in the average portfolio book yield of 4.5% for the quarter. While we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup realized losses through future higher net investment income. Turning to credit. We continue to see strong loss performance across our overall portfolio. New delinquencies decreased sequentially to 13,600 in the quarter from 13,700 in the fourth quarter of 2025, in line with expected seasonal trends. Our new delinquency rate for the quarter remained consistent with pre-pandemic levels at 1.5%, flat from the fourth quarter of 2025 and an increase of 20 basis points from the first quarter of 2025. Additionally, our cure rate increased sequentially 3 percentage points to 54% and remains well above pre-pandemic levels. We maintained our claim rate on new delinquencies at 8%. Total delinquencies in the first quarter decreased sequentially to 24,700 from 24,900 and the delinquency rate was flat sequentially at 2.6%. Losses in the first quarter of 2026 were $37 million, and the loss ratio was 15% compared to $18 million and 7%, respectively, in the fourth quarter of 2025 and $31 million and 12% in the first quarter of 2025. The current quarter reserve release of $39 million from favorable cure performance and loss mitigation activities compares to a net reserve release of $60 million, inclusive of our claim rate reduction from 9% to 8% in the fourth quarter of 2025 and $47 million in the first quarter of 2025. Operating expenses in the first quarter of 2026 were $49 million and the expense ratio was 20% compared to $59 million and 24%, respectively, in the fourth quarter of 2025 and $53 million and 21% in the first quarter of 2025. As a reminder, our expenses are typically higher in the back half of the year. For full year 2026, we continue to anticipate operating expenses in the range of $215 million to $220 million, excluding any reorganization costs as we prudently manage our expense base balancing our ongoing focus on driving further efficiencies across the business with continuing to invest in our growth initiatives. We continue to operate from a strong capital and liquidity position, underpinned by our robust PMIERs sufficiency and the successful execution of our diversified CRT program. Our PMIERs sufficiency was 162% or $1.9 billion above PMIERs requirements, and our third-party CRT program provides $1.9 billion of PMIERs capital credit at the end of the first quarter. Turning now to capital allocation. During the quarter, we paid out $30 million or $0.21 per share through our quarterly dividend and bought back 2.3 million shares at an average price of $40.66 for $93 million. Through April 30, we have repurchased an additional 0.7 million shares for $30 million as well. Yesterday, we announced a 14% increase to our quarterly dividend from $0.21 per share to $0.24 per share payable June 18, 2026. The increased dividend is consistent with our commitment to returning capital to shareholders and reflects the continued strength of our financial position and confidence in our business. As Rohit mentioned earlier, our 2026 total capital return guidance remains unchanged at approximately $500 million. As in the past, the final amount and form of capital returned to shareholders will ultimately depend on business performance, market conditions and regulatory approvals. Overall, we are pleased with our start to 2026 and believe we remain well positioned to prudently manage risk, maintain a strong balance sheet and deliver solid returns for our shareholders. With that, let me turn the call back to Rohit. Rohit Gupta: Thanks, Dean. Our mission to responsibly help more people achieve the dream of homeownership guides everything we do. Looking ahead, we remain encouraged by the long-term fundamentals in the housing market and are confident that Enact's strategy and durable business model position us to generate compelling performance and attractive returns while continuing to navigate a dynamic operating environment. We appreciate your interest in Enact and your continued support. Operator, we are now ready for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Bose George with KBW. Bose George: So just wanted to start on credit. Credit looks solid. I'm just curious if there are markets where you're keeping an eye on in terms of home prices and have you had to adjust anything in terms of pricing or your exposures based on home price expectations? Hardin Mitchell: Yes, Bose, this is Dean. Thanks for the question. I'd agree with your general assessment at the macro level, we think overall credit performance remains very strong, both in terms of delinquency development and cure activity. And as you would expect, we continue to assess performance across borrower loan attributes. We really haven't seen any material deviation from our pricing expectations when we set price and ultimately onboard risk. That doesn't mean that there aren't differentiations across different attributes. And certainly, your question about geographies is on point. In terms of geography, there are areas where housing supply has increased and home prices have moderated or even declined in some parts of the country. We've called out the Sunbelt and particularly markets like Florida and Texas as areas where this dynamic is going on. There's other geographies, obviously, where housing supply remains low and home prices continue to appreciate. The Northeast corridor is a good example of that. I think in terms of how we handle that, just as a reminder, inside our proprietary pricing engine, Rate360, we have the ability to price across over 300 metropolitan statistical areas, and we price based on our view of the market's future home prices. So what that means is we charge incremental premium when we feel markets are more likely to pull back for the higher risk of the potential for claim, and that's really aligned with our principle of the right risk at the right price. So the bottom line, from my perspective, Bose, is while there are differences in home prices across geographies and they do affect performance. We really haven't seen performance differ from our pricing expectations in any material market. And again, we still believe we've onboarded the right risk at the right price across geographies based on performance to date. Bose George: Okay. Great. And then actually switching over to the VantageScore rollout. Actually, a couple of things there. One, since PMIERs incorporates FICO into setting your capital standards, does PMIERs have to be revisited as part of this whole process as well? And then how do you -- when you're sort of providing mortgage insurance, make the adjustments since, I guess, FICO is kind of the key driver for you guys as well, I would think. Rohit Gupta: This is Rohit. So thank you for the question. Absolutely, as you mentioned, that PMIERs on classic FICO is the foundation of how we think about one of the pricing regimes that governs our returns. So just given that fact, as we think about Vantage, I first want to say that, as I said in my prepared remarks, we are fully supportive of initiatives that qualify more home-ready consumers to prudently get into homes. And from an implementation perspective, we have been working very constructively with the FHFA and the GSEs to be operationally ready and we stand ready today to operationally implement VantageScore 4.0. As we think about the next step, I think it's items like PMIERs where we just need further guidance, and we are waiting for GSEs to provide that guidance and look forward to actually serving the market as that becomes available. And our broader mindset, as we have talked about our risk appetite and the way we price is to always have this principle of charging the right price for the right risk at a very granular level. So aligned with that intent, as we get PMIERs for VantageScore 4.0, we would basically take that PMIERs guidance and incorporate that into our return calculation for loan cohorts across our Rate360 engine, and that would generate pricing for a VantageScore loan versus a classic FICO loan. And down the road, as FICO 10 gets rolled out, our mindset would be the same. So essentially, the intent here is to support these initiatives, but at the same time, charge the right price for the right risk across any score that is coming to us from lenders. Operator: Our next question comes from the line of Mihir Bhatia with Bank of America. Mihir Bhatia: I wanted to start with just on credit and the delinquency rate expectations going forward. Just any comments on that, just how you expect delinquency rate to trend? Is there upward pressure from portfolio seasoning, et cetera? So just things we should be keeping in mind as we build our models and think about the credit outlook? Hardin Mitchell: Yes. Mihir, it's Dean again. Thanks for the question. Very good question. I think in terms of delinquency rate, it's a little bit hard to project as there's a lot that goes into that. It's going to be dependent upon, of course, the macroeconomic environment and changes in its potential trajectory would have a meaningful impact on delq rate. But it also is impacted by things like NIW levels. So to the extent we write more new insurance written, that could suppress what would otherwise be the delq rate. And then, of course, it's impacted by claim timing. And as we've seen this quarter and we've seen in prior quarters, that's been de minimis to date. I think that makes it difficult to predict with precision. At the same time and trying to be responsive to your question, I think given some of the aging that we're seeing in the newer purchase heavy books, those books having slightly higher risk attributes, LTV, DTI and a little bit lower FICO. I think it's reasonable to expect the delinquency rate could tick up from the Q1 levels. Again, got to be caveated with all things being equal, macroeconomic, NIW claims and et cetera. But I think it could tick up from the 2.6% that you see in the first quarter. Mihir Bhatia: Got it. And then just if you talk about the premium yield expectations for the rest of the year? Just any call-outs we should keep in mind even quarter-over-quarter. And then maybe just also use the opportunity to talk about competitive intensity that you're seeing. Hardin Mitchell: Yes. So I'll start that off, Mihir, on base premium rate and turn it over to Rohit on the competitive environment. So as we've talked about in prior quarters, base premium rate is affected by a lot of different variables NIW levels, NIW price. This quarter, very importantly, the mix of purchase and refi, which obviously impacts NIW price and other things such as lapse, where that lapse is coming from and things that you might not even consider in the calculation of base premium rate like delinquency premium accruals. I think at the end of the day, we've guided towards a flattish base premium rate over the quarter, acknowledging that -- over the full year, rather, acknowledging that quarter-to-quarter, you could see some volatility. Some of the volatility that you saw on the sequential quarter basis is what I mentioned, the refi purchase mix. We had an increase in refi mix this quarter. I think if we had normalized that to the prior period, you would have seen that [ 2/10 ] of a basis point decline be something closer to [ 1/10 ] of a basis point decline. So there is going to be quarter-to-quarter volatility, but I think we're still very comfortable with the guidance of flattish base premium rate over the course of the full year 2026. Rohit Gupta: Yes, Mihir. The second part of your question in terms of market dynamics, I would say, as I said in my prepared remarks, we found pricing to be attractive in the quarter. We believe the market remains constructive. And we like the NIW we wrote almost $13 billion of NIW we wrote in the first quarter and the returns we are getting on that NIW. I would say that we continue to price for some uncertainty, economic uncertainty in the market in our pricing. As Dean said in his previous response, when it comes to geographical markets or some risk attributes, we continue to make sure that we are getting adequately paid for the conditional view that we have down to each geographical area. So I hope that provides you some kind of construct and color on the market. Mihir Bhatia: No, that's helpful. And then just the last question, just I wanted to touch on Washington, specifically on the GSEs. Are you seeing any shifts in GSE behavior? I know you talked about Vantage a little bit, but just in general, any shifts in the housing credit GSE behavior that could affect MI eligibility or volumes? Just anything we should be keeping an eye on? Rohit Gupta: There, I would say at a macro level, nothing that would actually think of us changing the MI volume or MI penetration. I would say, while the market size numbers are still not finalized, we actually believe that there was a little bit of an uptick in MI penetration in Q1 -- in the Q1 NIW, so [ asserted ] loans, and that was driven by the GSE execution in Q1 being better than FHA execution and that benefiting the MI industry also. But I would say, outside of that, from a policy perspective, GSE risk appetite continues to stay relatively stable. GSEs continue to look at loan performance, credit characteristics and continue to make kind of minor adjustments to their appetite as they always do, but nothing beyond that in terms of any meaningful changes to report. Operator: Our next question comes from the line of Rick Shane from JPMorgan. Richard Shane: Look, we've had, in the past couple of quarters, a few windows of lower rates. And obviously, at some point, we all expect rates to fall, though that seems to be getting pushed out. I'm curious what insights you can gather from those windows in terms of what we should anticipate for activity. Obviously, we see refis pick up. But I'm curious how that impacts the risk within the portfolio? Are there certain cohorts either that are riskier or less risky that are refinancing at faster rates during those windows? And what types of purchase loans are you seeing? Are they in sort of your risk spectrum? I'm curious to think about what we might see going forward when we get into a real lower rate environment. Rohit Gupta: Sure, Rick. This is Rohit. I'll get started and then Dean will chime in, in terms of adding color. So I would say a very good point in terms of we have had a few refi windows, as you called it, in the market and those refi windows, although they were short, they've given us insights into how borrower behavior and lender behavior has worked in the last 6, 7 months. I would say these windows have primarily been in time frames when the purchase market just seasonally is not expected to be super large because that's not when people are planning to buy homes. So we have seen, obviously, more reaction from the refinance part of the market. And what I would kind of share with you is the activity has been very much in line with expectations that the books that were more in the money during those windows, so you would expect post 2022 midyear books to be more in the money when rates fall because July 2022 onwards, we've had higher rates. So consumers who originated their loans in that high rate environment are more likely to refinance when the rates come down to closer to that 6% level. So that's exactly what we have seen both in Q4 and in Q1 that when rates come to that level, we basically see consumers -- lenders and consumers take advantage of those short refi opportunities to get into a better economic condition. And I would say the impact on lapse has been on those books. So '23 book, 2024 book have been the ones that actually see more lapse. From a risk attribute perspective, as Dean mentioned earlier, those books do have more purchase activity originally with slightly higher LTVs, slightly moderate FICOs and slightly higher debt to income. So as refi activity happens, obviously, that composition changes. One upside that we see in this business cycle is normally, our refinance penetration in the market is about 4% of every 100 loans that go in the market. Given the fact that some of these books have lower embedded equity, when consumers are refinancing, a good number of times, those consumers are not below 80 LTV. So as a result, they end up refinancing back into MI. So we have seen MI penetration go from that 4% number closer to 6% to 7%, and we see a boost in MI market even coming through the refinance portion of the market. So that's basically a little bit of color on the refinance side, and I'll quickly pivot to the purchase side. I would simply say that when rates drop during kind of not purchasing season, we see less activity because it's not that consumers can suddenly go and buy a home because rates drop for a 15-day window. So refinance loans can take advantage of that, purchase loans can't. If rates were to drop in the purchase selling season, we do believe that there is a significant amount of pent-up demand on the sidelines that you could see those consumers come to market and that would benefit homeownership rates and that would benefit MI market. But let me pause there and just ask Dean to chime in on anything I left out. Hardin Mitchell: Yes. Rohit, that was -- I agree with everything you said. That was really comprehensive. I don't have much to add to that. Richard Shane: Rohit, it was a great answer. I really do appreciate it. If I can ask a quick follow-up. When you think about that refi activity that we've seen in those windows, do you think it over indexes, under indexes or sort of pari-passu indexes to the layered risk within the portfolio? Rohit Gupta: Yes. So just naturally, what I would expect, I don't have any specific numbers from the last 6 months, and I can get that to you off-line. But my general take would be, Rick, consumers who are in better credit position when rates are lower are more likely to refinance than consumers who are not. I think that's just kind of how the market is structured. So if you started off as a consumer who was at 720 FICO, but over the last 6 months or over the last 2 years, your FICO has risen to 780 because you manage your credit well, then you are just going to get a better execution when you come to refinance in the market versus if you started with 720 and you drifted down to 640 because when you come back to market, you're going to see an impact of loan level price adjustments in your North rate, so you're less likely to refinance. So I would say it over indexes on lower risk attributes in terms of possibility of refinancing a loan. Operator: Our next question comes from the line of Brian Meredith of UBS. Ameeta Lobo Nelson: It's actually Marissa Lobo on for Brian today. With tariffs creating some uncertainty in the labor market, what assumptions are embedded in your reserves around unemployment, HPA and cure rates? And have any of those assumptions changed since the Q4 call? Hardin Mitchell: Marissa, it's Dean. I think our actuarial methods really aren't econometrically driven. So I can't give you expressed macroeconomic assumptions embedded in our reserving, more traditional reserving techniques, chain ladder, things along those lines looking at performance trends through time. What I can say is from a claim rate perspective, we maintained our claim rate at 8%. So we still continue to believe that credit performance is holding up well and that a consistent number, 8 out of every 100 new delinquencies will roll to claim. Obviously, commensurate with the reserve release that we took, $39 million this quarter, we continue to see on prior period reserves cure performance above our expectations. And as a result, we're -- we have in the past and we did this quarter released a certain portion of reserves on prior period delinquencies given that elevated cure activity. But really, as it relates to the assumptions of booking reserves on new delinquencies, we didn't make any changes this quarter. Rohit Gupta: Yes. And Marissa, just to add a little bit of color to Dean's point, when it comes to a loan already being delinquent, unemployment level at a macro level or at a geographical level has less impact on that loan. So the assumptions that you did mention are incorporated in our conditional pricing view. So we are incorporating an assumption on unemployment rate, home price appreciation into our pricing that we are charging on net new loans for that month, for that week. And that's how we think about implementing a conditional view into our business. Ameeta Lobo Nelson: Got it. That's very helpful. And on Rate360, it's clearly been a differentiator. Can you give us a sense of how it's influencing your NIW mix, pricing outcomes and what you plan to invest in for the next generation? Rohit Gupta: Yes. Very good question, Marissa. So as I've said in the past, Rate360 continues to iterate in terms of our innovation, our level of analytics and always kind of this desire to find the next new attribute that can actually give us more predictive power. So we've been investing in that tool for possibly last 7 years or so. And we've gone through 4 or 5 versions of the pricing engine by this time. I think in terms of talking about the capabilities and what it is capable of delivering in the market, just given the commercial nature of our pricing and the fact that we operate in an opaque market, I wouldn't want to talk about any specifics, but I would say that we continue to invest in that tool, continue to invest in the modeling and the research that it takes to derive what basically causes a consumer or loan to go delinquent versus another loan not to go delinquent. So all of those kind of drivers and outcomes are where we continue to invest, and we are very happy with where our journey has been and where it's going. Moving forward, we continue to incorporate all kinds of technologies, including machine learning and artificial intelligence to make sure that those are guiding the pricing we deploy in the market every single day. And I think from a risk principle perspective, only 2 things I'll mention is the right price for the right risk. That is always our intent that down to the granularity of every single loan, we can charge the right price and then making sure that when it comes to layered risk, we are willing to take single attribute risk. But when it comes to layered risk, we try to make sure that we are pricing in the loans where we can expect the stress scenario, but not the loans where basically the multiple levels of risk could be -- make the loan performance unpredictable. Operator: I'm showing no further questions at this time. I would now like to turn the call back to Rohit Gupta for closing remarks. Rohit Gupta: Thank you, Rory, and thank you, everyone. We appreciate your interest in Enact, and we look forward to seeing many of you in New York at BTIG's Housing Ecosystem Conference on May 7 or virtually at KBW's Real Estate Finance and Technology Conference on May 19. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Welcome to the Philips First Quarter 2026 Results Conference Call on Wednesday, 6 of May 2026. During the call hosted by Mr. Roy Jakobs, CEO; and Ms. Charlotte Hanneman, CFO. [Operator Instructions]. Please note that this call will be recorded, and replay will be available on the Investor Relations website of Royal Philips. I'll now hand the conference over to Mr. Durga Doraisamy, Head of Investor Relations. Please go ahead, ma'am. Durga Doraisamy: Hello, everyone, and welcome to Philips' First Quarter 2026 Results Webcast. I'm here with our CEO, Roy Jakobs, and our CFO, Charlotte Hanneman. Our results press release and presentation are available on our Investor Relations website. The replay and full transcript of this webcast will be available on our website after this call concludes. I want to draw your attention to our safe harbor statement on the screen and in the presentation. I will now hand over to Roy. Roy Jakobs: Thanks, Durga, and good morning, everyone. Thank you for joining us today. I will start with an overview of our Q1 results and our outlook for the balance of the year. Charlotte will take you through the quarter and our guidance in more detail. We started '26 with a clear proof that our strategy is delivering, growth, margin expansion and strong order momentum despite the volatile environment. At the same time, we remain closely connected to our customers and employees. This includes those impacted by the situation in the Middle East. We continue to prioritize their safety, support and continuity of care. Against this current backdrop, we reiterate our full year guidance. Looking at Q1. Order intake grew 6%, reflecting continued momentum. Comparable sales increased 4% with growth across all business segments, led by personal health. We also expanded margins. Adjusted EBITDA margin improved by 40 basis points to 9%, despite higher tariffs. This marks our sixth consecutive quarter of delivering on our commitments, even as we operate in an uncertain and dynamic environment. Disciplined execution and focus on what we can control underpins our progress. We are on track to deliver the full year outlook we set in February, which includes currently known information within an uncertain macro environment. Our strategy remains anchored in three pillars: focused value creation, innovation-driven growth and disciplined execution. Let me take you through the first quarter in that context. Starting with our first pillar, focused value creation. We execute specific strategies by segment. And we invest with discipline, focusing on interventional monitoring to drive growth. We also drive growth geographically with North America as the key engine. You can also see this in our Q1 results. Equipment order intake grew 6% and with solid growth across D&T and Connected Care. North America led the growth, building on strong prior year comparison. Europe also performed strongly across several modalities. Looking at D&T, Order intake increased in the mid-single digits. Growth was driven by sustained momentum in image-guided therapy as our market-leading Azure platform continues to drive strong demand. Precision Diagnosis delivered solid order growth outside China. Globally, MR order intake was solid, with increasing interest in our healing free systems. Last year, 75% of our MR systems shipped were Helium free. For our customers, resilience and MRI is being tested more than ever. Helium supply is tightening geopolitical developments in the Middle East are adding further pressure to that. Costs continue to rise. As a result, health systems are seeking uninterrupted imaging and reliable service in everyday clinical practice. Philips is leading the shift to helium-free imaging with our high-performance BlueSeal technology, we are setting the new industry standard in MRI resilience, enabling uninterrupted operations and reducing dependence on scarce helium. We have installed more than 2,200 systems globally, saving over 6 million liters of helium. Building on this, we also unveiled the industry's first helium-free 3.0T MR systems. We expect regulatory clearance in 2027, positioning us to transition to a fully helium-free MR portfolio and extend our lead over competitors. In CT, we are seeing a strong funnel for our spectral technology. In the quarter, Verida, the industry's first AI-enabled detector-based spectral CT gained traction following its launch at RSNA last December, with initial orders secured in Europe. The first system installed in Q1 is already delivering results. At Nuestra Senora de Rosario University Hospital in Madrid, it is demonstrating seamless workflow integration and clinically relevant insights and importantly, without added operational complexity. Turning to Connected Care. Order intake grew in high single digits, mainly driven by monitoring and supported by enterprise Informatics. Demand was broad-based across all regions with particular strength in North America and Europe building on a strong prior year comparison. We continue to expand enterprise partnerships with large integrated delivery networks. These customers are investing in enterprise patient intelligence medical device integration and cybersecurity. They are increasingly adopting our enterprise monitoring as a service model to improve clinical, operational and economic outcomes. This reinforces our position as a partner of choice for enterprise-wide data-driven care delivery. Moving to Personal Health. This segment delivered another quarter of broad-based growth, driven by strong consumer sellout and continued market share gains. We drove this through active expansion and diversification of our channel footprint, adding more than 3,000 distribution points in Europe. At the same time, we strengthened our presence with key global retail partners through increased listings and expand placement. This included IPL expansion broader distribution of interdental products and more than doubling on bay distribution in the U.S. Our second pillar, innovation, is another key driver of both momentum and growth. Across modalities and products, we are accelerating innovation towards scalable AI-enabled hardware and software platforms. And that is already translating into stronger regulatory momentum for approvals of new product introductions. In Q1, we received 20 510(k) clearances and premarket approvals, more than doubling year-on-year. In MRI, we received FDA 510(k) clearance for SmartHeart our AI-powered cardiac MR solution. Just like SmartSpeed is a clinical application that extends software and AI-led innovation across the installed base. SmartHeart automates complex planning workflows in 1 click and does that under 30 seconds, simplifying operations and boosting productivity. It also reduces patient breaths by up to 75%, improving patient experience in a big way. NCP, we received FDA 510(k) clearance for both spectral CT Verida and our Rembra Wide-bore CT. Launched at the 2026 European Congress of Radiology this platform features an industry-leading 85-centimeter bore. It is designed for high throughput environment with an AI-enabled workflow and improve diagnostic confidence. In Image Guided Therapy, we received clearance for DeviceGuide, an AI-driven solution, fully integrated with our Azurion platform. It enables real-time automated detection and visualization of mitral valve repair devices during minimally invasive procedures. We also launched IntraSight plus ,integrating intravascular imaging and physiology into a single system to simplify workflows and improve efficiency in the cath lab. Looking beyond product innovations to our future transformative interventional platform introduced at our CMD in February. We made progress in advancing clinical validation. Building on our ecosystem of more than 100 clinical partnerships, we added a share of our Research Consortium in Q1. Seven clinical studies are now underway to demonstrate the benefits of AI and robotics assisted workflows and minimally invasive treatments for brain aneurysms and liver tumors. In Personal Health, AI is embedded in our propositions. For example, the Philips High-end Shaver 9000 Prestige Ultra. It uses intelligent sensing and AI-driven adaptation to respond to each user skin and hair type. Delivering a more personalized shave every time. This innovative proposition not only won the TIME's invention of the year for the groundbreaking features, with also significantly increased sales and margin demonstrating our leadership in this domain. Since creating the hybrid shaving category, we have sold more than 50 million OneBlade handles and 100 million blades. This growing installed base supports profitable recurring revenue from consumables with strong replacement blade performance in the quarter. In Oral Healthcare, we infused new Philips Sonicare 5700 to 7300 series models in the U.S., featuring next-generation Sonicare technology. In China, we launched Sonicare 7000 at the South China Dental Show, reinforcing our position as a professional or care leader and strengthening momentum with the dental community. Across Philips innovation continues at scale throughout our portfolio. We remain the largest medtech applicant as the European Patent Office in 2025, a strong proof point of the depth of our innovation engine. And this is not just about today. This leadership is fueling the next generation of innovations coming through our pipeline and positioning us well to drive accelerated growth. In our third pillar, disciplined execution, it all starts with patient safety and quality, our top priority. It ensures we bring innovation to market with the high standards of patient safety and well-being. We're making strong and steady progress building on the improvements delivered over the past 3 years. And importantly, we are now benefiting from the work we have done to make Philips simpler, leaner and more agile, strengthening the foundation of our execution. Field actions were reduced by about 20% year-to-date. This is on top of a reduction of around 40% in 2025, reflecting increased discipline and process effectiveness. Importantly, these improvements in our quality processes are also enabling the innovation momentum I highlighted earlier. We also maintained close and constructive engagement with global regulatory authorities including ongoing leadership level dialogues with FDA and other regulatory bodies worldwide. This underscores our commitment to quality, compliance and continuous improvement in serving our customers. It carries through to our supply chain, a critical enabler of execution. Over the past 3 years, we have simplified, regionalized and localized our operations to be closer to our customers. Our focus is clear: deliver on consistently superior customer experience through a high-performing supply chain, day in, day out. During the quarter, developments in the Middle East increased volatility across logistics and input costs, including materials and components. Through active management of our logistics network, we maintained stable supply chain operations while stepping up cost mitigation activities, which Charlotte will further discuss. Importantly, customer service levels remain strong and in line with previous quarter and we remain vigilant in managing ongoing developments in supply and cost. And as we look ahead, we will continue to deepen the simplicity, agility and resilience as these are critical capabilities for navigating the increasingly turbulent environment. Turning to commercial and service excellence. In Connected Care, we saw further traction in our enterprise monitoring as a service. As health systems adopt enterprise monitoring, demand for enterprise informatics solutions is also increasing. These solutions now represent a growing share of both our order book and sales across various periods. In the quarter, we saw strong demand for capsule device integration and clinical surveillance across care settings driven by effective cross-selling across our enterprise informatics and monitoring platforms. In Diagnostic Imaging, we expanded our partnership with AdventHealth through a 5-year enterprise service agreement. It enables our full service model across modalities, while supporting a long-term imaging infrastructure focused on quality and performance. Turning to the regions. Fundamentals remain supportive across our markets, particularly in North America where demand remains strong and the landscape continues to segment. We continue to see stable activity levels across hospital systems with no signs of disruption among larger systems. Cost pressures and workforce shortages persist, driving further consolidation among larger health systems. Demand for secure productivity and cybersecure enhancing platforms is increasing. This reinforces our expectation that North America will remain a key growth engine in 2026 and over the medium term. In Europe, capital spending remained broadly stable with an improvement in some markets during the quarter. Demand conditions remain stable, supporting our execution in the region. Select international regions continue to increase investments in health care and digitalization as reflected with strong wins in India and Brazil. In China, centralized procurement continued to increase in Q1. particularly in modalities such as ultrasound and CT, which have shorter lead times. This is driving longer decision cycles and a more price-focused environment. As a result, we are seeing lower order conversion consistent with recent trends. These dynamics continued in the quarter, contributing to ongoing pressure on equipment demand. At the same time, underlying health care demand remains intact, particularly in procedure-driven segments. We remain focused on maintaining competitiveness, selectively driving our portfolio and executing with discipline in this more price-sensitive environment. In Personal Health, consumer demand remains healthy in North America, and momentum continues across several markets globally, even as geopolitical developments create uncertainty. We are managing these dynamics with agility while maintaining a strong focus on execution. Charlotte will now discuss our first quarter performance in more detail and our outlook for 2026. Charlotte Hanneman: Thank you, Roy. I will start with segment level performance. In Diagnosis & Treatment, comparable sales increased by 2%. Image Guided Therapy delivered high single-digit growth, continuing its multiyear momentum and building on a strong prior year comparison. Performance was broad-based across all regions with particular strength in North America, led by the premium configurations of our Azurion platform, higher service revenues and coronary intravascular ultrasound. We are reinforcing this momentum by leveraging AI to automate product testing, reduce release cycle times by 25% and accelerating time to market for new innovations. Precision Diagnosis sales declined in the low single digits in Q1, as expected, mainly due to order book rebuilding and the segment's higher exposure to China. Innovations, including EPIQ CV, point-of-care ultrasound, BlueSeal MR and CT 5300 continued to drive growth with solid uptake in markets such as Western Europe and Latin America, reflecting their scalability. Adjusted EBITDA margin rose 30 basis points year-on-year to 9.8%, driven by sales growth, underlying gross margin from recently launched innovations productivity measures and favorable mix effect. These favorable impacts were partially offset by higher tariffs, cost inflation and currency effects. Now moving to Connected Care. Comparable sales increased by 3%. Monitoring delivered mid-single-digit growth with particular strength in North America and Europe. Growth was driven by higher installations of IntelliVue patient monitors and continued traction in enterprise monitoring as a service. Sleep & Respiratory Care grew in the low single digits with the obstructive sleep apnea portfolio, delivering strong double-digit growth outside the U.S. led by particular strength in Japan, our second largest market. Enterprise Informatics sales declined slightly, reflecting inherent quarterly unevenness and lower implementation and deployment cycles. Adjusted EBITDA margin declined by 60 basis points to 2.9% as sales growth and productivity measures were more than offset by higher tariffs, cost inflation, lower cost absorption and currency effect. In Personal Health, comparable sales increased by 9% in Q1 with all 3 business contributing. Growth was broad-based, led by double-digit growth in North America and a strong contribution from international regions. China contributed modestly, benefiting from an easier comparison base. Sellout remains strong globally with channel inventory maintained at appropriate levels. This momentum was supported by strong demand for recently launched innovations, including the high-end i9000 shaver with AI-powered SenseIQ technology and the Sonicare 5000 to 7000 series. Adjusted EBITDA margin expanded by 60 basis points to 15.8% as growth and productivity measures more than offset the higher tariffs, cost inflation and currency effect. Advertising and promotion spend increased year-on-year, consistent with our commitment to continue investing in the business to drive consumer recruitment and sustain long-term demand for our recently launched innovations. We are also leveraging AI to strengthen consumer engagement, embedding it across 94% of digital assets and generating over 27.8 billion searchable data points, 100x increase. This enables more personalized consumer interactions, improves content reuse efficiency and enhances our ability to drive future sales through more targeted and effective marketing. Finally, sales in segment Other of EUR 177 million increased by EUR 37 million compared with the first quarter of 2025, mainly reflecting activities related to a divestment. These activities are excluded from comparable sales growth and contribute only an insignificant amount to adjusted EBITDA. Adjusted EBITDA for the segment increased by EUR 7 million to EUR 11 million, mainly driven by lower costs. Now turning to group results. Comparable sales increased by 3.7% in the first quarter with growth across all segments and regions, led by North America and Western Europe. Adjusted EBITDA margin increased by 40 basis points year-on-year to 9%. Margin expansion was driven by sales growth, favorable mix effects and productivity measures, partially offset by higher tariffs and cost inflation. Product productivity delivery in 2026 is off to a solid start with Q1 delivery of EUR 126 million, on track to deliver our EUR 1.5 billion 3-year savings commitment. Execution is progressing at pace, underpinned by plans already in place. Actions in Q1 were led by operating model simplification, including streamlining central functions and reducing organizational layers as well as procurement initiatives such as SKU rationalization and supplier consolidation. We are also seeing early contributions from footprint optimization and AI-enabled efficiencies. Service productivity was another contributor, including through more remote troubleshooting and fewer on-site visits with benefits most visible in ITT and across Europe. In parallel, we continue to execute tariff mitigation actions. Overall, we remain on track with good visibility to deliver our 2026 productivity objectives. Against the backdrop of rising input cost inflation, we are accelerating mitigation actions, further sharpening our focus on productivity, cost discipline and structural efficiencies. Adjusting items came in at EUR 61 million, less than half of last year's EUR 143 million. This significant improvement reflects our continued focus on structurally reducing adjusting items. A one-off gain in Diagnosis & Treatment from the reversal of an acquisition-related provision and cost phasing also contributed to the year-over-year reduction. Income tax expense increased by EUR 17 million in the quarter, primarily due to higher income before tax. Financial income and expenses were EUR 47 million, broadly in line with the prior year. And net income rose to EUR 146 million, primarily due to higher earnings. Adjusted diluted earnings per share from continuing operations were EUR 0.23 in the quarter. compared with EUR 0.25 last year, primarily reflecting the adverse currency effect on nominal earnings and a higher diluted share count. Free cash flow in Q1 was an inflow of EUR 28 million. Excluding the impact of the prior year U.S. Respironics settlement payout, free cash flow improved by EUR 94 million year-on-year. This improvement was driven by higher earnings, improved working capital and lower adjusted items. Moving to the balance sheet. We ended the first quarter with EUR 2.6 billion in cash after a $265 million payment for the SpectraWAVE acquisition announced late last year. This acquisition reflects the disciplined, value-focused M&A strategy we outlined at our CMD, including a disproportionate resource allocation to our interventional platform to reinforce our coronary leadership. Integration is progressing well with the core foundations in place and commercial momentum building as planned, positioning the business to scale and capture growth in coronary interventions. Net debt was EUR 5.5 billion at the end of Q1. The leverage ratio improved to 1.8x on a net debt to adjusted EBITDA basis from 2.2x in Q1 2025, driven by higher earnings and reflecting our disciplined capital allocation. Now turning to our outlook. Amidst continued macro uncertainty, we remain focused on disciplined execution of our plan. Based on the current status, developments in the Middle East are expected to impact sales in the remainder of 2026, though not materially at the group level. At the same time, supply chain and logistic constraints are expected to drive cost inflation. Against this backdrop and based on our Q1 performance, our outlook for the full year remains unchanged. We expect comparable sales growth of 3% to 4.5%, with growth in each quarter within this range led by North America and the international region. We continue to expect comparable sales in China to be stable this year with growth in Personal Health, offsetting a slight decline in health systems against the backdrop of subdued near-term market conditions. Across segments for the full year, we continue to expect growth within this range with Connected Care and Personal Health at the upper end and diagnosis and treatment at the lower end. We are encouraged by the better-than-expected adjusted EBITDA margin performance in Q1, driven by innovation, productivity and cost discipline with some benefit from lower-than-anticipated tariff impact. Consistent with last year's approach, our full year 2026 outlook includes currently known tariffs, which are marginally more favorable than assumed in our February outlook. However, uncertainty remains. Also, while we are pursuing tariff refunds related to the International Emergency Economic Powers Act, our 2026 outlook does not include any potential benefits from these refunds. We are also seeing input cost headwinds, including freight, electronic components and plastics as well as other inputs affected by higher energy costs. We are actively mitigating these pressures. Over the course of the year, we expect to offset these pressures through supply chain optimization, productivity and selective pricing actions. At the same time, we continue to closely monitor cost developments across our supply chain. For the balance of 2026, we expect some near-term pressure on margins consistent with our plan, reflecting the annualized impact of tariffs, higher inflation and foreign exchange. As a reminder, last year, the higher tariffs did not impact our adjusted EBITDA meaningfully until Q3 due to the natural lag between inventory and a flow-through to the P&L. Accordingly, we reiterate our full year adjusted EBITDA margin guidance range of between 12.5% and 13%. Our full year free cash flow outlook also remains unchanged at between EUR 1.3 billion and EUR 1.5 billion. As previously indicated, our outlook excludes the ongoing Philips Respironics-related proceedings including the Department of Justice investigation. With that, I would like to hand it back to Roy for his closing remarks. Roy Jakobs: Thanks, Charlotte. To close. We delivered a solid start to the year and order intake momentum continues. In April, we signed a long-term strategic partnership with WellSpan Health in the U.S. It expands our role as the preferred provider across all imaging modalities and advances a system-wide approach to imaging and diagnostic technologies. Importantly, this partnership is also a strong validation of our innovation and platform strategy, bringing together our capabilities to deliver integrated long-term value for customers. It underscores strong customer trust and our value proposition and long-term partnerships. These relationships matter even more in the current operating environment. Our strategy is clear, and we remain focused on advancing our strategic priorities, driving innovation and strengthening our differentiation and competitiveness. At the same time, we are executing with discipline, staying focused on what we can control and closely monitor the evolving macro environment. Against this backdrop, we reiterate our full year outlook, which includes currently known information, but an uncertain macro environment. Thank you, and we will now open the line for questions. Operator: We will now open the line for questions. [Operator Instructions]. Your first question comes from Hassan Al-Wakeel of Barclays. Hassan Al-Wakeel: Roy, Charlotte, a couple, please. Firstly, if you could please talk to the building blocks of the mid-single-digit order growth in D&T for the quarter. the sustainability of U.S. market strength based on your customer conversations? as well as the softness in China precision diagnosis given centralized procurement and how your share is progressing here across the different modalities and related to this, I wonder if your thinking has evolved for China order and revenue stability this year across D&T. And then secondly, Charlotte, another strong quarter on margins, and you've been consistently talking about gross margin benefits from innovations. It'd be great if you could help break up the quarter's EBITA performance across productivity, mix and innovation and how sustainable you think each of these are. And also what you're seeing from cost inflation, specifically around freight and memory chips and what's assumed in guidance? Roy Jakobs: Let me go to the first one. The mid-single-digit D&T growth. So if you look to the buildup of that, actually, that is a continued very strong order intake in IGT which actually is trending at high single digits and above. So very, very strong and that, of course, over multiple quarters. Then you see that we also had mid-single-digit PD order intake outside of China. But then, of course, China is affecting the PD order book as well. But we see a very strong overall mix, and we see increased demand, and particularly also for MR. We called out, of course, the helium-free, but also we have seen just a broad-based interest in the MR solution really growing also as a modality in itself. And that also gives us confidence for the further conversion in due course of the year into the latter part of the year from a sales perspective. Then U.S. is a strong contributor to that, has remained very strong. And actually, also from our customer dialogues, see that strength continuing. Actually, we see a very healthy market where patient volume is strong, the procedures are growing. But as we also said before, it's not evenly spread across all health systems. So the bigger systems are winning more. And that's also we are well positioned with our platform-based solutions. So that's actually where we see that we kind of are continuing to close these long-term partnerships. You also saw that in the quarter with Advent, with WellSpan so we had more. So that's really working out, and we see that U.S. actually will continue to be a strong contributor for us. Then Europe actually was also strong. So I think I want to call that out that Europe was doing well and is picking up, but then China at the other hand, is showing continued cautious development. Q1 was in line with our performance expectations. So it's not that it's unexpected that it's not performing that strongly. We do see differentiated performance by modality. So IGT and MR are solid. CT and ultrasound are the most exposed to centralized procurement and therefore, they have the biggest impact. And then on the consumer side, you saw that actually PH grew but was on easier comps but we do see some sales sellout momentum in PH. And that's also what we expect for the rest of the year, and essence of similar trend of subdued kind of medtech portfolio that PH contributing and therefore, actually, the full year China sales are expected to be stable, and that's also as we have planned it. So in that sense, kind of this is tracking alongside what we plan for, where the biggest growth has to come from North America, Europe and international region. China is contributing as the market gives the opportunity. So we are not relying on the China recovery in the rest of the year. We are actually counting on strong momentum in North America and Europe, in particular, to do that. And in that perspective, actually, we see that where we have been focusing our strategy, it's really coming also to fruition because North America, IGT, extreme Stronghold. Monitoring is doing really well as well there. We see the other momentum going up. So I think we're well positioned to execute our plan as we have built it for the year on the growth side. And maybe that's a nice bridge to Charlotte to then also talk to the margins. As, of course, we have revolving developments there. Charlotte Hanneman: Thank you very much, Roy. And hello, Hassan. So indeed, as you said, we were pleased with how the margin has developed with a 40 bps expansion in Q1 despite the impact of tariffs. So if I break that down for you in a little bit more detail. Yes, we saw a positive impact coming from volume, from the business mix. But indeed, as you mentioned, also from higher gross margin from innovations. So CT 5300, I called it out before, is helping us from a gross margin perspective. We also see point-of-care ultrasound, which we recently launched also at a higher gross margin, also helped lift our margin. And then we see the continued momentum also from our MR BlueSeal at a higher margin as well. So that is certainly helping us. Of course, we continue to do our productivity work. We are pleased with our EUR 126 million of productivity in Q1. You've seen it last year. We finalized our EUR 2.5 billion program last year. It's a real strong muscle we have built and that we are now expanding spending on, which is really creating self-help in what is a turbulent situation. So with this productivity, we're nicely on track there. Of course, offsetting that is tariff and also a little bit of input cost inflation. One thing that's good to mention is that the tariff impact was a little bit lower than anticipated initially, also after, of course, the Supreme Board struck some of the tariffs. So if I then look forward, Hassan, based on your question, what does that mean for the outlook. So a few different components here. Of course, we started well in Q1 which is helping us we are seeing inflation and to your point, also in freight, in components and in plastics. But offsetting that is us really leaning in to mitigating that with supercharging AI, further reducing our bill of material cost and also doing selective pricing. And then the other component is also tariffs being a very modest tailwind for us versus our expectations as well for 2026. Operator: Your next question comes from Richard Felton of Goldman Sachs. Richard Felton: Two questions for me, please. First one is on China. You called out central procurement for ultrasound and CT. How much exposure does Philips have to those modalities in China now? And what level of price adjustments are you seeing perhaps linked to that, how much of the low single-digit decline that you called out in precision diagnostics was due to China? That's the first one. Second question is sort of slightly sort of longer-term question, I suppose, on the sleep business. ex U.S. in kind of broad terms, how has performance been as Philips has returned to the market OUS in terms of growth market share? Could you also perhaps talk a little bit about your innovation strategy in sleep? Roy Jakobs: Yes. Thank you, Richard. So on China, we have seen indeed that kind of the centralized procurement is being applied mostly on ultrasound and CT. That is because the specifications are being seen as more generic and therefore, they put them under the centralized procurement to a bigger extent. We have seen that, that also has significant margin implications in terms of the pricing pressure that you see in those segments. So volumes are actually holding, but you see that the value is decreasing, and that is putting the downward pressure. Actually, in our IGT and MR business, we see that they are for biggest majority outside of centralized procurement because they are so specific and also don't have the alternatives that they don't put them into the centralized procurement. So that's something in the centralized procurement approach in China that we see currently as they expand that across the country. In terms of the devices, kind of, you see that it's a very small part of it. So actually, there's not a big hit. But the biggest hit is indeed in PD with the ultrasound and CT on. So that's kind of also, therefore, hitting the performance in the first quarter, and we can expect that also to pressure the rest of the year, which means that actually the dialing up in the other parts of the world will be really crucial. And as you know, that's also working. Now if you look to the BI China part, as we said earlier, kind of, that is around 15% of global. And in the mix, you see that kind of MR is 50% of that. So that's better protected. The bigger pressure is indeed on the CT and the ultrasound part. And then you have IGT percentage in China is slightly bigger than the 15%, but it has, of course, a strong contribution also from the other parts, and it's better protected from centralized procurement. So that's a bit of what I can say about the mix. And maybe lastly, it also really calls that we have the right strategy chosen for China because we said we want to compete in segments that we find we can differentiate. And still where we find we can differentiate is the MR BlueSeal for sure, and we see also that actually they are kept that out of the CT for biggest part. It's our IGT franchise, which is really differentiating. There's no kind of alternative in the market. We see ultrasound cardiac actually also being better performing. But of course, that's a smaller part of the cardiac -- of the ultrasound market in China. That's why you see that in the other ultrasound parts, there's bigger pressure. Then n sleep, I think if you look at sleep outside of U.S., we see strong double-digit growth that's led by Japan, but also it's coming from the markets where we are coming back. That's offset by the ongoing respiratory pruning effect. So that's kind of where you see the mix effect coming in. where the comparison is normalizing towards end of the year. So that also should improve towards the end of the year. And from an innovation perspective, actually, we have seen good resonance also driving that double-digit growth by the new masks portfolio that we have been introducing together with the device, the software updates we are dialing in. And that actually the ecosystem is still very strong. Actually, people are still waiting also in certain markets really for us to get back and to get back on our platform because they really appreciate the patient interface that we have built. And that's given us also a strong way back into the market. Maybe the other part on SoC, of course, we are working strongly on the mitigation of the regulatory part. So that's something that we're also making good progress on. We said kind of we cannot comment on what it will exactly mean, but we are still hitting every single mark in terms of milestone with the FDA and that's actually forging ahead also as planned. Operator: Your next question comes from David Adlington of JPMorgan. David Adlington: So maybe on cost, I think you may have addressed some of this. But obviously, GE, called out cost inflation, most notably on memory chips. I just wondered if you could sort of help give some further color there and maybe quantify the exposure? And then secondly, obviously, another great quarter for Personal Health care in terms of growth. I'm not sure if you quantify the contribution of price or not, that will be useful. And as we get into the second half and more difficult comps, how you're thinking about the growth profile in PH. Charlotte Hanneman: David, let me take the first one. So from a cost inflation perspective, and maybe a few things. So as I said earlier, we do see cost inflation impacts. We do see that, and we've taken that into account in our guidance. And we -- the expectation we have is that the elevated levels that we see today in freight, electronic components, plastic, we will see that come through for the remainder of the year. But at the same time, we've included mitigation actions that we are taking, including, for instance, reducing our bill of material cost even further, going hard after AI-enabled savings and also selectively increasing our prices. And we have a lot of confidence based on the muscle we've been building over the past few years and also what we're seeing again transpire in Q1 from a productivity perspective. On top of that, some of the tariff tailwinds that we're seeing after February are also helping us. So there is a little bit on that. And then your second question on Personal Health and the effect of pricing. So we had another stellar quarter in Personal Health in Q1 with particularly North America doing very well with double-digit growth in North America. Of course, we were a bit helped by China, but only relatively little. Pricing from a pricing perspective, it is relatively flat. We saw a slightly positive pricing, which is probably mostly attributable to the innovations that we've been seeing like the 9000 shaver, like the new Sonicare range that we've introduced. So that has helped pricing a little bit. If I look to the remainder of the year or the full year, I should say, so we have reiterated our guidance from 3% to 4.5%. And we've also said that PH will be at the higher end of the guidance, and we're reiterating that today because, as you said, the comps are getting a little bit more difficult as we get through the remainder of the year. At the same time, we see very good momentum in Personal Health as well. Roy Jakobs: And maybe one addition. What is also helping it, David, is, we have been re-expanding our retail distribution. So actually, we have been getting listings and placements in the web shelf and particularly of big retailers. And that actually we gives us additional sustainable growth opportunity for the quarters to come. So it's the combination of really great innovation, but also now having a better access event the consumers that actually gives us confidence that this is a sustained growth path and that we are in line with the guidance that Charlotte just provided. Operator: Your next question comes from Veronika Dubajova of Citi. Veronika Dubajova: I will keep it to two, please. One is kind of big pick your question on patient monitoring. Obviously, one of your sort of competitors suppliers of changing ownership. I'm just curious on how you're thinking about what impact that might have on your business and whether this is strategically positive and negative and net neutral is this an asset that would have made sense in the context of Philips, if you can kind of share your thoughts on that, that would be super, super helpful. And then my second question, is just circling back to some of the inflation commentary. Maybe Charlotte, can you give us a flavor for why you think you are in a better position to mitigate some of the headwinds than GE Healthcare. Would just love to understand what you think you have in your back pocket that's obviously enabling you to maintain your margin. And if you very briefly could comment on your Q2 margin expectations, that might also be helpful. Roy Jakobs: Yes. Thank you, Veronika. Let me take the first one. So on the patient monitoring. So you saw that actually the strong momentum continues, strong order intake. Actually, we are playing a platform play there that actually really resonates well with our customers. And as part of that, actually, we have strong partnerships. Masimo is part of that. We don't think that actually there will be any change. That's also not what kind of has been signaled because we have the biggest access to customers globally in terms of monitoring base. So there's a real intrinsic interest to actually connect with us to the customer. And there's also mutually interest from us to actually be providing in a vendor-neutral way consumable solutions that are out there in the market. And that has been benefiting the partnership with Masimo in past years, and we believe that will be also going forward. So we see it as at least net neutral. And I think we are excited to work also with any new owner there to kind of grow the franchise and make it work for our customers. And to differentiate also first competition because this is one of the strongholds the combination that we have a very strong cybersecure platform with the broadest data reach with the medical device integration and the consumables actually makes it very appealing in a very complex environment for our customers to do business with us, and that has been driving all these long-term partnerships and also the share gains in monitoring along the way. Charlotte Hanneman: Yes. Thank you, Roy. Let me take your second question, Veronika on inflation. And if I think about where we are in the year, let's first start with, in Q1, we had a very solid Q1 with margin expansion ahead of our expectations. So that gives us confidence that, again, we are able to not only compensate some of the headwinds we're seeing, but even expanding our margins despite that. Then, of course, we're seeing cost inflation. We're seeing it in freight, and we see it in electronic components and in plastics, but we have already started taking mitigation actions. Those will -- we started building them. Those are a little bit back-end loaded, and they will start coming in the second half of the year. And to take you through what we're doing. First of all, we're doubling down on bill of material productivity. We've always said there's more to go after, and we're now doing that with increased feed. We're going after our AI-enabled efficiencies, where we've seen some early progress already in Q1, and we continue to see that as well. And then as well, we're doing selective pricing as well. So the other element is really the tariff tailwind that we're seeing a little bit that we -- we're seeing also in Q1, and we'll see that versus our expectations being a little bit better going forward. Now you also know that we've been a little bit prudent in the way we've put our full year guidance out as well. So that, of course, has given us a little bit of buffer as well. So now to your question on Q2 specifically and Q2. So if we think about Q2, a couple of things that I think are important to realize, of course, Q2 is the last quarter where we still didn't have the full impact of our tariffs in 2025. So -- and you know, we've spoken about it a lot of times the way the tariff impact flows into our P&L, which first goes into inventory, and then it flows into our P&L. So we have, again, a tough comparable from a tariff perspective. And then also, we see the cost inflation, of course, starting to hit us. We have already taken the mitigation actions, but it will take a little bit of time before that starts positively impacting our P&L. So we, therefore, expect our mitigation impact to be a little bit more back-end loaded. Operator: Your next question comes from Julien Dormois of Jefferies. Julien Dormois: The first one relates to the mitigation initiatives that you are taking, and you mentioned selective pricing initiatives. So could you just walk us through what are the segments where you have the more leeway and at what speed we could see those pricing initiatives contribute to margin? And the second question is more specific on Enterprise Informatics. You indicated that sales were down low single digits in Q1, and you mentioned the usual unevenness in revenue generation. But if you could shed more light on why that happened specifically and then what we should expect for the remainder of the year and maybe also in the midterm, that would be helpful. Charlotte Hanneman: Julien, let me take your first question on pricing. So yes, we've called out also last year, you might remember, selective pricing as well, and we've already put some of that in place last year. We, of course, focus there where we have leading positions, and that's where we increased our prices. So I'll give you a few examples. We're increasing our prices in Image Guided Therapy. We're doing that in hospital patient monitoring. We're doing that in some of our service contracts. We're doing that in some of our time and materials. So we have a very granular plan in place to increase prices where we can. As you rightfully mentioned, some of that will flow through in 2026 and some of that will take a little bit longer as it needs some time to flow through the order book and will then benefit us in 2027. But I think it's fair to say that we've learned from COVID. And also there, we've been able to build up a much stronger muscle when it comes to price increases and price discipline, which is now helping us implementing that with a little bit more speed. Roy Jakobs: Let me then go to EI. So in EI, we see a couple of trends as we also alluded to when we had the Capital Markets Day. One is actually, we see continued order uptake. We saw that picking up strongly in the second half of last year. We also saw it again in the first quarter, and we have a very good funnel. So we see that there's healthy demand that's also on the back of the cloud migration and the cloud offering that we have, but also the integrated diagnostics trend that we see coming out in the market is really generating increased interest. If you then look at the sales trend, this is indeed more patchy. Sales drills orders quite a bit in EI. Furthermore, you see that if customers migrate in or out, those give quite big hiccups because actually that's the lumpiness that's kind of inherent to that business. The other part is that you also see that the orders that we are taking now more and more also go into a SaaS model, where you see that kind of the revenue flows in over a longer period of time. And that actually gives you more recurring attractive revenue stream for the longer run, but of course, it gives a bit of a hiccup in these quarters. So we see positive interest. We see the integrated diagnostics story really picking up with customers and of course, fueled by AI and the data play, and we are really working how we can tap into that. And we see the funnel growing also supported with what we're doing with Amazon. And then lastly, you also saw that kind of on the monitoring side, the Capsule and HPM combination is already working. So you see also this kind of combination play really driving impact. So we are kind of positive on that notion as well that, that will come through in due course of the year. Operator: Your next question comes from Hugo Solvet of BNP Paribas. Hugo Solvet: I have 2, please, quick ones on margins. First, short term. Charlotte, on the Q2 margin, could you maybe just clarify your earlier comments? Is there a scenario where margin in Q2 be within the full year guidance range? And second, a bit more long term, when we think about the full year 2028 targets, you have around 600 to 700 bps of buffer for wage input cost, tariff macro and so on. What's the level of confidence that this buffer can accommodate for higher input costs given where they are at the moment? Charlotte Hanneman: Yes. Thank you very much, Hugo. So let me start with your first question on Q2 margin. So based on what I just said, first of all, the incremental tariffs weren't in effect in Q2 2025. as well as the cost inflation that we're seeing with the mitigation timing being back-end loaded, I expect the Q2 margins to be lower year-on-year in Q2. I also feel very confident that in the back end of the year, we will be able to get those mitigation factors in because we have very, very strong plans in place and very granular plans in place to start offsetting that. But Q2 in that sense will be a little bit of a lower quarter from a margin perspective. Now to your second question on the longer-term margin outlook, as we said in February, we -- of course, as we stood there in February, we knew that the world was a turbulent place. We didn't quite know how turbulent it would get, but we absolutely did take into account that there would be something that we would be seeing. So as a result, and we were also very transparent about the buffer that we took at that point in time, especially given the ability we have to also step up from a mitigation perspective, I don't -- I feel equally confident as I was in February that we'll be able to get to the mid-teens adjusted EBITDA margin by the end of 2028 based on what we know today. Hugo Solvet: Thank you very much and congrats on EBIT. Operator: And your next question comes from Aisyah Noor of Morgan Stanley. Aisyah Noor: My question is just on D&T and your competitive outlook in Europe following the launch of an ultrasound by United Imaging in this space. And as well on the recent launch of Verida for you, just how that's progressing and how we should be thinking about the sales contribution for 2026? Roy Jakobs: Yes. Thank you, Aisyah. And I already called out Europe actually picking up and performing well in Q1. And that's also in particularly for D&T, where we see actually that -- and then within D&T also PD actually is doing really well in Europe. So we see a few trends. One, MR already was picking up strong. So we see that continued. And also if you look to the BlueSeal penetration now, actually, that's really kind of going well, and we see a good funnel. on the MR side. Then also with the new Verida launch, actually, we see very strong interest in Spectral and how that now with a better workflow is really helping to support high-volume throughput at high-quality imaging. We've secured the first order already. We have an installation ongoing. So actually, very good reference as well, very strong clinical support. So actually, we have a kind of good expectation that Verida will be doing really well in Europe, and we see the first proof points of that coming through. Then lastly, ultrasound. Ultrasound actually is also doing well. Indeed, we had some competitors as well in this space, but actually ultrasound in Europe has been already starting last year, picking up very strongly after we kind of came out with our latest EPIQ launch and also the Flash. We have good order momentum of ultrasound in Europe, strong positioning. So actually, we are quite excited about the momentum in Europe, how that is increasing and especially also how our AI-based, but also, I would say, high productivity and performance solutions really hit the mark in a market that needs to be also kind of conscious of the spend in the environment that we are in, but that seems to work well. Operator: Due to the time, the last question today comes from Graham Doyle of UBS. Graham Doyle: Just 2, please. Just the first one, just on inflation again. Just to get some context on this. Obviously, you guided in Feb, and there's been obviously volatility. But is there any -- how meaningful is the incremental headwind? So is it something that was comfortably within your buffer? Or are you doing other things to sort of mitigate? And then, Roy, just on China, you mentioned a few times at the CMD and then today about kind of playing to win in certain segments. Is there any way within reason that you kind of identified to us the areas where you understand that perhaps you can't win and therefore, you've built it into your guidance that you kind of know that there's areas where you're probably deprioritizing. Is that possible to maybe contextualize that for us? Charlotte Hanneman: Graham, thanks. Let me take your first question on the inflation. So indeed, yes, we guided in February only 3 months ago, although a lot has happened. So as I said before, we are seeing an incremental headwind in plastics, in also freight. It's good to know as well that energy, we have hedged for 2026. So we will not see any impact from higher energy -- direct highly energy prices. There are a few components here, right? It's -- first of all, we did already better in Q1 than we thought. So we are a little bit ahead of where we thought we would be, which is giving us confidence. The second component is we are -- after the Supreme Court struck some of the tariffs in February, we're seeing some tailwinds as a result of that, that we are that we are taking into account as well, which is offsetting some of the inflation. And then the third component is we have launched already additional mitigation activities, including bill of material price reductions, including also optimize the way we look at freight and where we use air freight versus boat in order to also optimize the spend there and also leaning in even harder in what we know and do very, very well, which is driving further cost discipline. We've also -- we've always said there's more to go after. So we're doing that now with double speed as well. And putting that also in the context of what I said earlier that we have put a prudent guide out, all of that actually comes to a place where we can reiterate our guidance of 12.5% to 13% for the full year. Roy Jakobs: And then on China, indeed, I think the differentiated play is becoming more important. And to give you some examples where we see that actually, we have really the right to play and to win is, I called out MR. Actually, we have one of the biggest installed base of the helium-free already in China. And we just go also the notion that we have a green part support from the regulatory body and PMA to kind of get an accelerated approval for the 3T because they're so excited about the new innovation that this will bring to China. So that's a good example on MR. IGT is also really doing well, and we have a kind of good momentum, and we see that also well in demand in the market. And also sound, I called out there's different dynamics. You see that the cardiovascular, we are still unique, but it's, of course, a smaller segment in totality and you see quite brutal competition on GI. The same with CT spectral, Actually, we have, again, one of the stronger installed bases of CT Spectral in China. But if you look to the more generic CT, that's really very strong competition. So that's kind of where we said that's not our game play. And then we exited DXR because we said that's so commoditized. That's not our game in China. We also exited the value play in China, which is the lowest price segment because that will be very strongly locally favored and also at price points that are not attractive to us. So -- so we made distinct choices. Actually, within those segments, we also see that we are really trending with market or even kind of doing well within the market momentum. But yes, there is just a subdued overall market environment that we have to operate in. But I think we have been making the right choices. We're sticking to that. It's also in line with the plan. And also, as we showed in the results, it's also in line with the results that we have in Q1 and also for the full year expectation. So, in that sense, I think we derisked China in our plan. We're playing there to tap the opportunity that we have. And last but not least, China is not only a demand market, of course, there's also innovation happening in China that we want to stay close to, including AI innovation that's going very rapid. Robotics is developing very rapidly in China. And then, of course, there's also still components and sourcing that we get from China. So that China for us is a wider market than demand only, and that's why we kind of keep a strong footprint there, but in line with demand, we have kind of opted for a more selective go-to-market. Operator: That was the last question. Mr. Jakob, please continue. Roy Jakobs: Yes. Thank you all for attending the call, as you saw, we have a strong start to the year with growth orders and sales and margin expansion despite a very turbulent environment we operate in. We have the confidence reiterated our full year guidance. Of course, a lot of work to be done, but we have the actions in place, the plan in place and the team that is working it. So thank you for your attention again. Have a further great day. Operator: This concludes the Royal Philips First Quarter 2026 Results Conference Call on Wednesday, 6th of May 2026. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 KVH Industries Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anthony Pike, CFO. Please go ahead. Anthony Pike: Thank you, operator. Good morning, everyone, and thank you for joining us today for KVH Industries' first quarter results, which are included in the earnings release we published earlier this morning. Joining me on the call is the company's Chief Executive Officer, Brent Bruun. A copy of the earnings release was filed with the SEC under Form 8-K this morning, and a copy of the release, along with a recording of today's call, will be available on our website at ir.kvh.com. This conference call contains certain forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from those expressed in these statements. Words such as expect, may, intend, anticipate, will and similar expressions identify forward-looking statements, which include projections, plans, initiatives and other future events. We undertake no obligation to update these statements, and you should review the cautionary statements in our most recently filed Form 10-K under the heading Risk Factors. We will also discuss adjusted EBITDA, a non-GAAP financial measure, and our press release defines this term and reconciles it to GAAP net income or loss. Brent? Brent Bruun: Good morning, everyone, and thank you for joining us. The shift to LEO that we highlighted last quarter continues to gain traction. And our first quarter results demonstrate that KVH is successfully capitalizing on this momentum. We are encouraged by the results that reflect sustained demand for our solutions, along with strong execution across the organization. Total revenue for the quarter came in at $32.3 million, increasing sequentially from the fourth quarter of 2025. This growth was primarily driven by strong shipments of our communication terminals, which continue to see healthy demand across our core markets, and those shipments are the foundation of our recurring revenue model and a leading indicator for future subscriber activations. As expected, service revenue was consistent with the previous quarter. The first quarter typically reflects seasonal patterns in our business, where service revenue is either flat or slightly down compared to the fourth quarter. This trend has held steady over the past several years, and this quarter was no exception. One of the highlights of the quarter was our record level of connectivity unit shipments. We shipped approximately 3,100 units, a 70% increase over our previous high achieved in the third quarter of 2025. This milestone reflects both strong market demand and our team's ability to execute at scale. Importantly, these shipments position us well for anticipated activation growth as we move into the second quarter, which brings me to our subscriber base. We ended the quarter with approximately 9,600 vessels. This reflects continued adoption of our solutions and the strength of our value proposition in the maritime market. And within that base, the shift I described is visible in the numbers. LEO services now represent over 45% of our airtime revenue, up from less than 30% a year ago. Our stand-alone VSAT subscriber base saw a decrease during the quarter as expected, reflecting the ongoing industry-wide shift toward LEO. We continue to view this business as an important part of our portfolio as customers migrate to our broader multi-orbit offering. And we are exploring an additional LEO service that will further strengthen our multi-orbit offering, giving customers more choice and flexibility for their onboard connectivity. Additionally, we are working to expand our onboard role beyond connectivity. We are seeing encouraging progress in our newer service offerings. In particular, our IT service is gaining traction with the service currently being evaluated on a number of vessels. While still early, feedback has been positive, and we see this as an important step toward expanding our role as a broader solutions provider. We also remain focused on our existing differentiated value-added services. In addition to managed IT, we have made meaningful progress with our Link content platform. Crew welfare has always been important in maritime operations, and it has gained even greater attention in recent years. Our Link service directly addresses this need by delivering content that enhances crew morale and onboard experience. We are encouraged by the traction we are seeing and are continuing to invest in the platform. In the coming months, we plan to introduce live-stream content, further increasing its value to customers and crew alike. Finally, we continue to focus on expanding our global footprint. We see significant opportunities in key growth regions, particularly India and Latin America, where demand for reliable connectivity solutions is increasing. Our efforts in these regions are aimed at strengthening partnerships, increasing market presence and capturing long-term growth opportunities. So in conclusion, here is what we delivered in the first quarter. Record shipments, a growing subscriber base, LEO mix shifting exactly as planned, managed IT in early trials, a content platform expanding its reach and a geographic footprint linked to market opportunities. The shift is real, and we're capturing it. Last quarter, I said I've never been more confident in KVH's direction. Q1 only strengthens that conviction. We remain firmly focused on disciplined execution as we advance our transition to LEO-based solutions. Thank you. And with that, I'll turn it over to Anthony. Anthony Pike: Thank you, Brent. So with respect to our first quarter financial results, service gross profit was $9.8 million, which is consistent with the prior quarter. Service gross margin was 35%, which was up slightly from 34% in the prior quarter. Airtime depreciation expense, which is a noncash charge, represented 7% and 8% of the service revenue in the first and fourth quarters, respectively, which impacted these gross margins. As Brent mentioned, total subscribing vessels at the end of Q1 were over 9,600, which is up 7% from the prior quarter. The Q1 operating expenses totaled $9.7 million compared to operating expenses of $10.5 million in the prior quarter. However, Q4 operating expenses included $0.8 million of nonrecurring costs related to transaction costs from the acquisition we completed in Q4 as well as some restructuring costs. Our adjusted EBITDA for the quarter was $2.8 million and capital expenditure for the quarter was $2.6 million. The capital expenditure of $2.6 million included $1 million related to our ongoing ERP project and the fit-out of our new U.S. headquarters, both of which will be completed in 2026, and $0.4 million related to noncash expenditure on VSAT antennas using our Agile rental program, where the inventory has already been purchased in prior periods. And this EBITDA compares to $3.1 million and capital expenditure of $2.4 million in the fourth quarter of 2025. Our ending cash balance of $59.2 million was down approximately $10.8 million from the beginning of the quarter, and this decrease was driven by installment payments to Starlink of $16 million related to our bulk purchase of data. So overall, we are encouraged with the first quarter's performance. We had another record quarter for connectivity antenna shipments, representing, as Brent mentioned, an increase of 70% from the previous high in Q3 2025. Subscribing connectivity vessels were up 7% quarter-on-quarter and 30% year-on-year, and our LEO airtime revenue is very close to overtaking our legacy VSAT airtime revenue for the first time, all of which evidences our continued success in executing our strategy to transition to LEO-driven maritime satellite communications market leader. This concludes our prepared remarks, and I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call. Operator? Operator: [Operator Instructions] Our first question comes from the line of Chris Quilty of Quilty Space. Christopher Quilty: Brent, a question for you. I mean you did say 3,100 units shipped in the quarter because I think like the best you've ever done is 1,600 previously. Brent Bruun: Yes, Chris, 3,100 is correct. The previous high, and Anthony can give you the exact number, was approximately 1,800, a bit more, I believe, around 1,850. So... Christopher Quilty: That's a crazy number. Was there -- I mean this is sort of a crazy number. Was there something unusual going on in the quarter maybe related to Iran? Or do you think that is just uptick in the new markets? Brent Bruun: It didn't have anything to do specifically with Iran. We did sell a number of units into the Asia-Pac region for low data plans that will be used on fishing fleets. But nevertheless, they will still turn into paying subscribers. Christopher Quilty: Got you. So do you -- I mean is that level sustainable? I think I only had like 3,400 net adds this year. And what sort of transition are you seeing from shipment? Is it still the sort of 60 to 90 days from shipment to initiation of service? Brent Bruun: That's pretty typical. 60 to 90 days, and it does take a while. Would I anticipate that we're going to stay at this rate? Not necessarily. I think that we'll stay at a good rate. But I think this quarter, in particular, I'd just like to point out that it was particularly high. And I think it has to do with the seasonality aspects, too, in that although the revenue was flat because of suspended vessels, it's the time of the year where both in the leisure and in particular, fishing, they're getting their boats in and ready to go. Christopher Quilty: Got you. And there was no new market expansion. You have talked about stepping up your efforts in India and Latin America. Does that involve incremental costs of people on the ground or advertising? Brent Bruun: Yes, there'll be incremental costs. We're looking to expand our sales team in addition to marketing efforts, but not beyond what we had anticipated this year and the budget that is embedded into the guidance that we provided. Christopher Quilty: Got you. Now India has not yet given the full license for Starlink or OneWeb service at this point, have they? Brent Bruun: No. OneWeb, I believe, is further along. And VSAT is still -- is being widely adopted there. Christopher Quilty: Until the LEO shows up so... Brent Bruun: So they're trialing OneWeb right now. So they're a bit ahead. So our focus is on both VSAT, OneWeb and Starlink when it's ready to go. Christopher Quilty: Yes. Again, back to the unit shipped this quarter, was the greater availability of OneWeb a major factor in that or any pricing changes? I'm just trying to get to the bottom, that's kind of a shockingly big number. Brent Bruun: Well, OneWeb wasn't a major factor. As I'm sure you're aware, Starlink has made their antennas even more affordable. As I say, and I think a lot of this was prepped for the upcoming seasons for both leisure and fishing. Christopher Quilty: Got you. Anthony, when you look at the roll-off of the GEO capacity, and I know you've got some step-downs in the contracts for GEO capacity. Has anything changed from last quarter or last year in terms of the margin profile that you expect out of that business for the year? Anthony Pike: Not particularly. We disclosed previously the drop in the commitment. And so where we are, we're fairly happy with. I think the decline has been very steady. So it has been more predictable in recent times. So no, Chris, the short answer is no. Christopher Quilty: Got you. The managed IT services, where do those revenues land? And again, like the market expansion, are there any anticipated significant costs with stepping this up? Or can you generally match costs as you scale with revenue? Brent Bruun: Well, there are costs, but it's the same answer as the previous one. The budgeted costs is embedded with the guidance that we provided. So Chris, may I wish to give other people a chance to ask questions. If you have any others, we can take at the end. Christopher Quilty: Okay. My apologies, I will pass the floor. Operator: [Operator Instructions] Brent Bruun: Okay. I guess, Chris, if you have any other questions, we can go back to him, operator. Operator: All right. We're back to Chris Quilty. Christopher Quilty: All right. You couldn't get rid of me. But really only had one more question. Just CommBox, any updates there on product features, distribution, attachment rate? Brent Bruun: Yes, that's a great question. We recently introduced a paywall, which will enable point-of-sale type of purchases for our customers that take it from us. They need to set up the payment stream, and we have plans to increase that where we would actually have the point-of-sale application come to KVH where we could sell crew bandwidth directly. So that's the biggest development in CommBox this past quarter. Christopher Quilty: Got you. And actually, I know I already asked this question somewhat, but do you see any lasting impact out of the Iranian conflict that drives connectivity in any way? I mean all the stranded sailors using more capacity or you lose customers because the dark fleet goes away? Brent Bruun: Yes. Well, we're not seeing any impact now. Obviously, like everyone, we hope this all dies down. But I wouldn't anticipate any reduction in capacity. If you go back to COVID, when people were trapped on vessels for weeks at a time, our usage actually went up. So these vessels are sitting idle. They're still using bandwidth. But up to this point, we haven't seen any meaningful impact one way or the other. Operator: I am showing no further questions at this time. So this does conclude our session today. You may now disconnect. Thank you so much. Brent Bruun: Thank you. Have a good day, everyone.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Deluxe First Quarter 2026 Earnings Conference Call. [Operator Instructions] And today's call is being recorded. At this time, I'd like to turn the conference over to your host, Vice President of Strategy and Investor Relations, Brian Anderson. Please go ahead. Brian Anderson: Thank you, operator, and welcome to the Deluxe First Quarter 2026 Earnings Call. Joining me on today's call are Barry McCarthy, our President and Chief Executive Officer; and Chip Zint, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Before we begin and as seen on the current slide, I'd like to remind everyone that comments made today regarding management's intentions, projections, financial estimates and expectations about the company's future strategy or performance are forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995. Additional information about factors that may cause actual results to differ from projections is set forth in the press release we furnished today in our Form 10-K for the year ended December 31, 2025, and in other company SEC filings. On the call today, we will discuss non-GAAP financial measures, including comparable adjusted revenue, adjusted and comparable adjusted EBITDA and EBITDA margin, adjusted and comparable adjusted EPS and free cash flow. All comparable adjusted metrics reflect the removal of impacts from business exits, including prior year adjustments to reflect removal of the Safeguard business effective with the closing of that divestiture as of March 1, 2026. In our press release, today's presentation and our filings with the SEC, you will find additional disclosures regarding non-GAAP measures, including reconciliation of these measures to the most comparable measures under U.S. GAAP. Within the materials, we are also providing reconciliations of GAAP EPS to adjusted EPS, which may assist with your modeling. And with that, I'll hand it over to Barry. Barry McCarthy: Thanks, Brian, and good morning, everyone. I'm pleased to report our strong start to 2026. We continued our positive momentum, particularly in driving sustainable growth in our payments and data businesses. During the first quarter, enterprise results once again reflected organic growth across all key metrics, including revenue, adjusted EBITDA, EPS and free cash flow. We're now in our fourth consecutive year, driving consistent growth across our core earnings metrics. We're also proud to report that we reached 2 significant strategic milestones during the quarter. First, we achieved our long-term 3x leverage ratio target, three quarters earlier than promised at our December 2023 Investor Day. And second, combined, our payments and data businesses now account for more than 50% of total revenue, a major inflection point in our transformation into a payments and data company. Our Q1 results highlight our team's consistent, sustained execution ability, and signal clarity in the company's future as a payments and data company. Financial highlights for the quarter included: revenue growth across combined Payments and Data segments of 12.5%, nearly 20% growth of comparable adjusted EBITDA versus the prior year as our margins expanded by more than 300 basis points. Over 45% expansion of our comparable adjusted EPS and continued double-digit growth in our free cash flow, enabling further optimization of our balance sheet. We remain well positioned to deliver solid full year performance given our strong start. You'll recall earlier in the year, we announced the pending divestiture of Safeguard, a component of the print business. The divestiture closed on the 1st of March. As we mentioned, we would do post closing, we've updated our full year guidance ranges for the year to specifically reflect the divestiture of Safeguard. Importantly, our free cash flow estimate remains unchanged, while the remainder of the guided metrics reflect the same, if not improved, comparable adjusted growth rates. Chip will share additional details on the divestiture and our updated guidance. As a reminder, our core business strategy is to leverage the brand, trust, relationships and cash flow generated by our legacy paper-based payments business, checks, to invest and grow into a digital payments and data company. We're focused on 3 ongoing strategic planks: one, shifting revenue mix towards payments and data to deliver ongoing profitable organic growth; two, driving operating leverage and efficiency across the enterprise; and three, increasing adjusted EBITDA and cash flow to lower overall debt and improve our net leverage ratio. We continue to consistently deliver on all 3 priorities simultaneously. On our first priority, mix shift, during the first quarter, we reached an important milestone as combined Payments and Data segments became our largest set of businesses, surpassing the Print segment to reach 51% of total revenue. This marks the first time in the company's nearly 112-year history that the print businesses represented less than 50% of overall revenues. As I noted in my opening comments, this improving mix was amplified by continued double-digit growth across combined Payments and Data segment revenues. This performance was led by strong top line growth in the Data Solutions and Merchant Services segments and ongoing improvement in B2B. This inflection of our revenue mix is also expected to continue over the balance of the year as quarterly print results will reflect the Safeguard divestiture. Beyond reaching this improved revenue mix, we also saw strong execution on our second strategic plank, delivering efficiencies to drive consistent operating leverage. We continue to reduce overall SG&A expenses, improved by just over 7% versus the prior year, including efficiencies across our corporate operations. Overall revenue growth, alongside these continued cost improvements, drove our 13th consecutive quarter of year-over-year comparable adjusted EBITDA expansion. These efforts enabled us to deliver robust operating leverage across the business as our margins expanded and earnings growth outpaced the rate of revenue. Finally, we also achieved a very notable milestone on our third strategic focus area during the first quarter. We deployed our expanded earnings and cash flows to further reduce our overall debt level, reaching our 3x net leverage ratio goal in just over 2 years, ahead of the pace we signaled at our 2023 Investor Day. As Chip will detail further during his comments, our 12% year-over-year growth of free cash flow enabled us to reach this important goal. Total debt was reduced by more than $30 million from year-end levels, giving us more flexibility to consider future growth investment opportunities. We are consistently executing on our capital allocation priorities with discipline, and we will maintain this discipline going forward. Now on to business unit performance. As noted in my prior comments, Payments and Data segments expanded year-over-year by a blended 12.5% rate, led by another very strong growth quarter from the data segment. Data segment revenue continued its robust year-over-year expansion trend, growing just over 26% on sustaining strong demand from financial institutions and emerging adjacent market client campaign activity. The data business continues to leverage what we believe is one of the largest super aggregated consumer and small business marketing data lakes in the industry. We overlay this data with evolving Gen AI-enabled tools to deliver campaigns targeted toward high lifetime value customers, driving outstanding ROI for our clients' marketing spend. Moving now to our Payments segment. We saw mid-single-digit or greater revenue growth across both our Merchant Services and B2B Payments segments during the quarter as well. Within merchants, continued wins across our pipeline, strong ongoing merchant retention and stable consumer spending trends across our diversified verticals contributed to revenue growth of just over 7% for the period. In addition to solid baseline merchant business trends, we also continue to add new business partnerships, which will contribute to our go-forward growth trajectory. For example, we were pleased to sign a new strategic merchant partnership with Washington Trust Bank, a full-service commercial bank with more than $10 billion in assets serving the Pacific Northwest. The bank now offers the full suite of Deluxe merchant services to its clients. We also made important progress in Q1, growing our integrated software vendor or ISV relationships just as we forecasted on earlier calls. This segment of the payments market features both high growth and strong customer retention. Last week, we announced our new merchant partnership with a major ISV, MRI Software, a leading provider of real estate and rent payment solutions serving more than 45,000 clients. Partnering with an ISV of this scale is evidence that our internal investment in merchant technology and product enhancements is working and positioning us for further growth. The MRI partnership also highlights the ongoing effectiveness of our One Deluxe cross-selling model. MRI was an existing B2B payments customer already utilizing our lockbox services. Shifting to the B2B business. We saw growth sequentially improve across the segment as well, with revenues expanding by just under 5% versus Q1 of 2025. Our efficiency focus in B2B drove more than 400 basis points of margin improvement versus the prior year quarter. Finally, across print, we also saw continued comparable adjusted EBITDA margin expansion, with year-over-year margins improving 70 basis points from the prior year to finish the quarter at just under 33%. This strong margin trajectory remains consistent with our focus on operational efficiencies across our print manufacturing footprint as well as our continuing prioritization of stronger margin in-sourced offerings. To summarize, each of these highlights contributed to robust growth across our key financial metrics during the quarter, and set the stage for continued execution focus across the balance of the year. During the quarter, number one, we continue to leverage growth of our free cash flow to pay down debt, reaching our long-term 3x net leverage target. Number two, we shifted revenue mix to our combined Payments and Data segment, which now represent a majority of total revenue; and number three, we expanded operating income, comparable adjusted EBITDA and EPS at rates above the growth of our revenues, driving margin expansion and strong operating leverage. These results speak to our sustained, disciplined execution and focus on our value creation algorithm introduced at our Investor Day in 2023. Before transitioning to the chip, I'd like to take a moment to acknowledge a couple of recent developments across the Deluxe corporate governance structure as well. As we shared last month, Paul Garcia was elected as our new independent Board chair, succeeding Cheryl Mayberry McKissack, who announced her retirement earlier this year. Paul's deep payments operating experience as the former Chairman and CEO of Global Payments, along with his extensive Board service across a diversified set of industries, will continue to strengthen our position as a trusted payments and data company. Cheryl's leadership and contributions to the Board over her tenure, including the past 7 years as Chair, have been critical to our transformation into a payments and data company. I'm grateful for her steady Board leadership both as Chair in times of extraordinary change and over her 25 years of Board service. Job well done. Finally, as always, I want to acknowledge and thank all my fellow Deluxers, have made this performance and remarkable transformation possible by delivering for our investors and customers each and every day. Thank you. With that, I'll turn it over to you, Chip. Chip Zint: Thank you, Barry, and good morning, everyone. As Barry mentioned, we are very pleased with our first quarter results, particularly our continuing strong comparable adjusted EBITDA and EPS expansion, sustained growth of cash flow and the fact that we reached our 3x leverage ratio target during the period. As noted during the introductory comments, our 2026 comparable adjusted reporting and related commentary will move all prior year impacts from the sale of the Safeguard business to exited businesses effective with the March 1 closing. Like prior portfolio exits, this adjustment will allow for clean operating segment comparisons across the respective periods. I will detail our updated full year 2026 guidance, inclusive of these adjustments later during my comments. Now I'll begin, as always, by reviewing some of the consolidated highlights for the quarter before moving on to operating segment results, our balance sheet and cash flow progress and updates to our full year outlook. For the quarter, we reported total revenue of $538.1 million, increasing 0.3% against prior year reported results, while growing 2.7% on a comparable adjusted basis. We reported GAAP net income of $35.8 million or $0.77 per share, improving from $14 million or $0.31 per share in first quarter of 2025. This increase was driven by improved operating results, including lower restructuring and overall SG&A expense, lower interest expense and a gain from our business exit during the period, net of a slightly higher tax provision. Adjusted EBITDA was $117.9 million, increasing 19.7% on a comparable adjusted basis versus the first quarter of last year. Adjusted EBITDA margins were 21.9%, improving 310 basis points on a comparable adjusted basis. Q1 adjusted diluted EPS came in at $1.05, improving from $0.72 on a comparable adjusted basis, driven primarily by our improved operating income and lower year-over-year interest expense. Turning now to our operating segment details, beginning with the Merchant Services business. The merchant business grew first quarter revenue by 7.3% year-over-year to $104.9 million, continuing the sequential growth improvement trend we saw in 2025. This growth rate reflected ongoing stable base processing volumes and aligned with our expectation for mid-single-digit full year revenue expansion. Segment adjusted EBITDA finished at $26.8 million, expanding by 25.2% on the improving revenue growth, channel mix and our year-end 2025 purchase of residual commission rights from a large ISO partner. Margins finished at 25.5%, expanding by 360 basis points versus prior year levels. You'll recall that last quarter, we indicated this residual buyout was expected to expand year-to-year merchant margins by between 200 and 300 basis points. As Barry noted, the merchant portfolio remains well positioned across our multichannel direct and partner go-to-market approach. We continue to expect full year mid-single-digit revenue growth for merchant within our outlook with a mid-20% adjusted EBITDA margin profile. We also assume stable ongoing macroeconomic conditions and related discretionary consumer spending levels across our broader guidance ranges. Turning to B2B payments. For the first quarter, B2B segment revenues finished at $73.5 million, increasing 4.7% versus Q1 of 2025 on largely stable lockbox volumes and continued migration of treasury management offerings to support increasingly digital payment flows. We were pleased to see this level of overall revenue growth, continuing our momentum from the fourth quarter 2025 exit rate. Adjusted EBITDA for B2B came in at $17.2 million, reflecting an overall 23.4% margin. This represented a very strong 29.3% expansion of adjusted EBITDA from the prior year results with overall margin rate in line with our full year guidance expectations. EBITDA growth for the period was driven by continued realized operating efficiencies across our lockbox footprint, and ongoing migration of the B2B business model toward more recurring revenue offerings. Within our B2B outlook, we continue to anticipate low single-digit revenue growth for the full year as the business laps sequentially improving revenue across the prior year quarters. Overall EBITDA margins are expected to remain in the low to mid-20% range over the period. Moving on to Data Solutions. This segment extended its very strong year-over-year growth trajectory from ongoing campaign demand. Revenues finished at $97.5 million, driving overall growth of 26.3% versus Q1 of 2025. First quarter adjusted EBITDA finished at $22.8 million, expanding by 15.7% year-over-year, while the margin rate finished at 23.4%, sequentially in line with the prior quarter rate, returning towards our signaled longer-term low to mid-20s expectation for the segment. Our full year 2026 guidance ranges continue to reflect mid- to high single-digit segment growth expectation for the full year. Importantly, we continue to expect to see moderation of recent growth trends over the back half of the year as we lap prior year results and see some customer pull forward of marketing spend into earlier quarters. Turning finally to our print businesses. Print segment first quarter revenue finished at $262.2 million, a decline of 5.9% year-over-year on a comparable adjusted basis, factoring for the impact of the March 1 Safeguard sale. Legacy Check revenues declined 4.4% on a comparable adjusted basis, while the balance of the segment declined by 8.4% to drive the overall blended result. We continue to see legacy promo comparable adjusted decline rates moderate slightly versus the rates of decline during 2025 due in part to the removal of Safeguard-related promo revenues effective on the 1st of March. Overall, adjusted EBITDA for print finished the period at $85.7 million. The 3.8% rate of comparable adjusted EBITDA decline across print continue to align favorably to the low- to mid-single-digit blended rate of revenue decline, maintaining a stable margin rate in the low 30s. Comparable adjusted EBITDA margins for Print improved 70 basis points year-over-year to 32.7%. This result was reflective of continued operating expense discipline, driving efficiency across our print operations. Consistent with our prior quarter outlook and updated for the exit of the Safeguard business over the balance of 2026, we continue to expect to see low to mid-single-digit comparable adjusted revenue declines across the Print segment, with adjusted EBITDA margins remaining in the low to mid-30s. Turning now to our balance sheet and cash flow. We ended the period with a net debt level of $1.37 billion down $22.6 million from $1.39 billion at the end of 2025, consistent with our ongoing commitment to debt reduction as a top capital allocation priority over the multiyear horizon, as Barry noted. Our net debt to adjusted EBITDA ratio reached 3x at the end of the period, improving versus our 3.6x ratio a year ago. We were particularly pleased to reach this milestone in the first half of the year, further demonstrating our commitment to the optimization of our balance sheet via disciplined execution and our focus aligned to our value-creation algorithm. Our continuing expansion of cash generation and balance sheet improvement provides us more flexibility to operate the company and invest for continued growth, always within our disciplined approach to capital allocation, as Barry noted earlier. Free cash flow, defined as cash provided by operating activities less capital expenditures, finished at $27.3 million for the quarter, improving $3 million from the first quarter of 2025. This continuing expansion of cash flow was reflective of improved operating results, including lower year-to-year restructuring spend, cash taxes and overall SG&A expense, along with largely stable working capital efficiency and CapEx investment, net of increased year-over-year cash incentive payments during the Q1 period. Continuation of our strong operating cash flow generation remains a top focus area for 2026 even as we have reached our 3x leverage target. This is consistent with our full year guidance for free cash flow expansion, which we have maintained as part of our guidance outlook, inclusive of the impact of the Safeguard divestiture. We continue to be positioned well from both a liquidity and go-forward balance sheet position. reflecting $381 million of available revolver capacity as of quarter end. All material debt maturities remain aligned with the 2029 horizon, following our late 2024 refinancing of the debt capital structure. Consistent with past quarters, our Board approved a regular quarterly dividend of $0.30 per share on all outstanding shares. The dividend will be payable on June 2, 2026, to all shareholders of record as of market closing on May 19, 2026. As Barry noted in his opening commentary, we are maintaining or improving the comparable adjusted growth trajectories expected across our full year guidance outlook this morning, while updating revenue, adjusted EBITDA and EPS figures to specifically reflect the anticipated impacts from the March 1 Safeguard divestiture. Our updated full year ranges are as follows: revenue of $1.985 billion to $2.05 billion, reflecting negative 1% to positive 2% comparable adjusted growth versus 2025, adjusted EBITDA of $430 million to $455 million, reflecting between 4% and 10% comparable adjusted growth, adjusted EPS of $3.60 to $4, reflecting between 9% to 21% comparable adjusted growth and unchanged free cash flow of approximately $200 million, reflecting 14% growth versus our 2025 results. To reiterate, each of these guidance ranges reflect an unchanged to improving rate of comparable adjusted growth versus the prior year. They have simply been updated to reflect the anticipated impact of the divestiture closed during the first quarter. Finally, to assist with your modeling, our guidance assumes the following: interest expense of approximately $110 million; an adjusted tax rate of 26%; depreciation and amortization of approximately $135 million, of which acquisition amortization is approximately $40 million; an average outstanding share count of approximately 46.5 million shares; and capital expenditures between $90 million and $100 million. This guidance remains subject to, among other things, prevailing macroeconomic conditions, including interest rates, labor supply issues, inflation and the impact of any additional portfolio additions or exits. To summarize, we had a strong start to the year with meaningful organic growth across our key metrics. Our updated guidance, reflecting the impact of the Safeguard divestiture shows our continued solid full year performance expectations with the expansion of key earnings and cash flow metrics. The value creation framework we introduced at our 2023 Investor Day laid out our core business strategy to leverage the brand, trust, relationships and cash flow generated by our legacy paper-based payments business to invest and grow into a digital payments and data company. The strategy is simple and the progress is clear. Operator, we are now ready to take questions. Operator: [Operator Instructions] And we'll go first to Kartik Mehta with Northcoast Research. Kartik Mehta: Barry, maybe just first, just a bigger picture question. Almost every company I cover, the question becomes AI and the impact of AI. And I'm wondering if you could talk about maybe how AI is impacting your businesses and your ability to serve your customers. Just your perspective on how that is trending? Barry McCarthy: Well, first of all, Kartik, I appreciate the question. And for our business, we see AI as a net positive. And because we look at AI as a set of tools that help us improve the operation of the company. So I'll give you a couple of examples. In our data business, we use Gen AI to improve the models that we use to create marketing campaigns for our customers. And through Gen AI, every one of those campaigns make the system and the model smarter. So we get smarter, faster. And just as a comparison, we believe the largest FI in the country that's running campaigns inside their organization are doing a couple of hundred campaigns a year. On behalf of all of our clients, we are processing and running thousands of campaigns a year. So not only do we have more at-bats because we're using Gen AI, our tools and our models get smarter, faster, giving us a really nice moat around our data-driven marketing business. That's one place. The second place, just really simple to understand is in our B2B business, where we're processing payments through lockbox. Customer mails in a payment, and we receive that payment on behalf of the biller. There are literally billions of those payments that we process annually. And there are payments there that require manual intervention because there are fragments of what's required to post that information appropriately on the balance sheet of the biller. We are applying AI to radically reduce the amount of manual intervention. And I think we're about a 2/3 reduction in manual intervention by applying AI to our business. And you can see it flow right through our business. You can see our margins expanding in that business, and that's certainly not the only reason, but one of the reasons that we're applying technology to improve our business overall. So we see AI as a great enabler for us, and we're applying it across our business to deliver performance improving results. Kartik Mehta: And just a follow-up, Chip. In changing the guidance, obviously, for the divestiture, you didn't change your free cash flow guidance. And I'm wondering if that's just the underlying strength of all the other businesses or the divestitures would just not generate that much free cash flow, and that was the reason. Chip Zint: Yes, I'd say it's a bit of a mixture of both. Obviously, we've been executing really well, Kartik, on our free cash flow conversion and expansion of those metrics over the last 2 or so years. And so if you think about coming into the year with a guidance range of approximately $200 million, the pure fact is that business was relatively lower margin. So once you adjust for taxes and other cash items, the adjustment was immaterial, and I felt confident in the progress of the business to hold the guidance range as is, which I think is a very strong signal to the execution and focus we've had in that space. Operator: We'll go next to Charlie Strauzer with CJS. Charles Strauzer: So seeing good organic growth in various segments. What are the common themes that you're seeing from clients that are helping to propel those business lines? Barry McCarthy: In our payments and data business, Charlie, we think all 3 of those businesses are delivering a very quality value proposition for our customers. I talked for a minute -- just a minute ago about our data-driven marketing business, which is the fastest-growing business. And because of the quality of our tools, we deliver an outstanding marketing dollar ROI for our customers. When a customer invests using our tools, they get the best return that we're aware of all of their marketing options. So we've seen that customers -- existing customers expand their spend with us, moving dollars from one marketing program to ours because of the effectiveness and the delivery of -- the quality of the delivery of a new customer. And that's why that business has been growing as well as it has. In the merchant business, you heard us talk about our success in attracting new customers. We had 2 significant wins that we talked about, one with Washington Bank and a second with MRI Software, and in both of those cases, we were able to go to those customers and show them the value that we can create for them, which was not really just about -- it was not about price, it was about the value that we can create, the right product, the right service level, the right set of tools, including APIs, and that's allowed us to win those businesses, and keep that business. So we've got a good retention rate in our merchant business. We are winning new customers in our target market verticals and that allows us that business to grow. And we've told you for a bit of time that in the B2B business, we expect it to have some nice quality wins and improve our operating efficiency. And I just talked for a minute ago about our use of AI to help us there. And so that is helping us win customers and improve our operating efficiency. So each one of those businesses, we've just got a compelling value proposition for existing customers to stay with us and for new customers to join us. And you can see that combination reflected in our performance. Charles Strauzer: Looking at the promotional businesses that you have, are you seeing any disruption there from the global conflicts that are going on, kind of disrupting travel, things like that on that business? Barry McCarthy: Charlie, I don't know that we're really directly seeing impacts from all the global uncertainty today. Of course, we're aware of it. But specifically to your question on promo, the promo business in general continues to be a bit soft, like it has been for some period of time, just reflecting, we think, greater market trends. But we can't point that specifically to global impacts happening today. Operator: We'll go next to Marc Riddick with Sidoti. Marc Riddick: So I wanted to first congratulate you guys on reaching these goals. Certainly, you guys have been working on this for quite some time. And these are key milestone goals to reach, having remembered the Investor Day a few years back. And I wanted to maybe touch a little bit on some of the expense reductions that you've seen in SG&A as a percentage of revenue in the quarter was, I believe, below 40% of revenue. Maybe you could talk a little bit about some of those. And maybe you've already kind of touched on this with the efficiency commentary, Barry, but maybe you could touch a little bit on some of those efforts and just sort of -- it certainly seems as though you're just getting more bang for your buck there. Chip Zint: Yes, I appreciate. Well, first of all, congratulations, comments, and I appreciate the question, Marc. Look, there's no real secret to what we've done here. We've been very clear over the horizon in the last years of the work we were doing specifically to SG&A. So over a period of time, we had to invest in restructuring-related spend to drive efficiency, optimize the spend base of the company and really pivot us forward, and you saw that through our multiyear North Star journey. And we said about this time a year ago that 2025 would be less about a year of cost out on the corporate operations and more about improvements in margin expansion in the segments, but we knew coming into 2026, that would be a year where the final efforts of North Star and all the work we did to drive efficiency would come through the P&L. And so you're really seeing those 2 things come together in these results. So number one, we're out of the period of heavy restructuring spend. You've seen that spend come down pretty methodically over the last few years. And so we're really now out of those days and overall restructuring spend is fairly low. And in fact, it's mostly related to the Safeguard divestiture this quarter, the amounts we do have. And then second, the ongoing cumulative effect of those cost improvements we've done and the way the team has focused on driving efficiency and changing how work gets done, it's evident in the numbers. So you combine those 2 figures together, and that's what's driving this overall 7% plus reduction in SG&A in the period. Marc Riddick: Great. And then shifting gears, I wanted to talk a little bit about maybe if you could talk if you're seeing any particular industry verticals that stood out either relative to your expectations or just generally, if there are any particular pockets, whether that's industry vertical or regional strength that you saw during the quarter that stand out? Barry McCarthy: Marc, one of the things that we particularly appreciate about our portfolio of businesses is that they are diversified across multiple market verticals. And so we can deliver this kind of performance really in most environments. So we continue to have great strength in the FI channel across multiple businesses. And you see us moving aggressively into ISV space, which we said we would do for a while within our merchant space. The data business continues to expand beyond FI to get new logos and new market verticals. And so we're pretty pleased that the business is performing well overall and that the market verticals where we compete seem to be very durable and sturdy, and that's helping deliver this consistent performance. And we're very proud that it's our 13th consecutive quarter of profitable growth here. So we think that's a testament to the mix of our verticals, the mix of our business and honestly, the improving mix of our business, which we hit that significant milestone of our payments and data businesses becoming our largest businesses in this period, something we've been working towards for some time. Operator: At this time, there are no further questions. I will now turn the call back to Brian for any additional or closing comments. Brian Anderson: Thanks, Jennifer. Before we conclude, I'd like to share that management will be participating at the Needham Technology Media and Consumer Conference on May 13 and the Truist Securities Financial Services Conference on May 19, both in New York during the quarter. Thank you again for joining us today, and we look forward to speaking with you all again in late July as we share our second quarter results. Operator: This does conclude today's conference. We thank you for your participation.
Operator: Greetings, and welcome to Rigel Pharmaceuticals Financial Conference call for the first quarter 2026. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce our speaker, Ray Furey, Rigel's Executive Vice President, General Counsel and Corporate Secretary. Thank you. Mr. Furey, you may begin. Raymond Furey: Welcome to our first quarter 2026 financial results business update conference call. The financial press release for the first quarter 2026 was issued a short while ago and can be viewed along with the slides for this presentation in the News and Events section of our Investor Relations site on rigel.com. As a reminder, during today's call, we may make forward-looking statements regarding our financial outlook and our plans and timing for regulatory and product development. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent annual report on Form 10-K for the year ended December 31, 2025, on file with the SEC and subsequent filings with the SEC, including the Q1 quarterly report on Form 10-Q with the SEC. Any forward-looking statements are made only as of today's date, and we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. At this time, I'd like to turn the call over to our President and Chief Executive Officer, Raul Rodriguez. Raul? Raul Rodriguez: Thank you, Ray, and thank you for joining us today. Also joining me on the call today are Dave Santos, our Chief Commercial Officer; Lisa Rojkjaer, our Chief Medical Officer; and Dean Schorno, our Chief Financial Officer. Beginning on Slide 4, I will review our first quarter performance, outline Rigel's growth strategy and highlight the key strategic initiatives that positions us for continued growth. Rigel is in a solid position with a growing product portfolio, a solid financial foundation and an advancing clinical pipeline. In the first quarter of 2026, we generated net product sales of just under $55 million, representing a 26% growth compared to the first quarter of 2025. As expected, the first quarter was impacted by seasonal factors, including reimbursement dynamics, patterns we have seen historically both within our business and across our industry. Encouragingly, we saw -- we observed improving demand in March. Similar to prior years, we expect to return to sequential growth starting in the second quarter, driven by improving demand trends. As a result, we are maintaining our 2026 revenue guidance for total revenues of $275 million to $290 million, including net product sales of $255 million to $265 million. We also remain on track to achieve net income profitability in 2026, and we will continue to update you on our progress throughout the year. We're also very encouraged by the continued progress of our R289 program in lower-risk MDS with data expected by year-end. In parallel, we are actively evaluating late-stage in-license or acquisition opportunities that would support potential launches between 2026 and 2028. Now let me turn to our transformational growth strategy. This strategy has guided Rigel's evolution and is built on 4 core strategic objectives: continued commercial execution, pipeline expansion through in-licensing or acquisition of late-stage assets, advancing our clinical development pipeline and maintaining financial discipline. These 4 pillars form the foundation of Rigel's growth strategy. Today, I will walk you through how we have successfully executed this strategy since 2020 to build the company we are today and how we plan to continue driving growth going forward. Moving to Slide 5. Back in 2020, Rigel was a single product company with a limited development pipeline and negative operating cash flows. Today, as you look at our progress through 2025 and towards 2030, we are fundamentally a different company. We now have three commercial products, TAVALISSE, REZLIDHIA and GAVRETO approved across 4 indications. R289 is advancing in lower-risk MDS, and this program has the potential to expand into large markets with significant unmet medical need. Importantly, we achieved profitability in the third quarter of 2024 and through the end of 2025, we generated over $100 million in cash, reflecting our financial discipline. We are operating from a position of financial strength, allowing us to fund our operations and continue advancing and expanding our pipeline. Moving to Slide 6. Since emerging from the COVID pandemic, we have delivered strong net product sales growth, driven by solid commercial execution and successful portfolio expansion. And we believe this is just the beginning. We see multiple opportunities for us to drive another phase of transformational revenue growth for Rigel. In addition to growth of our current products, we are also focusing on adding new assets through in-licensing or product acquisition as well as advancing our internal pipeline, particularly R289 in lower-risk MDS and other potential indications. These programs potentially represent significant long-term opportunities that could expand our commercial portfolio in the 2030s and beyond, supporting sustained growth and long-term shareholder value. Before I hand the call over to Dave to review our commercial performance, let me briefly remind you of our approach to in-licensing and business development. On Slide 8, you'll see that we're targeting differentiated assets in hematology, oncology and related areas. You've seen us successfully integrate both REZLIDHIA and GAVRETO into our portfolio in 2022 and 2024, respectively. Today, we are pursuing similar opportunities, potentially larger in scale, though, given Rigel's growth since those earlier transactions. We are focused on late-stage assets with potential commercial launches in the next 3 years. By late stage, we mean assets that are NDA ready for filing or are already under review or are already approved. Importantly, we prioritize opportunities where we can leverage our existing infrastructure to drive operational efficiencies, accelerate revenue contribution and generate cash. With that, I'll turn the call over to Dave. Dave? David Santos: Thank you, Raul. On Slide 10, you'll see our three commercial products, TAVALISSE, GAVRETO and REZLIDHIA. Moving to Slide 11. We are pleased with the year-over-year growth in revenues in the first quarter of 2026, continuing our trend of growing each quarter's sales over the previous year as evidenced by this slide. In the first quarter of 2026, we generated $54.9 million in U.S. net product sales, an increase of $11.3 million over Q1 of 2025, representing a 26% increase year-over-year. Our first quarter net sales were impacted by typical first quarter reimbursement dynamics, such as resetting of deductibles, co-pays and other access delays for Medicare patients with plan changes that took effect in January. Consistent with this pattern, our first quarter 2026 net product sales reflected the impact of these seasonal factors, which primarily affected January and February volumes. We observed improving demand in March, which showed stronger volume across our product portfolio. Specifically on TAVALISSE, I'm pleased to report another strong quarter in which we generated $37.3 million in net product sales, an increase of 31% compared to the first quarter of 2025. This growth was driven by both stronger demand and a favorable gross to net versus last year. As a reminder, in 2025, we experienced a onetime influx of patients due to the elimination of the coverage gap and improved affordability for Medicare patients. For GAVRETO, we delivered $9.6 million in net product sales, an increase of 7% compared to the first quarter of 2025. GAVRETO has become a stable contributing product in our portfolio. And for REZLIDHIA, we reported $8 million in net product sales, an increase of 31% compared to the prior year period. We saw a continued building of breadth and depth in academic accounts and remain focused on growing use in the community. With new venetoclax-based therapy data showing superiority to intensive therapy in the frontline setting, we expect that REZLIDHIA's consistent efficacy in the post-venetoclax setting to become even more relevant and improve adoption in the community. Overall, we have begun 2026 with significant 26% growth versus Q1 of 2025. With our continued focus on TAVALISSE new patient starts and improved adoption of REZLIDHIA, particularly in the community, our commercial team looks forward to driving continued momentum for our products in 2026. My sincere thanks to the entire team for all their hard work. Moving to Slide 12. We generated $3.9 million in revenues from collaborations in the first quarter, driven by the availability of TAVALISSE in global markets. TAVALISSE is commercially available in Europe under the brand name Tavlesse, in Japan and South Korea and Asia and in Canada and Israel via our partners, Grifols, Kissei and Medison. In addition, our partners continue to pursue regulatory approvals for TAVALISSE in new markets. And we continue to work on expanding access to our products in markets outside of the U.S. For REZLIDHIA in 2024, we expanded our relationship with Kissei to include several countries in Asia for all potential indications, and we entered into an exclusive license agreement with Dr. Reddy's for all potential indications throughout Dr. Reddy's territories. These partners are now in the process of advancing REZLIDHIA in preparation for future potential regulatory submissions. We are pleased that access to our products is expanding outside the U.S. And with that, I'll now pass the call over to Lisa to provide an update on our development pipeline. Lisa? Lisa Rojkjaer: Thanks, Dave. I will now provide an update on our progress over the first quarter and plans for the remainder of the year. I'm on Slide 14. Our hematology and oncology pipeline focus is the clinical development of R289, our potent and selective dual IRAK1 and IRAK4 inhibitor in lower-risk myelodysplastic syndrome, or MDS, and the expansion of olutasidenib beyond relapsed or refractory IDH1 mutated AML in collaboration with academic partners. Our Phase Ib study of R289 in patients with relapsed or refractory lower-risk MDS is progressing well. Shortly, I'll provide an update on the study as well as our planned next steps for R289. As far as olutasidenib development is concerned, our strategic collaborations continue to advance into additional therapeutic areas. MD Anderson is evaluating olutasidenib in several IDH1 mutation-positive indications, including AML, MDS and CMML. In addition, olutasidenib is also being evaluated as a maintenance therapy and as a co-targeted therapy in AML. The 5 MD Anderson studies are active and enrolling. CONNECT Phase II TarGeT-D study evaluating olutasidenib in combination with temozolomide, followed by olutasidenib monotherapy as maintenance treatment in newly diagnosed pediatric and young adult patients with IDH1 mutation-positive high-grade glioma is also active and enrolling patients. Lastly, we're partnering with the National Institutes of Health and National Cancer Institute's MyeloMATCH Precision Medicine Trial Initiative. The planned study will evaluate olutasidenib in first-line IDH1 mutated AML and MDS. We're excited about olutasidenib's potential to provide a new treatment option in these underserved patient populations and look forward to seeing the data that these studies generate in the future. Now I will discuss R289, our novel dual IRAK1 and IRAK4 inhibitor. I'm on Slide 16. I'd like to remind you about the treatment landscape for lower-risk MDS. MDS is a clonal disorder of hematopoietic stem cells leading to dysplasia and ineffective hematopoiesis. The main consequences for patients are anemia and transfusion dependence, which adversely impact their quality of life. In addition, infections, iron overload from transfusions and subsequent organ dysfunction all negatively impact the patient. Therapies used in the upfront setting include erythropoiesis stimulating agents, or ESAs, if patients are eligible or luspatercept. Luspatercept and imetelstat are also approved for ESA failure transfusion-dependent lower-risk MDS patients. Finally, hypomethylating agents or HMAs are also approved. However, the percentage of patients achieving transfusion independence is low. With 8-week transfusion independence rates approaching 40% with luspatercept and imetelstat, there is still a need for safe, effective therapies for previously treated transfusion-dependent lower-risk MDS patients that are relapsed, refractory to or ineligible for ESAs. On Slide 17 is the value proposition of R289 in lower-risk MDS, which we believe can address the unmet need, particularly for transfusion-dependent patients. There are about 12,000 previously treated lower-risk MDS patients in the U.S. that could benefit from a novel therapy like R289. Dysregulation of inflammatory signaling is key to the pathogenesis of lower-risk MDS, and IRAK1 and 4 mediate this process. Blocking both IRAK1 and 4 may suppress marrow inflammation and leukemic stem and progenitor cell function and restore normal hematopoiesis. R835, the active moiety of R289, blocks toll-like receptor and IL-1 receptor signaling in vitro and was active in various preclinical models of inflammation. Clinical proof of concept of this anti-inflammatory effect came from a healthy volunteer study in which R835 markedly suppressed LPS-induced cytokine release compared to placebo. As a reminder, R289, which is currently being evaluated in the clinic, is the oral prodrug that is rapidly converted to R835 in the gut. From the FDA, R289 has both Fast Track designation for the treatment of patients with previously treated transfusion-dependent lower-risk MDS and Orphan Drug Designation for MDS. Both designations underscore the agency's interest in this rare disease, the unmet need of the patient population and the agency's willingness to collaborate with Rigel in the development of R289. R289 has thus far demonstrated a promising clinical profile with both encouraging preliminary safety and efficacy in our Phase Ib study, which was presented at ASH this past December. Now on Slide 18, you can see the design of our multicenter open-label Phase Ib study in patients with relapsed/refractory lower-risk MDS. The Phase Ib study evaluates the safety, tolerability, PK or pharmacokinetics and preliminary efficacy of R289 in patients with lower-risk MDS and is also designed to select the dose for future studies. The dose escalation phase evaluated 6 different R289 dosing regimens that are administered once or twice daily using a modified 3+3 design. In the dose expansion part of the study, which is currently enrolling, up to 40 transfusion-dependent relapsed/refractory lower-risk MDS patients are being randomized to receive R289 doses of either 500 milligrams once or twice daily in order to select the recommended Phase II dose for future clinical studies. On Slide 19, you'll see highlights from the dose escalation phase data that were presented at the ASH meeting in December. I encourage you to review the corporate presentation in the Investors section of our website, which includes the full data set. 33 patients were enrolled. The median age was 75 and the median number of prior therapies was 3, with around 70% of the patients having received prior luspatercept and HMAs. In addition, the majority of the patients had a high baseline transfusion burden. This elderly, heavily pretreated patient population is truly representative of the low-risk MDS patient population with the highest unmet medical need. Overall, R289 was generally well tolerated with a low incidence of grade 3/4 cytopenias and infections. There was one dose-limiting toxicity reported, a grade 3/4 AST/ALT increase at 750-milligram daily dose level and no evidence of dose-dependent toxicity across the other dose groups. The swimmer plot you see shows an overview of transfusion events by dose group, starting with the lowest dose group, 250 milligrams daily at the top. Red cell transfusions occurring over 16 weeks prior to start of R289 are shown to the left of the colored bars, establishing the baseline transfusion frequency for each patient. Of 18 evaluable patients receiving doses of 500 milligrams daily or higher, 6 patients or 33% achieved red cell transfusion independence or RBCTI lasting for 8 weeks or longer. In 4 patients, RBCTI lasted for more than 16 weeks and for 3 patients for more than 6 months. The median duration of RBCTI was around 23 weeks, ranging from 9 weeks to more than 24 months. Also, the median time to onset of RBCTI was about 2 months. While this is a small data set, we're encouraged by these results given the highly refractory nature of these patients. In summary, R289 was generally well tolerated with an encouraging safety profile and promising preliminary efficacy in an elderly heavily pretreated transfusion-dependent lower-risk MDS patient population. The next steps for our R289 clinical development program are on Slide 20. We plan to complete enrollment of the dose expansion phase of the study and select the recommended Phase II dose for future studies in the second half of this year. We anticipate sharing an update on the study, including top line data from the dose expansion phase by the end of 2026. Once the recommended Phase II dose has been selected, we will evaluate R289 in a cohort of less heavily pretreated patients who are relapsed/refractory to or ineligible for ESAs in the same study. Upon completion of the Phase Ib study, we plan to follow up with the FDA to discuss a potential registration study, which will potentially initiate in 2027. With its mechanism of action, we believe that R289 has potential in other indications where the pro-inflammatory cascade plays a role, and we'll provide more details as our plans progress. Now I'll pass the call to Dean to discuss our results for the quarter. Dean? Dean Schorno: Thank you, Lisa. I'm on Slide 22, we reported net product sales of $54.9 million for the first quarter growth of 26% year-over-year, including TAVALISSE net product sales of $37.3 million, a growth of 31% year-over-year. GAVRETO net product sales of $9.6 million, a growth of 7% year-over-year. Lastly, we reported REZLIDHIA net product sales of $8 million, a growth of 31% year-over-year. Our net product sales were recorded net of estimated discounts, chargebacks, rebates, returns, co-pay assistance and other allowances of $20.5 million. We also reported $3.9 million of contract revenues for the first quarter, primarily consisting of $1.8 million of revenue from Grifols related to earned royalties, $1.8 million of revenues from Kissei related to the delivery of drug supplies and $300,000 of revenue from Medison related to delivery of drug supply and earned royalties. This brings our total revenue for the first quarter to $58.8 million. Moving to Slide 23. For the first quarter of 2026, our cost of product sales was approximately $4.6 million. Total cost and expenses were $46.9 million compared to $40.6 million for the same period of 2025. The increase in costs and expenses was primarily due to increased research and development costs, driven by the timing of clinical activities related to R289 as well as increased commercial-related expenses and personnel-related costs. Income before income taxes was $11.7 million. We reported net income of $8.7 million for the first quarter compared to net income of $11.4 million in the same period in 2025. We ended the quarter with cash, cash equivalents and short-term investments of $146.7 million compared to $155 million as of the end of 2025. Turning to our financial outlook for 2026. We continue to expect total revenue in the range of approximately $275 million to $290 million. This includes our expectation of approximately $255 million to $265 million in net product sales and $20 million to $25 million of contract revenues. We also anticipate reporting positive net income for the full year while funding existing and new clinical development opportunities. Before I turn the call back over to Raul, I'd like to also describe two recent updates. In mid-April, we received notification from Lilly that they will terminate the collaboration with Rigel, which included the development of ocodusertib, previously R552, the RIPK1 asset that was being evaluated in a Phase II study in adult patients with moderately to severely active rheumatoid arthritis. The termination will become effective on June 15, 2026. As a reminder, the CNS portion of the collaboration was previously terminated in November of 2025. We expect to regain rights to the program upon termination. Let me remind you that our revenue guidance does not include any assumed revenues from Lilly collaboration. In addition, the termination does not impact our ability to finance our operations. Finally, earlier today, we restructured our debt agreement with MidCap Financial to replace our existing term loan credit facility with a revolving credit facility. Rigel repaid the remaining outstanding term loan balance of $40 million and now has a revolving credit facility for $40 million with an option to increase it to $60 million, subject to customary conditions. We've drawn down $8 million on the new revolving credit facility. We believe this agreement provides us with a cost-efficient source of flexible financing into the future. With that, I'd like to turn the call back over to Raul. Raul? Raul Rodriguez: Thank you, Dean. Moving on to Slide 24. To wrap up, our key priorities for the remainder of 2026 are clear. Continue to grow our commercial business, pursue in-license opportunities to further expand our portfolio, advance our development pipeline with the focus on R289 in lower-risk MDS and potentially other indications and maintain financial discipline as we work to deliver yet another year of top-line growth and positive net income. We are proud of the transformational growth that Rigel has achieved over the past several years, and we're excited to continue executing on our 4 strategic objectives to drive long-term value creation in the years ahead. With that, I would like to turn the call over to your questions. And operator, we are ready. Operator: [Operator Instructions] Our first question comes from the line of Yigal Nochomovitz Citigroup. Please proceed with your question. Unknown Analyst: This is Caroline on for Yigal. Congrats on the quarter. Can you please talk about your plans for the RIPK1 inhibitor now and maybe comment on Lilly's rationale for terminating the agreement. Raul Rodriguez: Sure. Thank you. I could answer that question. And thank you for asking that because it gives me a chance to thank our colleagues at Lilly for the collaborative spirit and diligence that they showed throughout our collaboration. We put the -- let me though in the framework of what Rigel is and how it fits within Rigel. Rigel is a hematology/oncology focused company. We have a growing commercial business. We are profitable, and we have a pipeline in hematology/oncology with tremendous opportunities. We did this deal with RIPK1 with Lilly because the primary focus of RIPK1 is in immunology and CNS diseases. And those we felt were best suited to a larger pharma company like Lilly that had interest in those areas and the resources to explore the opportunity there. For us, though, it was really a financial upside that this provided and really not a strategic focus of ours. So it suited us well in terms of having a partnership. That was the rationale. Now getting it back, I think we're -- we'll assess what to do as a next step. It's not a key focus of this company, and we'll decide what we do as a next step going forward in the near future. But again, thank you for the partnership that our colleagues have believed over these years. Operator: Our next question comes from the line of Joe Pantginis with H.C. Wainwright. Joseph Pantginis: So first, I just wanted to check on your REZLIDHIA comment. Obviously, the blocking and tackling continues with the academic centers. But with regard to growing the community centers, obviously, it's educating them in the post-event setting, as you described. Are there any other drivers or key factors that are I don't want to call it rate-limiting steps, but things that you feel need additional work. David Santos: I think you've got it there. Joe, this is Dave, by the way, sorry. I just wanted to reiterate the post-ven setting is really important to community clinicians because that is their standard of care in the frontline setting. And so helping them to become aware of our data in the post-venetoclax setting is compelling to them. So that's number one. I do think in terms of challenges in the community, you'll have to recognize that community physicians do not treat AML every day. And in fact, they don't see IDH1 mutated AML very often. And so if at all, even less than the AML they see because IDH1 is a subset of that. And so force of habit is to go to something they know. And as you know, the other agent in the class has been out for a long time. And so it is a force of habit that we need to overcome. And the key is getting the right message to them at the right time, and that's when they have an IDH1 applicable patient. And that's what we've spent a lot of time trying to figure out. How do we help our field team get to accounts, community accounts, in particular, at the right time with that message. And we've done a lot of work around that, not only using diagnostic data, but even like coming through medical data, patient journey data to really understand when that patient may occur. So that's what we provide our field with. That's what they target with, and that's when they go and deliver the appropriate REZLIDHIA message. So those are the challenges we face. But like you said, it's really simple. If you can get them the compelling message at the right time when they're treating an IDH1 patient, the data itself is very compelling and can hopefully get them to use REZLIDHIA. Joseph Pantginis: That's very helpful. And maybe on R289, and obviously, this is looking forward into the future a little bit. So it's encouraging and nice that we're seeing rapid expansion into the dose expansion study no pun intended again looking to get the RP2D and as we look towards the data later this year, presumably ASH, I'll say, what would you consider? How would you portray to the Street, what would be the important benchmarks or signals you would want to see to then be able to go to the FDA for a potential registrational study design.? Raul Rodriguez: Lisa, go ahead. If you would comment Lisa, I can add a comment after. Lisa Rojkjaer: Sure. Thanks for the question, Joe. I think it's an excellent question. I think that when we -- when you look at the current approved therapies, these are approved in patients that are transfusion dependent, either post-CSA or ESA naive and we see that at least 8-week RBCTI rates are only around 38% to 40%. Now we are enrolling a population of much more heavily pretreated. We've got patients that have received prior imetelstat, luspatercept and HMAs. And thus far, we're very pleased with the activity that we're seeing. So I think that when we consider the difference in the patient population, I think if we can see more -- if we see consistent safety is what we've seen thus far, and additional evidence of activity, I think we're going to be really pleased with that. In addition, you may recall that we saw data showing that R289 also improves anemia in the patients in our study, which is not always a given. So we are very pleased with that as well. Raul Rodriguez: So Joe, suffice it to say, I think there are several places we could slide in with this product. And there are very large segments across the board. I think it's exciting to have a novel agent that's completely different than what's out there. I think that's a very important feature, an oral agent, easy to take on a more chronically basis. And I think one of several positions within that landscape that Lisa discussed, I think, would be transformational for us. And we'll wait to see the data, the early data being, as Lisa said, very encouraging but we hope to see that in much larger numbers at the end of this year so we can make that final assessment as to how to proceed. Operator: Our next question comes from the line of Kristen Kluska with Cantor Fitzgerald. Unknown Analyst: This is Ian on Kristen's line. On R289, what do you see as an acceptable safety profile here? And how will that play into the dose selection for the Phase II . Lisa Rojkjaer: Thanks for the question. I think that what we're seeing thus far is very encouraging compared to the currently approved agents. And by that, I mean, with an elderly patient population, median age of 75, heavily pretreated. We're seeing a very low incidence of cytopenias and infection. And I think also, as Raul mentioned, in combination with the fact that we have an oral agent, I think this is very, very encouraging. So we're very pleased with that, and we hope that we continue to see that as we enroll more patients in the study. Operator: Our next question comes from the line of Farzin Haque with Jefferies. Mohamad Amin Makarem: It's Amin on for Farzin. A couple of questions from us. For GAVRETO revenue, it seems like that it's plateauing in 1Q. What has been the feedback from the sales team and prescribers? Any color on new patient starts versus switches? And what's the persistence rate so far? And then I have a follow-up for 289. Raul Rodriguez: David, you want to answer the GAVRETO revenue plateau and give any color. David Santos: Look, Amin, I'm sorry. I know you're on for Farzin, but I did not get your name, sorry. Mohamad Amin Makarem: That's correct. Amin. David Santos: Okay. Sorry, Amin. Yes, we don't, on the call, generally provide details on specific new patient starts or persistency trends. But I'll just say it this way. What we got in GAVRETO was an asset that you have a very targeted market with high awareness of using a targeted agent and particularly over the last couple of years, especially in lung cancer, there's been a large amount of data out there to clinicians. That really reinforce the use of a targeted agent in lung cancer and that's across EGFR or certainly in RET, where it's shown in the NCCN guidelines that you should be using these. So these patients are routinely tested much more so in the academic setting in the community. But when they do that, clinicians generally know that there are two available RET inhibitors and they choose either GAVRETO or the other available RET inhibitor. And it's been our experience that just keeping the awareness out there for RET and the availability of GAVRETO has helped to ensure our share in that marketplace. So I think what you're seeing is you're right. We saw growth last year, but you have to understand some of our growth was -- or a very significant part of our growth was having a full year versus half year sales. And what you're seeing now is a product that's producing on the order of $10 million a quarter, which I think is a great thing for us but we also want to make sure that we are not expending too much effort to try to grow incrementally on that when we have better opportunities, particularly with REZLIDHIA and TAVALISSE. So we're focused on the areas that we can grow in incremental revenue the most, and that's what we are doing with TAVALISSE and REZLIDHIA. Raul Rodriguez: R289 question as well. Mohamad Amin Makarem: Yes. For 289 just quickly, are there specific well, if you can actually comment on the patient baseline profile being enrolled right now relative to dose escalation cohorts. Lisa Rojkjaer: So as I mentioned, we anticipate providing an update on the study at the end of the year. So those results will -- hopefully, we'll be able to do that, and those results will be available later. Raul Rodriguez: Yes, we really can't comment so much on the study that's currently enrolling the expansion. What we can say is that the earlier study, the dose escalation phase was elderly, heavily pretreated, highly refractory type of patients. Whether that evolves or not, now that we have some data out there showing that it may have some benefit is something we don't know yet, haven't shared. Operator: There are no further questions at this time. I'd like to turn the floor back over to Mr. Raul Rodriguez for closing comments. Raul Rodriguez: Thank you so much for that. I appreciate all the questions. And for your continued interest in Rigel and what we're doing. Before we leave, I'd like to thank our employees for their dedication and commitment. 2026 is off to a solid start. We're pleased with the progress we've made across the business, and we look forward to updating you on future calls. So thank you very much. Have a good evening. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Pitney Bowes, Inc. Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Brown, Director of Investor Relations and Assistant Treasurer. Please go ahead. Alex Brown: Good morning, and thank you for joining us. Included in today's presentation are forward-looking statements about our future business and financial performance. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. More information about these items can be found in our earnings press release, our Form 10-K and other reports filed with the SEC that are located on our website at www.pb.com and by clicking on Investor Relations. Please keep in mind that we do not undertake any obligation to update forward-looking statements as a result of new information or developments. Also included in today's presentation are non-GAAP measures. Specifically, EBIT, EBITDA, EPS and free cash flow are all on an adjusted basis. You can find reconciliations for these items to the appropriate GAAP measures in the tables attached to our press release. We have also provided a slide presentation and spreadsheet with historical segment information on our website. With that, I'd like to turn the call over to Kurt. Kurt Wolf: Good morning, and thank you for joining us today. As reflected in our earnings release, first quarter results were strong and broad-based. Our results and outlook reflects momentum in the business and supported the upping of our guidance. SendTech performed well in the quarter and is showing potential signs of turning the corner on sales. Presort continues to win business and build sales momentum. We continue to expect growth to return to the business in the third quarter. Turning to Pitney Bowes Bank. Steve and his team are making rapid progress with respect to operational improvements and in identifying value-driving opportunities. Additionally, we've delivered significant shareholder value through our capital allocation policy, including dividend increases and significant share repurchases. Finally, we have started interviewing advisers for the second stage of our strategic review. In summary, Pitney Bowes is extremely well positioned for the long term. In closing, I feel obliged to send out a special thank you to the over 6,000 Pitney Bowes team members. Our results are a direct reflection of their talent and dedication to the company. With that, let's open the call for questions. Operator: [Operator Instructions] Our first question comes from Jasper Bibb with Truist Securities. Jasper Bibb: Can you talk about the consolidation opportunity in Presort? The letter this quarter mentioned hiring Greenhill to evaluate opportunities there historically. I think a lot of your acquisitions in that business has been pretty much mom-and-pops, which I imagine you can handle internally without having to have an investment bank involved. So I guess does hiring Greenhill signal any change there that you would potentially consider larger acquisitions in that segment or you're approaching the consolidation opportunity any differently than you have in the past? Kurt Wolf: Yes. Jasper, thanks for joining us, and thanks for the question. With respect to the Presort acquisition, we've been talking about that for quite a bit in terms of being a real strategy for us. As we've mentioned, there's great opportunity to create value. So yes, we can go out and pursue these opportunities on our own. But just having an outside adviser really can help accelerate that. We have a team that's heavily dedicated on execution within the business, but having dedicated resources to really accelerate those discussions can only help. And with respect to size of the acquisition, the sweet spot really is quite frequently the smaller mom-and-pop type Presort opportunities. But again, as we continue to progress, get better at running our business, we want to look at all opportunities to really create value for the business. And as we've said so many times before, these deals typically come at a pretty low multiple or immediately accretive to the business. So as our capital position gets better, as our balance sheet gets stronger, it starts to open up additional opportunities, but we're primarily focused on trying to find some of these smaller tuck-in acquisitions that we can pursue. Jasper Bibb: And then a really nice quarter for SendTech. Can you maybe just talk about what worked this quarter, how you see that business trending over the balance of the year? And in your guidance scenario, do you think SendTech could potentially flatten out on the year-over-year revenue growth or maybe even grow by the end of the year and what gets you there? Kurt Wolf: Yes. And Jasper, we don't want to get ahead of ourselves. But I'll just start by pointing out or answering the part of your question of what's working. And Todd and his team are doing a fantastic job as reflected in our results. And I'd highlight sort of 2 categories and then a few points under each. So with respect to our meters business, I think there's been a level of perhaps neglect in terms of focusing on slowing the rate of decline. We're not delusional about the future of mail, but there's still a lot we can be doing. So there's 3 areas of focus that Todd and his team have been really digging into that are helping us slow that rate of decline. One, we're starting to look -- historically, we've handled virtually all cancellations as a processing issue, not as a retention issue. So we're putting a lot more -- so historically, if somebody asked to cancel their meter, we processed it and that was the end of it. We're now switching to when those requests come in, doing outreach to try to figure out can we save that customer, what can we do to make sure they're getting the most value out of the meter and make them hopefully reconsider the decision. Second of all, one of the things we're looking at is predictive analytics. So what we're doing now is trying to -- it's one thing to try to save somebody when they decided to leave. We're putting a lot of work into understanding what are the metrics, what are the signs that a customer is at risk and trying to proactively get to those customers, figure out can we offer them a better solution in advance, figure out how they can get more value out of their meter, which we expect to reduce the rate of cancellations. And then finally, we're refocusing on customer acquisition. Historically, we've been so focused on GEC and other parts of the business that I don't know that we put enough effort into our actual sales effort. We believe we have the best products, best services in the space. We're proud of it, and we should be out talking to the market more about it. So Todd and his team are really focusing on go-to-market strategies there. The real opportunity for growth comes from the shipping software side. And there, again, there's 3 things we're really doing. One is we're narrowing and simplifying our offerings. Right now, we offer a high number of shipping software solutions, which I think can create some confusion in the market. It also limits our ability to optimize those offerings. So we're putting a lot of effort into narrowing our product base and improving those products for our customers to help accelerate growth. Second of all, Pitney Bowes has a proud tradition of product innovation and technology development, and that's somewhat driven our product development within shipping software. So often, we would look at what's a really cool technology we could implement in the shipping software space. And we've turned and then figure out what customers want that. We're flipping that on its head and figuring out what do our customers want and how do we meet that need. And then finally, and this will become more apparent in coming quarters, we're using the bank as a differentiator in the shipping software space. So financing is -- can be pretty important in the shipping software space. There's a lot of cash that flows through that business and being the only player out there with a bank gives us real opportunities to offer products and services to customers that our competitors simply can't. So I guess put that all together, those -- that's the progress we're making in terms of when we get to growth. I think we've made a lot of promises in the past and not be able to deliver. And we and our team, I keep emphasizing, let's focus on getting things right day-to-day and the future will take care of itself. So I believe that day is coming, but we'll update as we get closer to that date. Jasper Bibb: That all makes a lot of sense. Maybe last one for me. It sounded like a good quarter for net new business in Presort. I think the letter mentioned you think volumes might get back to growth in the back half of the year. I guess just on that comment, can you piece out maybe how much of that is net new business wins and incremental volume that you won versus, I guess, lapping the customer losses in the prior year. Kurt Wolf: Yes. So Paul, I know you've done a lot of work on that. Do you want to take that one? Paul Evans: On Presort, yes, look, we are -- we've stopped the losses, and we're picking up wins, and we're obviously filling our pipeline, which is the right thing. And I think as we get into the latter half of the year, we should start to see some positive momentum again in Presort. Operator: Our next question comes from Aaron Kimson with Citizens. Aaron Kimson: Can you help us think about the drivers of the strong 1Q free cash flow of $43.5 million? I think the consensus before you preannounced on April 21 was a $14 million outflow, so call it a $57.5 million delta to the upside. And then is there a signal investors should be taking away about the durability of free cash flow between years given that cash flow can vary quarter-to-quarter, but you followed up a strong 4Q '25 number with a strong 1Q 2.6 number? Paul Evans: Aaron, this is Paul. Thanks for the question. Yes, look, we had good working capital management in Q1, better than I would have originally thought. And so that was a good thing. And you are right to point out it was strong in Q4. But at the end of the day, we don't totally control all aspects of when our Presort customers prepay. So obviously, we benefit from that, and we used it to improve our operating performance. But yes, overall, solid operating performance, Q4, Q1 and just good working capital management are the reasons. And yes, absolutely, I think there's durability in our free cash flow. I mean we've -- Kurt and I have both said for many times that we're undervalued stock if you believe in the free cash flow. And obviously, the durability is sort of proving itself out. Kurt Wolf: And Aaron, just to add to that, the way that we're really looking at it in your question about durability, Q4 was obviously an incredibly strong quarter for cash flow. And there was a little bit of concern on our part that, as you mentioned, with working capital, there could have been a pull-forward effect of cash flow that maybe would have normally come in Q1 got pushed into Q4. But with the strength we saw in Q1, there's 2 real takeaways. One, it makes us more confident that our Q4 cash flow was a real number, not an artificially impacted number by the pull forward of cash. And then secondarily, the strength of Q1 also gives us a lot of optimism for the current year. This is the first positive free cash flow quarter we've had in quite a few years. But we're trying to be a little conservative on the guidance side. This is a whole new world for us in terms of the strength we're seeing in our cash flow. We like to think it's durable and it will lead to a strong '26, but we're trying to be a little bit conservative on the cash flow side just in case there was a pull-forward effect into Q4 and Q1. Aaron Kimson: Okay. That's helpful. And then bigger picture, Kurt, this has been a great story since you formally stepped into the CEO seat from the Board almost a year ago now. stock close to $15.54 yesterday versus $910 before you came down from the Board and officially took over. What's the one thing you're most proud of over the last year and then maybe something that's proven harder than you thought it would have been initially that you're hoping to get right in the remaining 2/3 of '26? Kurt Wolf: Yes. So in terms of thing I'm most proud of, I'd really say the employees have Pitney Bowes. We have over 6,000 team members. I'm an ex-consultant. I've been in start-ups work inside of more than a dozen companies. And one thing that impressed me even before joining the Board and before the proxy campaign, it's just evident how dedicated the employees are to the company. I think maybe they needed better guidance and leadership, but the commitment is there. And I think it's a Peter Drucker saying that culture eats strategy for lunch. and the culture of Pitney Bowes is incredibly strong. So just seeing the ability of employees to stay focused on execution, remain committed to the transformation despite not having maybe the clarity they might want in terms of strategy. I think the way to run a business is to fix what you have and then figure out how to grow from there for a company in our situation. That can be incredibly hard on employees, and they've performed admirably. So that's certainly been the thing I've been most proud of. As far as the biggest challenge, I would just point to our forecasting that it's always difficult as a CEO to come out, reiterate guidance and then miss. I think that highlighted some of the problems we had in terms of forecasting within the business. Paul and his team have done an incredible job over the past few months to really improve our ability to forecast, and there's been a silver lining to it. to get better at forecasting. It's really forced the team to dig into the nuts and bolts of the business to get down into the weeds. And as we do that, we're learning a lot about the business and helping us make better decisions on a go-forward basis. So... Operator: Our next question comes from George Tong with Goldman Sachs. Keen Fai Tong: On Presort, you're now competitively priced versus peers and are starting to win back market share. Can you elaborate on the near-term and then longer-term strategies you have to drive a further revenue recovery from both a product and sales perspective? Kurt Wolf: Yes. And Paul, do you want to take this one as well? I know you put a lot of work on the Presort side of things. Paul Evans: Yes. Look, I mean, obviously, it's important for us to know our cost in Presort. And so we have an advantage given we're the low-cost provider. And so we can sort of flex that muscle if we so choose to do that. But what we're seeing is Debbie and her team are doing a great job in the new sales team of building up our pipeline. And so that in part is one of the reasons that led us to take actions on our guidance where we increased the lower end and in some places, raised the upper end. But so we know our costs. We know where our position is. We've done a good job of stemming the losses, picking up some wins, and I see momentum picking up. Kurt, anything you want to add to that? Kurt Wolf: Yes. I would just say, George, I think you've known our company for quite some time. looking back with GEC, there was such a focus on generating cash flow from the core businesses to fuel the growth of GEC that I would say that SendTech and Presort were really starved of resources. And Debbie and her team have done a fantastic job. We've opened up the purse strings to allow Debbie to invest in new capital, get more aggressive on pricing. So rather than focusing on how do we maximize free cash flow tomorrow, how do we maximize long-term free cash flow. And if you think about it, it's not just on the revenue side, it's also on the cost side. Sometimes you have to spend money to save money. So a lot of things we could do to improve efficiency require resources to evaluate to look into, and those weren't there for Debbie in the past. So I think we'll continue to get more efficient. Our cost advantage should grow over time. And as Paul said, just gives us more ability to price aggressively win more business. And it's -- there's a bit of a flywheel effect the bigger we get, the more profitable we get on a per piece basis. Paul Evans: And George, the only other part to that is, obviously, we're in a great liquidity position these days. So we can now sort of look at acquisition opportunities. And Kurt mentioned that in his letter about that. So inorganic growth and also organic growth. Operator: Our next question comes from Anthony Lebiedzinski with Sidoti. Anthony Lebiedzinski: Certainly, it was nice to see the SendTech business down only less than 1%, so quite an achievement there. Can you comment on the number of paid software subscribers that you talked about in the press release and how that contributed to Q1 and your increased guidance? And also, you talked about booking sales also up in Q1 and Q2. If you could comment on that as well. And then I have one other question about the SendTech as well. Kurt Wolf: Yes. Do you want to take that, Paul? Paul Evans: Yes. So your first -- let's talk about bookings. As we see -- we're seeing growth in our pipeline and the sales teams where they are, their quotas, they're achieving targets that we set out for them. So again, reason why we did what we did on guidance. We're seeing positive momentum there. As far as the subscriptions, I mean, we are seeing we are seeing better enterprise subscriptions. I don't know if we actually give the exact number if we've ever given that out, but the reason we have better sales subscription, paid subscription is our sales team is performing. That's what it is. So one is really linked to the other. But I don't -- again, I don't want to be evasive on you, Anthony, but I don't think we've ever given out exact paid subscription numbers. that we should -- it's something maybe we'll consider putting on our investor website at some point. But let us think about that. Kurt, do you want to add to that? Kurt Wolf: Yes. Yes, Anthony, a couple of things I'd add as well. I think we put in our release, this is the first year that bookings were up year-over-year. In terms of impact on the quarter, one thing important to understand about our shipping software business and our meter business as well, we have equipment sales upfront onetime revenue. We also have what we call stream revenue, think of it as SaaS or recurring revenue. That's discounts on shipping labels, et cetera. So whenever you see strong sales and bookings like we saw in Q1, it certainly helps revenue. But one of the encouraging part is we do get that stream revenue that's going to help us in future quarters. So that's been really encouraging. And going back to the previous question about what you're proud of, what's really driving it is Todd has reignited the sales organization, the go-to-market strategy. And just one anecdote that I personally love is we had our Winners Circle conference down in Florida -- Fort Lauderdale recently, and it was all the top salespeople across the organization. And it was in a big hotel that hosts all sorts of conferences. And coming out of that conference, there's multiple companies there. We had one of our salespeople go over the conference right next to us, start talking to people, find out what it is they did, got in touch with some of the leadership there, started pitching our solution, and we have a sales lead coming out of that. So that type of initiative hasn't always been there with us, but we've gotten incredibly aggressive in our go-to-market. And just -- and again, just the energy and the enthusiasm is great to see. So it's very encouraging. We're getting better at our developing products, and we're getting a lot better in go-to-market strategies, and we're also getting a lot more aggressive. So more to come, but it's an encouraging sign. And again, it's showing up in our results. Anthony Lebiedzinski: That's great to hear. And then, Kurt, in your shareholder letter, you did say that you could experience some onetime headwinds later in the year for SendTech. What did you mean by that? Maybe if you can elaborate on that? Kurt Wolf: Yes. So without going into too much detail, it does pertain to customers that we work with. What I'd say is when you really think about the core of our business within SendTech, it's the meters and shipping software. We do have some related businesses that are, I would call noncore. Some of them get into things like fulfillment, and they're not really central to what our business is. And just the reality is it's not a core business to us. And over time, we expect those to go away. So there's certainly the potential in the second half. We have one customer in particular that the volumes decline almost quarterly, and that could pick up in the second half of the year. So unfortunately, it will create a headwind, but it doesn't reflect on the overall health of the core business. So we just want to be cognizant. And that may not come to pass, but we just want to be very transparent with investors about some things that might be coming down the pipe. Anthony Lebiedzinski: Got you. Okay. And then last question for me. So a few weeks ago, you guys announced a partnership or collaboration with Temu. Can you just comment maybe on that? And what have you seen thus far? Could we see additional partnerships like this being announced by the company? Kurt Wolf: Yes. And we don't want to get too much into the weeds on our customer relationships with any particular customer. But again, this is something that we're really focused on, and it's figuring out how do we make the most of the assets we have. So we've looked into ways to offer banking services to customers. We've looked at all sorts of ways trying to think creatively about with our unique set of assets, how we can do that. So what you're discussing is more of what I'd call sort of a beta test where we're trying to figure out, is this something that will work -- we don't want to lean too heavily into it. We'll see how that particular deal works out. And if we have success there, we'll certainly try to spread it throughout the organization. So I would just say it's just a little bit too early to talk more about that. But maybe in a future call, assuming we have success, we can have a forward discussion on that. Operator: Our next question comes from Kartik Mehta with Northcoast Research. Kartik Mehta: Kurt, you talked about potentially adding -- I don't want to use this word, but adding maybe another business line to SendTech to help the growth profile of that business and being a complementary business. I'm wondering if you have any more thoughts on that? And if that would be something that's small or something that you're thinking that would be bigger that could actually change the trajectory of that business? Kurt Wolf: Yes. And Kartik, I apologize. So is this from the letter or this previous calls that we've talked about adding. Kartik Mehta: Yes. Just -- I think we've had previous conversations where I think SendTech has an opportunity to maybe use some of the strength of that business and if it's possible to maybe add another business line or maybe that's too big of a word, but add another business to help that. Kurt Wolf: Got it. Yes. I guess the easiest thing that I can point to that we've discussed publicly really relies on the bank. So a lot of -- as you can imagine, if you're an e-commerce company producing a tremendous amount of shipping labels, there's a lot of outflow of cash. And so obviously, we don't want to expose ourselves to undesirable credit risk, but we can really -- by extending credit to those customers, if they're creditworthy, it can be -- we have a strong balance sheet, a lot of access to capital with the bank. We have access to brokered CDs and low cost of capital. So it's a way to essentially take advantage of our low cost of capital in the bank. to profit by improving opportunities for our customers that have a significantly higher cost of capital. So that would just be one example of a real opportunity for us. And again, just -- I can't emphasize it enough because I don't feel like we get appropriate value for the bank that we have. Our borrowing rate at the bank is on deposits is incredibly low. And again, we have access to brokered CDs, which is well below the cost of capital for any of our competitors. So it's a really unique asset we have. And you'll see over time with Steve and his team ramping up some of the value we can create out of the bank, not just through the bank, but also for our customers and other businesses. Kartik Mehta: Yes. No, I think the bank is a pretty big asset and probably an area you can leverage a lot more. And then, Kurt, just on cost cutting, you've done a great job reducing the cost of the business. And it seems like from your commentary in sales, sales hasn't suffered. One of the biggest issues or questions comes up is, is the company cutting too much cost? And is it going to hurt the eventual long-term prospects of the company? I'm wondering how you're managing the cost cutting to make sure that the true meat of the company doesn't get hurt. Kurt Wolf: Yes. Why don't I let Paul take that. Obviously, he's integral to what we're doing on the cost side, but I think he can answer that question. Paul Evans: Yes. So Kartik, I mean, obviously, we're -- the initial round of cuts that's more like blunt force, but we've been very surgical in how we do cuts going forward. Obviously, we don't want to cut into our muscles. We've got muscles to flex. But I don't think that our costs are such that it's going to impact our ability to grow this business in the future. I spend a lot of time here in the office. And so I live through this as does Kurt. And so we're very mindful of that, not to overcut this such that this company doesn't have a viable future going forward. So -- and the bigger point is, initially, it was -- and as it always -- a lot of times it happens, you bring in a consulting firm to do this. This last round of cuts. This is all management led. So we were very refined on how we did that. And to this point, we're seeing positive results. Kurt Wolf: Kartik, just a couple of things to add as well. Contrary -- I would almost say our experience has been a little bit different than the concept of your question. And a great example I'd point to -- and first of all, just for some context, a lot of our focus has been employee focused. We've gone through some painful risks, which has been really hard on the team. But we're of the mindset that at this point, we have -- hopefully, that's not something that's a part of our future. But associated with those risks, not only have we not cut into muscle, but we're a 105-year-old company. So we've had some processes in place that have been what they've been for 20, 30, 40 years. And as we've made some changes, people stepped up into new roles had to learn those roles. Just as one example, within HR, we elevated somebody who's looking at benefits and having to get up to speed on our benefits plans, that person is taking a whole new look at them. And they've identified north of $1 million of just low-hanging fruit that we can take out of the business from third-party spend, and that was a direct result of bringing somebody new into the chair as a result of the cuts we've had. So in a way, these cuts are leading to new thinking within the business and are leading to better outcomes rather than worse. Operator: Our next question comes from Justin Dopierala with Domo Capital. Justin Dopierala: There's -- on your pre-release, there seemed to be some confusion regarding the pension expenses. And I'd say also some even skepticism about whether or not you actually raised guidance. And I was just wondering if you could provide some clarity on that. Paul Evans: Yes. No, I can address that. We absolutely did raise guidance. And then -- but we further refined our thoughts on how we treat -- how we sort of take pension out of our numbers. I mean it's true that we've annuitized our U.S. and Canadian pensions very successfully, and now we're turning our attention to a few other ones. And what we've decided on is we need a triggering event. And when we have that triggering event, then we'll back that out of our adjusted numbers. And so if you didn't have that, then our guidance would have gone up even more. So what you're seeing is we're erring on the side of conservatism. There's many examples out there of companies backing out all legacy pensions. We decided we're going to tie it to a triggering event. So... Kurt Wolf: And just to be clear, I don't know if the genesis of your question, Justin, to put a very fine point on it, Value Investor Club, other places, we've seen comments that, hey, this pension issue actually was artificially made things look better, and it's quite the opposite. So our guidance would have been stronger were it not for this change. So I think some of those investors, presumably shorts have the story backwards. Justin Dopierala: Perfect. Makes a lot of sense. And then lastly, Kurt, reading your CEO letter at the very end, there seem to be to me a shift in tone perhaps or emphasis and at least regarding debt. And it seemed to be -- I don't know, the way I read it, it sounded like we should be expecting some more material payments on reducing leverage. And I guess if you could just maybe provide your thoughts on that. Kurt Wolf: Yes. And I'll give a quick answer, and Paul, obviously, is the guy to give the more detailed answer. But obviously, we have a fiduciary duty to do what's in the best interest of our shareholders. At the same time, part of doing that is we have partners in our lenders, whether it's banks or debt holders. So our obligation is to our shareholders, but a part of that obligation is to make sure we have a good relationship with our debt holders. So we've done a lot for our shareholder. We think it's appropriate to derisk for the lenders to make sure that they want to continue to work with us and be a lender to us. And specific to delevering, we're in a really strong financial position. We have the '27s coming up. We have cash and liquidity to take that out. And our expectation would be within the next couple of months that we should be able to pay off the 27s without having to issue any additional debt. But I think Paul can give a better answer to the broader issue. Paul Evans: Yes. I mean, look, just to sort of add to what Kurt said, obviously, we have a duty to our shareholders. It was the best course of action to do the share buybacks in the manner of which we did. Now we shift to other aspects. Obviously, we desire to have improved credit ratings, and so we're working on that. With improved credit ratings is obviously a goal to delever the company. I've said to keep our net debt to EBITDA around 3 or slightly lower than that. And so that's just our next focus area. And obviously, the most prompt thing we have, which is current to us is our '27s. And as Kurt said, between cash and liquidity and other tools that our banking partners have out there, we're going to address that in the next few months. So we need to get this company back to the right appropriate leverage, and that's our focus. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Kurt for any further remarks. Kurt Wolf: Great. Thank you. Yes, everybody, thank you for joining us. Again, I can't be more excited about the performance of the business. It was a great quarter for us. We had a lot of progress that makes us optimistic about the coming quarters and years. And I would just like to say a thank you to, first of all, our shareholders for the trust you put in us. We work hard every day to try to deliver value for you. I think we're doing a pretty good job so far, and I think there's a lot of good things to come. Second, a big thank you to the employees, as I've said before, this truly is an exceptional set of employees at this company. The dedication to the company is phenomenal, and I can't thank all of them enough for the hard work they put in. And then finally, a thank you as well to our customers. They're incredibly important partners to us, and we strive every day to do a better, better job for them. And just appreciate the trust they put in us, and we continue to drive value for them and look forward to continued business with them in the future. So thank you, everybody, for joining and look forward to next quarter's call. Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to the Strata Critical Medical Fiscal First Quarter 2026 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference call over to Mat Schneider, Chief Financial Officer of Clinical Services and Vice President of Finance and Investor Relations. Mat, you may begin. Mathew Schneider: Thank you for standing by, and welcome to Strata's conference call and webcast for the quarter ended March 31, 2026. We appreciate everyone joining us today. Before we get started, I would like to remind you of the company's forward-looking statement and safe harbor language. Statements made in this conference call that are not historical facts, including statements about future time periods, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties, and actual future results may differ materially from those expressed or implied by the forward-looking statements. We refer you to our SEC filings, including our annual report on Form 10-K and our quarterly report on Form 10-Q, each as filed with the SEC, for a more detailed discussion of the risk factors that could cause these differences. Any forward-looking statements provided during the conference call are made only as of the date of this call. As stated in our SEC filings, Strata disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. During today's call, we will also discuss certain non-GAAP financial measures, which we believe may be useful in evaluating our financial performance. A reconciliation of the most directly historical comparable consolidated GAAP financial measures to those historical non-GAAP financial measures is provided in our earnings press release and investor presentation. Our press release, investor presentation and our Form 10-Q and 10-K filings are available on the Investor Relations section of our website at ir.stratacritical.com. These non-GAAP measures should not be considered in isolation or a substitute for financial results prepared in accordance with GAAP. Hosting today's call are our co-CEOs, Will Heyburn and Melissa Tomkiel. I'll now turn the call over to Will. William Heyburn: Thank you, Mat, and good morning, everyone. We're happy to report another great quarter with results ahead of our guidance for both revenue and adjusted EBITDA. Our 87% year-over-year revenue growth reflected organic growth of 32% in Logistics, coupled with a particularly strong contribution from our new Clinical business. The underlying strength of our transformed economic model is finally shining through as we began generating both operating cash flow and free cash flow before aircraft acquisitions this quarter. Our quality of earnings and cash conversion will only improve in the coming quarters as we clear the last remaining Passenger divestiture-related outflows. We are more confident than ever, not just that the transplant ecosystem sees value in our platform, but that the capabilities we bring captive, nationwide logistics integrated with device-agnostic clinical support, are essential to solve the shortage of donor organs in this country. Melissa will talk in more detail about some of the underlying trends driving our confidence in this area, but suffice it to say that the industry practices continue to move in our direction. On the M&A front, we're delighted to announce the acquisition of Ohio Valley Perfusion Associates. While small in size, this deal is perfectly aligned with and illustrates the potential of our M&A strategy. We operate in highly fragmented markets and can acquire businesses for mid-single-digit multiples of EBITDA that strengthen our existing business lines, position us for future growth and provide cost efficiencies. The Ohio Valley transaction value is approximately $1 million, and we expect it to contribute approximately $100,000 of adjusted EBITDA for the remainder of this year. As a reminder, the cardiac perfusion or Other Clinical vertical, as we call it, in which Ohio Valley sits is a great complement to our transplant business, fueling our ability to hire and train the same perfusionists we utilize for NRP services, while benefiting from recurring revenue through multiyear retainer contracts. Our capital deployment towards M&A is just getting started, and our pipeline remains very active. As we discussed last quarter, we have several opportunities currently under exclusivity across multiple business lines, including logistics, surgical recovery, placement and cardiac perfusion. Some of these are smaller opportunities like Ohio and some are larger bolt-ons that we project will generate low single-digit millions of adjusted EBITDA annually. We expect to reach the finish line on certain of these opportunities over the coming months. We continue to find that we are the acquirer of choice for many business leaders in our area, specifically our kind of leaders, the ones that still have gas in the tank, are hungry to keep growing, but see a larger value creation opportunity by joining forces with our team, benefiting from our nationwide platform and competing at scale. We have significant balance sheet capacity to support this M&A strategy, including approximately $59 million of cash on hand, an undrawn $30 million asset-based lending facility that could be upsized to $50 million and up to $45 million of contingent consideration from the Passenger sale transaction that's payable over the next year, along with the underlying free cash flow generation of the business. With that, I'll turn the call over to Melissa. Melissa Tomkiel: Thanks, Will. We've made a great deal of progress this quarter building out our national footprint of aviation, ground and clinical resources. This scale allows us to better and more efficiently service our customers and reduces costs for the transplant community. We acquired 1 new plane this quarter, providing us with a total of 10 owned aircraft and a dedicated fleet of approximately 35. We opened several new aviation bases in Q1 and now have roughly 20 logistics hubs around the country. We recently expanded into the Midwest, launching a new combined Logistics and Clinical base in the very strategic city of Chicago. This joint base allows us to best serve our new Chicago-based transplant center customers and creates more cost-effective options for all of our customers when recovering organs from donors throughout the Midwest. On the broader transplant industry front, as Will mentioned earlier, the industry continues to embrace NRP and third-party surgical recovery, areas where we are a market leader with data now showing NRP being performed on more than half of all DCD donors. Increased adoption of these practices has been a critical lifeline for the transplant community over the last several quarters, resulting in increased yields, or usable organs per donor that have more than offset a reduction in the overall number of donors that began following the media and regulatory scrutiny in mid-2025. Though deceased donors were still down year-over-year in Q1 2026, we saw sequential improvement starting in Q4 2025 and a larger sequential improvement in Q1 2026, putting us well above the lows of Q3 2025. A return to growth in deceased donors is welcome news for the 100,000-plus patients on the transplant waiting list and for the broader transplant community, including service provider partners like Strata. As the industry has worked through this period of reduced donor volumes, another subtle shift has occurred. The recovery surgeon capacity that transplant centers used to keep in-house simply doesn't exist at the same levels anymore. Couple this with the increased recovery complexity associated with the industry's shift to DCD and NRP and the old system of transplant centers using their own surgeons for recovery is maxed out. What's more, this is happening even at today's still depressed donor levels. Thankfully, we have the solution with local third-party surgical recovery. As we see continued normalization of donor volumes, this will only become a more critical and larger component of the organ transplant ecosystem. This is good news for everyone because it is giving us an opportunity to make the process more efficient, in partnership with the entire industry. Third-party recovery like what Strata offers enables surgeons to be dispatched from somewhere near the donor so they can spend more time recovering organs and less time sitting on airplanes. Additionally, by using local surgeons we can ensure that a DCD opportunity will actually result in viable organs before launching an airplane, significantly reducing logistics costs for dry runs, which can occur more than 1/4 of the time in DCD recoveries. In short, the evolving system, driven by third-party recovery, NRP and machine perfusion, is making the whole process more efficient and fueling the next leg of growth in transplants for all that desperately need them. Given the trends we've been discussing here, it should come as no surprise that our clinical division posted especially great results this quarter, with growth driven by continued new customer acquisitions across both NRP and Surgical Recovery as well as higher volumes within our existing customer base. We started providing NRP services to a new OPO in the Pacific Northwest during Q1, and we onboarded new Transplant Center clinical customers, several of which are existing Logistics customers, illustrating some early cross-sell wins. There is more work to do integrating our placement, clinical and logistics service offerings, but we have multiple end-to-end customers in the pipeline, customers that will utilize our entire suite of transplant service offerings. We remain well positioned to provide these critical services to the transplant community given our dedication to clinical excellence, geographic scale, and the technology and reporting platform that ensures strict compliance with national protocols and standards. On the regulatory front, we continue to see increased scrutiny around certification and qualification standards for donor surgeons, both abdominal and thoracic. This is an important and expected evolution as the field matures and scales. It is important to emphasize that in anticipation of this, we have designed our recovery service line to be forward-compatible with formal certification requirements and are actively expanding capacity to meet both current and anticipated demand. We have a growing pipeline of licensed surgeons, and we are deliberately building additional depth. In parallel, we have initiated development of a dedicated training pathway for thoracic donor recovery and NRP, drawing from a pool of already highly qualified surgeons. As the field gains broader recognition and demand increases, we believe this structured approach to training and credentialing will be essential to ensuring quality, consistency and scalability. We remain focused on several key value drivers, including strengthening our national organ recovery platform, acquiring new customers across all businesses, optimizing the profitability of our existing operations and executing on our M&A strategy. As you can see from our financial performance to date, we're making excellent progress on all of these initiatives. With that, I'll turn the call back over to Will. William Heyburn: Thank you, Melissa. We'll now turn to the financial results for the quarter. Total revenue increased 87.4% to $67.4 million in Q1 2026 versus $35.9 million in the prior year period and increased approximately 1% sequentially versus Q4 2025. Logistics revenue, which represents the company's organic growth, excluding Keystone, increased 32.4% to $47.6 million in the current quarter versus $35.9 million in the prior year period, driven primarily by higher Air revenue where both new and existing customers contributed to the strong performance in the period. Logistics revenue fell 3.3% sequentially versus Q4 2025 as customer mix drove shorter trip distances and winter storms resulted in the closure of key airports for several days during the quarter. Clinical, which did not exist in the prior year period, saw revenue increase 12.7% sequentially to $19.8 million in Q1 2026 versus $17.6 million in Q4 2025, driven primarily by Transplant Clinical revenue, which rose 26.7% sequentially, driven by both NRP and Surgical Recovery services. As mentioned earlier, new customers in both of these areas contributed to the results in the quarter. Other Clinical revenue rose 1.6% in Q1 2026 sequentially versus Q4 2025. Gross profit increased 100% to $14.1 million in Q1 2026 versus $7.1 million in the prior year period, driven by growth in Logistics and the addition of our Clinical business through the Keystone acquisition. Gross margin increased approximately 140 basis points year-over-year to 21% versus 19.6% in the prior year period, driven primarily by the positive mix impact from the Keystone acquisition, partially offset by a modest decline in Logistics gross margins. Logistics gross profit, which represents the company's organic growth, excluding Keystone, increased 29.9% to $9.2 million in Q1 2026 versus $7.1 million in the prior year period. Logistics gross margin of 19.3% in Q1 2026 decreased 30 basis points versus 19.6% in the year ago period and decreased 220 basis points versus 21.5% in Q4 2025, both driven primarily by customer mix. As discussed earlier, we saw a customer mix shift to OPOs during the quarter that have shorter trip lengths. This dynamic contributed to the Logistics gross margin softness in the quarter as OPOs are typically lower margin versus Transplant Centers due to shorter trip lengths and the aircraft types that are used, small jets and turboprops. Quarter-to-quarter customer mix shifts are a normal part of the business, and we don't anticipate any structural mix shift to OPOs versus Transplant Centers. Clinical gross profit rose 29.2% sequentially to $5 million in Q1 2026 from $3.8 million in Q4 2025. Clinical gross margin rose to 25% in Q1 2026 versus 21.8% in Q4 2025, primarily due to margin improvement in, and a mix shift towards transplant Clinical revenue. Given the noise associated with last year's transactions, year-over-year comparisons of SG&A are not particularly meaningful. Instead, looking sequentially, adjusted SG&A increased $0.3 million to $9.2 million in Q1 2026 versus $8.9 million in Q4 2025. We continue to take a disciplined approach to SG&A. The modest increase in adjusted SG&A sequentially was driven by investments in resources and infrastructure to support growth in the business. Similarly, year-over-year adjusted EBITDA comparisons are not illuminating. Looking sequentially, adjusted EBITDA fell to $6.4 million in Q1 2026 versus $7 million in Q4 2025, driven by a 90 basis point reduction in adjusted EBITDA margin to 9.5% in Q1 2026 versus 10.4% in Q4 2025, consistent with our guide for an approximate 1 point decline sequentially. The 90 basis point decline in adjusted EBITDA margin versus Q4 2025 was driven by the reduction in gross margin and slight increase in adjusted SG&A we discussed previously. Operating cash flow was $3.9 million in Q1 2026. And the $2.5 million difference between adjusted EBITDA and operating cash flow was driven by approximately $1 million of income statement adjustments and a $1.5 million increase in working capital, which was primarily a function of incentive compensation payments that are accrued throughout the year but paid in Q1. Capital expenditures of $5.5 million in Q1 2026 were driven primarily by the $3.7 million acquisition of 1 aircraft, along with aircraft capitalized maintenance. Free cash flow before aircraft and engine acquisitions was $2.1 million in Q1 2026. We're encouraged by the cash generation in the quarter, especially considering the non-recurring cash items that burden cash flow, along with the timing of annual incentive compensation payouts during the quarter. We ended Q1 2026 with $58.8 million in cash and short-term investments. We continue to expect to receive Joby earn-out payments related to our Passenger divestiture of approximately $45 million. Up to $17.5 million of this earn-out would become due at the end of August based on Blade's financial performance post close. The balance, which would become due in March 2027, is based on the retention of former Blade employees who transferred to Joby and is largely hedged by our ability to recover stock from those employees if they do not fulfill their obligations. Note that the value of those shares is held as a liability on the balance sheet today and will be revalued based on the current share price each quarter flowing through the income statement. Finally, as a reminder, if Joby elects to make the earn-out payments in the form of Joby stock, the number of shares will be determined at the time the earn-out is earned, not based on a historical Joby stock price. We would also like to note that the 14 million warrants issued as part of our 2021 going public transaction are set to expire tomorrow, according to their terms. The exercise price of the warrants is $11.50. Moving to the outlook. Revenue is trending above the midpoint of our guidance range, partially due to higher-than-anticipated fuel surcharges for the remainder of the year. On Logistics gross margins, there are several key drivers in a given quarter, including the mix between air capacity types, owned fleet uptime, customer mix and the timing of contractual pricing escalators or contract renewals that include cost increases. For the rest of the year, we expect Logistics gross margins to remain in the 20% range as we anticipate higher fuel surcharges, along with the impact of customer mix that we have limited visibility into quarter-over-quarter. As we discussed, Clinical gross margins were very strong in Q1 2026. And while they might not stay at 25% plus each quarter, Clinical gross margins are trending above expectations given the mix shift to Transplant Clinical. Lastly, the contribution from Ohio Valley Perfusion is limited for the remainder of 2026, as we mentioned earlier. We are reiterating all aspects of our 2026 guidance, including revenue of $260 million to $275 million, adjusted EBITDA of $29 million to $33 million, and free cash flow before aircraft and engine purchases of $15 million to $22 million. For the second quarter, we expect revenue to increase in the low single digits sequentially. Adjusted EBITDA margin is expected to improve to approximately 10%. In summary, we're very happy with the performance of the business, and we see significant value creation potential ahead through organic growth and executing on our M&A strategy. We're participating in several investor conferences over the next few weeks, including Craig-Hallum's Institutional Investor Conference, B. Riley's Investor Conference, William Blair's Growth Conference and a Non-Deal Roadshow with Lake Street. We hope to see many of you at these upcoming events. With that, I'll turn it back to the operator for Q&A. Operator: [Operator Instructions] And it comes from the line of Bill Bonello with Craig-Hallum. William Bonello: So a couple of things real quick. You talked about onboarding some of your Transplant Center Logistics customers as Clinical customers, which was great to hear. I think last quarter, you had talked about a lot of the Logistics growth sequential being driven by capturing some of the Keystone customers. Is that trend still continuing? William Heyburn: Bill, thanks for the question. It's Will here. Yes, we continue to get an extremely high percentage of the clinical cases where we're performing services, having those customers use our logistics. I think there was an initial step-up of that after we closed the Keystone transaction. So you're not going to see a big step-up like that again because we do believe we're capturing all that. But you will continue to see that benefit the Logistics business as the Clinical business continues its slightly faster growth. William Bonello: Yes. Okay. That's really helpful. And then just one other thing. Curious -- and I'll hop back in the queue. Curious on Chicago. Is there anything you can sort of extrapolate from prior market expansions in terms of how adding a new base impacts growth in that area? William Heyburn: This is a unique one for us because it is a combined Clinical and Logistics base. So it gives us a lot of flexibility in an area where, frankly, we had limited -- more limited capabilities historically. Now we'll be able to have airplanes on standby for organs that are being recovered in that area. We'll be able to dispatch surgeons locally for organs that are going to be recovered in that area. And then also, we'll be able to fly out perfusionists and surgeons from that Chicago hub to anywhere in the area if it's not within driving distance. So there's a lot of new capabilities. We've been able to do that in a number of other areas for a period of time, but it does allow us to cover a large part of the country that we haven't been able to cover very well previously. Operator: Our next question comes from the line of Yuan Zhi with B. Riley. Yuan Zhi: And congrats on a strong quarter. Maybe a first question to Will. So if the oil price stays at this high level, can you give more details about how this oil price will impact your top line and the bottom line? Melissa Tomkiel: This is Melissa. So we build into our Logistics contracts a fuel pass-through above a certain threshold, which most of our customers have already been at prior to these most recent increases. So this happens on a trip-by-trip basis. So as we incur cost for fuel, that is passed through to the customers, and we provide them with the fuel invoices for each trip. So there's full visibility there. We're always trying to minimize the cost for our customers, which is why we're building out this national infrastructure to have planes strategically located throughout the countries, which will reduce repositioning of those planes, which drives that fuel cost. So we -- it doesn't have that much of an impact on our business. Yuan Zhi: Got it. And I think maybe just to follow on the prior questions. I see you guys have an update on the regional hub chart. I'm just curious about your thinking behind how -- what are the required criteria or thinking behind entering a new market in the U.S.? Melissa Tomkiel: We are responsive to our customers' needs. So our value proposition is to be able to offer dedicated capacity with aviation assets to our customers. So this -- we picked up some new customers in Chicago, and we immediately were able to relocate or provide additional resources in that region. And because we know that the most efficient way we can provide the service is by having those locally based surgeons and aviation assets. William Heyburn: But I would point out that those new customers in Chicago are not yet flying. We're expecting that in the back half of the year, but we're already using that hub to support our existing customers in the region. Yuan Zhi: Got it. And my last question is related to ongoing clinical trials in the transplant space. There are several clinical trials ongoing involving specialized medical device for organ transplantation. I wonder, do you see the logistics associated with those activities have a higher margin or higher revenue versus the routine procedures? William Heyburn: With our agnostic philosophy, our relationship is with the customer, the transplant center or the OPO. And we're not charging them anything different based on what device they may or may not be using. So our goal is to support all of our customers with any clinical decision they might make and any medical device they might want to use, whether that's a device that's already certified or whether that's a device that's going through a clinical trial in which they're participating. So don't think that, that will have much impact on us one way or another because if you recall, our contracts simply say that we're going to do 100% of the flying that, that customer is going to do, and that would be inclusive of that kind of work. Operator: [Operator Instructions] We have a question from Ben Haynor with Lake Street Capital Markets. Benjamin Haynor: First off for me, just on becoming kind of the acquirer of choice in the space. Just curious on what folks are looking for in terms of structure on some of these acquisitions. I mean, is it going to be typically an upfront cash payment, as the guys with gas in the tank and -- guys with gas in the tank on sort of earn-out, equity? How broad is the structure spectrum of these acquisitions that you're looking at? Melissa Tomkiel: Well, it will vary on a case-by-case basis, but we are flexible. What we are seeing with the structure. There's not just one formula. What we're seeing though with the companies that we're speaking to, to partner with is a lot of excitement on their end to partner with us, knowing that together, we're going to have a larger footprint, and we're going to have more resources. And they want to participate in the upside, which is why we do tend to discuss structures that will involve some equity component. There's just a lot of excitement in the space and the belief that partnering with us as a strategic is a much better outcome for those companies. William Heyburn: I think we do have a little bit of an advantage when we're being considered versus a private equity acquirer, because it's just a simpler structure that we can offer relative to maybe a less transparent incentive plan structure. It's publicly traded equity. They can see what it's worth. They have a little more confidence that it could lead to liquidity down the line. And so, I think, that's been a nice benefit for us. And also, just our strategic approach. Really, what we see as an advantage with these acquisitions is building on our platform and our capabilities versus the financial arbitrage of it is secondary to the strategic benefit that we see. And I think that entrepreneurs really appreciate that mindset. Benjamin Haynor: So strategic benefit and incentive alignment will match up, and you offer both. William Heyburn: Yes. Benjamin Haynor: Got it. And then on the organ recovery hubs getting up to 13, I guess, over time, where do you see that ultimately going? Is that something that you want to give more of them sooner rather than later? How do you see that kind of tracking over time? William Heyburn: As Melissa said, it's really driven by our customers. So if we have a customer that can support a new hub, that is usually the first step and us feeling like we have enough demand for flight hours that we can justify the presence of an airplane there. And it's also a tremendous benefit to that customer because, again, as Melissa pointed out, the best way we can make their costs more efficient and reduce things like fuel costs is to not fly unnecessary repositioning flights. And so that's why our strategy, which I think our customers have appreciated is always to put airplanes either at the home airport that they're going to depart from or as close to there as possible. Melissa Tomkiel: And specifically on the clinical side, there is opportunity there. There are very strategic regions that we have not yet expanded into that we're looking to do so over the next several quarters. Mathew Schneider: Ben, this is Mat. I would just encourage you to look at our investor presentation that has an updated map of all the hubs. There's a lot of white space still out there, particularly in the West and Southwest. So I think that's important just to think about geographically, we have a much -- we have a very strong footprint on the East Coast. And we're kind of filling that in over time. We're doing so based on demand and where we see customers looking to expand the relationship with us. So it's really contingent paced by that, but there's a lot of opportunity to grow from here. Operator: One moment for our next question. It comes from Bill Bonello with Craig-Hallum. William Bonello: Thanks for allowing me to follow-up with one more. So the donor metrics, as you discussed, all look really strong. One item that did stand out to us is maybe a little bit less positive was a modest reduction in average transport distance. And just curious if you have any thoughts on if there's anything structural or what might be driving that or if it's just normal variability? And then I'm pretty sure you said this, but I just want to confirm that the Logistics mix shift to OPOs is just normal quarter-to-quarter variability. Mathew Schneider: Bill, this is Mat again. I think quite the opposite in terms of our view, and we talked about this at Investor Day and the last few times we all got together about a continued increase in the distance organs are traveling over time, driven by several factors, including regulatory change in terms of organ allocation policies. Over the last 5 years, you've seen about a 60% increase in the distance organs are traveling. Any given quarter, it could move around depending on our customer mix. We have -- we don't have great visibility into a particular mix of customers in a given month or quarter, but we are confident over time in the distance increasing. William Bonello: Okay. So even at the macro level, what we saw most recently, just think of that as kind of normal variability. Mathew Schneider: I think what we saw in the quarter was really our customer mix. I think that's the way to think about it. William Heyburn: Although I think the industry saw the same thing. William Bonello: Yes, industry saw the same thing. That's okay. We can follow up offline. Operator: Our last question comes from the line of Jon Hickman with Ladenburg Thalmann. Jon Hickman: Could you -- Will, could you elaborate a little bit on the weather, the effects of the weather during Q1? William Heyburn: Yes. Really, this was pretty unusual in that we had particularly Peterborough, where we have a number of airplanes based, the airport was actually closed for several days during the quarter. I don't want to overemphasize the impact of that because Transplant Centers are nimble. They'll try to reschedule cases. They'll push things back, they'll pull things up. And so I do think a lot of cases still get done. But certainly, if you have multiple days in a quarter where you can't fly the airplanes, there's some impact there. But I wouldn't say it was a determinative impact. Jon Hickman: Okay. And then could you elaborate a little bit on your comments about SG&A going forward? So you said like the adjusted SG&A was $9 million, $9.5 million. And what -- can you give us some idea of what you expect growth going the rest of the year? Mathew Schneider: Yes. So the adjusted SG&A -- this is Mat. It was $9.2 million in the quarter. I think you really have to look at just given all the changes, the divestiture, the acquisition of our -- of Keystone, our Clinical business, really look at the last 2 quarters as the baseline. So you saw a modest increase of about $300,000 sequentially. So that's the base. Our guidance implies a modest increase from these levels throughout the rest of the year, really just to support growth in the business. So adding some staff and infrastructure across the businesses to really support that growth. So I think we should look at it. It makes sense to look at it sequentially versus the fourth quarter, first quarter going forward throughout the rest of the year. Jon Hickman: Okay. Modest growth. Okay. Operator: And this concludes my Q&A session. I will pass it back to Mat for any additional comments. Mathew Schneider: We would like to take one question we got from retail investors that we ask what they're thinking about each quarter. We got a question on the transplant industry growth and if we expect it to improve this year. I think the important thing to think about here is we've seen an improvement in deceased donor activity over the last few months. Deceased donors slowed down really in the second half of the year, and they picked up a bit in the fourth quarter and then more meaningfully in the first quarter following some regulatory media scrutiny in the first half of 2025. And transplant growth has also reaccelerated from a low single-digit rate to the -- back to the mid-single digits in the first quarter. This is really in line with our guidance. If you recall, we assumed transplant industry growth would moderate towards this mid-single-digit level in line with what we saw last year as a result of the slowdown in deceased donors. So it's very much in line with our guidance. If we do see a continued recovery of deceased donors, we think there's upside to the number of transplants, which is great for the community, for everyone on the transplant waiting list, but we're not underwriting that in our guidance. Operator: Thank you. And ladies and gentlemen, this concludes our conference. Thank you for participating, and you may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Veolia publication of Q1 Financial Information Conference Call with Estelle Brachlianoff, CEO, and Emmanuelle Menning, CFO. [Operator Instructions] Estelle Brachlianoff: Thank you very much, and good morning, everyone. Thank you for joining this conference call to present Veolia, because you know the line is a little bit blurred. So I thought you had finished your introduction. No anyway, I will go on. I'm accompanied by Emmanuelle Menning, our CFO, to present Veolia's Q1 key figures. I will start on Slide 4 by highlighting the key achievements of the first quarter. We delivered a strong Q1, resilient growth and solid EBITDA progression, fully in line with our annual guidance in spite of a difficult environment. Our unique multi-local model has proven its value again, combining resilience with growth potential based on a sustained demand for essential services, which has led to limited impact from the Middle East conflict and even future opportunities. I will come back to that in a minute. We are continuing our strategic transformation towards international markets and technology-driven solutions with new tuck-ins in Q1. I will also come back to innovation after our dedicated day recently held in London as it is core to our strategy, fueling growth and efficiency targets for years to come beyond the GreenUp plan. I, of course, will fully confirm our 2026 guidance as well as our GreenUp trajectory. These results demonstrate that Veolia's business model and strategy is robust, diversified and well positioned to navigate uncertainty while capturing growth opportunities in essential environmental services. Now let's look at the specific numbers for Q1 2026, and I'm on Slide 5. Revenue reached EUR 11,427 million -- so EUR 11.4 billion, up 2.1% at constant scope and ForEx and excluding energy prices. This represents resilient growth in a geopolitical wait-and-see environment and very comparable to the second half of 2025. Our EBITDA came in at EUR 1.766 billion, up 5.1% at constant scope and ForEx and up 5.8% when including tuck-in acquisition. And I recall, without any contribution of Suez synergies that we enjoyed during the previous quarters. This performance is therefore excellent, especially in a complex macro and geopolitical environment. Particularly noteworthy is our EBITDA margin expansion of 73 basis points year-on-year, reaching 15.5%. This margin improvement is fueled by our strategic choices and operational efficiency. Current EBIT reached EUR 971 million, up 7.2% at constant scope and ForEx, demonstrating strong operational leverage. Our net free cash flow improved significantly by EUR 144 million compared to Q1 2025, driven by strict management of both capital expenditure and working cap requirements. Net financial debt stood at EUR 20.8 billion, which is fully under control. And this result gives me strong confidence for the full year 2026. I'm now on Slide 6 and wanted to recall what makes Veolia truly unique, which is our positioning that combines both resilience and growth. We are an international environmental services leader operating in 44 countries across 5 continents, which gives us the firepower to lead in technology and innovation, thanks in particular to our 14 R&D centers and over 5,000 patents. We rank in the top 3 in Europe, the Americas, Asia and the Middle East, which gives us pricing power. But no capital employed in a single country exceed 10% outside the U.S. in order to derisk the group. This is a choice. Our customer base is diversified, roughly 50-50 between municipal and tertiary and industrial clients. Our multi-local delivery model is anchored in local communities. That means we have no impact from tariffs, no impact on margin rates for ForEx volatility, only translation effects and no dependency on subsidies or government contracts. Our long-term contract on an average of 11 years in duration with 70% being inflation indexed. We estimate that 85% of our business is macro immune and commodities are essentially pass-through in our contracts. By the way, and in addition to what I already said, we offer a unique way of integrating solutions combining waste, water and energy services. This combination of growth potential and resilience is rare in today's markets. Slide 7. Given the current headlines, I want to address the Middle East situation directly. I believe it is a perfect illustration of the multiple strengths of our business model. We can see this first with the sustained demand for social services. In the region, we maintain constant and direct daily connection with local authorities and clients to ensure the continuity of critical services. This includes operating desalination units, for instance, which can account for up to 95% of the water supply. These direct contacts confirm that our partners are already preparing for the post-crisis phase and require partners like Veolia to be by their side. Furthermore, our multi-local model ensures our direct financial exposure remains very limited with EUR 1.3 billion revenue in 2025 and capital employed around EUR 300 million in the region, which is less than 1% of the group's total. Consequently, the local impact on Veolia has been largely neutral, only limited operational disruption like a little bit lower hazardous waste volumes and a slowdown or I going to say more a delay in water technology projects being signed. Regarding consequences on other geographies, we are well protected against rising costs. Our long-term index contract covers 70% of our contracts and covers all our cost base with some lag effect. For the remaining 30%, we have proactively already put in place specific fuel surcharge when needed, particularly in the waste business, and we've secured key supply. I'm on Slide 8. In a way, this crisis in the Middle East highlights the power of our unique Veolia offer and explains why it may even lead to a few opportunities. Our proprietary solutions help secure access to water supply, which is as critical as oil, if not more, as we see now. Our solution give access to an untapped reservoir of local energy at fixed price instead of import. You can imagine how important it is and lots of people realize it. In addition to that, our solution can contribute to securing supply chain, thanks to the circular economy. And those solutions can as well depollute industrial sites and protect human health. You will understand, I'm sure, why I'm very confident about our future performance as we have built with Veolia a unique positioning as the environmental security powerhouse, addressing critical needs for our clients. Slide 9. Our international footprint has largely contributed to our good results in Q1. I would like to highlight the continued standout performance in our region outside of Europe, which grew by a strong 3.1% and even 5.3% at constant ForEx. I will insist on the performance of the U.S.A., which grew by 7.5% at constant ForEx in spite of extreme cold weather conditions, which impacted hazardous waste volumes in January and February. The demand for our services is very strong. We also passed the main steps in the Clean Earth acquisition process, which secures the closing at midyear as announced. The Water Technologies segment performed quite well, up 4.3%, excluding the project business line, which was penalized or even more like delayed in signing by the crisis in the Middle East and continued to deliver a remarkable EBITDA growth in this segment. In Europe, we grew by a solid 3%, anchored by strong performance of Central and Eastern Europe, the U.K. as well as Spain, all enjoying strong commercial momentum and positive weather. Finally, France and Hazardous Waste Europe was resilient in spite of adverse weather conditions, which has penalized a bit waste activities. I expect Hazardous Waste Europe to grow faster in the coming quarters without the Q1 disturbances. Looking out at our top performance by business line on Slide 10, we see resilient growth and solid EBITDA progression across all our activities. Our stronghold activities, municipal water, solid waste and district heating generated EUR 8.4 billion in revenue, up 2.5% at constant scope and ForEx and excluding energy price. Our booster activities, Water Tech, Hazardous waste and Bioenergy, generated a little bit more than EUR 3 billion in revenue, up 2.2%, including tuck-ins. You have to remember again that Q1 was quite specific with negative impact from the Iran war on the delay of signing specific projects with Water Tech, added to extreme weather events and timing effect in Hazardous Waste. The demand for our booster activities keeps being very strong. If we were to exclude Water Technology project delay, our boosters would have grown by 4.6%. The combination of Strongholds and Boosters now represents already 30% of our revenue, demonstrating our strategic evolution towards high-growth, higher-margin activities while maintaining the stability of our core business. Emmanuelle will give you all the details by activity in a moment. I'm now on Slide 11. Veolia continues its transformation as set up in GreenUp towards more international, more technology-driven activities, which is our Boosters. We are very active, sorry, in strategic portfolio management with EUR 8.5 billion of assets, which will have rotated over 4 years. You remember that 2025 was a pivotal year as we successfully achieved the Suez integration, but we've also crystallized strategic moves with 2 major acquisitions signed or closed. First, EUR 1.5 billion invested in Water Tech to enhance our combined technology portfolio capabilities. We have already extracted 1/3 of the planned EUR 90 million synergies, which is EUR 30 million, including EUR 10 million in Q1. And of course, $3 billion with the acquisition of Clean Earth in the U.S. We have obtained both the antitrust clearance and our shareholders' approval on Monday, which means we are fully on track to close the deal midyear. Both acquisitions already create value, but also will enhance the group's profile going forward. Lastly, we announced EUR 2 billion of nonstrategic asset divestitures in the 2 years following the Clean Earth closing. Process has started with clear list and various scenarios. We have already achieved several small and medium divestments of mature assets or not in the top 3, which you know are some of our criteria, and we will continue pruning our portfolio. On Slide 12, I would also like to say a few words about our exciting growth ambition related to innovative offers through 2030, which we have explained in a dedicated session last April. I will start with our new offer dedicated to AI industries, covering data centers and chips manufacturing. Those industries are in high demand to secure steady water supply for cooling systems, continuity of supply of untapped water and they use a large amount of high-quality solvent and acids. Data centers are starting to see resistance from local communities to be granted permits given the intensity and resource consumption. Our DATA CENTER Resource 360 new offers help secure local acceptance and license to operate with recycled water technologies and heat recovery as seen in our recent contract with AWS in Mississippi. We already grew very quickly in those AI industries from $150 million in 2019 to $560 million in 2025, and we're now targeting approximately $1 billion by 2030. We have a unique set of assets and technologies to support this growth. Patented technologies such as electrodeionization for ultra-pure water, ZeeWeed membranes for water recovery, without mentioning a new Taiwan-based electronic-grade sulfuric acid recovery, which is really promising, but also a worldwide installed base of hazardous waste treatment facilities. In addition, we'll soon have a presence in all 50 states of the U.S. with the Clean Earth acquisition. I'll remind you that the offer we launched in 2024 on PFAS is already very successful, and I'm very confident we'll reach our ambitious EUR 1 billion revenue by 2030. We had 0 revenue in 2022 to EUR 259 million in 2025, which is up 25%. And our recent acquisition of soil remediation specialists in Australia at a very reasonable multiple will complement nicely our comprehensive solution portfolio and offer duplication opportunities. This innovation-driven growth are testimony of the group transformation towards more value-added offer and services as an environmental security powerhouse. On Slide 13, we will also derive from digital and AI, innovative tools and an increasing contribution to our efficiency plan. In 2025, 23% of our operational efficiencies were already derived from AI and digital, and we aim at 50% by 2030. This is by scaling up AI-based tool we've already tested to maximize plant productivity, to reduce energy or chemical consumption or to help detect leaks. Our Talk to My Plants tool dedicated to plants maintenance operator is particularly very promising. It is a very exciting journey, and we are only on the very beginning here. Slide 14. I just want finally to fully confirm our 2026 guidance, which is reminded fully on this slide, in particular, with EBITDA to grow 5% to 6% organically and current net income by 8% at constant ForEx and before PPA. And this is, of course, excluding Clean Earth. Additionally, assuming a mid-2026 closing, the Clean Earth acquisition will be accretive to current net income from 2027 before PPA, confirm as well our GreenUp trajectory. This reflects our confidence in our business model and strategic execution. Emmanuelle, the floor is yours to elaborate on Q1 results. Emmanuelle Menning: Thank you, Estelle, and good morning, everyone. Revenue in Q1 amounted to EUR 11.4 billion, up 2.1%, excluding energy prices. Organic growth of EBITDA was 5.1%, in line with our annual guidance, which is an excellent performance as we no longer benefit from the synergies. And our EBITDA margin continued to increase by 73 bps to 15.5%. We continue to enjoy a strong operating leverage, leading to a 7.2% progression of current EBIT. Net free cash flow increased by EUR 144 million, thanks to tight CapEx control. And net debt landed at EUR 20.8 billion, including the seasonal reversal of working cap. ForEx impact on EBITDA was EUR 33 million as forecasted due to a lower U.S. dollar, British pound and LatAm currencies. ForEx is moving, notably due to the crisis in the Middle East and the final impact on 2026 EBITDA is hard to predict. It will be lower than initially expected with the current exchange rate. We will see, but remember that as a multiple -- multi-local group with very limited international trade, ForEx does not impact our businesses or margin rate and ForEx has a very limited impact at net income level. Moving to Slide 17, you can see the revenue and EBITDA evolution by geographies. As Estelle mentioned earlier, growth outside Europe was quite satisfactory at plus 3.1% and even plus 5.3%, including tuck-in. Most regions registered mid-single-digit growth. U.S.A. grew by plus 5.2% and 7.5%, including tuck-in in spite of adverse weather conditions, which impacted hazardous waste volumes in January and February and hazardous waste in the U.S. grew by 5.7%. Pacific grew by plus 8.1%, including the successful acquisition in Australia, which strengthens our leadership in hazardous waste and PFAS treatment. Africa/Middle East revenue increased by plus 4.4%. And by the way, Middle East succeeds to be up plus 3% in a complex geopolitical context. Water Technologies was quite resilient, excluding projects and progressed by 4.3% like last year. And as I remember, 70% of our activities are recurring corresponding to products, services and chemicals, while 30% is more volatile by nature, what we call projects. In Q1, projects were impacted by several booking and milestone delays due to the Middle East crisis, and we forecast this to continue in Q2. Above all, Water Technologies continued to deliver a strong EBITDA growth, fueled by our business refocusing and efficiencies and synergies. Europe grew by 3%, excluding energy prices, fueled by favorable weather in urban heating and by good water activities. And finally, France and Hazardous Waste Europe were resilient. Now let's take a look at our performance by business. I will start with water. It represents 40% of our revenues and 50% of the group EBITDA. Water revenue was up by 2%. Water operation benefited from good indexation in Europe and in the U.S., except in France, due to the lower electricity prices. Volumes were on a very good trend, up 1.1% in France, 2.4% in Central Europe, 2.9% in U.S. regulated. And as I just explained, the underlying growth of Water Technologies, excluding the timing of project delivery remained quite strong at 4.3%. Moving to waste, representing 35% of our revenues. Waste activities succeeded to stay flat despite an helpful macro and are very comparable to previous quarters. Indeed, excluding external factors as weather recycled or electricity prices, waste revenue was up plus 1% at constant scope and ForEx. Starting with solid waste, we did not experience in Q1 any significant impact of the higher diesel costs. In terms of diesel price increase, I remind you that it's pass-through. The group diesel purchases for the waste activity amounted last year to EUR 218 million, half for multiple contracts with automatic pass-through in indexation formula with 3 to 6 months lag and half for C&I clients with immediate fuel surcharge. In terms of volumes and commercial developments, performance was mixed in Europe, slight volume decrease impacted by bad weather, icy road and frozen waste. Good incinerators availability rates and activity continued to progress in the rest of the world. Hazardous waste grew by plus 1.7% and plus 6%, including tuck-in. Europe was slow due to the combination of adverse weather and maintenance outage timing with rebound planned in Q2. Growth remained strong in the U.S., plus 5.4% with average price increase of 3.6% and volume up despite unfavorable weather conditions. For Q2, we expect further price increases alongside fuel surcharge and better volumes. The performance of last year's tuck-in in the U.S., Brazil and Japan was very good. Finally, moving on to energy, I'm on Slide 20. Regarding the evolution of gas and fuel prices, I remind you that our energy business model is very strong as we demonstrated in 2022 and 2023, it is regulated and our margins are protected. We can also marginally take advantage of higher electricity prices and volatility of our midterm. For 2026, we are largely hedged in terms of gas, CO2 cost and electricity revenue. Energy prices were down as expected, but to a much lesser extent than last year. Excluding the energy price impact, Q1 growth was quite good, plus 4.1%, thanks to good volumes, helped by a colder winter and with a resilient activity for the booster. The revenue bridge on Slide 21 explains the driver of our resilient growth in Q1. ForEx impact amounted to minus 2.3% due to U.S. dollar, GBP, Argentinian peso and yen. Scope was positive by plus EUR 69 million, including hazardous waste tuck-in. We expect the consolidation of Clean Earth in the second semester 2026, and we are pleased to have now obtained both the antitrust clearance and on very shareholder approval. The impact of energy prices was as expected, more than divided by 2 compared to Q1 last year. Recyclate prices were almost neutral and the weather effect amounted to plus EUR 66 million due to a colder winter in Europe, partially offset by adverse weather impact for waste activities. The contribution of commerce volumes and pricing was plus 1.6%. Pricing in water and waste remains sustained, contributing to plus 1.4%. Let me walk you through the EBITDA bridge, which illustrates our strong operational performance. We experienced ForEx translation impact of EUR 33 million. It's important to remember that ForEx has no impact on our margin rate. It's purely translation effect since our revenues and costs are in the same currency in each of our countries. Scope effect from tuck-ins contribute positively plus 1% EBITDA increase, showing good revenue to EBITDA conversion and fueling future EBITDA growth. Energy and recycled material prices had an impact of minus EUR 16 million. Weather effect contributed positively to 1% EBITDA growth. And the most impressive component is our growth and performance contribution of 5.1%. This breaks down into EUR 62 million from net efficiency gain with a very good retention rate, thanks to action plan implemented across Europe. And we have also EUR 10 million from water technology synergies. The volumes and commerce contribution was limited and in line with revenue. This represents organic growth of 5.1% at constant scope and ForEx, which is quite good. As mentioned, we do not benefit anymore from the 1.5% contribution of the Suez synergies. A few highlights on the efficiency gain. I am on Slide 23. We delivered EUR 96 million of efficiency gain in Q1, in line with our annual target. Two important characteristics you need to consider regarding efficiency. First, efficiency was indeed a permanent lever for value creation. It's embedded into our operation. Efficiency gain at Veolia are not discretionary cost-cutting program, but they come from a very diversified series of initiatives in our thousands of plants. In case of headwinds, we can and we know how to boost efficiency program as we demonstrated in the past by specific plan like the one we have conducted in China, in Spain and in France. Second, digital and AI gain, which already accounted for 23% of our recurring operational efficiency in 2025 will continue to increase, and we have set an objective of 50% of digital gain in 2030. Let's now analyze our performance below EBITDA. I am on Slide 24. Going down to current EBIT, this slide illustrates perfectly the operational leverage of our business model, 2.1% revenue growth, 5.1% EBITDA growth and 7.2% EBIT increase. Current EBIT grew to EUR 971 million at a faster pace than EBITDA. And let me highlight amortization and OFA, which were slightly up at constant scope and ForEx and industrial capital gain provision were stable, showing a continued strong quality of results. Now free cash flow generation, which is key and net financial debt, I am on Slide 25. I am satisfied with the progression of the net free cash flow of EUR 144 million, which we achieved despite the seasonality of working capital. And thanks to a tight CapEx control, you see a strong discipline on industrial investment at minus EUR 860 million compared to more than EUR 1 billion last year. Limited increase of taxes and financial charges linked to Water Technology acquisition. Working cap reversal was close to last year. Net financial debt is, therefore, well under control, reaching EUR 20.8 billion, and this increase of EUR 1.1 billion is due to the seasonality of working cap and financial investment for minus EUR 172 million. Our net debt is 85% fixed. Our net group liquidity is very solid, EUR 6.7 billion, and our balance sheet, therefore, remains very strong. Both rating agency confirmed strong investment-grade rating beginning of 2026. Before concluding this slide reminds you of our 2026 guidance, which Estelle fully confirmed earlier, continued solid organic revenue growth, excluding energy prices, our EBITDA organic growth between 5% and 6% current net income of minimum 8% at constant ForEx, excluding Clean Earth, which we will close mid-'26, leverage ratio equal or slightly above 3x with Clean Earth acquisition. And as usual, our dividend will grow in line with our current year. As you see, we are very confident for 2026. We delivered a strong Q1, resilient growth and solid EBITDA increase. fully in line with our annual guidance. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. And now we are ready, Emmanuelle and myself to take the questions you may have. Operator: [Operator Instructions] First question comes from Ajay Patel from Goldman Sachs. Ajay Patel: I have 2 areas I wanted to dig a little deeper. Firstly, on cost cutting and the retention rate over this quarter was quite a bit higher than you normally guide. I just wondered how should we think about that in the context of the full year? And then I guess maybe alongside that, you talk of AI increasingly becoming a proportion of the overall cost-cutting efforts increasing in size. I just wondered, is the retention rate on the cost savings that you make on the AI side higher than that of maybe the non-AI side? Just to understand if there's any dynamic there that we should understand? And then the last one is just referring to the bridge on Slide 22. If you could help us with the volumes and commerce element being a limited contribution. Just what headwinds maybe break out a little bit more of the headwinds that you experienced over Q1? And how should we think about that variable over the course of the year? Estelle Brachlianoff: Thank you for your question. So first on cost cutting, you're right. It's EUR 62 million out of EUR 96 million basically that we've retained, so which is higher than the usual, don't translate it into times 4 for the entirety of the year. Our good target is usually between 30% and 50%. But it's fair to say in the recent quarters, we've been more around the 40% to 50% than the lower part of the range. That's a good proxy for me. With regard to your second half part of the first question on AI. You're not wrong. As in our AI cost cutting is mainly on operational things, like that's why I mentioned the example of AI helps us to reduce energy consumption to help us increase the plant efficiency and so on and so forth. And this type of gains are typically more retained than what would be, say, SG&A type of a cost cutting. So you're right. The more we can retain of the cost-cutting gain or efficiency plan, the happier we will be. There always will be some leakage, let's call it that way, because it's part of our business model with our customer. When we renew contracts, we give some productivity back to the customer, and then we find other ways of gaining productivities in the years following the renewal of the contract. That's why there will always be some type of leakage. And of course, we try to retain the maximum possible. In terms of the second part of your question, I would not highlight anything which would look like -- I mean, there is no slowdown in revenue. When you look at H2 2025 and Q1 2026, we are exactly in the similar type of range of 2-point-something revenue, excluding energy price. In the pluses and minus of this quarter in terms of commerce, so commerce is very good. No question about that, retention of our contract or renewal of our contract is very good. On the plus side, we had a little bit of weather effect in Eastern Europe. On the minus side, we had a little bit of weather effects on the negative side in the U.S. and in Europe on haz and waste. You may have noted that there was 2 times a week or 1.5 weeks of the Eastern parts of the U.S. being totally blocked by minus 15, minus 20 degrees Celsius type of temperature with everything being closed. Of course, that means less volume in the end. The trucks are not even allowed to be driven into any type of road. So that's why pluses and minuses, but nothing which looks like a slowdown. And April is good. The demand of our services is sustained. And again, the same type of pace in revenue as we had enjoyed in the second part of last year. Ajay Patel: May I add one more question? It was just the other thing just on the opening comments, I think then we were talking about that conflict at the moment. Just wondered if -- what -- how does the disruption work in your business model in terms of if a certain component doesn't turn up on time or there are some restrictions on how you operate in terms of some form of rationing. I know that we're not at this level yet, but if these types of impacts happen, are they passed through? Or is there some exposure on that side? I didn't quite necessarily get that from when I was listening to the presentation. Estelle Brachlianoff: So when it comes to the Middle East activity, we have not seen disruption in supply chain. The thing we've seen is like a few days on and off in the refineries, which were nearby our sites. Therefore, a little bit less activity from one day to the next. But we don't depend on very sensitive component with our chemicals, which only go through -- a lot of it goes through the Strait of Hormuz, if it's your question. We are very decentralized in our supply chain. So we have -- we have, of course, some centralized procurement, but we usually are more on a regional basis anyway. So honestly, we have not seen any disruption, and I don't anticipate any disruption in the supply of everything Veolia needs to operate. We cannot hear you. The line is super blurred. We cannot hear you. Emmanuelle Menning: I think, Arthur, please go ahead. Arthur Sitbon: Yes. Can you hear me well? Emmanuelle Menning: Yes, perfectly, please. Estelle Brachlianoff: Apparently, the only line which doesn't work well is that of the operator, which is not exactly helpful, but we'll try to go ahead anyway. Please go ahead. Arthur Sitbon: So the first one would be just on the headwind to waste organic growth that you mentioned related to bad weather in Europe in January, February and plant outage. I was wondering if you could quantify that negative effect on EBITDA in Q1. And I was also wondering, basically, more generally speaking, how should we expect waste volumes to look later in the year, in particular, you're mentioning a bit of a slow start in January, February. How was it looking in March and April? I suspect you already have some indications of trends for those 2 months. And the second question is just on what's happening in the world at the moment, which is higher inflation due to the geopolitical uncertainty. I was wondering about the sequence of events for Veolia. Is it possible that basically you have a slightly weaker end to 2026 because of the slower volumes and higher costs and then a recovery or a more positive effect in 2027 with your inflation clauses that you flagged that have a little bit of a lag? Estelle Brachlianoff: Thank you. So I guess I would like to highlight, by the way, some opportunities, and I will start with that. What we discover, we discover or the general public realizes when it comes to the one in the Middle East is the dependent on imports is never a good idea. We rely on supply of water, otherwise, nothing happens. And everybody is super concerned by their health and that of their kids. That's exactly what Veolia offers solutions to. So in a way, in my opinion, the crisis reveals anything but the strength of the business model of Veolia and its positioning. To answer specifically your question, there is no slow start to the year in terms of volume when it comes to say economy underlying this, even in waste in the first part of the year. We haven't seen that. The only negative, again, was weather related. There's a number of days where we cannot even circulate it. Our customer could not. So they haven't generated waste, and that was it. But don't take it as a start [Audio Gap] as a slowdown in or a slow start to the year in terms of underlying trend because I think that would be a mistake. So the underlying trend is exactly the same as the end of last year. That's exactly what we've seen to answer your second part of your question in March and April, which were exactly good. When you exclude the weather effect elements, which were a few days here and there and even 2 weeks in the U.S. that's the only component. But again, the demand is sustained. So the volumes are there, and they are coming back once you can transport them, if I may. In terms of the impacts beyond the Middle East itself of the Middle East crisis on costs, if I understand your second question. As we've demonstrated through the war in Ukraine in a way, we have the ability to pass on the cost to protect our margin. We've demonstrated it. There is a little bit of lag effect, but we have a little bit of positive as well in terms of commodities and things like that. So that's why I can confirm fully our guidance for the year. So we will maintain our 5% to 6% EBITDA margin growth for the year. Operator: So I think the next question is coming from Philippe Ourpatian from ODDO. So let's move to Olly from Deutsche Bank. Olly Jeffery: Two questions for me, please. One is just on the free cash flow. There's a bit of improvement versus Q1 last year. Does this put you on track, do you think, to see a similar improvement for the full year for net free cash flow versus 2025, so we can see a bit more meaningful growth there? And then just coming back to the inflation point, I mean, presumably with inflation expectations where they are currently, and we could see those continue to increase perhaps. If there's any benefit from that with your tariff indexation, presumably the bulk of that would start to come through in 2027. If you could just confirm the mechanics of that again, that would be very helpful? Estelle Brachlianoff: Emmanuelle, on free cash flow. Emmanuelle Menning: Yes. Olly, so as mentioned, we are very satisfied with the progression of free cash flow beginning of the year. As you have seen, it has increased by plus EUR 144 million. And part of it come from the very strong discipline we had on CapEx. I mentioned it. We spent EUR 860 million when it was more than EUR 1 billion last year. You know that we are very committed to have a strong free cash flow generation to be able to cover our dividend. We are fully committed, and we have a lot of action regarding that, working on the time to invoice, putting control our CapEx, improving the collection. So our target remains for the year to have a strong free cash flow to be able to cover our dividend. And as you may see, we have a very strong liquidity, EUR 6.7 billion and a very strong balance sheet for 2026. Estelle Brachlianoff: So our aim is always to grow free cash flow on a yearly basis. We don't give guidance because there is seasonality in this in Veolia. But of course, we always try to do our best to improve the free cash flow generation of the group, which allow us then to decide where to invest. I remind you that it's free cash flow after growth investments, by the way, which is in our hands. In terms of inflation, maybe I was not clear enough. So Emmanuelle, do you want to get to have a go at that and fuel surcharge maybe? Emmanuelle Menning: Yes. So your question, Olly, was on the impact of inflation and fuel surcharge. So as mentioned by Estelle, you know that we -- our model is well protected against cost increase. We have 70% of our portfolio, which benefits from indexation formula, and we have 30%, which -- where we have strong pricing power and where we can do price surcharge. Coming to the specific element on inflation, we showed in the past that our model was very strong and able to pass the cost to our clients in 2022, 2023. And what we have done since the beginning of the year is to be very agile and very reactive on the 30%, specifically on the fuel surcharge. We start beginning of March. It has been put in place. We can have a small time lag, but it's very efficient. We demonstrate -- you may remember that in 2022, '23, we are able sometimes to do 3 to 4x increase when it was necessary. So it's fully put in place. The element to have in mind is that for our municipal clients, which is 50%, we may have a time lag of 3 to 6 months. But we have put in place all our action plan, as mentioned before, to have really strong discipline on cost to not accept automatically the increase of our supplier to have restricted move or the placement if it's not necessary and of course, to increase our strategic inventory when necessited. Estelle Brachlianoff: So for the 70%, which is indexed, if there is a little bit of lag effect on the revenue, there could be a lag effect on our supplier in a way in our cost base in other terms to protect our margin. And for the fuel surcharge, it's already in place. And if you have to do 2, 3 this year or 1 will be enough, we will see, but it's already in place now as we speak. I would like to highlight again, if I may. I said it in my speech first, the type of discussion we have with customers is not only about cost protection. Actually, it's quite the opposite. And I just wanted to share this with you. It's incoming calls on can you help us with energy efficiency? Of course, energy is higher in price. Therefore, can you help me with that? It's -- can you help me with securing local sources of energy? It looks like you do that, Veolia. Can you help me with that because it helps. Same with circular economy. When you recycle, it avoids importing from far away and be dependent, therefore, from the ups and downs of commodity prices. So all that means we have a lot of incoming calls of customer where for them, the war means I want more of Veolia type of services, starting in the Middle East, by the way, where they already are preparing for the postwar and discussing about how can we be even more resilient going forward and in terms of the infrastructure reconstruction or depollution of sites. Operator: The next question comes from the line of Philippe ODDO. Philippe Ourpatian: Not Philippe ODDO, I will be more rich than I am. But Philippe Ourpatian from ODDO. Just one question. Most of my questions have been already answered. Concerning the divestments, you mentioned in your slide that 3 operations means the top 3 program have been already signed or being closed in the coming months, I would say. Could you just give us, as you have also mentioned that there is your plan and several scenarios are prepared, could you have the idea -- could we have the idea of what's the amount of divestments already under bracket secured versus the EUR 2 billion targeted? Without mentioning any specific operation, but just to give us where you are exactly '26 and '27 because I do suppose that it's already started and you have some discussion and some assets which have been already determined to be divested... Estelle Brachlianoff: Thanks for your question. A few things. We said we will divest EUR 2 billion in the 2 years following the closing. So we're talking about from now until mid-'28. So we have plenty of time and given our balance sheet is compatible with the time scale I just gave. In terms of what we've already done of the criteria, as said, non-top 3, so things which we are #5, #6 on the market, and we don't see any possibility to be up very, very quickly. Mature as in we don't see how we can grow the EBITDA or the EBIT even with our best efforts going forward or nonstrategic like we've done with SADE, which was an activity in construction, we didn't want to go on with. So that's the typical criteria. That's typically in the criteria of what we've already like signed and closed, secured. We're talking about smaller and medium objects, which are listed there, plastic in Korea, industrial cleaning in Belgium. So altogether, it will be a bit in excess of EUR 100 million, EUR 200 million, this type of order of magnitude, if I remember well. In terms of the larger objects, I will consider them secured when they are signed and when they will be signed, they will be announced. And you will have to wait until that date to have them secured. But I'm very confident I'm very confident because we've done a few market testing. And we have alternatives in case for whatever reason, one doesn't go ahead in the type of price range we were expecting. So we have plan A and plan B, if you want. So we will secure this EUR 2 billion in good condition in the 2 years following the closing. Philippe Ourpatian: May I have an additional comment because it's very interesting what you said concerning your capacity to choose some assets. In order to do EUR 2 billion, what's going to be your, let's say, global potential of divestment? Are we discussing about EUR 3 billion, EUR 4 billion, EUR 5 billion means the bucket of -- or the basket of potential disposal regarding the size of your group and the numbers of subsidiary you have around the world? Just to have an idea about where we are exactly when you mentioned 2, you can pace your calculation on how much more than that? Estelle Brachlianoff: We have enough headroom to be able to be very confident. That's the only thing I can say. But those businesses, it always is a choice. The businesses which are plan B are businesses we like. They are on the money. They are a little bit less interesting than others. So we have no problem in selling them, but they still are good businesses. So we don't have any problematic one in the list. Therefore, like I guess, like we have sufficient security on the achievement of this program, I can tell you. Emmanuelle Menning: Just one element I wanted to share with you. So we told you already a very clear plan. We know what we want to do. We have different scenarios, allowing us to be agile. There is no pressure on timing because our balance sheet is very strong. We don't need to do the divestments to be able to finance Clean Earth. That's not the issue. And you may have seen that in terms of transactions delivery and execution, we have been showing an amazing track record. So not under pressure of time. We also shared with you before that we will divest part of the EUR 2 billion will be a business which will be divested. The other one will be and 1/4 and 1/3 will be linked to the portfolio cleaning that we have also launched before and that we will continue. So we don't need to do everything everywhere. We have a very clear picture on where we want to do, on where we want to go and a very good track record in terms of execution. Estelle Brachlianoff: Just to illustrate what we said by portfolio pruning, we said plastic in Korea. It doesn't mean that we don't like plastic or we don't like Korea, but it looks like plastic in Korea, we were not in the top 3 and not being able to get in the top 3. That's why we sold it. In terms of our industrial cleaning activities in Belgium, it was more of the nonstrategic criteria here. Industrial cleaning is not a priority for the group. And therefore, have no ability to be duplicated anytime soon in nearby geography. So we decided to sell it each time with value-added sales. So it was a good sale for us. So that's -- I think it gives you an idea of what Emmanuelle said by the smaller ones, which are more portfolio pruning type of activities of disposal. Operator: So I think next question is coming from [indiscernible]. Unknown Analyst: Yes. May I ask what is the impact of the delays in terms of projects in the Middle East in terms of EBITDA impact or the order of magnitude? Estelle Brachlianoff: So basically, Water Tech EBITDA has progressed very, very, very well in the first quarter, like it had been in the quarters before. So the answer -- the short answer to your question is none. As we always said, projects are lower margin type of activities within Water Tech. It's only 25% of the business. We like it because it fuels potential buy of membranes and stuff like that in the end, positive margin still, but lower than the average. So the answer is none, roughly. Very nice improving of the EBITDA in the first quarter in Water Tech. So again, Water Tech, excluding project was plus 4.2% revenue increase, which is very nice. EBITDA increased by even more than that. Thanks to, again, the usual cost efficiency and so on and so forth, added to the EUR 10 million synergies we've delivered in the first quarter in addition to the EUR 20 million we already had delivered for the second part of last year. So no impact is the answer. And I'm very confident again that it's only delays in signing, and we still have discussion with the customers about not only signing whenever they will be able because the world will be like a bit more under control. And we even have specific orders like of mobile units and stuff like that in emergency type of situation in the Middle East in Water Tech. So it has created even some opportunities. Operator: Next question is Alex from Bank of America. Alexandre Roncier: Two follow-ups and one question on guidance, please. The first follow-up on the weather headwinds for waste. I don't think that was a specific item that was disclosed in the revenue bridge before and maybe because the impact was just always much smaller than this quarter. But is that something we need to consider on a more recurring basis given climate change around the world? And similarly, on phasing, just to expands on some of the earlier question, should we not see good volumes in Q2 to catch up on the missed rounds you've had in Q1, which would then normalize in Q3? Second follow-up on disposals. Why not perhaps rotate capital more rapidly? I think you mentioned that you had a lot of headroom beyond the EUR 2 billion of asset disposal target. But if these assets are not # 3 -- well, I'm sorry, top 3 mature and nonstrategic, why not also increase the pace of disposals and perhaps get money back to shareholders or even create plenty of headroom for yourself to do some more strategic acquisition? Question and last question on guidance. Given the operating leverage of the business, revenue up 2%, EBITDA plus 5%, EBIT plus 7% is the plus 8% net income guidance not too conservative for the year? Or are there any below-the-line items we need to be mindful of? Estelle Brachlianoff: Okay. So weather on the bridge, Emmanuelle? Emmanuelle Menning: Yes. Alex, so regarding the bridge on the column weather, we have always -- we have the same methodology than before. It's just that in the past, we are not facing this type of weather conditions. So you had in the past, mainly in the weather column, the energy impact almost all time. And you had one or twice some effect from waste when it was the case, but it was more an exception than the rules. You were mentioning the impact of volume. So you're right, we benefit in Q1 in terms of -- of weather from good impact on energy. So we'll not have that in Q2. We will not have this positive effect, but we will benefit from a form of rebound as we will not have, as we had in Q1, the weather impacting -- having impact on icy road, icy waste, no project on some remediation. So we'll have a formal rebound in Q2. That's for sure. And we are starting to see that in April, which is positive. And as we are speaking a bit on the month of April, what we could see is that we have plus and minus. On the waste, as mentioned, there will be -- so yes, we had more outage in Q1, and we'll not have that in Q2, Q3, Q4. We'll not have the negative impact of the [indiscernible]. We'll have a slight -- we may have a slight fuel surcharge or delay, but between 3 and the 6 months like we have mentioned. On the energy side, we had the positive effect of weather that we had in Q1 are not going to be in Q2. And we may have a small impact on energy prices, as I mentioned, linked to fuel surcharge. But we have opportunities for the non-top which has been hedged that we are -- we have full visibility of the energy margin. On the waste business, we have part of the electricity, we are hedging 85%. So for the 15%, we can have a positive impact. Also positive impact, as mentioned before by Estelle potentially on the recyclate, notably on the plastic side. It's marginal because you know that we have put in place back-to-back to contract. And on water, we spoke already about the Water Technology timing effect on project top line. And we see the good trend we have seen on water, especially in terms of pricing and in terms of volumes, we don't see any change of trend in April. Estelle Brachlianoff: So altogether, April will be -- has been good. And we haven't seen any change in underlying trends. You have the ups and downs of weather, but apart from that, nothing specific. And no, there is no -- it was really exceptional in waste. It never happens. It happens every -- I don't know, like 5 to 10 years, this type of circumstances, it was really, really exceptional. So I don't anticipate that it will come again very much. In terms of the capital allocation, yes, we have headroom. That's a question you always ask, what about we sell this and that and then we give money back to the shareholders. I'm really keen on, one, we still create value with those assets by increasing, thanks to our operational efficiency, thanks to everything we are doing. We are creating value. Shall I remind that we've increased the dividend quite a lot in the last few years and the net result by basically 12% year-on-year in the last 2 years and double the net result in the last 5 years. So this creates value. So we already are giving to the shareholders like some element via dividends. We have topped up that starting last year by first in the history of the group, which was the share buyback to avoid the dilution program. So I guess I'm very focusing on delivering shareholder value, but I think we do create shareholder value with the business model we have. In terms of the -- will we stop there irrespective of the -- I mean, irrespective of the buying opportunity, we are doing the pruning of portfolio anyway. The non-top 3 is a strategy which was in the GreenUp plan. You may remember that. So we've tried in typically in the plastic in Korea, I just mentioned, we've tried for 2 years to try to see if we could be in the top 3. We didn't manage to be successful. Therefore, we decided to sell it. That's more the way to see it. There is an up or out strategy here, which we are implemented. And yes, I can confirm that we are very confident about the 8% net income. But Emmanuelle, do you want to elaborate on that? Emmanuelle Menning: Yes, with pleasure. So you know that when you look at our performance this year, very strong performance with the increase of EBITDA of 5.1%, as mentioned before, without the synergies, meaning that we are cruising at the same pace, showing that our strategic decision to go for faster growing and higher-margin activity is delivering results. Down the line, we will, of course, continue to benefit from our operating leverage. We have shown that before, plus 2.1% revenue increase, plus 5.1% EBITDA increase and plus 7.2% EBIT increase. So as you see, we keep a tight cap -- tight control on CapEx so that our DNA will not increase significantly. Our total cost of financing, which decreased slightly in 2025 will only grow in 2026 a bit linked to the financing, for instance, of Water Tech acquisition we did last year in June. And we believe we can sustain a tax rate between 25% and 26%, meaning that we are fully confident to confirm our target in terms of current net income for the year. Operator: I think the next question is coming from [indiscernible]. Unknown Analyst: It's just a follow-up as most of the questions have been already answered. I want to have more clarity on the net income guidance because you signaled that the closing for Clean Earth is expected on June after the 2 major steps in the AGM and the antitrust clearance. So can you help us quantify the expected net income effect from the integration for 2026 as you signaled the 8% growth is ex Clean Earth with a positive contribution from 2027. So what is the expected net income effect that you expect to have from the integration of Clean Earth for '26? Estelle Brachlianoff: So I will refresh what we've said in a way, which we can confirm on when we've announced the acquisition of Clean Earth, which will be assuming it's midyear. Therefore, since we publish, so we can have -- if we were to do accounts at midyear with everything and dividend and so on and so forth, which is not the case, it would be a different story. But basically, given the fact that it's likely to be midyear, it means it will be accretive before PPA, the Clean Earth acquisition from 2027 and accretive even after PPA by from 2028. The PPA, we don't know yet what it's going to be. So we have a few uncertainties on dates on things like PPA. So we cannot give you numbers, but it will be accretive very soon in a way before PPA from year 1 and even after PPA from year 2. That's what we've announced, and we're confident we will deliver. In terms of integration, you remember, we plan over 4 years of synergies. So we have not included any synergies in 2026. It will start in 2027. But again, all that depends on the date and the detail of it. Of course, if we are able to manage some synergies this year, we will be very happy with it. But it is not what we've included in our business plan or what we've announced so far. [Technical Difficulty] We talk about access to local sources of energy, when we talk about securing supply chains, this is exactly what Veolia offers to its customer. And if anything, the crisis in the Middle East is reinforcing the importance of our services and the demand for our services. So I'm very confident not only in confirming the guidance for this year, but in the years to come. And the last point is, of course, we'll have various opportunities, myself, Emmanuelle and the Investor Relations team to see some of you in the roadshows to come. So I'm sure you will have plenty of opportunities to ask a detailed question. And see you otherwise in July for H1 results. Thank you very much. Emmanuelle Menning: Thank you.
Operator: Good morning, and welcome to The New York Times Company's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Anthony DiClemente, Senior Vice President of Investor Relations. Please go ahead. Anthony DiClemente: Thank you, and welcome to The New York Times Company's First Quarter 2026 Earnings Conference Call. On the call today, we have Meredith Kopit Levien, President and Chief Executive Officer; and Will Bardeen, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that we will be making forward-looking statements, including about our business, strategy and performance based on our current expectations. Our actual results could differ materially due to a number of risks and uncertainties described in the company's 10-K and subsequent SEC filings. We will also be referencing non-GAAP financial measures for which there are reconciliations to GAAP measures in our earnings release at investors.nytco.com. And with that, I will turn the call over to Meredith. Meredith Kopit Levien: Thanks, Anthony, and good morning, everyone. Q1 was another great quarter for The Times. We continue to see strong demand for the uncompromised journalism and premium lifestyle content that The Times is uniquely capable of delivering. We're able to meet that demand despite operating in a media environment dominated by a small number of tech companies whose moves continue to impact traffic to publishers. The Times isn't immune to that impact, but we also see real opportunity. We have a clear strategy and enduring advantages that we believe position us well for long-term growth. Let me remind you of those advantages. First, we've deliberately chosen to operate in big spaces with lots of running room ahead. Independent news coverage is a universal need and our lifestyle products each address large global markets. Today, we reached many tens of millions of people every week across our portfolio, and we see the opportunity to directly and deeply engage many tens of millions more. Second, we've built an unparalleled engine for creating original reporting and high-quality content in a rigorous journalistic way, doing reporting like this at scale and across a broad range of topics, essential to people's lives is hard as others do less of it, The Times continues to invest, which makes our news coverage and our lifestyle products increasingly rare and increasingly valuable. The Pulitzers awarded earlier this week were another indication of that value and saw The Times honored in multiple categories, including investigative reporting, breaking news photography and opinion writing, a deeply reported podcast from The Athletic network was also honored for the first time. Third, we know how to harness technology to continually improve how we reach and engage audiences through innovations in our formats, features, product experiences and proprietary data sets. Finally, we're able to monetize consistently high audience engagement through our multi-revenue stream model, which positions The Times for healthy long-term growth. We believe these four advantages are durable one, and we're confident they will enable us to continue building a larger and a more profitable company for many years to come. Now let me share a few highlights from the quarter. Digital subscription revenues grew 16%, and we added 310,000 net new digital subscribers, that brings our total subscriber base to over 13 million and puts us further down the path to our next milestone of 15 million and beyond. Subscriber growth in the quarter was driven by multiple products across our portfolio. Digital advertising grew 32% in the quarter. This performance exceeded our expectations and was the result of a clear strategy, capable execution, strong marketer demand and high engagement across the portfolio. Affiliate, licensing and other revenues also grew in the quarter. Finally, we stayed disciplined on costs while making focused strategic investments into our journalism and product experiences, including video, which we expect to underpin our long-term success and strong market position. Before I wrap, I'll note that we've made progress against all of our priorities year-to-date. We continue to cover the world's most important stories from every angle. Journalists around the globe reported on the Iran war and its fallout unpacking the military strategies along the Strait of Hormuz, the political calculations in Washington, Tehran and Jerusalem and the economic implications for Americans. We brought people aboard the inspirational voyage of Artemis II with interactive graphics and video. And we published the results of a 5-year investigation into misconduct by civil rights icon Cesar Chavez, the kind of patient public-minded work that few can do like The Times. We presented our journalism and lifestyle products in an increasing array of formats, especially video, where we see an opportunity to better engage current audiences and bring millions of new people into The Times orbit. Our signature reporting now regularly comes to life in reporter videos from John Kerry's journey to unmask the Bitcoin creator, to Climate Reporter, Raymond Zhong's 2-month expedition to Antarctic. We're continuing to scale output here and more than doubled production of reporter video in the first quarter. We also continue to drive real impact with our trademark visual investigations, which in the first quarter, examined the U.S.'s role in the bombing of an elementary school in Southern Iran. We also added value in every part of our portfolio in the form of new and expanded shows, features, coverage and more. In Q1, we officially launched our first multiplayer game called Crossplay. We added a regular Sunday edition of The Daily focused on culture and debuted a new true crime podcast from Serial. The Athletic released the latest addition of authoritative NFL draft guide, The Beast. And just last week, we convened an illustrious group of music industry leaders to name the 30 Greatest Living American Songwriters in a multimedia package that included a rare interview with Taylor Swift, among others. Continuing to execute against these priorities is how we plan to get millions more people to have direct relationships and daily habits with The New York Times. And as we do that, we expect 2026 to be another year of revenue growth, AOP growth, margin expansion and strong free cash flow. And with that, I'll turn it over to Will. William Bardeen: Thanks, Meredith, and good morning, everyone. As Meredith described, our first quarter was a strong start to 2026. Year-over-year, consolidated revenues grew 12%, AOP grew by approximately 27% and AOP margin expanded by 200 basis points. We saw healthy increases across our multiple revenue streams and continue to make disciplined investments aimed at further differentiating our high-quality journalism and digital products. Now I'll discuss the first quarter's key results, followed by our financial outlook for the second quarter of 2026. Please note that all comparisons are to the prior year period unless otherwise specified. I'll start with a discussion of subscription revenues. Digital-only subscription revenues grew approximately 16% to $389 million. We added 310,000 net new digital-only subscribers in the quarter and digital-only ARPU grew 2.4%. Total subscription revenues grew 11.3% to approximately $517 million, which was above the guidance range we provided for the quarter. We're focused on healthy long-term growth of our digital subscription revenues, and that is a function of both our overall digital subscriber base and ARPU. While subscriber net adds and ARPU can fluctuate in any given quarter for a variety of reasons, including subscriber mix and product pricing, we remain confident in the health of our subscription revenue drivers. We are adding significant value to our products and engagement remains strong across the portfolio. We continue to be pleased with the performance of our news-centered bundle as well as with performance at our pricing step-up points. Now turning to advertising. Total advertising revenues for the quarter were $127 million, an increase of approximately 17%, which beat our expectations. Digital advertising revenues also came in above the guidance range we provided increasing approximately 32% to $93 million. The growth in digital advertising was due mainly to strong marketer demand and growth in advertising supply. Affiliate licensing and other revenues increased approximately 8% in the quarter to $68.5 million, primarily as a result of higher licensing revenues. This was in line with our guidance. Adjusted operating costs grew 9.4%, largely as a result of higher compensation and benefits expenses, which included investments in our video journalism. Growth in sales and marketing costs included both marketing expenses and higher costs associated with our advertising revenues. As I mentioned at the top, AOP grew 27% in the quarter to approximately $118 million and AOP margin expanded 200 basis points to 16.6%. Adjusted diluted EPS increased $0.20 to $0.61. I'll note that our effective tax rate in Q1 benefited from stock awards that settled in the quarter. Going forward, we expect an annual effective tax rate between 25% and 26% with some variability around the quarterly rate. I'll now look ahead to Q2. Digital-only subscription revenues are expected to increase 14% to 17% and total subscription revenues are expected to increase 10% to 12%. Digital advertising revenues are expected to increase high teens and total advertising revenues are expected to increase high single digits. Affiliate licensing and other revenues are expected to increase low single digits. Adjusted operating costs are expected to increase 8% to 9%. We intend to continue operating efficiently while making disciplined investments in our high-quality journalism and digital product experiences that add value for our audiences and help reinforce and expand our competitive advantages. As we've discussed, video in particular, remains an important area of strategic investment being reflected in our results and in our guidance. We are confident in our ability to generate strong returns over the long term as we grow the amount and impact of video journalism in news and across the portfolio. Our business continues to generate strong free cash flow. In the last 12 months, we generated $542 million of free cash flow enabled by robust AOP and our capital-efficient model. I'll note that the One Big Beautiful Bill Act resulted in lower cash tax payments of $65 million for fiscal 2025 and that the sale of some excess land at our printing plant generated $33 million of cash in Q1 of 2025. Looking to full year 2026, we expect to benefit from the tax bill of approximately $60 million to operating cash flow. We do not expect the majority of this cash flow benefit to recur beyond fiscal 2026. In summary, our strategy continues to work as designed. Our strategic priorities are all aimed at building a larger and more engaged audience over time, growing our subscriber base and powering our multiple revenue streams. We continue to expect 2026 to be another year of healthy growth in revenues and AOP, margin expansion and strong free cash flow generation. We also remain on the path to achieving our midterm targets for subscribers, AOP growth and capital returns. With that, we're happy to take your questions. Operator: [Operator Instructions] The first question comes from Benjamin Soff with Deutsche Bank. Benjamin Soff: I wanted to first ask about the digital subscription revenue. It came in really strong this quarter. And I was hoping you could unpack some of the main drivers of that performance. And in particular, could you discuss how the bundle category performed given the change in disclosure? And then I have a follow-up. William Bardeen: So I'm happy to take that. Yes. We're very pleased with the performance in the quarter for digital subscription revenue. As we know, looking to Q2 as well, we provide quarterly guidance on that line. And what we're doing there is we've talked about in that over the long term is focusing on the function of both our subscriber base and our ARPU. So the subscription growth in the quarter in any given quarter can fluctuate for a variety of reasons, subscriber mix, product pricing, so we're pleased with that result. And looking forward, you see the guide of 14% to 17%. So now as it relates to that sort of the drivers there, ARPU was driven specifically by subscribers transitioning from promotional to higher prices and the impact of some price increases. I mentioned that a bundled price increase on the last call. All of this is part of an ongoing approach to pricing designed to address the whole demand curve based on how much value people are getting from the products. And so I think the key thing there is multiple products across the portfolio as we add significant value to our products, we're continuing to see really strong audience and subscriber engagement, and we were really pleased in the quarter with the performance at our pricing step-up points. Benjamin Soff: Got it. And then on the ad business, one of the drivers of digital ad growth going back to last year has been introducing new supply on the platform. It looks like you're continuing to get good results from that. Can you share how you're thinking about balancing revenue growth with increasing ad load? And are you still adding new ad inventory to spaces that don't have ads today? Or is the incremental new supply coming from growing ad load on the platform? Meredith Kopit Levien: Yes. I'll take that one. It's a great question. I'll just say it was a great quarter in advertising and the underlying drivers of the business feel really strong. I'm as optimistic as I've been about our ad business and that the real -- the biggest driver is we are in big spaces where there's real marketer demand, and we have big and engaged audiences in those spaces. To your point, I'll note that last year, we really benefited from an increase in supply, particularly in the second half of the year and particularly in games and sports and that continued into Q1. This year, we will keep adding supply. We'll do it more incrementally and we'll do it across the portfolio. And it's also worth saying our ad products really work for marketers. We've got these kind of big beautiful canvases where you asked about ad load. We're very deliberate about how many of them we put on each page because it's really meant to be a consumer-first experience. That's kind of the magic of the model. That's why the ads work so well. And we've got very powerful data now that we've been building for years to help marketers target those ads. So they perform and marketers come back. Operator: The next question comes from David Karnovsky with JPMorgan. David Karnovsky: Maybe a follow-up on digital ads. Meredith, your results have consistently kind of exceeded your outlook on what looks to be an accelerated pace. And I'm curious, when you look back and you see the outcome relative to your forecast, I'm curious what's generally been driving that better-than-expected kind of digital advertising result relative to what you had forecast. Like where is that kind of incremental demand coming from? Meredith Kopit Levien: Yes. It's a good question. I'll say a few things. They won't be a ton different from what I just said. But I do think now that the sort of structural advantage we've built in advertising is that we play in side spaces that marketers want to be in. And even within news, our news product is a really broad product with a lot of different kinds of journalism and there's a lot for marketers there. And obviously, sports and games are big. And cookie and wirecutter are really compelling for marketers. So that's kind of the big underlying driver is big spaces, lots of audience engagement in those spaces, really powerful ad products relative to, I think, what another publisher might be able to do because we have so much first-party data. All of that is working. I'll add two more things, which is -- we've been in the ad business a very long time. The marketers who already run with us, who've been with us for years, there's opportunity to do more with them because we're in so many spaces, and we're on multiple different kinds of platforms, multiple different kinds of ad products so we can get sort of more share of wallet from marketers. And then I'll add that, particularly because of games and sports and recipes and shopping advice. We can just bring in more different kinds of marketers, and that's -- we're really sort of evolving the ad business to be able to do that. The last thing I'll say because you're pushing on our sort of prediction ability. I've been around our ad business for a very long time, it remains harder to predict than the subscription business, I think, for obvious reasons. But we're kind of broadly optimistic about it. David Karnovsky: Maybe just kicking on this topic. When you look at the news flow in March, very much dominated by the Iran conflict, I think historically, investors would kind of look at that and say, "Oh, this content is a negative for advertising." But I'm curious, is that kind of still the right way to look at it that, that type of content is a challenge for marketers to put their brand next to? Meredith Kopit Levien: I'll say two things about that. We really benefit now from having this wide portfolio of products with a lot of audience engagement in each of those products. So there are lots of places for a marketer to be. And we did this kind of step function increase in supply in the second half of last year in sports and games and you're seeing us continue to benefit from that now. I'm going to say about news, though, which remains kind of our -- by far, the most important thing we do in terms of value creation and really important for marketers. News is a big word with a lot of meaning and it's not just -- we're in politics. We're super proud of the coverage we've been able to do on the War in Iran. I called it out in my prepared remarks. But within our news report, we -- I mentioned the 30 greatest living songwriters in America, and we -- if I think about our is just the sort of the work we do in science-backed, health and wellness or culture more broadly, that there are so many other topics and places we have incredible style coverage. There are so many places for a marketer to be associated with The Times, do work with The Times, but they go beyond kind of some of the things that are less desirable in terms of places for a marketer to be. We really benefit from that. Operator: The next question comes from David Plaus with Bank of America. David Plaus: Just on the video initiative, which is clearly, a big focus and investment area. Is there anything you can share around early engagement metrics? Is there a certain type of content that's generating outsized viewership or certain venues on or off platform? And how should we think about the strategy and timeline of monetization there? Meredith Kopit Levien: Yes. I'm happy to take that. It's a great question. Listen, the most important thing to say is we see video as a big long-term opportunity for The Times. And what we're really aiming for here is to establish The Times as a preferred brand for watching news and the other things we do in addition to reading and listening. And to your point, our efforts here are really meant to grow and deepen engagement with the audience we already have and also to reach net new audiences. As I said in my prepared remarks, Q1 was a period where we saw a lot of increase to production and that is a big focus right now. We more than doubled the production of reporter video. We've ramped up video news clips, I mentioned visual investigations, which are really different at The Times and have a lot of impact. And then I'd say we have a lot of momentum around our shows portfolio. So shows covering the biggest ideas and politics on both sides of the isle, culture, AI. We've got an interview show with very newsworthy figures. You've got a show in shopping. We have sports highlights now. And a lot of that is getting real traction. You asked about engagement specifically. I would say we've seen really great engagement with video. It is early. That's the most important thing I could say. It is early here, but we've seen great engagement on our site and our apps and that includes our live coverage includes the homepage. And you'll remember, we launched a watch tab in our app sort of across the destinations, we're seeing real engagement from it. But it's early days. I think you asked about monetization. You can regard us as sort of thinking about this as a three-step strategy first, increase production. We've got a lot of inherent advantage there because we've got reporters sort of everywhere are poised to go where the story does, and we're adding a video capability layer to that, but we're in a phase of really scaling production. As we do that. We are also building engagement, audience where we have and net new audience. And I think The Times has a very good track record of as we scale engagement monetizing in all the ways we monetize advertising. Ultimately, it makes the subscription more valuable and potentially even licensing. So the monetization sort of follows production and engagement, and we like -- it's early, but we like where we are. Operator: The next question comes from Kutgun Maral with Evercore ISI. Kutgun Maral: I wanted to ask about AI licensing. And now that we're approaching the roughly 1-year mark with the Amazon deal, I was wondering if you could expand on how that relationship has progressed and whether your experience with that agreement has impacted your broader philosophy with AI platforms? And how should we think about the opportunity for maybe multiple AI licensing partnerships as we move forward? And maybe if there's any color you could provide on how those conversations are progressing, that would be helpful. Meredith Kopit Levien: Yes. I'll take that one. I think we've sort of said all along. We are open to doing deals that sort of meet our conditions, which are -- is a deal or a partnership here consistent with our long-term strategy? Does it ensure sustainable fair value exchange. And do we have control over how our content is used. And I would say we've done a partnership with Amazon because it met those conditions. And so far so good when we're learning a lot there. And I would just say, like broadly, The Times has a good track record of doing deals when the terms are right. We also continue to believe that enforcing our rights is really important to ensuring sustainable fair value exchange over the long term. And ultimately, we believe we make journalism that is increasingly rare and increasingly valuable at real scale, and that's going to be valuable to everyone. The consumers and the LLMs, who need high-quality work, powering their systems. Operator: The next question comes from Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: Congrats on the Pulitzer recognition. I have two high-level ones on the video initiative. First, Meredith, you've talked in the past about capturing viewership from linear TV news declines. I'm wondering if you see that as a natural more proactive consumer shift as folks leave that ecosystem? Or what you think you need to do to attract that viewership to digital news and to The Times specifically? And then I have one more. Meredith Kopit Levien: Yes. It's a great question, and thanks on the Pulitzers. Listen, we want to win the moment when something big is happening in the world and people are looking for where do we get the high-quality information on what's happening here, what facts are what this means, we want to win that moment. And we are endeavoring to do that in every way we possibly can. Ideally, at our destinations, but in general, that's the aim. The thing that I think we have really -- that you can now see if you are someone who uses our apps or goes to our site is we can just show you more of the news than we've been in a position to do in a really long time. And the -- we do that with many more news clips than we've previously used. But the real unlock, I think, so far, has been reporter video where you've got somebody who goes out and report deeply on the story, just to give an example of this, David Sanger, who is an expert on geopolitics who's been with us for 4 decades. We go to War in Iran and David Sanger reports very deeply on what he thinks the dynamics are between Washington, Jerusalem and Tehran. And then we shoot a short video where he describes that. And for the consumer, they may get all they need in that short video or it may prompt them to go and like read the long form piece. But what we know that it does is it's trust building. You sort of see the guy, you see there's a human reporter, you understand the expertise he brings to it. So we think it's a really big opportunity. As to where the viewer is now, for all that I said about cable and broadcast, it still commands big audiences, and we are very interested in being a preferred brand and preferred place for people to see and watch what's happening. Cameron Mansson-Perrone: That's interesting. One follow-up on the short-form side, which is just -- I'd be curious for your thoughts on how you view YouTube as either a potential partner given its distribution scale, in terms of surfacing Times content or as a potential competitor as you continue to kind of get more active in the digital video space. Meredith Kopit Levien: Yes. I'll say broadly, we endeavor to have the best possible experience you could have as a news reader, watcher, listener or consumer and in all the other spaces we play in on our own destinations. And actually, the Songwriters project that we did, if you wanted to watch that Taylor Swift video, you came to us in the beginning to watch it. It will ultimately be other places, but you came to us to watch it. That said, I think we recognize, as we always do, in each sort of phase of technological change, we exist in an operating environment and an ecosystem that is shaped by other big players, YouTube as a very big player. And so it is a way for us to also build audience and awareness. We're early here, and we're building audience and awareness for The Times as a preferred place with great stuff to come view. And that's particularly important as we have shows, long-form shows. That -- where we're early in building audience. Anthony DiClemente: Great. Thanks so much, Cameron. Operator, let's take one last question, please. Operator: And that question comes from Doug Arthur with Huber Research Partners. Douglas Arthur: Yes, last, hopefully not least. Meredith, I know you don't break out The Athletic anymore. Can you discuss the impact it had on the quarter in terms of digital advertising, sort of disentangling that from underlying core growth? Is there any way to do that? Meredith Kopit Levien: Never least, Doug, and I will say we don't break it out, but I'm going to reiterate something I think I've said in multiple quarters, which is we are thrilled to be in sports. There's so much marketer interest in sports. And I think The Athletic is a real source of net new audience, and it can be a source of audience growth, and it's a very compelling product for advertisers. And we believe it will continue to be and has the opportunity to be an even more compelling product for advertisers over time. I'll point to the fact that we just in the back half of last year added highlights from some of the leagues, including the NFL, and it's really early there. We're in the build engagement phase. But over time, we're very happy with The Athletic as an ad performer. And over time, we're optimistic it will continue to be a big part of the story. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Anthony DiClemente for any closing remarks. Anthony DiClemente: Great. Thanks, everyone, for joining us on the call, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Par Pacific First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ashimi Patel, Vice President of Investor Relations. Please go ahead. Ashimi Patel: Thank you, Kim. Welcome to Par Pacific's First Quarter Earnings Conference Call. Joining me today are Will Monteleone, President and Chief Executive Officer; Richard Creamer, EVP of Refining & Logistics; and Shawn Flores, SVP and Chief Financial Officer. Before we begin, note that our comments today may include forward-looking statements. Any forward-looking statements are subject to change and are not guarantees of future performance or events. They are subject to risks and uncertainties, and actual results may differ materially from these forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements, and we disclaim any obligation to update or revise them. I refer you to our investor presentation on our website and to our filings with the SEC for non-GAAP reconciliations and additional information. I'll now turn the call over to our President and Chief Executive Officer, Will Monteleone. William Monteleone: Thank you, Ashimi, and good morning, everyone. First quarter adjusted EBITDA was $91 million, and adjusted net income was $0.78 per share. First quarter results compare favorably against historical first quarter performances despite the lag effect of rapidly rising crude and distillate prices in Hawaii, off-season conditions in Wyoming, Montana and the planned Washington outage. Our facilities ran well across the system, setting a first quarter throughput record. This strong throughput allowed us to prebuild inventory ahead of planned maintenance outages. The Wyoming and Montana facilities have both completed their April outages on time and are prepared to run hard for the highly profitable summer months. Over the past two months, refined product cracks surged to all-time highs, particularly in Asia due to the reduction of Persian Gulf Origin refined product exports, aging refiners reducing run rates and protectionist policies restricting free trade of waterborne refined products. As a result, the April Singapore 3-1-2 index is materially above historical norms, averaging over $72 per barrel compared with the 2025 average of $16 per barrel. These levels exceed prior highs observed during the early months of the Russia-Ukraine conflict. In addition, mainland seasonal cracks are also rallying to elevated levels. Our commercial position and supply chain flexibility allows us to capture a substantial portion of the strong market environment. In addition, we have no crack spread hedges in place to position us to capture and improved market conditions. Looking forward, global refined product inventory buffers are drawing down aggressively, setting up for meaningful tightness over the summer months. We see many Asian refiners running at near minimum throughput rates, attempting to preserve crude supply chain duration versus maximizing profits. Turning to the Retail segment. Quarterly same-store fuel and in-store sales decreased by 3.3% and 1% compared to the first quarter of 2025. Fuel volume and in-store results reflect shifting consumer refueling patterns associated with the rising flat price environment and the impact of 3 state level closures during the first quarter from Hawaii flooding events. On the strategic front, we achieved a major milestone with the successful start-up of the Hawaii Renewables Unit. This is a significant step for the renewables business, reflecting our disciplined commissioning approach. We continue to test and optimize unit operations and are focused on establishing credit pathways. The policy backdrop continues to strengthen, and we remain constructive on the outlook for the project. On the capital allocation front, we repurchased $28 million during the quarter at an average price of $38 per share. Since the program's inception, we've repurchased over 14 million shares or just over 20% of shares outstanding at an average price of $25 per share. Our total liquidity position of $938 million combined with a robust forward cash flow outlook, positions the balance sheet to support our strategic objectives and opportunistic share repurchase framework. In closing, our consistent focus on reliable operations, commercial agility and disciplined capital allocation remains the foundation for capturing today's market opportunity and delivering long-term shareholder value. With that, I'll hand the call to Richard, who will walk through our Refining and Logistics results. Richard Creamer: Thank you, Will. I want to begin with a moment of recognition for each of our refining teams for an outstanding first quarter. The Hawaii team achieved a record quarter throughput and Montana achieved a record winter season throughput. In addition, Washington successfully completed their February turnaround, restarted operations and are operating at maximum rates. We are pleased that both Montana and Wyoming teams completed their April outages safely and are operating under normal conditions. Par Pacific's success lies in the foundation of delivering production safely and reliably for our communities. The entire refining and logistics team continues to demonstrate that commitment. As Will referenced, we are pleased with the early operational results from the Hawaii renewable fuels facility. As a reminder, we brought the pretreatment unit online early this year and achieved on-specification product using a mix of feedstocks with additional inbound waste oils to further test our capabilities. We are now operating the pretreatment in tandem with the renewable hydro treater and achieved on specification renewable diesel in late April. We are beginning to transition operations to validate the sustainable aviation fuel mode. Our first quarter conventional refining throughput was 184,000 barrels per day and we'll begin reporting renewable fuel throughput in the second quarter. In Hawaii, throughput was a record 90,000 barrels per day and production costs were $4.67 per barrel. Hawaii will begin its planned turnaround in late June, which is expected to last between 30 and 45 days. The renewable fuels unit will be off-line during the turnaround. The first quarter Washington throughput was 23,000 barrels per day and production costs were $7.53 per barrel, driven by reduced rates related to the February planned downtime. The refinery is operating well and delivering fully restored capability. Shifting to Wyoming, throughput was 15,000 barrels per day and production costs were $11.68 per barrel, reflecting lower seasonal throughput. As I mentioned, the spring refinery outage to address routine maintenance was completed successfully and safely. Finally, in Montana, first quarter throughput was 57,000 barrels per day and production costs were $9.05 per barrel. The team continues to deliver on their plan of efficient operations and OpEx control. Looking ahead to the second quarter, we expect Hawaii throughput between 77,000 and 81,000 barrels per day, reflecting the turnaround and Washington between 40,000 and 42,000 barrels per day. Due to the April planned maintenance across the Rockies system, Wyoming quarterly throughput is expected to be between 14,000 and 16,000 barrels per day and Montana between 45,000 and 49,000. This results in a system-wide midpoint throughput of 182,000 barrels per day. I'll now turn the call over to Shawn to cover the financial results. Shawn Flores: Thank you, Richard. First quarter adjusted EBITDA was $91 million, and adjusted net income was $39 million or $0.78 per share. Our Refining segment reported adjusted EBITDA of $69 million in the first quarter compared to $88 million in the fourth quarter. Starting in Hawaii, the Singapore 3-1-2 averaged $36 per barrel during the first quarter and our landed crude differential was $4.90, resulting in a Hawaii index of $31.11 per barrel. Hawaii capture was 42%, including a net price lag headwind of approximately $125 million. As a reminder, net price lag reflects the Hawaii refineries contractual sales that are structured on prior month and prior week average pricing. The lag impact was driven by the sharp increase in refined product prices in March, resulting in adjusted gross margin trailing current period market conditions. We would expect price lag to be neutral in a stable pricing environment and to reverse into a capture benefit during periods of declining prices. Normalized for the lag impact, Hawaii capture was 92%, reflecting wider West Coast discounts relative to Singapore and lower netbacks on secondary products, such as naphtha and LPG. In Montana, the first quarter index averaged $4.84 per barrel with a margin capture of 143%. Capture was above our target range driven by lower asphalt production and favorable sales mix relative to the index. In Wyoming, the first quarter index averaged $19.30 per barrel, margin capture was 139%, including an $18 million FIFO benefit from rising crude oil prices. In Washington, our index averaged $8.20 per barrel. Margin capture was 100% supported by favorable jet to diesel spreads. Turning to the Logistics segment. Adjusted EBITDA was $32 million in the first quarter, in line with our mid-cycle run rate. Strong system utilization in Hawaii and Montana was partially offset by reduced crude activity in Washington during the planned turnaround. In the Retail segment, adjusted EBITDA was $15 million compared to $22 million in the fourth quarter. The sequential decline was driven by lower fuel margins, reflecting rapid increases in wholesale prices during the quarter. Moving to cash flow. First quarter cash from operations totaled $162 million excluding working capital outflows of $185 million and deferred turnaround costs of $18 million. Working capital outflows reflect rising flat prices and higher inventory levels ahead of the April planned maintenance across our Rockies system. Turning to RINs. We remain in an excess RIN position at the end of the first quarter, having monetized less than half of the RINs associated with the prior period small refinery exemptions. This position is expected to provide additional working capital inflows over the coming quarters. It's also worth noting that our first quarter adjusted EBITDA and adjusted net income reflect full RIN expense at current period market prices which does not capture the benefit of our excess RIN asset position. Our GAAP results by contrast, included an approximately $30 million gain in the quarter, representing the difference between current period RIN prices and the book value of RIN assets on our balance sheet. First quarter capital expenditures, including deferred turnaround costs, totaled $61 million. Shifting to capital allocation. We repurchased $28 million of common stock during the quarter at an average price of $38 per share. Gross term debt at quarter end was $638 million remaining below the low end of our leverage targets. Looking ahead to the second quarter, our April consolidated refining index averaged $42 per barrel, an increase of $23 per barrel compared to the first quarter. In Hawaii, refining margins continue to reflect a tight refined product supply environment across the Pacific Basin. We expect our second quarter crude differential to be between $4 to $5 per barrel reflecting the extended crude supply chain we built earlier this year. From a financial standpoint, the impact of the upcoming Hawaii turnaround is expected to be limited in the second quarter with most of the impact shifting into the third quarter. Across our mainland system, April refining indices increased by approximately $17 per barrel versus the first quarter, driven by strong distillate margins. As Richard noted, we had planned downtime in April across the Rockies system, but expect minimal financial impact as we drew down inventories previously built during the first quarter. In renewables, we expect sales volumes and earnings contribution to be modest in the second quarter as we optimize operations and build inventory with a more meaningful ramp in the back half of the year following the Hawaii refinery turnaround. Overall, we are well positioned to deliver robust cash flow in the current margin environment, enabling us to further strengthen the balance sheet, pursue accretive growth opportunities and opportunistically repurchase our common stock. This concludes our prepared remarks. Operator, we'll turn it to you for Q&A. Operator: [Operator Instructions] Our first question comes from Matthew Blair with Tudor, Pickering & Holt. Matthew Blair: I think that Par has probably the highest jet yield in the group. We believe it's roughly 15% or so, could you confirm if that's the correct estimate? And could you talk a little bit about dynamics in the jet market, both on the supply side as well as demand side. We are seeing wider jet versus diesel spreads, which looked like a nice tailwind into the second quarter. William Monteleone: Sure, Matt. This is Will. I think 15% is probably reasonable. And again, I some of this depends on some of our jet versus ULSD objectives. But as you indicated, given the spreads between jet and ULSD, we see a high -- an attractive economic incentive to try and maximize jet yields, particularly in the Pacific. And again, I think we have a number of projects underway to maximize jet yield in the Rockies. And in terms of just the overall regrade spread or the spread between jet and gas oil, again, continue to see that to be strong as -- again, I think it's one of the more difficult molecules to make. And with the amount of crude distillation offline globally, it's a challenge. And again, given the loss in the Persian Gulf origin exports, which was a material supplier to Europe, we're seeing the Asian Market and the Indian refiners need to try and attempt to backfill some of Europe's jet requirements. Matthew Blair: Sounds good. And then this Hawaii product lag headwind in the first quarter, $126 million, it sounds like that would likely reverse in the second quarter, but would you also get an additional benefit from the drop in Singapore gas oil prices so far? And I guess, do you have an estimate so far in April on what that might look like? Shawn Flores: Matt, it's Shawn. Yes, I think it's too early to give an estimate on price lag. As you know, it really depends on where Singapore prices end up in June relative to March. I think you're right, it's down in the prop market, and it would suggest a reversal -- a partial reversal of the $125 million impact. But I think that's how you should think about it and look at June pricing once available. Operator: Our next question comes from Alexa Petrick with Goldman Sachs. Alexa Petrick: I want to just jump in a little more to the Hawaii captures, recognize there was that price lag impact. But even if we adjust for it, I think captures looked like they were in the low 90% compared to your target of over 105%. So, can you just talk about some of the drivers there and then how that's tracking for Q2? Shawn Flores: Alexa, it's Shawn. Yes, I'd call out two other elements that I think drove a 10% to 15% capture hit. One was typically we see West Coast pricing to a premium to Singapore in most historical periods. That flipped to a significant discount, particularly LA jet versus Singapore jet and LA diesel versus Singapore gas oil. We do have some contractual exposure to the West Coast. And so that was -- let's call it, 5% to 10% capture headwind. And then the other sort of factor I called out is we do produce and sell naphtha and LPGs and whenever you see a blowout like we did where gas, oil and jet is pricing at such a premium to the secondary products, it creates a capture headwind. I think both of those dynamics have normalized heading into Q2. If anything, I think West Coast is pricing at a premium to Singapore. So, it's something that we're watching, not trying to make a call right now given the volatility, but those are the elements to keep an eye on. Alexa Petrick: Okay. That's helpful. And then maybe just a follow-up, sticking on Hawaii. It sounds like the planned turnaround is still tracking for end of June start-up. Can you just talk about the planning behind that? Is there any flex given the macro and just how investors should be thinking about the impact? It sounds like the majority of it is going to be a Q3 impact. William Monteleone: That's correct, Alexa. We already shifted it, I'll say, weeks and I think that's probably the extent of the flexibility that we have. And again, I think we really tie our decision on turnaround timing toward hydrocracker catalyst life. That's one of the key drivers in Hawaii. It's been roughly 6 years since we changed that catalyst out. And again, I think, have the objective of completing this over the summer periods just given the scheduling, the timing of the contractors and the work that we've done. So I think we have limited flexibility beyond where we sit today and have kind of the supply chain contractors and all the moving pieces in place to execute that on time and on budget. Hold on, Richard's got a couple of things to add. So Richard go ahead. Richard Creamer: Yes. Thanks, Will. Just one other comment that one of our primary goals is to absolutely ensure the product supply in the state of Hawaii as the only producer there. So timing around that is significantly considered in the execution start of the turnaround. Operator: Our next question comes from Jason Gabelman with TD Cowen. Jason Gabelman: Maybe sticking with the Hawaii turnaround planning, throughput guidance is a bit light for Hawaii in 2Q. And I wonder to what extent that's some conservatism baked into guidance versus the Hawaii turnaround really starting in earnest the last week or two of the quarter. And then could you also discuss kind of how the landed crude cost dynamics will trend once Hawaii comes back online? Will that reflect the impacts of the conflict and higher freight and backwardation we're seeing in the market? William Monteleone: Yes. Sure, Jason. I think the throughput guidance reflects our estimate on the start time of the outage. And then again, I think working through, I'll just say, optimizing our crude supply chain, both extending the turnaround as well as our plans exiting the turnaround. So again, I think we're focused on kind of margin optimization through both the inbound and outbound elements of the turnaround. In terms of landed crude differentials, I think it's too early to call. I'll say the third quarter differentials. I'd just keep in mind a couple of things. One is given the turnaround is ongoing and the length of our supply chain, we've been able to, I'd say, stay out of the market and the kind of teeth of the most extreme kind of hoarding events that we've seen over the last 30 to 60 days. That said, I think when you look at backwardation alone, our first half of the year, crude differentials reflect probably a near flat market structure. And if you just look at the current market structure today, between the front month contract and the third month contract, you're moving between $6 and $8 a barrel. So again, that's consistent with our risk management framework and ensuring that we're not taking flat price risk between the origin loading point and the delivery to Hawaii. So again, too early to call, but I think those are the factors to watch. Jason Gabelman: Great. I was also hoping to get your color on Singapore cracks more broadly. They obviously were extremely strong in the start of the conflict in -- through April, and it seems like they've converged with rest of world cracks. And I guess it's to be expected given if there are arbitrage opportunities, those are going to be taken advantage of and the differentials are going to tighten between regions. So are we in more of a, call it, stable is probably not the right word, but from a relative basis, are we in an environment where relative cracks make more sense here? Or just given the refinery capacity shut ins in Asia, there's potential for cracks to spike again moving forward? William Monteleone: Yes, it's a good question. I mean, I think our observations would be at the beginning of the conflict. Obviously, the most, I'll say, hoarding of product and I'll say, disruption between physical and financial markets, I think, emerged. And again, I think if anybody was short, Singapore cracks financially going into that, I think there was a fair amount of rush to cover that position. I think now you're seeing freight normalize. And again, kind of the ability to arbitrage products between the Atlantic and Pacific Basin, you're getting back into, I'll just say, transport parity economics, between Atlantic and Pacific Basin. So again, I think that's probably the right way to think about it assuming that no other major factors change, which I think is a big assumption. Again, I think for Asia to price materially above Europe, given that they're both in, I'm going to say, deficit positions needing to import product. Again, I think it's going to be a call on a competition between those two points to source and attract barrels. Jason Gabelman: Got it. And if I could just sneak one final one in. Just on the small refinery exemptions. I think you received $60 million RINs worth of exemptions last year. It sounds like you haven't monetized a large part of that. So if you get the exemptions this year reflecting 2025 exemptions, should we expect you to monetize most of that position? Shawn Flores: Jason, it's Shawn. Yes, I think that's probably a fair assumption. We've monetized less than half to date. I think we're -- would prefer to have clarity from the EPA on 2025 exemptions before further monetizing both the historical excess and then any new relief that we would get related to 2025. Operator: Our next question comes from Zach Parham with JPMorgan. Zachary Parham: Can you just talk a little bit about how you're thinking about the buyback going forward? It seems like you slowed down as the stock price moved higher post Iran. With cracks where they are today, you're set to generate a significant amount of free cash flow in 2Q. Do you plan to be active in the market buying back your stock? Or are you comfortable with the cash just going to the balance sheet in the near term? William Monteleone: Zach, this is Will. I think our historical framework still holds today. And again, I think we've been in an excess capital position and I've taken an opportunistic framework towards our share repurchases. And so again, I think the cadence of our repurchase is going to be driven by our excess capital position forward outlook and really our view of intrinsic value. And I think when we see it trade materially below that, we'll seize that opportunity. So I think our framework is the right way to allocate capital through the cycle. And again, I think you should expect us to be more aggressive in our share repurchasing when we see deeper discounts, intrinsic value and then, I'll say, more moderate in our approach as we see it less attractive discounts to intrinsic value. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Will Monteleone for any closing remarks. William Monteleone: Thank you, Kim. Q1 was a strong start to 2026, notably solid operational performance across the system, the successful April start-up of our renewable fuels unit and attractive share repurchases. Our focus remains on disciplined execution as the durable path to growing earnings and free cash flow per share over time. Thank you to our employees, and thank you all for joining us today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome, everyone, to the 1Q 2026 LATAM Airlines Group Earnings Conference Call. My name is Becky, and I will be your operator today. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance or guidance are forward-looking statements. These statements are based on a range of assumptions that LATAM believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F 2026 guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. And if there are any members of the press on this call, please note that for the media this is a listen-only call. I will now hand over to your host, Ricardo Bottas, CFO, to begin. Please go ahead. Ricardo Dourado: Hello, everyone, and good morning. Welcome to our first quarter 2026 conference call, and thank you all for joining us today. My name is Ricardo, and I'm CFO of the LATAM Airlines Group. Here with me is Roberto Alvo, our CEO; Andres Del Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations. And we will present the highlights and results for the first quarter of 2026. I'll hand it over to Roberto to share his opening remarks. Roberto Alvo Milosawlewitsch: Good morning, everyone, and thank you, Ricardo. Let me begin. LATAM began delivering a very strong set of results, which reflect the consistency of the execution and the structural strengths of the model built over the past years. During the first quarter, LATAM Group grew capacity by 10.4% and transported close to 23 million passengers, while maintaining a solid load factor of 85.3%, demonstrating once again its ability to grow efficiently and capture demand across the network. The strong operational performance translated into record financial results. Revenue reached $4.1 billion, adjusted EBITDA was $1.3 billion, and the adjusted operating margin was close to 20%. The highest quarterly figure in the company's history, resulting in a net income of $576 million, reflecting both revenue strength and disciplined cost execution. These results were supported by continued progress in revenue quality, driven also by solid execution, well-tailored product differentiation, strong customer preference and a continuous increase in the contribution of premium revenues. This reflects a trend that has been building consistency over the recent quarters as LATAM's business model is delivering on the expected results. Even though the conflict in the Middle East pushed up jet fuel prices sharply starting in March, given the timing of fuel consumption, price lagging mechanisms and partial hedges, this increase did not materially impact the first quarter financial results. LATAM expects, however, these higher fuel prices to be reflected in the second quarter of this year. As fuel prices increased, LATAM Group began implementing fare adjustments in most of its network as well as executing targeted capacity reductions. To date, the demand environment remains strong and stable, and these commercial actions are partially mitigating the higher fuel expenses. Looking forward, we face the upcoming months with a combination of optimism and caution. Optimism because over the last years, LATAM has built a very resilient model. Its passengers and cargo business integration, together with the presence of LATAM's Group has in most market it operates, the strength of the loyalty program, the design and delivery of the passenger experience, both on board and throughout the journey, the focus on premium traffic and less elastic segments of demand, its competitive cost, the strength of its balance sheet and liquidity and most importantly, the quality and commitment of its people are all features that are unique to LATAM in the region and provide a true advantage and a potential source of future opportunity. Caution on the other side, because the environment remains extremely uncertain and variables that significantly affect the business are outside of LATAM's control. However, LATAM's track record in navigating complex environments is well proven at this time, and the group really trusts its abilities. In this volatile context, LATAM has taken a prudent approach to its guidance as will be discussed in more detail later in the presentation. Extraordinarily, given the circumstances, the company has decided to replace its full year 2026 guidance with a more focused set of metrics. With that said, I'll hand it over to Ricardo, who will talk -- walk us through the performance of the first quarter together with a look into LATAM's group relative and absolute strengths. Thank you. Ricardo Dourado: Thank you, Roberto. So Roberto, with his opening remarks, just covered Slide 3, so we can jump to the Slide 4. LATAM started the year with a strong financial performance, successfully translating a healthy demand environment into tangible financial results. Total revenues reached $4.1 billion, representing a 21.7% increase compared to the same period last year, mainly driven by the passenger business, which grew 24.4%, supported by strong customer preference for the LATAM Group product during the higher summer season in the Southern Hemisphere. At the same time, cargo revenues increased 3.4%, highlighting once again the importance of LATAM's group business diversification, which in the current context continued to be a key lever for the group. As a result of this top line performance, LATAM achieved an adjusted operating margin of 19.8%, expanding 3 percentage points year-over-year, marking the highest quarterly operating margin in the company history. This reflects not only the strength of LATAM's brand, but also the disciplined execution of the strategy across the network. On the cost side, total adjusted expenses increased 17.3% alongside operational activity and capacity growth. Importantly, fuel cost pressures during the quarter did not have an immediate or material impact on the results, given the delay of approximately 20 to 30 days in price adjustments supported by regional supply structures. In fact, given LATAM's hedging position in this dynamic, there was a reduction of 3.3% in fuel pricing during the quarter on a year-over-year basis. That said, there was an estimated impact close to $40 million during the period, which is expected to become more visible in the following quarter as elevated fuel prices are progressively incorporated. At the unit cost level, passenger CASK ex fuel came in at $0.045. This is an increase versus the same period of 2025, mainly explained by the depreciation of the local currency, particularly the Brazilian real. Together with this, unit revenues increased at a stronger pace, rising 12.7%, reflecting a solid performance across all markets. All of this translated into a net income of almost $600 million for the quarter, an increase over 62% year-over-year and a net margin of almost 14%, enabling the consistent delivery of exceptional results from the top line down to the bottom line. Please join me on the next slide to take a deeper dive into revenue performance across different affiliates and business units. Now on the Slide 5. The first quarter was characterized by a strong demand environment across the region. In this context, LATAM Group was able to very effectively capture this demand and translate into revenue performance, supported by its value proposition and network. During the quarter, the group began navigating a context of increasing fuel prices and as a result, implemented target revenue management actions, though these are partly reflected in the first quarter given the percentage of tickets already sold for March at that time. In the quarter, the group increased capacity by 10.4% and transported 22.9 million passengers, a 9.1% increase compared to the same period of 2025, mainly driven by the International segment and LATAM Airlines Brazil domestic market. This was accompanied by a consolidated load factor of 85.3%, a 2 percentage point increase. At the market level, LATAM Airlines Brazil domestic market showed strong dynamics with demand growing above capacity, leading to higher load factors and a solid passenger RASK performance, increasing 17% in U.S. dollars and 8% in local currency, supported by a more favorable exchange rate than last year. In the domestic Spanish-speaking affiliate markets, capacity remained stable, while improved traffic translated into a meaningful increase in load factors and a very strong unit revenue performance with passenger RASK increasing close to 25% in dollars and nearly 19% in local currency. In the International segment, capacity and traffic grew at a similar pace, maintaining very healthy load factors close to 87%, while Passenger RASK increased 6.3%, supported by a strong performance across both regional and long-haul operations. Overall, these results reflect LATAM Group disciplined execution and capacity deployment in revenue management, which supported by a favorable demand backdrop, allowed the group to deliver strong unit revenues, all underpinned by a differentiated value proposition, both in terms of product and its ability to connect the region like no other player. Let's move to the Slide 6, talking about the LATAM Group value proposition, in particular continued development of its premium offering and the results this is delivering in the next slide, Slide 6. Product differentiation, customer preference and the growing relevance of premium revenues were key drivers of LATAM's performance during the quarter, underscoring the strength of the group's value proposition. These factors are all reflected in LATAM's recently awarded 4-star in the Skytrax World Airline Star Rating, making LATAM the only airline in Latin America history to reach this level. The premium segment continues to gain importance with LATAM's revenue mix and therefore, enhance the revenue quality. During the quarter, premium revenues increased 28% year-over-year and actually premium revenues are increasing at a rate 14% higher than non-premium passenger revenues. With this premium passenger revenues share reached 27% of passenger revenues, a significant increase compared to the pre-pandemic levels, which becomes particularly relevant in the current context of heightened volatility and macroeconomic pressures as premium travelers tend to exhibit lower price elasticity and more stable demand patterns. Complementing this, LATAM Pass remains a key enabler of loyalty and customer engagement with 55 million members, including 2.6 million Elite members, making it the largest airline loyalty program in the region. Beyond its scale, it also serves as a relevant revenue channel with close to 60% of LATAM's passenger revenues generated by LATAM Pass members, reinforcing the strength of the ecosystem and the group's ability to deepen customer relationships. And as LATAM continues to elevate the customer journey, the group has announced a series of initiatives aimed at further enhancing its premium offering going forward. These include the rollout of the Wi-Fi connectivity in the wide-body fleet, which has already begun with the first long-haul flight operated in last March and will continue expanding in the coming years. The expansion of lounge infrastructure in the strategic hubs such as Sao Paulo and Miami and the introduction of the new premium comfort cabin expected from 2027. Building on these developments, one of the most recent highlights is the incorporation of the Airbus A321XLR expected from 2027 onwards, which will feature the premium business cabin with full flat seats, suite doors, direct aisle access and onboard connectivity, reinforcing the group premium value proposition and ensuring consistency across the LATAM Group product experience. The continued development of LATAM's premium offering, together with its loyalty program and network strength allowed the group to capture more resilient and higher value demand, further supporting the sustainability of the financial performance even in the face of a complex macroeconomic scenario. Please join me on the next slide, Slide 7. LATAM's strong performance was effectively translating into solid cash generation during the quarter. At the start of the year, the company generated $858 million in adjusted operating cash flow, reflecting the operational strength already discussed. After accounting for CapEx net of financing of $291 million as well as financial expenses and other items, LATAM generated close to $480 million in cash. During this period, paid amount to $90 million related with the interim dividends distributed in December '25, which given operational payments timing, were partially executed in January, the $89 million you see in the column. As a result, LATAM closed the quarter with a net cash generation of $391 million. This cash performance remained consistent with what we've seen in the previous quarters, where strong operating results are effectively converted into liquidity, which is the current context becomes a key source of strength, allowing LATAM to maintain a position of confidence in its financial standing while navigating in an environment with higher uncertainty. Let's move to the next slide, Slide 8. In the current context of elevated fuel prices and ongoing macro volatility, having a strong and lean balance sheet drivers competitiveness, and this continues to be a key differentiator for LATAM. The group closed the quarter with liquidity of $4.1 billion and an adjusted net leverage of 1.3x, supported by consistent cash flow generation, which remains at the core of the financial strategy. Additionally, in a scenario of prolonged and heightened volatility, the group maintained significant financial optionality through its asset base with more than $1.5 billion in unencumbered assets, providing further flexibility to navigate the cycle and act on opportunities. Match with this, LATAM has proactively managed its maturity profile, resulting in no relevant short- and midterm maturities and a well-structured debt schedule. Importantly, all debt is now under market conditions with no remaining legacy from Chapter 11 process, further streamlining the balance sheet. This provides both visibility and financial flexibility going forward, which is also reflected in the group's credit profile with all major ratings agencies now assigning ratings in the BB+ category -- sorry, BB category with a positive outlook following Moody's outlook upgrade in March and Fitch's reaffirmation of its rating and outlook in April. Now on Slide 9. And given the recent increase in volatility, particularly in fuel prices and the more limited visibility in the current environment, the company has decided to replace its previous full year 2026 guidance with a more focused set of metrics. While the previous 2026 guidance assumed an average jet fuel of $90 per barrel in a context that remains highly -- the dynamic LATAM's new guidance is based on a very specific set of assumptions. Regarding fuel prices, the expected price for each of the remaining quarters on the year is provided in a stable demand environment, consistent with what we observed so far is assuming and both are incorporated into new guidance. The assumptions for the next quarter is going to be $170 for the Q2 and Q3 and $150 for Q4. Regarding passenger unit cost ex fuel, this has been updated to a higher range of $0.045 and $0.047 compared to the previous guidance, which is explained by the appreciation of local currency and in particular, the Brazilian real, now expected to be BRL 5.15 per U.S. dollar compared to the previous assumptions of BRL 5.5. On the adjusted EBITDA side, LATAM expected a range between $3.8 billion and $4.2 billion, which incorporates the estimated impact of higher fuel prices, supported by the levers already discussed, including the strength of the network, the ability to capture premium demand through LATAM's differentiated value proposition and its fuel price management strategy. LATAM's balance sheet strength is also reflected in the updated net leverage metric, which is expected to be somewhat higher than previously guided, but still at very healthy levels and well below the company's financial policy target limit, estimating the net leverage below or equal to 1.8x. Regarding liquidity, the new guidance is lower than the previous presented, mainly explained by the impact of higher fuel prices. Nevertheless, liquidity is expected to remain at or above $4.5 billion, once again demonstrating the company's strength in terms of financial flexibility and balance sheet resilience. In the near term and given the current level of visibility, LATAM expected additional fuel expenses of more than $700 million for the second quarter of 2026, assuming the jet fuel price, as I have mentioned before, of $170 per barrel. Despite the significant fuel impact, LATAM expected to deliver a mid- to low single-digit adjusted operating margin in the second quarter. Overall, while the environment remains dynamic, LATAM is navigating this context with a disciplined and measured approach, leveraging the strength of its business model. Let me conclude with a few key takeaways and messages on the last slide, Slide 10. The first quarter results reflect a very strong performance for LATAM achieved in the context of a healthy and resilient demand environment, particularly during the high season, which provides a solid starting point for the rest of the year. All of this finds LATAM in the strongest financial position in its history, allowing the group to face the current macroeconomic environment from a position of financial strength even as fuel price pressures begin to materialize in the coming quarters. In this context, LATAM benefits from both relative and structural advantages. At the core of this is a differentiated increasing premium offering, combined with a strong network, which allows the group to access a demand base that is structurally less elastic and therefore, enabling the group to pass through costs more effectively. At the same time, LATAM operates today with a lean and strengthened balance sheet with high liquidity, low leverage, no short and midterm maturities with assets and significant flexibility and optionality to navigate in a more volatile environment. LATAM approaches the coming months with discipline and confidence, supported by its experience in navigating volatility and the robustness of its business model while maintaining a prudent stance in light of a still challenging and dynamic macroeconomic environment. Thank you, and let's open the line for questions. Thank you. Operator: [Operator Instructions] Our first question comes from Guilherme Mendes from JPMorgan. Guilherme Mendes: The first one is on the guidance. Whatever you can share in terms of top line assumptions, thinking of -- you mentioned capacity adjustments, yield increases. So if you can provide a reference of how much even if a ballpark you are anticipating for the year? And the second point is on -- think about the price increases, if you can share how each of the different segments, think about leisure, corporate or different regions are performing following this increase on prices. Roberto Alvo Milosawlewitsch: This is Roberto. So first question, we're not providing top line and capacity guidance because we see those figures are slightly more volatile than EBITDA. At the end of the day, I think that the industry will adjust capacity to try to balance results going further. So that's why we are focusing on a set of metrics that we believe give a good picture of the resilience of the model without trying to forecast variables that are going to be difficult to forecast. Having said that, I think it's fair to expect that if high level fuel prices continue, we will see bigger capacity adjustments throughout the industry and particularly in the region. And I think that you can fairly estimate a potential revenue profile with that assumption having the other measures that we provided. In terms of the segments, so first and foremost, solid demand and stable demand environment throughout the network. We haven't seen particular places where the macro environment has affected demand. We see a strong and stable corporate segment in almost every country. International and domestic Brazil probably stand out as slightly stronger than the rest. But on average, everything looks very healthy. We have seen, of course, a little bit of a slowdown in the more elastic segments of demand. The good thing is that today, this is comprising less and less of the number of passengers of LATAM, and they're easily compensated with different point of sale -- points of sale origins that we have in the network. I think that large networks in this particular environment are, in general, much more -- what is the word in English, sustainable than smaller networks. But as the [ long AP ] in the beginning of the quarter, when fare increases, you could see an impact on [ long AP. ] As the quarter has progressed, you see the filling up of the aircraft nicely, even though from those initial lower levels. And this is, in my mind, a function of the diversification of the points of origin and the O&Ds that the LATAM network can provide. So in general, the picture looks stable. The forward bookings for the remainder of the quarter have not been affected by anything that we've seen outside of the industry. So in that context, we remain positive. Operator: Our next question comes from Michael Linenberg from Deutsche Bank. Shannon Doherty: This is Shannon Doherty on for Mike. Congrats on the record results. So maybe just a follow-up on your last response. You just mentioned potential slowdown in the more demand elastic segments. Can you dig in deeper there? And with premium revenue now at 27% of total, what is your long-term target? Roberto Alvo Milosawlewitsch: So yes, I mean, I think it's absolutely normal to see a slowdown in more elastic segments. On the other hand, I think that airlines that tailor to more elastic segments in general are decreasing capacity faster than airlines that don't have that exposure. So that balances out in a way, this slowdown in demand. And at the end of the day, I think benefits companies that LATAM that can fill their planes with higher quality passengers in the other moments of the curve and in the other segments. So it's a total manageable situation given what we have. And I think that what we're seeing here is very clear. Airlines that are more exposed to more elastic segments, airlines that have weaker balance sheet are going to probably be more exposed to the current situation. LATAM's absolute and relative advantages clearly stand out in this particular scenario. Second question was the long-term premium revenues target. So we don't provide a public target of long-term premium revenues. I think that the expectation we have is to continue to grow premium revenues faster than total revenues. Ricardo pointed out to that stat for the first quarter. We haven't seen at this point in time, any slowdown in this trend, and it's been already over several quarters that we have seen that outpacing of premium travelers vis-a-vis the rest. And I think that the delivery of our product, the way we're managing the network, the quality of the experience today, the FFP, all these features point out that we can continue seeing that different balance vis-a-vis the past going forward. Shannon Doherty: Great. And how much on the higher fuel costs are you capturing during the June quarter? Do you expect to fully capture higher fuel by the end of this year, like we've heard from some of the U.S. airlines? Roberto Alvo Milosawlewitsch: Again, we don't provide that specific information, but I think that with the mid- to low single-digit operating margin figure together with the fuel spend that we are telling you guys that we're going to have in the second quarter, you can estimate relatively well the impact of fuel and pass-through that we are seeing for the quarter. Operator: Our next question comes from Andre Ferreira from Bradesco. Andre Ferreira: So one quick question here. So if you could comment on the forward booking curve. I guess in a previous question, you commented on specifically for the second quarter. But in general, how are you seeing it? Is it shorter? And if so, do you believe it's more due to like a permanent price sensitivity? Or is it more due to passengers kind of wishing or waiting for fares to go down closer to the trip? Roberto Alvo Milosawlewitsch: Yes. Andre, again, I mean, significant amount of the passengers we fly are domestic passengers, which have relatively low APEs. So the visibility we have on the booking curve doesn't go too much further away than a couple of months, maybe international a little bit more. So in the visibility we have, which is the rest of the second quarter and probably the first peak on the high season in the July winter holidays for us in this part of the world, it looks healthy in general. July is an important month just as January are because it's holiday time in the Southern Hemisphere. And the first indications we have on bookings for July look healthy as well. But beyond that, it's still very early to get a sense on how the planes will feel. We'll see that in the upcoming weeks. Andre Ferreira: Perfect. And if I can just squeeze in another one. If you could comment on -- can you hear me? Roberto Alvo Milosawlewitsch: Yes. Yes, we can. Andre Ferreira: So if you -- if you could just comment on the competitive landscape across the region. So I guess in Brazil, we have Azul leaving Chapter 11, but with lower growth as per the plan GOL out for a while now. So just how are the rest of the competition in Brazil behaving and on the other markets as well? Roberto Alvo Milosawlewitsch: Thanks, Andre. So we normally don't comment on competition. I guess the two things that I can tell you, one is airlines publish their capacity, and therefore, you can see capacity changes week after week as this crisis has progressed. I think that what we are seeing in general is a trend in downward capacity on most of the airlines in the region, including LATAM, by the way, in the second quarter vis-a-vis what was published before February 27. I think that airlines or more than I think what we see because this is actually public information, what we see is ULCCs decreasing capacity faster than players that have a better revenue quality average, if I can call it like that. I personally think that with an environment like the one we are using for the guidance, capacity may -- decreases may accelerate to balance out the longer-term impact of demand. LATAM takes -- the way we have looked at this particular guidance, we call it guidance, but this is -- nobody knows where this is going to go. We'd rather put ourselves in a scenario that looks a little bit more conservative than the forward curves and prepare for that. Then we will see how we execute as the information goes through and the changes in the environment. But we're taking this crisis seriously in the sense that it can -- there's a chance that it can last longer. And in that case, the whole organization needs to be prepared. If it gets better and we have, I guess, positive news flows during the night yesterday, then we will adjust accordingly. But for the time being, I guess that's the assessment I can -- I can give you on how we see the dynamics of the market here. Operator: [Operator Instructions] Our next question comes from Gabriel Rezende from Itau BBA. Gabriel Rezende: So just following up on the impact into the second quarter talking about fuel prices. We're trying to understand here what is LATAM actually seeing in terms of fuel price increases just because we have seen some of the regions, particularly Brazil on which Petrobras is very relevant, kind of is smoothing out the international price trend for fuel prices into jet fuel. So just trying to understand whether the $700 million plus that you're estimating for impact into the second quarter is already incorporating the fact that Petrobras and policies for price pass-through here for jet fuel in Brazil were kind of smooth out as the crisis took place in late February. And also, if you could comment how is the company at this point? I understand there's a lot of uncertainty and their visibility is limited. But just trying to assess how you're weighting market share versus profitability when assessing the price increases that you need to implement to offset the higher cost that you're facing with fuel. Ricardo Dourado: Okay. Gabriel, it's Ricardo, and thank you for your question. Actually, regarding the Petrobras issue, I'm not talking about a specific provider in Brazil. It's relevant in Brazil, for sure. But it's not a question of price policy. It's just a mechanism in terms of the way that they capture the international price in terms of lagging. So we mentioned a range on the average of all providers to have between 20 and 30 days lagging in terms of the way that the average price from our suppliers are getting the impact from international prices, I mean, in terms of price commodities, right? So it's just the way that when we see these assumptions for the second quarter of $170, for instance, we are capturing everything on it. And like we have mentioned also, the most relevant impact from March, for instance, it's captured in the Q2 assumptions for price. Roberto Alvo Milosawlewitsch: But to be clear, we're not assuming nor forecasting any changes to the price that are not market changes to the price. So no subsidies or anything like that in any of the markets where we operate. Regarding the second question, thanks for the question on market share. Let me be extremely clear here. In LatAm, market share is not a goal. Market share is the result of what we do. So for us, we don't manage the business in terms of the market share we can achieve. We manage the business looking at the flows, understanding where we can win, executing upon where we see strength. And then the outcome of that equation is market share. And LatAm has improved almost in every market where it operates its market shares over the last 2 or 3 years. But this is not a function of seeking them. It's a function of the results of our strategy. So -- so I don't focus -- we don't focus in profitability vis-a-vis market share. We focus in long-term development of the network, delivering on the strength that we have built in the model. And then we will see what the market share outcome of that equation is. Having said that, we are a rational player in terms of how we want to develop the business going forward. We find ourselves in a place where we can grow profitably. You see this very clearly throughout 2025 and in the first quarter of 2026. And I think that the way we conduct ourselves and the business is pretty clear at this point in time. So no market share goals for LATAM. Operator: Our next question comes from Jens Spiess from Morgan Stanley. Jens Spiess: Yes. Just two questions from me. One, to clarify your jet fuel price assumption, just to make sure that that's market prices not considering any hedges, right? And if those market prices materialize, what would be like the effective hedged price that you would be realizing considering that you now have also incorporated additional hedging instruments for your hedging -- within your hedging policy? And my second question is on the XLRs that you will be adding to your fleet in 2027. Where do you plan to deploy those mainly? Will it be intra-South America or also like to the U.S. and other markets, just to get a bit more clarity on that. Ricardo Dourado: Thank you, Jens. And regarding the hedging policy and the assumptions we use for the guidance, yes, the reference in terms of the price of the commodity, it's not including any reference in terms of the impact that could come from the hedge. But yes, the guidance that we are providing or the guidance is capturing the contracts that we have disclosed that we have in our -- under the hedge policy that we are seeing. And we also made some reference in terms of the way that we see the collars and also the recent call options that are partially in the money right now. So as a reference and not giving any additional information regarding the conditions from these instruments, the guidance is capturing the contracts that we have until the end of April, okay? Roberto Alvo Milosawlewitsch: And on the XLR, so we are receiving in total 13 XLRs starting in 2027. There are several applications of the XLR in our network. Lima, Brasilia, Fortaleza are three good examples. We were initially going to deploy the XLRs in Lima, given the fact that there's a connection fee now imposed in Peru, which we believe it's a terrible and pretty bad public policy. We are evaluating where those XLRs will go. But as a general probably guide here, we bought these planes to fly long segments, particularly to the U.S. if it were from Lima or Brasilia, it would be probably Europe and the rest of South America if they were to be placed in Fortaleza. But we'll keep you posted on the deployment of them. We still are over a year away from the first delivery, so no decision made in terms of where they're going to finally go. Operator: [Operator Instructions] Our next question comes from Ewald Stark from BICE Inversiones. Ewald Stark Bittencourt: I have a question on jet fuel. Your jet fuel guidance for the coming quarters looks somewhat high relative to the evolution of the jet fuel futures curve. So I was wondering if you can provide any details on how the strategy was used to reach those expectations. Roberto Alvo Milosawlewitsch: Thanks for the question. I mean, forecasting future prices of fuel today, not even the pros, I mean we have seen just the second half of the forward curve moving something like $15 on average in the last 15 or 20 days. So the way I think that you need to read the assumption here is in two ways. One is we are wanting to be slightly more conservative in terms of this because we'd rather prepare for a worse scenario. In the case it gets better, fine by us, it will be great. It will be an upside to what we're seeing. But on the other side, I think that rather than just simply thinking that we're assuming something special with the market, we have absolutely no clue just as anybody does. I think that you need to read a set of metrics that we gave you as the proof of the resilience of the LATAM model. So you have the EBITDA, you have the liquidity, you have the leverage and you have the price assumption on fuel, make up your idea on how LATAM today is being built to withstand a moment like the one we're living. Operator: We currently have no further questions. So I'll hand back over to Ricardo for closing remarks. Ricardo Dourado: Thank you all for joining us today. And if you have any further questions, please let us know and reach out the Investor Relations team. Thank you, and have a good day. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good afternoon, and welcome to Ultragenyx First Quarter 2026 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Joshua Higa, Vice President of Investor Relations. Joshua Higa: Thank you. We have issued a press release detailing our financial results, which you can find on our website at ultragenyx.com. Joining me on this call are Emil Kakkis, Chief Executive Officer and President; Erik Harris, Chief Commercial Officer; Howard Horn, Chief Financial Officer; and Eric Crombez, Chief Medical Officer. I'd like to remind everyone that during today's call, we will be making forward-looking statements. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. Please refer to the risk factors discussed in our latest SEC filings. I'll now turn the call over to Emil. Emil Kakkis: Thanks, Josh, and good afternoon, everyone. We are now in our 16th year since our founding, and this year is expected to be transformative with growing revenue and multiple new drug approvals. We're on track to well exceed $700 million in revenue from our global commercial business with a consistent track record of double-digit annual revenue growth. We have a PDUFA date for two gene therapies that would bring first ever treatment to patients and families with no other disease-modifying options. Also, we will unwind our Phase 3 Aspire study, evaluating GTX-102 in patients with Angelman syndrome in the second half of this year. We're continuing to execute global clinical trials across the largest late-stage pipeline in rare diseases. We're also manufacturing our gene therapy products in our new facility in Bedford, Massachusetts. I'll start with GTX-102 for Angelman syndrome. The first patients enrolled in the Phase 3 Aspire study have reached their day 338 visit and have transitioned to open-label extension study. The rest of the patients will be completing the blinded portion of the study in the next few months and crossing over to open label extension. With the Aurora study, we are expanding GTX-102 treatment to other ages and genotypes of Angelman syndrome and enrollment in that study continues to go well. We prefer to develop the first-ever treatments for diseases that have not had significant breakthroughs in the past and so do not simply work in disease areas where there are other competitor programs at similar stages of development. In the case of Angelman syndrome, we made an exception given the size indication and the excellent work genetics had done with the scientist Scott Dindot to develop a potent ASO that worked in a large animal model rather than just mice, which often do not predict human biology. The preclinical research, Scott conducted in his lab at Texas A&M is a total force of molecular genetics. He is able to identify and target a separate and distinct region of the antisense message transcript that has led to more efficient transcript knockdown and greater potency in the clinic. This was a superior science that led us to study Angelman syndrome. Later in the call, Dr. Crombez will walk through the longer-term efficacy, durability and safety data from the Phase 1/2 study in his section. But I want to highlight now that we have 66 patients on therapy for an average of 3 years and with the longest approaching 5 years, with continuing and improving benefits across multiple domains and with a favorable safety profile. Based on this longer-term data, we believe GTX-102 can deliver clinically meaningful treatment effects and can be safely administered in chronic dosing. What we see in the Phase 1/2 data we believe GTX-102 is making an important difference in the lives of these patients and their families. Shifting now to our global commercial efforts. Our commercial business continues to deliver. We're now getting revenue in more than 35 countries, a result of strategically investing in high-quality teams who can efficiently navigate the complex approval and reimbursement processes around the world. This reflects a disciplined country-by-country execution, our teams deliver every quarter. This base business is not only generating meaningful and growing revenue, it is the engine that will power our next phase of growth. Our team is currently commercializing Dojolvi and Mepsevii are poised to add DTX401 and UX111 to their responsibilities as we look forward to approvals for these two products later this year. Our established global commercial business is bringing first-ever treatments to patients who need them, paving the path to profitability in 2027. I'll now turn the call over to our Chief Commercial Officer, Erik Harris, who will provide details on his team's efforts in the first quarter. Erik Harris: Thank you, and good afternoon, everyone. As Emil mentioned, the underlying business remains strong, and we are well positioned to capitalize on the potential upcoming launches. Howard will share details, but we remain fully confident in our 2026 revenue guidance. Throughout the first quarter, the commercial and field teams have continued to meet the growing demand for our products across the globe. I'll start with Crysvita and want to put the first quarter revenue in the right context. The revenue in North America, Latin America and Turkey was consistent with our expectations in the ordering patterns we have seen in prior years. This is a business we know well. We see continued strength in the underlying demand across all of our regions, including in markets like Brazil, where bulk orders by the Ministry of Health can result in quarter-to-quarter variability. In Latin America, approximately 30 patients began commercial therapy in the first quarter, bringing the total number of patients on Crysvita to more than 950 in the region. We remain fully confident in the fundamentals and strength of the business and along with our partner, KKC in North America. Our ability to continue to find and treat patients with XLH and TIO. Shifting now to Dojolvi, where the trend of our steady growth continued six years post approval. In the first quarter, our North American team generated more than 30 start forms, far exceeding their target for the quarter. In North America, we now have more than 675 patients on reimbursed therapy. And in Europe, there are approximately 300 being treated through named patient or early access programs. The next stage of growth is likely to come from Japan where Dojolvi was granted conditional approval last year, and we look forward to the full approval and launch of the product this quarter. I'll close with Evkeeza, which is another example of our experienced team's ability to successfully commercialize rare disease products. In our region outside of the United States, we are seeing exceptional growth from this program as our international commercial teams navigate the country-by-country reimbursement process and respond to requests for early access from patients and their physicians. In total, there are approximately 370 patients across 18 countries who are receiving Evkeeza. We expect this will continue to be an important and growing contributor to our revenue base. Beyond the individual product performance, I want to step back and highlight what I believe is the true strength of this business, the scale and reach of our global commercial infrastructure. That depth of market presence across rare disease markets that require significant expertise, patient-finding capability and reimbursement navigation is a genuine advantage. It is what enables us to efficiently bring first-ever treatment to rare-disease patients. And critically, this infrastructure and experienced team are what gives me confidence as we look toward the rest of the year. My team is preparing for two new product launches, DTX401 with a PDUFA date of August 23, 2026, and UX111 with a PDUFA date of September 19, 2026. The launch readiness work is well underway across both programs and we are building on the infrastructure and expertise we have already established. With that, I'll turn the call to Howard to share more details on our financial results and guidance. Howard Horn: Thank you, Erik, and good afternoon, everyone. I'll focus on our first quarter financial results and guidance for the year. Starting with revenue. Total revenue for the first quarter of 2026 was $136 million. Crysvita contributed $93 million, including $39 million from North America, $46 million from Latin America and Turkey and $8 million from Europe, which were consistent with the anticipated quarterly timing and trends Erik just mentioned. Dojolvi contributed $18 million, consistent with our expectation for steady demand growth. Evkeeza also contributed $18 million, representing 64% growth over the first quarter of 2025 and as demand continues to build following launches in our territories outside of the United States. Lastly, Mepsevii contributed $7 million as we continue to treat patients in this ultrarare indication. Total operating expenses for the quarter were $305 million, which included cost of sales of $30 million and combined R&D and SG&A expenses of $275 million. Total operating expenses included $30 million of non-cash stock-based compensation and $30 million of expenses related to the restructuring announced last quarter. For the quarter, net loss was $185 million or $1.84 per share. As of March 31, we had $534 million in cash, cash equivalents and marketable securities. Net cash used in operations for the quarter was $197 million. Recall, in the first quarter of the year, we typically use more operating cash than in each of the subsequent 3 quarters because it includes items like the payment of annual bonuses. In addition, the first quarter of 2026 included $38 million in payments related to UX143 manufacturing activities as well as $5 million related to severance and other payments from our recent reduction in force. Net cash used in operations are expected to decrease in the remaining quarters of this year as we continue on our pathway to profitability in 2027. Shifting now to guidance for 2026, we are reaffirming the revenue guidance we provided in February. Total revenue in 2026 is expected to be between $730 million and $760 million, which represents 8% to 13% growth over 2025 and excludes potential revenue from new product launches. Crysvita revenue is expected to be between $500 million and $520 million, which includes all regions and all forms of Crysvita revenue to Ultragenyx. This range reflects growing underlying global demand, partially offset by expected timing of ordering patterns in Brazil that we anticipate will normalize in 2027. Dojolvi revenue is expected to be between $100 million and $110 million. We are also reaffirming the R&D and SG&A guidance we provided on our last call. Specifically, we expect 2026 combined R&D and SG&A expenses to be flat to down low single digits versus 2025. We also continue to expect 2027 combined R&D and SG&A expenses to decrease at least 15% in 2027 versus 2025. With that, I'll turn the call to our Chief Medical Officer, Eric Crombez. Eric Crombez: Thank you, Howard, and good afternoon, everyone. As Emil mentioned in the opening, I'll focus on the clinically meaningful Phase 1/2 data that we have generated with GTX-102, our antisense oligonucleotide for the treatment of Angelman syndrome. This data is from our Phase 1/2 open-label single-arm studies, which informed the design of the Phase 3 double-blind sham-controlled Aspire study. Given the differences in study design, these Phase 1/2 results are not necessarily predictive of Phase 3 outcomes. In our press release earlier today, we highlighted that a total of 74 patients have been treated with GTX-102 as part of our Phase 1/2 program. This is one of our largest Phase 1/2 studies we have conducted and was designed to inform the dose, dose regimen and endpoints for our Phase 3 studies. There are now 66 patients in long-term extension studies, with patients generally receiving the 14-milligram quarterly intrathecal maintenance dose. These patients have now been on continuous therapy for an average of 3 years and some patients are now in their fifth year of treatment. These patients continue to demonstrate improvement across multiple developmental domains with no new cases of transient lower extremity weakness. We took a cut of the data in March of this year to be able to highlight the long-term safety and efficacy of GTX-102 in a forthcoming manuscript, and I wanted to share a high-level summary today. Starting with the Bayley-4 Cognitive raw score, there are 53 patients in the Phase 1/2 study with a Bayley-4 Cognitive raw score at month 12. At this time point, they were approaching a mean change from baseline of 10 points, exceeding the meaningful score difference of 6 points and with longer-term follow-up, we see continuing and improving benefits in cognition. Turning to the multi-domain responder index, or MDRI, that uses clinically meaningful score differences consistent with FDA guidance as opposed to statistically driven changes to determine a positive or negative response across 5 different developmental domains. In the Phase 1/2 data set, we now have MDRI data at month 12, 24 and 36 that evaluates response across cognition, communication, behavior, sleep and gross motor. When comparing response to baseline, the p-value across all three time points is less than 0.0001. Not only is this a very powerful statistical assessment of five different measures, it is consistent with doctors and family's broader view of neurologic diseases like Angelman. It is the intersection of all these developmental changes that reflects how individual patients truly respond to a treatment in a holistic way. In the 48-week Aspire Phase 3 study, we had primary statistical alpha split between the Bayley-4 Cognitive raw score and the MDRI. This is not a hierarchal evaluation, meaning that both of these endpoints will be tested in parallel. If the Bayley cognition hits less than 0.04 or if MDRI hits less than 0.01, we will have a statistically successful Phase 3 study. We also took a look at expressive communication in our Phase 1/2 study assessed by the Bayley-4. Similar to cognition, we saw meaningful improvements in expressive communication that continued and improved in longer-term follow-up. Based on the totality of data generated in our Phase 1/2 program, I remain confident that the developmental progress and continued learning of new skills in these patients support the meaningful benefit of using this ASO to provide UBE3A from the paternal allele. I'm looking forward to seeing the results from our Phase 3 studies and the potential to replicate these results in larger controlled studies. I'll now turn the call back to Emil to provide a reminder of our catalysts for 2026 and some closing remarks. Emil Kakkis: Thank you, Eric. I'll close with a few of the catalysts we have later this year. A full list can be seen in the corporate deck posted to our website. Starting with DTX401 for the treatment of glycogen storage disease type 1a. We continue to work well with the FDA and look forward to our PDUFA action date of August 23. The FDA has also informed us that an AdCom is not planned. Next, for UX111 for the treatment of Sanfilippo syndrome, the BLA that was resubmitted earlier this year is being reviewed with a PDUFA action date of September 19. Lastly, GTX-102 for the treatment of Angelman syndrome is on track to read out top line Phase 3 data from the Aspire study in the second half of the year. Ultragenyx has been one of the most productive companies -- rare disease companies in the industry and taking programs from early research to approved therapies for patients who have no other options. We've done it across multiple modalities, multiple therapeutic areas, and we look forward to bringing the next set of first-ever treatments to the patients who need them. The surge in late-stage programs in the last few years has challenged us like it would anyone. But the benefit is once we turn the corner on these programs into approved products, we have the potential for a significant acceleration in our growth that will be a special moment in the history of Ultragenyx. With that, let's move on to your questions. Operator, please provide the Q&A instructions. Operator: [Operator Instructions] Our first question comes from Tazeen Ahmad with Bank of America. Unknown Analyst: This is Daniel on for Tazeen. I was just wondering if you could comment on the new update for Angelman, like what level of consistency are you seeing for patients improving on the Bayley-4 and the MDRI? And kind of how we should think about variability between the 2 endpoints for the Phase 3? Emil Kakkis: I'll touch on it and maybe Eric can add some more. I think the Bayley that we're conducting is being done with -- primarily with an outside firm that's coming and doing the test at the site. So this is -- we're running a very high-quality operation in terms of how we will measure the test to help reduce variability. I think the consistency is something we can't comment on at this point in a Phase 3 study, but we can talk about what -- how it looked in Phase 2. I think it should -- we expect it to be similar to what we've seen before. And I think the MDRI has been a very robust and consistent measure just in its nature because it's multiple domains that we've seen strong results, and I think Eric just talked about them. So Eric, what do you think about the Bayley-4 consistency? Eric Crombez: Yes. So I think looking at the results from Phase 1/2 and very much applied to how we designed Phase 3. The most important thing we did was include patients with full deletions. This means they're expressing no UBE3A and gives you a very consistent patient population, driving those consistent results we saw in Phase 2 and what we think will be replicated there. And then again, as a reminder, bringing patients with other mutations that add variability into our second Phase 3 study, Aurora. Emil Kakkis: It's a very good point, Eric. Consistent genetic type will definitely help us get consistency, particularly consistency in what the placebo or the untreated sham will do because without treatments, patients with Angelman do not gain on the Bayley-4 significantly. Operator: Our next question comes from Joseph Schwartz with Leerink Partners. Joseph Schwartz: So a couple of questions on GTX-102. In Aspire, are you stratifying randomization or prespecifying subgroups by any baseline factors? It seems like in rare pediatric trials, even modest imbalances in baseline severity could be important, and there's some literature in Angelman that this could influence variability. I'm just wondering how confident you are that Aspire is protected against any potential baseline imbalances? Emil Kakkis: I'll let Eric answer specifically. In general, for all of our programs, we are very aware of this whole skewing issue on the randomization. So we will always -- for primary endpoints will stratify our primary end point to do our best we can. However, nothing is perfect. So what are we doing for Angelman. Eric Crombez: Yes. So specifically for Aspire, both by age and cognitive raw score, that being our primary end point, we want to make sure we have consistent balance there. Joseph Schwartz: Okay. And then we noticed that you haven't narrowed the timing for Aspire top line data yet. Do you have any sense when during second half of '26, you might report the data? Is late third quarter a good assumption since you finished enrollment in late July last year? Emil Kakkis: It's fun, isn't it? Keeping you in the dark about exactly when that's happening. Yes. I think you probably can guess based on the timing of things. The question is that when you close out an international study, a lot of end points, you do want to do it carefully. And so we're not being precise not only because we want to give ourselves time to get everything straight before we do unwinding. We've said the second half, but you can tell by when last patient in was roughly when the trial should have the last patient out. But the timing it takes to finish up a study with sham, there's EEG, there's a lot of things in there that will take a little time. So we get a Phase 3 program, we want to take the time to make sure we're being a little nonspecific now, but it's all on track. Operator: Our next question comes from Maury Raycroft with Jefferies. Maurice Raycroft: The Phase 1/2 longer-term commentary is helpful. Just clarifying, could we see the detailed Phase 1/2 data ahead of the Phase 3 top line? And it seems like you're seeing a clear static signal on MDRI in the Phase 1/2. And based on the point improvement you mentioned for cognition, I'm wondering if you're seeing a static p-value for cognition versus your -- versus the natural history study data set. Emil Kakkis: I think we've commented on the primary endpoint natural history comparison before is our powering analysis. I think we've said that, that we would we would be well powered. So I think that, that's already served as analysis. MDRI is just extremely powerful method. I think it's the way forward for neurologic diseases. Your question asked, will you see the detailed data? Probably not. I think we haven't set which science meeting the data will come out yet. I would assume, be later in the year. We have often presented things at the FAST conference, but we haven't set at this point, a plan for the Phase 2 data, but it's not necessarily ahead of Phase 3 at this point. But we wanted to put out a little bit of data now just to give people confidence about what's going on and just give you a sense of the magnitude and outcome and the fact that we're confident about how the drug looks. And it continues to show good safety and the kind of cognitive benefit and the right benefit that gives us confidence in the design and what we're conducting in Phase 3. Maurice Raycroft: Got it. That's helpful. Maybe one other question. Just wondering if prior to the database lock in stats plan, do you have to have any discussions with FDA on magnitude of improvement on the primary endpoints? Or is it just showing a static benefit? Is that sufficient? Emil Kakkis: Yes. There's no regulatory step between us and unblinding at this point. We're all agreed. And there is no defined required minimal change for the Bayley. I think that is something that we don't need in the design, it's a continuous variable. However, we will always have what is known as a clinically important change of 5 points. We'll always look at data that way, but the powering of the primary endpoint for a Bayley cognition is based on a continuous analysis, which is really the appropriate thing to do. But if you look at the numbers we just told you, 10, that is almost twice the minimally important difference already. So I think we're at a pretty good place. Operator: Our next question comes from Anupam Rama with JPMorgan. Joyce Chang Robbins: This is Joyce on for Anupam. Maybe just one on the two upcoming gene therapy launches, DTX401 and UX111 in the back half of the year. Could you just discuss where you are in terms of commercial manufacturing and product scale-up and just your overall readiness from a launch -- from a CMC launch perspective? Emil Kakkis: Yes. No, good question. I think we've been manufacturing actually since last year. And for DTX401, the drug substance and drug product both made at the plant and in Bedford. And then for UX111, we have a contract manufacturer that's making drug substance in Ohio, and we're making -- or finishing the fill-finish in our Bedford plant. We've been running around last year and this year and that's part of our expenses that we're spending money on is actually building inventory, and that's been going well, and we're building inventory and feel like we should be in a reasonable position at the time of launch at this point. So I think we're ready. I think the launch teams have been working on their work. I think the two PDUFA dates are quite close to each other, but the doctors we're going to are actually the same doctors. And there's certain synergy that will happen by having the same -- most of the centers will be doing both products, some may do one or the other. But the qualified treatment centers are getting set up, contracts in place. And I think the synergies of having two of them will be real, and we're excited about the possibility. Of course, we still need to get approval. But at this point, from both manufacturing and commercial standpoint, we're set up and moving forward, excited about the prospects of launching two gene therapy products. Operator: Next question is from Eliana Merle with Barclays Bank. Eliana Merle: Just can you give us any more color on how we should think about the time lines for getting data from the Aurora study? And if the data are positive in the Phase 3 Aspire trial, how are you thinking about what your base case will be for the ages in a potential Angelman label? And if this will include adults? Emil Kakkis: So Aurora is how we're going to expand the label to other indications, genotypes and ages. So the main Aspire study is 4 to 17, all deletion. And so we have a younger group, the older group and the other genotypes involved in Aurora. The study is still continuing to enroll and enrolling well, but it's also an international study, and we'll continue to collect data. So we'll have some data at that time. We haven't really said through anything about how we'd approach our filing launch at this point in time. We're going to wait and see what the data look like and our -- put together our plans. The study with Aurora though is still more enrollment to do. Operator: Our next question comes from Yaron Werber with TD Securities. Steven Ionov: This is Steven on for Yaron. I really appreciate the color on Angelman. You mentioned the 14 mg was generally the maintenance dose being used. Can you give us some color on whether there might be more than one dose being used, why that might be happening and whether there could be more than one maintenance dose in the label? And secondly, in terms of profitability projections, given that PRVs are selling for substantially over $100 million at this point. Any color on what you're modeling in terms of PRV monetization and whether we can expect that full year '27 profitability to be sustainable? Emil Kakkis: Okay. Well, I'll touch on the dose at a high level. I don't know if Eric has anything more to add, but then I'll let Howard deal with the -- PRV is a profitability question. So the vast majority of patients are 14. And from the main trial, the protocol actually is Aspire brings them to 14 in terms of how it's done. There are some patients that have certainly been on drug for a longer period of time in various regimens. So I don't know if there's anything else to add it. We think it's a very high fraction of around 14. Eric Crombez: Yes. And that is what we expect to label on. So we expect a maintenance dose of 14 milligrams every 3 months. Once we get into commercialized setting, we have our DMP, we can explore potentially a different dosing. Maybe some patients would benefit from every 2 months, some could benefit from a higher dose there, too. But our plan is to prior -- after discussions with the FDA with a 14-milligram maintenance dose. Emil Kakkis: That's really the main source of what you're going to see. So Howard... Howard Horn: So with regard to the PRV, we watch this with interest to see how they've been selling. As part of our plans, we have two PRVs we plan to monetize, one for 111 and one for 401. We -- I think we've stated in the past that we've baked it into our model at a little over $100 million each. So anything above that would be upside. Of course, there's also an opportunity for a PRV with 102, which would also be upside to our model. So that's how we're thinking about monetization. And I think you'd also asked the question about sustainability of profitability post '27. Our plan is to not just hang out at the Raiser's Edge, but to continue to grow profitability. And depending on the launches we have and their success, we'll figure out how much we can reinvest back into the pipeline versus drop to the bottom line. But that will be a fun conversation to have in due course. Operator: Our next question comes from Salveen Richter with Goldman Sachs. Salveen Richter: Ahead of the Phase 3 Angelman's data in the second half, can you speak to the path forward in the event that MDRI hits, but Bayley-4 doesn't? Emil Kakkis: I think as Eric noted today in the script is that we still consider that a positive study. That is, we have essentially two ways to succeed. The Bayley Cog can succeed and the MDRI provides maybe a more robust option. We negotiated this position with the FDA, I think while their tendency is to stick with single primary endpoints as their approach, we think the MDRI is actually a smarter and better way to go for neurologic diseases. This is an opportunity to move in that direction. Our expectation is, as Eric had said, that a missed Bayley-4, but a positive MDRI is still a demonstration of efficacy in the program. Obviously, that would assume that, let's say, Bayley cognition just missed and then MDRI hit. That would be one potential scenario. We would not expect, for example, Bayley cognition to go negative and then have an MDRI positive, have that work out. So the question really be, could Bayley miss for some reason and MDRI provides an insurance policy and support for efficacy in the product that's broader than just cognition. So we feel like there's ways -- it's two ways to win for the program, and we're actually expecting both to hit. But as you know, we can always miss in our best intentions in a randomized controlled trial, but I think the combination of both gives us a higher chance of being positive regardless of what happens in the patients. Operator: Our next question is from Kristen Kluska with Cantor Fitzgerald. Kristen Kluska: For this latest Angelman cut that you looked at for the Phase 1/2 data. Can you tell us how the 1-year plus data is stacking for cohorts A and B relative to what you saw across different measures for cohorts 4 and D? And whether that's further strengthened your position of the dosing regimen and techniques you took forward in Phase 3? Emil Kakkis: Okay. Yes. So we've shown the cohort A and B before, and I think the cohort A and B is continuing to behave. And I would say -- remember, that's the most of the patients. C and D is relatively few patients. It's really mostly A and B. So I think what we're talking about is cohort A and B extending now through the full year, and that's the data we're talking about. So it's really driven off of A and B. That A and B is, we think, is pretty comparable to what you're seeing in the Phase 3 because the A and B was in all the international sites. So that included the 7 or 8 countries that we're also doing studies, including a high overlap with the sites that we're actually using. So I think that the A and B cohort, which is the primary driver of the data you heard about today, is very replicable with regard to what we're doing in Phase 3, both from a sites, countries and patient type. So I think it is a good model. I think the data should be in line with what we expect in Phase 3. Operator: Our next question comes from Maxwell Skor with Morgan Stanley. Selena Zhang: This is Selena on for Max. On Angelman, could you describe the contribution of caregiver input to Bayley-4 cognition in the Phase 1/2 and how that changes over time with the longer follow-up data? Emil Kakkis: Well, thank you for that very technical detailed question. I'm not sure everyone knew about caregiver input. But just to be clear, in the raw scores that we're using for the Bayley-4, the FDA does not want us to include caregiver input, all right? So all the analysis has to be done by the psychologist tester. And so we are not including any caregiver input in the Bayley-4 primary endpoint per FDA request. Now out of the -- I'm getting the number, is it 20 or 30 items or something? There's like a couple of items where caregiver input -- 2 or 3 that can have an effect. So when we look at raw scores with or without caregiver input, we don't think for Bayley-4 cognition, there's significant issue. If you're doing the expressive Bayley, there's actually a lot more caregiver input potential. And so it might have more effect on the -- I'm sorry, expressive communication than on cognition. So it's only a couple of 2 or 3 things we haven't seen it have an impact, but we are doing it without caregiver input in the Phase 3 trial. Joshua Higa: Emil and Eric, I think the question was maybe more around the Phase 1/2 data that we've talked about if we were able to look at that without the caregiver input, and I don't think that's how the Phase 1/2 was run. Eric Crombez: Yes, that's correct. For Phase 1/2, we did use caregiver input, and it was part of the conversation designing Phase 3 that the FDA made that request. We actually performed the test both ways in Phase 3, but the primary endpoint does not use caregiver input. And that's important to eliminate bias, and that's true for both your actively treated and your control group. So it's a reasonable request. Emil Kakkis: So we can analyze without those items, they will not have a meaningful impact. That's what I said that if we drop them out, they're not impacted because there's only a couple of items out of a very large number where it might impacting, right? Okay so the situation is those 2 or 3 items. If the caregiver says that they think they're developing, but the doctor doesn't see it, If they see it, they could score a point or 2. But we're saying if you drop those out, it's still -- it's fine in cognition. So our point would be that we see in Phase 1/2 is -- would be consistent with or without caregiver input, right? Does that answer the question, Josh? We're good? Boy, we're getting deep on COA. Operator: Our next question is from Jack Allen with Baird. Jack Allen: Congrats on the progress. So I wanted to ask about what your expectations are as it relates to the sham performance in the Aspire study. I know there was a limited data set from Angelman, but are there any other surrogate neurodevelopmental indications that you've looked at as it relates to sham performance? And then my other follow-up was on the profitability. And any comments you can make as it relates to what you need as it relates to success from the gene therapy programs in Angelman that's baked in for assumptions for profitability. Do you account for those in the profitability guidance, or is it just the current base business? Emil Kakkis: Well, I'll let Howard deal with the profitability question, but let me deal with the sham performance. Well, obviously, we would not expect sham to have an effect. And we haven't looked at all possible studies, but certainly in our own -- in Angelman and the control studies we've seen -- we haven't seen much change. I would say to you that when you're talking about the performance of development, these kids are not going to have a placebo effect exactly, right? Because they're not thinking, "Hey, I'm getting a treatment, I should be better." They're not going to think this way. They're not -- developmentally changing by not having caregiver input, which is maybe why the FDA doesn't want it, it allows there to be a more objective assessment of what's happening. So we're really saying could they get better on their own without anything happening. What we're saying is that the deletion patients just don't. So we're pretty comfortable that sham performance will not be important. I don't know that there's other developmental disorders that are comparable, maybe Rett syndrome or other types like that. But at this point, we don't feel that the sham should be any different from a natural history and the deletion patients are pretty stable in terms of their Bayley cognition scoring. They do not change much, and we're talking about less than 1 point a year. So whether it's a randomized trial or even a natural history. So at this point, we're comfortable with it. But I understand your point right now, we seem comfortable with it. And we have adequate power even if there was a higher background signal, we should have power to overcome that with the treatment effect we expect. Howard Horn: And Jack, regarding profitability and launch success assumptions, right now, what we've said for top line is that we assume continued double-digit growth from our current products plus contribution from upcoming launches, which could include 111, 401, 102. We haven't said much more than that, but maybe what I can say is that it certainly doesn't require all of them to be successful for us to get to profitability. And we have different levers we can pull to make sure we can live up to our promise of 2027 path to profitability. Operator: Our next question comes from Ben Burnett with Wells Fargo. Benjamin Burnett: I wanted to ask about the GTX-102 program and great to hear about the long-term data. I think you mentioned there were 66 patients in the long-term extension. Could you comment on sort of the reasons for discontinuations? And then I have a follow-up. Emil Kakkis: Yes, we can do that. It's actually been a little here and there, but it's mostly often in the beginning. Maybe you can comment on that, Eric, for him. Eric Crombez: Yes. So very consistently, it was all due to burden of study participation. I mean we do need to remember that some of these patients live very far away from treatment sites, and it does become a burden for these families. So that was across the board, the reason for those discontinuations, study burden. Emil Kakkis: It sometimes happened kind of early, too, because some people realize they just couldn't do it. But yes, so it wasn't safety related. Benjamin Burnett: Okay. Okay. And then the other question I just want to ask is just around Crysvita. So I appreciate kind of the commentary you gave on the call just around some of the variability around sort of ordering patterns. But I guess the question is to what visibility do you have kind of going forward through the next couple of months? And sort of what gives you sort of the confidence in kind of the yearly guidance number for Crysvita? Emil Kakkis: Yes. I'll let Erik comment a little bit because Erik is very close to the team at caring on what's going on. But I think one other element of this is that every year, we're going to have one other factor, which is the way the royalty is in the first part of the year, it's a little bit lower than it crosses the threshold and it goes up. So whatever revenue is coming, our percentage goes up as the year goes on, and that's why the quarterly revenue goes up as well. So it's an ordering pattern thing, and there's going to be this continuous ramp-up of our percent in the royalty stream. So it's just going to reset, every year and crawl back up. Erik what gives you confidence in Crysvita going forward in the North American territory? Erik Harris: Yes. No, it's quite simple. We're very confident in the underlying demand that we continue to see with finding patients and patients wanting to be treated across our regions, which is why we reaffirmed our guidance. And consistent with prior years, we expect the same sawtooth pattern that we've seen previously with lower Q1 and a rebound in Q2 and softer Q3 and a strong Q4. So we expect, as we have in previous years to continue to deliver on our commitment to the street. Emil Kakkis: Yes. I think the thing that we would see in Q1 though is like the start forms. What's the start? That's the demand you talked about. And so -- and continuations and so forth. So demand is strong in Crysvita. It's a great product. People stay on it when they get on it. And they continue to grow it, and we're here to support them and do our own work where we're commercializing. But we -- Crysvita has continued to grow and do well. And we just have to understand there's always this corollary plan that's going to happen almost the same every year. So we feel comfortable how the year will go. Operator: Our next question comes from Yigal Nochomovitz with Citigroup. Yigal Nochomovitz: I was curious about the long-term extension data, and you mentioned that you've seen the positive improvements in multiple domains and patients are continuing to improve developmentally. I'm just wondering how you assess those metrics with respect to sufficient powering on the endpoint for the Aspire trial for the Bayley-4 cognition. Do those observations in the long-term extension study development improvement, give you confidence that the powering on the Bayley-4 is sufficient for the Aspire trial? And what would be the clinically meaningful delta that you'd want to see on Bayley-4? Emil Kakkis: Yes, Yigal, thanks for the question. I think, look, we -- I think Eric just talked about hitting around 10 points, let's say, in the 1-year time frame. So that's the part of the A and B cohort and the others together that has gotten to the 1-year mark. Some people are at the 3- to 5-year mark. What we're saying is that 1 year, they're hitting a number, which is pretty close to what we've been expecting the whole time, and that size gives us -- shows that we're adequately powered and it's well above the MID at 1 year. So we're feeling comfortable about that size. And by the way, most people that know that just that test are shocked at how much change there is because it usually doesn't move at all for most people or expert, including Kim Goodspeed, who's our physician, who's a [Angelman] specialist. She says, you just don't see this thing move. So 10 points is a big number. What we are saying and what Eric put forth is that when you continue to follow these kids over the longer haul, they continue to go up in Bayley cognition. And so that kind of tells us that the patients are having a sustained benefit of the ASO on their function in their brain and they're continuing to gain ground. That to me is really important. And that's what the long term is telling you. I think Phase 3, of course, is very important for getting filed approval. But what is the commercial potential of a product? I think the long-term safety and product treatment and continuing to gain ground tells you this is a treatment that has the ability to help kids over a long period of time in the post-market setting. And so with Phase 3 in hand, being able to get to a commercial setting, I think this gives us more confidence that the potential of the drug to be a long-term benefit for patients with Angelman syndrome. Yigal Nochomovitz: Okay. And then one on UX111. Since the resubmission, have you had any other requests for information since the acceptance in April? Or any other inspection requirements post acceptance of the BLA? Emil Kakkis: Yes. We're having what I would call routine discussion with the agency. We normally don't discuss the details of those. We've had what I would call routine discussions on the BLA, and those continue. And at this point, we feel that business is normal moving forward. And we won't really comment in detail about it until something, a decision gets made. We're excited about the potential of that program and are planning for a launch, assuming we get approval. Operator: Next question comes from Gavin Clarke with Evercore. Unknown Analyst: This is [indiscernible] for Gavin. So two from us. One is for Angelman MDRI end point. So just a full clarification for the stat analysis, so what is the delta versus sham control is actually defined? Is there a difference in the median net response between the 2 arms or the difference in the proportion of the patients that are treating a net response in at least on domain? And secondly, we have a question about 106 in GNE myopathy, which we saw recently got IND clearance. So wondering what is the key difference between this new molecule versus previous one that looks like also run through the same indication that failed in the Phase 3. What are some key takeaways we can learn from that history study to inform the current trial design? Emil Kakkis: Sure. Thanks. So for the MDRI, what we're looking at is net domain improvement. So each patient will have a number of domains that they hit, right? And we look at net domain improvement comparing the distribution curve of the treated patients to the distribution curve of the control patients, right? So it's a net domain improvement, how many positive wins per patient do you see? And we've shown before that we had often two domains or more on average per patient around that in that range. But those domain can be variable. There can be various combinations. There are some patients that had as many as four or five domains of improvement. So we'll look at those distribution curves for the net domains per patient, right? That's the statistical comparison. For GNE myopathy, I've been involved with that program from the very beginning. It's a horrible muscle disease, we think maybe around 10,000 patients out there, and we think it's very chronic and terrible disease. The original molecule of sialic acid replacement didn't work as well because the sialic acid just didn't penetrate. What the new drug is a prodrug, one that we designed, that has an enhanced hydrophobicity that helps target uptake into muscle and gets released and transported by a sialic acid transporter. So it allows it to get taken up into the lysosome and cleared across the lysosomal membrane into the muscle. And that improved hydrophobicity mechanism will allow us to, in the animals or in dogs to deliver large amounts of sialic acid to the cells substantially better than the other molecules, like many, many fold better. So we think the potency is just dramatically better, and that puts us in a better position to actually achieve the replacement therapy that's required. And we know from the prior work and particularly the biopsy work that these patients have an 85% depletion of sialic acid in their muscle. This drug should take us back to complete replacement, if not above replacement levels of sialic acid. So we have greater hope this can be an effective drug for GNE myopathy. It's a program I should point out, is funded through a venture philanthropy agreement with the patient group and who are very interested in the product moving forward. And we were able to do that even under our financial constraints with the fact that they were funding it. So they're funding us through the Phase 2 proof of concept, which is allowing this program to move forward at this point in time. Operator: Our next question comes from Luca Issi with RBC Capital Markets. Luca Issi: Congrats on the progress. Maybe Emil and Eric, circling back on a couple of prior questions. What is your relative level of conviction on Bayley-4 cognition versus MDRI? It feels to me that during the call, it came across as incrementally more positive on MDRI versus Bayley-4 cognition. One, would that be fair? And two, if so, can you still amend the protocol to potentially reallocate more alpha to the MDRI versus the Bayley-4 cognition? Again, any color there, much appreciated. And then maybe super quickly on OI, I did not see anything in the press release or in the prepared remarks. So should we assume that you have discontinued that program? Eric Crombez: That we've discontinued OI. Emil Kakkis: Oh, I see. I missed it. So the MDRI is a more powerful measure. It has five endpoints in it. They gain power from all those endpoints. It is a very powerful way. We've been promoting it. We used it in our Mepsevii program. It's just new for regulators. And so at this point, in our agreement with regulators, we put 80% of the power into the Bayley-4, which is actually where you need the power because it's -- there's a sort of a smaller magnitude effect. The MDRI hits very strong statistical significance. So you don't really need more alpha upside MDRI even if you have higher confidence in it because it's a tremendous amount of power in it. So I think what we've done is the appropriate proportion and we don't really need to shift it more. The OI, we continue to do evaluations and discussion. We put a little bit in the release on this. We'll inform the street when we have a decision what we're doing, but we did not discontinue the program. It continues at the moment and until we complete and get answers to key questions and make a determination. Operator: Our last question comes from Raghuram Selvaraju with H.C. Wainwright. Amit Dayal: This is Amit for Ram. Just have a question about the PDUFA dates coming up in the second half 2026. Can you frame the cadence of the commercial rollout and when to expect a meaningful revenue from both UX111 and DTX401. And then the second question is on the GTX-102 in Angelman. You mentioned discontinuation rates due to non-safety burden. Are you preparing any way to reduce discontinuation rates in the commercial setting? Or do you not foresee that being an issue? Emil Kakkis: Sure. So obviously, launch of gene therapy is complicated, the reimbursement part of it and so forth. We're not guiding on any revenue, what the revenue would be for this year, but we're certainly planning to move forward on getting the launch together. I'm sure Erik could go through this in great detail. I'll just summarize for you, Erik, that there'll be obviously various policies at launch we'll have to manage. But eventually, we are talking to payers and appropriate meetings now to help lay pipe for the planning process for that. But the reimbursement will be some of the process, and then we'll have to work through to get patients treated. So our expectation is that there will be some time from PDUFA date to be able to get things going. We're trying to work as hard to get it going within a few weeks and to see how we can get it going. We expect to have product available, and it's more a question of getting the commercial process going. But I think the team has been working aggressively on getting all the pieces in place that would take. And I've been participating with them on some of the payer meetings that look at what the plan is, what the policies were and how to navigate the process to get the best outcome for patients. For discontinuation rates, we actually find the discontinuation rate very limited. Actually, it's really small handful. And usually, the treatment effect that patients start seeing is so meaningful that, that's something that patients have been looking for their -- patient families have been looking for their whole lives. So we don't expect a big discontinuation rate. But as we move forward in it, we will clearly need to manage the accessibility and convenience. And this may involve bringing in a device to help make lumber punctures easier. But we're going to do our best to make sure this is as burdenless as possible. And I would say to you that a randomized trial or any kind of clinical trial has way more burden than getting something clinically in terms of what you have to do. So I think the amount of tests and stuff is a lot. And I think for an Angelman family, that was probably more of a factor. So at this point, based on what we've seen, we're not expecting discontinuation to be a big deal. But we are also going to do our best to take care of patients before there's an issue and give them the best patient experience we can in terms of a convenience for a treatment that involves an intrathecal delivery of an ASO. Operator: We have reached the end of the question-and-answer session. I would now like to turn the call back to Joshua Higa for closing remarks. Joshua Higa: Thank you. This concludes today's call. If there are any additional questions, please contact us by phone or at ir@ultragenyx.com. Thank you for joining us. Operator: This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.
Operator: Good morning. This is the conference operator. Welcome, and thank you for joining the Arkema First Quarter 2026 Results and Outlook Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Thierry Le Henaff, Chairman and Chief Executive Officer. Please go ahead, sir. Thierry Le Hénaff: Thank you very much. Good morning, everybody. Welcome to Arkema's Q1 '26 Results Conference Call. Joining me today are Marie-Jose Donsion, our CFO; and the Investor Relations team. As always, to support this conference call, we have posted a set of slides which are available on our website. I will comment the highlights of the quarter before letting Marie-Jose go through the financials. And at the end of the presentation will be available, as usual, to answer your questions. In the continuity of 2025, market conditions remained soft into January and February 2026 before improving in March. Regional trends were contrasted with demand continuing to be subdued in Europe and in the U.S., while Asia showed again solid momentum across several of our end markets. In addition, the quarter was once more affected by the depreciation of the U.S. dollar compared to last year, while this impact is expected to be more limited from the second quarter onwards. End of February saw the outbreak of the conflict in the Middle East, which started to impact global supply chains and quickly led to a sharp rise in certain raw materials as well as in energy and logistics costs beginning in Asia. So in this complex environment, Arkema delivered stable volumes year-on-year, a solid performance in the context. This was particularly driven by Specialty Materials whose volume increased by 1.5%, supported by a strong pickup in March. All Specialty Materials segments were up. Coating Solutions benefited notably from better dynamics in UV curing resins. Advanced Materials posted solid growth in key attractive markets for high-performance polymers. These were supported by durable goods and some limited improvement in construction. This volume performance also reflects Arkema's continued momentum in high-growth pockets with volumes up 15% in attractive end markets such as batteries, sport, 3D printing and healthcare. Batteries once again delivered strong growth, supported by the rapid expansion of energy storage systems, a key additional driver for the group, particularly within High Performance Polymers. As a result, Q1 EBITDA came in slightly above expectation, reaching EUR 283 million, up 14% versus the fourth quarter of 2025, supported by an improvement in March. EBITDA was nevertheless down year-on-year, primarily impacted by a significant negative currency effect of around EUR 20 million and the absence of rebound in the U.S. and euro so far. Besides, Advanced Materials experienced a slow start to the year, in line with the trend observed in Q4. However, momentum improved in March and Q2 should be up sequentially supported by HPP. I would also like to underline the good performance of Coating Solutions, which improved its EBITDA margin by 100 basis points, supported by a more favorable product mix. Adhesive Solutions delivered a significant sequential improvement despite being down year-on-year. On the other hand, Primary Materials increase earnings slightly year-on-year, mainly driven by legacy refrigerant in the U.S., and actually, the improving spreads in Asia came late in the quarter and so had only a limited impact while the business in Europe and the U.S. continued to be challenging, particularly in January and February. However, from today's perspective, it is fair to assume that the acrylic spread should improve in Q2 with the magnitude still to be confirmed. As you can expect, all teams are fully mobilized to effectively and swiftly manage the current economic and geopolitical challenges. In the first quarter, we have set fixed cost inflation of at constant currencies, and we are well on track to achieve this objective for the full year, supported by a number of cost-cutting initiatives. Turning to the Middle East crisis. The group is reacting swiftly to mitigate supply chain disruptions, both in terms of raw material availability and more important input cost inflation. Pricing adjustments have been initiated to our sales increase in raw materials, energy and logistics costs, while actions deployed selectively by product, market and geography. This has required close and continuous coordination with both suppliers and customers, cost increases will become visible in Q2. Arkema's well balanced geographical footprint to serve customers predominantly from the region is worth mentioning, as a good advantage in the current environment. So far, we have been able to navigate this crisis without any supply disruption. Moreover, Arkema remains focused on executing its major growth projects. So group is currently finalizing the completion of its new PVDF capacity in the U.S. scheduled to start mid-year. This will add 15% additional capacity in the region to meet growing demand for locally manufactured PVDF, particularly for energy storage systems, semiconductors or cable applications. In parallel, the group also announced a further 20% capacity expansion at its PVDF in China, set up to start in 2028. Also, the new unit of Rilsan Clear, downstream of PA11 in Singapore started up successfully at the beginning of the year and is expected to support HPP earnings momentum from Q2 onwards, driven by capacity ramp-up. I would also like to underline the strong first quarter performance of PIAM. EBITDA was up more than 30% year-on-year in local currency with a 35% EBITDA margin. As highlighted during our last call, PIAM continues to benefit from good momentum driven in particular by solutions for foldable and ultra-thin smartphones as well as its expansion into higher-end application. We expect this positive trend to continue into the second quarter with robust year-on-year sales growth. In addition, Arkema stays disciplined in its capital allocation, we delivered a solid performance with regard to working capital management. This contributed to recurring cash flow coming in better than last year. This performance also reflects lower CapEx, fully in line with our EUR 600 million full year CapEx target. I will now hand it over to Marie-Jose for a more in-depth look at the financials by segment before we discuss the outlook at the end of the presentation. Marie-José Donsion: Thank you, Thierry, and good morning, everyone. Arkema's Q1 revenues at EUR 2.2 billion were down 8.4% year-on-year. They were impacted by a negative 5.1% currency effect, reflecting mainly the weakening of the U.S. dollar against the euro compared to Q1 last year. Volumes came out broadly stable year-on-year, supported by a strong month of March after a relatively soft start of the year. The price effect was a negative 3%, reflecting essentially the lower selling price environment compared to Q1 2025, in line with the progressive decrease in raw material costs observed in 2025. Q1 EBITDA came in at EUR 283 million. The currency effect represented a negative of around EUR 20 million. Looking at the performance by segment. Adhesive Solutions achieved an EBITDA of EUR 89 million. It reflected on top of the currency impact, the still weak demand in North America and Europe, volumes grew significantly overall or slightly less overall, supported mainly by Asia. This performance was driven mainly by adhesives for durable goods with an improvement in aerospace and heavy truck markets in North America. On the other hand, packaging remains soft and construction was better oriented, especially in Europe. In Advanced Materials, the EBITDA stood at EUR 139 million. Apart from the currency effect, the EBITDA was essentially affected by the unfavorable product and geographical mix. Market conditions in much of the quarter were similar to what we observed in Q4 last year, which means a continuing weak demand in the U.S. and in Europe while Asia continued to show a positive dynamic. Coating Solutions delivered a good performance in the context with an EBITDA stable compared to last year at EUR 51 million. Volumes were up 3% driven mainly by strong growth in Asia, in particular, in new recurring resins. The EBITDA margin improved by 100 bps at 13%, benefiting from our development in higher value-added applications. Lastly, Primary Materials. EBITDA was slightly up at EUR 33 million, especially supported by a good performance in legacy refrigerants in the U.S., while acrylic monomers stayed in the low cycle conditions in most of the quarter. Depreciation and amortization stood at EUR 165 million, leading to a recurring EBIT of EUR 118 million and a REBIT margin of 5.4%. Nonrecurring items amounted to EUR 45 million. That includes EUR 34 million of PPA depreciation and EUR 11 million of one-off charges, notably some restructuring and reorganization costs. Financial expenses stood at minus EUR 29 million. The increase versus last year reflecting mainly the cost of carry of our prefinanced green bonds issued end of 2024. Consequently, the Q1 adjusted net income amounted to EUR 65 million, which corresponds to EUR 0.86 per share. Moving on to cash flow and net debt. Q1 recurring cash flow amounted to minus EUR 95 million, which included the first quarter classical working capital seasonality. The working capital ratio on annualized sales stands at 16.3%, which is better than a year ago. Total capital expenditure amounted to EUR 75 million in the quarter, which is in line again with our guidance of annual CapEx spend of EUR 600 million for the full year 2026. Net debt and hybrid bonds at the end of March '26 amounted to EUR 3.3 billion. The net debt to last 12 months EBITDA ratio stands at 2.8x. Thank you for your attention, and I hand it over to Thierry for the outlook. Thierry Le Hénaff: Thank you, Marie-Jose. So as you could see, despite the geopolitical headwinds, we could deliver positive volume growth across our Specialty Materials segment in the first quarter with a double-digit increase in our key attractive markets. As we move into the second quarter, the conflict in Middle East, which began 2 months ago, remains ongoing, as you know, with continued uncertainty regarding the direction and the duration, sorry, and the magnitude of its consequences on the global economy. At this stage, obviously, the key priority of the group is to remain agile in navigating this volatile environment and to adapt this pricing policy swiftly to offset input cost inflation. This is what we are clearly doing. We remain attentive to other potential impact of this context, notably on global demand as everyone. At the same time, this crisis could also create some upside as it could also lead temporary to tighter supply-demand balance in certain value chain. In parallel, the group continued to focus on self-help measures, maintaining tight cost and operational contrast -- control, as you could see in the first quarter, alongside the disciplined execution and the ramp-up of these growth projects. So in this context, the group confirms its target of a slight EBITDA growth at constant exchange rate for 2026. Before opening the Q&A session, maybe a quick word on Arkema journey during the past 20 years, and we have a few slides in the deck on this anniversary. As you know, we became listed on May 18, 2006, and we'll be celebrating the Group's 20th anniversary in a few days. Over this period, the company has undergone an in-depth and unique transformation from a big bag of commodity businesses, most of them were unprofitable at that time. They were European-centric for most of them, and we transformed the company into a global and profitable leader in Specialty Materials. Today, Arkema benefits also from a strong financial structure, solid performance, also high nonfinancial standard and offer its customer superior set of cutting-edge technology. While the chemical industry is currently in low cycle, which is reflected in the share price, leaving space for significant upside, going forward, Arkema has delivered strong long-term value creation over 20 years. EUR 1 invested in Arkema in May 2006 has become EUR 3.6 today, including dividends. Besides Arkema's share price increased over these 20 years is well above the evolution of the CAC count and its chemical peers, particularly in Europe. So thank you very much for your attention. And together with Marie-Jose, we are now ready to answer the questions you may have. Operator: [Operator Instructions] First question is from Tom Wrigglesworth, Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. So the first quarter has been characterized by better volumes in the more Specialty business in the -- and less so in the more upstream business, and yet your comment around tightening supply and demand chains would suggest that the reverse will now happen. So is that what we should expect that now the upstream businesses? And could you comment to how you see that playing out, both for 2Q and the rest of the year, maybe regionally as well, given we're expecting quite diverse performances between, say, Asia and the U.S.? Be very keen to hear your views on that. And the second question, related, but a follow-up is, what do you think the medium-term kind of structural or kind of more sustainable impacts will be or that you're seeing in customer behaviors from the conflict that's risen in the Middle East? Thierry Le Hénaff: Thank you, Tom, for your question. Obviously, we are in an interesting world where none of us know exactly what is going to happen, the visibility remains limited. So the good thing, and this is certainly what you could read from the Q1 performance and from our comments on the full year is that we remain solid, and we have -- because we have both balanced portfolio from a geographical standpoint and also from a product line standpoint, sometimes diversity brings stability. And this is the case for Arkema. So back to your question, I think that the dynamics, I would say, from a geographical standpoint, I mean, we stay with the same contract also Q2 and maybe the remaining part of the world where the engine will be clearly more Asia than Europe and U.S., but we'll see. From a product line standpoint, it can depend from months to months. What is clear is that, as we mentioned, acrylics, which is what we mentioned by your stream, acrylics will benefit in the Q2 at least from a better supply-demand balance. And I think -- so last year, we suffered clearly in acrylics. Q2, we see light in the tunnel, which is good, which shows that our strategy is producing a benefit and that the diversity of the portfolio is playing its part. Now as -- I mentioned a couple of months ago, I said this, and it was at the early stage of the Middle East crisis, I said that I believe that this crisis will have a positive and negative impacts. But all in all, for Arkema, it should be around neutral. We are still in this kind of philosophy, and this is why we confirmed the guidance for the full year. So you -- we mentioned the upstream. But in Coatings, for example, we see some good momentum in -- so reverse of last year in the quarter Q1, and we should be confirmed in Q2. With regard to Adhesives, the sort of overall resilience solidity, not wonderful, but overall resilience. In Advanced Materials, more contrast, I would say, because we believe that in HPP after a soft start, as I mentioned, we should start to see a sort of sequential momentum benefiting from all these key projects that we have mentioned and the investments. While on the opposite, Performance Additives should be maybe the loser of the Middle East crisis because this is a business, the product line, which is -- which has the most customers in the Middle East and is certainly more impacted by some raw material increase like sulfur, where you have time lag to pass it to customers. So I would say -- so I would say the portfolio will play is part everywhere. And -- but at the end, the good thing with what we deliver is that there is no surprise in a world of plenty of unknowns with some positive and negatives. But overall, we sort of neutral stability, but plenty of work for the team clearly. Now the impact of the medium term on -- from Middle East crisis, which is -- I imagine your question is on the global demand. I would say nobody knows exactly. If it lasts a long time, certainly, there should be impact because of the inflation and the disruptions. But so far, we don't see too much unless the volumes are correct. I would say, not worse than they were last year, so not an extraordinary level. But I would say not too much impact so far. So wait and see. But we confirm, I think taking everything into account, we believe that for Arkema, we -- this event in Middle East should be neutral with some positive element and some downside. Thomas Wrigglesworth: Just a follow-up on that. Do you think we can expect 2Q '26 EBITDA to be above that of 2Q 2025? I'm just trying to get some kind of reference point to understand the kind of how things might progress. Thierry Le Hénaff: My feeling and it is factored in the full year guidance. Last year, we were more, if you remember, H2, Q4, we were more around minus 25% compared to last year, then we are minus 14% in Q1, so you see that step by step, we catch up and with last year, year-on-year. And I would say we ought to be comparable, I would say, Q2 '26 compared to last year, which would be a significant step up and which is really our road map to deliver the full year guidance. So we would be really aligned with the full year guidance by achieving that. Operator: Next question is from Matthew Yates, Bank of America. Matthew Yates: I wanted to ask about the Advanced Materials division. And from the starting point of the margin you currently have, and the trajectory to get towards the mid-term guide, and in particular, the point on mix, so I'm not sure I fully understand why mix is a headwind at the moment. Maybe there's some specific products, but you alluded to geographic mix, and I'm struggling to reconcile that with the idea that your CapEx has been disproportionately in Asia to satisfy where the demand is coming from, yet somehow mix is negative. I wouldn't have intuitively assumed that the Asian demand was going to be margin dilutive or else that wouldn't be consistent with the mid-term targets. So can you just explain to me what's been going on with mix and how you see that evolving? And then somewhat related, you've announced an incremental investment in PVDF in China. There's been a lot of debate in recent years about the degree of competition and commoditization. I see one of your peers in Japan recently took a large write-down on some investments they're making. Why do you still believe that you can make a reasonably attractive return in that PVDF segment and it warrants putting more capital into it? Thierry Le Hénaff: Thank you, Matthew. A very interesting question, I think, completely of different nature. In fact, on -- overall, on the mid-term, we are comfortable on the fact that the mix, both geographical and product will improve. So this is not the topic of the short-term. The topic of the short-term is nearly mechanical, I would say. So as you know, the unit margin in Europe and U.S. are by nature on many of our businesses, higher in Europe and U.S., than they are in Asia. And it's true for many companies. The reason being that the cost structure itself is heavier in Europe and U.S., than it is in Asia. But in the end in terms of profitability, okay, we have quite good profitability in Asia as we have in the U.S., we are lower in Europe. Which means that for the same volume, when these volumes are more weighted, which is the case since 2 years in Asia because this is where we have the growth. In fact, for the same fixed cost, okay, in each of the region, you have less margin for a given volume in Asia than you have in Europe and U.S., okay? So this means that in terms of EBITDA, the EBITDA is, let's say, is comparable everywhere, but the unit margin is lower in Asia than they are and the EBITDA margin is comparable, which means that when you have more volume and more development in Asia, it weighs on the average mix in -- for the same fixed cost, it weighs on the EBITDA margin, it is nearly mechanical, in fact, okay? But now if you think longer term, Europe and U.S., we are confident on that. We recoup volumes, okay? And step by step, it will come back. And we confirmed. In fact, we are very happy to confirm the mid-term target for Advanced Materials, which will be well above the 20%, but it's purely -- this is what we explained with the mix. With regard to the product mix, I would say no, because beyond -- if I put aside this geographical discrepancy in terms of products, we develop the product with the highest margin. But again, even with themselves, they make more margin -- unit margin in Europe and U.S., than they are doing in Asia. Now on the PVDF investment in China, which is for Asia, it's not just for China, it's for Asia, as it's really very consistent with our strategy since several years. We have had many questions on this PVDF. We must say that PVDF since many years and still today, is an engine of growth and profitability for the company, and we want to develop it globally. So we have this investment in the U.S. We have this investment in China, and we are quite comfortable that this investment will have quite a good payback now. Korea, it's -- I don't know, we -- this is -- I would say, they are to pick their profile. But with regard to us, we are very comfortable on what we are doing, which shows that the quality of our innovation in PVDF, the positioning, the fact that we really focus on the high end of the range, is bringing in fruit. It can be in semiconductor. It could be in batteries. It can be in cables. I think we have a good and differentiated strategy in PVDF. Matthew Yates: And Thierry, if you allow me just to follow up. In terms of the Q2 commentary around this business, is it that there are some specific projects ramping. I think you mentioned foldable phones in the intro, for example, that are very high margin or is it just simply an overall improvement in volumes helps to have better fixed cost absorption? Thierry Le Hénaff: Yes. We got a few messages because we made the comments. I agree on the HPP, and in this matter. In fact, our message was -- Q1 was -- we joined -- to a certain extent, is linked to your first comment or your first question. I would say in the mix of Arkema, Advanced Materials in the Q1 from our standpoint was maybe the disappointing part. And the message was to say, okay, it's a soft start, but it will ramp up in the second quarter, at least sequentially. We have a good business prospect from the major project and this major project are for HPP. And also, it was to spot the mix in HPP between -- the mix in Advanced Materials in the Q2 between HPP and Performance Additives with HPP with, let's say, a positive growth momentum, including PIAM, which is doing pretty well, as you mentioned, but beyond PIAM, PVDF, et cetera and polyimide and specialty fluorogas. And on the other side, Performance Additives being impacted by the Middle East because they sell -- this is our business line, which is selling the most to Middle East and they have this sulfur topic. So this is more to give you some granularity inside Advanced Materials, which will be with, let's say, two contrasted business lines for the quarter after that, it can change. The good thing is that maybe to complete on that is that our major projects step-by-step are ramping up, and this will impact in the short- and long-term, HPP, as you know, and as we often mentioned. Operator: Next question is from James Hooper, Bernstein. James Hooper: First question, about the -- obviously, you referenced, Thierry, in your answers, the geographic mix, where it's more Asia led. Do you -- and less strong in Europe and North America. Do you expect that to change, given the kind of U.S. PMI trajectory or what we're seeing since the conflict started on the Gold Coast and in other places? And then secondly, can I also ask about March and obviously stronger than expected. Do you think any of this was customer pre-buying? Perhaps, obviously, Asia was very strong, and that tends to be the spot market and where you see perhaps the current -- most current capacity outages? Thierry Le Hénaff: So thank you for the question. I would say with regard to the geographic mix, yes, as you know, we believe in U.S. because we invested a lot there. It's 35% of our sales. And we believe that from a competitive standpoint, even reinforced by what is happening in Middle East, their competitiveness, especially in terms of energy superior. So we believe that there are in the U.S., many ingredients for this economy to rebound at a certain point. This is not what we see today. So it depends if your question is short-term or long-term? If it is short-term, we have to be cautious, and we still see these dynamics coming from Asia. Now it will -- I don't know, reverse is not really the [ weapon, ] because it would mean that Asia would get down, which would not be the case, but would rebalance with U.S. getting stronger. We are at a low point in many of our businesses in the U.S., we start to see a little bit of green shoots. There are minimal here and there, which maybe could get us feel that in the course of the year, we should see some improvement. But now there are so many elements in the geopolitics that we have to be careful. With regard to March, maybe there is a little bit of prebuying, maybe in the more stream of our businesses. Maybe now when you look at the volume in March, we are just for the company at par compared to -- not so much, but for the quarter, compared to last year. So if you take Jan, Feb, to March, and we have a tendency to look at the whole quarter with different dynamics, a slow start and some offset or catch up in March. Certainly a little bit of prebuying. But for example, if you look at April, I think we mentioned it in the press release or I think the April is starting -- is in the continuity of March, which is an element of answer also. This means that we see the good solid March is continuing in April. But we need that to have a Q2 in EBITDA comparable to last year. Operator: Next question is from Laurent Favre, BNP Paribas Exane. Laurent Favre: My question is on the downstream businesses. And I'm I guess, focused on net pricing. I was wondering if you could talk about sort of big buckets of Adhesives, Coatings and the rest. What are you seeing in terms of raw material inflation right now? Are we talking mid-single digits, low double digits, maybe high teens inflation? And are you using surcharges? Or are you expecting to see, I guess, pricing commensurate with this type of inflation? When you talk about short-term squeezes on downstream, is it a few quarters or just a few weeks and months? Thierry Le Hénaff: Okay. With regard to the raw material, all along the place, I would say, that is not only just for downstream businesses. It's for the whole company. You have increased on raw materials, which can run from a few percent to 100%. So it's really quite quick and quite steep. This is why our teams, unfortunately, were already trained with what has happened during COVID, are really moving very fast to pass price increase. Now it's clear, and you know that very well because your experience is quicker in a upstream that it is in downstream to pass to the customers. Our feeling is that the more downstream we go, the more we will have to use the full quarter to pass everything. So our idea is to fully offset instantly, I would say, for the end of the quarter. But since we have some businesses, as you know, more upstream that will have some upside effect in the case of acrylics in the quarter, it will fully offset the time lag we can have more downstream businesses. This is where the strength of the portfolio is diversity is playing. So overall, we should be good. Now it's clear that you have some different color starting from upstream to downstream in the quarter. But the idea is to have done the job, full job for the end of the quarter. The reason why it takes -- you have some time lag. I would say the profile of the customer can be very, very different, even their own constraints. So this is why, as you know, in the real life, it takes always a little bit of time. And also the raw material increase -- the waiver of the raw material increase are coming one-by-one. So this means that you need to come back and to say, okay, it's more, so we have to pass more, et cetera. So real life. But overall, with our -- and this is why we sort of comment on this comparable to EBITDA comparable to last year in Q2 because we believe that with our portfolio, there will be some plus and minuses. But all-in-all, we can manage. But it's a job which takes a lot of energy from our teams, like I imagine for everybody. Laurent Favre: And back in 2022, I mean you had very, very strong pricing even in downstream areas, at the expense of volumes. And I think at the time, you mentioned that there were certain volumes that you were happy to lose because they were lower quality, lower margins. Is there any of this right now? Or are you literally now fighting for every molecule as you see them as high quality and you want to retain those volumes? Thierry Le Hénaff: I would say our -- it's clear that when you put a lot of emphasis on price increase, especially in a world where you have a war. We should not forget in Middle East, is not what is going to push volume up very strongly. So let's say that we target more or less flattish volume, okay? And in this flattish volume guideline or context, we push the price, okay? So it's not exactly like in -- after COVID, where we are still to rationalize our portfolio, especially in the Adhesives, we are not -- this job has been done, okay? So it's more stable. But let's say, flattish volume and then we work on pricing. Operator: Next question is from Jaideep Pandya On Field Research. Jaideep Pandya: I have 3 questions. First one is on acrylic acid. Maybe -- when you look at this product in Europe and the U.S., for a long time, there hasn't been any capacity added, but margins have continuously sort of drifted downwards. Now in the backdrop of the war and the tightness in naphtha and propylene in Asia, how do you see the sort of mid-term outlook for acrylic acid? And do you think there is a need for capacity rationalization in either Europe or the U.S. given some of the markets like India, for instance, have become more and more self-sufficient. That's my first question. The second is around the sulfur topic. How do you see the upstream sort of methionine market from your point of view, the markup tons value chain given the shortage of sulfur. Have you been able to grab market share? Or is this an issue right now from your point of view? And the last question is around PA11. Obviously, you made a very big investment in Singapore. I mean when you look at the plant in Singapore today versus your French plant, in terms of operational performance as well as profitability, where do we stand today? Is this now more or less at par in terms of product output, but profitability is yet to join? Or how do we stand there? Thierry Le Hénaff: Okay. So with regard to acrylic acid, first of all, we're happy to see after, as you mentioned, a couple of years of challenges to see some improvement, and we appreciate that for the team is very important. And it's not in detriment of the downstream, which is good because you saw the Coating Solutions performance in Q1, which is at par with the previous year. So even in the previous year were not great. I think so this is a chain, which is which is solid right now. Now as we mentioned, the tightness, we have no crystal ball. I think we are cautious because we are just out of 2 years where acrylics are really under pressure, but we think that clearly with the conflicts and maybe hopefully beyond the conflict, I think we'll stabilize around more normalized spread, but let's do it step-by-step. The first step is to do our job in a market which has changed nobody with Middle East crisis, and we'll see how long will this crisis last. It's a big parameter and nobody knows about it. And after that, we'll see where we stand and we will certainly update to. I think the good news is that we benefit from this diversity of the portfolio with some more upstream business and some re-downstream businesses. On the sulfur, I think we -- on the methionine, we are not in the methionine, we -- I would say we supplied our customers. So this market share is more [indiscernible]. What we do ourselves is to supply them the best way possible. On the availability of the sulfur, we manage -- so this is the good news. Now the sulfur has increased very much. So our topic is to increase. And this is where we are sometime lag by contract. Not every market is the same. But I would say we find the sulfur. On Singapore, I would say, first of all, the good news is that the Singapore plant is running very well. It took years, as you know. We started at a low point, and we learned a lot. And now it's really a very, very nice plant, very optimized. So compared to Marseille, it's more modern, so it should be more profitable. But on the other side, the capacity is smaller than Marseille. So I would say, all-in-all, they are comparable to answer your question. Operator: There are no more questions registered at this time. The floor is back to the management for any closing remarks. Thierry Le Hénaff: Okay. So if there are no more questions, I thank you very much for your attention. And as usual, don't hesitate to contact the IR team to complete my answers. And have a nice day to everybody. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Hello, and welcome, everyone, joining today's Marriott International Q1 2026 Earnings Call. [Operator Instructions] Please note, this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Jackie McConagha, Senior Vice President of Investor Relations. Please go ahead. Jackie McConagha: Thank you. Good morning, everyone, and welcome to Marriott's First Quarter 2026 Earnings Call. On the call with me today are Tony Capuano, our President and Chief Executive Officer; Jen Mason, our new Executive Vice President and Chief Financial Officer; and Pilar Fernandez, Senior Director of Investor Relations. Before we begin, I would like to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments. Unless otherwise stated, our RevPAR, occupancy, average daily rate and property level revenue comments reflect system-wide constant currency results for comparable hotels and all changes refer to year-over-year changes for the comparable period. Statements in our comments and the press release we issued earlier today are effective only today and will not be updated as actual events unfold. You can find our earnings release and reconciliations of all non-GAAP financial measures referred to in our remarks today on our Investor Relations website. And now I will turn the call over to Tony. Anthony Capuano: Thanks, Jackie, and good morning, everyone. We reported excellent first quarter performance this morning with RevPAR and financial results above the top end of our guidance ranges. Development activity remained robust with record first quarter global signings and net rooms growth of 4.5% over the trailing 12 months through March. First quarter global RevPAR rose 4.2%. RevPAR in the U.S. and Canada region rose 4%. Luxury and resort hotels continued to lead in the region, though strength was broad-based across segments and chain scales. While luxury RevPAR rose nearly 7%, select service RevPAR increased 3.5%, a meaningful improvement from the fourth quarter when select service was down more than 1% year-over-year. While the conflict in the Middle East weighed on results in March, first quarter international RevPAR increased 4.6%. First quarter RevPAR in APAC rose over 7%, driven by strong ADR growth and an increase in demand from Chinese guests. Beginning in March, Middle East travel corridor disruption started to impact select APAC markets, including India and the Maldives. In Greater China, our hotels continued to gain market share and stronger leisure demand drove first quarter RevPAR up nearly 6%. RevPAR growth was led by Hong Kong and Hainan Island, which were both up around 20% year-over-year on the back of very strong ADR growth. RevPAR in CALA rose 2%, led by record leisure results in the Caribbean, partially offset by a decline in RevPAR at Mexican luxury resorts. First quarter RevPAR in EMEA increased over 3% with increases in Europe and Africa, partially offset by a decline in the Middle East. In March, RevPAR in the Middle East declined over 30%, while RevPAR in Europe rose 4% as the impact of the conflict in the Middle East on European markets was relatively minimal and largely contained to countries near the Middle East, such as Cyprus and Azerbaijan. Since day 1 of the conflict, our top priority has been the safety of our associates and our guests. While we expect continued volatility and ongoing impact from the conflict, particularly at our Middle East hotels, looking ahead, as Jen will discuss further, we are raising our full year global RevPAR guidance and now expect growth of 2% to 3%. Now let's turn to results by customer segment. In the first quarter, leisure RevPAR rose 6% globally and 5% in the U.S. and Canada. Group RevPAR rose 5%, both globally and in the U.S. and Canada. And first quarter business transient RevPAR rose 1% globally and 2% in the U.S. and Canada, with mid-single-digit declines in government room nights and slight declines in other BT room nights, partially offset by higher ADR. We remain focused on steadily expanding our industry-leading portfolio and presence to reach new markets and new travelers worldwide. Global signings are off to an excellent start this year with first quarter deal signings up 9% year-over-year. Key recent multiunit deals signed include another agreement with Sun Group to add 10 hotels across 8 brands in Vietnam over the next few years. We also signed deals to bring our regionally rooted collection brand, Series by Marriott, to Europe, signing 6 projects in Italy and 5 in the United Kingdom. Additionally, we announced that Lefay, our first brand dedicated exclusively to luxury wellness is expected to enter our portfolio later this year. Our global pipeline rose over 5% year-over-year to a new record of nearly 618,000 rooms at the end of the quarter, with 43% of pipeline rooms under construction, including rooms that are pending conversion. Marriott has more rooms in its pipeline and more pipeline rooms under construction than any other global lodging company. Conversions, including multiunit deals, remain a significant driver of growth, representing over 35% of signings and over 40% of openings in the quarter. With our growing pipeline and strong momentum in conversions, we still expect net rooms growth between 4.5% and 5%, including our typical assumption of between 1% and 1.5% room deletions. Our powerful industry-leading Marriott Bonvoy loyalty program had nearly 283 million members at the end of March. As we focus on enhancing engagement with our members, we've continued to roll out new co-branded credit cards around the world. Today, we have 37 cards in 13 countries after recently launching cards in Indonesia and Brazil. Our scale, combined with strong engagement helps drive more direct bookings, more repeat stays and value for owners across our worldwide system. And our multiyear technology transformation is well underway. Just yesterday, we transitioned our 1,000th hotel over to our new tech ecosystem. Our new technology platforms automate multiple processes that used to be done manually and are expected to enhance owner returns while positioning our hotel associates to focus more time on quality of service to deliver on customer expectations. We're also excited about increasingly leveraging AI across the company to assist our associates, serve our guests and drive results for our owners. Some examples are rolling out AI-powered desktop assistance at our customer engagement centers and using AI for guest pre-arrival communications. As AI platforms continue to enrich the trip planning experience, we believe our unparalleled depth of inventory and global reach are significant competitive advantages. While it is early days for travel searching and planning in AI, we believe AI presents an exciting opportunity to connect directly and in a more personalized manner with our customers, and we're optimistic about the potential for AI to help strengthen our lower-cost direct booking channels. We continue to optimize our content for Gen AI services and are working with multiple players across the space. We're also very excited about beginning a phased rollout of robust natural language search experience on marriott.com, and our app planned by the end of the second quarter. This experience will leverage real-time inventory to respond to guest inquiries and help them explore our portfolio more easily from answering hotel-level questions to supporting multi-destination searches. Before I end my prepared remarks, I want to express my sincere admiration and gratitude to all of our associates around the world for their hard work and dedication with a special thanks and recognition for those who have been impacted by the conflict in the Middle East. And now I will turn the call over to Jen for more details on our financial results. Jen? Jennifer Mason: Thank you, Tony. Very happy and honored to be here with you all this morning. While I have listened to over 130 earnings calls over my 33 years with Marriott, this is, of course, my first time on the call as CFO. I will start by reviewing our strong first quarter results. As Tony noted, global RevPAR rose 4.2%. First quarter total gross fee revenues increased 12% year-over-year to $1.43 billion, reflecting higher RevPAR, rooms growth, a 37% increase in co-branded credit card fees and an over 70% increase in residential branding fees. Incentive management fees, or IMF, rose 9% to $222 million in the first quarter, led by a 13% increase in the U.S. and Canada. Owned leased and other revenue, net of owned leased and other expenses rose 21% due to higher termination fees and strong results at the Elegant Hotels in Barbados and certain other portfolio hotels. First quarter G&A rose 5% year-over-year, primarily due to timing of compensation costs, partially offset by lower litigation expenses. Adjusted EBITDA increased 15% to $1.4 billion and adjusted diluted EPS rose 17% to $2.72. Now let's talk about the outlook for quarter 2 and full year. For the full year, we now expect 2% to 3% global RevPAR growth. This outlook incorporates our outperformance in the first quarter as well as higher than previously anticipated RevPAR growth in the U.S. and Canada, with the strength seen across chain scales in the first quarter continuing into April. We are also raising our outlook in Greater China, where we now expect full year RevPAR growth in the low single-digit range, primarily reflecting strong first quarter performance. We expect lower than previously anticipated RevPAR growth in the near term in APAC, driven by softer long-haul demand into certain markets that rely on golf hub connectivity. Additionally, we are slightly reducing our outlook versus prior expectations in CALA for the rest of the year, primarily due to Mexico. Turning to EMEA. We assume that air capacity and travel sentiment will continue to be impacted, particularly in the Middle East through the end of the year. As a reminder, the Middle East accounts for 3% of open rooms, 7% of pipeline rooms and for full year 2025, 3% of global gross speeds. We are lowering our RevPAR outlook in EMEA, reflecting continued year-over-year declines in our Middle East properties with the most severe decline expected to occur in the second quarter. Our guidance assumes the conflict in the Middle East could impact full year global RevPAR growth by 100 to 125 basis points. Finally, I'll note that the World Cup is still expected to add 30 to 35 basis points to global RevPAR growth this year. We are raising our 2026 gross fee guidance to $5.93 billion to $5.99 billion, up 9% to 10% IMFs are expected to be around flat year-over-year as outperformance in the first quarter is expected to be offset by year-over-year IMF declines in the Middle East in the last 3 quarters of the year. The sensitivity of 1 percentage point in full year 2026 RevPAR versus 2025 could be around $55 million to $65 million in RevPAR-related fees. Co-branded credit card fees are still expected to increase around 35%. As you know, this does not include any impact from new deals in the United States. Our discussions with Visa, Chase and American Express are going well, and we still expect to have new deals in place later this year. Full year residential branding fees are now expected to increase around 45% to 50%. Timeshare fees are still expected to be relatively in line with prior year at $110 million to $115 million. Owned leased and other revenue, net of owned leased and other expenses is now expected to total $215 million to $225 million. Results are expected to be impacted by renovations at certain large hotels in the portfolio, including W Barcelona and the Frankfurt Marriott as well as the expected sale later this quarter of a long-held hotel in the United States that will stay in the portfolio under a new long-term management agreement. 2026 G&A expense is anticipated to increase just 1% to 3% compared to 2025 levels as year-over-year comparisons are expected to benefit from timing later this year, particularly in the fourth quarter. Full year adjusted EBITDA could increase 9% to 11% to roughly $5.88 billion to $5.97 billion. Our 2026 adjusted effective tax rate is expected to remain between 26% and 26.5%. Our underlying core tax rate is anticipated to remain in the low 20% range. Strong adjusted EBITDA growth, together with meaningful reduction in share count is expected to result in full year adjusted diluted EPS of $11.38 to $11.63, representing growth of 14% to 16%. In the second quarter, global RevPAR is expected to increase 1.5% to 2.5% and gross fees are expected to rise 10% to 11%. Credit card fees and residential branding fees are both expected to be up meaningfully with residential branding fees anticipated to more than double. Second quarter IMFs are expected to be down in the mid-single-digit range, driven by significant declines in the Middle East. Second quarter adjusted EBITDA is expected to increase 8% to 10%, driven by higher fees with a decline in owned leased and other net and a mid- to high single-digit increase in G&A due to timing of certain compensation expenses. We now expect 2026 investment spending to be around $1.05 billion to $1.15 billion, an increase versus our prior expectations, primarily due to an anticipated investment in Lefay. Investment in our contracts are still expected to be around 35% to 40% of the total spending. The second largest bucket at around 30% to 35% of the total is expected to come from continuing spend in our digital tech transformation, the overwhelming portion of which is expected to be reimbursed over time as well as other corporate systems. The rest is spending related to renovations at owned leased hotels as well as other investing activities. Our capital allocation philosophy has not changed. We are committed to our investment-grade rating and investing in growth that is accretive to shareholder value. Excess capital is returned to shareholders through a combination of share repurchases and a modest cash dividend, which has risen meaningfully over time. We now expect to return over $4.4 billion to shareholders in 2026. Full guidance details in the second quarter and for the full year are in the press release. Tony and I are now happy to take your questions. Operator? Operator: [Operator Instructions] We will take our first question from Shaun Kelley with Bank of America. Shaun Kelley: Welcome, Jen. Nice to hear you on here. Look forward to working with you. Jennifer Mason: Thank you, Shaun. Shaun Kelley: So Tony, batting lead off here, I think it would be really helpful to just unpack a little bit about what you're seeing on U.S. trends to date. Obviously, a big resurgence of activity. I think you called out the low end. But could you just walk us around a little bit whether it's the segment components that you talked about, what do you think is driving the growth right now in the U.S.? And what are you excited about based on what you're seeing kind of real time through April? Anthony Capuano: Thanks, Shaun. I think at a high level, obviously, really encouraged by the Q1 results globally, but in the U.S. and Canada, in particular. April, we've seen continued strength across the U.S. and Canada. And I think one of the things that's encouraging is it's really across segments, right? We talked in our prepared remarks about the continued strength in leisure. Group continues to be solid. And if you exclude government, business transient is pretty solid as well. We're also seeing strength across sectors, which I think is quite exciting to me. We have talked for the last number of quarters about the continued strength in luxury. But over the course of a quarter to go from relative weakness in the select service tiers to about 3.5% RevPAR growth in the first quarter. I think it's a really, really encouraging sign about continued strength really across all the tiers where we operate. And then lastly, I would say you heard Jen's comments about World Cup. And notwithstanding some of the things that we continue to hear in the press more broadly, we continue, at least across the Marriott portfolio to feel really good about that 30 to 35 bps of impact that Jen referenced. Operator: We will move next with Richard Clarke with Bernstein. Richard Clarke: Welcome to Jen as well. I look forward to working with you. Maybe just dialing in a bit more on the Middle East. Qualitatively, have you seen any improvement since the cease fire? How are kind of full year booking trends there? And then quantitatively, I guess your 100 to 125 basis point assumption looks like that 30% in the March, you're kind of holding that through the rest of the year. Maybe what are you assuming for Q2? What did you see in April? And then what are the assumptions maybe baked into the second half to get to that 100 to 125 basis points impact? Jennifer Mason: Thanks for the question, Richard. So clearly, our forecast reflects the fluidity and certainty of the situation in the Middle East. We have certainly seen booking activity showing some signs of recovery from the lows that we experienced in March. But we do expect that the impact to the Middle East properties will continue through the end of the year. The hardest hit quarter we are looking at or we're anticipating about a 50% reduction in RevPAR in Q2, but that it will continue to impact Q3 and Q4, but it will get better consecutively across the quarters. And just a reminder, Q4 of last year was an incredible quarter in the Middle East, driven by some large citywide events that drove high ADR. So we do expect recovery in the back half of the year sequentially, but we clearly are still seeing an impact. Operator: We will move next with Stephen Grambling with Morgan Stanley. Stephen Grambling: I may have missed in the remarks, but it looks like the investment spend ticked up a bit versus the prior guide. I know you talked about some of the automation that's happened on the back end of some of the technology refresh that you've had underway, and you also touched on the optionality from AI. Can you perhaps talk bigger picture on how to think through investment spend from here? And is the AI component of this something that we should be thinking about will require incremental investment? Or is that a lower capital spend and actually create some potential optionality for either fees or owners? Anthony Capuano: Thanks, Stephen. So maybe just to clarify or reiterate what Jen said in her prepared remarks. For this year, the bit of an uptick is almost entirely tied to the investment we're making in Lefay, our new luxury wellness platform. But I'll let Jen answer the second part of your question. Jennifer Mason: Yes. So if you think broadly, as I talked about in my prepared remarks of where we spend our investment dollars between investment in contracts, the big technology investment and then investment in own lease. To Tony's point, the reason we raised guidance about $50 million was predominantly Lefay. As you think about 2027 and beyond, I would consider with our size and scale and growth, you would expect about the same amount of investment. We are not guiding for '27 for sure, but the categories of spend relatively stay the same. Operator: Our next question comes from Michael Bellisario with Baird. Michael Bellisario: On the group segment, I think, Tony, you mentioned it being solid. Have you seen a similar uptick in bookings and pace as you have on the transient side? And then on a related note, are there any of your tech upgrades? Are they going to be benefiting either the group meeting planner or your potential Marriott market share going forward? Jennifer Mason: Sure. So I'll take the first part of your question. Obviously, we're very pleased with group performance in the quarter, and we expect group to be a nice driver of growth for the remainder of the year. Our pace for the year is up about 5%. And while pace is not indicative of where group RevPAR will actualize, we certainly are encouraged by the base of business on the books and continue to be -- expect that to be a growth driver. Anthony Capuano: Yes. And then I think on the second part of the question, Michael, we expect the tech upgrades to help all the constituents we serve, our guests, our associates and our owners and to be impactful across every sector where we do business. The most notable place where I think there will be an impact of both the new technology platforms and our continued work on the AI front is in the generation of group RFPs. Operator: We will move next with Dan Politzer with JPMorgan. Daniel Politzer: Jen, look forward to working together. I wanted to go back to the U.S. demand, and I think you guys specifically called out a broadening of demand. And Tony, I think you mentioned that select service really seemed to start to inflect in the first quarter. Can you maybe talk about what specifically is driving that? And how -- what do you think has changed over the last kind of 90 or 180 days? Anthony Capuano: Yes. It's a few things. I think, again, not or I suppose, notwithstanding some of the reported weakness in consumer confidence. I do think you're seeing some pivot to domestic travel because of some of the uncertainty. You are seeing some pivot to drive to destinations versus fly to destinations given the impact of rising fuel prices on airline fares. And I think all of those dynamics are positively impactful to the lower chain scales where we operate. Jennifer Mason: Yes. And a few other things I might add to Tony's comments. First, I think the tax refunds, the increase in those year-over-year have had an impact and the relative low supply growth in the U.S. and Canada over the last few years. Anthony Capuano: Yes. And then the last thing I might mention, Dan, we've spoken for the last few quarters about really digging into the consumer spending data that we get from our credit card partners. And really across demographics, we continue to see a prioritization of travel and experiences over consumption of hard goods. And even in lower-income households, you're seeing that shift. And I think that's having a pretty materially positive impact on the performance of our select brands. Operator: We will move next with Aryeh Klein with BMO Capital Markets. Aryeh Klein: Tony, I think you mentioned business travel room night -- business transient room nights declined outside of government slightly. Hoping you could provide a little bit more detail on what you're seeing there. And then just on the World Cup, you touched on the expectations being maintained there. Obviously, a lot of reports on softer demand and maybe some group cancellations. So any other color would be helpful. Anthony Capuano: Sure. Maybe I'll take the first one, and then I'll let Jen chat a little bit more about World Cup. So just to ground you, in Q1, global business transient RevPAR was up 1%, which compares favorably to being down 2% a quarter ago. To get to that 1% improvement, we saw a 3% increase in ADR. That's a global number, while room nights were down 2%. In the U.S. and Canada, business transient RevPAR was up 2%, again, largely driven by 3% ADR gains, and that was offset a little bit by a 1% room night decline. U.S. and Canada business transient RevPAR, excluding government, was up 2%. Government transient RevPAR was down 6%. Government RevPAR was down 12% to 13% in January and February and then rose about 8% in March because the comps became a little bit easier. Jennifer Mason: Great. So -- and I'll take your question on World Cup. Despite what you're hearing and reading in the press, we continue to feel confident in our 30 to 35 basis point impact globally from World Cup. We did extensive research before we guided that number. We benchmarked against other large citywide events that we had experienced. The total revenue is pacing up nicely over the match dates and in line with our expectations, though there obviously is still a lot left to book, which is expected given where we are in this booking window and the fact that we haven't gotten the exact matchups for the latter half of the competition. The FIFA room block cancellations, we expected for this type of event and had baked that into our forecast. And just a little bit on the mix. We expect the group occupancy for this type of event to be closer to the 15% range versus something like the Super Bowl that's in the 40% range. So we continue to be optimistic about the opportunity. Operator: We will move next with Lizzie Dove with Goldman Sachs. Elizabeth Dove: Just wanted to ask on rooms growth and your latest thinking in terms of percent of that, that might come from conversions and new builds, any brands you're leaning into? And then you mentioned upfront, I think about 7% of your pipeline is from Middle East. So just any impact that you're expecting there on the rooms growth side of things near term? Anthony Capuano: Sure. So there's a lot in there. Let me try and answer most of it. I think on your first question or the first part of your question, I suppose, the -- we continue to feel really good about the guidance we've given you. The conversion story continues to be a terrific story for us. In the quarter, 35% of the signings and 40% of the openings were conversion related. I referenced a couple of portfolio conversions, Sun Group in Vietnam and some Series activity across Europe. As we've discussed the last few quarters, while our development teams around the world are out there fighting tooth and nail for every single asset conversion opportunity that exists, they are doing that in parallel with some very focused efforts supported by some very focused resources to chase portfolio conversion opportunities. And the results that are coming from those focused efforts, I think, are a pretty compelling part of the Marriott growth story. I think the second part of your question, remind me, Lizzie, I'm sorry. I don't know if they muted you. Specific brands, sorry, yes. The other piece I'd like to focus on a little bit is the traction we're getting in mid-scale. Mid-scale is an area that, as you know, we just entered a couple of years ago. And we already between open and pipeline have hit the 500 hotel mark. And so that's not -- it's not a binary choice. We're not shifting resources to mid-scale at the expense of our growth in the other tiers where we compete. It is incremental, but I think the speed with which we've seen our ramp-up in mid-scale openings and pipeline is a really, really encouraging part of the growth story as well. Jennifer Mason: And Lizzie, your third part of your question was on net unit growth openings and impacts in the Middle East. We still feel comfortable with 4.5% to 5% global outlook for full year. Though as a reminder, it's more instructive to look over a multiyear CAGR. We still expect anticipated openings in the Middle East to generally proceed as planned, although we are absolutely watching it very closely. We've already opened a few hotels there this year even since the war started. But to give you some context, Middle East hotels yet to open this year only account for about 4% of our full year expected net rooms openings. Operator: We will move next with David Katz with Jefferies. David Katz: Welcome, Jen. Look forward. I wanted to go back to the AI efforts. Seeing one of the industry participants launching a native app this morning, probably with intent. What can we literally expect to see and put our hands on? And I suppose I'd like to get a sense for what are the gating factors or success factors? How can we tell if you're doing well with it between now and the end of the year? Anthony Capuano: Great. Well, let me take a shot at that. And Jen, feel free to jump in and help me out. So I'm going to give you sort of a 3-pronged answer, David. I think broadly, Marriott's focus is to implement a unified enterprise-wide generative AI strategy, again, with a focus on elevating the experience of all of our core stakeholders, associates, guests and owners. As we sit here today, I'll give you a few, not an exhaustive list, but a few examples of how we've already incorporated AI into our day-to-day business. The business transient sales tool that we put in place for our sales teams. In our customer engagement centers, the real-time call assistance that we have, event planning intelligence tools that we've made available to our team, marketing campaign assistance. And then probably the most impactful this quarter will be the rollout of our conversational search across the marriott.com platform. How will we measure success? I think a few ways. On the sales side, clearly, conversion rates, the direct impact on hotel revenue from the implementation of these tools. And then I would say the third area that we would look at in terms of measuring success would be in the above property opportunities that we see in both in regional and headquarters disciplines in areas like legal, like global finance, where we think there's a real opportunity. And then the last thing I would say is we talked about this a quarter ago, but the manner in which we are working with some of the most advanced players, whether that is Google's AI mode travel product, whether that's being one of the first participants in travel with OpenAI on their ad pilot program, there are a wide range of parallel activity streams meant to impact our above property and our on-property effectiveness and efficiency to drive top line and margin improvement. Operator: We will move next with Brandt Montour with Barclays. Brandt Montour: Welcome to Jen. So Tony, I was hoping maybe you could even take that -- some of those comments a little bit further, specifically with regards to the distribution side of things for AI. Obviously, we all know or we don't know exactly where the tech giants will sort of land and what the sort of AI interface will look like in that economic model and how that will evolve. But from what you're seeing on the ground today, what is your sense on where it's -- how it's evolving and where it could kind of land between you and the other players that sort of compete in that sort of top of funnel for customer attention? Anthony Capuano: Great. I appreciate the question. You stole the start to my response to your question, which is exactly what you said. None of us know exactly how the online booking space will evolve and transform. But we do think that Marriott's industry-leading scale creates a really advantageous position due to our physical and geographic footprint, our scale and data, that creates a natural digital content and search advantage relative to some of our peers. We've got more stays. We've got more reviews. We've got better insights into preferences, rates, the ability to refresh availability in real time. I think those are all meaningful advantages. How Marriott's distribution costs could evolve as a result of changes in the distribution landscape. I think we're very optimistic about the potential for AI to bring more consumers into the Marriott Bonvoy ecosystem and to help strengthen our direct booking channels. I mean it's quite interesting to watch some of the experimentation that the big AI players have made. They've got decisions to make about how they monetize these platforms. The 2 areas that we've seen experimentation are in advertising and in transactions. At least in the early days, you've seen a heavy predisposition towards monetization through ads. There's been some experimentation. But we think the ability of these platforms to drive customers to book in our proprietary channels and take advantage of all of the loyalty benefits that you get from booking directly represent a significant opportunity for us. And then the last thing I would say is some of the pilots that we're launching, while we're not ready to share really detailed specifics, we do believe they will have favorable cost benefits for our owner and franchise community. Operator: We will move next with Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: Just on Middle East, can you speak to not what is embedded in your guidance, but just how quickly markets have historically bounced back after conflict, if that's quarters, years or if it sort of surprises you that they can kind of come back more quickly? And then you mentioned markets that are dependent upon airlift from the Middle East, which is a little bit surprising because I do think some of that has shifted to other global connecting hubs. What markets would you consider those to be? Anthony Capuano: Yes. Thank you for the questions. I wish that you could look at a single or a couple of regional conflicts and draw deep conclusions about what the impact of this conflict will be. As you well know, they're all quite different. I think that the -- maybe the most notable aspect of this conflict is how quickly the impact on fuel prices might change and what the impact will be on travel more broadly. On your second question, as I'm sure you're aware, we are, for instance, the largest hotel company in India. And so the impact of some of those Middle East carriers into India, you are absolutely right. You're already seeing a pivot to some other carriers. But -- the reality is the Middle East accounts for 10% of global transit traffic demand. And so that ripple effect, particularly for a company like Marriott that has such a dominant footprint in markets like India is something we've got to watch closely. Now Jen talked to you a little bit about how we're thinking about guidance. I think the APAC team believes the most significant impact to their business will be in the current quarter in Q2, and they've made some assumptions about that softening a bit as some of the other carriers fill the breach of some lost capacity coming out of Emirates and Etihad and some of the other regional carriers. Operator: We will move next with Conor Cunningham with Melius Research. Conor Cunningham: Congrats, Jen. Just trying to tie together a couple of things you said. So you're seeing improvement in the select service and steady trends in luxury. I don't get the sense that you're fully endorsing the C-shaped economy, but I'm just trying to understand the uplift a little bit. So when you look at your initial guidance relative to where you are today, like what is -- from a travel type, what has actually advanced the most? It seems like it's business transient, but I don't -- I just -- if you could give me a little bit more color there, I think that would be helpful. Jennifer Mason: Sure. Thanks for the question. I -- look, we clearly have seen strength across all chain scales and segments in Q1. We're seeing that continue in U.S. and Canada in April. So relative to our last guidance, we have raised U.S. and Canada expectations. And if you think about how that fits into our global guidance, it's on the higher end of the global guidance. We do see -- we are expecting higher strength in the first half of the year versus the second half. A lot of that is -- and I'm talking U.S. and Canada right now. A lot of that is we expect uplift from the World Cup in Q2 and Q3. In Q4, we do expect a bit of an impact from the midterm elections. So relative to our last guidance, we certainly feel better about U.S. and Canada. And then as we've talked about, I think if you go around the world, Middle East is by far the biggest impact. We're expecting 100 to 125 basis points. That being said, it's a very fluid uncertain situation, and we are watching it closely and reacting. But that if things perform better there, that would be uplift to guidance. China, we are raising to low single digits. We had a great first quarter, predominantly driven by leisure. So we feel good about that. APAC, Tony talked about that, that in the near term, we are impacted by long-haul flights. And -- but we expect that we will pick back up to where we were in the back half of the year. And then CALA, a little bit of reduction mainly from Mexico. But otherwise, relatively, we feel good. Operator: We will move next with Trey Bowers with Wells Fargo. Raymond Bowers: I noticed in the press release, you stated that the guidance does not include the impact of renegotiation of the credit card deals. I guess two parts of the question. One, how would you view kind of success in renegotiating those deals? And then two, could there actually be an impact from the renegotiated deal in '26? I thought that was more of a '27 impact, but would love a little clarity around that. Jennifer Mason: Sure. Thanks for the question. I'll start with we're very pleased with how things are going. We're in active negotiations, as I talked about in the prepared remarks, with Visa, Chase and Amex, and we do still expect to have new deals in place the latter part of the year. Your comment on timing, I think, is spot on. These deals take time to -- there's a renegotiation of the card that will bring benefit both to the loyalty program for guests and owners and to our royalty fees. So we -- you can expect some upside this year, but the real opportunity is when you refresh the cards and relaunch them, and that will take some time. It is important to keep in mind the size and scale of our credit card program already. We are largest among the lodging companies. And so everything -- we have to think about it in that context already. Operator: We will move next with Smedes Rose with Citi. Bennett Rose: I know you've covered a lot of ground here, but I guess I wanted to ask specifically just on the leisure side, as you look out into kind of the summer vacation. I mean, do you have -- you kind of hinted at this, I think. But I mean, do you see sort of solid evidence that Americans might be leaning into domestic travel here versus international travel, given you talked about a little bit weaker in Mexico specifically, but just a lot of other things going on. And I'm just wondering if that's something you definitely see sort of a pattern of how you think about how the vacation period could shape up? Anthony Capuano: Yes. Thank you for the question, Smedes. What I would tell you is while I am very encouraged by what we saw in April, you heard in the prepared remarks some commentary about the pretty modest booking window of plus or minus 3 weeks for transient business. So anecdotally, are we feeling good about the summer travel season? We are. We're hoping that the benefit of tax refunds and the like will ripple through to that. But in terms of hard advanced booking data, that short transient window is really making it a little blurry right now. Jennifer Mason: Yes. And I would just say in terms of travel patterns, in the first few weeks of the conflict, we did see that U.S. travelers slowed their international bookings a bit, but those trends have normalized. And so we're back to kind of pre-conflict trends in terms of domestic versus international travel bookings from the U.S. Operator: We will move next with Steve Pizzella with Deutsche Bank. Steven Pizzella: Just wanted to follow up a little more on the development as it seems like conversions overall are going to be a bigger driver of net rooms growth longer term, including the licensing deals and multiunit deals as you referenced. What do you view as the addressable market for these? And is there any difference in the fee structures? Anthony Capuano: Yes. So the -- maybe I'll go in reverse order. The vast, vast majority of the deals that we do are under fee structures that should be very familiar to you. They are -- even if it's a multiunit conversion deal, the fees, whether they are managed fees in a managed scenario or franchise fees in a license deal, they are very typical to the sorts of deals you've grown accustomed to over the year. In terms of the addressable market, Jackie may kick me if I say infinite, but it's something approaching infinite. I mean, notwithstanding the really tremendous market share we enjoy in the U.S. and Canada and globally, you've got markets around the world where we've got mid-single-digit market share. So the runway for growth and the runway for conversions, you think about markets like Europe where you've still got a very significant portion of the lodging supply that are independents, which is fertile hunting grounds for us. And then the last thing I would say is the fact that we've got such compelling conversion platforms across effectively every quality tier where we operate allows us to think pretty aggressively about the trajectory for conversion volume for the next number of years. Operator: And at this time, we have reached our allotted time for questions. I will now turn the call back over to Tony Capuano for closing comments. Anthony Capuano: Great. Well, thank you again. It is a delight to be here with Jen. I look forward to lots of upcoming quarterly earnings calls with Jen going forward. We, as always, appreciate your interest and look forward to seeing you on the road. Thanks, and have a great day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Terje Pilskog: Good morning, everyone, and thank you for joining us for our first quarter presentation for 2026. It has been a strong quarter with a high activity level, and we continue to deliver on our strategy to drive growth at a high pace across our geographies. And at the same time, we also continue to strengthen our financial position. In the quarter, our operating portfolio has increased as several projects have moved into commercial operation. We have improved near-term growth visibility with new projects reaching both backlog and also reaching into construction. And finally, we have also strengthened our liquidity and have reduced our corporate debt. And our available liquidity currently stands at NOK 6.1 billion. On the market side, demand for energy is growing and Scatec is operating in countries with strong and increasing underlying demand for clean, reliable and affordable renewable energy. And renewable energy is the most competitive source of power generation in our markets, and we continue to see attractive long-term market opportunities and now more than ever as energy security is increasingly becoming important. So today, I will start by going through a bit on the macro situation. I'll then go through the highlights of the quarter. Hans Jacob will go through the financials. And then at the end, we will open up for questions. So in terms of the macro situation, focus on energy security and cost competitiveness reinforce the case for renewables. As shown to the left, many of our core markets remain highly dependent on imported fossil fuels, which increases both cost and supply risk. Recent geopolitical developments and a significant increase in the price of fossil fuels have reinforced this dynamic. And this is a stark reminder of the risk of being exposed to fuel imports and is driving an increased focus on domestic, reliable and predictable energy sources. And at the same time, economics are clearly moving in the favor of renewables. To the right, you can see that solar and wind are the most competitive sources of power and with declining battery costs, renewable energy is able to also deliver dispatchable and baseload type of power. The recent developments in fossil fuel markets will strengthen the case for renewables. And renewables demand is no longer only driven by sustainability. It is driven by energy security and cost competitiveness. And this is expected to accelerate deployment of renewables across the globe, and Scatec is uniquely positioned in high-growth import-dependent markets where the need for affordable and reliable power is the strongest. And in our markets, we are delivering energy faster, cheaper and with greater reliability than the conventional alternatives. Egypt and our 1.1 gigawatt Obelisk project is here a clear example. With strong execution and diligent cost control, we have advanced the project from PPA signing to operations in less than two years. We are already supplying electricity to the Egyptian grid from the first phase of the project. And at the same time, Egypt still relies on gas for close to 90% of its electricity, leaving it highly exposed to expensive LNG imports. At current gas prices, our project, the Obelisk project will deliver significant annual savings in the range of $300 million on an annual basis. And this is before we also consider the volatility and supply risks associated with fossil fuels imports. And as a reference, remember that the total CapEx for Obelisk project is in the range of $600 million. So from a mathematical economical point of view, we're talking about a two-year payback on the investment. And this fact is also clear to the authorities in Egypt and also in other countries and other markets where we operate, and they look to increase targets and accelerate the deployment of renewables. And overall, as I said, this is not only about sustainability any longer, but providing cheaper power, faster delivery and improved energy security. This is a combination I see as a strong driver of growth for Scatec going forward. Now let me take you through the highlights of the quarter. We delivered group revenues of NOK 1.6 billion and EBITDA of NOK 774 million. We've had good progress on our projects under construction, and we recognized NOK 695 million in revenues and NOK 100 million in EBITDA. And this quarter, we realized a gross margin in the D&C segment of 22%, and this is due to a contingency release of NOK 80 million, which is related to the completion of the first phase of the Obelisk project in Egypt. And the underlying gross margin in the D&C segment continues to be in line with our guidance. Further, our growth engine continues to run at high speed. We finalized construction of three projects during the quarter in Egypt and in Tunisia. In total, 683 megawatts of solar capacity and 200 megawatt hours of battery storage capacity. This increased our total capacity under generation now to more than 5 gigawatts. We also started construction of another five projects across South Africa, Colombia, Romania and the Philippines in total, 575 megawatts of generation capacity and 80 megawatt hours of battery capacity. And finally, we also strengthened our financial position. We're paying $30 million on our vendor financing, and we renegotiated our RCF at improved terms. This brings our total available liquidity, as I said, to NOK 6.1 billion. With that, let's look at the Power Production segment. We generated 1,046 gigawatt hours in the quarter. This is up from 881 gigawatt hours last year after adjusting for divested assets. New projects contributed with 241 gigawatt hours. This is from the Mmadinare project in Botswana, Grootfontein in South Africa, also Sidi Bouzid, Tozeur in Tunisia and the first phase of Obelisk in Egypt. Revenues from power production amounted to NOK 929 million. This is down from NOK 1.1 billion same quarter last year, excluding divested assets. In terms of underlying operations, new projects contributed with NOK 68 million during the quarter in terms of revenues, while we had lower revenues in the Philippines compared to a very strong quarter last year. The revenues in the quarter, they were also impacted by several specific events. One power plant in Ukraine continues to be out of operation and our Apodi plant in Brazil experienced some downtime during a lightning strike. We reversed an accounting gain of NOK 56 million related to the divestment in Vietnam as payment conditions for this earn-out was not met. While in the same quarter last year, we recognized a positive one-off related to a tariff true-up. And finally, we also had a negative FX effect relative to last quarter as the NOK has strengthened against our main operating currencies. So in summary, our large growth portfolio is starting now to enter operations. And going forward, this will contribute to growing and even more resilient portfolio of contracted revenues going forward. Let me now turn to the Philippines. We continue to see significant strength of having a flexible portfolio shown by the financial contribution from the ancillary services also this quarter. Power production decreased by 28% to 107 gigawatt hours in the quarter, while revenues by comparison only fell by 13%. Revenues reached NOK 279 million and EBITDA ended at NOK 231 million, which is at the higher end of the guided range. Philippines is a strong cash-generating market and now with four energy storage projects in construction, we continue to add battery capacity to the attractive ancillary services market to strengthen our position going forward here. Then in terms of construction, we currently have 1.4 gigawatts of solar and 587 gigawatt hours of battery storage projects under construction. This also includes the release platform, where we continue to see very strong progress. Since last reporting, we've had a very good construction progress across the portfolio. We recorded, as I said, D&C revenues of NOK 695 million, and this is largely driven by the progress we've seen on the Obelisk project as well as on the Mogobe BESS project. As I said, gross margin came in at 22%. And after reaching commercial operation for the first phase of Obelisk, we released a contingency of NOK 80 million. This is reflecting the cost-efficient and swift execution that we've had on this project. Adjusting for this, the underlying gross margin was 11%, and this is in line with our communicated targets. Also Sidi Bouzid, Tozeur in Tunisia came into operation during the quarter, adding another 120 megawatts into our operating portfolio. And looking forward or looking forward to the second quarter this year, we also aim to reach COD for both Urucuia in Brazil, as well as two battery storage projects in the Philippines. As for the rest of the construction portfolio, we expect to see a steady flow of new projects coming into operation over the next 12 months. I'm very pleased with the progress that we're currently seeing on the construction area and incredibly proud of the teams, the large teams that are making this happen. And at the end of the quarter, the remaining contract value that we have in the D&C segment has increased to NOK 4.2 billion, up from NOK 1.8 billion at the end of last quarter. So we also see that, that is increasing as we move projects into construction. And we expect to continue to realize a gross margin of 10% to 12% on this portfolio. And behind this, obviously, we continue to have and we continue to mature additional projects that will move into construction also over the next quarters. So now let's also take a look at Lyra. And during the quarter, we announced construction start for our first project in the Lyra JV, the 255 megawatts Thakadu project. And we have established the Lyra platform together with our local partners, STANLIB and Standard Bank, and it's an important part of how we are positioning ourselves for the future in the South African market. Through the platform, we seek to capitalize on the ongoing deregulation in the power sector in South Africa. And in Lyra, we are able to build a scalable platform for power production and PPA aggregation. This allows us to serve multiple C&I off-takers at attractive tariffs, and this is compared to our traditional model in South Africa with public tenders and Eskom as the sole off-takers. And we expect both these parts of the market to continue and provide significant opportunities going forward. The Lyra platform benefits from Scatec's development, EPC and operational capabilities, and we extract margins from providing these services to the platform. At the same time, we benefit from strong financial partners, which provides equity and debt funding for the project at pre-agreed terms. So this is a model that allows us to grow with limited balance sheet exposure while still capturing value across the full value chain of our activities. And importantly, it positions us well to benefit from what we see as a structural shift in the South African market going forward. So let us then also have a look at our growth portfolio. We have an all-time high backlog of 5.9 gigawatts of generation capacity. This includes projects mainly in Egypt, South Africa, Tunisia and the Philippines. And when the construction and backlog projects have been completed over the next few years, we will reach more than 12 gigawatts of generation capacity. This is increasing our capacity relative to what we have today by almost 2.5x. In addition, behind this, we have a pipeline also of 5.9 gigawatts of projects that also will mature over time and contribute to future growth. In addition to our growth portfolio, it now also on generation capacity, it also now includes battery storage. These are either in hybrid projects or as stand-alone installations. And here, we have a backlog of 4.6 gigawatt hours also across South Africa, Egypt and the Philippines. Together, this project pipeline provides great visibility on significant value-creating short-term growth. And we will continue to grow on a self-funded basis, and we will continue to stay disciplined relative to our return requirements. So with that, I will hand over to Hans Jacob to take us through the financials. Hans Jakob Hegge: Thank you, Terje. And we delivered a strong results across the group, high D&C activity and a good quarter in the Philippines. I'll walk you through the group financials and the performance of our operating segments, and I will also cover further improvements to our capital structure. Looking at the quarter on group level. We continue to generate solid revenues from our D&C activity, which has a positive effect on the proportion of financials. Consolidated revenues was NOK 1 billion compared to NOK 1.8 billion in the same quarter last year. The EBITDA reached NOK 729 million compared to NOK 1.5 billion, and the reduction is mainly driven by the divestment gains in the same quarter last year. This is in line with our long-term self-funded strategy. Our proportionate revenues was NOK 1.6 billion compared to NOK 2.4 billion in the same quarter last year, and proportionate EBITDA was NOK 774 million compared to NOK 1.4 billion year-on-year. Now let me take you through the segments. Starting with power production, revenues was close to NOK 900 million compared to NOK 1.6 billion in the same quarter last year, mainly explained by the divestment gains of NOK 426 million booked in the first quarter 2025. EBITDA was NOK 702 million. And the last 12 months, we have delivered NOK 4.5 billion in revenues and NOK 3.5 billion in EBITDA. Overall, we are very pleased with the value generating from our operating assets. In the D&C segment, activity levels continue to increase. Proportionate revenues was NOK 695 million compared to NOK 751 million last year, and the EBITDA was NOK 100 million compared to NOK 26 million. This was driven by NOK 80 million contingency release from the Obelisk phase 1. The contingency release is a result of timely and cost-efficient execution of the project. The trend from the last 12 months confirms the long-term strength and scalability of our D&C business. D&C revenues in the last 12 months was NOK 5.9 billion with a steady increase over the last five quarters. Rolling EBITDA ended at NOK 535 million with contributions from high-margin projects, contingencies and disciplined cost control. Our free cash flow position ended at NOK 2.6 billion in the quarter, and this is due to the following movements. We received NOK 94 million in distributions from power plants, generated NOK 72 million EBITDA from D&C and corporate, invested NOK 195 million in growth projects and repaid NOK 286 million corporate debt and paid NOK 109 million of interest. This is compared to NOK 165 million in the same quarter last year. Following the quarter, we have refinanced our RCF at improved terms and increased the limit from $230 million to $350 million. The increased limit provides a comfortable liquidity buffer and will support the execution of our record high near-term growth portfolio across geographies. With the increased limit, we have a total available liquidity of NOK 6.1 billion, which provides a solid liquidity buffer to deliver on our strategic targets. We continue to strengthen our capital structure. Gross corporate debt was reduced to NOK 6.5 billion following a repayment of NOK 286 million of the vendor note. This is in line with our strategy to deleverage on corporate level to increase financial flexibility and reduce interest costs. On project level, the gross debt increased by NOK 0.4 billion to NOK 19.5 billion due to drawdown of debt on new growth projects. Net debt for projects in operation increased by NOK 1.1 billion as Obelisk phase 1 reached COD during the quarter and net debt for projects under construction was correspondingly reduced by NOK 1.2 billion. Cash held in our SPVs increased by NOK 400 million to NOK 2.8 billion. Then having a look at the outlook. In our Power Production segment, we estimate a full year power production between 505 and 545 terawatt hours. Our estimated full year EBITDA is reduced by NOK 200 million to a midpoint of NOK 3.75 billion, mainly due to NOK 150 million of negative foreign exchange effect as the NOK has strengthened against our main operating currencies. The largest effect relates to dollars, ZAR, and the Philippine peso. NOK 56 million reversal of the divestment gain related to the Vietnam earnout. And for the second quarter, we expect a total power production between 1150 and 1250 gigawatt hours and EBITDA in the Philippines of NOK 150 million to NOK 200 million. We note increased uncertainty in the Philippines due to global geopolitical developments and El Nino impacting the second quarter EBITDA estimate and the full year '26 proportionate EBITDA. In our D&C segment, the remaining contract value has increased by NOK 2.4 billion to NOK 4.2 billion as new projects are moved to construction. The estimated gross margin is unchanged at 10% to 12% on average across the portfolio of projects under construction. For corporate, the expected full year EBITDA is unchanged at negative NOK 125 million to NOK 135 million. And these estimates reflect a strong base of operating assets, high construction activity and healthy cost control. And then, Terje, I'll leave it to you to take us through the summary. Terje Pilskog: Thank you very much, Hans Jacob. So a couple of key points for the quarter. We continue to build and we now have an all-time high growth portfolio with 5.9 gigawatts of projects in backlog related to generation capacity and 4.6 gigawatt hours of energy storage projects. We've also shown that we have very strong execution evidenced through the fact that we have released NOK 80 million in contingency from the Obelisk project, and we continue to progress well on the projects that we have in construction. And finally, we are improving our financial position. We have paid down corporate debt as well as we have refinanced our RCF. And in summary, what we see currently is that the case for economics, the case for renewables is strengthening in the current situation, economics is competitive, and we can provide flexible, dispatchable energy. We have an all-time high growth portfolio and the opportunities beyond this portfolio is also improving. And we also see that we have the financial flexibility to realize both this portfolio and further projects beyond this. So I believe that Scatec currently is in a uniquely strong position to continue to capture and realize value-creating growth. Thank you. Then we will open up for questions. Andreas Austrell: Yes. We will then move to the Q&A session. We will start with questions here in the room and then move on to the ones listening online. So any questions from the audience here in the room? -- seems to be no questions. So then we will move on to the questions from the online listeners. We have one question regarding the Obelisk, National Bank of Egypt coming in as a new owner. Following the transaction, National Bank of Egypt will have an economic interest of 20% in the project. What's the financial impact from this transaction? Terje Pilskog: Yes. So the National Bank of Egypt is coming in at pre-agreed terms before we reach commercial operation for the full plant. The way we look at this is that getting the National Bank of Egypt in as an equity investor is significantly derisking the project because they are taking dividends in local currency. And already when we started construction of this project, we have optimized the project in terms of the return levels that are acceptable for the other equity investors. There is no further accounting impact of this transaction beyond the fact, obviously, that our equity is being released back to us. Hans Jakob Hegge: I also think it's a testimony of the attractiveness of this project that we actually have the National Bank of Egypt joining with equity. This is a fast-paced development project. It's a fantastic project ahead of schedule and very important for the Egyptian economy and the economic development in the area. So we are quite proud to have them with equity. Terje Pilskog: I mean, I have three high-quality co-sponsors in the project. We have obviously EDF from France that joined us into the project. We have Norfund here in Norway, and we now have the largest commercial bank in Egypt joining into the project as well. Andreas Austrell: Thank you. Next question from Jorgen Lande. Good morning. On the lowered power production guidance, what are the key factors lowering the full year production as Q1 production ended in the very high end of the guided range? Terje Pilskog: Yes. The key factors impacting our guidance for the full year it's mainly two things. One is uncertainty on the power production levels in the Philippines in the second half related to the potential El Nino effect. And the second element is the fact that the Ukraine project, which is currently out of operation is expected to come into operation a bit later in the year than we first had anticipated. Andreas Austrell: Another question from Sindre Sorbo. Could you elaborate why you're not notching up the D&C margin guidance? Terje Pilskog: The D&C margin guidance is based on the contracts that we have entered into on the EPC side, and they're based on the forecasted cost levels in those projects that we are constructing. Obviously, when -- obviously, in all of those estimates, there are some levels of contingencies as you would always do in the EPC business, and we will only release that when we see that the risks have been taken out of the project. Andreas Austrell: One question about our debt. You claim that you have reduced debt, but the total debt has increased. Can you elaborate? Hans Jakob Hegge: Yes. I think he's referring to -- on project level, we have high gearing, nonrecourse project debt, and this will continue to grow with the success of the company growing. On corporate, you should expect lower debt as you also have seen in this quarter. Andreas Austrell: One question from Anders. Referring to our guidance and the uncertainty we mentioned there in the Philippines, asking what does that mean? Is that risk on the upside or the downside? Spot prices in the Philippines are up quite a lot. Terje Pilskog: That is correct. So with the -- as the suspension of the WESM market has been ended beginning of May, we -- on a short-term basis, we expect to see prices going up. And then I think it's difficult to foresee exactly how long this is going to last, including the war in the Middle East, which has a huge impact on prices. Currently, in the Philippines, we are in the drier part of the season. And when we move into May and June, we will come into the more wet part of the season. So obviously, how long the prices are going to stay high relative to when we get more water is going to impact how this is going to have -- how this is going to affect Scatec on the economic side and the financial side. So that's why we're saying the uncertainty is increased. And it's important to emphasize that it's also uncertainty on the upside, and it could also be positive effects from this. Andreas Austrell: A question from Anis Zgaya, ODDO BHF. On the Vietnam earn-out reversal, could you clarify what specific conditions were not met and whether this reflects timing issues or more structural shortfall versus initial assumptions? Terje Pilskog: Well, the specific element related to that was a reversal of a tariff reduction that the government in Vietnam implemented retroactively related to a project. And we will get paid more if that had been carried out. The reversal had been carried out, but it was not done so within the time zone that we had identified for that to happen. Andreas Austrell: Thank you. Another one from Anis. On FX, how should we think about sensitivities going forward? And how much of the NOK 150 million impact could be reversed if NOK weakens? Hans Jakob Hegge: Well, I think the reference to FX in the quarter on consolidated, there was an FX loss of NOK 69 million. This was related to the relationship between euros and dollars. On the full-year guidance, we have corrected for the FX loss in the quarter. So hopefully, that was answering the question. Could you repeat it, Andreas, to make sure that we fulfilled? Andreas Austrell: Well, it's basically how much of the NOK 150 million that could potentially be reversed if the NOK weakens. Hans Jakob Hegge: I don't think I have a specific number for that. Andreas Austrell: Okay. We have the next question also from Anis. New projects are ramping up nicely. Should we expect a more visible uplift in EBITDA contribution from these assets already in H2 2026? Could this offset FX impact? Terje Pilskog: Obviously, in our outlook for the year, we are taking into consideration that new projects will come online. So the projects that we are currently having in construction, they are all represented in terms of also the power production revenues for the year based on when we anticipate and when we have guided that those projects will come into operation. Andreas Austrell: I think that's the final question as of now. So with that, I think we end today's presentation, and thank you very much for listening. Terje Pilskog: Thank you.
Operator: Good morning, and welcome to the conference call on the results of the Second Quarter of Fiscal 2026 of Infineon Technologies AG. I'm Matilda, your Chorus Call operator [Operator Instructions] And that the conference call will be recorded. [Operator Instructions] The conference may not be recorded for publication. I would now like to hand the floor to Florian Martens, Chief Communications Officer. Please, sir, go ahead. Florian Martens: Thank you so much. Good morning, ladies and gentlemen, and dear colleagues and coworkers, welcome to our conference call regarding the results of the second quarter of fiscal 2026. Representing the Infineon Management Board at this conference are, as usual, Jochen Hanebeck, Chairman of the Board of Management; and Dr. Sven Schneider, Chief Financial Officer. Dear listeners, as usual, Mr. Hanebeck will first provide you with an overview of the business performance and the outlook. Afterwards, both members of the Management Board will be available to answer any questions you may have. Our conference call will end promptly at 8:45 a.m. Of course, our press team, led by Andre Tauber and I will remain at your disposal afterwards. Having said that, I'll hand the floor over to Jochen Hanebeck now. Jochen Hanebeck: Thank you very much, Florian. Hello, and a warm welcome from me as well. Esteemed listeners, after 10 days in space, the Artemis I mission returned to earth about 3 weeks ago, 4 astronauts landed back safely on earth. The successful mission has once again proven that Infineon semiconductor solutions function reliably in all situations even under the extreme conditions of space from critical power supplies and control systems to data communication, our technologies and radiation hardened components made a significant contribution to the electronic backbone inside the Orion capsule. My heartfelt congratulations to all of our engineers. They truly contributed to the success of this historic mission. However, we're also seeing some success on our planet, a broader upswing across many end markets is clearly on the horizon. We are seeing rising demand in several key markets. While geopolitical conflicts continue to weigh on people and markets, our business indicators such as order intake, delivery times, cancellation rate and inventory levels are showing a significantly improved picture. This picture continues to vary by application area. In the field of artificial intelligence, momentum continues to grow. It is also having positive ripple effects on adjacent sectors. The market development in industrial applications is being supported by rising demand for energy infrastructure. In the Automotive sector, order intake is rising as customers begin to replenish their low inventory levels. However, electromobility remains in difficult waters, while we are seeing a positive global trend in software-defined vehicles. Overall, demand in our end markets is improving significantly. We are preparing for a broad-based upswing. Now let's take a closer look at the performance in Q2 of fiscal 2026. Infineon delivered results that were fully in line with expectations. Our company generated revenue of EUR 3.812 billion, which represents a 4% increase over the previous quarter. Compared to the same quarter last year, revenue rose by 6% and by over 14% on a currency-adjusted basis as the U.S. dollar was significantly stronger 12 months ago. Segment earnings reached EUR 653 million. The segment earnings margin was at 17.1%, down from 17.9% in the previous quarter. This development reflects, on the one hand, the positive effects of rising volumes. On the other hand, however, the usual price adjustments that take effect at the beginning of each calendar year. In addition, a decline in the high-voltage business in the Automotive segment and costs associated with its realignment created significant headwinds for profitability. More on this in just a second. Now the recovery momentum mentioned at the beginning is clearly evident in our order backlog. This rose by EUR 4 billion quarter-on-quarter and stood at around EUR 25 billion at the end of March. Year-on-year, this represents an increase of around 25%. And the order backlog continues to grow in the current quarter. To the extent that our capacities allow, we are now confirming customer orders well into the next fiscal year. Free cash flow in the second quarter was minus EUR 63 million, following minus EUR 199 million in the previous quarters. Now let's turn to the results of our 4 business segments in the second quarter, starting with Automotive. Before we look at ATV's quarterly performance, let's take a brief look back. We are very pleased to have defended our global leadership position in automotive semiconductors for the sixth consecutive year in 2025. This is shown by the recently published data from TechInsights. Ranking first or second in all major regions in the world confirms our outstanding position as the automotive industry's preferred partner. We were even able to extend our lead over our main competitors, particularly in the crucial microcontroller category. In this segment, we actually increased our market share year-on-year from 32% to 36%. Now to the quarterly figures. Automotive achieved a slight increase in revenue to EUR 1.830 billion during the reporting period. We were able to offset price declines in the low single-digit percentage range with high unit volumes. Segment earnings amounted to EUR 331 million. The segment earnings margin was at 18.1%, down from 22.1% in the previous quarter. The decline was primarily attributable to 2 factors: charges related to our businesses with high-voltage power semiconductors for electric powertrains as well as the price adjustments mentioned earlier. I will discuss the former again in more detail in just a few seconds. Looking at the automotive market, the short-term outlook remains subdued. In April, the market research firm, S&P Global, revised its vehicle sales figures for 2026 downward. The forecast now largely aligns with our original assessment. For our company, however, structural semiconductor growth driven, for example, by the rapid proliferation of software-defined vehicles is more important than actual vehicle sales figures. The trend towards electromobility also remains intact. However, the adoption of electric vehicles is proceeding more slowly than expected. Market pressure is particularly pronounced for high-voltage power semiconductors for the electric powertrain. Intense competition driven in part by the significant expansion of the manufacturing capacity in the sector and the shift in attitude towards e-mobility promotion has led to prices and volumes falling faster than expected. The result of this, the profitability level in our automotive high-voltage business is unacceptable to us. That is why we are fundamentally realigning it. In addition to the restructuring of our back-end production of automotive frame modules at the Warstein site, which was already announced in November, we're also taking further targeted measures to reduce our operating costs, including by streamlining our portfolio. However, this is also an opportunity to reallocate available front-end capacity to our rapidly growing business in the AI data center segment. There, demand continues to significantly exceed the supply. Let me now take this opportunity to emphasize 2 important points. First, Infineon is committed to electromobility, and we will continue to drive it forward, but we will not chase market share at any cost. Our focus remains on profitable growth. Second, the situation described is limited exclusively to high power voltage -- high-voltage power semiconductors, which account for about 7% of the automotive revenue. It does not affect other products such as microcontrollers, analog semiconductors and sensors in any way, not even MOSFET transistors. Infineon has a strong technology and manufacturing base for power semiconductors and an outstanding system understanding. This gives us all the key levers we need to reposition our high-voltage business in the field of electromobility for future success. Now in the meantime, Infineon is driving the adoption of software-defined vehicles. The combination of powerful computing power, fast and secure connectivity and intelligent power management forms the foundation of these vehicles, and Infineon is a leader in all of these areas. A great example is the BMW iX3, the first model based on the Neue Klasse platform. The Neue Klasse features our AURIX and TRAVEO microcontrollers, the connectivity from the BRIGHTLANE family, our power management ICs as well as smart power switches and eFuses. And of course, it has an electric powertrain. This just demonstrates how closely the 2 structural trends in the automotive sector, software-defined vehicles and electromobility are actually intertwined. We're also very pleased about recent design wins with the leading Chinese automaker, Geely. These include a large number of microcontrollers and analog semiconductors. These are used, among other things, in battery management systems and central control units in various Geely vehicle models and brands. These successes underscore the strong value proposition that Infineon offers to its Chinese customers. Let's now turn to Green Industrial Power. This business segment recorded revenue of EUR 403 million. This represents a significant increase of 15% compared to the previous quarter, which was very weak due to seasonal effects. This growth was primarily driven by energy infrastructure, HVAC and home appliances. Segment earnings improved to EUR 47 million, which corresponds to a segment earnings margin of 11.7%, up from 8.9% in the previous quarter. We were able to more than offset negative price effects with positive effects resulting from higher sales and lower vacancy costs in our factories. The situation in the market for industrial power applications is also improving. We're seeing signs of a broader economic recovery. Inventory levels in the supply chain are reaching low levels. And as a result, order intake is picking up significantly again. In addition, there are structural growth opportunities in certain areas. The necessary modernization of the power grid is driving investment in related infrastructure. This includes energy storage systems as well as equipment for power transmission and distribution. The expansion of AI data centers is fueling demand for uninterruptible power supplies and cooling systems. And in some cases, semiconductors are ideally suited to replace electromechanical components. Infineon is ideally positioned to capitalize on this trend. We're seeing strong demand for semiconductor-based power converters, so-called solid-state transformers. They enable higher efficiency, significantly greater power density and improved scalability. As a result, they will increasingly replace conventional transformers. We are already generating initial revenue in this area in the current fiscal year. We have also built up a robust design in pipeline and our business with solid-state power switches is developing well. So we have a solid foundation for future growth. But let's now move to the Power & Sensor Systems segment. Revenue here reached EUR 1.260 billion in Q2, which represents a plus of 8% compared to the previous quarter, driven primarily by our business in power supply solution for AI data centers and radar sensors for automobiles. Along with the rise in revenues, segment earnings also increased. They rose to EUR 257 million. The segment earnings margin jumped to 20.4%, up from 17.4% in the previous quarter, another major step on PSS path to profitable growth. This is closely linked to our leadership position in AI power supply solutions. Sustained high levels of investment in AI data centers and the associated infrastructure are driving demand. And currently, our AI-related business is in allocation. We're shifting spare manufacturing capacity from other areas while simultaneously ramping up new capacity as quickly as possible. We, therefore, confirm our revenue forecast for power solutions for AI data centers, EUR 1.5 billion in this fiscal year as well as EUR 2.5 billion in fiscal year 2027 despite a weaker U.S. dollar. With our solutions, we serve the entire energy supply chain from the power grid to the AI processor. To this end, we offer the most comprehensive product portfolio and stand out, thanks to deep system understanding, quality and delivery capabilities. All of this helps our customers scale AI clusters and deploy increasingly sophisticated power architectures. A key milestone in this context is the ramp-up of gallium nitride solutions for AI data centers. We're already supplying increasing volumes of these solutions to select customers and more and more customers are actually incorporating our solutions across multiple stages of power conversion. This is where gallium nitride makes a clear difference in performance. Demand for silicon carbide solutions from AI-related applications is also very strong. Our silicon carbide business at Infineon is benefiting from this in the current fiscal year with low double-digit growth numbers. These developments underscore our excellent market position. We collaborate with leading companies in the AI ecosystem and are represented in virtually all platforms of the relevant key players. The semiconductor value per kilowatt of installed power ranges between $100 and $250. The average has now risen further to around $175. This semiconductor value per kilowatt installed capacity replaces our previous forecast of an addressable market size for Infineon of EUR 8 billion to EUR 12 billion by the end of the decade. Now the background of this, gigawatt installation plans are growing rapidly, also significantly increasing the market potential for Infineon, of course. Using the aforementioned semiconductor value per kilowatt of power as a benchmark allows us to better account for this dynamic. Let's now turn to our Connected Secure Systems segment. At EUR 319 million, revenue in Q2 remained virtually unchanged from the previous quarter. Revenue growth in our microcontrollers and connectivity was offset by a decline in the Government Documents segment. Segment earnings declined to EUR 18 million. The segment earnings margin was 5.6%, down from 7.2% in the previous quarter. Now the shift from the Internet of Things to Edge AI, meaning the use of artificial intelligence directly in the end device or in its immediate vicinity is opening up new opportunities for innovation across multiple end markets. We're pleased with the growing momentum in design wins for our next-generation connectivity solutions and our AI-enabled microcontrollers. This momentum spans various application areas from servers to security cameras and wearables to in-vehicle monitoring systems. Another positive impact of AI adoption for Infineon is growing demand for our secure element to safeguard data integrity in servers. This specialized security chip uses encryption to protect the confidentiality and authenticity of data. Ladies and gentlemen, before I turn to the outlook, I would like to inform you about an important strategic decision at Infineon. Effective July 1, we will be changing our divisional structure and organizing our business into 3 divisions instead of the previous 4, namely, Automotive, Power Systems and Edge Systems. This reorganization is the next logical step of our evolution, moving beyond a merely product-centric mindset towards solutions based on a deep understanding of our systems. Our previous structure enabled us to achieve strong growth over many years. However, today, our customers expect innovative system solutions at an ever-increasing pace. And we aim to meet these demands by further enhancing customer value, reducing complexity and thereby becoming more agile. Now the guiding principles of these new structures is clear ownership of applications. Each of these 3 future divisions is responsible for strategically advancing the focus applications assigned to it. Automotive, of course, remains responsible for the key trends in the Automotive sector, software-defined vehicles and e-mobility as well as for all other automotive applications. Power Systems, or PS for short, will assume responsibility for all power supply applications outside the automotive sector. This includes, in particular, power supply for AI from the power grid to the AI processor, power generation from renewable energy sources and grid infrastructure. In addition, this division will serve all applications in the consumer communications and industrial sectors. PS is, therefore, formed from the combination of GIP and the power business of PSS. Edge Systems or ES for short, focuses on applications at the interface between the physical and digital worlds. The interplay of sensors, microcontrollers, connectivity and security is a key driver of future innovation and growth. Examples here include Edge AI robotics, medical wearables, industrial automation and smart home applications. ES brings together the current CSS division as well as PSS' sensor high-frequency and USV business. The sensor portfolio of ams-OSRAM will also become part of Edge Systems. We expect to complete the acquisition this quarter. With the 3 divisions and clear responsibilities for our focus applications, we're gaining speed, simplifying decision-making processes, reducing coordination efforts and can better leverage our deep system understanding even more effectively. Based on the 2025 financial figures, this new structure corresponds to a revenue breakdown of approximately 50% to Automotive, 30% for PS and 20% ES. The new divisions can thus also leverage economies of scale. Ladies and gentlemen, let's now move to the outlook. The upswing is gaining momentum and scope. The recovery is spreading to more and more of our target markets, although geopolitical risks and macroeconomic uncertainties remain, which we are, of course, monitoring closely. We're seeing higher order volumes, which are leading to a growing order backlog. As customer orders for the coming quarters are building up encouragingly, our outlook beyond the current fiscal year is also improving. In the Automotive sector, we see manufacturers replenishing their semiconductor inventory to reasonable levels. On the supply side, localized bottlenecks are emerging, particularly in areas adjacent to product categories related to the AI boom. Of course, the dynamics vary across different application areas, but we expect a broader upswing to be on the horizon. We are, therefore, raising our full year forecast despite unfavorable currency movements. For the current June quarter and the remainder of our fiscal year, we are adjusting our assumed exchange rate between the U.S. dollar and the euro from EUR 1.15 to EUR 1.17. For the current third quarter of our fiscal year, we expect revenue of approximately EUR 4.1 billion, which corresponds to an 8% growth compared to the prior quarter. We expect the segment profit margin to be in the high single-digit percentage range. In addition, a positive volume effect, we anticipate rising prices in certain areas, particularly in the AI sector and related product categories. This development is offset by rising costs for energy and precious metals, which are dampening our margin growth. For fiscal 2026, we now expect revenue of more than EUR 16 billion, which is, of course, a significant increase over the previous year. In 2025, Infineon generated approximately EUR 14.7 billion in revenue. The ATV business unit is expected to post slight revenue growth, driven by its broad product portfolio and the continued proliferation of software-defined vehicles on the one hand, but weighed down by the decline in our high-voltage business on the other hand. Now to put this in perspective, excluding our high-voltage business and the Ethernet business, which is being consolidated for a full year for the very first time and assuming exchange rates remain stable compared to the previous year, ATV would grow by nearly 9% in fiscal 2026. Now for the GIP segment, we expect moderate growth. PSS should grow significantly faster than the group average, driven by strong demand for our AI power supply solutions. For CSS, we expect revenue to remain stable compared to the previous year. With increased revenue forecast for the group, expected profitability is also rising. The segment profit margin should reach around 20%. Previously, we had anticipated a margin in the high single-digit percentage range. In addition to the positive revenue effect and pricing that is advantageous for us, we also expect vacancy costs to decline. However, the planned reduction of inventory levels is having a dampening effect here. These positive effects are also offset by unfavorable currency movements as well as rising costs for precious metals, energy and freight due to the war in the Middle East. We also have factored in these direct impacts. However, the outlook does not account for potential indirect effects from a prolonged or even escalating Middle East conflict or from other geopolitical tensions. Now to our investments. In the current fiscal year, we continue to plan our capital expenditures of approximately EUR 7.2 billion. As we reported in our last quarterly conference call, this figure includes around EUR 500 million in accelerated investments to support the steep revenue growth with power supply solutions for AI data centers in the coming fiscal year. In this context, I am pleased to confirm the date for the official opening of our smart power fab in Dresden on July 2. We cordially invite you to celebrate this important milestone with us. The factory will focus on state-of-the-art analog and mixed signal and power semiconductor technologies. Production is starting at exactly the right time to strengthen our growth opportunities in highly attractive markets such as AI data centers, software-defined vehicles as well as robotics and Edge AI in the coming years. Finally, here our expectations for free cash flow. Due to the improved business outlook and the planned reduction in inventory levels, we are raising our forecast for reported free cash flow to approximately EUR 1.25 billion, up from EUR 1 billion previously. Free cash flow adjusted for major investments in front-end facilities and acquisitions is expected to be around EUR 1.65 billion, up from EUR 1.4 billion previously. Ladies and gentlemen, this concludes my remarks. And now together with Sven Schneider, I'm happy to answer your questions. Operator: [Operator Instructions] The first question comes from Hakan Ersen from Thomson Reuters. Hakan Ersen: Mr. Hanebeck, earlier you mentioned that if capacities allow, you could confirm customer orders through to the next fiscal year. Does that mean that you're fully booked through to the next fiscal year? Jochen Hanebeck: No. This doesn't generally translate into that message. But in some areas, we see an upcoming allocation, especially in all product groups, which also go into AI power supply solutions and also potentially in other markets. There, we are doing all we can to continue expanding our capacities. But whether this will be sufficient for everyone and everything isn't something I can say today. Hakan Ersen: Okay. You're saying that you're fully booked in some areas, but that you're not fully booked in other areas. Is that correct? Jochen Hanebeck: Yes, that is correct. Especially the 300-millimeter fabs really have very, very high capacity utilization. That I can tell you. Operator: [Operator Instructions] The next question comes from Joachim Hofer of Handelsblatt. Joachim Hofer: I have 3 questions. The first one is just for the sake of clarification. You're talking about significant revenue growth, EUR 16 billion, that is roughly 10%. Is that correct? Jochen Hanebeck: Yes, that is correct. Joachim Hofer: Okay. Great. The second question, because you -- a lot of people have been speaking about the critical situation in helium supply because of the situation in the Gulf region. What about Infineon? Are you lacking helium and other raw materials? Jochen Hanebeck: Sven Schneider will answer that question. Sven Schneider: Yes. Indeed, we see that, but it is safe for you to assume that the industry has learned its lessons from the past crisis in order to come up with a multi-sourcing strategy and network so that you don't depend on deliveries from individual suppliers. This is something that we do with helium as well. So we see that, but we can always work around such problems. So from our current standpoint, we don't have any material effects. But as Mr. Hanebeck alluded to earlier on, we have been witnessing price increases, for instance, for copper, for gold, for the gases that you spoke about for logistics and freight. We see substantial cost increases. However, they are also factored into our outlook. Joachim Hofer: The third question I have is this, perhaps you can give me a more detailed explanation of what you want to do with the high-voltage business because it was rather complex in your presentation. So what you're doing is fitting out the portfolio, if I understood it correctly. But what are you doing above and beyond that? Jochen Hanebeck: Yes, that's correct. But let me put it in these words. We believe in the mobility trend, and we sell a lot of products that are built into EVs. Now there's one area, the high-voltage products. And here, we're talking about the inverters, in particular, which take the current from the battery. They turn the AC current into DC current. And in the past, this was done by IGBTs. And now and in the future, we're moving increasingly to silicon carbide. This market, especially in China, is under substantial price pressure. IGBTs are increasingly manufactured in China. This isn't surprising to us because a while ago, our R&D was orientated towards silicon carbide. In the area of silicon carbide in this application, however, we also see a very aggressive pricing strategy from other market participants outside of China. This coupled to a drop in worldwide volumes because you mustn't forget that the market in the United States has basically collapsed. It is growing in Europe, but not as fast as anticipated. And China as a local market is running into a phase of stagnation. So unit figures are going down. And therefore, in turn, revenues are going down. The idle costs are increasing in this area. However, in this respect, the front end, the wafer capacities can be repurposed or rededicated quickly, for instance, into AI applications, if needed. And when it comes to assembly, we need to adjust capacities. And this is why we are taking the measure in Warstein, which we announced in November. Above and beyond that, we are taking a look at our portfolio to figure out where in the future, when new price points are formed, we can generate customer benefits. And here, in the future, we will invest into R&D in these areas because we believe that we have all of the key elements necessary to do so. We have the technological expertise. We have the right manufacturing footprint and of course, the system competence that's necessary as well. Certain other product families may perhaps not be developed or maybe put on the back burner. So what we are doing is to refocus the business because the margins that we're currently earning with it in this special situation, as I said before, revenue today is about 7% of the ATV revenue for the high-voltage components for the inverters. It used to be far north of 10%, and we need to realign this business, put it on new pillars, and this is what we intend to do. Thank you very much. Operator: [Operator Instructions] We do not have any further questions. I hereby close the Q&A session, and I would like to ask Mr. Hanebeck to make his concluding remarks. Jochen Hanebeck: Dear listeners, I'll summarize. The second quarter of the current fiscal year was closed by Infineon fully within expectations. We have achieved our targets for the first half of the fiscal year. The growth outlook is improving. We are seeing a broader upturn in several of our markets. However, the momentum varies by application area. Based on an overall more positive business outlook, we are lifting our full year forecast. We expect significant revenue growth to more than EUR 16 billion and a segment profit margin of around 20%. In the future, we will transition from 4 to 3 business divisions with a streamlined structure and clearer responsibilities for the various application areas, we will deliver value to our customers even faster and thus further accelerate our profitable growth trajectory. Thank you for your interest, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Marcus Poppe: Good morning, ladies and gentlemen. This is Marcus Poppe speaking. On behalf of Daimler Truck, I would like to welcome you to our Q1 results global conference call. We are very happy to have you with us today, Karin Radstrom, our CEO, and Eva Scherer, our CFO. Karin [indiscernible] introduction directly followed by a Q&A session. The respective presentation can be found on the Daimler Truck Investor Relations website. Please note that this conference call will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of Daimler Truck website. I would like to remind you that this teleconference is governed by the safe harbor wording you will find on our published results documents. Please note, our presentation contains forward-looking statements that reflects management current views with respect to future events. Such statements are subject and uncertainties. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. Before we start, let me give you a quick reminder. Following the signing of Definitive Agreements in June 2025 with a target to integrate Mitsubishi Fuso and Hino into ARCHION Holding company, the Mitsubishi Fuso subgroup was reclassified as discontinued operations and assets and liabilities held for sale starting in Q2 2025. Effective January 1, 2026, the Trucks Asia segment was no longer reported separately. And for capital market communication, we focus on continuing operations for business development, unit sales and profitability. Our investment research activities as well as free cash flow and liquidity are presented on a combined basis, including both continuing and discontinued operations. With closing on April 1, 2026, our shares in the Mitsubishi Fuso subgroup were transferred into shares in ARCHION and as a result, are reported as an at equity participation from Q2 onwards. With that, let's jump into the results. Karin and Eva will walk you through how the first quarter came together. And after that, we'll be open things up for analyst questions followed by the media. So Karin, please, over to you. Karin Radstrom: Thanks, Marcus, and good morning also from my side. As you may have seen, we had a first quarter which was on the soft side with low volumes in North America and continued tariff impacts. At the same time, we are seeing really strong order intake and remain very confident as we look ahead for the remainder of the year. So, with that, let me have a look at the key figures for the quarter. For the group, we generated EUR 10 billion in revenue with an adjusted EBIT of around EUR 500 million and a net profit of EUR 149 million. Our balance sheet remains strong with net industrial liquidity of EUR 7.1 billion. Furthermore, we continue to deliver on our strategy to become a more profitable and a more focused company with three topics to mention. Firstly, with the completion of the integration of Mitsubishi Fuso and Hino Motors into the newly established ARCHION Corporation on April 1, we enabled that new company to unlock synergies, benefit from scale across products, technologies and operations. As communicated, we will gradually reduce our ownership to 25%, generating a total cash inflow from the transaction between EUR 1.5 billion and EUR 2.0 billion. Within the next 12 months, we expect the free float to reach at least 35%, which is an important prerequisite for a prime market listing in Japan. Secondly, in addition, we announced in March that Toyota intends to join cellcentric as an equal shareholder alongside Daimler Truck and Volvo Group. This represents a meaningful step forward for hydrogen technology. It brings together three global industry leaders with complementary strengths and improves our ability to accelerate innovation and scale fuel cell systems. This partnership underscores our strong confidence in hydrogen as a core pillar of zero-emission transportation, while at the same time, we maintain a disciplined approach to efficient capital allocation. Thirdly, given the current conditions in the electric commercial vehicle market in North America, we're adjusting our spending accordingly. We agreed with our Amplify Cell Technologies joint venture partners to defer the installation of manufacturing capacity. Limited construction will continue to ensure that joint venture remains well positioned for the future while maintaining flexibility as the market [indiscernible]. Due to the delay of production start and ramp-up, we recorded a noncash partial impairment of EUR 200 million in equity result from Amplify in accordance with IFRS rules, which is reported as an adjusting item within EBIT. We had originally planned a contribution to the joint venture in a low triple-digit million range this year. So overall, we will see a positive cash flow impact. Continuing with the look at the Industrial Business, revenue came down 14% year-over-year to EUR 9.1 billion and adjusted EBIT was down 55% to EUR 460 million. The primary reasons for the decline was the lower profitability at Trucks North America, where we saw very low unit sales along with significant tariff headwinds. We continued managing our overall cost base effectively and further reduced SG&A expenses. Research and development investments were also lower in the first quarter, but we expect higher spending for the remainder of the year. Now to the orders. Incoming orders -- which rose by 50% to 114,000 units shows that we have a great momentum with our products. Feedback, especially on our Actros L with the ProCabin remains very positive. At the same time, unit sales were down 9%, totaling around 69,000 units for quarter 1, resulting in a book-to-bill of 166%. Overall, cancellation rates remain low even with the heightened economic uncertainty related to the Middle East conflict. Turning to our zero-emission portfolio. We sold around 700 battery electric trucks and buses in the first quarter, up by 26%. In North America, the Class 8 market totaled 50,000 units in the first quarter of 2026, representing a 23% year-over-year decline, reflecting historically low order demand in 2025 and in line with our expectation of a slow start in 2026. Our market share stood at 37.7%, making us again the clear market leader. Based on our strong order share, we expect our market share to improve as the year progresses. In Europe, the heavy-duty market expanded by 11% to approximately 80,000 units, largely driven by Poland, the Netherlands, Spain and Germany. Against this backdrop, our heavy-duty market share increased a lot from 14.2% in quarter 1, 2025 to 18.3% in quarter 1, 2026, reflecting the strength of our competitive product portfolio and the successful launch of the Actros L at the beginning of 2025. As a result, we further reinforced our leadership position in Europe's medium- and heavy-duty segments, achieving an overall market share of 18.5%. In zero-emission vehicles, we led the market again, capturing 33% of the European heavy-duty segment in the first quarter of 2026. While the overall adoption in Europe is still low at around 2% of truck registrations, this underlines our strong competitive position as the transition continues. I'll now hand over to Eva, who will walk us through the segments. Eva Scherer: Thanks, Karin. As you mentioned, market conditions varied across regions. So let's start with a closer look at what it all meant for Trucks North America. At Trucks North America, revenue came down 29% year-over-year to around EUR 3.8 billion, following a historically low demand environment in 2025. Excluding a negative foreign exchange impact of roughly EUR 450 million, revenue was lower by 21%. Adjusted EBIT came in at EUR 209 million, leading to an adjusted return on sales of 5.4%. Unit sales fell 25% to the lowest first quarter level since 2010. Positive pricing and disciplined cost management helped mitigate the impact but could not fully offset substantial tariff headwinds and the pronounced volume decline. With an order intake of over 59,000 units, up 86% year-over year and 13% sequentially, our growing backlog gives us confidence for the remainder of the year. The overall industry is showing discipline, and our customers are replacing their aging fleets despite continued macroeconomic uncertainty and higher fuel costs. Freight rates have improved by more than 20% year-over-year as freight capacity has exited the market. We are now seeing the full impact from Section 232 truck tariffs, resulting in a combined low triple-digit million-euro net tariff impact in the first quarter. Our application under the U.S. content program and the review of MSRP credits are still pending with no confirmed impact on the effective rate at this time. Despite these factors, performance remains very solid and demonstrates resilience. Mercedes-Benz Trucks generated revenue of EUR 4.6 billion, a 4% increase year-over-year with an adjusted EBIT of EUR 233 million, resulting in an adjusted return on sales of 5.1%. Order intake was strong, reaching around 49,000 units, representing a 33% increase compared to quarter 1 2025 and 4% sequentially. In Europe, profitability benefited from a strong sales performance and the strict implementation of cost-down Europe measures. This was partly offset by duplicate aftersales operation costs related to the ramp-up of the global parts center in Halberstadt, along with slightly negative net pricing. Moreover, the prior year quarter benefited from a mid-double-digit onetime warranty effect. In Latin America, volumes increased slightly, driven by strength in Chile, Colombia and Peru and market share gains in the medium-duty market in Brazil. Profitability declined year-over-year, driven by a more challenging market conditions in Argentina. In India, volumes increased strongly in line with the market, supported by favorable mix. Revenue of Daimler Buses was at EUR 1.2 billion, a 7% decline year-over-year with adjusted EBIT of EUR 107 million and a strong adjusted return on sales of 8.6%. Order intake reached around 5,900 units, representing a 25% decrease compared to quarter 1 2025, driven by the weaker markets in Latin America. However, still resulting in a book-to-bill ratio of 119%. The strong European business keeps its positive momentum. Unit sales declined by 20%, mainly due to a weak market environment in Latin America and Mexico, where we primarily sell bus chassis. At the same time, our higher-margin integral bus business in Europe slightly increased year-over-year. Even with strong performance in Europe, positive pricing and FX support, we could not fully offset the volume decline in the chassis business. However, despite lower volumes, we delivered a strong profitability, highlighting the improved resilience of the bus business. Adjusted EBIT for Financial Services decreased year-over-year from EUR 55 million to EUR 39 million, driven by higher loss allowances and foreign exchange headwinds. As a result, adjusted return on equity decreased from 7.3% to 5.1% in the first quarter. A prolonged freight recession in North America, tariff-related impacts and increased fuel prices due to the Middle East conflict have continued to weigh on customer cash flow. As a result, a growing numbers of customers are experiencing tighter liquidity in their business, also in Brazil and Mexico, which has translated into higher cost of risk as we are taking a prudent approach to provisioning. In North America, it will take time for higher freight rates to improve fleet margins that have been severely diminished after years of market downturn. Moreover, we are not adjusting for costs resulting from our ongoing restructuring initiatives to position our Financial Services business for improved returns in the future. Free cash flow of the Industrial Business of around negative EUR 400 million was significantly lower than in the previous year, mainly driven by lower earnings and additional inventory buildup due to higher order intake. This was partly compensated by higher prepayments received from customers, increased trade payables and lower income tax payments. At the same time, our balance sheet remained very strong. Net industrial liquidity at EUR 7.1 billion after deducting the negative free cash flow and a cash outflow of around EUR 50 million resulting from the share buyback program we initiated on March 16th. Now turning to our guidance. To date, we have only seen a limited impact of the Middle East conflict on truck demand and global supply chains. However, further developments will largely depend on the duration of the conflict and are likely to vary in severity across regions. The longer this situation remains unresolved and oil prices remain elevated, the higher the likelihood of inflationary cost pressures, supply chain disruptions and softer truck demand. As of today, macroeconomic leading indicators point to a more resilient outlook in North America compared with a more cautious sentiment in Europe. As always, our guidance does not factor in potential impacts from supply chain disruptions or adverse macroeconomic developments, particularly those related to the Middle East conflict. It also assumes that the current USMCA tariff framework remain in place. We continue to expect the North American heavy-duty market to land between -- 250,000 and 290,000 units with a pickup in the second half of the year supported by replacement demand. For the EU30 market, we expect a range of 290,000 and 330,000 units. All segment level guidance KPIs for 2026 remain unchanged. For Trucks North America in quarter 2, we expect unit sales to be around 50% above first quarter levels, with profitability at the upper end of the full year guidance corridor. This does not consider a reduction in tariff exposure in the second quarter. Based on our strong order intake and our expectation of a lower effective tariff rate under the U.S. content program in the second half of the year, we expect to deliver a full year return on sales adjusted at the upper end of our 6% to 8% guidance corridor. For Mercedes-Benz Trucks, we expect group sales to increase sequentially by around 15% in the second quarter, in line with further market improvement in Europe. Profitability is forecasted at the lower half of the guidance corridor. For the full year, we confirm our 6% to 8% return on sales corridor with a strong improvement expected in the second half of the year. For Daimler Buses, sales are expected to be around 30% above quarter 1, and profitability is expected to be at the upper end of the guidance corridor. We also confirm our full year guidance corridor of 8% to 10% return on sales. Taking into account lower cash contributions to Amplify Cell Technologies, we expect to be at the upper end of our full year free cash flow guidance and forecast a strong recovery already in the second quarter. Marcus Poppe: Thank you very much, Eva. Thank you very much, Karin. So that concludes our presentation for quarter 1 results. Now it's time to move into the Q&A portion of today's call. As usual, we will start with questions from analysts, then move on to the media. Both sessions will be recorded and made available on request. Operator: Good morning, ladies and gentlemen, and welcome to the Q&A part of today's Q1 results global conference call. [Operator Instructions] Marcus Poppe: So good morning. I think we start with Nicolai Kempf from Deutsche Bank. Nicolai Kempf: It's Nicolai from Deutsche Bank. Slow start in Q1, but well flagged, and we appreciate the comments on Q2. If we start in North America, very strong orders in Q1 that seemed to slow down a bit in April. And have you any color on that? Was this because of lead times getting longer? Was a bit of slowdown because of the higher diesel prices? So any color on this would be appreciated. And then moving to Mercedes and maybe to Europe, you've mentioned a bit more cautious indicators on the macro side. Can you just remind us what are the moving parts here going forward? And why is Mercedes going to improve in H2? Karin Radstrom: Thanks, Nikolai. Karin here. Maybe starting with North America. As you said, very strong order intake in Q1, I think, at 86%, better quarter 1 compared to last year. And in terms of April order intake, it was a bit more stable from -- moving on from March, but we're happy with the order intake in April. In terms of Europe, as we move into Q1, we also see an improvement on the volume side. So that should help to boost the result of the Mercedes-Benz Truck segment for Q2. Eva, anything -- otherwise. Eva Scherer: Yes. I think maybe I'll shed some light on Mercedes. Overall, explaining a bit further on quarter 1 and then also how you can expect the year to develop. So I mean, just to recap a little bit also what we went through during the speech. So we saw a 4% increase in revenue for MB year-over-year. We saw that order intake was strong. And as anticipated, as you said, slower start into the year. And we do see that we have profitability in Europe moving in the right direction. This is supported by cost down Europe and also improving volumes, which will then also be a factor coming into quarter 2. Now in quarter 1, we did have temporary cost headwinds. I mentioned it, operational ramp-up of our spare parts distribution center in Halberstadt and some slightly net negative price/cost impact. What we also saw in quarter 1 in MB that we had some temporary inefficiency in our industrial setup related to the relocation of the Atego cabin production, so medium duty to Turkey, and that resulted in additional rework costs as we ramp that up. But this is something in the next quarters that will get better. And then we see, as I mentioned also in the speech just now, we had a lower profit contribution from Latin America here, Argentina being the main factor. And when we look at this now coming into quarter 2, we see that it will gradually ramp up into the second half of the year. You saw that we're guiding for Q2 in the lower half of our full year guidance corridor for Mercedes-Benz Trucks, but then you will have higher volumes come out and also some of these headwinds easing over the second half of the year, and we're very comfortable with our full year guidance corridor. Marcus Poppe: So next question comes from Klas Bergelind, Citi, please. Klas Bergelind: So can I just confirm on the margin guidance here for North America at the upper end in the second quarter. This doesn't include any benefits from MSRP or the preferential tariff agreement. So this is mainly the higher operating leverage quarter-on-quarter and a better mix from Cascadia. And linked to this, given the solid margin here for the second quarter, it seems like you can reach [indiscernible] the higher end of the range of 6% to 8% for the year without these tariff benefits, at least on my math, with the tariff benefits coming on top. Is that how to think about it? Eva Scherer: Klas, thanks for your question. Obviously, a very good one and not unexpected. So you're right, based on what you concluded that quarter 2, and I said it also just now, there -- is no reduction of the effective tariff rate considered in quarter 2. So it's really the run rate that were coming out of quarter 1 that will also then translate into the quarter 2 profitability. We have a significant volume effect coming in with 50% higher unit sales. And then obviously, that brings us to the upper end of the full year guidance corridor in quarter 2. Now when it comes to the lower effective tariff rate that we believe we can get under the U.S. content program and then also MSRP credits. Maybe the first one for lower effective tariff rate. We have not received confirmation there. But we're still confident that we will get a relief there. But first of all, we are not exactly sure how long it would take. And then we have to see based on our application, what will be accepted. So that's a bit unpredictable. But what you can say is that the assumption in our full year guidance is quite conservative for a tariff relief because we're being cautious there. And on MSRP, I said last time that we had considered a mid-double-digit million amount for this in this year. We have taken it out now. We still believe we will get it, but it could take a bit longer because we see that it's moving very slowly. We still don't have the calculation method, so we couldn't even apply for any credits there for the U.S. assembly. And so there, this could move into next year. So generally a bit more conservative assumptions there on the tariff side. And as you did the math, we're trending quite well there when it comes to profitability based on run rate. Klas Bergelind: Very good. My second one is on Mercedes-Benz and the orders. We had this move incentive in Brazil, which has seen truck orders surge. I'm trying to understand how much of this is the better orders that you delivered? How much is driven by the Brazil incentives that we understand will start to roll over after May versus the European better momentum, Actros L, et cetera. Just so we understand how much we need to give back from the Mercedes-Benz better orders into the second half? Karin Radstrom: Klas, Karin here. I can take that one. So actually, we have a little bit different structure from some of our competitors in Brazil as we're a full liner, and we deliver both the extra heavy, semi-heavy and the medium-duty segment. So actually, if you look on our order intake in Brazil, it has remained rather stable quarter-to-quarter. And the growth that we are seeing is coming very much out of Europe and some of it also from India. Marcus Poppe: Next question comes from Alex Jones from Bank of America. Alexander Jones: Maybe first on pricing. If you could comment on what you're seeing particularly in Europe, where you cited negative pricing this quarter and also North America whether the strength in order intake gives you any potential to make a decision to further increase pricing through the year? And then second question, just on the order strength. Are you seeing any customer feedback to suggest there's already an impetus given higher fuel prices to replace trucks a little bit quicker? Or is that really still too early for you to see in conversations or certainly in the numbers? Karin Radstrom: Thanks for your question, Alex. I'll take the pricing one first. So on the MB side, it was slightly net price/cost negative. Actually, what we do see is that over the course of the year this will improve, and we expect a net positive price/cost impact on a Mercedes-Benz Truck segment level for the full year. In North America, obviously, tariff effects are significantly higher this year and our tariff surcharges are not compensating the tariff costs fully. And so we have a net negative price cost, and we do expect that to remain for the full year. However, we do see from a pricing perspective that pricing itself is improving. And we also do see that as we go into the year, looking at the good order momentum, potentially, there is also some room for improvement there. We are reviewing this every quarter when it comes to pricing and related also to tariff surcharges. You asked then also on the demand side in North America. So we do not really see so much of this that customers replace trucks earlier. We generally see that there is a renewal need in the market as there has been a very long freight recession ongoing in the third year now. I mentioned that freight rates have improved 20% since the start of the year and also over 20% year-over-year. So a significant improvement that is helping. We also do see that this is supported by capacity exiting the market and also really stronger requirements being followed up on English language proficiency of drivers, this non-domiciled CDL topic being tackled. And that is what is supporting now really the freight rates and results ultimately. On the demand side, we believe there's still potential for that to further pick up going forward. Marcus Poppe: Next question comes from Daniela Costa at Goldman Sachs. Daniela Costa: Actually, two questions. But starting out with the U.S. and with EPA, just wanted to get a little bit more clarity on like how your strategy to adapt for that is? I guess your order book might be significantly filled for '26. So maybe soon we'll be talking about filling '27. Have you decided what you're going to do with pricing there? And then I'll ask an unrelated one afterwards. Karin Radstrom: Daniela, Karin here. Yes, we are still waiting [Audio Gap] Marcus Poppe: Daniela, can you hear us? Daniela Costa: Only now. I think you went blank. Karin Radstrom: And do you hear me, Daniela? Daniela Costa: Yes. Karin Radstrom: Yes. So I was saying that EPA has confirmed that EPA 27 will come, but we still don't know exactly how warranty and some of the other legal topics will be playing in, which means it's still quite difficult to know how to set the pricing. However, we are, I think, very confident that we will have very competitive pricing and that we have a good technical solution to be compliant, which should help us very much going into '27. Daniela Costa: Thank you. And my second question was just more regarding how do you think about China strategy over the long run, just an update of where you stand there. We see some of the Chinese peers being a bit more active on exporting. We also see some of your peers talking about having a presence there to maybe leverage it outside of China. Just an update on where do you stand there? Karin Radstrom: Yes, I can take that one. So we have a joint venture in China with Foton called BFDA. We have been negotiating quite a long time on the way forward. And let me say, I was hopeful to solve it earlier. I think I said in our Capital Markets Day to come back at the beginning of the year. But we're still negotiating all options on the table. So I'll definitely come back as soon as there's something to tell. I think I'm learning that sometimes it's better not to stress to get to a solution, but to come out with a really good one in the end. In terms of Chinese competitors in various markets, of course, we know them. We see them. We have seen them for many years, but now they are in some markets pushing more. I think we've shown in the bus market, where they have been present even in Europe over the last 10 years, that we're able to fight back and to show very strong performance also against our Chinese peers. And I think you see it in the result of our bus business. So I believe the same goes for the truck side. We have to keep playing on our strength, bringing very good products, keeping close customer relations, and having a very good network to ensure the total cost of ownership and the uptime of our vehicles. Marcus Poppe: The next question comes from Michael Aspinall from Jefferies. Michael Aspinall: Just two. So one in North America. We heard that there were some pricing notices given to customers in the U.S. in March. Just wondering if those orders would be delivered in 2Q? Or would they more likely come through later in the year? Eva Scherer: Michael, you said some pricing that has been given to customers in March. Could you explain what you mean? Michael Aspinall: Yes. We just heard from some customers that some pricing notices came through in March. And I was wondering if pricing is a significant component in 2Q in North America for the margins, or if that would come through later, given when orders are taken. Eva Scherer: Yes. So as I said, I mean, obviously, with the good order situation, our ability also to look at tariff surcharges has improved a bit, but this is mainly relevant for orders in the second half of the year, not in Q2. Michael Aspinall: Got it. Yes. Cool. And then the other one, you announced the site of a new manufacturing plant in the Czech Republic, I believe it is. Can you just talk about how important it is in reaching that position to reduce freight costs in Europe in the years to come? Eva Scherer: Yes. It's in line with what we announced at our Capital Markets Day. So our aim is to have around 25 -- moving from 45% to 25% of our assembly capacity in Mercedes-Benz in Europe, and to bring cost down by EUR 3,000 per truck from that assembly plant. Marcus Poppe: The next question comes from Lewis Merrick from BNP Paribas. Lewis Merrick: I think last quarter, you spoke of reaching the top end of your guidance for North America was dependent on receiving favorable tariff treatment. Based on your earlier comments, is that no longer the case today? Eva Scherer: Yes, I alluded to it when I answered the question from Klas, Lewis, but happy to explain it a bit further to make it clear. So yes, we said that in the last quarter, but obviously, you also see now that our run rate is developing quite well. And already in the second quarter, with the volume effect of 50% higher unit sales, we expect to be at the upper end of our full-year guidance corridor. And so we still, for the full year, assume that we will get a better effective tariff rate, so a lower one, especially related to the 232 truck tariffs. However, the assumption that we have considered there is a more conservative one. I mean, as you can imagine, there are a lot of moving pieces on this, and we will know once we hear back from the U.S. administration. And this is where we are right now, and we'll keep you updated. Lewis Merrick: But it's fair to say that if you were to receive that favorable tariff treatment, you could see upside to that North America guidance? Eva Scherer: Maybe we'll discuss that in a couple of months once we have heard back from the U.S. administration. Lewis Merrick: Okay. And just one follow-up. On the price of the key inputs, whether it be energy, steel, aluminum, these all increased. Do you have an estimate of the total cost headwind you expect in 2026 from raw materials? Eva Scherer: Yes. So obviously, it's a very volatile situation, and I mentioned it also in the speech that we have to closely monitor the development in the Middle East, and the impact really depends on how long the current situation persists. Strait of Hormuz will be open again, and so on. But what we have done is we have taken some amount into our forecast and as a result, also into our guidance when it comes to include raw material costs, logistics costs, fuel costs, and so on. However, we have not considered the impact of potential supply chain disruptions, the potential implications on demand, because, as Karin also said, our orders are still developing well in Europe as well as in North America. So a prolonged situation in the Middle East that would prove to be challenging. That's something that we have not considered in our guidance. And of course, we have a risk scenario that we have evaluated as part of our opportunity and risk management that we always do. Marcus Poppe: The next question comes from Akshat Kacker from JPMorgan. Akshat Kacker: Akshat from JPMorgan. A couple of questions, please. The first one on order intake trend in Europe. Have you seen any slowdown or any changes to the strong order intake that you saw in Q1 in the month of April or the start of May, please? And the second one is on R&D spending. You talked about below trend R&D spend in the first quarter. Could you just remind us of your expectations for the full-year R&D spend, please? Karin Radstrom: I can take the first one, and then I hand the second one to Eva. So, on order intake in Europe, it stayed, I would say, quite strong also in April, maybe slightly down, but still on a good level. And then on R&D, just a second. Eva Scherer: Yes. R&D, I'll take over. So it was a bit lower in the ramp-up in quarter 1, but we still believe that we will have slightly higher R&D expenses over the course of the year compared to prior year. And as we have also previously explained, we really see R&D expenses peaking this year and next. Marcus Poppe: The next question comes from Harry Martin at Bernstein. Harry Martin: So the first question I have just about the ramp-up of volume in the North America business, 50% up Q2 versus Q1, but then also through the year. I wondered if there were any risks to this ramp-up? Do you have the staff for the lines of the suppliers that you have set up to match that speed? Or is there any risk to that volume expansion? Eva Scherer: Thanks, Harry, for your question. So we do have everything lined up, obviously, already for quarter 2. Our production program for quarter 2 is already fully booked. Q3 and Q4, we're filling up nicely. I would say that's an absolutely healthy seasonality that we see there. We're used to ramping up and down, and that's what we're also doing now. So I would say we're well prepared to match that speed with one caveat, which is obviously the situation in the Middle East that we have to watch out for. At the moment, we do not see any constraints there. But as I said, we have to monitor that very closely. Harry Martin: Great. And then I wondered if I could get an update on the autonomous business, the Torc Robotics status. I guess, both the current technology and where we are in the rollout, but also, there were headlines through last year about potentially opening about business outside capital. So I wondered if we could get an update there. Karin Radstrom: Sure. I can provide you with that. I would say the team continues to make good progress. We have a really important milestone at the end of the year to drive on-highway with the driver-out with our production intent hardware. So I think that's one of the strong benefits we see with Torc that we already have hardware that we're ready to scale, and not prototypes. We're still planning for an SOP in early 2028. And there's nothing that the team is doing that makes me doubt that, while for sure, you know it's uncertain when you deal with new technologies. We think we're in a strong position with the Freightliner Cascadia. It's the best autonomous chassis in the market, and we also feel that there is a lot of interest from competitors of Torc for that chassis. And also in that particular segment where we believe autonomous will start to scale, we have a very strong market share because it's with the big fleets on the highway where we have the Cascadia. In terms of how we will move on with the company, I think we're fully intent on funding that and making it a success, while for sure, we also always look for options for value creation. Marcus Poppe: Next question comes from Hemal Bhundia at UBS, please. Hemal Bhundia: One of your peers mentioned that the parts business was a bit softer than expected. I'm curious on how you're seeing your aftermarket business develop in Europe and North America, and I'll follow up with my next question after. Karin Radstrom: Yes. So on the service side, we saw a low single-digit growth year-over-year. We think we will improve over the course of the year. So I talked a lot about breaking the curve. I would say we have not yet broken the curve in terms of our service growth, but I think we have a lot of great initiatives in the pipeline. In the U.S., we're working with AI to improve pricing. We're opening up some new retail stores to better reach the second and third owners of our trucks, which is a segment where we've had relatively low market share. And then as already mentioned, in Europe, I mean we made just recent announcements, we opened on retail inland I think we announced yesterday or the day before that we bought a dealer group in the U.K. So we're establishing our first own retail in the U.K. And then as Eva mentioned, Halberstadt, which is currently a bit of a challenge with the ramp-up, as you can imagine, with 300,000 parts moving into 170 countries. But once we get that under control, which I think will happen over the next months, definitely, we are optimistic about the potential to grow the service business even more. Hemal Bhundia: Very fair. And I recall that you mentioned that there were some bottlenecks in the vocational side of the bodybuilders. Could you give an update on how this has developed? Karin Radstrom: Fairly stable, I would say. So we still see that. But generally, the vocational business is developing as we expected -- believe that we can see significant growth there in the next couple of years, also in market share. Marcus Poppe: So our last question comes from Frank Biller at Landesbank Baden-Wurttemberg. Frank Biller: So it's a question about zero-emission vehicles. Here, we saw strong deliveries here, book-to-bill ratio of 1.5 here. What is your expectation for the full year, given the higher diesel prices? Is it going steadily upwards? Or is it a bit more coming down because of the U.S. business here? And the other question is on this autonomous driving again. I've seen the cost went down to EUR 71 million compared to EUR 81 million in the quarter. Have we seen the peak already? Or will it go upwards with the start of production? Karin Radstrom: Frank, I can take the ZEV question. So actually, we don't see that diesel prices going up directly drives the adoption of zero-emission trucks. And the main reason being that infrastructure is still a bottleneck. So actually, we do see with some of our customers that the total cost of operation for electric trucks, depending on the use case, of course, is quite positive, especially for those who drive a lot on the Autobahn, where you also have the significant advantages from the mouth for an electric truck versus a diesel one. But due to the still very slow ramp-up of infrastructure, and it's actually both the public infrastructure along the highway, but also for customers who want to establish infrastructure at the depot, it takes too long with the permitting processes and getting the electric connection to the grid. So that's actually the main bottleneck, which is very unfortunate considering this would be an opportunity, really, where it should and could have taken off more. Eva Scherer: Yes. And on the cost ramp-up, no, we haven't seen the peak already. So it's a fairly stable development that we're expecting this year, also compared to last year, when we look at the full year ramp-up of costs. Marcus Poppe: That concludes the first part of this Q&A session for investors and analysts. I would now like to hand over to Andy Johnson for the second part, where all participants from the media can ask their questions. Now, as usual, IR remains at your disposal afterwards. Have a great day. Thank you, and goodbye. Over to you, Andy, please. Andrew Johnson: Thank you, Marcus, and welcome, everyone, to the media portion of our Q&A session today. Before we start our media Q&A session, some housekeeping remarks. As you probably have guessed by now, this call is conducted in English. So please be so kind to ask your questions in English as well. The operator will now explain the procedure for registering your questions. Operator: [Operator Instructions] Andrew Johnson: Thank you very much. We will now begin our media Q&A session. The operator will address the questioners by name. Please be so kind to also briefly unmute yourself with your full name and your media advert. Take your time, and please ask your question slowly and clearly. And with that, operator, let's go with our first question. Operator: The first question comes from Robin Willer from DPA Deutsche Presse-Agentur. Unknown Analyst: This is Robin Willer from DPA Deutsche Presse-Agentur. Hope you can hear me. In your press release, you state that the financial results were primarily impacted by lower profitability at Trucks North America. Could you please explain this in more detail? I mean, what were the main factors here? And can you quantify them precisely, for example, how significant was the headwind caused by the tariffs? And what factors outside of North America influenced net profit, looking at the loss on equity method investments? Could you also please explain that? Eva Scherer: Robin, Eva here. Thank you for your questions. So the important thing about North America is that it was really the lowest volume quarter that we have seen since 2010. So this was really a historic low, so a significant volume effect in there. And in addition to that, we have the highest tariff effect in quarter 1 that we have seen so far because the 232 truck tariffs are fully considered there. In quarter 4, it was only two out of three month. And so the overall tariff effect, including all tariffs, reached a low triple-digit million amount, just to give you some idea here. And then we had an adjusted effect, which you also see in our numbers, that was EUR 200 million for a partial impairment of our stake in Amplify Cell Technologies. Karin mentioned that in her speech. So there, we have decided together with our joint venture partners that, considering the environment in North America concerning zero-emission vehicles, we will delay the buildup of manufacturing capacity in that joint venture. It's a battery cell manufacturing joint venture, and that caused, based on IFRS accounting requirement, a partial impairment of our book value. However, we will have a positive free cash flow effect out of this because we did consider in our initial planning a low triple-digit million amount in cash. Injections into this joint venture, which we do not expect anymore and that then also brings us to the upper end of our guidance corridor for the full year when it comes to free cash flow. Operator: The next question comes from Ilona Wissenbach from Thomson Reuters. Ilona Wissenbach: So, Ilona Wisenbach from Thomson Reuters. I didn't get it now, Eva. Was this low 3-digit million amount tariff effect only for the first quarter? Or was it for the full year? That's one question and another one after that. Eva Scherer: Yes. The first one is, it was only for the first quarter. Ilona Wissenbach: Okay. And how is it for the full year? Is it not -- able to calculate? Eva Scherer: No, this is what we pay now. But then, as I also said during the speech, we have applied for a lower -- or for a relief under the U.S. content program. And there, we do then expect a reduction of the effective tariff rate that we pay under the Section 232 for the truck tariffs. So that is where we do believe in the second half of the year that there will be a reduction, but we cannot quantify it yet because we have applied for that relief with the U.S. administration, but we have not heard back. Ilona Wissenbach: So quarter 1 and quarter 2... Eva Scherer: Sorry. Ilona Wissenbach: And the latest announcement of President Trump, do you think it changes anything, because the 25% apply anyway already to trucks? Eva Scherer: Yes. So I mean, generally, we do not ship assembled trucks from Germany into the U.S., and that's our current understanding of this new tariff rate that was announced on May 1. But obviously, we continue to evaluate the changes in the tariff framework. Ilona Wissenbach: Okay. And the second question was about the zero-emission trucks in the U.S. You see that the market there is more difficult. And I wonder why you support actively the legal action of the Trump administration against the climate change rules. I think you faced criticism for that also today at the Annual Shareholder Meeting. I mean, adjusting to a weak market is one thing, but actively supporting to stop selling zero-emission trucks is another thing, and I don't understand it. Karin Radstrom: Yes, I can do this one. So it's absolutely not to be interpreted like we are against zero-emission trucks in the U.S., and the challenge we have is that California has one legislation when it comes to zero-emission trucks. And this has been challenged by the federal legislation because they are saying that the California legislation is not right or not valid. And therefore, it's more of a technical step that we are suing to understand which legislation we are to be following in the Californian market. So its -- that's the explanation on that. In terms of zero-emission trucking in the U.S., I think we can say with confidence that we have been very committed. We had started a group-wide battery platform project to be able to scale zero-emission trucks in the U.S. However, with the change in legislation and now I'm back on the federal level, a lot of environmental legislation was -- pulled back, which we had anticipated, which means there is no demand for zero-emission trucks in the U.S. at the moment because the customers simply cannot make the costs come together to be competitive with diesel. And for that reason, we had to announce last year that we stopped our platform project, which we had started. So that's the background on that topic. Andrew Johnson: All right. That looks like it for our media questions today. Thank you, Robin and Ilona, for your questions. Everybody else joining us, thank you very much for joining us today. Thank you, Karin and Eva, as well. Now, as always, the IR and communications team remains at your disposal to answer any further questions you might have. So please don't feel or don't hesitate to reach out to us. A recording of the session will be available later today on our Daimler Truck website. We are looking forward to staying with you in contact with you today, and have a great day. Stay healthy. Thank you, and goodbye.
Marcus Poppe: Good morning, ladies and gentlemen. This is Marcus Poppe speaking. On behalf of Daimler Truck, I would like to welcome you to our Q1 results global conference call. We are very happy to have you with us today, Karin Radstrom, our CEO, and Eva Scherer, our CFO. Karin [indiscernible] introduction directly followed by a Q&A session. The respective presentation can be found on the Daimler Truck Investor Relations website. Please note that this conference call will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of Daimler Truck website. I would like to remind you that this teleconference is governed by the safe harbor wording you will find on our published results documents. Please note, our presentation contains forward-looking statements that reflects management current views with respect to future events. Such statements are subject and uncertainties. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. Before we start, let me give you a quick reminder. Following the signing of Definitive Agreements in June 2025 with a target to integrate Mitsubishi Fuso and Hino into ARCHION Holding company, the Mitsubishi Fuso subgroup was reclassified as discontinued operations and assets and liabilities held for sale starting in Q2 2025. Effective January 1, 2026, the Trucks Asia segment was no longer reported separately. And for capital market communication, we focus on continuing operations for business development, unit sales and profitability. Our investment research activities as well as free cash flow and liquidity are presented on a combined basis, including both continuing and discontinued operations. With closing on April 1, 2026, our shares in the Mitsubishi Fuso subgroup were transferred into shares in ARCHION and as a result, are reported as an at equity participation from Q2 onwards. With that, let's jump into the results. Karin and Eva will walk you through how the first quarter came together. And after that, we'll be open things up for analyst questions followed by the media. So Karin, please, over to you. Karin Radstrom: Thanks, Marcus, and good morning also from my side. As you may have seen, we had a first quarter which was on the soft side with low volumes in North America and continued tariff impacts. At the same time, we are seeing really strong order intake and remain very confident as we look ahead for the remainder of the year. So, with that, let me have a look at the key figures for the quarter. For the group, we generated EUR 10 billion in revenue with an adjusted EBIT of around EUR 500 million and a net profit of EUR 149 million. Our balance sheet remains strong with net industrial liquidity of EUR 7.1 billion. Furthermore, we continue to deliver on our strategy to become a more profitable and a more focused company with three topics to mention. Firstly, with the completion of the integration of Mitsubishi Fuso and Hino Motors into the newly established ARCHION Corporation on April 1, we enabled that new company to unlock synergies, benefit from scale across products, technologies and operations. As communicated, we will gradually reduce our ownership to 25%, generating a total cash inflow from the transaction between EUR 1.5 billion and EUR 2.0 billion. Within the next 12 months, we expect the free float to reach at least 35%, which is an important prerequisite for a prime market listing in Japan. Secondly, in addition, we announced in March that Toyota intends to join cellcentric as an equal shareholder alongside Daimler Truck and Volvo Group. This represents a meaningful step forward for hydrogen technology. It brings together three global industry leaders with complementary strengths and improves our ability to accelerate innovation and scale fuel cell systems. This partnership underscores our strong confidence in hydrogen as a core pillar of zero-emission transportation, while at the same time, we maintain a disciplined approach to efficient capital allocation. Thirdly, given the current conditions in the electric commercial vehicle market in North America, we're adjusting our spending accordingly. We agreed with our Amplify Cell Technologies joint venture partners to defer the installation of manufacturing capacity. Limited construction will continue to ensure that joint venture remains well positioned for the future while maintaining flexibility as the market [indiscernible]. Due to the delay of production start and ramp-up, we recorded a noncash partial impairment of EUR 200 million in equity result from Amplify in accordance with IFRS rules, which is reported as an adjusting item within EBIT. We had originally planned a contribution to the joint venture in a low triple-digit million range this year. So overall, we will see a positive cash flow impact. Continuing with the look at the Industrial Business, revenue came down 14% year-over-year to EUR 9.1 billion and adjusted EBIT was down 55% to EUR 460 million. The primary reasons for the decline was the lower profitability at Trucks North America, where we saw very low unit sales along with significant tariff headwinds. We continued managing our overall cost base effectively and further reduced SG&A expenses. Research and development investments were also lower in the first quarter, but we expect higher spending for the remainder of the year. Now to the orders. Incoming orders -- which rose by 50% to 114,000 units shows that we have a great momentum with our products. Feedback, especially on our Actros L with the ProCabin remains very positive. At the same time, unit sales were down 9%, totaling around 69,000 units for quarter 1, resulting in a book-to-bill of 166%. Overall, cancellation rates remain low even with the heightened economic uncertainty related to the Middle East conflict. Turning to our zero-emission portfolio. We sold around 700 battery electric trucks and buses in the first quarter, up by 26%. In North America, the Class 8 market totaled 50,000 units in the first quarter of 2026, representing a 23% year-over-year decline, reflecting historically low order demand in 2025 and in line with our expectation of a slow start in 2026. Our market share stood at 37.7%, making us again the clear market leader. Based on our strong order share, we expect our market share to improve as the year progresses. In Europe, the heavy-duty market expanded by 11% to approximately 80,000 units, largely driven by Poland, the Netherlands, Spain and Germany. Against this backdrop, our heavy-duty market share increased a lot from 14.2% in quarter 1, 2025 to 18.3% in quarter 1, 2026, reflecting the strength of our competitive product portfolio and the successful launch of the Actros L at the beginning of 2025. As a result, we further reinforced our leadership position in Europe's medium- and heavy-duty segments, achieving an overall market share of 18.5%. In zero-emission vehicles, we led the market again, capturing 33% of the European heavy-duty segment in the first quarter of 2026. While the overall adoption in Europe is still low at around 2% of truck registrations, this underlines our strong competitive position as the transition continues. I'll now hand over to Eva, who will walk us through the segments. Eva Scherer: Thanks, Karin. As you mentioned, market conditions varied across regions. So let's start with a closer look at what it all meant for Trucks North America. At Trucks North America, revenue came down 29% year-over-year to around EUR 3.8 billion, following a historically low demand environment in 2025. Excluding a negative foreign exchange impact of roughly EUR 450 million, revenue was lower by 21%. Adjusted EBIT came in at EUR 209 million, leading to an adjusted return on sales of 5.4%. Unit sales fell 25% to the lowest first quarter level since 2010. Positive pricing and disciplined cost management helped mitigate the impact but could not fully offset substantial tariff headwinds and the pronounced volume decline. With an order intake of over 59,000 units, up 86% year-over year and 13% sequentially, our growing backlog gives us confidence for the remainder of the year. The overall industry is showing discipline, and our customers are replacing their aging fleets despite continued macroeconomic uncertainty and higher fuel costs. Freight rates have improved by more than 20% year-over-year as freight capacity has exited the market. We are now seeing the full impact from Section 232 truck tariffs, resulting in a combined low triple-digit million-euro net tariff impact in the first quarter. Our application under the U.S. content program and the review of MSRP credits are still pending with no confirmed impact on the effective rate at this time. Despite these factors, performance remains very solid and demonstrates resilience. Mercedes-Benz Trucks generated revenue of EUR 4.6 billion, a 4% increase year-over-year with an adjusted EBIT of EUR 233 million, resulting in an adjusted return on sales of 5.1%. Order intake was strong, reaching around 49,000 units, representing a 33% increase compared to quarter 1 2025 and 4% sequentially. In Europe, profitability benefited from a strong sales performance and the strict implementation of cost-down Europe measures. This was partly offset by duplicate aftersales operation costs related to the ramp-up of the global parts center in Halberstadt, along with slightly negative net pricing. Moreover, the prior year quarter benefited from a mid-double-digit onetime warranty effect. In Latin America, volumes increased slightly, driven by strength in Chile, Colombia and Peru and market share gains in the medium-duty market in Brazil. Profitability declined year-over-year, driven by a more challenging market conditions in Argentina. In India, volumes increased strongly in line with the market, supported by favorable mix. Revenue of Daimler Buses was at EUR 1.2 billion, a 7% decline year-over-year with adjusted EBIT of EUR 107 million and a strong adjusted return on sales of 8.6%. Order intake reached around 5,900 units, representing a 25% decrease compared to quarter 1 2025, driven by the weaker markets in Latin America. However, still resulting in a book-to-bill ratio of 119%. The strong European business keeps its positive momentum. Unit sales declined by 20%, mainly due to a weak market environment in Latin America and Mexico, where we primarily sell bus chassis. At the same time, our higher-margin integral bus business in Europe slightly increased year-over-year. Even with strong performance in Europe, positive pricing and FX support, we could not fully offset the volume decline in the chassis business. However, despite lower volumes, we delivered a strong profitability, highlighting the improved resilience of the bus business. Adjusted EBIT for Financial Services decreased year-over-year from EUR 55 million to EUR 39 million, driven by higher loss allowances and foreign exchange headwinds. As a result, adjusted return on equity decreased from 7.3% to 5.1% in the first quarter. A prolonged freight recession in North America, tariff-related impacts and increased fuel prices due to the Middle East conflict have continued to weigh on customer cash flow. As a result, a growing numbers of customers are experiencing tighter liquidity in their business, also in Brazil and Mexico, which has translated into higher cost of risk as we are taking a prudent approach to provisioning. In North America, it will take time for higher freight rates to improve fleet margins that have been severely diminished after years of market downturn. Moreover, we are not adjusting for costs resulting from our ongoing restructuring initiatives to position our Financial Services business for improved returns in the future. Free cash flow of the Industrial Business of around negative EUR 400 million was significantly lower than in the previous year, mainly driven by lower earnings and additional inventory buildup due to higher order intake. This was partly compensated by higher prepayments received from customers, increased trade payables and lower income tax payments. At the same time, our balance sheet remained very strong. Net industrial liquidity at EUR 7.1 billion after deducting the negative free cash flow and a cash outflow of around EUR 50 million resulting from the share buyback program we initiated on March 16th. Now turning to our guidance. To date, we have only seen a limited impact of the Middle East conflict on truck demand and global supply chains. However, further developments will largely depend on the duration of the conflict and are likely to vary in severity across regions. The longer this situation remains unresolved and oil prices remain elevated, the higher the likelihood of inflationary cost pressures, supply chain disruptions and softer truck demand. As of today, macroeconomic leading indicators point to a more resilient outlook in North America compared with a more cautious sentiment in Europe. As always, our guidance does not factor in potential impacts from supply chain disruptions or adverse macroeconomic developments, particularly those related to the Middle East conflict. It also assumes that the current USMCA tariff framework remain in place. We continue to expect the North American heavy-duty market to land between -- 250,000 and 290,000 units with a pickup in the second half of the year supported by replacement demand. For the EU30 market, we expect a range of 290,000 and 330,000 units. All segment level guidance KPIs for 2026 remain unchanged. For Trucks North America in quarter 2, we expect unit sales to be around 50% above first quarter levels, with profitability at the upper end of the full year guidance corridor. This does not consider a reduction in tariff exposure in the second quarter. Based on our strong order intake and our expectation of a lower effective tariff rate under the U.S. content program in the second half of the year, we expect to deliver a full year return on sales adjusted at the upper end of our 6% to 8% guidance corridor. For Mercedes-Benz Trucks, we expect group sales to increase sequentially by around 15% in the second quarter, in line with further market improvement in Europe. Profitability is forecasted at the lower half of the guidance corridor. For the full year, we confirm our 6% to 8% return on sales corridor with a strong improvement expected in the second half of the year. For Daimler Buses, sales are expected to be around 30% above quarter 1, and profitability is expected to be at the upper end of the guidance corridor. We also confirm our full year guidance corridor of 8% to 10% return on sales. Taking into account lower cash contributions to Amplify Cell Technologies, we expect to be at the upper end of our full year free cash flow guidance and forecast a strong recovery already in the second quarter. Marcus Poppe: Thank you very much, Eva. Thank you very much, Karin. So that concludes our presentation for quarter 1 results. Now it's time to move into the Q&A portion of today's call. As usual, we will start with questions from analysts, then move on to the media. Both sessions will be recorded and made available on request. Operator: Good morning, ladies and gentlemen, and welcome to the Q&A part of today's Q1 results global conference call. [Operator Instructions] Marcus Poppe: So good morning. I think we start with Nicolai Kempf from Deutsche Bank. Nicolai Kempf: It's Nicolai from Deutsche Bank. Slow start in Q1, but well flagged, and we appreciate the comments on Q2. If we start in North America, very strong orders in Q1 that seemed to slow down a bit in April. And have you any color on that? Was this because of lead times getting longer? Was a bit of slowdown because of the higher diesel prices? So any color on this would be appreciated. And then moving to Mercedes and maybe to Europe, you've mentioned a bit more cautious indicators on the macro side. Can you just remind us what are the moving parts here going forward? And why is Mercedes going to improve in H2? Karin Radstrom: Thanks, Nikolai. Karin here. Maybe starting with North America. As you said, very strong order intake in Q1, I think, at 86%, better quarter 1 compared to last year. And in terms of April order intake, it was a bit more stable from -- moving on from March, but we're happy with the order intake in April. In terms of Europe, as we move into Q1, we also see an improvement on the volume side. So that should help to boost the result of the Mercedes-Benz Truck segment for Q2. Eva, anything -- otherwise. Eva Scherer: Yes. I think maybe I'll shed some light on Mercedes. Overall, explaining a bit further on quarter 1 and then also how you can expect the year to develop. So I mean, just to recap a little bit also what we went through during the speech. So we saw a 4% increase in revenue for MB year-over-year. We saw that order intake was strong. And as anticipated, as you said, slower start into the year. And we do see that we have profitability in Europe moving in the right direction. This is supported by cost down Europe and also improving volumes, which will then also be a factor coming into quarter 2. Now in quarter 1, we did have temporary cost headwinds. I mentioned it, operational ramp-up of our spare parts distribution center in Halberstadt and some slightly net negative price/cost impact. What we also saw in quarter 1 in MB that we had some temporary inefficiency in our industrial setup related to the relocation of the Atego cabin production, so medium duty to Turkey, and that resulted in additional rework costs as we ramp that up. But this is something in the next quarters that will get better. And then we see, as I mentioned also in the speech just now, we had a lower profit contribution from Latin America here, Argentina being the main factor. And when we look at this now coming into quarter 2, we see that it will gradually ramp up into the second half of the year. You saw that we're guiding for Q2 in the lower half of our full year guidance corridor for Mercedes-Benz Trucks, but then you will have higher volumes come out and also some of these headwinds easing over the second half of the year, and we're very comfortable with our full year guidance corridor. Marcus Poppe: So next question comes from Klas Bergelind, Citi, please. Klas Bergelind: So can I just confirm on the margin guidance here for North America at the upper end in the second quarter. This doesn't include any benefits from MSRP or the preferential tariff agreement. So this is mainly the higher operating leverage quarter-on-quarter and a better mix from Cascadia. And linked to this, given the solid margin here for the second quarter, it seems like you can reach [indiscernible] the higher end of the range of 6% to 8% for the year without these tariff benefits, at least on my math, with the tariff benefits coming on top. Is that how to think about it? Eva Scherer: Klas, thanks for your question. Obviously, a very good one and not unexpected. So you're right, based on what you concluded that quarter 2, and I said it also just now, there -- is no reduction of the effective tariff rate considered in quarter 2. So it's really the run rate that were coming out of quarter 1 that will also then translate into the quarter 2 profitability. We have a significant volume effect coming in with 50% higher unit sales. And then obviously, that brings us to the upper end of the full year guidance corridor in quarter 2. Now when it comes to the lower effective tariff rate that we believe we can get under the U.S. content program and then also MSRP credits. Maybe the first one for lower effective tariff rate. We have not received confirmation there. But we're still confident that we will get a relief there. But first of all, we are not exactly sure how long it would take. And then we have to see based on our application, what will be accepted. So that's a bit unpredictable. But what you can say is that the assumption in our full year guidance is quite conservative for a tariff relief because we're being cautious there. And on MSRP, I said last time that we had considered a mid-double-digit million amount for this in this year. We have taken it out now. We still believe we will get it, but it could take a bit longer because we see that it's moving very slowly. We still don't have the calculation method, so we couldn't even apply for any credits there for the U.S. assembly. And so there, this could move into next year. So generally a bit more conservative assumptions there on the tariff side. And as you did the math, we're trending quite well there when it comes to profitability based on run rate. Klas Bergelind: Very good. My second one is on Mercedes-Benz and the orders. We had this move incentive in Brazil, which has seen truck orders surge. I'm trying to understand how much of this is the better orders that you delivered? How much is driven by the Brazil incentives that we understand will start to roll over after May versus the European better momentum, Actros L, et cetera. Just so we understand how much we need to give back from the Mercedes-Benz better orders into the second half? Karin Radstrom: Klas, Karin here. I can take that one. So actually, we have a little bit different structure from some of our competitors in Brazil as we're a full liner, and we deliver both the extra heavy, semi-heavy and the medium-duty segment. So actually, if you look on our order intake in Brazil, it has remained rather stable quarter-to-quarter. And the growth that we are seeing is coming very much out of Europe and some of it also from India. Marcus Poppe: Next question comes from Alex Jones from Bank of America. Alexander Jones: Maybe first on pricing. If you could comment on what you're seeing particularly in Europe, where you cited negative pricing this quarter and also North America whether the strength in order intake gives you any potential to make a decision to further increase pricing through the year? And then second question, just on the order strength. Are you seeing any customer feedback to suggest there's already an impetus given higher fuel prices to replace trucks a little bit quicker? Or is that really still too early for you to see in conversations or certainly in the numbers? Karin Radstrom: Thanks for your question, Alex. I'll take the pricing one first. So on the MB side, it was slightly net price/cost negative. Actually, what we do see is that over the course of the year this will improve, and we expect a net positive price/cost impact on a Mercedes-Benz Truck segment level for the full year. In North America, obviously, tariff effects are significantly higher this year and our tariff surcharges are not compensating the tariff costs fully. And so we have a net negative price cost, and we do expect that to remain for the full year. However, we do see from a pricing perspective that pricing itself is improving. And we also do see that as we go into the year, looking at the good order momentum, potentially, there is also some room for improvement there. We are reviewing this every quarter when it comes to pricing and related also to tariff surcharges. You asked then also on the demand side in North America. So we do not really see so much of this that customers replace trucks earlier. We generally see that there is a renewal need in the market as there has been a very long freight recession ongoing in the third year now. I mentioned that freight rates have improved 20% since the start of the year and also over 20% year-over-year. So a significant improvement that is helping. We also do see that this is supported by capacity exiting the market and also really stronger requirements being followed up on English language proficiency of drivers, this non-domiciled CDL topic being tackled. And that is what is supporting now really the freight rates and results ultimately. On the demand side, we believe there's still potential for that to further pick up going forward. Marcus Poppe: Next question comes from Daniela Costa at Goldman Sachs. Daniela Costa: Actually, two questions. But starting out with the U.S. and with EPA, just wanted to get a little bit more clarity on like how your strategy to adapt for that is? I guess your order book might be significantly filled for '26. So maybe soon we'll be talking about filling '27. Have you decided what you're going to do with pricing there? And then I'll ask an unrelated one afterwards. Karin Radstrom: Daniela, Karin here. Yes, we are still waiting [Audio Gap] Marcus Poppe: Daniela, can you hear us? Daniela Costa: Only now. I think you went blank. Karin Radstrom: And do you hear me, Daniela? Daniela Costa: Yes. Karin Radstrom: Yes. So I was saying that EPA has confirmed that EPA 27 will come, but we still don't know exactly how warranty and some of the other legal topics will be playing in, which means it's still quite difficult to know how to set the pricing. However, we are, I think, very confident that we will have very competitive pricing and that we have a good technical solution to be compliant, which should help us very much going into '27. Daniela Costa: Thank you. And my second question was just more regarding how do you think about China strategy over the long run, just an update of where you stand there. We see some of the Chinese peers being a bit more active on exporting. We also see some of your peers talking about having a presence there to maybe leverage it outside of China. Just an update on where do you stand there? Karin Radstrom: Yes, I can take that one. So we have a joint venture in China with Foton called BFDA. We have been negotiating quite a long time on the way forward. And let me say, I was hopeful to solve it earlier. I think I said in our Capital Markets Day to come back at the beginning of the year. But we're still negotiating all options on the table. So I'll definitely come back as soon as there's something to tell. I think I'm learning that sometimes it's better not to stress to get to a solution, but to come out with a really good one in the end. In terms of Chinese competitors in various markets, of course, we know them. We see them. We have seen them for many years, but now they are in some markets pushing more. I think we've shown in the bus market, where they have been present even in Europe over the last 10 years, that we're able to fight back and to show very strong performance also against our Chinese peers. And I think you see it in the result of our bus business. So I believe the same goes for the truck side. We have to keep playing on our strength, bringing very good products, keeping close customer relations, and having a very good network to ensure the total cost of ownership and the uptime of our vehicles. Marcus Poppe: The next question comes from Michael Aspinall from Jefferies. Michael Aspinall: Just two. So one in North America. We heard that there were some pricing notices given to customers in the U.S. in March. Just wondering if those orders would be delivered in 2Q? Or would they more likely come through later in the year? Eva Scherer: Michael, you said some pricing that has been given to customers in March. Could you explain what you mean? Michael Aspinall: Yes. We just heard from some customers that some pricing notices came through in March. And I was wondering if pricing is a significant component in 2Q in North America for the margins, or if that would come through later, given when orders are taken. Eva Scherer: Yes. So as I said, I mean, obviously, with the good order situation, our ability also to look at tariff surcharges has improved a bit, but this is mainly relevant for orders in the second half of the year, not in Q2. Michael Aspinall: Got it. Yes. Cool. And then the other one, you announced the site of a new manufacturing plant in the Czech Republic, I believe it is. Can you just talk about how important it is in reaching that position to reduce freight costs in Europe in the years to come? Eva Scherer: Yes. It's in line with what we announced at our Capital Markets Day. So our aim is to have around 25 -- moving from 45% to 25% of our assembly capacity in Mercedes-Benz in Europe, and to bring cost down by EUR 3,000 per truck from that assembly plant. Marcus Poppe: The next question comes from Lewis Merrick from BNP Paribas. Lewis Merrick: I think last quarter, you spoke of reaching the top end of your guidance for North America was dependent on receiving favorable tariff treatment. Based on your earlier comments, is that no longer the case today? Eva Scherer: Yes, I alluded to it when I answered the question from Klas, Lewis, but happy to explain it a bit further to make it clear. So yes, we said that in the last quarter, but obviously, you also see now that our run rate is developing quite well. And already in the second quarter, with the volume effect of 50% higher unit sales, we expect to be at the upper end of our full-year guidance corridor. And so we still, for the full year, assume that we will get a better effective tariff rate, so a lower one, especially related to the 232 truck tariffs. However, the assumption that we have considered there is a more conservative one. I mean, as you can imagine, there are a lot of moving pieces on this, and we will know once we hear back from the U.S. administration. And this is where we are right now, and we'll keep you updated. Lewis Merrick: But it's fair to say that if you were to receive that favorable tariff treatment, you could see upside to that North America guidance? Eva Scherer: Maybe we'll discuss that in a couple of months once we have heard back from the U.S. administration. Lewis Merrick: Okay. And just one follow-up. On the price of the key inputs, whether it be energy, steel, aluminum, these all increased. Do you have an estimate of the total cost headwind you expect in 2026 from raw materials? Eva Scherer: Yes. So obviously, it's a very volatile situation, and I mentioned it also in the speech that we have to closely monitor the development in the Middle East, and the impact really depends on how long the current situation persists. Strait of Hormuz will be open again, and so on. But what we have done is we have taken some amount into our forecast and as a result, also into our guidance when it comes to include raw material costs, logistics costs, fuel costs, and so on. However, we have not considered the impact of potential supply chain disruptions, the potential implications on demand, because, as Karin also said, our orders are still developing well in Europe as well as in North America. So a prolonged situation in the Middle East that would prove to be challenging. That's something that we have not considered in our guidance. And of course, we have a risk scenario that we have evaluated as part of our opportunity and risk management that we always do. Marcus Poppe: The next question comes from Akshat Kacker from JPMorgan. Akshat Kacker: Akshat from JPMorgan. A couple of questions, please. The first one on order intake trend in Europe. Have you seen any slowdown or any changes to the strong order intake that you saw in Q1 in the month of April or the start of May, please? And the second one is on R&D spending. You talked about below trend R&D spend in the first quarter. Could you just remind us of your expectations for the full-year R&D spend, please? Karin Radstrom: I can take the first one, and then I hand the second one to Eva. So, on order intake in Europe, it stayed, I would say, quite strong also in April, maybe slightly down, but still on a good level. And then on R&D, just a second. Eva Scherer: Yes. R&D, I'll take over. So it was a bit lower in the ramp-up in quarter 1, but we still believe that we will have slightly higher R&D expenses over the course of the year compared to prior year. And as we have also previously explained, we really see R&D expenses peaking this year and next. Marcus Poppe: The next question comes from Harry Martin at Bernstein. Harry Martin: So the first question I have just about the ramp-up of volume in the North America business, 50% up Q2 versus Q1, but then also through the year. I wondered if there were any risks to this ramp-up? Do you have the staff for the lines of the suppliers that you have set up to match that speed? Or is there any risk to that volume expansion? Eva Scherer: Thanks, Harry, for your question. So we do have everything lined up, obviously, already for quarter 2. Our production program for quarter 2 is already fully booked. Q3 and Q4, we're filling up nicely. I would say that's an absolutely healthy seasonality that we see there. We're used to ramping up and down, and that's what we're also doing now. So I would say we're well prepared to match that speed with one caveat, which is obviously the situation in the Middle East that we have to watch out for. At the moment, we do not see any constraints there. But as I said, we have to monitor that very closely. Harry Martin: Great. And then I wondered if I could get an update on the autonomous business, the Torc Robotics status. I guess, both the current technology and where we are in the rollout, but also, there were headlines through last year about potentially opening about business outside capital. So I wondered if we could get an update there. Karin Radstrom: Sure. I can provide you with that. I would say the team continues to make good progress. We have a really important milestone at the end of the year to drive on-highway with the driver-out with our production intent hardware. So I think that's one of the strong benefits we see with Torc that we already have hardware that we're ready to scale, and not prototypes. We're still planning for an SOP in early 2028. And there's nothing that the team is doing that makes me doubt that, while for sure, you know it's uncertain when you deal with new technologies. We think we're in a strong position with the Freightliner Cascadia. It's the best autonomous chassis in the market, and we also feel that there is a lot of interest from competitors of Torc for that chassis. And also in that particular segment where we believe autonomous will start to scale, we have a very strong market share because it's with the big fleets on the highway where we have the Cascadia. In terms of how we will move on with the company, I think we're fully intent on funding that and making it a success, while for sure, we also always look for options for value creation. Marcus Poppe: Next question comes from Hemal Bhundia at UBS, please. Hemal Bhundia: One of your peers mentioned that the parts business was a bit softer than expected. I'm curious on how you're seeing your aftermarket business develop in Europe and North America, and I'll follow up with my next question after. Karin Radstrom: Yes. So on the service side, we saw a low single-digit growth year-over-year. We think we will improve over the course of the year. So I talked a lot about breaking the curve. I would say we have not yet broken the curve in terms of our service growth, but I think we have a lot of great initiatives in the pipeline. In the U.S., we're working with AI to improve pricing. We're opening up some new retail stores to better reach the second and third owners of our trucks, which is a segment where we've had relatively low market share. And then as already mentioned, in Europe, I mean we made just recent announcements, we opened on retail inland I think we announced yesterday or the day before that we bought a dealer group in the U.K. So we're establishing our first own retail in the U.K. And then as Eva mentioned, Halberstadt, which is currently a bit of a challenge with the ramp-up, as you can imagine, with 300,000 parts moving into 170 countries. But once we get that under control, which I think will happen over the next months, definitely, we are optimistic about the potential to grow the service business even more. Hemal Bhundia: Very fair. And I recall that you mentioned that there were some bottlenecks in the vocational side of the bodybuilders. Could you give an update on how this has developed? Karin Radstrom: Fairly stable, I would say. So we still see that. But generally, the vocational business is developing as we expected -- believe that we can see significant growth there in the next couple of years, also in market share. Marcus Poppe: So our last question comes from Frank Biller at Landesbank Baden-Wurttemberg. Frank Biller: So it's a question about zero-emission vehicles. Here, we saw strong deliveries here, book-to-bill ratio of 1.5 here. What is your expectation for the full year, given the higher diesel prices? Is it going steadily upwards? Or is it a bit more coming down because of the U.S. business here? And the other question is on this autonomous driving again. I've seen the cost went down to EUR 71 million compared to EUR 81 million in the quarter. Have we seen the peak already? Or will it go upwards with the start of production? Karin Radstrom: Frank, I can take the ZEV question. So actually, we don't see that diesel prices going up directly drives the adoption of zero-emission trucks. And the main reason being that infrastructure is still a bottleneck. So actually, we do see with some of our customers that the total cost of operation for electric trucks, depending on the use case, of course, is quite positive, especially for those who drive a lot on the Autobahn, where you also have the significant advantages from the mouth for an electric truck versus a diesel one. But due to the still very slow ramp-up of infrastructure, and it's actually both the public infrastructure along the highway, but also for customers who want to establish infrastructure at the depot, it takes too long with the permitting processes and getting the electric connection to the grid. So that's actually the main bottleneck, which is very unfortunate considering this would be an opportunity, really, where it should and could have taken off more. Eva Scherer: Yes. And on the cost ramp-up, no, we haven't seen the peak already. So it's a fairly stable development that we're expecting this year, also compared to last year, when we look at the full year ramp-up of costs. Marcus Poppe: That concludes the first part of this Q&A session for investors and analysts. I would now like to hand over to Andy Johnson for the second part, where all participants from the media can ask their questions. Now, as usual, IR remains at your disposal afterwards. Have a great day. Thank you, and goodbye. Over to you, Andy, please. Andrew Johnson: Thank you, Marcus, and welcome, everyone, to the media portion of our Q&A session today. Before we start our media Q&A session, some housekeeping remarks. As you probably have guessed by now, this call is conducted in English. So please be so kind to ask your questions in English as well. The operator will now explain the procedure for registering your questions. Operator: [Operator Instructions] Andrew Johnson: Thank you very much. We will now begin our media Q&A session. The operator will address the questioners by name. Please be so kind to also briefly unmute yourself with your full name and your media advert. Take your time, and please ask your question slowly and clearly. And with that, operator, let's go with our first question. Operator: The first question comes from Robin Willer from DPA Deutsche Presse-Agentur. Unknown Analyst: This is Robin Willer from DPA Deutsche Presse-Agentur. Hope you can hear me. In your press release, you state that the financial results were primarily impacted by lower profitability at Trucks North America. Could you please explain this in more detail? I mean, what were the main factors here? And can you quantify them precisely, for example, how significant was the headwind caused by the tariffs? And what factors outside of North America influenced net profit, looking at the loss on equity method investments? Could you also please explain that? Eva Scherer: Robin, Eva here. Thank you for your questions. So the important thing about North America is that it was really the lowest volume quarter that we have seen since 2010. So this was really a historic low, so a significant volume effect in there. And in addition to that, we have the highest tariff effect in quarter 1 that we have seen so far because the 232 truck tariffs are fully considered there. In quarter 4, it was only two out of three month. And so the overall tariff effect, including all tariffs, reached a low triple-digit million amount, just to give you some idea here. And then we had an adjusted effect, which you also see in our numbers, that was EUR 200 million for a partial impairment of our stake in Amplify Cell Technologies. Karin mentioned that in her speech. So there, we have decided together with our joint venture partners that, considering the environment in North America concerning zero-emission vehicles, we will delay the buildup of manufacturing capacity in that joint venture. It's a battery cell manufacturing joint venture, and that caused, based on IFRS accounting requirement, a partial impairment of our book value. However, we will have a positive free cash flow effect out of this because we did consider in our initial planning a low triple-digit million amount in cash. Injections into this joint venture, which we do not expect anymore and that then also brings us to the upper end of our guidance corridor for the full year when it comes to free cash flow. Operator: The next question comes from Ilona Wissenbach from Thomson Reuters. Ilona Wissenbach: So, Ilona Wisenbach from Thomson Reuters. I didn't get it now, Eva. Was this low 3-digit million amount tariff effect only for the first quarter? Or was it for the full year? That's one question and another one after that. Eva Scherer: Yes. The first one is, it was only for the first quarter. Ilona Wissenbach: Okay. And how is it for the full year? Is it not -- able to calculate? Eva Scherer: No, this is what we pay now. But then, as I also said during the speech, we have applied for a lower -- or for a relief under the U.S. content program. And there, we do then expect a reduction of the effective tariff rate that we pay under the Section 232 for the truck tariffs. So that is where we do believe in the second half of the year that there will be a reduction, but we cannot quantify it yet because we have applied for that relief with the U.S. administration, but we have not heard back. Ilona Wissenbach: So quarter 1 and quarter 2... Eva Scherer: Sorry. Ilona Wissenbach: And the latest announcement of President Trump, do you think it changes anything, because the 25% apply anyway already to trucks? Eva Scherer: Yes. So I mean, generally, we do not ship assembled trucks from Germany into the U.S., and that's our current understanding of this new tariff rate that was announced on May 1. But obviously, we continue to evaluate the changes in the tariff framework. Ilona Wissenbach: Okay. And the second question was about the zero-emission trucks in the U.S. You see that the market there is more difficult. And I wonder why you support actively the legal action of the Trump administration against the climate change rules. I think you faced criticism for that also today at the Annual Shareholder Meeting. I mean, adjusting to a weak market is one thing, but actively supporting to stop selling zero-emission trucks is another thing, and I don't understand it. Karin Radstrom: Yes, I can do this one. So it's absolutely not to be interpreted like we are against zero-emission trucks in the U.S., and the challenge we have is that California has one legislation when it comes to zero-emission trucks. And this has been challenged by the federal legislation because they are saying that the California legislation is not right or not valid. And therefore, it's more of a technical step that we are suing to understand which legislation we are to be following in the Californian market. So its -- that's the explanation on that. In terms of zero-emission trucking in the U.S., I think we can say with confidence that we have been very committed. We had started a group-wide battery platform project to be able to scale zero-emission trucks in the U.S. However, with the change in legislation and now I'm back on the federal level, a lot of environmental legislation was -- pulled back, which we had anticipated, which means there is no demand for zero-emission trucks in the U.S. at the moment because the customers simply cannot make the costs come together to be competitive with diesel. And for that reason, we had to announce last year that we stopped our platform project, which we had started. So that's the background on that topic. Andrew Johnson: All right. That looks like it for our media questions today. Thank you, Robin and Ilona, for your questions. Everybody else joining us, thank you very much for joining us today. Thank you, Karin and Eva, as well. Now, as always, the IR and communications team remains at your disposal to answer any further questions you might have. So please don't feel or don't hesitate to reach out to us. A recording of the session will be available later today on our Daimler Truck website. We are looking forward to staying with you in contact with you today, and have a great day. Stay healthy. Thank you, and goodbye.
Operator: Welcome to the SuRo Capital's First Quarter 2026 Earnings Call. My name is Ellen, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions] I will now hand you over to your host, Evan Schlossman, to begin today's conference. Evan Schlossman: Thank you for joining us on today's call. I am joined by the Chairman and Chief Executive Officer at SuRo Capital, Mark Klein; and Chief Financial Officer, Allison Green. Please note that a slide presentation corresponding to today's prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events and Presentations. Today's call is being recorded and broadcast live on our website, www.surocap.com. Replay information is included in our press release issued today. This call is the property of SuRo Capital, and the reproduction of this call in any form is strictly prohibited. I would also like to call your attention to customary disclosures in today's earnings press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance, or future financial condition or results and involve a number of risks, estimates and uncertainties, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry and the global economy that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including, but not limited to, those described from time to time in the company's filings with the SEC. With respect to the externalization, these risks and uncertainties include, but are not limited to, the ability to obtain the required stockholder approval, the ability to retain key personnel, the ability to realize anticipated benefits of the externalization and the impact of the externalization on the company's business, financial condition and results of operations. Management does not undertake to update its forward-looking statements unless required to do so by law. To obtain copies of SuRo Capital's filings, please visit our website at www.surocap.com or the SEC website at sec.gov. Now I'd like to turn the call over to Mark Klein. Mark Klein: Thank you, Evan. Good afternoon, everyone, and thank you for joining us. This is a defining moment for SuRo Capital. Our strong performance in 2025 carried directly into the first quarter of 2026. For the quarter, our net asset value increased from $8.09 per share to $14.24 per share. That is a $6.15 per share increase or approximately 76% quarter-over-quarter. This is the largest quarter-over-quarter NAV increase in our history. This increase reflects the strength of our portfolio and the quality of the companies we have invested in. It also reinforces the strategy we have followed for more than a decade, giving public market investors access to high-growth venture-backed private companies that are otherwise difficult to access. We believe this access is especially valuable when it is paired with selectivity, identifying important private companies before they're strategic is broadly reflected in public market awareness. At the same time, NAV is a point-in-time measurement. It does not, by itself, capture the full opportunity we believe remains ahead. The larger story is what is in front of us as our portfolio companies continue to mature, scale their businesses and move toward potential liquidity events. Several recent financings illustrate the larger story. WHOOP recently announced a $575 million Series G financing at a $10.1 billion valuation. The company reported that 2.5 million members globally, 103% year-over-year bookings growth in 2025, a $1.1 billion exit run rate and positive operating cash flow in 2025. For us, WHOOP sits within a broader shift towards health, longevity and actionable self-knowledge. As the category evolves, we believe WHOOP can benefit from AI's ability to convert personal data into more useful individualized guidance for users. OpenAI closed its latest financing round with $122 billion in committed capital at an $852 billion post-money valuation. This financing speaks to the scale of capital formation around artificial intelligence. AI is no longer a narrow software category. It is becoming a foundational technology layer across compute, data centers, enterprise software, developer tools, healthcare, education and productivity. VAST Data was valued at $30 billion in its recent Series F financing, more than tripling its prior $9.1 billion valuation from 2023. The round included approximately $1 billion of primary and secondary capital and reflects continued demand for infrastructure supporting artificial intelligence, including data centers and high-performance computing. Canva launched an employee stock sale at a reported $42 billion valuation, led by existing shareholder, Fidelity, with JPMorgan Asset Management joining as a new investor. The transaction came as Canva continued investing in AI tools for its more than 265 million monthly active users. Taken together, these are not isolated events. They tell a consistent story. Private market capital is concentrating around scaled private companies with durable growth, strategic relevance and credible path to liquidity. These financings are significant not only for their scale, but for what they signal. Private market capital continues to validate the companies and infrastructure layers that we believe are becoming increasingly important to the next phase of technology. Our objective is to build exposure to those opportunities with discipline before they are broadly available. We are not simply observing this market. We continue to participate in it. Recent hyperscaler results continue to reinforce the scale of demand behind AI infrastructure. The next phase of AI growth depends not only on models and applications, but also on the compute capacity, power, data center infrastructure and specialized systems required to support them. During the quarter, we funded $5 million to a Magnetar special purpose vehicle invested in TensorWave. This investment was part of a commitment of up to $20 million. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions, including company-level operational milestones. TensorWave fits within our broader investment strategy and further expands our exposure to AI infrastructure. We view it as the type of opportunity we seek to identify before it becomes more broadly familiar to the broad investor base. The company is positioned around a significant technology shift with meaningful room to scale in part of the market where demand for performance, capacity and specialized infrastructure remains structurally important. That approach is consistent with the discipline we applied in building our exposure to CoreWeave, where we sought exposure to an important infrastructure company before its role in the AI ecosystem was more broadly recognized. We also believe the stage structure gave us a measured way to increase exposure to TensorWave within a framework tied to execution. More broadly, we intend to remain disciplined in how we deploy capital while being decisive when we see opportunities aligned with our strategy and with areas we believe long-term value is being created. This participation continued after year-end. Following quarter's end, we made a new investment of approximately $10 million in ClickHouse, a company we believe is well positioned at the intersection of data infrastructure, artificial intelligence and real-time analytics. ClickHouse helps enterprises query, analyze and act on massive volumes of data quickly and efficiently, a capability that is becoming increasingly important across observability, security analytics, product telemetry, cloud data warehousing and AI-driven applications. This matters because as AI moves from experimentation to deployed enterprise use cases, the infrastructure required to store, analyze and act on data at scale becomes increasingly critical. ClickHouse's relevance is already visible in demanding AI environments, including Anthropic, which ClickHouse has publicly described as using its technology to scale observability for all AI workloads. ClickHouse is another example of the kind of company we seek to invest in. It is already a scaled venture-backed technology leader, but we believe its strategic relevance is becoming greater as real-time data infrastructure becomes more important to enterprise AI deployment. For SuRo, the opportunity is to build exposure while companies like this remain private. Because this investment was made after the quarter's end, it is not part of our March 31 net asset value. It is, however, an important example of how we intend to build the future portfolio. Now I want to turn to what we believe is one of the most important strategic steps in SuRo Capital's history. Our Board of Directors approved a proposal to transition SuRo from an internally managed BDC to an externally managed structure through Neostellar Advisors LLC, an adviser jointly owned by members of our current team and Magnetar. The proposal remains subject to stockholder approval. This is not a sale of the company. The company will continue to be a publicly traded BDC, and our investment focus will remain centered on high-growth, venture-backed private companies. While the core strategy will remain the same, we believe the proposed structure will enhance the platform, supporting the strategy and better positioning us to pursue high-quality investment opportunities. Since 2019, our internally managed structure has served us well. Our team has built the portfolio, navigated volatile markets, returned significant capital to stockholders and delivered meaningful value. The NAV increase this quarter is evidence of that work. At the same time, the market has evolved. Leading private companies have more choices today, and they increasingly look for investors who can bring more than capital, including scale, relationships, strategic support, capital markets experience and a long-term partnership. We believe the proposed partnership with Magnetar positions us to compete more effectively in this environment. Magnetar brings significant scale with approximately $18 billion in assets under management, more than 20 years of investment experience and a track record of investing in differentiated technology, venture-backed companies across artificial intelligence and technology-enabled sectors. The strategic logic is straightforward. We are preserving the investment strategy and leadership continuity that brought us to this point while adding Magnetar scale, sourcing reach, diligence capabilities, portfolio support and institutional infrastructure. In addition, Magnetar's experience across the AI infrastructure ecosystem gives us additional depth in one of our core focus areas and in a market we believe will be increasingly important to broader technology growth. As many of these businesses become more capital-intensive, Magnetar's experience with cost of capital, balance sheet management and transaction structuring becomes even more relevant. We also expect the proposed structure to strengthen our origination and diligence capabilities while creating a broader platform to support portfolio companies. Put simply, we believe this gives us greater scale, broader capital solutions and deeper institutional capabilities to support private companies as they grow. If approved by stockholders, we believe this combination would position us to be one of the largest platforms focused on publicly traded access to venture-backed private companies. Public venture capital has historically been a fragmented market, and we believe greater scale, stronger infrastructure and deeper sourcing capability can matter in competing for high-quality private company investments. This would be a significant change and positive for us in our competitive position. For stockholders and portfolio companies, we believe the benefit would be a broader platform, deeper resources and a stronger ability to support ambitious private companies building in large markets. I want to speak directly about shareholder alignment. Being shareholder-friendly is not just a slogan for us. It is how we evaluate major decisions. The value created in the existing portfolio belongs to our shareholders. Under the proposed advisory agreement, pre-existing investments are not included in the incentive fee calculation. In plain English, the value already created in this portfolio is preserved for stockholders and is not subject to a new incentive fee simply because we are changing the management structure. We believe this is an important and stockholder-friendly feature. Additionally, subject to the conditions described in the proxy materials, an affiliate of Magnetar is also expected to invest $20 million in our company. We believe this is a meaningful signal of commitment and alignment. Magnetar and the Board think like owners because we are owners. Our goal is not simply to report a higher NAV. Our goal is to convert portfolio value into long-term stockholder value. This means disciplined investing, thoughtful liquidity management, expense discipline, transparency and continued focus on returning value to our stockholders. Let me close with this. This is one of the most important moments in SuRo Capital's history. We delivered the largest quarter-over-quarter NAV increase we have ever reported. Our NAV increased approximately 76% quarter-over-quarter. This is not a routine result. It reflects the strength of our portfolio, the quality of companies we have backed and the power of our strategy, giving public stockholders access to high-growth venture-backed companies aligned with important technology trends. We do not view the quarter as the finish line, but as the beginning of the new chapter. Our recent investment activity, including TensorWave and ClickHouse, reflects the same discipline, identifying private companies where strategic relevance is emerging, building exposure selectively and giving public stockholders access to opportunities that remain largely outside of the public markets. Our proposed partnership with Magnetar through Neostellar Advisors is designed to provide SuRo Capital with greater scale, stronger infrastructure, broader sourcing reach and deeper diligence capabilities as we seek to invest in and partner with the next generation of high-growth private companies. NAV captures the progress we have made, the opportunity is what comes next. Our focus now is straightforward, build on this momentum, maintain our discipline and translate portfolio progress into lasting shareholder value. To our stockholders, thank you for your continued trust and support. With that, I will turn the call over to Allison Green to review our financial results. Allison Green: Thank you, Mark. I would like to follow Mark's update with a review of our investment activity and portfolio company realizations during the first quarter and subsequent to quarter end, a high-level review of our investment portfolio as of quarter end, including the investment theme breakdown and a more detailed review of our first quarter financial results, including our current liquidity as of March 31. I'll also touch on notable items during the first quarter and subsequent to quarter end, including our announcement of the Board-approved externalization. On December 31, SuRo Capital's $20 million to Magnetar Opportunity 2025-4 LP, a special purpose vehicle invested in TensorWave, Inc. During the quarter, on January 2, SuRo Capital funded $5 million of the $20 million capital commitment. As of May 5, $5 million of the $20 million capital commitment to Magnetar Opportunity 2025-4 LP had been funded. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions. Throughout the first quarter, we sold 440,246 common shares of GrabAGunDigital Holdings Inc following the removal of lockup restrictions on January 15. These sales resulted in net proceeds of approximately $1.4 million and a realized gain of approximately $891,000. As of March 31, we hold 599,754 public common shares or approximately 58% of our original position. Additionally, during the quarter, we received a distribution from our True Global Ventures 4 Plus venture capital fund investment for approximately $246,000. Subsequent to quarter end, on April 8, SuRo Capital completed a $225,000 investment in the common stock of Huntress Labs, Inc. through a secondary transaction. Additionally, on April 22, we completed a $9.5 million investment, excluding fees, in the Series A preferred shares of ClickHouse Inc. through a secondary transaction. Subsequent to quarter end, SuRo Capital received 2 distributions from CW Opportunity 2 LP, totaling approximately $3 million in net proceeds. CW Opportunity 2 LP is an SPV for which the Class A interest is solely invested in the Class A common shares of CoreWeave, Inc. SuRo Capital has invested in the Class A common shares of CoreWeave, Inc. through its investment in the Class A interest of CW Opportunity 2 LP. The distributions were categorized in aggregate as approximately $902,000 of return of capital and a $2.1 million realized gain. The realized gain is calculated based on the current reporting by the fund and confirmed through our accounting, but may be subject to change or adjustment due to the impact of performance fees that may be charged by the fund. I would now like to turn to our portfolio as of quarter end. Our top 5 positions as of March 31 were WHOOP, OpenAI, VAST, Blink Health and CW Opportunity 2 LP. These positions accounted for approximately 72% of the investment portfolio at fair value. Additionally, as of March 31, our top 10 positions accounted for approximately 88% of the investment portfolio. Segmented by 7 general investment themes, the top allocation of our investment portfolio at March 31 was to consumer goods and services, representing approximately 43% of the investment [Technical Difficulty] and Software as a Service were the next largest categories with approximately 29% and 12% of our portfolio, respectively. Approximately 6% of our portfolio was invested in education technology companies and the Financial Technology & Services segment accounted for approximately 5% of the fair value of our portfolio. The Logistics & Supply Chain accounted for approximately 4% of the fair value of our portfolio, and SuRo Sports accounted for 2% as of March 31. We ended the first quarter of 2026 with a net asset value of approximately $361.6 million or $14.24 per share, which is consistent with our financial reporting. The increase in NAV per share from $8.09 at the end of Q4 2025 was primarily driven by a $6.25 per share increase from the net change in unrealized appreciation of our investments, a $0.04 per share increase resulting from net realized gain on our portfolio investments during the quarter, and a $0.02 per share related to stock-based compensation. The increase in NAV per share was partially offset by a $0.16 per share decrease due to net investment loss during the quarter. At March 31, there were 25,387,393 shares of the company's common stock outstanding. Finally, regarding our liquidity at quarter end. We ended the quarter with approximately $46 million of liquid assets, including approximately $43.3 million in cash and approximately $2.7 million in unrestricted public securities. Not included in our unrestricted public securities are approximately $15.9 million of public securities subject to lockup or other sales restrictions as of quarter end. This represents our remaining investment in CoreWeave via our Class A interest of CW Opportunity 2 LP. Subsequent to quarter end, the purchaser of 6.5% convertible notes due 2029 elected to exercise their conversion option on multiple occasions and convert a total of $5 million of principal into 682,815 shares of SuRo Capital's common stock and $19.56 in cash in lieu of fractional shares. Upon completion of these conversions, the remaining principal balance of the 6.5% convertible notes due 2029 was approximately $30 million. As Mark mentioned, subsequent to quarter end, on April 2, SuRo Capital's Board of Directors, including all of its independent directors, unanimously approved a proposal to transition from an internally managed BDC to an externally managed structure through a new investment advisory agreement with Neostellar Advisors LLC, an entity jointly owned by certain current SuRo Capital employees and Magnetar Holdings LLC, which is affiliated with Magnetar's multi-strategy alternative investment platform. The externalization is expected to process to enhance investment sourcing and due diligence capabilities through Magnetar's fully integrated platform, preserve all realized gains on the company's existing portfolio for the benefit of stockholders through the exclusion of pre-existing investments from any incentive fee calculations and result in an annual expense savings. In connection with the externalization, an affiliate of Magnetar will make a $20 million investment in the company and the company's current management team, including Mark Klein and myself, will continue in our current capacities. The externalization is subject to stockholder approval and additional details are set forth in the company's current report on Form 8-K filed with the Securities and Exchange Commission on April 7. That concludes my comments. We would like to thank you for your interest and support of SuRo Capital. Now I will turn the call over to the operator for the start of the Q&A session. Operator? Operator: [Operator Instructions] We will take our first question from Alex Paris, Barrington Research. Alexander Paris: Congrats on the superb Q1 and the plan for externalization. So that's going to be my question, the externalization. As I recall, prior to 2019, the portfolio was externally managed. You took it in and now you're externalizing it again. So point number one. Point number two, I had a quick review of the process, and I see not only are you creating a joint venture with Magnetar under the name Neostellar Advisors LLC, but actually SuRo's name will be changed to Neostellar Capital Corp. under the symbol NSLR. I guess it's a 2-part question. Number one, I think the shareholder meeting, the special shareholder meeting is scheduled for June 10. When do you hope to close this transaction? And then the related question is both you and Allison noted that this is expected to result in cost savings. So I'm wondering if you could just provide a little additional color on how that's done. You're obviously going to pay the external manager a management fee plus an incentive fee. What costs are we eliminating from the internal management of the fund? Mark Klein: Thanks, Alex. That's the longest one question ever, but I appreciate it. So let's start with we were externally managed. We made a determination to be internally managed as we took the management -- the group that managed the portfolio and brought it in-house. As I noted in my prepared remarks, I think a lot has changed in the public venture capital markets. And we came to the conclusion that in order for us to be at the top of the pyramid of all have the largest asset management platform available to invest in public markets, having greater depth from both investment, sourcing, diligence, support, infrastructure, et cetera, to partner with a firm like Magnetar, which we have done an awful lot of investing with over the years, just simply made sense. It makes us the largest platform to invest as a public investor in venture-backed securities. I think that matters right now. I think size matters, I think scale matters. I think the ability to bring other aspects to portfolio companies as opposed to just writing a check matters. And if you look at the success Magnetar has enjoyed and the fact that we invested with them in CoreWeave, we're investing with them in TensorWave, they are really on top of the game in the venture space. And as capital becomes more important and different capital solutions become more important to private companies, they are a great partner and significantly enhance what we are doing. And again, we're the first ones ever to do it, and we started 15 years ago, and we continue to pioneer as having a terrific partner. As far as cost savings, it's in the proxy, this will be less expensive for our investors, certainly to start in respect to expenses related to the management of the portfolio. As far as incentive fees, we made a point of saying that the entire portfolio and all the unrealized gains and all the success that has occurred to date and will occurs up until the externalization. There's no incentive fee being charged at all. That is for all of our shareholders in the future as we invest money and we realize profits on those new investments, there may be an incentive fee on that at that point in time, which candidly will be quite some time away from now. So we are really excited about this. This is really differentiated. This makes us as significant as we are now, much more significant. And it was a decision our Board took and we took as management, and we're really excited about that. The vote is on June 10. This -- upon approval by our shareholders, we will enter into a management agreement with Neostellar. We will rebrand to Neostellar, and that will be effective on July 1. Thank you. Operator: We will take our next question from Marvin Fong, BTIG. Marvin Fong: Congrats as well and looking forward to the externalization. I just have a big picture question after all the success, we can all see that the private and public markets around AI are quite excited here. Can you just kind of talk about what you're seeing now in terms of investment opportunity and ClickHouse is another you were able to get in on. But can you -- are you seeing opportunities like you're done with TensorWave to -- that are milestone based and can offer some protection and that these companies actually have to succeed in order to gain access to further capital. Can you expect kind of more structures like that? Or just kind of describe in general what are you seeing out there? Mark Klein: Thanks, Marvin. Great question. And I'll answer it in 2 parts. First of all, we are really excited about ClickHouse. ClickHouse has quickly become the de facto real-time analytics platform. They position themselves to benefit from AI applications, which demand real-time data. This company is growing at 250% year-over-year. It's phenomenal. It provides they're 10x that the rate, the speed of their competitors at approximately 1/10 of the cost. It is truly an amazing company. I suspect most people on this call probably haven't heard about it. We view this as we're in front in the same way we were in front with VAST when no one heard of it or even CoreWeave when no one heard of it. That's how we view ClickHouse. And I suspect as we move towards the end of the year, they will become more notable. That's one. Two, I think -- and you and I have talked about and I talked about it publicly, the markets are robust or perhaps broadly in the AI space, specifically in the private market side. We see an awful lot. We are seeing more deals now than we've ever seen before. And as we talked about it, you have to start is -- are you in the right -- are the tailwinds still there? Are you in the right sector, subtenant sector? Are you one of many in the space or one of a few? Do you have the right to win? Once you get to all that, can we actually [ invest ], whether it's like TensorWave, which I think is extremely well structured, or can we simply price it in a way that there's an opportunity to invest and see returns. And that leaves an awful lot of companies that candidly at this point in time are tough to invest in. But we have found opportunities, whether it was ClickHouse and TensorWave, as we've discussed before, we are really set up to win. They are to AMD what CoreWeave was to NVIDIA. As most of you can probably see, AMD just reported a blowout quarter. TensorWave is going to be where they're housing their AMD chips. It's an extremely exciting investment. The investment is structured in a way that we put $5 million in, $15 million will be following on, assuming certain conditions are met. And we think that's going to be an absolute [ raging ] success. We're really looking forward to TensorWave's future. Operator: We will take our next question from Jon Hickman with Ladenburg. Jon Hickman: I have a question about -- in the past, the top 5 positions have generally around -- they've been around 50% of your portfolio. And currently, the Top 5... Mark Klein: Jon, you still there? Operator: Participant line disconnected. We will take our next question from Brian McKenna, Citizens. Nate Saur: This is Nate Saur on for Brian McKenna. So first of all, congrats on the great moves this quarter and the especially impressive results so far this year. Maybe just extending the discussion on externalization real quick. I was wondering if you guys could provide a little -- or get a little bit more specific on the timing? Like why is right now the... Mark Klein: I think we lost him as well, operator. Operator: Yes, we lost Brian's line. We will take our next question from Alex Fuhrman, Lucid Capital Markets. Alex Fuhrman: I'll try to ask it real quick here and sneak it in. But congratulations guys on the really strong start to the year. I wanted to ask about your portfolio composition here in terms of your sector allocations. Obviously, your investment in WHOOP has been tremendously successful here when you think about that as well as the wind down in your position [Technical Difficulty]. You're kind of at a unique moment here where health and wellness is actually a really large percentage of the portfolio right now. Should we expect to see incremental investments kind of back in that AI area to get that part of the portfolio back up? I guess you already did that subsequent to the quarter here with ClickHouse. But just any kind of high-level thoughts on sort of the composition of your portfolio by sectors and what we should expect to see going forward? Mark Klein: Sure. Thanks, Alex. Yes, in some ways, I guess, we're victims of our own success with WHOOP as WHOOP just completed a $575 million funding over a $10 billion valuation. It's obviously been sort of knocked it out of the park with that. That was -- that is a unique situation for us. It's a great situation, but unique. As you can see, we did just put $10 million into ClickHouse. We're funding another $15 million into TensorWave. And you will see the concentration more into the technology, AI, AI infrastructure, et cetera, again, be the largest focus of our fund. But as you did note, right now, with the success of WHOOP, that has caused a bit of concentration in that space. Operator: There are no further questions on the line. So I will now hand you back to your host for closing remarks. Mark Klein: Thank you all for joining this call. We greatly appreciate it. Sorry for a couple of the problems apparently with the questions. But we're very excited here. We had obviously the best quarter we've had on a quarter-over-quarter basis ever. We're extremely excited about our partnership with Magnetar and the rebranding to Neostellar. We're always available for your questions or comments, feel free to reach out to us. And thank you again for attending the call. We greatly appreciate it. Operator: Thank you for joining today's call. You may now disconnect.