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Operator: Hello, everyone. Thank you for joining us, and welcome to Northwest Natural Holding Company's Q1 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Nikki Sparley, Director of Investor Relations. Nikki, please go ahead. Nikki Sparley: Thank you. Good morning, and welcome to our first quarter 2026 earnings call. In addition to the press release, a supplemental presentation is available on our Investor Relations website at irnorthwestnaturalholdings.com, and following this call, a recording will also be available on our website. As a reminder, some things that will be said this morning contain forward-looking statements. They are based on management's assumptions, which may or may not occur. For a complete list of cautionary statements, refer to the language at the end of our press release. Additionally, our risk factors are provided in our 10-Q and 10-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany today's call, which are available on the Investor Relations page of our website. Please note, our guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or assumed outcomes, or significant changes in local, state, or federal laws, legislation, or regulations. We expect to file our 10-Q later today. With us today are Justin Palfreyman, President and Chief Executive Officer, and Raymond J. Kaszuba, Senior Vice President and Chief Financial Officer. Justin will provide highlights from the first quarter 2026, a regulatory update, and a look forward. Raymond J. Kaszuba will walk through our financial results and guidance. After Justin and Raymond J. Kaszuba’s prepared remarks, we will host a question and answer session. With that, I will turn the call over to Justin. Justin Palfreyman: Thanks, Nikki. Good morning, and welcome, everyone. Overall, the first quarter results were strong and in line with our expectations, reflecting another quarter of solid execution, putting us on solid footing for the year. As a result, we reaffirmed our 2026 and long-term guidance. Our gas utility systems performed very well over the heating season. Our team delivered strong operational performance across all our utilities and we produced healthy customer growth. Importantly, the quarter underscored the strength of the Northwest Natural Holding Company platform and the stability of having three distinct regulated utility businesses, making our results more predictable. We are well positioned to drive durable long-term growth while maintaining our core commitment to providing safe, reliable, and affordable service to our customers. Our focus remains on disciplined execution, steady earnings growth, and attractive overall shareholder returns. Related to that, we made meaningful progress on our regulatory initiatives this year. Let me highlight a few of our recent filings. In March, Northwest Natural filed a multi-party settlement with the Washington Utilities and Transportation Commission resolving all the revenue requirement aspects of our multiyear general rate case. While it remains subject to commission approval, the outcome is constructive for both customers and shareholders. The settlement provides for annual revenue requirement increases over three years, including $20.1 million in the first year beginning 08/01/2026, $7.7 million in the second year, and $8.7 million in the third year. The settlement includes a capital structure of 50% equity and 50% long-term debt and a return on equity of 9.5%. In Oregon, we remain constructively engaged with staff and parties on multiyear rate case rulemaking. As we have seen in other jurisdictions, we believe multiyear rate cases could provide greater clarity and predictability for both customers and utilities. While we await the outcome of the multiyear framework in Oregon, which could extend into 2027, we filed an alternative rate mechanism to help recover certain safety, IT, and large public works investments. The proposal contemplates a modest 1.5% rate increase beginning 10/31/2026. We have had productive conversations with staff and continue working closely with parties to reach agreement on the docket. Until the multiyear rulemaking process concludes, we have the ability to recover our investments through additional mechanisms or general rate cases. In addition, we have made progress on regulatory initiatives in our other key businesses. On May 4, 2026, C Energy filed a general rate case with the Texas Railroad Commission. The filing consolidates C Energy and the recently acquired Pines Gas entities, simplifying both our regulatory structure and operations in Texas. We are requesting a $12 million revenue requirement increase over current rates. This increase is based on a 10.75% return on equity, a cost of capital of 8.73%, and a capital structure of 60% equity and 40% long-term debt, which is consistent with other Texas gas utilities. This request includes an increase in average rate base of $176.9 million since the last rate case, for a total rate base of $343.1 million. In addition to the existing beneficial mechanisms from Texas House Bill 4384 and weather normalization, we are requesting the factors necessary to file for the Gas Reliability Infrastructure Program, or GRIP. This mechanism would further align capital investment with timely cost recovery. Even after the increase, C Energy’s rates are projected to be competitive with peers in the state. Turning to our water and wastewater business, as it scales, we are beginning to see a more consistent regulatory cadence. In 2025, we completed seven rate cases. We currently have four open rate cases in Oregon, Texas, and Arizona. Foothills, our largest water and wastewater utility, has made substantial investments over the several years. That trend continues in 2026 as we invest in water storage and treatment to support growth in the region. In Q1, we received approval for our second certificate of convenience and necessity expansion, adding to our service territory in Arizona. We are excited to serve these growing communities and are committed to making the necessary investments to provide safe, reliable water and wastewater. We filed a rate case for Foothills last month that includes a request to use formula rates in the future. Formula rates are designed to support annual recovery of O&M and investments without going through a general rate case process. Blue Topaz, our Texas water utility, recently filed its first rate case in approximately 20 years. The filing consolidates several of our Texas entities, recovers capital investments made since our ownership of these assets, and incorporates fair market value rate base adjustments. As our first quarter actions demonstrate, we are taking a more coordinated approach to our regulatory strategy across the enterprise. Multiyear rate cases in Washington and Oregon, as well as the mechanisms we plan to use at C Energy and Northwest Natural Water, are all designed to reduce regulatory lag and produce a more balanced and linear consolidated earnings profile. These mechanisms also maintain affordability and predictability for customers. Moving to a quick review of our key business segments, starting with C Energy, our Texas gas utility delivered another strong quarter and performed well during the heating season. Results were driven by healthy 16% organic customer growth, and our backlog exceeded 250 thousand future meters at quarter-end, highlighting the long-term growth potential of this business. Looking ahead, we are continuing to see solid growth in the Texas housing market and expect 15% to 20% annual customer growth through 2030, with C Energy contributing approximately 10% to 15% of consolidated EPS in 2026. Moving to Northwest Natural Water, this business posted healthy overall customer growth of 4.1% in the quarter and organic customer growth of 2.2%. As a reminder, the seasonality of water complements our gas business, with the highest demand in the third quarter and lower demand in the first quarter. Even though results were consistent year over year, we continued to make progress on customer growth and regulatory execution. We also remain active in greenfield opportunities for water and wastewater in Texas. We now have signed agreements with developers that represent a backlog of over 10 thousand connections. Approximately 25% of these are in communities that have started development. This platform is driven primarily by organic customer growth, and we expect it to achieve 2% to 3% growth through 2030. Water is expected to contribute approximately 10% to 15% of consolidated EPS in 2026. Finally, turning to Northwest Natural Gas, our largest segment, this business continues to play a critical role in ensuring affordable and reliable energy for customers in Oregon and Washington. I am pleased to report that our system performed well this winter, reliably serving our customers during the heating season. We remain incredibly excited about our MX3 storage project that we announced last quarter. As a reminder, MX3 is a $300 million FERC-regulated gas storage expansion that will add 4 to 5 Bcf of capacity and is fully contracted with 25-year agreements. Since our last call, the project has continued to progress as we expected. Our timeline still contemplates receiving notice to proceed by 2027, with an in-service date in 2029. E3, a highly regarded energy consulting firm, recently updated a study reinforcing earlier conclusions that natural gas remains essential to system reliability in the Pacific Northwest, particularly as the region continues to add significant electric load. The latest study now points to an approximately 14-gigawatt shortfall in generation capacity by 2035. That is why our storage capabilities are so important. They are uniquely positioned, expandable even beyond MX3, and offer a cost-effective solution to our region's growing energy constraints. MX3 is not contemplated in our current 4% to 6% long-term EPS growth guidance. However, we do expect the project to have a sustained positive impact on earnings growth and plan to include the project in our guidance when we achieve notice to proceed, which would raise our long-term EPS outlook to 5% to 7%. Overall, we remain confident in our strategy, our execution, and the growth platform that we have built. The businesses are performing well, we are making progress on our regulatory initiatives, and the outlook across our company is strong. We are progressing through 2026 with solid momentum and remain focused on disciplined utility growth and long-term shareholder value. With that, I will turn it over to Raymond J. Kaszuba to walk through the financials. Raymond J. Kaszuba: Thank you, Justin, and good morning, everyone. Our first quarter performance was strong and in line with our expectations. Adjusted earnings per share was $2.33 compared to $2.28 in the prior-year period. To simplify our financial reporting and clarify the underlying drivers of the business, we have updated our segments to better reflect our current business mix. Northwest Natural Gas Company is now reported as a single segment, consolidating the gas utility and storage operations. This change does not affect our C Energy or Water segment reporting. Adjusted net income was up $5.7 million and EPS increased $0.05 in the quarter, driven by new rates, particularly at Northwest Natural Gas, and customer growth. This was partially offset by investments in our systems, leading to higher depreciation expense and financing needs. Northwest Natural Gas reported an increase in net income of $2.7 million reflecting new rates in Oregon, with EPS down $0.02 due to equity financing. C Energy's EPS was up $0.08, driven by a full quarter of operations from C Energy and Pines Gas, and strong organic customer growth of 16%. Northwest Natural Water's EPS was essentially flat for the quarter, primarily reflecting higher O&M and depreciation expenses. This was largely offset by higher operating revenues driven by continued customer growth and acquisitions. Please keep in mind that the first quarter is Water's lowest demand quarter. We are investing in the underlying business and, as Justin mentioned, we are executing on our regulatory strategy to recover these investments and earn a return in a timely manner. Overall, we are pleased with first quarter results, are on track for the year, and reaffirmed our full-year 2026 earnings guidance of $2.95 to $3.15 per share. C Energy and Water combined are still expected to contribute approximately 25% of consolidated EPS this year. Our long-term EPS growth target of 4% to 6% remains intact, and as Justin noted, our expected long-term EPS growth rate is projected to increase to 5% to 7% with the inclusion of MX3 once we receive notice to proceed. We still expect capital expenditures of $500 million to $550 million in 2026. Our funding plan remains disciplined and balanced, supported by strong operating cash flow, approximately $150 million of net long-term debt, and $40 million to $50 million of equity issued through our ATM. We currently have approximately $590 million of available liquidity. Over the five-year planning horizon, capital expenditures will be funded largely through operating cash flows, along with a balanced mix of long-term debt and equity. Through 2030, we expect to meet our equity needs through our ATM program. Finally, on shareholder returns, as our dividend payout ratio comes in line with our 55% to 65% target, we continue to expect to increase our dividend over time, consistent with earnings growth and cash flow generation. In summary, 2026 is off to a solid start, and we have strong momentum heading into the balance of 2026 and beyond. With that, we will open the call to questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Christopher Ellinghaus from Seaport Research Partners. Christopher, please go ahead. Christopher Ellinghaus: Hey, good morning, everybody. Justin, I think you quoted 16% organic growth at C Energy. I assume that means there was some acquisition in the quarter because the meters were up considerably more than that. Is there? I am sort of detecting some weakness in the economy that is maybe even accelerating a little bit across some industries, and you kind of see it maybe in your meter number for the quarter. Can you just talk about what you are seeing for economic conditions in Oregon? Justin Palfreyman: Thanks for the question, Christopher. On the C Energy growth, there are no acquisitions reflected in that because it is comparing Q1 of last year to Q1 of this year, so the 16% reflects organic growth at C Energy. Raymond J. Kaszuba: Economic conditions in Oregon have been challenged a bit for a few years now, and we have seen a slowdown over that time frame, both in housing starts and other macro indicators in the region. However, the customer growth that we are seeing is largely in line with what we expected for the year, and a lot of the growth opportunities we are seeing in Oregon relate to our gas storage facility expansion opportunities, as well as investing in the safety and reliability of our system here. Christopher Ellinghaus: Thanks for the segment update. That is helpful. So your guidance for utility net income growth, I presume part of that is a result of the cover of the Fair Act, which is pretty restrictive. Your rate base growth is considerably more than that 1% to 3%, and customer growth is on the lower side. It suggests that you end up with a bit of a bubble at the end of the period in terms of a catch-up, presuming you do not get some kind of great multiyear rate plan that keeps you on track. What are your thoughts about potentially ending up with an end-of-five-year period excess catch-up to make, which is counterintuitive to what the Fair Act was all about? Raymond J. Kaszuba: Christopher, I think you are picking up on what could be driving that delta from the rate base growth to the net income growth. Part of it is our current view of what the rate case cadence is between now and 2030, and you could be growing rate base but not fully reflecting that growth in earnings until rates are reset. That is going to depend on where things end up with the Fair Act and where we eventually land with our rate case cadence in Oregon. Of course, there is always some regulatory lag that comes into play as well. Between those two dynamics, that is driving the difference, and it is timing in terms of the specific five-year guidance range through 2030. So I think you are picking up on that correctly. Christopher Ellinghaus: The rate base increase that you quoted for C Energy—if I am not mistaken, the rate base number in the last rate case, and I might be confusing what the request was versus what was approved, but I thought the last rate case was something like $152 million. Do you know what that discrepancy is versus the $176 million you quoted? Raymond J. Kaszuba: Christopher, we will have to get back to you on that question after the call. I do not know off the top of my head. Christopher Ellinghaus: Alright. I will stop there. I appreciate it. Thanks for the color. Raymond J. Kaszuba: Thanks, Christopher. Operator: Your next question comes from the line of Alexis Kania from BTIG. Alexis, please go ahead. Alexis Kania: Hi, good morning. I have two quick questions. First, Justin, could you dive a little more into the evolution of the multiyear rate structure in Oregon? When do you think you might have more clarity on that, just as a precursor to finalizing the rate case plan in that jurisdiction? Second, given the growth in C Energy, do you have a sense of any potential opportunities for additional tuck-ins there? Do you feel like you need any, and what does the environment look like? Justin Palfreyman: Great, thanks for the questions, Alexis. On the Oregon multiyear plan, we have been engaged fairly actively throughout the process. From a timing perspective, we anticipate it could slip into next year before we have clarity around what the multiyear planning framework is. This is new to Oregon, and they are taking a lot of information in from other states that have successfully implemented this, whether that is Washington or California or others, and there are many parties involved and engaged. Our expectation at this point is that we will have some resolution on that next year. In the meantime, we have filed for this alternative rate mechanism in 2026, and we are in the middle of that process, which is moving along as expected. We also have, under the Fair Act, the ability to file for a general rate case in the interim period before the multiyear plans are established. In general, it is all moving along as expected, and we look forward to driving that to resolution. On your second question in Texas, there are other acquisition opportunities on both the gas and the water side. You have seen us make a number of acquisitions in water there and, with C Energy, we completed a bolt-on with Pines Gas. We continue to look at that, but the organic growth opportunity is so strong that we are very focused on it—investing in our systems. If you look at the C Energy rate case as well as the Blue Topaz rate case, our water utility in Texas, there is a fair amount of growth embedded, as well as mechanisms we believe are going to reduce regulatory lag going forward. For the C Energy filing, we are filing for the factors that will allow us to file for GRIP in the future, which is a helpful mechanism for reducing lag. Operator: Your next question comes from the line of Selman Akyol from Stifel. Selman, please go ahead. Selman Akyol: Just following up on your last comment about putting the pieces in place for filing for GRIP, can you talk about the time frame for that? And staying with C Energy, you previously talked about seeing opportunities for water as you grow in conjunction with C Energy. Are you actually executing on that—installing both water and gas as you go into these new communities? Justin Palfreyman: The time frame for the rate case itself is approximately six months, so we expect to have the rate case resolved and new rates in effect by later this year, sometime in Q4. Then the way the GRIP process works, in this rate case we get the factors defined in terms of ROE, capital structure, etc. We can then, in future years, file for rate adjustments under the GRIP mechanism for up to five years before we would be required to come in for a new general rate case. You have seen many other gas utilities in Texas execute on that successfully. In C Energy’s previous rate case, a few years ago before our ownership, they did a black box settlement that did not allow them to have those factors needed to file for GRIP, so we are taking a slightly different path to minimize regulatory lag going forward for that business. On the water opportunity, that is a great question. One of the reasons I highlighted the 10 thousand connections we now have in backlog for water in Texas in my remarks is that, about six months ago, we combined our business development teams in Texas to leverage the C Energy platform, which has strong relationships with developers and homebuilders. For the first time, we are starting to see communities where we could install both gas, water, and potentially wastewater systems. Specifically on the water side, our utility down there is relatively small but has the potential to grow significantly because of how we are approaching this. Of the 10 thousand in backlog, about 25% are already beginning development or construction on the water and wastewater portions of the projects. It is exciting to see that momentum in a short period of time, and we are highly confident that is the right strategy to pursue. With the overall amount of growth we see in Texas—on the residential side and also on the commercial and industrial side—we are excited about the opportunity. Selman Akyol: And just the last one for me—thinking about water—are you continuing to see a lot of acquisition opportunities in 2026? Justin Palfreyman: We continue to look for acquisitions, but we have seen the market slow down a bit, and there is data out there that reflects that. Where we are with our water strategy is a good position because we do not need acquisitions to grow. The organic customer growth of 2% to 3% excludes any potential future acquisitions, and we are not relying on that for growth. We now have opportunities to invest in the platform we have built, and there is a long runway of investments. We are optimizing the platform both operationally and from a regulatory standpoint to minimize the gap between earned and allowed ROEs across our platform, which is why you are seeing multiple rate cases filed each year in water. In addition, we are very focused on organic growth. I mentioned the greenfield in Texas, and in my prepared remarks, I mentioned the CCN expansion in Arizona. We have other opportunities like that to expand our existing footprint without going out and paying a premium for acquisitions. Operator: We have reached the end of the Q&A session. I will now turn the call to Justin Palfreyman for closing remarks. Justin, go ahead. Justin Palfreyman: Thank you, and thanks, everyone, for joining this morning. We appreciate the questions and your interest in Northwest Natural Holding Company. Just to recap, 2026 is off to a promising start, and we are continuing to execute on our growth strategy. We look forward to seeing many of you at AGA later this month. As always, do not hesitate to reach out to Nikki with any further questions. Thank you, everyone. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to Assurant's First Quarter 2026 Conference Call and Webcast. [Operator Instructions] It is now my pleasure to turn the floor over to Sean Moshier, Vice President of Investor Relations. You may begin. Sean Moshier: Thank you, operator, and good morning, everyone. We look forward to discussing our first quarter results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer; and Keith Meier, our Chief Financial Officer. Yesterday, after the market closed, we issued an earnings release announcing our results for the first quarter 2026. The release and corresponding financial supplement are available on assurant.com. Also on our website is a slide presentation for our webcast participants. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in the earnings release, presentation and financial supplement on our website as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in analyzing the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to the earnings release, presentation and financial supplement on our website. We'll start today's call with remarks before moving into Q&A. I will now turn the call over to Keith Demmings. Keith Demmings: Good morning, and thank you for joining us. Following a remarkable 2025, where we delivered our third consecutive year of double-digit earnings and EPS growth, we're pleased to share that 2026 is off to a strong start. The first quarter represents the strongest performance in Assurant's history, driven by record earnings in Global Lifestyle. We delivered 6% growth in adjusted EBITDA and 9% growth in adjusted EPS, both excluding reportable catastrophes. When excluding impacts from Global Housing's prior year reserve development, these metrics grew 8% and 12%, respectively. Once again, our diversified portfolio and disciplined execution supported strong performance in a dynamic operating environment. Our results this quarter reflect the momentum we've built across the enterprise, supported by the durability of our earnings. We leveraged the strength and flexibility of our capital position to accelerate share repurchases during the quarter given our compelling valuation. At the center of our performance is our talented workforce, leading with insight, challenging convention and delivering with discipline. Their commitment continues to help us and our clients win together, as we redefine protection and related services and create value across the markets we serve. The first quarter represents an exceptional start to the year, reinforcing our path to achieving our tenth consecutive year of profitable growth. Turning to Global Lifestyle. We delivered an exceptional first quarter with double-digit earnings growth in both Connected Living and Global Automotive. In Connected Living, earnings increased 18%, driven by expansion with existing clients and continued optimization of recently added programs. As our earnings benefit from the momentum we've built, we continue to execute on our compelling pipeline of new opportunities with 4 new mobile announcements this quarter. First, our long-term agreement with T-Mobile supports our leadership and innovation in this space. Following the success of our reverse logistics partnership, we deepened our relationship following T-Mobile's acquisition of U.S. Cellular, successfully migrating another large in-force mobile subscriber base and contributing to an increase in our total devices protected that now stands at nearly 69 million devices globally. Like our prior device protection migration with Sprint, this reflects our proven ability to quickly transition large, complex device protection portfolios with minimal disruption and low subscriber churn, a critical proof point for potential new clients. Taken together, these milestones reinforce the strength of our relationship with a leading U.S. carrier and highlight the strategic value of our integrated mobile protection, repair and logistics platform. Second, we're extending our leadership in reverse logistics through a new opportunity with another large U.S. carrier. This engagement expands our existing services to support all device return and disposition channels. Return devices will be repaired for circular usage, creating incremental value across their network. Devices will be processed through our highly automated Nashville device care center demonstrating how our investments in scaled infrastructure and operational excellence are enabling us to deepen relationships with key mobile partners and unlock new growth opportunities. Third, we recently expanded our partnership with Xfinity Mobile through a new rate plan that includes lifetime device protection for phones, tablets and watches, and includes a benefit that allows customers to receive a phone upgrade anytime. These benefits are embedded in Xfinity's Mobile Plus plant at a single bundled cost to customers. This milestone builds on our 10-year partnership with Xfinity and underscores our shared focus on long-term customer value. And finally, following last year's introduction of Verizon's Total Wireless Protect, we expanded the offering to now include a more comprehensive loss and theft product. In addition, we recently launched Straight Talk Protect. This collaboration represents our third prepaid brand with Verizon, and further strengthens our footprint with this major carrier. Our success over the last 2 years in mobile has built extraordinary momentum. Our embedded scalable model demonstrates mobile's multiple growth paths, deep client entanglement and our innovation-led operating model. Turning to Global Automotive. Following an inflection year in 2025, earnings increased 23% in the quarter, benefiting from higher investment income and continued loss improvement. Our performance this quarter positions the business for continued growth in 2026 as we remain focused on solidifying and expanding existing partnerships and winning new business across the globe. To support future growth, we're advancing capabilities utilizing AI across the business. Throughout 2026, we'll be introducing new products and capabilities fueled by AI, focused on enhancing dealership training, streamlining claims processing and improving customer experience while leveraging our scale to drive share gains with existing partners and win in the marketplace. Turning to Global Housing. Following 2025's performance, where we surpassed $1 billion in adjusted EBITDA, excluding [ cats ], our first quarter results position us for solid underlying earnings growth in 2026, excluding prior year development. Underlying performance in the quarter was driven by double-digit top line growth in homeowners. For the year, we continue to expect a combined ratio in the low to mid-80s. This excludes prior year development and reflects our full year cat assumption of $185 million. We differentiate housing's performance through strong returns, client retention and renewal execution. During the first quarter, we completed 2 long-term renewals with large lender place partners representing over 5 million loans. As we look at the remainder of 2026, we see clear opportunities to further build upon our market-leading position as we execute on our robust new business pipeline. In renters, we continue to see strength in our property management company channel, supporting ongoing growth in policies and reinforcing the effectiveness of our strategy. This channel continues to grow premiums double digits as today, we serve 6 of the top 10 PMCs. Our partners are realizing significant benefits from our platform. Throughout 2026, we remain focused on scaling our latest version of Cover360, which is driving double-digit penetration in premium lift across our PMC client base. Assurant continues to differentiate our performance while reinforcing our attractive valuation and compelling investment profile. Our differentiated portfolio of lifestyle and housing businesses continues to deliver diversified earnings and cash flow, supporting strong returns, robust cash flow and attractive growth with lower volatility. Since 2020, we've grown adjusted EBITDA at an 11% compounded annual growth rate, while growing adjusted EPS at a 17% CAGR, both excluding catastrophes. This was supported by strong returns, generating an average ROE of approximately 14% and a return on tangible equity over 30%. Our outperformance against the broader S&P 1500 P&C group demonstrates our multiyear track record of differentiated results. Over the last 5 years, we've outperformed the group median for adjusted EBITDA and EPS, including cats and in line or better when excluding cats. Finally, I'll provide an update on Assurant Home Warranty. While we're still very early, the launch of our new long-term relationship with Compass International Holdings spanning 6 U.S. real estate brands continues to progress well. As we ramp, we're working closely with Compass to drive agent education, marketing, product penetration and a positive customer experience. We believe our Home Warranty Solutions are resonating in the market, reinforcing our confidence in both our strategy and our ability to scale over time. For Assurant overall, first quarter was a strong start to the year, supported by the durability of our earnings model, the strength of our partnerships and our disciplined execution across the enterprise. We are proud of the long-term performance we've continued to drive, delivering consistently, investing for growth and creating value for shareholders. I'll now turn the call over to Keith Meier to speak to the underlying growth levers of our business, including our updated 2026 outlook. With that, Keith, over to you. Keith Meier: Thanks, Keith, and good morning, everyone. 2026 is off to an excellent start. We're excited about our performance and our increased outlook for the full year. We're operating from a position of strength, reflecting our powerful B2B2C distribution strategy in both lifestyle and housing. We continue to embed innovation across everything we do, deploying technology enhancements including AI and automation to drive simpler, faster and more consistent outcomes for our clients and customers. Our results this quarter are the product of disciplined execution and our commitment to operational excellence as we deliver differentiated customer experiences and attractive returns for shareholders. Before reviewing our updated 2026 outlook, let me start by highlighting our strong first quarter results, beginning with Global Lifestyle. First quarter adjusted EBITDA increased 20% or $39 million compared to last year. Results included a $13 million real estate joint venture gain, of which $10 million was in Global Automotive. Within Connected Living, EBITDA growth was 18%, or $22 million, led by continued expansion with existing clients and optimization of recently added programs. Strong growth within our mobile device protection programs was supported by the addition of over 4 million subscribers across our U.S. and international partnerships, including T-Mobile's conversion of U.S. Cellular to Assurant. In Global trade in and reverse logistics, we processed nearly 7.5 million devices, an increase of approximately $2 million, driven by our reverse logistics programs and underlying organic growth. In Global Automotive, adjusted EBITDA increased 23% or $17 million, including $10 million from the real estate gain. Excluding that gain, earnings in Global Auto increased 9% or $7 million. This growth was driven by continued improvement in loss experience following prior rate actions, enhancements to claims processes and product designs within our vehicle service contract offerings and improved performance in our guaranteed asset protection or GAP product. For Global Lifestyle overall, net earned premiums, fees and other income grew 11%, primarily driven by Connected Living growth from mobile trade-in and global protection programs as well as the recent launch of our partnership with Best Buy. Moving to Global Housing. First quarter adjusted EBITDA was $237 million, including $24 million of reportable catastrophes. Excluding cats, adjusted EBITDA was $261 million. Absent the impacts of lower favorable prior period reserve development, underlying results were level year-over-year. First quarter results included a more normalized non-cat loss ratio of approximately 38%, excluding prior year development, aligned with our expectations. This compared to a loss ratio in the first quarter of 2025 that was lower than typical. Strong growth from higher in-force policies and average premiums in lender place allowed us to offset a more normalized loss ratio. Additionally, we saw growth from specialty products and higher investment income. Turning to our cat reinsurance program. We are very pleased with the outcome of our 2026 program placement, which was finalized on April 1. Through our continued partnership with roughly 40 highly rated reinsurers, we secured strong coverage once again with more favorable terms than the prior year. Our [ program ] retention of $160 million is consistent with our retention from our 2025 program, representing a 1 and 5-year probable maximum loss or PML. Our main U.S. program provides nearly $1.6 billion of loss coverage in excess of our retention, protecting Assurant and its policyholders against severe events for up to a 1 and 265 year PML. Our protection in Florida is even more robust with $1.8 billion of loss coverage in excess of our retention. In terms of costs, our 2026 catastrophe reinsurance premiums are estimated to be approximately $180 million, compared to approximately $200 million in 2025. The reduction reflects favorable market pricing, the strength of our portfolio and lower Florida exposures. Lastly, in Corporate and Other. First quarter adjusted EBITDA loss was $32 million, which includes investments made in our Home Warranty business. Turning to capital. Our liquidity position at quarter end was $836 million, providing flexibility to continue to invest in growth, return capital to shareholders and support future opportunities that enable Assurant to drive innovation for our clients and customers. This quarter, we returned $169 million to our shareholders, including $125 million of share repurchases and $44 million in dividends. Our strong capital position allowed us the flexibility to accelerate our repurchase plans during the first quarter. On May 1, we repurchased an additional $30 million. Over the remainder of the year, we'll continue to evaluate capital deployment opportunities using a disciplined and balanced approach. Let's move on to our outlook for 2026. We now expect full year adjusted EBITDA and earnings per share to grow low single digits, both excluding cat, overcoming $94 million of lower favorable prior year reserve development. This includes $113 million in 2025 and $19 million in the first quarter of 2026. Excluding the impact of prior year development, we expect high single-digit underlying growth in both adjusted EBITDA and earnings per share, excluding cats. Global Lifestyle is expected to lead the growth for Assurant. We're increasing our outlook for Lifestyle and now expect growth of approximately 10%, reflecting our strong first quarter results. Connected Living results for the year will benefit from continued optimization of new programs, expansion with existing clients and contributions from recently announced new programs and capabilities, demonstrating the returns we've achieved through previous investments. Global Auto is expected to grow from higher investment income, continued loss improvement and growth of global partnerships. Turning to Global Housing. Our outlook has improved, and we now expect earnings to decline only modestly excluding cats. Absent prior year development, we continue to expect solid underlying growth for the full year. Consistent with our past approach, our 2026 outlook does not contemplate potential prior year reserve development for the remainder of the year. In lender-placed, we expect growth to be driven by higher tracked loans and in-force policy growth from expected new client wins and the continued hardening of the voluntary homeowners market. From a placement rate perspective, we anticipate some quarterly fluctuations from client loan movements during the year. From a capital perspective, our strong cash generation creates flexibility, enabling us to reinvest for growth, including M&A and return excess capital to shareholders. For 2026, we now expect share repurchases of $300 million to $350 million, which is at the high end of our initial range from the beginning of the year and is subject to M&A and other market conditions. Our first quarter results demonstrate the strength and consistency of Assurant's differentiated business model. We look forward to executing on our increased financial objectives while delivering results for our clients and shareholders throughout the year. With that, operator, please open the call for questions. Operator: [Operator Instructions] Mark Hughes: The Connected Living results are quite strong in the quarter. Can you talk about the kind of your longer-term view on that business up 18% earnings. You got a good slide on a lot of the new business wins and renewals. Are you thinking that, that is a faster growth business? Or are we just kind of hitting it at a good peak here where you're executing on the pipeline, but it may not be sustained at this level? Keith Demmings: Yes. I mean it's certainly a fantastic start to the year overall. And if you look back the last 3 years or so, we've grown our EBITDA and EPS overall double digits and a fantastic way to start the year this year with significant performance, our best year -- our best quarter story in history and then Lifestyle, obviously delivering outstanding results. I think when I look at it, I'd probably highlight 3 big drivers. First is, you've seen the scaling of our device protection subscriber counts. Over the last year, it's up at 4.3 million subs year-over-year. And that's a lot of hard work, a lot of innovation with partners. We've done incredible things with our cable partners. We've launched new clients like Total Wireless, which is contributing significantly. We've launched programs internationally with clients like Telstra. And then obviously, with U.S. Cellular and our relationship with T-Mobile, that's driving a lot of momentum across the board for our protection business. That's certainly the biggest driver of our overall outperformance in Connected Living. But I'd also say we're maturing some of the non-mobile programs that we've announced to the market as well. Our relationship with Best Buy being one example, our relationship with Chase. These are 2 really important clients for us, and they're growing and contributing nicely. And then finally, you saw a lot of growth in devices service, not just from our trade-in programs maturing and driving organic growth, but also the investments we've made in reverse logistics. So it does feel like we're in a great position. I feel great about how we look for the future. Mark Hughes: I want to ask -- I don't know if you think of it this way, but the market share that you have got, if you kind of put the main Verizon AT&T programs to the side. I'm sure that's within your target area. But if you look at the size of the market, aside from those 2 big pieces of business, how much share do you think you have? How much more opportunity is there for further growth? Keith Demmings: Yes, I still think there's a lot of white space in this market, particularly as we think about the globe. We're in obviously more than 20 countries around the world. Programs continue to mature. I think the product set continues to evolve. We've got a really deep value chain that we deliver across a wide range of services. So I think there's a tremendous amount of upside. And we're innovating, we're winning with new entrants and we're scaling in a way that's meaningful. So I do feel really good about that. And then maybe, Keith, you want to add? Keith Meier: And I think when you think about Connected Living overall on top of that, we have opportunities in the extended service contract side, and you saw that with Best Buy. And we also have our financial services business performing well with the addition of Chase and other marquee clients. So I think when you look at Connected Living, in terms of what the opportunities are in the future, I think there's a lot of white space and opportunities ahead. Operator: Our next question comes from Tommy McJoynt with Keefe, Bruyette & Woods. Thomas Mcjoynt-Griffith: Staying on the same topic here, you've had some really good success with those 2 largest carriers in the U.S. being Verizon and AT&T. Can you start off just rehashing reminding us all of the services that you're now providing for each of those carriers? Keith Demmings: Yes. Happy to do it certainly at a high level. And you're right. I mean we've been making progress really across the board in the U.S. with every major operator. And if you think back to the acquisition that we made of [ Hila ] back in 2020, a big part of that was they did a lot of great work with partners that we weren't necessarily doing as much with. So with Verizon, certainly, the growth that we've seen on the prepaid side, we support their visible brand, their total brand and now Straight Talk Wireless, and it's a fantastic relationship. We're innovating and launching new products and we're super excited there. We provide a range of supply chain-related services as well. And then with AT&T, we do a lot of work around the supply chain, historically, a big trade-in partner for us. And to your point, long-term opportunity, it's all about building deep relationships, solving problems, building trust over time and then looking to find creative ways to innovate. Thomas Mcjoynt-Griffith: And your remarks there sort of noting the fact that these large carriers often have different prepaid brands, something that I had admittedly overlooked. [ This is a ] similar dynamic exists on the postpaid side such that there could be an opportunity to win select postpaid segments for the big carriers? Or are those more of an all or nothing nationally campaign? Keith Demmings: Yes. I think -- I mean you could think of it. There are certainly opportunities if you separate consumer from enterprise, so you could have postpaid customers that are consumer branded versus enterprise branded small business, et cetera. But generally speaking, most of the postpaid is under a single brand, and it's managed by a single provider. Not to say you couldn't have a variation to that over time, but that's typically how it works. Operator: Our next question comes from Jeff Schmitt with William Blair. Jeffrey Schmitt: Could you talk about your growth strategy for the new Home Warranty business just in terms of building that out beyond the Compass partnership and how you plan on doing that? And are you building out the contractor network as well there? Keith Demmings: Yes. I mean, we absolutely are. I think first thing I'd say is we're super happy with the partnership we have with Compass. Obviously, we're still very early in terms of the ramp and the rollout, but there's complete alignment about the importance of delivering for customers, keeping the agents at the center of everything that we do. And then leveraging technology to integrate the offer naturally into the real estate process. So I feel really good. Volumes are ramping, the agents continue to get educated about our solution. And I would say our message and our vision of what we're trying to do is definitely resonating in the market. In terms of other opportunity, yes, I mean, right now, we're certainly having many conversations with potential long-term partners, whether that's with current affinity clients that we do business with today, or whether it's looking at additional opportunities to serve the real estate sector. I feel good, there's multiple ways for us to drive growth. And I think our solution is unique, and our story is resonating. So I'm super happy about where we're headed. But maybe, Meier, do you want to add? Keith Meier: Yes. And Jeff, you mentioned the contractor network. When you think about that, we have clients like Best Buy and Lowe's where we do a tremendous amount of appliance and all the related services in the home. And then we have other programs as well that round out several of the other home warranty services. So we have actually a very robust network that I think positions us in even stronger and better ways than some of the traditional players and we're able to leverage that. Keith Demmings: And remember, we've been working on this rollout for well over a year to bring this to market in terms of the product, the service network and the full solution set. So this is not something we started 3 months ago, even though that's what it feels like in terms of the announcement in the market. Jeffrey Schmitt: Right. Right. Okay. And then how much revenue is the new Best Buy legacy book adding in Global Lifestyle. And are those products, do they typically have multiyear contracts? How should we think about that ramp? Is it over 1 year, over a couple of years? Keith Meier: Yes, Jeff. And you should think about it as definitely the -- there's a mix of shorter-term and longer-term contracts, so they can range from a couple of years to 5 years, that kind of range. So those earn over time. And we also did the assumption in the fourth quarter as well. So that will help some of those earnings coming through faster than they would have otherwise. But overall, you should see that evolving over the coming several years. Operator: Our next question comes from Charlie Lederer with BMO Capital Markets. Charles Lederer: On the new announcements in mobile, is there any sort of upfront spending you'd call out that we should think about as offsetting the strong growth in EBITDA in Lifestyle that you're experiencing? And more broadly, can you help dimension the impact, the ramp we should expect on those programs? Keith Demmings: Sure. Certainly, U.S. Cellular was a move of an in-force block. So that starts to contribute immediately. There's a little bit of investment upfront to bring that to life, but that's behind us at this point. So I would suggest that's immediately accretive as we think about the run rate going forward. The other three examples, I would say they'll be accretive to EBITDA in aggregate, certainly this year. So there's not a big investment spend that would call out. I think they'll contribute positively this year. And then they'll ramp more naturally over time, but it's certainly not a drag as we think about '26. Charles Lederer: And then maybe just on auto, you're clearly starting to get better results. Do you feel like you're out of the woods on loss costs there? Written premiums were down a little bit in the quarter, and I'd imagine you're still fairly early days as far as being on risk on some of the policies that were underwritten in that inflationary '22 time frame. Can you give us a sense, I guess, on claims frequency of those vintages too? Keith Meier: Yes. I would say last year, we talked about being a bit of an inflection year for us. And we've seen that roll into this year. Auto had a good quarter. We had favorable loss experience continuing, and that also is aided by our prior rate increases, the enhancements we've been making to the claims processes, the product designs that we've been working on with our clients. And I think overall, it really speaks to the success that our auto team has been having and working with our clients to arrive at mutually beneficial outcomes. So overall, I think that we feel good about where that business is today. Charles Lederer: And just lastly, did you guys update your cat outlook? I don't know if I missed that for the full year. Keith Meier: Yes. So our cat assumption for this year is $185 million, up modestly from $175 million last year. That's mainly due to the growth of the business. And I would say in terms of our cat reinsurance, we were very pleased with the coverage that we secured this year. Our program costs are expected to be about $180 million. This year, down about $20 million from the $200 million from last year. And I think that really reflects the favorable market pricing that was out there, the strength of our performance of our portfolio. And then also we have a little bit lower Florida exposure. So overall, we've been pleased with how that's come together and that kicks in or kicked in on April 1. And from a comparative rate standpoint from last year, we were down north of 20%. And so overall, the outcome, I think, was very positive, and we kind of stayed in that 1 in 5-year PML for the retention and at the top of the tower, about 1 in 265 years, so pretty consistent from last year. Charles Lederer: Maybe just a quick follow-up on that. I mean should we think about the seasonality of your cat load being a little different just given the geographic shifts that you're speaking to? Keith Meier: Yes. I think it's -- as it has been historically, I think the latter half of the year with the hurricane season is typically the -- where it would be weighted more so to that and obviously, mostly in the third quarter-ish kind of time frame. Operator: Our next question comes from Brian Meredith with UBS. Brian Meredith: So a couple of them. First, just on the Global Housing, placement rates keep picking up here. And I'm assuming that's still a function of the tight homeowners market. I wonder if you could give us a little color on it. It seems like the homeowners market is starting to lease loosen up in some states even outside of Florida. Do you expect that placement rate to kind of peak out here and maybe trend downwards here as the market kind of opens up a little bit here? Keith Demmings: Yes. I mean we've talked about -- as we think about the year, we expect to add additional loans to the portfolio. We do think policy counts go up over the balance of the year. We'll see some fluctuation in placement rate. It hasn't really showed up yet in terms of the shifting away from the hard voluntary market. We're still seeing pretty strong growth in California and Texas. It's probably half the growth sequentially. The other half is other states and Florida is relatively stable. So I do feel like we haven't seen evidence of a major shift yet in terms of that trend line, but it's something we're certainly watching very closely. But we feel good about how we're positioned as we think about the full year within that business and the pipeline of opportunities that we've got that our teams are working on actively. Brian Meredith: Got you. And then my second question is you talked a fair amount about how AI is going to enhance, call it, customer experience and streamlining some processing functions, et cetera. I'm wondering from a productivity perspective, how you're kind of approaching it and is there any kind of KPIs or something we look at from a maybe margin enhancement or something that could potentially happen here over the next couple of years from what you're doing with AI? And that there's a lot of opportunity in your business for productivity improvements. Keith Demmings: Yes. Maybe I'll start and Keith can certainly add in, and we'll think about over time, if there are metrics that can make sense. I'd say there's no doubt we think we can improve the customer experience. So set aside efficiency for a second. There are so many ways to remove friction to serve customers better, which is great for business, great for our clients. That also comes with efficiency gains as well. I think there's phenomenal opportunities to upscale our talent, to protect our talent and leverage them in new and different ways. I think we're leaning into more personalized services as we think about matching various product designs for what customer needs look like. We're doing a lot of work around robotics and automation in our facilities. So there's a tremendous amount of leverage. I think this is going to be a game changer for our company over time. And I think we're incredibly focused on high-value use cases that we can bring to scale. And I think focus is key, and I think we're on a really good track to deliver that. But what would you add, Keith? Keith Meier: Yes. I think, Brian, as you mentioned, what kind of metrics to look at, I'll give you a good example of that. If you look at housing, our general expenses are in the last year are up 2%, and our revenues, our net earned premiums fees and other income is up double digit, 11%. And so you're seeing us through our technology, getting that expense leverage. And I think those are the -- those are continuing to be areas where our technology is certainly helping us from an efficiency and expense perspective, but it's actually also helping us differentiate against the competition and really be able to deliver the great customer experiences. So I think we win on both fronts, and that's why we're really passionate about the technology and having global platforms that allow us to make these things happen. Operator: [Operator Instructions] Our last question comes from Mark Hughes with Truist Securities. Mark Hughes: I had to switch screens there. So the fee income in Lifestyle was quite strong. You talked about good momentum in the reverse logistics program growth. I assume that's a contributor to that. I think the number of devices in service was up quite strongly. Was that helped by any particular programs in the first quarter, recognizing there's some seasonality there, but there seem to be a lot of strength. I know there's timing on some of these programs that can influence that business? How should we think about the coming quarters there in that dimension? Keith Meier: Yes. I think you were -- you were thinking about it right, Mark, in terms of it being driven by our trade in reverse logistics side of the business. Devices-service have been growing significantly, and that's where that fee income has been growing as well. And then you also highlighted there is some seasonality into that. So we had a very strong quarter as it relates to the trade-in side. And then we're looking forward to continuing the progress we have with our clients in providing these reverse logistics and other trade in services as we go forward. So we feel good overall about the momentum. Mark Hughes: Yes. Does that say nothing particularly unusual about the first quarter, no special programs. There's some variability there, but was there anything unusually robust about Q1? Keith Meier: Yes. I would say it's more of the seasonality. And then also, I think it was also contributions across multiple programs, Mark. And obviously, some of the newer programs gearing up as well. But I think it was well balanced with some seasonality. Keith Demmings: All right. I think that was the last question. So again, thanks for joining. We look forward to talking to everyone after the second quarter, and I know we'll see many of you at our mobile event in Nashville next week. So we look forward to that. And thanks again. Have a great day. Operator: Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.
Operator: Good morning, and thank you for joining us. I am Erica, your conference call operator. Welcome to Titan America's First Quarter 2026 Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the call over to Michael Bennett, Vice President of Investor Relations. Michael Bennett: Thank you, operator, and good morning to everyone on the line. Thank you for joining us for Titan America's First Quarter 2026 Conference Call. I am joined by Bill Zarkalis, President and Chief Executive Officer of Titan America; and Larry Wilt, Chief Financial Officer. Before we begin, I would like to remind you that, yesterday afternoon, we released Titan America's first quarter 2026 results, which are available on our website at ir.titanamerica.com, along with today's accompanying slide presentation. This call is being recorded, and a replay will be made available on our Investor Relations website. During the call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measure and reconciliations for non-IFRS measures are available in today's press release and accompanying slides. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as expect, believe, intend, anticipate and may, among others, or by the use of the future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from those forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as the risks and uncertainties described in our SEC filings. I would now like to turn the call over to Bill. Please go ahead. Vassilios Zarkalis: Thank you, Michael, and good morning, everyone. Thank you for joining us today for Titan America's First Quarter 2026 Financial Results Call. Yesterday, we announced our financial results for the first quarter. I would like to begin on Slide 4 by highlighting a few key messages. The first quarter is usually the weakest quarter of the year. It was a quarter that started slowly, affected by continued softness in the residential market and harsh winter weather in our Mid-Atlantic region. In March, the conflict in Iran exacerbated the geopolitical uncertainty, triggered inflationary pressures with increasing fuel and energy costs. Against this backdrop, Titan America once again delivered a solid first quarter performance with year-over-year improvement in our results, showcasing once again the resilience of our vertically integrated business model, the benefits from our ongoing strategic initiatives and the agility of our teams to execute in a challenging environment of mixed end market demand trends and increased uncertainty. First quarter revenue increased by 1.5%, while adjusted EBITDA was 3.4% higher than the same quarter of last year. In the first quarter, our Florida segment delivered robust performance, underpinned by strong participation in infrastructure and private nonresidential construction. We saw meaningful volume growth in aggregates, concrete block and fly ash that was partially offset by softer demand for cement and ready-mix concrete in the residential sector. Prices in Florida were modestly higher sequentially when compared to the fourth quarter of last year. The Mid-Atlantic region delivered strong year-over-year improvement in the first quarter, trimmed down by the impact of adverse winter weather on demand in the region. We are encouraged by the strong performance, which was partly driven by the start of substantial projects in the region, including data centers and public infrastructure. In addition, the quarter included benefits from both year-over-year and sequential growth in cement and ready-mix concrete pricing as well as operating efficiencies that drove adjusted EBITDA margins higher. On May 1, we completed the acquisition of the Keystone Cement Company. This investment represents an important milestone in our growth strategy, and we are very pleased to welcome the Keystone team to the Titan America family. Despite the challenges following our first quarter results and taking into consideration our current visibility for the year, we are reaffirming our full year 2026 outlook. We'll discuss our guidance at the end of the presentation. Let's move now to Slide 5. As communicated, as of May 1, we have concluded the acquisition of the Keystone Cement Company. We have now expanded our geographic reach in the markets of Pennsylvania, Ohio, Delaware and Maryland. In combination with our existing assets, we have strengthened our vertically integrated footprint in this region and are better positioned to capitalize on the strong secular trends. As a reminder, Keystone is a modern cement facility with approximately 990,000 short tons of current clinker capacity and serves a greater than 6 billion short ton addressable market. In 2025, Keystone generated revenue of approximately $97 million with an EBITDA margin of approximately 10%. We believe that we can deliver game-changing synergies for the acquired Keystone assets that will substantially grow both its top line and its margins. We expect to grow the output of the assets by significantly improving reliability with our proprietary real-time optimizers and predictive maintenance capabilities. We will drive strong benefits from raw material cost optimization, more efficient energy consumption and increased use of alternative fuels. In parallel, we expect to target the infrastructure segment in the region by capitalizing on the high-quality aggregates of Keystone. Our integration team is already on site, working together with experienced and knowledgeable Keystone colleagues. We look forward to updating you on our progress in the future. Let's move now to Slide 6 to discuss a recent exciting development for Titan America. In April, we announced the grand opening of the Titan America Innovation Hub in Miami. This collaborative center is designed to accelerate the development and scale-up of advanced materials, digital technologies and construction solutions, bringing together the most creative minds in construction, design, academics and sustainability. Through the innovation hub, we continue to innovate and expand product offerings focused on meeting the evolving needs of our customers for sustainable, high-performance products, services and solutions. There are major transformational themes in our industry such as resilient urbanization, digitalization and the need for smart materials, novel construction technologies and circularity. These trends create new value pools of high growth and high margins. As part of our strategy, we invest in innovation in order to tap these high-growth, high-value pools. Consider, for example, data centers. As someone said, the cloud is built of concrete, and we serve Virginia's data center alley, the largest concentration of data centers in the world. We do this with our proprietary AI-engineered concrete mixes, incorporating and enabling new levels of performance and sustainability. We capitalize on industrial reshoring by providing smart materials to enable fast-track construction for the next generation of manufacturing and logistics infrastructure. We incorporate circularity in our offerings, including expanded use of valuable supplementary cementitious materials like fly ash beneficiated with our proprietary electrostatic technology. We also offer ultra-durable marine-grade concrete and supply innovative blue-grade solutions inspired by nature such as patented 3D-printed concrete for the next generation of seawalls and reefs. Our hub is already operational, and you are welcome to visit and learn more about our innovative products and solutions. You can find more about the hub also on our website. I will now turn it over to Larry, who will provide a more detailed breakdown of our first quarter financial results and business segment performance. Larry? Lawrence Wilt: Thank you, Bill, and good morning, everyone. Moving to Slide 7. Let me share an overview of our first quarter 2026 financial highlights. The first quarter saw a mixed operating environment. Winter weather disruptions in the Mid-Atlantic region weighed on volumes during the quarter, while the macroeconomic backdrop introduced incremental uncertainty as the quarter progressed. Against that backdrop, we were pleased to deliver solid financial performance with year-over-year improvement in revenue, adjusted EBITDA and operating cash flow. For the quarter, we delivered revenue of $398 million, an increase of 1.5% compared to $392 million in the first quarter of 2025. Adjusted EBITDA for the quarter was $83 million compared to $80 million in the prior year quarter, an increase of 3.4%. Our first quarter adjusted EBITDA margin was 20.7%, an improvement of 40 basis points compared to 20.3% in the first quarter of 2025, reflecting the benefits of our vertically integrated model, pricing discipline and ongoing cost management efforts. Net income for the quarter was $33 million, consistent with the prior year quarter with earnings per share reflecting the impact of incremental shares outstanding from our 2025 initial public offering. Operating cash flow for the quarter was $62 million compared to $35 million in the prior year quarter, having benefited from lower levels of working capital and lower income tax payments. Free cash flow was $30 million in Q1 2026, reflecting the improvements in operating cash flow and steady year-over-year CapEx investments. And finally, our leverage ratio further improved to 0.58x at the end of Q1 2026. Turning to Slide 8. Let me walk you through our sales volume performance by product line. Total cement volumes, including external sales and internal consumption, were broadly stable, down less than 1% year-over-year with winter weather-related impacts in the Mid-Atlantic region and persistent softness in the residential sector generally offset by continued demand strength from infrastructure and private nonresidential construction. Total aggregates volumes grew 1.8% in the quarter, benefiting from the expanded production capacity in Florida, the strength of which was partially offset by lower volumes from our Mid-Atlantic sand sources. Total fly ash volumes were up 12.3% compared to the prior year quarter on higher utility generation and increased commercial push, while ready-mix concrete volumes decreased 2.1% year-over-year with delays in project starts in Florida only partially offset by sustained volumes from data center construction in the Mid-Atlantic. Concrete block volumes increased 9.7% compared to Q1 2025, driven higher by improved contribution from remodeling and renovation channels as well as shell contractor demand in select regional markets. Turning to Slide 9. External pricing improved sequentially from Q4 2025 across all product lines. On a year-over-year basis, cement pricing was flat, while aggregates and fly ash pricing, which were impacted by product and regional mix declined by 0.6% and 2.4%, respectively. Ready-mix concrete prices improved year-over-year, benefiting from a larger proportion of value-added product sales. On a year-over-year basis, concrete block pricing declined 2.1%, reflecting customer and end market mix as well as the softness experienced in residential demand during 2025. Turning to Slide 10. Let me focus your attention on our Q1 business segment performance. In Florida, we delivered strong results in a challenging market. Florida's external revenue was $253 million in the first quarter, essentially flat compared to the first quarter of 2025 as revenue growth from aggregates, concrete block and cement were offset by a lower contribution from ready-mix concrete. Adjusted EBITDA for the Florida segment was $73 million, an increase of 2.5% compared to $71 million in the prior year quarter. Adjusted EBITDA margin expanded to 28.6% in Q1 2026, up from 27.9% in the first quarter of 2025 as cost discipline offset headwinds from higher energy costs and tariffs. In the Mid-Atlantic, we delivered meaningful year-over-year improvement during the quarter, consistent with the constructive 2026 outlook we communicated during our fourth quarter call. Despite winter weather that got disruptions and suppressed volumes in the Mid-Atlantic region in January and February, our team executed well and delivered strong financial results and improved pricing in ready-mix concrete and cement were amplified by operating efficiencies, which more than offset the impact of tariffs and higher import costs. Mid-Atlantic external revenue was $145 million in the first quarter, an increase of 4.2% compared to $139 million in the first quarter of 2025. The revenue improvement was primarily driven by strong ready-mix concrete participation in regional commercial construction projects, including data centers. Adjusted EBITDA for the segment was $13 million compared to $11 million in the prior year quarter, an increase of 16% and segment adjusted EBITDA margin improved to 8.7% from 7.8% in the prior year quarter. As a reminder, the first quarter in the Mid-Atlantic segment included the impact of our Roanoke Cement plant's annual major maintenance campaign in both 2026 and 2025. Now turning to our balance sheet and cash flows on Slides 11 and 12. As of March 31, 2026, we had $228 million of cash and cash equivalents and total debt of $455 million. Our net debt position was $227 million, representing a leverage ratio of 0.58x trailing 12 months adjusted EBITDA, a further improvement from 0.64x at the end of 2025. Our strong leverage profile provides significant balance sheet capacity to pursue strategic growth opportunities such as the recent Keystone acquisition, while maintaining our commitment to returning capital to shareholders. With respect to Keystone, the acquisition was funded with a combination of cash on hand and a new term loan issued in April 2026 with a maturity date of February 2031. Slide 13 shows our capital expenditure profile for the first quarter of 2026. Net capital expenditures in the first quarter were approximately $32 million and remain focused on our previously communicated strategic objectives. These include increasing our domestic cement and aggregates capacity, improving the efficiency of our logistics networks and further enhancing our strong positions in select downstream channels to market. On Slide 14, I will remind you of our capital allocation strategy. As mentioned in our previous calls, we are focused on 3 key priorities: investing in the business, including organic growth opportunities, pursuing strategic M&A and providing returns to shareholders, all while maintaining a healthy net leverage profile. During our fourth quarter conference call, I discussed our organic growth priorities for 2026. These remain unchanged. Now that we've closed the Keystone acquisition, we expect to make further investments to deliver operational, commercial and logistics synergies as we incorporate the Keystone assets into our Mid-Atlantic network. With respect to shareholder returns, I would also like to announce that yesterday, our Board of Directors approved an issue premium distribution of $0.04 per share payable on July 7, 2026, to shareholders of record on June 18, 2026. With that, I'll turn it back to Bill for his closing remarks. Vassilios Zarkalis: Thank you, Larry. In conclusion, the first quarter demonstrated the resilience and quality of Titan America's business model in a stubbornly challenging operating environment. Despite winter weather headwinds, macroeconomic uncertainty and continued softness in the residential sector, we grew revenue and adjusted EBITDA, expanded margins and generated substantially stronger operating and free cash flow compared to the prior year period. Our teams executed well and the underlying fundamentals of our key markets remain constructive. Turning now to our 2026 outlook on Slide 15. As we mentioned during our fourth quarter financial results call, the recent surge in oil and energy prices due to the conflict in Iran has introduced additional risks in an already complex and uncertain economic backdrop. We expect softness in the residential sector to continue through the remainder of the year with a much anticipated inflection point potentially delayed to 2027. Despite the challenges, following our first quarter results and taking into consideration our current visibility for the year, we are reaffirming our full year 2026 outlook. On a like-for-like basis, we continue to anticipate low single-digit revenue growth compared to last year, with modest expansion in our adjusted EBITDA margins. This outlook reflects our confidence in the underlying demand trends in our markets, especially as we move into the seasonally stronger middle part of the year as well as our ability to execute and deliver benefits from our previous and ongoing strategic initiatives. It is worth noting that this guidance does not include the contribution from Keystone as we focus on integrating the acquisition and building out its full commercial potential. Before we open the call for questions, I want to express my sincere gratitude to all of our Titan America team members, and extend a warm welcome to our new colleagues from the Keystone Cement Company, whom we are proud to have now as part of the Titan America family. With that, I'll turn the call over to the operator for the Q&A session. Operator? Operator: [Operator Instructions] We'll take our first question from Philip Ng with Jefferies. Philip Ng: Congrats on a really strong quarter in a choppy environment. So great execution from the team. Larry -- I guess, Bill, to kind of kick things off, the Keystone acquisition, quite exciting. 10% EBITDA margins would certainly be much lower than I would have thought. Best-in-class cement assets, I think, are probably closer to 30% EBITDA margins. And I suspect your business is probably not too far from that. So what needs to happen to kind of get that? I mean, one, is there anything structural with the asset or the market? Or this is just we need to deploy the Titan America playbook in terms of capital deployment and bringing that business in-house? So just kind of give us some color in terms of what that profit profile could look like and if there's anything structural with the business. Vassilios Zarkalis: Absolutely. I think that element represents also the reason why we say that we're going to implement game-changing synergies in this asset, bringing the profitability up to norm for how we perform overall with our own assets. As we have explained, this is a value-accretive opportunity for Titan America. It's expanding and strengthening our geographic reach and our leadership position in the East Coast, adding important geographies like Pennsylvania, Ohio, Delaware, Maryland. We will expand and extend our integrated model. Also very important is to think that it's an acquisition of important aggregates assets, both for production of clinker, but also of infrastructure-grade aggregates. So it is a very important lever. And last, in relation to your question, we see game-changing synergies, as we said, in relation to optimizing and improving the margins, of course, by reducing the cost, improving overall logistics, energy consumption and bringing all the digitalization and elements of operational excellence that Titan America has been delivering for years. So a great opportunity for us, starting from that point that you mentioned. Philip Ng: Bill, like how quickly can you get this to a good margin profile? And is the assumption based on what you said, you can get this asset to something that we're accustomed to for the legacy Titan Cement assets from a profitability standpoint? Vassilios Zarkalis: Thanks, Philip. Good question. Let me just say that we have our integration team working already from the phase that we were doing the due diligence. And as soon as we start -- we signed the SPA, and we were ready to move in and start cooperating with our new colleagues at Keystone from day 1, and our teams are implementing already the synergies. In relation to specifics, if you allow me, we'd like really to be there for a couple of months. So we anticipate that in our upcoming second quarter analyst call, we're going to give you details in relation to synergies that we intend to implement and provide the necessary details that you need also for your models. Philip Ng: Okay. That's helpful. Question for Larry. Impressive, you reiterate the guidance, particularly margin expansion in a pretty inflationary backdrop. Can you remind us what are some of the inflation that you could see that could be impactful? I believe you've got pass-throughs for freight, which is helpful. And then certainly, on the pricing side, any update that you have out there in terms of the cement price increases, the ready-mix price increases and aggregates price increase that's out there for April? Do you need those price increases to stick to kind of offset inflation and drive the margin expansion you're calling for? Lawrence Wilt: Look, I think we operate in a year where we have some mixed environments, Phil. So if you look at what we put into our own internal thinking on this, there'll be some ZIP code area differences on these kind of things. So we do see opportunities on both price and volume, depending on where we are. And beginning in April, in those markets where the markets were stronger beginning in April, we've begun to pass through some of those prices that we're talking about. You mentioned pass-throughs on the cost side when you talk about pricing, for example, sort of the cost element of that on the energy side. Those, as you recall, are not as significant for us as you might imagine. They're 8% of our total cost of sales. And with that, we have fuel flexibility when we talk about energy costs at our cement plants. I think we've described that a couple of times in terms of the multiple fuels that we are able to burn there and the increased use of alternative fuels through those same facilities. We have implemented some capital projects. I think I described that in the last call as well coming out of Q1 out of the outage in Roanoke. We have a different and more flexible burner system there. And then Florida, where we've got an alternative fuels project that will enable us to bring further alternative fuels and bring down the cost in a further period, so beginning in Q2, Q3, for example. So we're optimistic on that front. Now the pass-through, as you described, you're right. We have -- for the diesel fuel that we consume within our business, about 2/3 of that is used in the delivery of ready-mix concrete, about 1/3 is used within the facilities themselves. One obviously has a direct opportunity for pass-through in the fuel surcharge. The other is reliant on price improvement to cover that to the extent that it continues. Every day brings different news. You saw today's news. Things may not be as grim as we had feared they may be in terms of longevity. So we'll take it day by day, but that's what's in our guidance. Operator: And we'll take our next question from Anna Schumacher with BNP Paribas. Anna Schumacher: I have 2. So firstly, on aggregates, how significant are your aggregates ambitions? And what makes Titan the partner of choice in this industry? And secondly, on -- again on cement, has there been any change in the cement import situation this year? Are they still disruptive in either of your markets? And if you can share your pricing expectations for '26, that would be great. Lawrence Wilt: Yes. I think on the aggregates question, you'll see obviously in our public documents, we are a well-positioned aggregates producer in some of our markets. We have ambitions to be bigger in some of our markets as well. But when you look at Florida, we are a good participant down there with good cost structure in our facility in the Pennsuco location, for example, I think Corkscrew is the one on the West Coast for us. So we see good opportunity for there. On the other calls, Anna, we may have described -- maybe perhaps you didn't have a chance to listen in. But on some of the other calls, we described some of the additional opportunities we have, taking advantage of newer mining technologies to bring some product up, liberated from what was remnant mining in effect from periods gone by. So that's a good opportunity ahead for us. We're investing to be able to do that. I think with respect to cement imports, -- and sorry, just as a follow-up comment here on Keystone as well, we have good opportunities in Keystone, as Bill was describing before, going into that new market, but our teams are just getting oriented around that location this week. Now when we go back to the cement imports you described, I think if your question was around patterns of cement imports, I think one of the challenges that we are going to face is some of the ocean freight, perhaps some of the war impact has had some delays on some of the loading of ships at some of the location points and some of that disruption perhaps coming in and the volatility perhaps in ocean freight is something that we have on our radar screen. So we are looking at that. But generally, the import strategy is no different than it was in the past. We have a flexible import model where we combine this local production that we have combined with the imports to give us the channels to market to our internal and external customers. That's the plan. Operator: And we'll take our next question from Wesley Brooks with HSBC. Wesley Brooks: So yes, a couple of questions from me. I guess first one, just coming back to Keystone. Just looking at that revenue number, what's it, $97 million in revenue on almost 1 million tons of clinker. It just seems like a very low realized price. So I wondered if -- is this because they just sell the clinker? I'm interested to understand that. I mean you're making about $160 a ton in your Mid-Atlantic region. So can you help us understand what's going on there? And is that a big part of the opportunity that, that is not doing something well there? Vassilios Zarkalis: The key issue here, Wesley, is not -- the clinker capacity is one thing. The important element is the reliability at which these assets are being run, and also certain limitations that reduce capacity utilization. And that's a great opportunity for us to improve capacity utilization and therefore, have a bigger output and more reliable output, which will allow us to increase top line. And of course, on the other side, as we mentioned, address unit cost and improve margins. So the roughly 1 million tons in capacity of clinker that we mentioned doesn't mean that actually this plant operates at this rate. Wesley Brooks: Yes, that makes sense. Okay. And then I guess, yes, my next question, following up again on the energy cost. As you say, you have alternative options for fuel, but the broader market, I think, has a higher exposure to energy costs in cement production. So I'm wondering, is this something that you think could be an impetus for further pricing actions that maybe are more sustainable? I mean, if we think of what happened during the pandemic, we had a lot of cost inflation. You guys -- I mean, that was really a positive for the market and for margins for cement players for longer term. Is this something that could be similar? Or do you think the market is broadly looking at more short-term, as you say, kind of surcharges and things like that? Vassilios Zarkalis: As we mentioned, our margin expansion and our results [ incorporate ] both our strong execution in the marketplace, capitalizing on positive trends in infrastructure and private commercial like data centers, logistic infrastructure, manufacturing, reshoring, power assets, hospitals, water systems, elements like this. But also a good part was our operational excellence and our ability to manage cost, including energy and fuels. Now to your broad question, whether this is an opportunity, clearly, the industry is faced with tremendous inflationary pressure, which clearly necessitate a price increase in the market in order to face these pressures, independent of what we do internally in order to manage it. So you're right, this environment, this backdrop against which we operate necessitates price increases. That's why Larry mentioned that we -- coming into the high season now, as of April, we implement price increases that were delayed in the first quarter, especially in the areas where we see growth momentum. And in the other areas, of course, trying to capitalize on the supply and demand situation. Operator: And we'll take our next question from Brian Brophy with Stifel. Brian Brophy: Just thoughts or intentions you guys have on potentially building out downstream assets around Keystone? Any color there? Lawrence Wilt: Okay. I think what we've said, Brian, is that we have existing assets in the area. So if you look at our broader business in the Mid-Atlantic, we have the fly ash businesses where some of the same customers are called upon by our current fly ash business, as is Keystone, serving on the cement side. We have now this ability to integrate and provide this bookended sourcing points that we described for the Mid-Atlantic and Florida -- the rest of the Mid-Atlantic and Florida with the Essex import terminal providing backstop reliability for Keystone as well, right? So this is a nice additional synergy that we get there. I think the thing that we said in the document is we have, nearby to this plant, just as close it is to Roanoke, our Northern Virginia ready-mix business, which is a big part of our ready-mix portfolio in the Mid-Atlantic. And that integrates nicely by itself with the acquisition that we have. Now I think we said we'll integrate where we think it makes sense, and this is something that will be considered. Vassilios Zarkalis: And it's a good question, Brian. I mean, like Larry mentioned, of course, we're going to capitalize and serve most likely from Keystone because it's better logistics and therefore, a better opportunity to serve our customers in North Virginia and Washington D.C. from that side. So there's going to be an immediate integrated model served from Keystone. We have strong positions with downstream customers in New York and New Jersey. And our Keystone business unit -- our Keystone colleagues have built strong relationships in Pennsylvania and Ohio. We have also positions there with our fly ash. So our first priority will be to capitalize on our upstream integration, with now cement, aggregates and fly ash, a different type of offering as compared to Keystone alone and capitalize on this virtual integration as we have with long-term relationships from our Keystone colleagues with downstream customers. So our first step will be to enhance our relationship with these customers to offer them more products and more solutions and create, as a first step, this virtual integration. Brian Brophy: Yes. That's really helpful. And then just as kind of a follow-up. Do you guys have any sense yet for how much CapEx is needed to execute on the synergies discussed for Keystone? Or do you just have a general sense for the capital intensity of executing on some of these? Vassilios Zarkalis: We have a good understanding that we developed through the due diligence and also the phase between the SPA and finally closing, detailed plans. As I mentioned, we will come with more details in our second quarter call so that you have more granularity. We want to take advantage of this in the next month to go deeper in our plans and provide more details. So -- but I can say that -- as a general comment that we don't expect high capital intensity in relation to our investments. We have the ways and the combination between the existing assets that we have and the assets from Keystone to synergize. So we don't expect high capital investments in order to deliver the synergies. Operator: At this time, we have no further questions. I'd like to turn it back over to Bill Zarkalis for any closing remarks. Vassilios Zarkalis: Thank you, Erica, and thank you all for your time today. We appreciate your interest in Titan America and look forward to updating you on our progress on our second quarter call. Thank you for joining, and have a great day ahead. All the best. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, and thank you for standing by. Welcome to Madrigal Pharmaceuticals First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to introduce Ms. Tina Ventura, Chief Investor Relations Officer. Please go ahead. Tina Ventura: Thanks, Brilla. Good morning, everyone, and thank you for joining us to discuss Madrigal's First Quarter 2026 earnings. We issued a press release this morning and put the slide deck to accompany this webcast on the Investor Relations section of our website. On the call with me today is Bill Sibold, Chief Executive Officer; Dave Sergel, Chief Medical Officer; and Mardi Dier, Chief Financial Officer. They will provide prepared remarks followed by Q&A. Please note on Slide 2. We will be making certain forward-looking statements today. We refer you to our SEC filings for a discussion of the risks that may cause actual results to differ from the forward-looking statements. With that, I will now turn the call over to Bill on Slide 3. William Sibold: Thanks, Tina. Good morning, and thanks for joining us. 2026 is off to a terrific start. We've made impressive progress towards our strategic growth priorities to maximize the value of Rezdiffra and build our pipeline. Rezdiffra has achieved blockbuster status generating more than $1.1 billion in net sales in the last 12 months. That's a $1 billion run rate in a market that's still in its infancy. Penetration is low, the diagnosis rate is low, unmet need is high and the market is expanding at a double-digit pace. When you put those fundamentals together, the future growth opportunity is quite remarkable. Competition has helped grow the market but not at the expense of Rezdiffra. Beyond F2/F3 MASH, we're advancing our F4C outcomes trial, where an indication expansion could double the opportunity for Rezdiffra. And because we believe this is one of the most compelling opportunities in the industry, we've moved quickly to build the leading pipeline in MASH. We added to it yesterday with a new siRNA asset that targets a mutation in the PNPLA3 gene, a genetically validated driver of disease in a meaningful subset of patients. When you step back, it is hard to find another opportunity with this combination of market fundamentals and product strength. We have a first-in-disease approval a foundational therapy, a rapidly expanding market, and we are building an industry-leading pipeline. We believe Madrigal is exceptionally well positioned to win here and continue to shape the future of MASH. I'll begin with an update on the Rezdiffra launch, hand it to Dave to discuss our pipeline and R&D strategy, and Mardi will wrap up with a review of our financials. Turning to Slide 5 and net sales. first quarter 2026 net sales were $311 million, representing year-over-year growth of 127%. This performance continues to reinforce that Rezdiffra is tracking in line with and, in many cases, exceeding the best-in-class specialty launches we compare ourselves to. Over the last 2 years, we have wired the system to drive Rezdiffra's growth. We built a large and growing prescriber base, secured first-line access with commercial payers and establish Rezdiffra as the foundational therapy in MASH. Combined with Rezdiffra's differentiated profile and strong patient adherence, our execution has enabled us to steadily add patients quarter-over-quarter as shown on Slide 6. We ended the first quarter with more than 42,250 active patients on Rezdiffra. On a year-over-year basis, patients on therapy increased by 2.5x compared to the first quarter of 2025. That is a significant achievement by any standard, but especially in a market that didn't exist before Rezdiffra's approval. This momentum reflects strong execution by the team the clear unmet need in MASH and continued demand from both prescribers and patients. And importantly, we are seeing that momentum carried into the second quarter. Slide 7 shows how quickly the MASH market is expanding. Since launch, we've seen the U.S. addressable market grow nearly 50% from 315,000 patients at the end of 2023 to 460,000 patients at the end of 2025. These are diagnosed F2/F3 patients seen by our target specialists. Rezdiffra's approval, together with increased industry investment has helped transform the market by driving greater awareness, referrals, diagnosis, specialist involvement and more patients seeking care. And yet, this market is still in its earliest stages. The diagnosis rate is just over 10%, and Rezdiffra penetration remains just under 10% of the 460,000 addressable patients. The MASH market has expanded rapidly and the opportunity ahead is substantial. That gives us a clear path to peak sales, and we believe no company is better positioned than Madrigal to capitalize on it. But being first in a large and growing market is only part of the story. We have established this leadership position because Rezdiffra delivering what the MASH market wants. And that is what Slide 8 highlights. After 2 years on the market, 3 things are clear. First, profile matters. Rezdiffra is the only approved liver-directed therapy in me. It has broad proven efficacy across all patient subtypes and is an oral, once-daily, well-tolerated medicine with no titration requirements. In a chronic disease, this profile is a key reason why we continue to see strong persistence and increasing depth of prescribing. Second, real-world performance matters. Pinnacle trials get a drug approved, but real-world experience determines a product success. With tens of thousands of patients treated, we've received overwhelming feedback from the community that Rezdiffra's efficacy continues to exceed expectations in the real world. This includes improvements across liver stiffness, liver fat, liver enzymes, LDL-cholesterol and Lp(a). This is the kind of real-world experience that builds confidence with prescribers and helps establish a true standard of care. And third, we have built not only a leading product but a leading MASH company. We have the right team, the right model and the right start in a market we developed from the ground up. We have executed one of the best launches in the industry where our differentiated specialty model has set a high bar for anyone launching in this space. And we have learned, refined and improved our approach along the way. We were first to market and now have a pipeline with more than 10 programs designed to extend our leadership over time. Our leadership is also reflected in our presence at key hepatology, gastroenterology and endocrinology-focused medical meetings this month where more than 40 Rezdiffra abstracts -- with more than 40 Rezdiffra extracts being presented. This includes a poster presented at DDW this week where nearly 70% of Rezdiffra prescribers surveyed said Rezdiffra has improved their patient's quality of life and nearly 70% expect to increase their Rezdiffra's use over the next 6 months. Later this month at EASL in Barcelona, we will present additional data that reinforce the breadth of Rezdiffra's effect. That includes a secondary analysis from our Maestro NASH and NAFLD 1 trials showing that reduced Lp(a) and LDL-C in patients with MASH supporting its potential to reduce cardiovascular risk independent of baseline statin use along with 2 real-world data sets that demonstrate Rezdiffra's benefit in everyday clinical practice. We believe evidence generation is a strategic advantage for Madrigal. The more we can show prescribers and payers about Rezdiffra's performance across clinically relevant endpoints, the more it's solidified as the foundational therapy. Everything we've discussed so far speaks to the strength of Rezdiffra in F2-F3 match, but there is another significant opportunity ahead of us in well-compensated mash cirrhosis or F4 C, as noted on Slide 10. It's an untapped market with no approved therapies and a much higher urgency to treat. We believe F4C to double Rezdiffra's opportunity with approximately 245,000 patients under specialist care in the U.S. We have an event-driven outcomes trial underway in 4 that, if positive, is expected to support expansion into this indication as well as support full approval across F2 to F4C. So before I turn it over to Dave to talk about our pipeline, let me reiterate how rare an opportunity Magical has. We were first to launch, we rapidly achieved blockbuster status and we are still at the very beginning of the development of this market. It's hard to find a comparable opportunity in the industry where the fundamentals are this attractive. And from that position of strength, we are now investing in the next wave of innovation to extend our leadership and define the future of MASH. With that, I'll turn it over to Dave. David Soergel: Thanks a lot, Bill. Our objective in R&D is straightforward: deliver the industry-leading pipeline in MASH to make better therapies for patients with Rezdiffra as the foundation. As shown on Slide 11, we're doing that through targeted business development and smart clinical execution, leveraging the expertise of an R&D team that pioneered modern mash drug development. Our strategy has 4 goals: first, deliver outcomes data and full approval for Rezdiffra from F2 through F4C. Second, advanced complementary mechanisms for combination with Rezdiffra to deliver the best efficacy across the mass spectrum. Third, remain modality-agnostic with development of the best combination regimens as our strategic gain. The recent addition of siRNA assets to our pipeline underscores that approach. And fourth, leverage our experience to design smarter, more informative clinical trials and use capital efficiently, taking more shots on goal and advancing only programs that serve patients' needs more effectively. The first pillar of this strategy is delivering outcomes data in FC on Slide 12. our confidence in the Maestro MASH outcomes trial is informed by the 2-year open-label experience in 122 F 4C patients from our Maestro NAFLD-1 trial. Those data are best understood in the context of how mash progresses to cirrhosis. The critical inflection point in this process is the development of clinically significant portal hypertension or CSH. It marks the transition from well-compensated disease towards decompensation when the most serious complications begin to occur. The literature is clear that patients with CFPH have meaningfully higher rates of liver-related events, and reducing CSP risk lowers those event rates. That's why the 2-year data are so important. 65% of patients with CFPH at baseline shifted into lower-risk categories by year 2. We also saw a favorable movement in other biomarkers, including liver stiffness and fibrosis-related measures. Taken together, these results support riders potential in F4C and reinforce confidence in our event-driven outcomes trial. The second pillar of our R&D strategy is advancing combination therapies anchored by Rezdiffra, which we know works broadly across patient subtypes. Slide 13 highlights our newest addition, ARO-PNPLA3, a clinical stage siRNA that we recently in-licensed from Arrowhead. We're especially excited about this asset for a couple of reasons. One, PML is a well-understood and known target for MASH based on extensive epidemiological and genome-wide association studies. Two, this is a clinical stage asset that has completed Phase I studies. And three, we know Rezdiffra works well across all patient subtypes, including PNPLA3. So a combo including Rezdiffra and this asset has the potential for improved efficacy in a subset of patients that are especially vulnerable due to their genetics. The PNPLA3 mutation is particularly prevalent among Hispanic patients. Compared to those with wild-type PNPLA3, [indiscernible] patients homozygous for the I148M mutation of PNPLA3 have a twofold higher risk of liver-related events. Approximately 30% of F2-F3 MASH patients are homozygous carriers of the PNPLA3 mutation making it a meaningful target for our development efforts. This asset is completed Phase I studies and demonstrated 2 important things. First, it's selectively effective in the genetically defined population of PNPLA3 homozygote. Second, after a single dose, it reduced liver fat by up to 46% at 12 weeks at the highest dose. We know from Maestro NASH that greater reductions in MRI-PDFF are associated with better fibrosis reductions with is different. So the goal here is straightforward. Combine a foundational therapy, Rezdiffra, that works broadly with a targeted agent that may move more patients into a high response category and potentially improve antifibrotic efficacy with a genetically tailored approach. Stepping back on Slide 14. Our pipeline now includes more than 10 programs. Rezdiffra continues in 2 Phase III outcomes-based trials. First, our F4C study, which is an event-driven trial that we expect to read out in 2027, and second, the F2/F3 study, which is primarily histology driven with data expected in 2028. These trials would make Rezdiffra the first fully approved drug with outcomes data, well ahead of other competitors. Moving down the pipeline for [indiscernible] Stat, or D2 inhibitor, the drug-drug interaction study with resmetirom remains on track to begin in the fourth quarter of this year, and we expect to initiate a Phase II combination study in 2027 following regulatory discussions. For MGL-2086, our oral GLP-1, the Phase I single ascending dose study remains on track to initiate later this quarter. For ARO-PNPLA3, our next step will be to engage with regulatory authorities on the Phase II combination trial. And our 6 siRNA targets are progressing at various stages of preclinical development. Our approach is consistent. We're building around a foundational therapy and prioritizing mechanisms that we believe are complementary mechanistically sound and capable of improving outcomes either broadly across the population or in important patient subgroups. Our goal is to ensure Madrigal is engaging with the community and driving the science, so we are delivering meaningful advances for patients. With Rezdiffra's long-term patent protection, we have the runway to invest, innovate and define the future of mash care. With that, I'll hand it over to Mardi. Mardi Dier: Thank you, Dave. Turning to Slide 15 and a summary of our financials. First quarter 2026 net sales totaled $311.3 million, up 127% year-over-year. We're off to a strong start in 2026. As we discussed on the last call, our results reflect the typical Q1 effect due to benefit plan changes in insurance reverifications plus a step-up in gross to net related to our commercial contracting efforts for first-line access. The team did an excellent job managing all the moving parts in the quarter. We were able to steadily add patients and our gross to net came in better than we anticipated. We now expect our gross to net discount to be in the mid- to high 30s for the rest of 2026. Looking ahead, the fundamentals of the business are strong. And as Bill discussed, Q2 is off to a great start. For the rest of 2026, we expect to steadily add patients and generate robust net sales growth. Moving to operating expenses, which include a total of $34 million of noncash stock-based compensation expense in the quarter. Cost of sales for the first quarter of 2026 was $26.8 million compared to $4.5 million in the prior year period. Cost of sales at this point primarily reflects royalties owed to Roche. R&D expenses for the first quarter of 2026 were $108.7 million compared to $44.2 million in the prior year period. The increase was primarily due to onetime upfront business development expenses of $54.3 million. As a reminder, the $25 million upfront payment and related expenses for ARO-PNPLA3 will be recorded in the second quarter. SG&A expenses for the first quarter of 2026 were $268.5 million compared to $167.9 million in the prior year period. The increase was primarily due to continued investment in commercial activities for Rezdiffra, including head count for the endocrinology field force expansion that occurred in the fourth quarter of 2025, as well as marketing efforts, including our DTC campaign. Looking ahead, we expect full year 2026 R&D expenses to be roughly the same as 2025 which is inclusive of the onetime upfront payments we've announced for strategic business development investments in both periods. We expect full year 2026 SG&A expenses to increase compared to 2025 with the annualization of the Endo sales force as we continue to support the launch of Rezdiffra and build the foundation for our expected long-term growth. This includes some choppiness with higher Q2 SG&A expenses in 2026 due to timing of certain marketing expenses, including DTC, then studies for the rest of the year. Net loss for the first quarter of 2026 was $94.4 million compared to $73.2 million for the prior year period. Net loss for the first quarter was inclusive of onetime upfront business development expenses of $54.3 million. While our focus remains on supporting our top line growth and building our pipeline, we are also preparing for profitability. Turning to our balance sheet. We ended the first quarter of 2026 with $817.9 million in cash, cash equivalents, restricted cash and marketable securities compared to $988.6 million at the end of 2025. The balance reflects several quarter specific uses of cash, including onetime upfront business development payments and timing of API purchases to support future Rezdiffra manufacturing. With this strong cash position, we continue to be well resourced to support the ongoing launch of Rezdiffra and the advancement of multiple pipeline programs and continued business development. So to close, Slide 16 captures what we've discussed this morning. Rezdiffra continues to deliver incredible commercial performance with a trailing 12-month net sales now exceeding $1.1 billion, and demand remained strong with patient growth more than doubling since Q1 2025. We are leading in a market that is still in the early stages of development, but has already expanded nearly 50% in the last 2 years. This reinforces both the scale and the opportunity and the runway that remains ahead of us. We also see significant upside beyond F2-F3 with F4C representing an important next phase of growth in an indication where there are currently no approved therapies. And importantly, we're not standing still. We're investing in our pipeline of more than 10 programs designed to build on Rezdiffra's foundation and extend our leadership across the full spectrum of MASH. Taken together, this is a company built for sustainable value creation. We believe Madrigal is exceptionally well positioned in 2026 and beyond. I'll now turn the call back over to Tina and open the Q&A session. Tina Ventura: Thanks, Mardi. Let's move into the Q&A portion of the call. Brilla, please go ahead and provide instructions for the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Prakhar Agarwal with Cantor Fitzgerald. Prakhar Agrawal: Congrats on the quarter. Maybe just on Rezdiffra. What are you seeing on the 2Q trends so far and the expectations for patient adds for the rest of the year? And as a follow-up, now that [indiscernible] has been on the market for MASH for a few quarters, what are you seeing on the impact to rise in the market, if any? William Sibold: Thanks for the question, Prakhar. Look, as we take a look at the Q2 trends, I mean stepping -- first of all, they're great. So I'll get to that in a second. Context over 42,250 patients on drug as we exit Q1, 2.5x growth over last year at this time, really impressive. And in the context of we are at the very beginning of a market. We fully expect this is going to be a mega blockbuster, $1.1 billion in the last 4 quarters, we're in a really great space. So to put in perspective, how are things going in the second quarter, we're off to a strong start. We're carrying that momentum. We're steadily adding patients. Maybe it's best to put it in the context of Wegovy that you mentioned as well. Wegovy had now 3/4 of launch that we've been out there. It's being used, but certainly not to the detriment of Rezdiffra. We continue to steadily add patients through it. You have to think Wegovy and GLP-1s are really becoming a background therapy. In fact, most of the doctors that we talk to say they're already on a GLP-1 when they come into the office. So they're coming into the office on a GLP-1 and they have F2-F3 MASH. So our profile looks really, really strong there. So it's out there. We're seeing them, but we're not seeing any real difference. And maybe as a final proof point as I talked about us having our best MBRx week in the last quarter. And as we exit April, it's been our best NBRx month since launch. So we're really excited about the rest of the year. We'll be steadily adding patients, just as we've said from [indiscernible] Operator: The next question comes from the line of Ash Verma with UBS. Ashwani Verma: Congrats on the quarter. So maybe just can you talk about the breadth of prescribing right now? And how do you think that would evolve? Is it fair to assume that bulk of the prescribing right now is coming from gastroenterologists. And when do you start to get traction from hepatology, which is kind of like a smaller patient audience and then endos when does that become a big source. And then on the 1Q new patient ad dynamic. So it seems like of 36,000 new patients that you added, which is lower than some of the recent quarters. We saw this dynamic in the first quarter of last year as well when you have 5,000 and then kind of doubled from there. So is it primarily the New Year insurance deductible reset that's driving that? And how does the rest of the year shake out on a new patient dynamic? William Sibold: Great. Thanks, Ash. Let me start there. So the Q1 adds, again, it falls into our steadily adding patients, and it is a Q1 effect. That's really it. I mean when you think about the Q1 effect, the Q1 effect applies to virtually 100% of your patients on therapy. And remember, what we are presenting is the number of patients that are on drug on the last day of the quarter, right? So you have patients that are coming in the top and then the patients that are on drug. So it is a -- that's the Q1 effect that you have since everyone is exposed to it. So as I said in the last question, we expect to steadily add patients throughout the rest of the year. Q2 is off to a strong start. Maybe the discussion then about breadth of prescriber. We have over 10,000 prescribers now, which is plenty of breadth for us, though we continue to add new prescribers every day. When you think about just the numbers of physicians, gastroenterologists, outnumber hepatologists, 10:1. So you're going to see the majority of prescriptions that are flowing through them. hepatologists, they were out of the gates a little faster. They have treated the disease longer, probably a little bit better prepared. In fact, we know they were better prepared. We had to wire the system practice by practice with the others. Endocrinology, they're just coming on board. It was really fourth quarter that we started our efforts there. And you have to think about endocrinologists as being where gastroenterologists were about 2.5 years ago, right? So it's something that they've been seeing some match, but they haven't really thought about it. Now they're starting to more actively look and we're wiring the system for each of those endocrinologists as well. So we see them as in the future being a really productive specialty for us. As I said, they see all these patients with background -- on background GLP-1s, yet they're still seeing F2F3 MASH. So we think that in the future, that becomes a valuable specialty for us as well. Operator: The next question comes from the line of Kripadwar Kunda with Truist Securities. Unknown Analyst: I have a question about patient mix. I think you just mentioned that GLPs are likely going to be backbone therapy. But you had also previously talked about how 25% of refer patients are on a combo. Can you talk about how that has evolved over the last few quarters? And also, some of the KOL tracks, not all that we've done, say that they prefer [indiscernible] for F2 would be helpful to understand the F2/F3 split that you are seeing in the real world? William Sibold: Yes. Thanks for the question. And you're right. We still continue to see 25-plus percent of patients that are on Rezdiffra also on a GLP-1 and over 50% have been previously exposed. So we expect that trend to continue. We expect that most patients that are going to come in, in the future will have had experience with the GLP-1. So those dynamics seem to be in place. Now your second question, was it's about? Tina Ventura: 50-50 still. William Sibold: And I know some people have thought, well, wouldn't prescribers want to clear the F3s first. And I think it has to do with you have a patient sitting in front of you that's 1 to 2 steps away from cirrhosis. Are you going to wait to treat an F2, not knowing how fast they're going to progress to F3 or to cirrhosis? And no, you're not going to wait. You're going to make the call on that patient what you think their risk factors are and initiate therapy. So we still see -- and that's been pretty consistent since the start of launch, about a 50-50 split between F2/F3. Operator: The next question comes from the line of Ritu Baral with TD Cowen. Ritu Baral: I have a more sort of high-level question on diagnostic growth as you see it, Bill, through the rest of the year and next year. Do you think that you could be that it could be worthwhile to spend more on disease awareness. Now that competitive diagnostic awareness programs may be slowing with the maturity of the GLP-1 launches in MASH, and how you think about maybe stepping up SG&A to support top line growth versus clinical development, versus your approach to profitability. And then if you have -- there's some client questions coming in on how you think about estimates for the full year, which still sit at 1.48, I think, but this change in gross to net. William Sibold: Okay. So let me start off with on the diagnostic growth question, Ritu. Thanks for the question. So look, I think the proof is in the market sizing that we've seen. In just 2 years, the market grew almost 50% from 315,000 addressable patients to 460,000 addressable patients. And we think that -- and remember, diagnosis went from 1.5 million to 1.9 million. What you're seeing there is that there are more patients that are being diagnosed. And most importantly, they're getting into the specialist offices that were calling on it so that there is a potential for them to get a Rezdiffra prescription. So I think our efforts -- and this is where we believe Novo's helped as well by creating more awareness of the disease. So I think that we've already seen the proof point that by having a product, by having more than one company, the market is growing. Now specifically on diagnostics, what we're also seeing is more and more interest by practices purchasing NITs and being able to do point-of-care diagnosis. And that's another good trend that we expect to continue over time. So I think that will also facilitate staging of patients and then the ability to treat and then most importantly, to see how the patients are doing over time. So maybe what I'll do now is turn it over to Mardi to answer the rest of the questions. Mardi Dier: Yes. Thanks, Ritu. And I think you had a number of questions embedded in there, so I'll pick through them. Starting with SG&A. Yes. So clearly, we want to support this what we think is going to be a mega blockbuster brand through the efforts of our sales force and our commercial efforts, including marketing campaign and DTC. And we talked about that -- and we talked about SG&A for the rest of the year, you're going to see an increase in Q2 and then steadies for the rest of the year. But absolutely, we want to be in front of the growth and support the brand as best we can. And then that leads to a question about gross to net for the year as well. So how did that look? So gross to net, as we said, we believe we have some favorability going into the rest of the year. We now have better clarity after we got through Q2. Remember, we -- this is a new brand. So we get clarity every quarter. This was a Q1 quarter that we look at what the various components are. And I would say the team did an excellent job managing gross to net for the quarter and set us up for the rest of the year. So we believe we'll be in the mid- to high 30s for the rest of the year. And I would say, for Q1, we were even a little bit more favorable to that, but we're in good shape on the gross to net side. So that leads us to now SG&A and gross to net, what we think for the full year. So the full year, yes. We are good with the consensus that you mentioned for the full year. That sounds good, and we're also looking good for with the same analogy. So we seem to be right on track and feel good about the rest of the year. And then the last point that you brought up was about profitability. As we look at it, profitability, we believe is inevitable. We're going to be a profitable company, and that's why we're preparing for profitability now. If we look at 2026 specifically, we're not going to be profitable in 2026. And specifically in Q2, with the PNPLA3 acquisition, we will not be profitable in Q2 either. Could there be other quarters where we tip into profitability perhaps, but it's really going to depend on our onetime spend. But beyond 2026 without specifics, profitability is inevitable, and we're planning for that. Operator: The next question comes from the line of Yasmeen Rahimi with Piper Sandler. Yasmeen Rahimi: Congrats to a strong quarter and also really great news on hearing gross tomato go down with one of our favorite questions. But let we transition to MAESTRO outcome. I mean we're almost halfway through the year. Would love to understand at what point do you really get visibility on how the events are tracking and fine-tuning guidance? And sort of also helping understand expectations. I know you take point that looks at the event rate you've been consistent saying they're tracking. Would love to kind of get sort of color on how you're thinking about what we could learn more around [indiscernible] outcome and the upcoming between now and sort of year-end to kind of crop us for a very important pipeline expansion opportunity. William Sibold: Great, Yas. Thank you very much for the question. And it represents a huge opportunity for us. This is a really high unmet . Dave, could you -- could I pass it over to you to answer the specific questions, please? David Soergel: Sure. Yes. Thanks, Yas. Yes, I mean, obviously, a critical study for us. And as we said, we're seeing events track in range of our expectations. -- and we continue to project the trial to deliver in 2027. With these smaller-sized trials, precision is sometimes difficult, and we want to give you a good estimate of when to expect that. And so when we have that precision, we'll provide you an update. But right now, we're still saying '27 events are tracking and we're excited to see the results. Operator: The next question comes from Eli -- more with Barclays. Eliana Merle: Bill, you alluded to this with patients coming in already on GLP-1, but can you elaborate on what you're seeing in terms of combination use with GLP-1 specifically, maybe the latest in terms of the proportion of risk creation also -- and then, I guess, what does payer coverage for combination looked like since [indiscernible] got the formal label for MASH? William Sibold: Great. Thanks, Ellie. We're still seeing around 25% of patients that are concomitantly on GLP-1 with Rezdiffra. And we think that's going to increase. That's our belief is that it's just inevitable. I mean there's just really so many patients that are on a GLP. Regarding access, we have great access. I have to say. I mean, since day 1 of launch, we have had, I would call it even exceptional access. And as we moved into 2026 with the contracting that we bid, we maintain that great access. I think it's like everything else, it's a subtlety. You can use a GLP-1 in combination with Rezdiffra if the GLP-1s prescribed for one of the other indications that GLP-1 is indicated in. Now what we haven't seen and don't have good data on is just if there's any that have a double mass prescription, we don't think payers would allow that, but they're certainly allowing a GLP-1 to be used for another indication and then Rezdiffra being used for MASH. And I think from what we're hearing more and more from prescribers is that having the combination makes sense in a lot of ways. And certainly, we believe that based upon us going out and getting an oral GLP-1 last year, we think that it is a combination that could make sense. If you recall, if we saw a greater than 5% weight loss in patients that were not on the GLP-1 and our Maestro NASH trial, that it led to an improved effect on fibrosis for Rezdiffra. So we're going to pharmacologically induce that, so to speak, with the GLP-1. That's the hope, and that's the study that, as Dave said, or we said previously, we have that Phase I study of our oral GLP-1 kicking off in the next weeks. Operator: The next question comes from Thomas Smith with Leerink Partners. Thomas Smith: Congrats on the quarter. Your pipelines expanded substantially here over the last 12 months, multiple [indiscernible] programs. The oral lift that you got 2 inhibitor. It sounds like a lot of optionality, but can you just provide some updated thoughts on the clinical strategy and positioning across these doublet or triplet combos, maybe the criteria you're going to use to advance these programs beyond proof of concept. And then can you also comment on your appetite for additional deals in BD following the string of recent deals? William Sibold: Thanks, Tom. Let me just provide maybe some context about how we're thinking about our pipeline. And then Dave, if you could jump into the specifics. It goes back to this opportunity that we have. We're at the very beginning of the treatment of the disease that's had no therapies and is an incredibly high unmet need, #1 cause of liver transplants for women in America, #2 for men. We have the foundational therapy and we expect that this market is really set up for decades of growth. We're at the front end with a foundational therapy that is really effective, and we're seeing that in the real world. Feedback has just been truly impressive from what we're hearing from prescribers that are using the product and from patients as well. So when you've got this opportunity with a product that's already a blockbuster to think about long-term leadership, you take that opportunity based on the success of Rezdiffra and the future dynamics of the market and the fact that so many people have decided to step out of the market. Pfizer steps out, J&J steps out, BMS steps out, et cetera, et cetera, based on failure with some of the mining Pfizer actually just -- they just can't bring it -- they couldn't bring it forward. So it was better in our hands. So what we've done is we've gone out and looked for mechanisms of action that we think make sense in combination with Rezdiffra. Those mechanisms may not have been strong enough, good enough to compete as a monotherapy. But if we can put them together with Rezdiffra and get even more efficacy across the whole population or a subpopulation, that is a step to long-term leadership. Either as a fixed-dose combination, if it's oral or is a regimen where you've got a once-a-day pill and in every 3- to 6-month siRNA, just like the deal that we did with Arrowhead, which we think is fantastic. We've also been able to do this in an incredibly capital-efficient manner. For under $300 million, we have assembled a leading pipeline. You just don't see that. I haven't seen that in any other therapeutic area. And we -- because of our leadership position, I think, have been able to access opportunities that others it probably wouldn't make sense for. So that's how we're thinking about it. And yes, we've done a really good amount of BD in the last 10 months now, I guess it is. what's our appetite going forward? Look, we're still constantly looking at everything out there that is potential in MASH. And where we see an opportunity that could make sense with the mechanism that we like and we don't have we would look at that opportunity and bring it in. But again, Think about how we've done it already, which is extremely efficiently, and we will keep that discipline going forward. So maybe with that, I'll just pass it over to Dave to comment on any specifics. David Soergel: Yes. That's a great summary, Bill. I mean I think the one way to think about it, as Bill was highlighting, is we have the foundational therapy, right? So we Rezdiffra to look for combination partners with to improve efficacy and improve outcomes for patients. So it's the idea. And our approach has been, we look for validated targets with complementary biology, and we're modality agnostic. So that's how we built the pipeline. We have small molecules. We have siRNAs, anything that could potentially work more effectively with Rezdiffra, that's great. Now it's important to start off with -- Rezdiffra also sets a high bar. Rezdiffra works very well across all subpopulations as we've seen from MAESTRO NASH. So our bar for bringing products forward when we conduct Phase II studies is that they have to be meaningfully that could deliver an potential meaningful benefit to patients at the end of Phase II. But our decisions will all be data-driven. And we've talked about a couple of different examples where we talk about, for example, PNPLA3, where there's a very specific patient population that we're targeting. So patients who are homozygous for I148M, PNPLA3 mutations, again, highly prevalent mutation, highly burdensome in terms of clinical outcome. But we believe that with Rezdiffra as the foundation, adding PNPLA3 may provide an even greater benefit for those patients. And as Bill was just highlighting for GLP-1, it's a different strategy, right? So that's to produce modest but important weight loss for patients that can drive Rezdiffra's antifibrotic effect. So what we're looking for in early clinical development in these sort of initial combination studies are primarily will be biomarkers like changes in MRI-PDFF, but also other biomarkers of fibrosis and other blood-based and imaging biomarkers to help us make decisions about what to move forward into Phase III. But that Phase III transition has to be underpinned by data that leads us to believe that these products are going to be meaningful additions to the therapeutic armamentarium. And in every case, we believe that these programs all have that potential. William Sibold: Right. And just maybe to put a finer point on it as well. If they show a benefit, move them forward fast, if they don't, kill them fast. And that is a little bit of a -- again, another difference at Magical because we're not beholden to a single pipeline asset performing for the company to actually be something, we can be ruthless in our prosecution of these trials and we will. If it works, great. If it doesn't, I mean, great, we move on because we're already starting with the product that we have, which is Rezdiffra, which is the enabler of this strategy. Operator: The next question comes from Akash Tewari with Jeffries. Unknown Analyst: This is Manoj on for Akash. Just one on from [indiscernible] So master outcome baseline post show around 150,000 mean platelet count in the population. While this seems lower than the around 180 in the symmetry Phase II, it still seems to be higher than the FC, the LA data you were showing like which was, I think, around 120,000. So -- in the oil data you saw around 2% to 3% of [indiscernible] even, but given this outcome that baseline population platelet count is above that data. Do you expect to see some difference in the even rate there based on this platelet count difference, mean platelet count difference? William Sibold: Great. Thanks for the question. Dave, I'm going to pass it over to you. David Soergel: You got it. Yes, so you're highlighting a really important point, which is in these F4c trials, you have to ensure that you enroll the right patient population within the F4c population. F4c is not a monolithic disease, right? So patients who've just transitioned, for example, from F3 to F4 might take them a while to progress to decompensation, whereas patients who have CSPH, plenty significant portal hypertension are right on the cusp of having a decompensation event -- and those are the patients that are more likely to drive events in the near term. So as you're highlighting, one way that you measure clinically significant portal hypertension is including platelet counts, along with liver stiffness measurements, using the Baveno criteria. And as we've talked about before, in our -- both in our open-label extension study and in MAESTRO outcomes, we've allowed patients with low platelet counts, so greater than or equal to 70,000 to enroll in the study. So there are patients with quite low platelet counts. And that's not uniform across all Phase III protocols. So we believe that our outcomes trial is enriched exactly the right way. So using a variety of criteria to enrich the population to make sure that we see the outcomes as we are and yet have an opportunity to bring these patients back from the brink of big on the cusp of decompensation and bring them into less urgent stage of their disease. So I think on that basis, if you look across the open-label extension period -- open-label extension study and MAESTRO outcomes, the populations are broadly comparable. There are going to be some differences just because the sample sizes are very different. But the inclusion criteria are very similar and we are seeing rates of CS PH in both studies that give us confidence. Paul, I think we'll leave it there. Operator: The next question comes from Michael DiFiore with Evercore ISI. Unknown Analyst: Congrats on all the progress. Two for me. First, on PNPLA3, that was previously partnered and later returned to Arrowhead. And without asking you to speak for J&J, can you walk us through what Madrigal saw in the asset that made it attractive today? And what diligence gave you confidence in the program? And then I have a follow-up. William Sibold: Great. Look, maybe just a general statement, and I start with that, then I'll pass it to Dave. A lot of companies, big pharma have opted out of match, right? They either had failures or they thought they have a single asset, maybe it's not enough, which is a little bit different than us. But Dave, I'll pass it over to you to ask a specific question about why we're so excited about this asset. David Soergel: Yes. Look, I think -- I mean, you touched on it before, Bill. I mean, I think starting with the fact that we have Rezdiffra we think in our hands, adding a PNPLA3 targeted agent could deliver even better efficacy of patients who are homozygous. So again, coming back to the strategy, so validated targets complementary biology to Rezdiffra and being modality-agnostic, so why did this asset sort of fit into this? So well, clearly, it's a validated genetic target. PNPLA3 is a validated genetic target clearly linked to more rapid and progression of disease of mash and emergence of liver-related events in patients who are homozygous versus those who are wild type. And I think second, it's a proven modality. So siRNA as we've seen with other products getting to the products -- siRNA getting to the market, it's a safe modality that you can deliver once every 3 to 6, even up to 12 months. So a highly attractive modality with great tolerability. And then last, there are clinical data, right? So we had we had Phase I data in patients where we could see reductions of liver fat. So we had a proof of concept in Phase I and as we've seen with the Maestro NASH data with Rezdiffra, if you can reduce more liver fat, we can see more efficacy with [ resmetirom. ] So again, the complementarity of these 2 mechanisms was particularly compelling as well. So I think for all those reasons, we bring in a clinical stage asset, advance our pipeline and have a potential offering for patients who really need a therapy. William Sibold: Yes. And I mean, look, it was a 46% reduction in liver fat. So I mean, that's pretty impressive efficacy from our perspective. And let's see what happens when you put it in combination. I think it's a really exciting question to ask. And look, it's been through Phase I, right? This is an acceleration of our siRNA efforts. Operator: The next question comes from Andy Chan with Wolfe Research. Unknown Analyst: This is Brandon on for Andy. We're curious to know if you can rank order the different NASH combos that you have, which one are you most excited about clinically? Thanks for the question. I'll pass it over to my view is it's whichever one works the best is going to be the one that we like the best or those that work the best. But Dave, how are you thinking about it? David Soergel: Pick amongst our children. I mean I think they're -- look, we brought them in. We brought each of these assets in for the reasons that we've talked about because they all have the potential to significantly move the needle on efficacy for a subpopulation or within the broader group. The decision is about which to move forward into Phase III programs and ultimately to registration, depends on the combination data. So as we've outlined, we have -- because we're focused on MASH and we have experience in this field, a lot of experience running clinical trials in MASH. We know the sites well. We know how to run the trials. So we're going to be able to be efficient, run these studies and deliver the data that helps us make that decision. But as I said, the data have to be meaningfully different. So for PNPLA3, like Bill said, 46% reduction in MRI-PDFF is great. combined with Rezdiffra, if that's even more, we push more patients into that super responder category, amazing. We're going to bring that program into Phase III. And that's true for all of these programs. So it's really will come Phase II, and we'll move the programs forward in a way that's going to make sense to build the pipeline and to deliver value to patients. Operator: The next question comes from Jon Wolleben with Citizens. Jonathan Wolleben: Congrats on the progress. Bill, you made a comment about, I think, a path to peak sales. And I'm wondering if you could talk a little bit about what that path looks like in terms of timing, how long you get there and how big you think reefer could be down the road? William Sibold: Thanks, Jon. You noticed. Look, I think that in our belief, this is going to be a mega blockbuster. How do we get there? We continue to do what we're doing. We have the diagnosis rates increasing. We have more patients get on drug, we steadily add patients and we build our path to feed sales. I think it's pretty straightforward. We just continue to do the hard work we're doing. There's plenty of patients. The market is growing penetration rated low diagnosis rate at the moment is low. All of these things are increasing. So there's literally years and years and years ahead of this market expanding. And as I said earlier, as more companies come in, it actually helps us because it drives market expansion. Our initial focus was always on that 315,000 just who was sitting in those prescribers' offices, at the moment. Fortunately now, we even have more potential with the advent of other companies coming in and driving diagnosis, et cetera. So keep doing what we're doing, steadily add and we'll find our path to peak. Tina Ventura: Great. Thanks, Jon. Operator, we have time for 1 more question, please. Operator: And the next question comes from William Wood with B. Riley Securities. William Wood: Congrats on a very nice quarter. Just thinking about in terms of your pipeline, as you said, you've got about 10 pipeline assets as is. should we expect any more add-ons to your pipeline? And if so, what might you be looking for, whether it's more oral options, more siRNAs or maybe something that we're not really discussing here. And then also in terms of just sort of in terms of that go, no-go situation, I was curious if any projects that you've sort of brought on or been developing internally has sort of hit that threshold that you've already called and maybe speak to anything might have changed where you're looking in the future or if you're pretty content with what you're guiding now you're just looking to execute. William Sibold: William, thank you very much for the question. Look, we have assembled, I think, the leading pipeline in NASH, and we've done it for less than $300 million. again, as I said a few things, it says a lot of people still aren't interested in mesh, which is great because we are, and we're in a better position to lead the innovation based on our ability to use Rezdiffra's foundational backbone therapy. So yes, we're still looking. Clearly, we've taken quite a bit off the table for us to pursue. But it will be very mechanistic-driven is there something that we think looks particularly interesting. There's still I would say a couple of mechanisms out there, which look interesting. Then the question becomes finding one and finding one that's transactable. So expect that there may be additional. Certainly, we'd like to kind of round out the pipeline, if you will, with our -- with the remaining -- some remaining mechanisms, but we're a big way through it now. Efforts are really focused towards now getting these in the clinic generating data and being able to make decisions. So that's how we're thinking about it. But it's really, again, in less than a year's time to have come from a single asset company, that has an incredibly promising future growing into a mega blockbuster to now, because of that success, be able to build that next stage of leadership, which we think is really long-term focused. Tina Ventura: Great. Thanks, Bill. And thank you, Brilla, and thank you all for your time and interest today. This now concludes our call. A replay of this webcast will be available on our website in about 2 hours. Thanks for joining us. Operator: Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Have a wonderful day.
Operator: Welcome to the Pan American Silver First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Siren Safety, Vice President, Investor Relations. Please go ahead, Mr. Seki . Siren Fisekci: Thank you for joining us today for Pan American Silver's conference call and webcast to discuss our first quarter 2026 results. This call includes forward-looking statements and information and references non-GAAP measures. Please see the cautionary statements in our MD&A, Q1 news release, shareholder return framework news release and presentation slides for the period ended March 31, 2026. All of which are available on our website. I'll now turn the call over to Michael Steinmann, Pan American's President and CEO. Michael Steinmann: Good morning, everyone, and thank you for joining us today. I'm pleased to report another solid quarter of operating performance, delivering strong operating earnings, attributable silver production of 6.4 million ounces and attributable gold production of 169,000 ounces were in line with our outlook. Silver segment all-in sustaining costs of $6.63 per ounce came in well below guidance while gold segment all-in sustaining costs of $1,851 per ounce were consistent with expectations. . The performance on Silver segment costs was driven by the contribution of low-cost ounces from June CPO and the impact of higher gold prices. Revenue of $1.2 billion was impacted by the buildup of approximately 644,000 ounces of silver in inventory, primarily at La Colorada due to the timing of concentrate shipments. Net earnings were $456 million or $1.08 per share and adjusted earnings were $1.09 per share. We continue to generate strong levels of free cash flow, reflecting both our operating performance and favorable metal prices. In the first quarter, we generated $488 million of attributable free cash flow. This has further strengthened our balance sheet, and we ended Q1 with a record cash and short-term investment balance of over $1.8 billion, including cash attributable to our interest in QuaneCpO. The strength of our free cash flow generation and balance sheet has enabled us to introduce an enhanced shareholder return framework. The new framework targets the return of 35% to 40% of annual attributable free cash flow to shareholders through a combination of dividends and common share repurchases under our normal course issuer bid of up to $1 billion. We expect to pay aggregate dividends of approximately $305 million during 2026 equivalent to a quarterly dividend of $0.18 per common share based on the current share count and use approximately $700 million for share repurchases. By accelerating share repurchases, we aim to enhance long-term per share value by increasing each shareholders' exposure to our high-quality portfolio and supporting sustainable growth in dividends over time. This enhanced shareholder return framework reinforces our disciplined approach to capital allocation while maintaining sufficient cash for growth and M&A activities while providing resilient shareholder returns across commodity cycles. Focusing on growth. The release of the revised PA of the La Colorada expansion in March provides greater clarity on the capital requirements and long-term potential of this important organic growth project. The expansion is expected to produce an average of 19.1 million ounces of silver annually during the peak 5 years following construction and ramp-up. The revised PA represents a huge improvement over the original study with higher grades, lower capital intensity, stronger overall returns and reduced technical risk due to the use of a conventional long-haul open stope mining method. The project improved as a result of continued exploration success, which identified new high-grade veins east of the current mining area. Exploration drilling continues to intersect mineralization beyond current resources, highlighting the potential to further expand the resource base and extend peak production. The Board approved $265 million in project capital over the next 5 years to support development of a ramp to access the car monetization. We now expect to spend between $92 million to $95 million on the La Colorada can project in 2026 increasing consolidated 2026 project capital guidance to between $240 million and $255 million. We're also making progress at our Jacobina optimization project. During Q1, we completed construction of 2 new carbonate pulp tanks and implemented improvements to the tailings pump system. One of the most significant opportunities we see at Jacobina is simplifying and optimizing the process plant flow sheet. Conceptual engineering is nearing completion, and we will transition to basic engineering in the coming months. We also expect detailed engineering for a filtration plan, filter tailings stack and the temporary mine-based factory plant within the coming months. At Escobal, the government of Guatemala is continuing the ILO 169 consultation process and engagement has been ongoing, including recent site visits to review care maintenance activities and confirm compliance with the court order suspension. At this time, there is no time line for the conclusion of the Escobal ILO 169 consultation or for the restart of operations at the mine. Given our strong operating performance in the first quarter, we are maintaining our full year outlook for production, all-in sustaining costs and sustaining capital. We expect some gold production to shift into the fourth quarter of 2026. We are monitoring potential cost pressures, particularly related to fuel prices. Due to most of our mines being underground, our direct exposure to fuel is relatively limited, approximately 5% of total operating costs. Higher fuel prices can have broader inflationary effects including on labor and consumables. We remain focused on managing these pressures proactively. To recap, 2026 is off to an excellent start. We delivered another strong quarter. We are generating robust free cash flow, production and costs are in line with our guidance, and we have introduced an enhanced shareholder return framework that reflects the strong cash generation. And with that, I'll turn the call over for questions. Operator: [Operator Instructions] Our first question is from Fahad Tariq with Jefferies. Fahad Tariq: You mentioned just now the impact of higher diesel potentially on consumables and labor. Can you maybe just mention have you started to see any consumable prices started to go up or anything that you're hearing from your suppliers? Michael Steinmann: Yes, Scott, can you take that, please? . Scott Campbell: Yes. Not significantly, no. We've seen some increases in the cost of geosynthetics minor, very mines and cost staff transportation, where the increase in fuel cost has been passed on to us, but nothing to do in any of our operations. . Fahad Tariq: Okay. Great. And then maybe just 1 more for me. On the Silver segment ASIC, which was very low this quarter, in part because of the byproduct credits at Cerro Moro. Can you maybe just talk about it would have to trend quite a bit higher to get to the full year guidance. Maybe just talk about the -- like how that's going to happen and whether it's possible for ASIC to come in lower than the guidance range? Michael Steinmann: Yes, great quarter on the silver cost, as you say. Mostly driven, I think it's pretty clear which when you see strong production there. As you recall, that was 1 of the attraction of that mine that we have a strong silver production at compared with very low cost. And then as you mentioned, the back product credits, et cetera moderate been very strong this quarter. . Look, this is 1 quarter of the year, we'll obviously reassess midyear if we going to reguide our cost. But after 1 quarter, we just decided to leave it where it is. But a great start for the year on the cost side for sure. Operator: The next question is from Ovais Habib with Scotiabank. Unknown Analyst: Really congrats on a good quarter, again, especially on the silver segment costs. Also, the shareholders' return program was a nice positive surprise as well. So -- that was great to see. A couple of questions from me. Maybe starting off with anasepio. Manasepio consistently has been showing some positive grade reconciliation over the last couple of quarters. How do you guys see this kind of grade kind of shaping up throughout the year? And then how should we look at things kind of moving on more in the future? Michael Steinmann: Yes. I will start, and we'll have the taking giving a little bit more detail on that. Absolutely. Look, we have seen this great outperformance at Juanicipio for many quarters. even before we purchased the asset. It's a great mines, as you know. And we -- I think 1 of the main reasons that we find some more tonnes higher up with higher grades. But just to remind me, these are very similar systems than what we see at La Colorada. So very high grade silver, some gold, high-grade gold, higher up to surface. The deeper down you go in to mine the deeper and higher grade, you could get into base metals and that's why like at La Colorada and the same will be valid for Juanicipio will be wanting to exploration, you discover additional veins that you plan in and you start mining higher up again, you bring in higher silver grades. So that's kind of the system, that's the geology of all these systems in that Silver belt of Mexico, Semconisivia. So as I said, the main structure, the grade will go into more base metals, more zinc and then later age when you go deeper down but as you see, very strong outperformance on the silver side up to now. And I think we'll see that, that decrease coming at 1 point, obviously, our decrease just on silver, and as I said, very strong increase in base metals. But at the moment, we are enjoying these high grades. And I think that, that slight decrease will be quite a bit slower than we probably anticipated. Unknown Analyst: And just maybe quickly, moving on to Lacurada. In regards to the PA that you announced, obviously, a lot of drilling was left out on that and there were some very high-grade results and good structures that you guys have delineated. Are you expecting to release some sort of an updated study incorporating these results? Or any sort of optimization work that you've been doing in the background? In the next couple of quarters? Michael Steinmann: Definitely, we'll put that exploration update and include, obviously, this data in our midyear reserve and resource update that we normally published somewhere in August. So there, you will get a new idea how it looks like. Just you said left out. We didn't really leave them out just there's a lot of work to obviously come up with an updated PEA and the whole mine plan and everything, while our geologists are very excited on that project and keep drilling a lot and create a lot of data. So there's always quite a long, I wouldn't call it lag, but backup data that comes in a bit later on. So that will continue as we have many drill rigs working at La Colorada, and there will be constantly new data coming in. So again, we will come out with updated exploration results and then include that in our updated reserve resource estimation. Unknown Executive: I'll just tee has some more additional comments to that. Sorry, it's Steve -- but here. I just wanted to add -- so we won't -- we will delay the next report in terms of like a PFS update because we have such a long schedule for this initial development of the ramp and eventually the shaft those are kind of taking precedents of the development schedule. So we want to get those early works projects going and get those moving along -- and then we'll go back and start doing additional engineering and such for the plant and surface infrastructure. So as Michael said, we'll update resources along the way, but we won't come out with a new mine plan right now for a couple more years, at least. Michael Steinmann: But just to add to that, of -- as you probably saw in the press release, Board approved the first tranche of capital for the La Colorada scan. That's a great milestone for this really, really important and large project for us. La Colarada is going to be 1 of the biggest and lowest cost saver mine in the world. And we approved the first $265 million to advance a ramp down from the existing mine to the car. That's along with about the 5-year project to build that ramp. So you can imagine that in ground and conditions that we are very familiar with, we drive many ramps, but this ramp will be very special for us as it will access the Sharp is the first important part of capital spent on the La Colorada skarn project. And it was important to get that started because that's really kind of 1 of the slowest piece of the puzzle, if you want to say so, to put it all together. As Steve said, building the new plant and surface infrastructure, there is plenty of time later on. Operator: The next question is from Cosmos Chiu with CIBC. . Cosmos Chiu: Michael and team and congrats on the strong start to 2026. Maybe on Skarn again, good to see that you've committed $265 million for the initial internal ramp. Could you remind us in terms of the dimensions of the internal rep, is it going to be sufficient for production? Will it eventually be used for production or most of the hosting is going to be coming from the East hoisting shaft. Could you maybe help us picture it in terms of how this is going to eventually work? . Martin Wafforn: Sure. It's Martin Walton here. Yes, the decline we're driving at 5.5 meters by 6 meters. So a big decline with the intention of putting big-size trucks in the order of 50 tonne capacity trucks, and we use those to hold up to the 588 and then we'll use other trucks to take of waste that we're generating from this is actually 12.4 kilometers of development that we're going to do over the next 5 years. That will all go up to surface via the other decline. Our long-term production, we all go up the East production shaft. That's the plan. But we will have this ramp that's available as well. But a long-term plan, as I said, is to just use the shaft for hosting the order service. Cosmos Chiu: Great. And then the other part of capital returns Michael, as you mentioned, great to see the new enhanced shareholder return framework now in place. I guess my question is, is it as simple -- when we try to figure out how many shares you might buy in each quarter. Should I -- for example, in Q1, you generated $488 million in free cash flow. As an estimate, can I multiply that by like 35% or 40% of subtract of what you would normally kind of give out in each quarter to figure out how many shares you could -- of course, it's going to be dependent on the levels of Pan American Silver shares but is that kind of like the sort of how we would execute on that framework? Michael Steinmann: Yes. Look, I mean, what we announced is up to $1 billion of return on part is dividend. The dividend is kind of fixed at a total amount of $305 million for the year. So while we're buying back shares, the return on the dividend per share we slightly and slowly increase with more buybacks in place. So that's another additional interesting addition here to our capital return framework. We looked at the past returns we had. Of course, we increased the dividend 3x over the last quarter. But our cash flow generation is so strong right now and the big projects that we are building, there is enough capital or our growth as well, and you probably saw we are already at about $1.8 billion between cash and short-term investments, so the Board believes that we can return up to $1 billion. I believe that, obviously, too, we are right on track for that. And that's kind of the plan. So how many shares we can buy well, that, as you said, will depend on the share price for that. But we'll really try to aim for the $1 billion return this year. Cosmos Chiu: And then I guess on that, I noticed that in Q1, you utilized -- not a lot of it. You bought back about 460,000 common shares in Q1, which is not a lot given that if you want to hit those some of those numbers I just mentioned you might need to kind of buy back 10 million shares for the rest of 2026. So I guess my question is, in Q1, why were there not more shares being bought back? Was it due to a level in terms of where you were trading at as you mentioned in the press release. The share buybacks were $54.04 a share in Q1? Or was it just due to the fact that in Q1, you did not have this enhance shareholder return framework put in place just yet? Michael Steinmann: Really, a combination of the framework wasn't in place and very important to remember, we put out updated PEA, and there was quite a while we were in a blackout and I couldn't really repurchase shares for a while. So until we had all that information out. As soon as that happened, started repurchasing shares. So that was the reason for that kind of delay. But as you can imagine that we will step up that repurchase pretty strongly to get to that total $1 billion return for the year. Cosmos Chiu: Maybe 1 last question in the same press release, you talked about other projects, including the Timmins project, the extension of the Bell Creek shaft, not didn't really get a lot of airtime, but I think it could be important. So maybe if you can touch on that a little bit as well as some of the exploration opportunities that you have mentioned for that area? Michael Steinmann: Yes, definitely important. And there's so much room in the press release. We will, of course, give a lot of details on that during our Investor Day, but very exciting to lower the chest and had many, many years of future production to Tim and so maybe, Martin, you want to give us some more color on the shelf extension? Martin Wafforn: Yes, great project delighted that it's announced, actually, the idea is that we're going to extend the shaft by another 625 meters from the current 1080 level down to $17.05 million -- it's actually going to be developed using Alumacrasers. So we'll come in Alimak up from 2 levels as we go. It's a $131 million total investment -- and it allows extension of Bell Creek well into 2040. Actually, we think right now around about -- depending on how the reserves go, but what will be on 2040 -- 2046 as to what we used in the the economics of the shaft extension. So exciting project. It definitely helped as well with the voyage costs because we're mining right now quite a bit below the ramp. So that's going to help us with the cost there as well. Operator: The next question is from Jeffrey Hung with Ingildsen Snyder. Unknown Analyst: I apologize. I don't have a question at this time. Operator: The next question is from Don DeMarco with National Bank Financial. . Don DeMarco: Thank you, operator, and good morning, Michael, and -- maybe just continuing on the discussion on the skarn. Of course, we saw the Board approved a 12-kilometer decline over 5 years. Does this represent a formal go forward on the project? Or would that be something that we might expect after the PFS update that was mentioned maybe in a couple of years from now? Michael Steinmann: Yes. Look, this is a very -- it's a project that needs by a few years, but this is definitely the start of our corn development. This is not just an exploration ramp down to see how that can looks like. We obviously have a lot of information we drilled on this car since 2018 when we did the discovery. And you just heard Mark is saying that we're driving down around of 5.5 or 6.5 meters, which will fit 50-ton trucks. So this is definitely the first spend of a great project and the great big mine that we're going to build in an American. Don DeMarco: Okay. And of course, like the revised PEA came out a couple of months ago and showed CapEx of $1.9 billion. Just can you remind us, I think at this point, you're talking about funding this within Pan American exclusively. Is that right? Michael Steinmann: That's correct. As I said, our cash and short-term investment balance right now is $1.8 billion. Of course, it's -- there will be a lot of cash flow coming in over the coming quarters and years while we built this asset plenty of funds available for us to fund this project and continue with our return to our shareholders at the same time. Don DeMarco: Yes. And I guess that's a good segue into my next question. I mean the shareholder return program is very timely. I mean it's a real step-up in the share buybacks and coincides with the discounted valuation. But I see it is weighted to buyback. That's pretty common in the sector. Can you share your thoughts on how you decided on the allocation between shares and dividend amounts? Michael Steinmann: Yes. When we -- I mean when we look at the historic returns we have between share buybacks and dividends, we returned somewhere around mid-30% of our free cash flow to shareholders. Historically, probably higher weighted to dividends. Now we achieved such a high level of cash flow and as I said, increased our dividend already 3x every last past 3 quarters. So we all believe that at this point, the strong share -- share repurchase is a better and stronger use of our cash and return to our shareholders than just continuously increasing the dividend. So it's a great mix, I think. I think it's was a great day when we proved the building and return to our shareholder yesterday. Operator: The next question is from John Tumazos with John Tumazos -- very Independent Research. . John Tumazos: Congratulations on all the cash and good things. In the updated scaring PEA, the CapEx fell by about $1 billion upfront capital. Could you describe the subzones of Skarn where I'm presuming that the updated PEA accesses a higher grade perhaps less a deep part of the car that needs less capital has more revenue. Maybe it's lower temperature maybe it needs a little less ventilation. But my sense is that some parts of the skarn are richer and easier than other parts of the scoring? Michael Steinmann: Yes. Thanks for the question, John. Absolutely, you're right that the big decrease in capital between the 2 PAs was really that initially it was a way very bigger sublevel caving project. Remember at the beginning, we envisioned up to 50,000 tonnes a day. During the years following years, we discovered more and more high-grade material, not only in the car, but also closer to surface in some additional veins, and I would like to refer everybody to a number of press releases that we put out over the last 2 years on those high-grade wide intersects that encountered within the car ore bodies and this really high-grade structures that we discovered close to surface. So when you put all that high grade together that we discovered over the last few years, we had the chance to build a smaller, higher grade starter, if you want to call, I'm not sure starter manages the right work because the project we put out is at least 37 years long, but we will definitely mind, first, those higher silver grades and that's why the tonnage decreased from that kind of initially around 50,000 tonnes to about 15,000 tonnes a day at just and just uses conventional long-haul open stoping. So with that change, obviously, it's a smaller mine to build smaller plant to build and less development for the underground much simpler straightforward mining method that we apply in most of our underground operations, that combination brought the capital requirement down by $1 billion. Operator: This concludes the question-and-answer session. I'd like to turn the conference back over to Michael Simon for any closing remarks. Michael Steinmann: Thank you, operator, and thanks, everyone, for calling in. Another great quarter, strong production, low cost, especially in our silver mines, a great combination. Obviously, combined with very high metal prices as well and as a result, very high cash flows. So in light of those strong free cash flows, as you saw in the press release, we adopted a new shareholder return framework targeting to return up to $1 billion between dividends and share repurchases for 2026. . We also approved some really important capital spending, as we just discussed here with the people on the call for Jacobina, Timmins and of course, most importantly for La Colorada, which really marks the first large approved capital spending to develop our great car deposit at La Colorada with the first $265 million approved to in lower that access large access ramp to the deposit. We will be hosting our Investor Day in Toronto on June 1. So there will be an ample time there with lots of maps and cross actions to explain and dive really deep into all these projects like Colorada, Jacobina and Timmins together with many other exciting projects that Pan American has on the development and exploration side. And really looking forward if you could join us for that event. Again, it's on June 1 in Toronto that will be available, obviously, in person if you're in Toronto or via webcast. Looking forward to talking to everyone at that event. Have a great time until June 1. Thank you very much. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Greetings. Welcome to Reynolds Consumer Products, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jill Koval, Director of Investor Relations. Thank you, Jill. You may begin. Jill Koval: Thank you, operator, and good morning, everyone. Thank you for joining us for Reynolds Consumer Products' First Quarter Earnings Conference Call. Today's call is being webcast, and a replay will be available on the Investor Relations section of our corporate site at reynoldsconsumerproducts.com. Our earnings press release and investor presentation are also available. Joining me on the call today are Scott Huckins, our President and Chief Executive Officer; and Nathan Lowe, our Chief Financial Officer. Following their prepared remarks, we will open the call for a brief question-and-answer session. Before we begin, I would like to remind you that this morning's discussion will include forward-looking statements, which are subject to risks uncertainties and other factors that could cause actual results to differ materially from those described today. Please refer to the Risk Factors section of our SEC filings for more information. The company does not update or alter these forward-looking statements to reflect events or circumstances arising after the call. In addition, we will reference certain non-GAAP or adjusted financial measures during today's call. Reconciliations of these GAAP to non-GAAP financial measures are available in our earnings press release, investor presentation deck and Form 10-Q, which can be found on the Investor Relations section of our website. With that, I'd like to turn the call over to Scott. Scott Huckins: Thank you, Jill, and good morning, everyone. Thanks for joining us on the call this morning. Our strong first quarter results reflect our team's consistent execution across the entire organization and demonstrate not only the resilience of our business but also our ability to carry the momentum we built in 2025 into 2026. I am very proud of our team for being able to execute at this level despite the heightened macroeconomic uncertainty we are all operating with. With 7% revenue growth, we outperformed our categories by 2 points and gained share across the majority of our portfolio. We delivered profitability improvement across 3 of our 4 business units, driven by a combination of strong top line growth, including contribution from our enhanced revenue growth management capabilities and strong operational efficiency gains. Highlights from the quarter include service levels remain strong with case fill continuing in the high [ 8% ] range enabling us to support our retail partners and capture demand across our portfolio. This level of operational consistency continues to be an important competitive advantage for us particularly in a very volatile supply chain environment. We are outperforming all of our key categories and delivered double-digit growth in e-commerce driven by strong omnichannel execution that is incremental and accretive for our retail partners. Our scale, service levels and retail partnerships position us well to win as consumers increasingly shop seamlessly across physical stores and digital channels. The private label bid losses we discussed in February, impacted our Q1 results as expected, representing roughly a 3-point headwind in the first quarter. That impact, however, was more than offset with strength in other areas. As a reminder, we have seen some retailers adopt a dual sourcing strategy for risk management purposes this year. While this has created some near-term headwind for us, we remain confident that this will be more than offset by incremental opportunities over time. Our commercial teams did an excellent job navigating heightened levels of promotion and aggressive pricing strategies in certain categories and delivered strong share performance in spite of this. And we made strong progress during our spring resets with net distribution wins across key categories, positioning us well for the rest of the year. Beginning January 1, we realigned our operating segments in order to increase operational and commercial efficiencies, sharpen our focus on innovation, and create a structure better positioned to support expansion into adjacent categories. We consolidated our Waste Bag business into a new Hefty Waste & Cleanup segment and consolidated the Food Bag business into a new Hefty Storage & Organization segment. Again, this is designed to provide clear end-to-end ownership across R&D, innovation, commercialization, operations and supply chain. This realignment is not about taking costs out of the business, but rather driving better outcomes by providing increased focus for existing resources. And we are already seeing early benefits as we begin to unlock these more streamlined businesses. At the same time, we renamed our two remaining business segments to reflect their broader category scope and future growth opportunities. Reynolds Cooking & Baking is now Reynolds Cooking & Kitchen Essentials and Hefty Tableware has been renamed Hefty Home & Tableware. These new segment names better position us to meet consumer needs across an expanded total addressable market. In our Reynolds Cooking & Kitchen Essentials business, we continue to gain share in both Parchment and Foil with Parchment volumes outperforming the category by 10 points and Foil volumes outperformed the category by 4 points. The Foil category remains resilient with net elasticity below 1, reflecting that consumers are largely absorbing price increases rather than exiting the category. As gas prices rise, we see some early evidence of consumers cutting back on eating away from home when first discretionary categories to be impacted. This should translate into some level of increased at-home cooking and a potential demand boost for our business. Importantly, Foil is uniquely versatile across a full range of usage occasions from preparation, cooking, grilling, storage, portability and cleanup which ultimately reinforces the strength of the Reynolds brand among the users who rely on us across multiple occasions. Innovation continues to be a key growth driver for our business, highlighted by the launch of our Reynolds countertop prep paper during the first quarter. This innovation extends the brand into higher frequency use occasions, including meal preparation and even crafting occasions, solving a basic consumer problem of cleanup time. Consumers with kids is the #1 reason for not cooking or crafting with their kids, its cleanup time and effort. Reynolds countertop prep paper has already earned more than 1 billion impressions from our early marketing launch. We also expanded our Reynolds [indiscernible] portfolio with the introduction of the new hearts in Boston funds Foil reinforcing brand engagement and relevance to design-led innovation. Finally, we were pleased to see that Parchment Bags named a 2026 product, the largest consumer-voted award for product innovation determined to a national survey of 40,000 American shoppers, further validating our ability to deliver consumer convenience and value. In Hefty Waste & Cleanup, we are pleased with our performance during the quarter and the results were in line with our expectations. While top line and bottom line results were flat, it's important to view that in the context of intense promotional and price actions taken by competitors, including private label across the category. Despite this, Hefty Waste Bags delivered dollar share growth and still delivered positive sales volume at retail, reinforcing our confidence that we are executing the right playbook by maintaining the price architecture of our performance brand. Our branded performance remained strong, reflecting the durability of the Hefty brand equity, capturing consumers' desire for being sent and color alternatives into their homes for a more individualized experience. Our first quarter Waste Bag innovations included exclusive retailer sense, such as a new peach-sented offering, along with the national expansion of our Hefty Fabuloso Color series. What value means to different consumers is evolving as always, and we have expanded our Hefty Essentials offering with a high affordability. In our Hefty Storage & Organization business, we again gained share despite a highly promotional environment with revenue and volume growth while overcoming last year's private label losses. This momentum was broad-based as we saw strength in both our Hefty branded and store brand Food Bag offerings, underscoring the benefits of our dual focus on brand leadership and retail partnerships. Hefty Food Bag volumes outperformed the category by more than 10 points in both Press to Close and our more premium slider offering through increased distribution and consumer acceptance. We were able to offset the impact of private label bid losses with commercial wins and strong retail performance across the balance of our Food Bag business. Our Storage team continues to drive growth through a strong combination of product strength, quality and consumer value despite the increased competitive pressures. In Hefty Home & Tableware, we delivered modest revenue growth and meaningful profit improvement. These strong results reflected continued operational and supply chain efficiencies and further deployment of our developing revenue growth management capabilities. We saw meaningful momentum in Hefty Party Cups with 15 points of volume growth driven by expanded points of distribution, a broader product offering, and strong supply chain execution that kept our product on shelf while some competitors faced challenges. Foam, as expected, was a headwind in the quarter. Foam headwinds of 8 points masked 5 points of volume growth in the balance of the business. Marketing initiatives like our Hefty Strong Choice campaign reinforced product strength, brand relevance and value as we carefully balance pricing and volume to protect profitability. Turning to the broader environment. Volatility in the geopolitical landscape continues to weigh on consumer confidence and is contributing to higher household costs, particularly through higher gas utility prices. As a result, increased gas prices are expected to reduce U.S. household spending power by approximately $165 billion annually. Consumers remain cautious against this backdrop and are adapting their shopping behavior by placing increased value on reliability, functionality and trusted brands, dynamics that continue to support our essential high repeat use portfolio. While it is still early to fully assess the impact of current geopolitical developments, we have built significant supply chain resiliency over the last year and feel well prepared to manage known risks. We have also built a leaner, more agile organization that allows us to respond quickly to these events as conditions evolve. As a reminder, geographically, our largely domestic presence allows our business to remain resilient, providing some insulation despite rising costs from global disruptions. We feel confident in the continuity of our supply given long-standing supplier relationships and are actively managing raw material inflation, including resin and aluminum to pricing actions which we are navigating in the context of an already pressured consumer. What remains to be seen is the evolution of the consumer and the more nuanced elasticity dynamics across our categories. Despite the current macro uncertainty, and cautious consumer outlook, we believe we are well positioned to stay within our existing full year 2026 earnings guidance range with robust market momentum, ongoing efficiency gains and strong pricing power compensating for the incremental cost pressure we expect to face. The first quarter result was indicative of the underlying preference and improvements in our business, carrying that momentum into an inflationary period gives us additional confidence in navigating the challenges in front of us. Looking ahead, our strategic priorities remain unchanged, and we will continue to focus on volume growth, operational excellence and disciplined investing. While the consumer outlook has softened since early February and macro volatility has elevated further, we remain confident in our team, our strategy and our ability to navigate near-term uncertainty while creating long-term value for our shareholders. I will now turn the call over to Nathan to cover the financials in more detail. Nathan? Nathan Lowe: Thanks, Scott, and good morning. I am pleased with the strong start to the year with results that exceeded our expectations across all key financial metrics, reflecting disciplined execution across all parts of the organization. The manufacturing and broader cost savings initiatives we discussed last year are progressing well, supporting current earnings performance and positioning us to help offset potential elasticity impacts as the year progresses. As Scott mentioned, we are reporting under a new segment structure, which provides greater focus, improved go-to-market effectiveness and clearer visibility into future growth platforms. We will be updating prior period comparables as we release results throughout the year. In the first quarter, we delivered net revenues of $877 million, representing 7% growth compared to $818 million in the first quarter of 2025, led by strong gains in our Reynolds Cooking & Kitchen Essentials segment as well as broad-based growth across the portfolio. Retail revenues of $804 million were $37 million above retail revenues in the first quarter of 2025, reflecting strong volume growth of 2% and outperforming our categories. Nonretail revenues also increased year-over-year, providing an additional contribution to top line growth. Successful implementation of price increases and relentless focus on price pack architecture, along with ongoing productivity allowed us to overcome cost inflation and expand our gross margin by approximately 60 basis points. Our core profitability increased approximately 200 basis points with the dilutive impact of higher pricing and nonretail revenues, resulting in a lower reported number. This strong gross profit was accompanied by an increased investment in SG&A to support our growth objectives and other strategic priorities. Turning to profitability. Adjusted EBITDA of $131 million was above our expectation and well above the $117 million adjusted EBITDA in the year ago period, primarily driven by higher retail volumes and manufacturing efficiency gains. Adjusted EPS increased more than 20%. Importantly, we are able to deliver this performance while continuing to invest in our brands, capabilities and people. Looking ahead, the first quarter puts us on solid footing for the year and the momentum we're seeing across the business reinforces our confidence in our plans. At the same time, the pressure the Iran conflict is putting on global commodity prices and supply chain costs is real. Based on increases in rates thus far, we expect incremental headwinds of approximately $200 million on an annualized basis coming primarily from aluminum and resin. We are actively working to offset these headwinds through a combination of productivity initiatives, pricing and incremental cost reductions. These actions are being implemented with a continued focus on balancing cost recovery with volume, share and category health and are reflected in our outlook. Following our strong start to the year, we are reiterating our full year '26 net revenue outlook of minus 3% to plus 1% compared to 2025 net revenues of $3.7 billion. We expect to continue to grow or maintain share across our categories, but we would expect pricing to be a larger contributor as well as some incremental demand pressure on our categories in the back half of the year. Non-retail revenue is still expected to be flat for the year. We are reiterating our full year '26 earnings outlook, which reflects continued disciplined execution, ongoing operational improvements and confidence in our ability to navigate the evolving macro environment. We continue to expect net income and adjusted net income to be $331 million to $343 million. Full year adjusted EBITDA to be $660 million to $675 million and full year EPS and adjusted EPS and to be $1.57 to $1.63. Second quarter 2026 net revenues are expected to be minus 2% to plus 1%, compared to second quarter 2025 net revenues of $938 million, benefiting from Foil pricing actions. Net income and adjusted net income are expected to be $83 million to $91 million in the second quarter. We expect adjusted EBITDA to be $165 million to $175 million by comparison to second quarter 2025 adjusted EBITDA of $163 million and earnings per share and adjusted earnings per share in a range of $0.39 to $0.43. Turning to cash flow and capital allocation. Our approach to capital allocation is unchanged with a continued focus on deploying capital to its highest value users across both organic and inorganic opportunities. We continue to operate from a position of balance sheet strength with net leverage at 2.1x as of March 31, well within our target range and providing financial flexibility to continue advancing our capital pipeline and support for organic and inorganic investment opportunities. In summary, we delivered a strong start to 2026 with results that reflect solid commercial performance, improving productivity and continued progress against our strategic priorities. We're encouraged by the momentum we're seeing across the portfolio and believe our first quarter performance puts us on solid footing as we proceed through the year. At the same time, we remain cautious about the external environment and are managing the business with a clear focus on pricing discipline, cost productivity and thoughtful capital deployment. With a strong balance sheet, a robust pipeline of high-return investments and a team that continues to execute well, we believe we are well positioned to navigate near-term headwinds while continuing to build long-term value. With that, we're happy to take your questions. Operator? Operator: [Operator Instructions] Our first question is from Peter Grom with UBS. Peter Grom: I wanted to maybe just start on the $200 million of incremental inflation. Can you maybe just help us understand what that is based on? Is that based on current spot rates or futures curves? And then related, you reiterated your guidance, which clearly suggests that you have confidence in your ability to offset or mitigate that. So can you maybe just unpack the various drivers around price and productivity? Nathan Lowe: Thanks, Peter. From the start of the year to the end of Q1, we've seen increases across our commodities ranging from $0.15 to $0.40 on a per pound basis. If you think about our commodities in 3 buckets, aluminum, polyethylene and then other resins, they're all contributing roughly equal amounts to the $200 million annualized headwind and that's based on settled rates that we've seen. I think Scott wants to cover the stuff. Scott Huckins: Peter. So the attempt of this is to walk you through our thought process by category. So in aluminum, in the Foil business we continue to see strong performance, as you have seen, in spite of increased prices. And a reminder, a key element of that remains the price gap between Reynolds Wrap and private label, which has remained constructive. I think most of the volatility, as Nathan just got done talking about is really in the resin stack, and we think about the Food Bag and Waste Bag business. And we would generally expect to see rational player behavior in terms of taking price on resin-related items and what I think remains to be seen, particularly in the back half of the year, that is the effect on the consumer and elasticities with that backdrop. In the Tableware business, that's the one we would generally expect to see the greatest amount of elasticity. As a reminder, the majority of the use occasions in that part of the business are really convenience. And therefore, it's probably the most discretionary of the categories. And then lastly, what we think will see some buffer or mitigant elasticities just given the state of the consumer. Again, a lot of the survey research data points to more time at home, more consumption at home from the consumer. So when we put all of that into a thought process, that's what we've attempted to do in our outlook. Peter Grom: No, that's super helpful. And Scott, you mentioned in the prepared remarks that you're starting to see some early signs of consumers eating less away-from-home. You talked several times I mentioned several times, you have -- your prepared remarks about consumers being under more pressure. So can you maybe just talk a bit about what you're seeing from a category standpoint, how that's progressed through April? And then maybe related, what are you kind of embedding in your guidance from a category standpoint today? Scott Huckins: Yes. So I guess, I mean, I'll start with the consumer. So most of what we've been reading about, again, on a survey basis suggests that on the order of 3/4 of the U.S. consumer who are active drivers, I mentioned in the prepared remarks, who are preparing to absorb a $165 billion estimated impact in fuel, are looking at 3 different levers to help mitigate those costs. And they're roughly equal percentages, again, based on consumer response, a reduction in dining out our reduction in travel and a reduction in entertainment, all to equal degrees. And so that's the backdrop to what we think we saw some consumer performance or strength in the first quarter. We commented in the prepared remarks that the overall categories performed a bit stronger than we expected. We think that's certainly a contributor. And then I just go back to my commentary across each of the categories in how we think those evolve across Foil, the Food & Waste Bag business and Tableware in terms of how we thought about the outlook. And maybe the last piece would be really -- I think the year will end up being a tale of 2 halves. You've obviously seen the first quarter strong results. We anticipate a strong second quarter, and we want to be careful in thinking about the pricing landing in the second half of the year on top of a challenged consumer. And that's, I think, the dynamic that we're trying to think through and factor into our guidance. Operator: Our next question is from Rob Ottenstein with Evercore ISI. Robert Ottenstein: Okay. So I want to focus on the Waste Bag segment. And you're flagging pretty intense competitive activity in promos, both on branded and on private label. So number one, can you kind of let us kind of step back, why do you think that's happening on both sides coming into the year? And how depth -- how deep are those promos? And then how much flexibility is there to change the promos as the year goes and have given the input cost increases, have you started to see those promos abate a little bit? So just trying to understand that dynamic and then maybe a little bit more in terms of how you're facing it. Nathan Lowe: So I guess there's a couple of a couple of questions embedded in the Waste Bag category. It's difficult for us to answer questions about why other branded players are are doing what they're doing, we just go back to -- it's about what we expected and commented on our Q4 call in February that we were preparing for a step up in promotion and price competition. And that's very much what we saw in the quarter. And frankly, if anything, had escalated in April. So that's on the branded side of the business. In the private label side of the business we observe is the retailer community really looking to drive traffic, of course, in this climate. And one of the tools in that would be cost -- key cost or price points using the Private Brands business to drive that traffic. So that's what we think is happening. Then I think on our specific business, we look at that environment and say, when we look at retail takeaways, we had plus [ 1% ] in volume in the quarter in plus [ 3% ] in dollar sales, retail takeaway. So we look at that and say, that largely validates our view of generally staying to our strategy of maintaining our price pack architecture with a performance brand orientation. That's part one. Part two is, of course, we monitor the business every day, every week, every month. We certainly have the flexibility to invest differently in the business if conditions warrant. But we don't think that's what we saw in the first 4 months of the year. Robert Ottenstein: And I mean I'll ask it again, and I'll probably get the same answer, but I mean just hypothetically thinking, I mean, why would it escalate in April in terms of the promos giving -- what's going on? I mean, your competitors, are they irrational? Do they have enormous excess capacity? What are the dynamics do you think are out there that could cause that sort of competitive behavior? Nathan Lowe: Yes. Again, I'd say it's really difficult for us to explain what others do. The only thing I can think about on the impact of commodities is as we think about our business, we would envision our pricing activities being relevant for the start of the third quarter. And so it could be as simple as those actions have yet to take shape in terms of the dynamic here in the month of April. Robert Ottenstein: So what it could have been is just these are promos that were planned in December or January, they were set out in the calendar. They were time to be deeper in April, so it's not like they increased over the course of the year. This is just how things were timed and they will naturally roll over and become more rational later in the year? Is that the best way to look at it? Nathan Lowe: It's certainly possible. As I said, we just have no way to offer any insights and the strategy of others, but that certainly is a plausible potential explanation. Operator: Our next question is from Andrea Teixeira with JPMorgan. Unknown Analyst: This is Shabana Chuadhary on for Andrea. I wanted to ask you about the initial fiscal year '26 guidance that included your first half top line to be price driven, while the back half was to be more volume-driven. But now that it seems like you are contemplating additional pricing given the $200 million incremental headwind, how should we think about the top line drivers specifically in the back half? Is it going to be more pricing driven? And also, I wanted to confirm, related to that, your initial expectations were the retail branded sales. The category was going to perform at about 2% decline. Is that still the case given how the consumers are behaving most recently? Nathan Lowe: Shabana, your recollection is correct on how we had initially gotten and certainly with where commodities and other input costs were at the start of the year, that was our expectation. Here's what we know today, we've spent $200 million in annualized cost increases thus far. The pricing to offset these any potential elasticities and other consumer impacts will be concentrated in the second half year. So I would expect pricing to be a larger part of the year-on-year revenue performance in the second half year than we originally contemplated, but we'd still expect to be inside our guidance range for the full year. Unknown Analyst: And also like the underlying category, is it still expected to decline 2%? Or is it worse from what you were seeing initially? Nathan Lowe: So I'll just point back to the same comments on the consumer. Our expectation is our performance versus the categories is consistent that we believe we can outperform them. So any any degradation in retail volumes would be as a result of category declines as opposed to our share performance. Unknown Analyst: And one quick question on tariffs i.e., PA refunds. Just wanted to ask if you, what is your stand on that? Are you working on your refunds and any update would be appreciated. Nathan Lowe: Certainly yes. We're certainly working on them. But in context is probably important. You recall our imports are a single-digit percent of our COGS. And as we moved through the last year, the tariff headwinds really shifted more to [ 232 ] tariffs and the aluminum increases, which are out of scope for the Supreme Court billing. So it's really quite an immaterial amount. We do have claims in process. And to the extent we recover any monies and we priced for them, our intent is to pass those back to the retailer. Operator: There are no further questions at this time. I would like to turn the conference back over to Scott for closing remarks. Scott Huckins: Yes. Thank you, operator. On behalf of our 6,000 teammates at Reynolds Consumer Products, we appreciate your interest in the company, and we certainly wish everybody a great day.
Operator: Good morning, and welcome to the Insulet Corporation First Quarter Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Clare Trachtman, Vice President, Investor Relations. Clare Trachtman: Good morning, and welcome to our first quarter 2026 earnings call. Joining me today are Ashley McEvoy, President and Chief Executive Officer; Flavia Pease, Chief Financial Officer; and Eric Benjamin, Chief Operating Officer. On the call this morning, we will be discussing Insulet's first quarter results along with our financial outlook for the second quarter and full year 2026. With that, let me start our prepared remarks by reminding everyone that we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially. Please refer to today's press release and our SEC filings, including our most recent Form 10-K and Form 10-Q for a discussion of these risks. We undertake no obligation to update any forward-looking statements. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Insulet's ongoing business performance, including adjusted gross profit, adjusted operating income, adjusted EPS, free cash flow and constant currency revenue, which is revenue growth, excluding the effect of foreign exchange. Reconciliations of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures are included in the accompanying investor presentation and are available in our earnings release issued this morning, both of which are available on our website. Additionally, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year reported basis with the exception of revenue growth rates, which will be on a year-over-year constant currency basis. During the Q&A session this morning, Ashley, Flavia, Eric and myself will be available to address any questions. Now I'd like to turn the call over to Ashley. Ashley? Ashley McEvoy: Thank you, Clare, and good morning, everyone. We're pleased to report a strong start to 2026 with continued growth momentum, robust margin expansion and disciplined execution of the strategic priorities we shared at Investor Day. Our first quarter performance clearly reflects the opportunity in our large and underpenetrated markets, the strength of our differentiated technology and compelling clinical outcomes, the scalability of our recurring revenue business model, and the deep expertise and commitment of our teams around the world to finding a better way for people living with diabetes. We also made notable progress on our strategic priorities, which are to accelerate innovation, that improves outcomes and unlocks new segments, develop our core markets as the category leader, strengthen our commercial capabilities, build a world-class team to enable our growth ambition, and leverage our financial strength to invest in and scale our business profitably. In the first quarter, we achieved 30% revenue growth, including 28% in the U.S. and 45% internationally. We continue to expand our customer base through new customer starts and enjoy strong retention and loyalty among our Podders globally. Leveraging our strong rent growth, we expanded adjusted operating margin by 110 basis points year-over-year. Adjusted EPS growth of approximately 40% was driven by our robust top line growth and margin expansion and the benefit of our first quarter share repurchase. This performance reinforces our confidence in the financial growth algorithm we laid out last year and in our strategy to capture the significant opportunity ahead of us as the market leader and primary driver of category growth in the fast-growing global AID market. As a result, we are raising our full year 2026 total company revenue growth guidance from 20% to 22% to 21% to 23%. Flavia will share more details on our performance and outlook shortly. But let me first walk you through how we are developing our key markets, driving performance and advancing our strategic priorities. Starting with the U.S., our growth this quarter was strong, reinforcing our market leadership. We grew new customer starts year-over-year led by strong momentum in AID adoption for type 2 and benefited from positive pricing. We did experience greater than normal seasonality, which we believe was driven by the annual reset of deductibles impacting patient co-pays and co-insurance. These factors contributed to what appears to be a slower start to the year across the U.S. diabetes category. Improving month-on-month trends over the course of the quarter and into April suggests this was a temporary headwind, and we remain confident in our U.S. outlook for the full year. Our upcoming integration with the Libre 3 Plus sensor this quarter will unlock the benefits of Omnipod 5 for the nearly 450,000 people with diabetes currently using the Libre 3 Plus sensor. In U.S. type 1, we continue to extend our leadership and drive increased penetration with solid growth in our customer base, both annually and sequentially. Commercially, we are upskilling our sales force to strengthen our messaging our clinical performance in the field, and we're deploying tools to optimize physician targeting and conversion while expanding reach and frequency. I remain confident in the opportunities to continue to move people with type 1 diabetes from MDI to AID and drive increased penetration. In U.S. type 2, we continue to expand the category and accelerate adoption from those using MDI. As expected, our type 2 customer base grew rapidly over the prior year. Supported by our prescriber education initiatives and the ADA guideline update, which established AID as the standard of care. We remain confident in the trajectory for U.S. type 2 AID adoption and in expanding our market leadership position. Notably, Omnipod's first-mover advantage gives us a head start in understanding the nuances of this market and in designing targeted initiatives to eliminate the barriers for adoption. For example, access and affordability are even more important for adoption in type 2 than in type 1. In fact, our ongoing efforts to increase access and remove prior authorization requirements generated a 4% net access improvement in the first quarter, benefiting an additional 16 million lives. We continue to see a vast opportunity to bring meaningful improvement in both clinical outcomes and quality of life to the millions of people with type 2 diabetes. Moving outside the U.S. Our international business delivered another standout quarter, driving significant profitable growth and recording our third consecutive quarter of growth above 40%. We achieved 45% constant currency revenue growth supported by continued strong year-over-year and sequential growth and new customer starts. As well as positive price/mix from the ongoing conversion from DASH to Omnipod 5. We are generating robust growth across our largest and most established European markets including the U.K., France and Germany, all of which delivered strong first quarter new customer starts, driven in part by our focus on new prescriber activation. In the U.K., we achieved record NCS 3 years into our launch, reflecting the success of our strategy to deepen penetration internationally. We also continue to expand access and reinforce the value of Omnipod 5. In Canada, for example, we secured improved reimbursement and new coverage for Omnipod 5 across four provinces further fueling our growth. We now have reimbursement approval for 85% of the Canadian market. Looking ahead, we remain on track to launch Omnipod 5 in Spain in the second half of the year. Spain has more than 200,000 people with type 1 diabetes, a high rate of CGM adoption and one of the lowest levels of AID penetration in our European markets. And in the second half of this year, we plan to launch Libre 3 Plus in Germany and Canada allowing us to bring Omnipod 5 to new populations as Libre 2 Plus is not available with a pump in either of these markets. Critically, our rapidly growing scale internationally continues to drive operating leverage and significant margin expansion. Our strategy to deepen our penetration and our largest and most established markets is working, and our execution continues to exceed expectations. We continue to see the AID category expand globally. While our success is attracting competition, this further validates and raises awareness of AID and Omnipod, the most recognized brand in the category. We believe this dynamic is good for the category and good for Insulet. We are uniquely positioned to meet that worldwide demand at scale, and we are investing in accelerating innovation, strengthening our commercial capabilities, developing our markets, building a world-class team and scaling our global operations to ensure we continue to benefit disproportionately from category growth. Let me unpack these priorities further. Innovation remains the core driver of our growth strategy. Beginning with this year's launch of our second-generation algorithm coupled with our Libre 3 Plus sensor integration, and the broader rollout of Omnipod Discover, our new data insights platform. First, let me walk through the specific improvements behind the meaningful Omnipod 5 algorithm enhancements we're launching this quarter. And our simulated analysis switching to target glucose setting from 120 milligrams per deciliter to our new 100 milligrams per deciliter option delivered an approximately 5% improvement in time and range. This is better performance through a simple setting change with no added user burden. Additionally, we improved the algorithm performance, so it now increases the amount of time users spend in automated mode with fewer interruptions during extended high glucose events. This has been a pain point for prescribers and Podders. We are pairing these two launches with an increased focus on clinical education to ensure prescribers understand the strong clinical efficacy and safety profile of Omnipod 5. Algorithm innovation will continue to be a key R&D focus. In fact, we are increasing investments this year to advance our next generation of products. We are making strong progress on our sixth generation Omnipod paired with our third-generation algorithm, which is planned to launch in 2027. We are sharing data from STRIVE, our Omnipod 6 pivotal study at ADA in June, which will demonstrate continued improvement in automation and clinical outcomes. This gives us confidence in the durability of our market leadership. Next up is our transformative approach to unlock the type 2 diabetes segment. We are making progress on what we believe will be the first of its kind, truly fully closed loop system for people with type 2 diabetes. We're encouraged by the results from our feasibility study that we presented at ATTD, which highlighted 68% time and range with no boluses. And I'm very pleased to share that just last week, we enrolled our first participant in EVOLVE, our pivotal study to support FDA filing next year and launch in 2028. These new product investments are designed to help us deliver better outcomes, enhance the user experience and unlock new market segments. Accelerating the shift to simpler, more intuitive insulin delivery and extending our leadership. We also recognize that as this category grows, innovation alone is not enough and we are investing in building a top-notch team and commercial capabilities to expand the AID market, fortify our competitive position and drive rapid adoption. As part of that effort, we recently appointed Mike Panos as Chief Commercial Officer to lead our global commercial organization. Mike brings a proven track record of building and scaling world-class sales team. Driving market expansion and delivering sustained double-digit growth across leadership categories. Our investments in our brand are also delivering unique commercial value. We have the most recognized brand in the category, which continues to bring in new users and generate traction with prescribers that our sales force doesn't actively target. We regularly activate our #1 brand to increase category and brand awareness. And this quarter, Omnipod's feature appearance on the TV show scrubs was a resounding success at raising awareness and amplifying representation. After the show, our inboxes were flooded with stories about how meaningful and moving it is to see people with diabetes show up like this. living their lives daily with ease. These moments also drive action like Michelle, who has type 1 diabetes and reached out to one of our support specialists online after watching the episode. Michelle had a script for Omnipod written 3 years ago, but never move forward. With this nudge, we successfully reengaged her and got her started on Omnipod. Market development remains a top priority. In addition to the progress on market-specific initiatives that I highlighted earlier, we are seeing strong traction with our global KOL engagement and professional education efforts. We doubled the size of our U.S. peer-to-peer education program in 2025 and expanded it by more than 50% year-over-year this quarter. In Spain, we are investing in key opinion leader education well ahead of the advance to accelerate adoption. As I mentioned earlier, our efforts to improve access, secure new coverage and strengthen our value to payers are yielding tangible benefits to our growth and sustaining our market-leading U.S. coverage of over 90%. These efforts also support the maintenance of our preferred position in the pharmacy channel amid increasing competitive activity, which validates the value of our pioneering pharmacy pay-as-you-go model. Notably, based on the pricing activity we have seen in this channel to date, we continue to expect rational and disciplined pricing and rebate behavior. We remain focused on educating payers on the clinical and economic value of Omnipod to ensure broad high-quality access in all markets. Finally, scaling global manufacturing and operations continues to be a priority. We remain focused on quality, reliability and customer safety. Our team rapidly responded to execute the voluntary medical device correction in March and implemented targeted fixes for the applicable manufacturing process. Manufacturing disposable, sophisticated electromechanical devices at consumer scale and medical quality is a complex process. We continue to believe that our ability to meet the unique manufacturing demand of tubeless AID remains a source of strategic and financial advantage. We have market-leading gross margins driven by our ongoing manufacturing productivity improvements. We continue to ramp our capacity and automation investments in Acton, Malaysia and Costa Rica to support future growth. In summary, we are executing on each pillar of our strategy: accelerating innovation, developing our markets, strengthening commercial capabilities, building a world-class team and scaling global growth profitably. Omnipod continues to be the market leader and the disproportionate driver of AID category growth in the U.S. and abroad. Our investments are focused on extending our leadership by deepening differentiation across our platform while continuing to lighten the burden for people living with diabetes. Our strong results this quarter are a testament to the strength of our position, our execution and our attractive recurring revenue business model. I remain confident in our outlook for the year. Our strategic path forward and our ability to deliver sustained profitable growth for shareholders and better outcomes for all of our Podders. With that, I'll turn the call over to Flavia. Flavia Pease: Thank you, Ashley, and good morning, everyone. As Ashley highlighted, the Insulet team delivered a strong start to the year. First quarter total revenues of $762 million increased 34% on a reported basis and 30% on a constant currency basis. And total Omnipod revenue grew 33% on a constant currency basis. In Q1 of 2026, our global customer base grew nearly 25% year-over-year, driven by increased adoption of Omnipod 5 across both the U.S. and international markets. Global new customer starts also increased versus the prior year period with growth both in the U.S. and internationally. MDI conversions continue to be the primary source of new customer starts, and we expect this to remain the case given the significant under penetration across our core markets including U.S. type 1, U.S. type 2 and international type 1 diabetes. Globally, utilization and annualized retention rate remained similar to the prior year period. Now turning to our performance in greater detail. U.S. Omnipod revenue grew 28% in the first quarter, exceeding the high end of our guidance range. Driven by continued demand for Omnipod 5 across both type 1 and type 2. The quarter included a benefit of approximately $10 million in revenue related to the timing of certain distributor orders which we expect to be consumed in the second quarter. Excluding this impact, underlying U.S. revenue growth was approximately 26% coming in at the high end of our guidance. First quarter U.S. new customer starts increased year-over-year but declined sequentially. As Ashley noted, we attribute the sequential decline to seasonality, driven by the annual reset of deductibles which impacts patient co-pays and co-insurance. This effect was less evident in 2025, given that we were in the earlier stages of the type 2 launch. Importantly, we saw U.S. new customer starts ramp through the quarter, and that momentum has continued into the second quarter. International Omnipod strength continued in the first quarter with revenue growth of 59% on a reported basis and 45% on a constant currency basis. Volume remains the primary driver of international Omnipod growth supported by customer expansion across both established and newly launched markets, along with favorable price/mix benefits from the transition of DASH. Continuing down the P&L, our first quarter GAAP gross margin was 69.5%, and included approximately $12 million of expenses associated with our medical device correction. Our adjusted gross margin was 71%, down 90 basis points year-over-year. During the quarter, we incurred some increased excess and obsolescence costs as we transition to new pod configurations that position us to support Libre 3 Plus sensor integration and upcoming algorithm enhancements. These costs negatively impacted adjusted gross margin by more than 150 basis points. After adjusting for this impact, gross margin performance in the quarter was driven by strong top line growth, continued manufacturing productivity gains and positive pricing. Turning to OpEx. We continue to invest with intention to both maintain and extend our leadership while remaining disciplined in how we deploy capital. During the quarter, we ramped R&D investments to support our innovation road map and advanced key clinical development programs, including Omnipod 6 and fully closed loop for type 2. These investments position us to continue delivering meaningful innovation over the long run. We also increased SG&A investments as we continue to prioritize market development initiatives to unlock AID penetration and demand generation efforts. We expect to continue ramping investments in sales and marketing as we expand our sales force during the second quarter and prepare for upcoming product launches including Libre 3 Plus integration and our latest algorithm enhancements. These investments expand our commercial capacity, broaden HCP coverage and enable us to drive additional new customer starts. First quarter adjusted operating margin expanded 110 basis points to 17.5%, driven by strong top line growth and SG&A leverage. Our financial strength allows us to continue to invest for future growth while delivering margin expansion. First quarter net interest expense was $9.8 million, an increase of $11 million primarily driven by our prior year debt refinancing activities and lower interest income. Our first quarter adjusted tax rate was 19.8%, reflecting a benefit from U.S. R&D tax credits and a favorable mix of earnings. First quarter adjusted EPS was $1.42, up approximately 40% from $1.02 in the prior year period. We are well positioned to continue driving strong earnings growth reflecting the strength of our durable recurring revenue model, our compelling top line trajectory and the operating leverage we are generating. Turning to cash and liquidity. During the quarter, we repurchased approximately 1.25 million shares for $300 million. We ended the quarter with $480 million in cash and the full $500 million available under our credit facility, and we generated approximately $90 million in free cash flow in Q1, reflecting our strong operating performance in the quarter. Now turning to our outlook for the second quarter and full year 2026. For the second quarter, we expect Omnipod revenue to grow 21% to 23% and total company revenue to grow 20% to 22%. On a reported basis, foreign currency is expected to contribute approximately 100 basis points of benefit to both growth rates. In the U.S., we expect Omnipod revenue growth of 18% to 20%. This guidance reflects approximately $10 million of revenue that shifted into the first quarter creating a 200 basis point headwind to second quarter growth. Internationally, we expect Omnipod growth of 28% to 30%. While growth remained strong, as we discussed last quarter, we expect the pace to moderate as we anniversary successful launches from last year. On a reported basis, Foreign currency is expected to provide a favorable impact of approximately 200 basis points on international growth. Turning to our full year 2026 outlook. We now expect total Omnipod revenue growth of 22% to 24% and total company revenue growth of 21% to 23%, reflecting our strong start to the year. We expect foreign currency to provide a favorable impact of approximately 100 basis points for the full year. For U.S. Omnipod, we continue to expect our revenue to grow 20% to 22%. We expect year-over-year growth in U.S. new customer starts for the year, positive pricing and similar utilization trends. We do expect retention rates to decrease modestly as our type 2 customer base continues to grow, which is why we're investing in programs focused on improving onboarding, engagement and long-term retention. For international Omnipod, we now expect 2026 revenue to grow 26% to 28%. On a reported basis, we expect a favorable impact of approximately 300 basis points from foreign currency. We expect year-over-year growth in international new customer sites for the year as we penetrate further in current markets and expand Omnipod 5 into new markets. Omnipod 5 is now available in 19 countries, and we will continue to broaden our reach and plan to enter Spain in the second half of 2026. While volume remains the primary driver of our international revenue growth, our guidance also reflects a benefit from positive price/mix realization. As customers continue to transition from Omnipod DASH to Omnipod 5. Overall, our international growth guidance assumes similar utilization levels and improved retention for 2026 relative to 2025. Turning to 2026 operating margin. We continue to expect approximately 100 basis points of operating margin expansion for the full year driven by strong top line growth and ongoing gross margin expansion while funding a meaningful step-up in R&D and continued investments in sales and marketing, assessed by leverage in G&A. I would note, this outlook reflects the E&O costs we absorbed in the first quarter as well as incremental raw material and shipping costs driven by the ongoing conflict in the Middle East. Looking at a few items below our operating income. We expect 2026 net interest expense to total approximately $40 million, an increase of approximately $15 million primarily due to lower interest income. We now expect our 2026 non-GAAP tax rate to be in the range of 21% to 22%, reflecting the lower Q1 tax rate, favorable mix of earnings and improved utilization of foreign tax credits. Based on these factors, we continue to expect adjusted EPS to increase by more than 25% in 2026. We expect free cash flow to be approximately flat from 2025 levels, supported by robust growth and continued margin expansion, partially offset by a ramp-up in capital expenditures to support our continued global manufacturing expansion plans. To close, we're executing against a clear framework focused on delivering top-tier growth margin expansion and increasing free cash flow. This approach underpins durable long-term value creation while enabling us to expand access to Omnipod for people living with diabetes worldwide. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from David Roman from Goldman Sachs. David Roman: Maybe I'll start with a strategic one and then go on to the financials. Ashley, I think you've been in the role now just about a year. Maybe you could help frame the past year, some of your observations here. What's gone in line with your expectations? What's gone better? Where are the areas where you're focused? And how are you kind of framing Insulet now that you've been in the role 12 months? Ashley McEvoy: Yes. Thank you, David, for joining. I was just last week, I'm on my 1 year, and I would say that I'm absolutely more confident now that influence potential than a year ago. You know us really as this high-growth medtech innovator doubling revenue over the past couple of years. So I would say, first and foremost, on preserving what makes us so special. It's this culture is remarkable and patient focused, entrepreneurial spirit, and really strong competitive moats and really just focusing around how we enhance our capabilities to really double the business once again. So maybe it's just helpful to share some of the areas that we've been getting after as a team to unlock more value. I would first start with innovation, and this is about doing things in parallel and at pace to continue our role as the tech leader. So let me give you examples. It's really about being first in line to integrate day 1 with sensors like we're doing with the Dexcom 15 day, and we will do with Abbott's upcoming dual analyte sensor. Algorithms. David, we were slow out of the gate continuously to improve our algorithms. We've addressed that now, and we have 3 algorithm improvements over the next 3 years. Second is really about international and driving profitable growth globally. So I I'm a big believer in going deeper in core markets that matter most versus going broader at this stage. And the U.K. is a great example of this. We're several years in the OP5 launch. This quarter, we posted record NCS. The third is about our commercial engine and being famous not just as a tech leader, but as a commercial engine. And so we have our second sales force expansion we've done in the past 12 months. It's happening this quarter. And as I've been consistently saying, it's really upskilling our force to sell clinically. The fourth is really about strengthening our unbelievable foundation on operations as we scale globally. Costa Rica is a really good example of this. We just put in the foundation this quarter. We'll be ready to have a water type building by year-end and go live in 2029. And obviously, it's all about people. I came here and there was a remarkably talented team -- and I'm just supplementing that team with some new leaders that have run bigger things and know how to scale. So collectively, we can get after doubling the business again. So this is what gives me confidence that we're going to continue to grow the category, serve more Podders and really importantly, continue to increase our earnings power. You had a second question, David? David Roman: Yes. I appreciate all the perspective there, and that does kind of segue to my second question. If you take kind of Q1 performance in the second quarter guidance into consideration, the outlook implies kind of high teens growth in the back half of the year. Can you help us unpack that a little further on a geographic basis and your confidence in the 20% LRT guidance as you exit 2026 potentially below that level and maybe perhaps there's some conservatism in the outlook given the time line where we are in the year? Flavia Pease: David, it's Flavia. I'll take that one. So to your point, yes, the midpoint of the guidance will imply second half growth in the high teens. I would first start by saying we're still seeing very, very strong performance in both the U.S. and internationally. And as you saw, we just raised our guidance for international and the total company right now. Last year, there were a different -- and you tried -- you asked me to unpack between the two regions. So in the U.S. last year, we saw the opposite impact with comps playing a role in how this year, first half, second half compared to last year, first half, second half. In international, we're going to continue having a favorable impact of price/mix realization. But it's going to be at a more moderate pace as we increase penetration of Omnipod size in our international markets. So when we look at the comps, I do think it's also important to look at dollars of growth. When you look at this year in total year, we're actually going to be in line at the midpoint of the guidance with the same level of dollar growth that we delivered last year. The first half, second half is going to be different. But the primary driver of that is actually currency. If you look at that and look at the numbers on a constant currency basis, we had the currency playing a role in the second half of 2025, that was a tailwind in the first half of 2026 again as a tailwind. So when you adjust for those things, the first half, second half phenomenon gets a little bit more smooth, I would say. But importantly, let me close where your question was leading to, which is how does this play out in terms of our outlook for next year and beyond that we share with all of you at the RRP. On the sustainability of our 20%, we feel very, very confident in our ability to drive that 20%. And what gives us that confidence, the innovation and commercial catalysts that we're going to continue to execute. This year, we're launching Libre 3 Plus, which as you saw in our prepared remarks, expands our TAM by another 450,000 people with diabetes. We have the algorithm enhancement. Ashley talked about the ones we're launching this year. We're going to continue with Omnipod 6 next year and then fully closed loop in 2028. And then commercially, in addition to leaning further on selling clinically and competitively, Ashley also just mentioned that we're going to be expanding our sales force this quarter and as you can imagine, the full benefit of that expansion is really only going to be felt mostly next year. So we do see that as another tailwind. And internationally, similarly, those new product introductions are also going to have a benefit. We're going to launch Libre 3 Plus in Germany and Canada. These are few markets where there's no Abbott sensor. And so that are compatible with our product. So that, again, is another expansion of our serviceable market. In addition to that, we're going to continue to execute on our playbook of increasing access. You saw us just get the benefit of that for Canada this year with expansion of coverage in additional provinces. We just launched in the Middle East. We're going to be launching in Spain in the second half. So again, we feel very, very confident that we have the right innovation and commercial levers to continue to support the 20% growth that we put out. Operator: Our next question comes from Robbie Marcus from JPMorgan. Robert Marcus: I want to follow up on that last question. Flavia, as we think about similar dollar growth this year, that does imply deceleration as the sales base gets lower. and you did mention you're going to be exiting sub-20% in the U.S. in the second half of this year. So I think the question a lot of investors have is, how do you maintain that 20% growth rate over the LRP if you're decelerating into year-end and dollar growth is not increasing year-over-year. Maybe just fill us in on the gaps about 2027 and how that improves? And then I have a follow-up. Flavia Pease: So Robbie, I think going back to what I just articulated, we will continue to drive the 20% with the innovations that we're launching. In 2027, we do have Omnipod 6 and the full benefit of the sales force that we're expanding this year that will be a tailwind. Ashley McEvoy: I think -- I mean, Robbie, just maybe what's helpful is kind of our philosophy of how we set guidance. A year ago, I came in and we got the team together. We refined our strategic plan. We racked and stacked a whole portfolio of growth opportunities. And this led us to really a strengthened conviction in the untapped market opportunity Flavia was talking about the high TAM, low penetration. And quite frankly, our proven track record of unlocking that growth. So this led us to really raise our ambition as a company, which we shared at our IR Day, which is the first one we've done in 10 years in November. And we shared our strategies, our financial algorithm, and then we set our financial targets accordingly. So our goal is to outperform and our quarter 1 results reflect this along with our increasing full year outlook for the year. So this is just really good momentum, and it gives us confidence in our commitments that we shared at our LS Base. Robert Marcus: Great. Maybe a quick follow-up. You talked about a slowing market on seasonality and new patient starts in the first quarter. I guess two parts. One, what do you think the market grew? And I know it's hard to give an answer without everybody else reporting yet, but what do you think it grew? Why was it more seasonal than usual? And how do you think your new patient starts U.S. OUS did in first quarter? Ashley McEvoy: Well, obviously, I don't have the market. I mean the market exit, I would tell you, '24 and '25 at an accelerated rate versus prior year. So we're encouraged with the continued momentum listen, quarter 1 started off slow because we had higher than usual quarter 1 seasonality. We attribute this to the reset of deductibles and potentially the ACA transition. But sequentially, every month, we've been getting better. And I feel really good coming out of April as we look to quarter 2 and for the full year. Operator: Our next question comes from Travis Steed from Bank of America. Travis Steed: I wanted to ask about the type 2 retention comps. Just kind of curious what you're seeing there, why kind of call it out slowing? And then when you think about kind of the type 2 opportunity, is kind of this next kind of 5 to 10 points of the penetration curve going to be harder to get the first few points that you've got of the last year? Just kind of curious how the type 2 ramp is going. Ashley McEvoy: Yes. Thank you, Travis. I mean our type 2 momentum remains strong. Our new customer starts in type 2 grew meaningfully both year-over-year in the quarter despite this Q1 seasonality that I spoke about. When we look at our customer base, we expanded both sequentially as well as year-over-year. We're very much, Travis, at the early innings of this. I'd say we're about 5% penetration and CGM is around 55%. And we are actively preparing for a highly transformative launch where we're going to be sharing our feasibility data at the upcoming ADA called EVOLVE. We've just enrolled our first patient last week. And this will be what I call the industry's first truly fully closed loop system for type 2. And like what do I mean by that? It's a CGM like as you can get and put it on, no bolus, no user interaction, no settings, which unlock the whole primary care physician audience and really Uber user consumer-friendly training. So we specifically designed our fully closed loop to unlock that huge TAM in type 2 where they need it to be a CGM-like experience. Travis Steed: And what about the retention piece? Ashley McEvoy: I would say, listen, we are -- have healthy retentions. We're not seeing any meaningful change of year-over-year. We're getting to know this market, and we're -- I would say we're innovating our customer experience model. But from an aggregate basis, our total company, we still have about 90% retention. Flavia Pease: Yes. And Travis, I would say, I think you were alluding to my prepared remarks, I talked a bit about a slight deterioration in the U.S. as we continue to expand into type 2. But this was very much in line with our expectations. It is a different population and the retention or attrition is exactly what we expected it would happen. And we are pleased also to see that internationally, the retention actually as we launched Omnipod in additional markets, has improved meaningfully. And so on a total company basis, as Ashley said, retention remains very stable. Travis Steed: Okay. And then what percent of the new starts were type 2 this quarter? I think I missed that. And then when you think about the seasonality comments, is there any impact on the seasonality from the type 1, type 2 mix or kind of the macro? Just kind of curious to follow up on the seasonality comments. Ashley McEvoy: No. I think, listen, Travis, we had really healthy, I told you, total year-over-year growth. We experienced some softness in Q1 is a slower start for NTS. -- customer base is strong. I often get asked the question about like type 2, and I told you, we've got really strong momentum. I often get asked about like the GLPs, is that slowing down the progress in type 2s, and we did not observe an impact from increased GLP use on type 2 NCS this quarter. I've always been sharing that we think that GLP-1s are very complementary to AID therapy, not competitive. It's in fact, what we studied in our SECURE-T2D trial. And we see diabetes as a chronic progressive disease and no date that no one has been able to show that you can reverse beta cell decline. So once you get on insulin, AID is really the standard of care for the ADA. And we look again at this huge TAM of 5.5 million people with type 2 diabetes using insulin and yet only 5% or less are using AID. So we really look to unlock this right now and really drive accelerated penetration when we have our fully closed loop launching in 2028. Go ahead, Eric. Eric Benjamin: And Travis, just to build on the numbers. The split of type 1, type 2 NCS was about 40% type 2 NCS in the quarter with similar seasonality seen in type 1 and type 2 ever so slightly more in type 2, but consistent across the two segments. Operator: Our next question comes from Larry Biegelsen from Wells Fargo. Larry Biegelsen: I'll just keep it to one, Ashley, and I'm going to try to ask the competition question a little bit differently maybe than it's been asked before. So we understand you believe it will be hard for competitors to manufacture to this pump or ramp the manufacturing. But I don't think you're saying that there won't be any tubeless competition in the future. So my question is, as your share of tubeless pumps declined from 100% today, I mean, just mathematically has to go down if there's competition, what offsets that to maintain your 20% growth goal? Is it faster overall pump market growth or is it a greater shift from tube to tubeless pumps or both? Ashley McEvoy: I mean thanks, Larry, for the question. The short answer is this is not a market share trading. This is about bringing new people into the category and the category expanding as a whole. I mean we're the market leaders, and we have a substantial distance versus the others. And I fully expect us to sustain share leadership. I was talking about we have no intention of ceding our tech leadership. Next year, we're going to be on our sixth-generation Omnipod while others attempt to come out with their first. And we know there's been a history of the competition trying to work on tubeless solutions for decades, which really underscores how hard it is, how complex it is to bring these highly disposable devices to market. There's really a graveyard of a lot of failed attempts. We have a head start of really mastering how to develop and manufacture at scale. And this has given us a remarkable cost advantage and scale advantage. And we've got the earnings power to keep growing. So I think what's really important in this category is to understand that when new entrants enter, all boats rise. this increased promotion and the increased awareness will accelerate category expansion, which is exactly what we're seeing in the type 2. When you look back from 4 years ago, we had about 60% of patients coming from MDI into the AID category, and that number is now 80%. So the category is expanding. Operator: Our next question comes from Matthew O'Brien from Piper Sandler. Matthew O'Brien: I'll ask them both upfront. I hate to beat this dead horse on new customer starts in Q1, Ashley, but I'm going to. You've got a bunch of new competitors in the pharmacy channel. I just want to make sure there wasn't any kind of disruption maybe early in the quarter as they were pushing on the pharmacy side to sort of made it more difficult for you to get patients through the pharmacy channel. and that's why you saw a little bit of softness. And then the second question is there's a lot of investor consternation around the recall. Can you just frame up what you're seeing in the marketplace or from your customers in terms of the recall and the impact it's had on the business and then ability to add new patients? Ashley McEvoy: Yes. No. Thank you, Matt. Let me first be very clear. In quarter 1, we don't think price had an impact. In fact, U.S. pricing for us was positive in quarter 1, and we expect this to continue for the full year. What we've been seeing as others have entered the pharmacy channel pricing, a rebate behavior has been really rational and disciplined. So we are not seeing significant discounting relative to the norm. Our -- like our strategy is about creating durable high-quality access with broad affordability. So we are not going to trade long-term value for short-term positioning. And I think what's really important to understand that maybe not fully appreciated is the significant size and scale that we benefit from. Our volumes are multiples larger than the nearest competitor. And we don't expect that dynamic to change now or in the foreseeable future. You put that, coupled with we're the number one prescribed brand and we are the number one requested and this is what gives us confidence for pricing going. So important, but we still lead with a competitive advantage there. Let me go to your second question, which is about quality and our recent medical device correction. I would say, hey, listen, in our industry, field actions are part of being in a health care industry, but it was an absolute tough moment for us. And patient safety is always our #1 priority. We're monitoring and we're investigating customer complaints routinely. I am proud with how our team rapidly responded to the voluntary medical device in March. We do not believe that the medical device correction did have an impact on NCS in the quarter. As I discussed, I believe the slower start was really due to the broader quarter 1 seasonality and the reset of the deductibles. Now last week was another tough week with the FDA updating its communication about our MDC to reflect our April 10 update and misreported MDRs as SAEs. And listen, I know this created a bunch of confusion, and we're really not happy about that. What's important to know, though, is no additional adverse events from the MDC have been reported since the April 10 update. And if anything, taking a step back, I think this really enunciates the high level of complexity of manufacturing sophisticated disposable electromechanical devices at scale. And in our industry, it's not possible to eliminate all risks, but what matters most is how issues are identified and addressed. And in this case, we got after it early. We've implemented targeted corrective actions, and we are going to continue to strengthen and invest in our quality systems and operating controls. Operator: Our next question comes from Jeff Johnson from Baird. Jeffrey Johnson: So Ashley, I just wanted to follow up on that pricing comment. You said net pricing was up in the U.S. in 1Q. I just want to make sure that's net. That's not a WACC comment that's actually net of rebates up in 1Q. It sounds like you're expecting that to be true for the year as well. And just wondering, we're hearing from a couple of our other companies that we speak with that they're expecting pharmacy pricing next year on a net basis to also be up again in '27 over '26. I know that's hard to predict at this point, and you won't know until you know later this year. But as we're kind of trying to set up our models for the next year or 2, would you still build in kind of flattish pharmacy pricing in the U.S. market over the next couple of years? Would that still be kind of how you'd guide us as we build our market -- our models over the next couple of years? Ashley McEvoy: Yes. I would say consistent with our Investor Day, Jeff, we expect pricing to be positive over the next 3 years. And quarter 1 is a data point, and we expect that to continue in full year '26. Again, it speaks to just the strength of the clinical and the economic value proposition that AID as a category has for payers and for PBMs. Jeffrey Johnson: Okay. And again, just to confirm, that's net, not WACC, you're talking? Flavia Pease: It is not, Jeff. Jeffrey Johnson: Okay. And then just on type 2, I just want to make sure I understand the retention and utilization comments you're making on the U.S. Utilization was stable, retention may be under a little bit of pressure. So is that to imply that if I'm a type 2 patient going on Omnipod 5, I'm using it every day or pretty much normally like a type 1, but just more of those type 2 patients are trying it for 3 months or 6 months and then saying, "maybe it's not for me." So utilization when I'm an 5 user is stable, but more of those type 2s may be dropping out after 3 or 6 or 9 months or whatever, not sticking with it. Is that the way to think about what you're trying to communicate today? Ashley McEvoy: No, thanks for the question. I think what we're learning in the patient journey of being type 2, again, we're sourcing the predominant amount from MDI is a little bit of the ongoing support. It takes them to get them on to pod and the reinforcing support that we need to do really early on. And then it smooths out, and really, there's a learning agility that has to happen early on. And then what we're finding is really good brand loyalty and really good retention over time. It is a bit of a current class in what we said in type 1. But overall, very encouraged with the progress that we've had about 18 months into this launch. Do you want to add anything, Eric, to that? Eric Benjamin: No, I think exactly as you described, we're seeing, as you laid out, utilization for type 2, stable, pretty similar to type 1 and retention that drop off, particularly early, getting folks accustomed to wearing the product as Ashley described, is a little bit different. And so we're learning and evolving our model and how we get folks successfully on so that they can stay enduring happy successful customers on Omnipod. Operator: Next question comes from Jayson Bedford from Raymond James. Jayson Bedford: Just on the 2Q international growth guide, it implies a bit more of a deceleration than I would have thought given it was obviously a very strong 1Q. Comps not too much difference. So I guess my question is, one, is there any stocking impact in 1Q that may be related to some of the new international countries? And then two, just outside of the comp, what weighs on 2Q international growth? Flavia Pease: Yes. Jayson, I'll take that. So in international, while as I said, price/mix realization will continue to be positive, the pace of it will moderate a little bit as we sort of anniversary some of these launches and continue the evolution of our installed base from DASH to Omnipod 5. The dollars will continue to be sequentially increasing quarter-over-quarter on a constant currency basis, but the growth rate, as you pointed out, will decelerate. Operator: Our next question comes from Shagun Singh from RBC. Shagun Singh Chadha: I just had a quick follow-up. The $10 million in revenue that shifted into Q1. Can you just elaborate on what the nature of that was. And then with respect to my question, Ashley, I was hoping you could talk a little bit more on the commercial front. You guys are looking -- you guys are strengthening your message around the algorithm, time and range. You've called out three algorithm launches in the 3 years, how meaningful are those upgrades and the U.S. sales force expansion, any way to think about the pace of that? And should we expect you to continue to do that throughout '26? Ashley McEvoy: Let me kind of start with your first one. We had about $10 million just from some inventory from -- that was coming in quarter 1. It went actualized. So it will come out of quarter 2. But you'll see -- I mean, quarter 2, we have a really strong call. We had 29% growth last year. So we do have a stronger comp, but we see momentum continuing in the U.S. I think it's important that I just spend a brief moment of -- you've heard me talk a lot about what are we doing commercially to strengthen our engine. And there's a couple of things that I would share, Shagun, to your point. Number one is investing in our field. It's our #1 P&L item and making sure that we are upskilling our force to sell clinically in addition to their beautiful passion of selling our disruptive form factor. We've just retrained and retested all of our reps. We actually have the largest sales rep force in the category. And then we are expanding our call points with improved targeting and segmentation and improving our reach and frequency with an expanding prescriber base. To your point about clinically, they've gotten really good momentum of selling our optimized setting, improving time and range. They're going to be out there this quarter talking about our new lower set point at 100 as well as keeping people more in automated mode. We're integrating with Libre 3 Plus, which brings with us 450,000 users from MDI that are on Libre 3 who are not on Omnipod into our portfolio. You can look at our website, Shagun, I would say, where we're listing all of our updated clinical evidence relative to what's available in the industry. So please take a look at that. And then obviously, maintaining our competitive advantage in market access and affordability is a second lever. The third, you heard me talk about this in my remarks, is really about getting our clinical performance out there. We've doubled the amount of our professional events in the past quarter. In fact, we've significantly invested in 2020, we were around 50 a year. We elevated that to about $100 to $1.50 a couple of years ago. We executed 500 peer-to-peer education programs in 2025, really all about clinical performance. And the last really is about this brand. It was really cool to see us kind of being dropped into culture on scrubs. We got a lot of feedback of making the category really accessible to a lot more people. And this is what we will continue to do to grow the category. So thanks for the question, Shagun. Operator: Our last question will come from Matt Taylor from Jefferies. Matthew Taylor: I wanted to ask one on the tailwinds that you called out in '27, specifically on Omnipod 6. Do you expect that launch, I guess, to drive just increased share gains and customer starts? Or could you actually get price mix benefits from the launch of Omnipod 6 as well? Ashley McEvoy: I mean, listen, this is going to be our sixth generation. It's really to sure -- to continue to extend our leadership and deliver our role of continuing to build the category and bring people in from MDI. It will have our third algorithm improvement. And again, I come back to the simplicity if you're on MDI, how to keep it really simple. And so this new algorithm is going to have greater automation, it's going to have less bolusing, it's going to have a reduced user interaction, it was designed exactly to bring more people into the category. We're going to have some of our data shared at the ADA coming up in June of our stride, which will show about our clinical performance. But the fun thing maybe underappreciated ads I would share is sensors have gotten really small and our Omnipod 6 also has dramatic improvement in what we call over-the-air improvement so that people can wear it on multiple places of their body. We get a lot of feedback on that. And importantly, we're also moving to a single-pod chassis, which allows prescribers to only write 1 script versus 2 scripts regardless of your sensor, and it clearly has a big impact on our supply chain and simplification. Thank you for the question, Matt. Listen, let me just thank everybody for your questions and engagement. And we are very encouraged by the momentum of the business that we're seeing, and we look forward to updating you on our continued progress. Thanks so much. Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Global Payments First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Executive Lead Investor Relations, Nate Rozof. Please go ahead. Nathan Rozof: Good morning. Welcome to Global Payments First Quarter 2026 Conference Call. Joining us today is our CEO, Cameron Bready; CFO, Josh Whipple, and COO, Bob Cortopassi. Some of the comments made during today's conference call will contain forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied and we caution you not to place undue reliance upon them. They speak only as of this date, and we undertake no obligation to update them. In addition, we will be referring to several non-GAAP financial measures -- for a full reconciliation of the non-GAAP financial measures to the most comparable GAAP measure, please see our press release furnished as an exhibit to our Form 8-K filed this morning and the supplemental material available on our Investor Relations website. Finally, the slide presentation that accompanies our prepared remarks is also available on our Investor Relations website, and Cameron's comments will begin on Slide 4. With that, I'll turn the call over to our CEO. Cameron? Cameron Bready: Good morning, and thank you for joining us today. We are very pleased with our financial and operational performance in the first quarter. Overall, our results exceeded our expectations, reinforcing our confidence in the trajectory of the business and demonstrating strong integration progress following the closing of the Worldpay acquisition in January. I will begin today's call with an overview of our first quarter results in key areas of progress, including Worldpay integration activities, our go-to-market execution, the acceleration of our innovation agenda, particularly with our Genius platform and the increasing application of AI across our business to create new sources of revenue growth, accelerate product velocity and innovation and improved productivity across the enterprise. I will then turn the call over to Josh to review our financial performance and outlook before I conclude our prepared remarks with a discussion of the key strategic initiatives we are executing to drive sustained long-term value creation. As the world's leading pure-play commerce solutions provider, our North Star remains driving sustainable growth through an unwavering focus on our clients, leveraging the strategic advantages that differentiate Global Payments and position us to win over the long term. In the first quarter, we delivered normalized adjusted net revenue growth of approximately 5.5% or approximately 4.5% on a constant currency basis. This reflected healthy underlying consumer spending trends throughout the quarter partially offset by the lower Middle East airline volumes and slightly lower IRS payment volumes attributable to tax reforms under the One Big Beautiful Bill Act. Profitability remained strong. Adjusted operating margins expanded 110 basis points on a normalized basis and adjusted earnings per share grew 10% on an as-reported and constant currency basis. which demonstrates the consistency of our operating model and our continued focus on execution discipline. Capital allocation remains key to our strategy. During the first quarter, we returned more than $600 million to shareholders through dividends and share repurchases, while achieving leverage of 3.5x exactly as anticipated. Robust free cash flow generation and capital returns are central pillars of our investment thesis. To that end, we continue to target $7.5 billion of capital returns for the period 2025 through 2027. In support of that commitment, we are entering into another accelerated share repurchase program to immediately repurchase $500 million of our shares. Following the completion of this ASR, we expect to resume open market share repurchases during the second quarter as well. Turning to operating performance and execution. I will begin with our most significant accomplishments this quarter, the early closing of Worldpay and the Issuer Solutions transactions. The strong early progress we're making on Worldpay integration is very encouraging. Our teams have moved quickly and with purpose, alignment has been excellent, and execution has reinforced our confidence in the strategic and financial rationale for the transaction. We are off to a strong start as we bring these 2 organizations together and begin unlocking the value we see ahead. As we advance our integration efforts, we are taking a deliberate best-of-both approach across talent, products and technology. The depth and quality of leadership and expertise we have brought together is exceptional, and we believe that the New Global Payments now has the strongest team in the industry. Importantly, the combined scale of Global Payments in Worldpay is already enabling outcomes that neither organization could have achieved on its own. We are seeing highly attractive commercial opportunities that further enhance our competitive positioning, and enable more differentiated outcomes for our clients. Partners networks and alternative payment method providers are increasingly eager to access the breadth and depth of our global distribution channels and to leverage the strength of our go-to-market positioning. Execution on the ground has been strong. Worldpay's U.S. direct sales force began selling Genius almost immediately following the close, effectively addressing a long-standing product gap. Further, we are seeing strong early interest in Genus from Worldpay's enterprise restaurant clients, relationships that are opening meaningful cross-sell opportunities we simply could not have accessed previously. Subway is a great example. Already a Worldpay client Subway recently selected our Genius Kitchen management software deployment across approximately 2,500 locations. We are also seeing momentum in new partner acquisition. During the quarter, Worldpay's business development team signed 2 new partners that was specifically motivated by access to Genius, wins that are unlikely to have materialized absent the combined platform. As we shared last quarter, we moved quickly to integrate Worldpay's e-commerce solution in Global Payments SMB distribution channels. The results have been compelling with new sales increasing 25% sequentially and more than doubling year-over-year, clear evidence of the power of the combined distribution. Internally, our teams have established executable plans to achieve our synergy objectives. We have implemented our target operating model and go-to-market structure, integrated sales forces and are finalizing the design and implementation plans for our consolidated technology architecture model. Having only recently crossed the 100-day mark since the close of the transaction, our team has already made remarkable progress. Taken together, these early outcomes strengthen our confidence in the integration and our ability to achieve or exceed our revenue and expense synergy targets. Turning to go-to-market execution. Our global distribution footprint remains 1 of our most significant competitive advantages, and we are expanding that distribution, both geographically and across new channels to support sustained growth. We operate at scale in more international markets than most of our peers, with sales and service professionals in over 40 countries around the world. In addition, we can facilitate payments in 175 countries, creating a powerful platform for continued global expansion. On a combined company basis, bookings increased 8% year-over-year, an excellent start, particularly given that we are still finalizing our new go-to-market channels. Beginning with the enterprise channel, we delivered strong new sales performance, particularly across North America and Asia Pacific. We had several notable wins this quarter, starting with Abercrombie & Fitch & Company, where we signed a long-term agreement to serve as their acquirer for card-based payments in the U.S. Household brands like this continue to choose Global Payments for our differentiated service model, innovative solutions and consultative approach. Within Software and Information Services, we had meaningful wins with auto books and a large multinational content-driven technology company. And we continue to be a leading provider in the grocery vertical. This quarter, Aldi Sud selected us across both North America and EMEA. Reflecting the strength of our service model, we expect Aldi to begin onboarding volumes as early as the second quarter, an impressive time line for a retailer of their scale. In addition, Morrisons, a leading supermarket chain and recent signing in the U.K. is also ramping their volumes with us. And we expect to have their full migration live this quarter. Lastly, Brazilian cosmetics retailer, [indiscernible] Cosmeticos is another notable Q1 signing that we expect to have live before the end of Q2. Turning to the integrated and platforms channel. We continue to invest in geographic expansion. Integrated payments relationships are more commonplace in the U.S., but we are still developing in most other countries, and we are moving quickly to capture this opportunity. In fact, 20% of the new partners we signed in the first quarter are outside the U.S., demonstrating our ability to scale capabilities across new geographies. We recently expanded integrated and platforms into the U.K. where early results are exceeding expectations. Partner signings are nearly double our planned performance and feedback continues to validate a strong product market fit. We're also integrating Worldpay's Australian business with our Oceania operations, 2 highly complementary businesses, each growing at attractive rates by winning share in this otherwise mature payments market. In the U.S., we recently renewed and expanded our partnership with Lightspeed DMS, a leading dealer management system provider in the recreational industry. Lightspeed will now use Payrix to deliver a fully embedded payment experience that enhances customer engagement and lifetime value. Finally, in our global SMB channel, we are continuing to invest across our footprint to increase capacity and improve productivity of our sales force. In North America, we are making progress building sales capacity, having now onboarded more than 300 of our planned 500 new sales professionals. We continue to be pleased with the quality of these hires with many coming directly from software businesses and POS competitors. They understand the industry, and they understand how compelling our new Genius platform is. They're selecting global payments because of our high-quality on-site service and support, which gives them confidence that clients will be properly installed and onboarded, particularly compared to the self-service models common elsewhere. With these hires, we are also establishing a direct new sales channel in Mexico, complementing our primarily FI based distribution model. Mexico remains an important market for us in terms of future growth opportunities. On the partner front, we were recently selected by Peoples Bank in Massachusetts-based financial institution, further expanding our North American reach and entered Croatia through our partnership with Erste Bank. In the U.K. and Ireland, we are expanding the size of our successful mid-market and small corporate sales teams and also successfully launched several new products to market. First, we introduced Genius Mobile, enabling on-the-go acceptance and expanding our addressable market. Early adoption has been encouraging, surpassing 500 locations in less than 60 days. Second, we launched a first-to-market enhancement to our PayByLink Plus solution in February that enables our clients to run sales campaigns across social media platforms directly from our merchant dashboard and supported by an AI content generation tool. Together, our investments drove several notable wins this quarter. In the Americas, CKE Restaurant Holdings, Inc. selected Genius as its exclusive U.S. point-of-sale software and also use Global Payments as its in-store payments provider for its iconic parties and Carl's junior brands, deploying our solutions across more than 2,400 corporate and franchise locations. In Bojangles purchased our digital menu solutions for its corporate-owned stores, expanding our long-standing relationship. Across EMEA, we secured several major wins. In Spain, we won sporting goods retailer Decathlon, and grocery store chain [indiscernible]. In Poland, we signed electric vehicle charging station provider, LSAV, EcoPower and parking solutions provider, DG Park. In the Czech Republic, we signed home equipment retailer, Tascama; and lastly, in Greece, we won the large supermarket change, ScottMaddetes. In Asia Pacific, we were pleased to be selected by KFC and Pizza Hut. We also continued our successful penetration of the hospitality vertical, extending our relationship with Marriott across the region, and we expanded our position in transportation with a leading ride-hailing company. further validating the strength and scalability of our global platform. Turning to Genius. We continue to see strong momentum as we expanded footprint, deepen its capabilities and extend its relevance across an increasingly broad set of use cases and geographies. Genus bookings increased more than 25% sequentially and nearly doubled year-over-year. In addition to accelerating bookings growth, yields with new clients increased by more than 30% year-over-year reflecting the growing value new clients and Genus and they're willing to pay for its differentiated capabilities. We are continuing to expand distribution behind Genius. For example, we introduced Genius Days to accelerate adoption with our financial institution partners with on-site hands-on demonstrations designed to deepen engagement and drive conversion. Looking ahead, extending Genius into Worldpay's financial institution partner channel is a key priority and a meaningful revenue synergy opportunity with initial contributions expected to begin in 2027. We Internationally, we continue to scale Genius across multiple markets, such as Germany and Austria with additional international launches planned later this year and next. From a product perspective, we made meaningful progress advancing Genus as a scalable enterprise-grade commerce platform with advanced capabilities like kitchen management and digital menu solutions while preserving the simplicity and speed that matter most to small business owners. In addition, we continue to strengthen product market fit through vertical-specific functionality that improves day-to-day operations and drives adoption and priority verticals. For example, in age-related retail, Genus now delivers an all-in-one point-of-sale solution supporting compliance, responsible selling, inventory management, vendor workflows and actionable sales insights. We also expanded Genius into the services vertical, delivering a unified operating system that brings together scheduling, invoicing, mobile enablement and built-in loyalty and marketing capabilities. Beyond product enhancements, we are also investing in building Genius brand awareness. We launched a brand campaign in North America during the first quarter, anchored by a national television spot and amplified across digital and out-of-home media. The campaign delivered more than 330 million impressions and reached over 6 million unique consumers supporting awareness and future sales velocity. These development reflects a clear and consistent strategy. rapidly expand Genus' capabilities, distribution and brand awareness while extending enterprise-grade commerce functionality to SMBs globally. Genus remains a central pillar of our growth strategy, and we are highly confident in its ability to drive incremental revenue, deepen client relationships and create durable long-term value for Global Payments. Lastly, our work in Agentic Commerce and artificial intelligence continues to accelerate and recent developments across the AI ecosystem reinforced the critical role we play at the center of the next evolution in commerce. Open AI shift in focus towards AI-driven product discovery and traffic generation while intentionally leaving checkout, payments, risk and settlement with us plays directly to our strengths and strategy. It elevates the importance of our trusted scalable payments infrastructure and positions Global Payments as a central connected tissue between agents, merchants, networks and consumers. We are uniquely positioned to shape this emerging channel anchored in our decades of payments expertise and scaled data-driven insights. We are protocol agnostic and prioritized advocating on behalf of our clients. In fact, we are currently activating several enterprise merchants into Google's UCP protocol so that they can be among the first to provide a genetic shopping experiences for their customers. We are simultaneously creating end-to-end modular flows with multiple players across the ecosystem, including commerce platforms, checkout partners and middleware developers, to ensure that we can support our clients across any configuration as protocols and use cases evolve. Further, our own payments model context protocol is live and production ready. It enables in agent-driven commerce flows with minimal incremental development effort. As agents increasingly initiate transactions autonomously, trust, identity and risk management become even more crucial. Through Ravel in, our AI native fraud prevention platform, we are advancing a genetic risk capabilities that leverage enriched ecosystem signals based on our scale and diversity of data. These capabilities help ensure that an agent-driven commerce scale, it does so securely and with the trust at its core for both merchants and customers. Beyond Agentic Commerce, we are embedding AI directly into our products and client servicing experiences with enterprise-grade discipline, governance and scale. We are building scalable AI capabilities that generate measurable, repeatable impact across authorizations, fraud mitigation and revenue optimization. Products such as 3D Flex revenue boost, dynamic routing and fraud side are already delivering tangible results, improving approval rates, reducing from losses and lowering false declines often with no incremental integration required. Internally, we are also deploying AI to accelerate engineering, DevOps and quality assurance. Through our proprietary Fast Track studio platform, we are standardizing the path from experimentation to production ensuring security, observability, compliance and repeatability. We're also using agents as first-time responders for common tasks, freeing our teams to focus on higher-value initiatives. Our scale provides a clear advantage. We process trillions of dollars in payment volume and billions of transactions each year across geographies, channels and verticals. This depth and breadth of data creates a uniquely rich training environment, allowing our AI models to learn faster, generalize better and deliver superior outcomes, all while maintaining the highest standards for privacy, security and regulatory compliance. In short, our scale doesn't just make our AI smarter. It drives better results for our clients and reinforces our position at the center of the future of commerce. With that, I'll turn the call over to Josh. Joshua Whipple: Thanks, Cameron. We are pleased with our financial performance in the first quarter, which exceeded our expectations, thanks to the team's consistently strong execution. In the first quarter, we generated adjusted net revenue of $2.86 billion. Currency exchange rates provided a tailwind of approximately 100 basis points in the quarter, which was approximately 50 basis points lower than the outlook that we shared in February. . On a normalized basis, adjusting for the stub period prior to transaction close, adjusted net revenue growth was approximately 5.5% or 4.5% on a constant currency basis. This is consistent with the presentation of our full year outlook for normalized adjusted net revenue growth of approximately 5% on a constant currency basis. During the quarter and through April, we continue to observe resilient consumer spending trends across our business. We continue to monitor sources of macroeconomic uncertainty including the evolving conflict in the Middle East and its potential impact on global travel and inflation. Having said that, we believe the combined company is now more diversified than ever before in terms of consumer spending categories and merchant sizes, enhancing the durability of our business model across a variety of economic scenarios. In our first quarter operating as a pure-play provider of commerce enablement solutions, we saw strong commercial activity in each of our 3 go-to-market channels. In our SMB channel, Genius continued to achieve greater awareness and win rates. New Genius locations were approximately 25% higher than in the prior year quarter. And Genius' payment attach rate improved more than 20% versus the prior year period as we continue to deliver more value to our merchants and expand our share of wallet. Our sales force transformation continues to drive greater commercial productivity and new sellers time to first deal accelerate across all SMB channels. Additionally, our sales force enhancements and Genius' ease of implementation have reduced time to go alone, which decreased by more than 50% for small business clients this quarter. Lastly, our sales force enhancements and early cross-selling success have kept the top of the funnel full. Marketing qualified needs for genius retail and small restaurant opportunities increased 36% year-over-year. We also continue to focus on bringing Genius' enterprise-grade restaurant capabilities downstream to the mid-market segment where we've already built a pipeline of nearly 2,000 locations. We're also pleased with the performance of our enterprise go-to-market channel. Bookings this quarter were ahead of initial expectations and 9% higher than the prior year period. Additionally, Major signed enterprise merchants expected to go live in the near term, including [indiscernible], Morrisons and Gold Cosmetics provide greater visibility for in-year realized revenue in 2026. Lastly, we've already had early success selling Heritage Worldpay's value line services into the Global Payments merchant base. Our enterprise e-commerce business saw a double-digit transaction growth this quarter. reflecting the resilient consumer trends we noted. This overall strength in spending volumes was somewhat offset by impacts from the Middle East conflict on our travel portfolio and some softness in our link to go tax payments business. While we remain very well positioned competitively as the IRS preferred digital payments provider, project record levels of refund stemming from the One Big Beautiful Bill Act have lower tax payment volumes this year. We also saw continued momentum in our integrated payments go-to-market channel, where we added 44 new ISV partners in the first quarter. Our managed payment facilitation and payback offerings continue to drive exceptional growth with volume increasing more than 20% year-over-year. This underscores the distinctive suite of integrated capabilities that the combined company now brings to market and our ability to meet our software, marketplace and platform partners where they are and support any operating model. From an integration standpoint, we have risen well through the initial stages of our finance and accounting work to resegment our business consistent with our new go-to-market channels and expect to be able to share our new reportable segments with our second quarter earnings announcement. Moving down the P&L, we generated an adjusted operating margin of 39.9% in the first quarter, reflecting approximately 110 basis points of normalized year-over-year margin expansion. -- excluding the impact of dispositions, which was in line with our expectations. The net result was adjusted earnings per share of $2.96 in the first quarter, reflecting growth of 10% on a reported and constant currency basis. On an unrealized basis, adjusted earnings per share were $2.99, an increase of 11% from the prior year period on a reported and constant currency basis. For clarification, that figure includes $0.09 representing the pre-acquisition results of Worldpay and removed $0.06 associated with the results of Issuer Solutions which is consistent with the presentation of our full year outlook for normalized adjusted earnings per share between $13.80 and $14. Turning to free cash flow. We generated adjusted free cash flow of $544 million, representing a nearly 70% conversion rate of adjusted net income to adjusted free cash flow, consistent with our typical conversion rate in the first quarter. As a reminder, for both Global Payments and Worldpay, the conversion rate is generally lowest in the first quarter, increasing seasonally as the calendar year progresses. We invested $261 million in capital expenditures during the first quarter, and our balance sheet remains extremely healthy. As expected, our net leverage was 3.5x at the end of the first quarter. During the quarter, we issued $1 billion of senior notes on attractive terms to refinance a significant portion of our debt maturing in March. Our [indiscernible] is now approximately 95% fixed with a weighted average cost of debt of 4%. We made significant progress against our commitment to return capital to shareholders in the quarter. repurchasing approximately 7.3 million shares to a $515 million accelerated share repurchase program, including dividends, we returned nearly $620 million of capital to shareholders year-to-date. Turning now to our 2026 outlook. We are reaffirming our full year outlook for the adjusted net revenue growth adjusted operating margin expansion and adjusted earnings per share. Starting with the second quarter, we currently expect the potential impacts from the conflict in the Middle East and softer tax payment volumes to be up to a 100 basis point headwind to adjusted net revenue growth. We also expect currency impact to be roughly neutral for the second quarter. For the full year, we continue to expect normalized constant currency adjusted net revenue growth of approximately 5%. Our outlook assumes a stable macro environment with a continuation of similar spending trends that we observed in the first quarter, and that travel begins to normalize by the end of the second quarter. Given the recent strengthening of the U.S. dollar, we now expect currency exchange rates to be less than a 50 basis point tailwind to reported net revenue growth for the full year. We continue to expect our normalized adjusted operating margin to expand by approximately 150 basis points for the full year 2026, driven by additional operating efficiencies from our transformation and realized cost savings from the Worldpay integration, particularly in the second half of the year. Putting it all together, we continue to expect adjusted earnings per share in the range of $13.80 to $14 for the full year 2026. Regarding cash flow, we continue to expect the conversion rate of adjusted net income to adjusted free cash flow to exceed 90% for the full year 2026. Because of the onetime transaction costs to effectuate the Worldpay acquisition, and issuer disposition were reflected in the first quarter, we also expect that adjustments to free cash flow will moderate as 2026 progresses. Our capital allocation plans for 2026 and beyond remain unchanged. We continue to target capital expenditures of approximately $1 billion or 8% of adjusted net revenue for the full year 2026. Furthermore, we remain committed to preserving our investment-grade credit ratings and achieving our 3x net leverage target by the end of 2027. We continue to expect to return more than $2 billion to shareholders in 2026 through repurchases and dividends. With the closing of the Worldpay and Issuer Solutions transactions now behind us, I'm proud of the solid foundation the team has established for new global payments. While the business environment has evolved since February, we remain intensely focused on execution and delivering on our commitments to unlock the benefits of the ongoing initiatives and drive durable top line growth, robust free cash flow generation and ongoing return of capital to shareholders. And with that, I'll turn the call back over to Cameron. Cameron Bready: Thanks, Josh. As you have heard, we are executing at a high level on all the initiatives within our control exactly as we had planned. We are continuing to monitor the conflict in the Middle East but expect its impact to be modest in transitory, underscoring the diversity of our revenue streams and the power of our scale. As anticipated, our pure-play focus is allowing us to move faster, deploy resources more effectively and serve customers and partners in a truly client-centric way. And with the addition of Worldpay, our combined scale is creating opportunities that neither organization could have accessed previously. The breadth and depth of our global distribution network is a powerful competitive advantage. We're uniquely positioned to help clients and partners expand into new markets around the world, supported by local expertise, deep client relationships and disciplined execution. We continue to differentiate through feature-rich products, distinctive service and support and a reputation for delivering outcomes that exceed expectations. From best-in-class enterprise payment solutions to platforms like Genius, Global Payments is at the forefront of modern commerce technology. And with approximately $1 billion in annual investment, we're also one of the few companies in our industry capable of innovating at this scale, anticipating and delivering solutions ahead of demand. At the same time, we remain focused on shareholder value creation and disciplined capital deployment. We are a proven compounder with substantial and durable free cash flow generation and remain committed to our capital return plans. We believe this combination of strategic focus, operational execution and capital discipline positions Global Payments to deliver attractive long-term value. With that, we will open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from Dan Dolev with Mizuho. Dan Dolev: Congrats. This is really, really strong first quarter, and it looks like the year is shaping up really well. Congrats again. I wanted to ask you about genius. I caught that you said that the yields were up 30%, if I remember that correctly. I mean that's a huge positive sign in our view. Just wanted to get a sense of the progress on Genius and the yields because it looks pretty good. . Cameron Bready: Yes, Dan, thanks for the comments, and thanks for the question. So look, as I take a big step back, we're obviously delighted with the progress that we're making with Genius. The metrics across the board continue to be very, very encouraging. And I would remind you, we're not even a year into Genius yet. So the enormous amount of progress we've made over the last 12 months in expanding Genius across new verticals, expanding Genius across new geographies, expanding Genius across different segments of the market where we think we can compete and win effectively. Again, just very proud of the team and the amount of work that they put into bringing Genius to life. . We're also now starting to see a little bit better brand recognition around Genius, which we think is a good forward sign as it relates to future sales velocity is relates to the product overall. As it relates to the take rates, maybe I'll provide just a couple of comments, and I'll ask Bob to go a little bit deeper on those. I would call out 3 things in particular. One is, and this may feel obvious, Genius is just a much more feature-rich platform than anything that we've been selling historically. So the capabilities we're able to bring to bear with Genius are just more superior than historical products we have brought to market, and we certainly see that resonating with the market more broadly. Two, and Bob talked about this in the past, as we revamped our sales plan, we put a much more significant emphasis on cross-selling and our ability to bundle other value-added services within the suite of solutions we're selling as part of Genius. And obviously, we're seeing some effectiveness there, which is resulting in, again, slightly higher yields with net new front book customers as we're selling Genius into the market. And then the third thing I would say is we're seeing better penetration of payments through our dealer channel. Historically, if I'm being honest, we made it a little bit hard for our dealers to sell payments. We're trying to ease the process by which our dealers are able to attach payments to Genius when they're selling the solution into market -- and obviously, that's creating overall better yields with the portfolio of customers that we're selling through the dealer channel more broadly. So those are the 3 specific things I would kind of call out at a macro level. I'll ask Bob if he has any color that he would want to add to that. Robert Cortopassi: I think Cameron really nailed it, Dan. There's a couple of things maybe I would add. Number one, Cameron talked about the more robust solution we're bringing to market and cross-selling. What I think that means is not just cross sales in the traditional sense where we're bringing new value-added services to back book clients. But really, the bundled selling of Genius that targets a robust set of core capabilities, but then also wraps additional value around both the software and the transaction processing. That's helping to drive material improvements in the value of each deal as clients recognize the incremental value we're bringing and are willing to pay for those capabilities. The other thing that I'll mention is really not product or technology related directly, but the sales transformation journey we've been on the last 1.5 years or so. We've talked about this in multiple calls in the past. But that's led to better sales talent with better training and better tooling and capabilities for our sales team. So this is both a product and technology improvement as well as an execution improvement of our sales organization. Operator: Our next question comes from Bryan Keane with Citigroup. Bryan Keane: Congrats on these results. I got 2 questions, I'll ask them upfront. Happy to see the accelerated repurchase plan of $500 million. So trying to get a sense of what that means for share buyback for the rest of this year and into 2027 as I know you're committed to the 3.0 net leverage by the end of '27. And then the second question, just a follow-up on Genius. What percentage of the market does Genius cover today and when the rollout is complete, how much of total SMB or total GPN sales will be coming from Genius because I know you're rolling out into the financial institutions and then Germany and Austria. So just trying to get a sense of where we are on coverage and where we're going to be and congrats. Joshua Whipple: Thanks, Brian. I'll take -- and appreciate the questions. I'll take the first one. Look, we're obviously very focused on returning capital to shareholders. That's a big part of the overall narrative. And look, at these levels, there is no single better investment than in ourselves. And as we talked about in our prepared remarks, in Q1, we bought back $550 million worth of shares. We returned approximately $620 million of capital to shareholders. And today, we obviously announced another ASR for $500 million, and we have plenty of capacity in Q2 to continue to buy back shares in the open market, which we plan to do after executing the ASR. And look, by the end of the second quarter, we expect to return more than 50% of what we committed to return in 2026. And look, I'd say, we're well on our path to go ahead and return approximately $7.5 billion to shareholders by the end of 2027. So we feel very good about that. And we also feel very good about getting back to our leverage point of 3x by the end of 2027. Cameron Bready: On your second comment, Brian, I think it's a very interesting one. I might start at the macro level and ask Bob to go a little bit deeper. But as I step back and think about the long-term strategy of the business. As we think about restaurant and retail, the mode of competition is the point of sale. And obviously, Genius is a highly competitive solution that we think allows us to compete enormously effectively in restaurant and retail and all the sub verticals they're under with our capabilities to continue to win share in that market going forward. Over time, the rest of the market will continue to drive towards being more software enabled, which means more and more of our sort of sales will come through our integrated channel for channels where we don't own our own software. And this is a very U.S.-centric comment, of course, but over time, I expect the rest of the world is going to move in a similar direction, which is restaurant and retail will largely attack through Genius. That is our competitive, obviously, differentiation from a product and capability perspective to win in those channels. And then more and more of the rest of our business will migrate towards our integrated and platform businesses as we attack other vertical markets through the partnership relationships, the deep relationships we have in that channel. So that's kind of an overarching view of where I see the business trending over time. I'll let Bob maybe go a little deeper around some of the specifics of your question. Robert Cortopassi: Yes, Brian, I think it's an interesting question as Cameron noted. Clearly, retail and restaurant is the most obvious in direct application for Genius in kind of the core verticals that we serve. But we've also announced releases around service-oriented businesses with scheduling and invoicing capabilities. We've also launched Genius Mobile, which is a version that is slightly slimmer in terms of both of its device footprint and its feature functionality that's designed to be easier to use and more general purpose. The other thing I would consider is as you move outside of the largest markets in the world for software, the U.S. certainly being at the top of that -- in international markets, merchant segments tend to be less hyper verticalized than here, and there's not quite as many software providers with niche solutions. And so we think Genius covers more of the horizontal approach to the market than maybe in the largest markets. So if you think about the composition of Global Payments merchant revenue today with something like 50%-ish being driven by the SMB channel. I think over a period of time, very close to 100% of that SMB base can be addressed by a version of Genius that's not being served by our integrated and platforms business with another core software offering that's operating their business. So in the U.S. today, it's largely retail restaurant, age-restricted verticals and service oriented. In our international markets, it's covering probably 75% or 80% of the MCC codes that we're serving across Europe and Latin America. So we're very bullish about its ability as a platform to scale from the smallest clients to the largest enterprise and to serve horizontally across multiple verticals without having to proliferate kind of point software solutions. Operator: Our next question comes from Darrin Peller with Wolfe. Darrin Peller: All right. Great. You highlighted some notable wins, including Subway and Abercrombie, among others. So what do you see driving those wins? And then just focusing for a moment also on sales adds and the integration of your sales. I mean, it looks like you're well on your way you're adding. I think you had 300-plus adds you said -- just touch on the integration and how it's going with those sales what type of impact do you expect to see post onboarding and really some timing if you can, in terms of the follow-through from adding in terms of new revenue and new opportunities. Cameron Bready: Yes. Thanks, Darrin. Great question. I'll start. And again, I'll ask Bob maybe to add a little bit more color to my answer. As I step back and look at the commercial productivity of the business in the first quarter, I'd say it's very encouraging. As we called out on the call, we saw 8% overall bookings growth. We had 9% in enterprise and integrated and platforms. We added 44 new partners and obviously called out strong volume growth on both Parex and our traditional payment facilitation capabilities . Genius sales nearly doubled year-over-year, obviously being the flagship sort of product than our SMB portfolio driving, obviously, the commercial activity, the lion's share of the commercial activity we're seeing in that business, dovetailing with Bob's comments a moment ago. So I think from my vantage point, what I see is we're building a very strong commercial engine that we can continue to scale and drive as a go-forward matter. And then two, we have the product and capabilities to win competitively in the market. Our strategy at an overarching level is to continue to compete on product differentiation and capability. We want to lead with the solutions that we have that we think are differentiated. We want to lean into the feature functionality that we think really resonates with our clients, which is going to be slightly different across the 3 channels of the market that we go to market through, but we certainly feel like we have an ability to compete and win based on the strength of our product and capabilities across these 3 go-to-market channels. Secondly, I think service and support is increasingly becoming a point of differentiation and distinction in the market. We're seeing more and more that our clients are looking for a more intimate for lack of better term, sales and service experience. They're looking for someone who can solution around their very specific needs. I think we have the DNA. We have the scale, and I think we have the expertise to be able to deliver that in much better ways than the vast majority of our competitors. And I think over time, that ability to bundle highly feature-rich product and capability with a service experience that feels unique and distinctive to Global Payments is a real competitive tailwind for us in the business as we go forward. On the sales force front, what I would say is, first, from an integration perspective, things are going very, very well. We've aligned the vast majority of our new -- of all of our sellers against the new sort of go-to-market channels that we're leveraging, enterprise, integrated and platform in SMB. We're obviously kind of working through some of the, what I would call the plumbing of that, which is aligning sales compensation plans, quotas, go-to-market channels, et cetera, across the different sales resources. But I would say, overall, the progress there is quite good, and I would expect by the end of this quarter, we'll have the vast majority of that iron out and the go-to-market motion will be pretty smooth across the combined business. To your point around the new sales heads we're adding, again, continuing to see very good quality of new sellers into our ecosystem. Many of those, as we called out in our prepared remarks, are coming from other software companies or point-of-sale competitors. I think they're attracted to the feature-rich platform that Genius offers as well as our ability to deploy, install and service relationships in a way, again, that I feel is distinctive relative to many of our competitors. We're seeing metrics across those new sales professionals continue to improve just in terms of their productivity, in terms of their speed to first deal ones in our environment. It's also allowed us to expand distribution in places like Mexico that we think is important as it relates to long-term growth trajectories in that market. So overall, we feel I would say very good about the commercial engine that we are building as a combined company. And I think the thing that is most important to me is we're winning at strong levels, which demonstrates the product capability and service offering that we bring to market is truly competitive and allows us to win share. Bob, I don't know if you'd add any other color around that? Robert Cortopassi: Maybe just 2 quick things. One, I think that the sales transformation we've been undertaking has given us a lot of confidence in the plans that we've built and the execution results that those deliver. So as we bring the businesses together, rolling out the very best of breed of tools, systems, training and sales enablement across the combined organization gives us a lot of confidence that the early wins Cameron highlighted are durable and lead to long-term competitive advantage of front book opportunities. The second thing, more macro, I would say, is in an environment where countries are experiencing a resurgence of nationalism, Global Payments is not a U.S. company with worldwide distribution. We're a true global company. We've said in the past that we bring global scale and local expertise. And I think that is a market differentiator for us outside of the U.S. borders, whether it's in Canada or in Germany or in Poland or the U.K. or Australia or country in Asia, we're showing up with local teams embedded in the local community with local market knowledge and the ability to put feet on the ground and hands on keyboards to get business done, to help clients be successful and to grow as a part of the local economy. So it's maybe a little more abstract, but I think both of those concepts are leading to like I said, near-term wins and long-term durable scale and benefit. Operator: Our next question comes from Adam Frisch with Evercore ISO. Adam Frisch: I wanted to dovetail a little bit on Darrin's question on the revenue synergies. You guys have obviously disclosed a ton of data and color around this. But just to make sure we're getting the right message, specifically on cross-sell, when do you expect that to start contributing more meaningly to revenue growth? Is that a '26 expectation or more into '27. And then also on AI, obviously, a big tool for cost reduction that you're leveraging would also ask you to expand how you're leveraging it to drive product acceleration and future revenue growth. And if you're using it to bring Genius up to some of the -- up to scale more quickly as well? Joshua Whipple: All right. Thanks, Adam. It's Josh. Let me -- I'll take the first question that you have. Look, as we talked about repeatedly, revenue synergies is really kind of the North Star and our big focus in 2026 is really laying the foundation and the groundwork to deliver the $200 million in revenue synergies that we've committed to. I'd say that the bigger opportunities around growth will really start to come in the 2027 time frame, but more so in 2028. And we would expect to realize approximately $100 million in revenue synergies in 2028 and then really exiting the year run rating at $200 million. . Look, we've talked about these before. Some of the big things that we're focused on, obviously, is enabling the direct sales force to go ahead and sell Genius. We've already started to go ahead and roll that out with the heritage Worldpay direct sales force, selling e-commerce down market into our SMB channel, we have more than 5 million small and medium-sized merchants on the Heritage Global Payments side. We obviously have a physical presence in 175 countries around the globe. And so again, taking their leading e-commerce capabilities and enabling more of an omnichannel solution in those markets. That's a big opportunity. And then really, the final point I'd say is it's really unlocking the full power of our distribution channels to sell Genius through the ISO channel, other indirect channels. And then obviously, Worldpay, the heritage Worldpay side had 6,000 bank branches. And so that's an area of focus of ours. And we've talked about Genius Day in our prepared remarks and how we're facilitating that FI channel. So those are really some of the bigger rocks as it relates to revenue synergies. Cameron Bready: Yes. I'll add just maybe one point to that, Adam, and then I'll dovetail into the second part of your question. So I think the way I view the revenue synergies is we have tactical plans today to achieve the $200 million of sort of run rate synergies we expect over the first 3 years post closing of the transaction to Josh's earlier comment. . The other thing we're sort of leaning into is where are the areas of investment that we really want to focus on that I would characterize as bigger beds. These are opportunities to maybe drive more meaningful sort of uplift for the business over a longer period of time. So these would be kind of incremental opportunities outside of the more tactical, I think, opportunities that come from putting Global Payments and Worldpay together. So our teams are starting to give some light to where do we think about investing in sort of bigger bets that may have more meaningful opportunity long term for the business as we think about bringing the companies together and perhaps the things that we can uniquely unlock given the size, scale, scope of resources that we have worldwide. So that's more to come on that as we get further down that path. But very clear line side on the tactical plans that give rise to the numbers we've articulated. And we're also looking at things that we think we can uniquely do because of our positioning in the market and the scale that we bring I think on the AI front, as I step back and look at it again at a macro level, we're really focused across 3 primary sort of vectors for AI. The first is Agentic commerce, and I provided a lot of commentary in my prepared remarks around our positioning there and how we see the market trending, quite frankly, in a way that aligns completely well with our strategy and approach. And we feel very good about how we're positioned, again, to continue to help shape that evolving sort of channel of commerce for the future. The second is embedding AI capabilities more broadly into our products and solutions. We called out a number of areas where we're already embedding AI capabilities to improve the feature richness of the products and solutions we bring to market. Genius is obviously a great example of that. And I don't want to get ahead of myself, but we have some exciting announcements that we'll be making in the context of the NRA coming up here in the next couple of weeks that certainly, I think, fit very nicely in the category of sort of how we can better leverage AI to enhance the capabilities around Genius and help grow and scale Genius more effectively going forward. And then the last area of AI, of course, is around productivity improvements that we see in the business. And I think we have kind of a very unique position around this given the merger and integration with Worldpay as we're building out the new organization going forward, if we're aligning all of our functional areas, across the 2 business, and we're building new workflows and processes for the combined business. Obviously, we're building them in a way that we believe we can integrate AI to enable those workflows, those processes, the delivery of services to the business in a much more efficient and effective way. And I think that is a unique opportunity. In many ways, it comes out of the integration process is the ability to redesign process workflow with an AI-centric mindset. to build better efficiency, scalability, productivity into the operating environment of the company. The other thing we're doing, and I called this out in my prepared remarks as well, is we've created our own proprietary fast track studio platform. And effectively, that allows us to massively accelerate product from experimentation to production. So it improves not only kind of the speed to market for new product and capability. It also includes the overall product velocity and our ability to obviously innovate at a much quicker pace going forward, which again we think competitively positions us very well and something that, again, comes out at the massive scale and innovation budget that we're able to bring to bear as a combined company. Bob, I don't know if there's anything you would maybe touch on a little bit deeper. Robert Cortopassi: The only thing I might add, Adam, are really around some things we've talked about before. not just AI alone, but some of the incremental investments we've made in the technology stack and the product and technology operating model that are accelerating the velocity of delivery and innovation. We talked, I don't know, a few quarters ago about orchestration capability that Global both acquired and was building in-house. We're using that orchestration capability heavily as part of the target architecture model and the integration of the 2 tech stacks. It's what's quickly enabling us to unlock the cross-sell of capabilities across the divergent platforms. It's also allowing us to collapse platforms and reduce our overall technology footprint to amplify the impact of the investment dollars we're putting behind CapEx, technology, et cetera. The other thing is the organizational redesign that leads to this kind of an in a box model where you have engineering leaders, partnered up with product leaders, partnered up with business and commercial leaders all operating as one team with a shared set of goals, objectives, OKRs. And it really democratizes decision-making a little bit and it distributes it lowering the organization. What that allows us to do is leverage leverage technology that we've acquired and that we've built and then leverage our operating model to respond quickly innovate at a faster pace and move more content into production more quickly. So we feel real good about how we're positioned to innovate at scale and at pace to continue to lead the market. Operator: Our next question comes from Andrew Schmidt with KeyBanc. . Andrew Schmidt: Good job on the steady results here. I hope I could drill down just on your comments on AI-related revenue. Obviously, there's a few sources. I don't want to part run in the announcement. It sounds like you have some interesting things rolling out. But if you could just talk about kind of the agent front, what you can do sort of capturing those flows and also what you can bring to merchants. And also, when we think about that fraud is also a big topic, obviously, recently, and you guys have an opportunity to bring that from a value-added services perspective. Just wondering just to get some more comments on the related revenue piece. And then we work in one more question just on the technology environment and harmonization. Can you give us an update on where you're at in the major milestones. It seems like you're already increasing product velocity. But when you get that work done, it seems like catalysts to further unlock product velocity. So any more details there in terms of the transformation would also be helpful. Cameron Bready: Yes. Thanks for the comments, Andrew, and great questions on both fronts. So I'll -- without repeating myself, I'll try to touch on some of the AI-centric sort of questions that were embedded in your overall narrative there. I would say, first and foremost, on the revenue front, what we're seeing right now is predominantly related to existing products that we have in the market where we've been able to enrich their capabilities and enhance their effectiveness by virtue of applying obviously, more AI capabilities around them. So products such as 3DS Flex, revenue boost, dynamic routing, fraud side are already leveraging AI capabilities that are allowing us, again, I think, to drive differentiation and their effectiveness in the market, which is allowing us to win more cross-sells with those value-added services, particularly within our enterprise base. And we're seeing better results for our clients, which obviously improves our share of wallet and improves the stickiness of relationships that we have on that front. I would say on the pure agent commerce side, it's very nascent, right? Most of what you're seeing right now is AI-generated discovery with human in the loop transactions, which really rely on traditional kind of payment rails, checkout processes, et cetera to effectuate what is Agentic commerce today. At the same time, we're obviously building all the connected tissue that would allow for fully agentic commerce to move forward at scale. As I mentioned earlier and also commented on in my prepared remarks, we're seeing the industry really trend in a direction that we think is positive for us and our competitive positioning and strategic positioning around a genetic commerce. In particular, it just reinforces, I think, the critical role that we will continue to play around checkout, payment, risk and settlement, within Agentic commerce that allows us again to be the connective tissue that allows our merchants to be able to participate at scale in a very ubiquitous way across models and protocols, et cetera, to be able to take advantage of the promise that I think Agentic Commerce has, particularly in retail going forward. Lastly, to your point around fraud, I think it's an excellent call out. As I look at our capabilities, [indiscernible] is a best-in-class sort of market-leading capability. that obviously is leveraging AI and I would say the scale of data that we have with inside of our ecosystem that I think is unique to Global Payments with $4 trillion of payment volume and over 100 billion transactions a year. sort of our own internal data, coupled with the data sources that we have available to us that I think are unique allow us to continue to grow and scale Ravlin as a fraud-related solution that can power a number of our products and capabilities. that I think, again, allows us to competitively differentiate in the market around our ability to manage fraud, particularly in an Agentic world. And we're excited about the things that we're going to be able to do on that front and the progress that we're making. And I think, again, it puts us in a very strong position as this new channel continues to evolve over time. I think on your second question, the way I would characterize it is we are in the middle of sort of developing what we characterized as our target architectural model currently. This is a very important part of the integration because we're making decisions across the heritage Worldpay business and the Heritage Global Payments business around the platforms that we want to support, grow and scale as a combined going forward. as well as what platforms do we want to demise, what technology assets do we want a sunset over a period of time. So we make sure that the business is best positioned with the technology capability, solutions and capability to continue to compete effectively in the market, while minimizing the technology footprint that we're having to manage that allowed for quicker product velocity as a go-to-market matter. It allows us, I think, to better compete effectively in the market. It makes it easier to secure the environments that we're managing day-to-day has a lot of downstream benefits for the client -- for our company as well as for our clients as well. I would say in the short term, Worldpay and Global Payments had a very similar strategy, which is very client centric in our approach. We want to create orchestration layers that allow our clients to be able to easily integrate into our environments to gain access to the full product suite and capabilities we're able to bring to bear on the market as a front book matter. I think we both have made great strides in allowing easy integration into our environments as well as providing consolidated data settlement and reporting out of the back end. I think those are the features that our clients are most looking for today in terms of how we deliver our capabilities in a more seamless, ubiquitous way globally. Both of us, again, have made enormous progress on that front. So our short-term strategy is really to combine the orchestration layers in a way that allows the client to be able to gain access to the complete suite of capabilities that Global Payments and Worldpay can bring to bear on the market. While over time, we work to simplify behind the scenes, again, what I would characterize as the plumbing of our technology environment to minimize our technology footprint position us to be able to invest in our best go-forward platforms to support the combined needs of the business on a global scale and obviously minimize the amount of technology investments we're having to make to maintain those assets as a go-forward matter. I expect that technology architecture plan to be complete, call it, midyear and we'll begin to work towards our execution plans around that as we get into the back half of '26 and move forward into '27 and beyond. Operator: Our final question comes from Jeff Cantwell with Seaport. . Jeffrey Cantwell: It's good to hear about the early momentum you're seeing with Genius and Worldpay. And I was hoping you could talk to us more about that. What are the boots on the ground saying about customer feedback? And can you just talk to us more about the sales momentum as it relates to Genius. It seems like enterprise clients are showing good demand. I thought those were called out in the prepared remarks. So my other question is, which nets -- are you gaining greater confidence in with Genius. I'm trying to see if we can anticipate which areas, what we hear more about as the year progresses. And then lastly, I mean, clearly, we're all focused on synergies, even though it's early days here, do you feel at all that the ceiling being raised on the synergy targets as you think about the longer term because some of these early numbers look encouraging. I just wanted to ask for your fresh thoughts there now that your 100 days in. Cameron Bready: Yes. Good question, Jeff. I'll start with the first part of your question and try to frame it. And I'm going to let Bob maybe provide a little more color around what we're hearing specifically, where we're winning and why, but as I step back and think about just the Genius platform as it relates to your questions around Worldpay and what we're seeing on that front. So as a reminder, we enabled Worldpay direct sellers to be able to sell Genius immediately kind of post closing of the transaction. Now in fairness, Worldpay is direct sellers in the U.S., it's not a huge population of sellers, but it was a good early win for the organization and obviously, a good early win around incremental momentum behind Genius. The bigger opportunity with Worldpay, quite frankly, is being able to unlock their FI channel, as Josh called out earlier, roughly 6,000 branches in the U.S. as well as selling into their existing sort of ISO partner channel as we are looking to do in the Heritage Global Payments portfolio as well. So I think about that as, quite frankly, pushing genius through all the distribution channels that we have today and obviously driving greater penetration and saturation of the market. leveraging the immense distribution that we have within the 4 walls of the combined Global Payments today. I think the second area that's really interesting from a Worldpay perspective, and I appreciate you calling this out is what we're seeing on the enterprise front. We specifically called out that Subway has committed to purchasing some of our Genius technology. Subway is an existing payment relationship of Worldpay that we're able to tap into very early post closing of the transaction to unlock this new opportunity to sell our software solutions into existing Worldpay enterprise payments customers. We think there's more of that forthcoming in the market as we continue to bring the businesses together and unlock opportunities as a combined company. The other comment I would just make about the enterprise market more broadly is we're seeing really strong receptivity to the embedded suite of capabilities that we can deliver across the Genius Enterprise solution from, obviously, point-of-sale, kitchen management software, digital menu solutions, drive-thru technology. We have an enormous array of capabilities that we can bring to bear on the enterprise space. And we're seeing strong, obviously, receptivity and excitement around what we're doing with Genius from an enterprise perspective. As it relates to synergies, and I'm going to turn it over to Bob to obviously allow him to give a little more color around what we're seeing with Genius, but I'll just tackle the last part of your question, so we don't go back and forth. Look, we're delighted with the early progress we're making. I commented to our Board last week that the way our certainly executive leadership team and first couple of layers of management have come together to drive integration over the first. I think we're going on 120 days now is really remarkable. The way this organization is kind of come together over that period of time is very, very encouraging. I don't want to get ahead of myself as it relates to where we are with synergies. We have a great deal of confidence in being able to deliver on the commitments that we've already established. And we continue to work every day to try to maximize the value proposition that we see in putting the 2 businesses together. As we move through time, we'll continue to update you on our progress on that front. But I would say, I certainly sitting here today, I'm very, very encouraged by the progress we're making from an integration standpoint and have a great deal of conviction in our ability to deliver on the commitments we've established. Bob, do you want to maybe go a little bit deeper on Genius? Robert Cortopassi: Sure. So Jeff, back to the enterprise versus SMB part of your question, I think it's probably patently obvious that we call out some of the enterprise wins because they're names that people would recognize. But they're really overshadowed by the vast number of Marcellus pizzerias and Joe's local bar and the Atlanta hub or whatever the people may not recognize, but are adopting Genius at an even more rapid clip than what we're seeing in the enterprise space. So we feel really bullish, frankly, about both ends of the spectrum. . In terms of where we're winning specifically, look, I think in restaurant, particularly in the U.S., there are certain sub verticals within restaurant that we have had some historical strength, and we've certainly doubled down on that with incremental functionality capabilities around Genius. We're also beginning to win competitive takeaways at a pretty consistent clip. I know there was some discussion some quarters ago about whether our approach was going to be back book related or front book related and certainly, we're seeing a blend of both. Our dealer network is going back to service clients that they sold historically with a very, very high percentage of close ratios on upgrades to Genius technology, whether that's around the new hardware, the new software and the value-added services we mentioned before. We're also having a lot of success around stadium and event venues, foodservice management, both of those are complicated environments that often bring together the breadth of capabilities we have across device form factors and software technologies. So in one environment, you may need kiosks and digital menu boards and mobile access and kitchen management solutions, and we really feel very strongly about our capabilities in those complex environments not to mention things that were historical enterprise strength for us around drive-through and quick service restaurants. On the retail side, I think we continue to have, frankly, very broad success retail Genius solution isn't really targeted at enterprise, whether that's inside or outside of the U.S. But in the small and mid-market kind of retail shops, counter service, coffee shops, things like that, we're experiencing really broad interest in the U.S., obviously, that's our largest market for that. But even internationally, we're finding, in some cases, 50%, 60%, 70%, 80% of new opportunities are interested in taking the Genius retail, Genius sort of shops environment. So I would say the -- the excitement is broad. It's across enterprise and SMB. We feel real good about our approach and our positioning in both retail and restaurant, while acknowledging particularly in restaurant in the United States, we've got strong competition, and we've got work to do here to continue to build out our functionality, build our distribution. And as I've highlighted before, to establish the brand recognition that leads to those kind of automatic sales when you become one of the first names that people think about when they think about restaurant technology. And the campaign that we've run in the last quarter has demonstrated our ability to move public perception and awareness of the brand that we think is going to lead to future success at the top of the funnel and in terms of take rates. Operator: This concludes the Q&A. I will now turn the call over to Cameron Bready for closing remarks. Cameron Bready: On behalf of Global Payments, thank you very much for joining us today. We appreciate your interest in our company, and I hope everyone has a great day. Thank you very much.
Operator: Hello, and welcome to the Uber First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Alax Wang, Head of Investor Relations. You may begin. Alaxandar Wang: Thank you, Sarah. Thank you for joining us today, and welcome to Uber's First Quarter 2026 Earnings Presentation. On the call today, we have Uber's CEO, Dara Khosrowshahi; and CFO, Balaji Krishnamurthy. During today's call, we will present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures, are included in the press release, supplemental slides and our filings with the SEC, each of which is posted to investor.uber.com. Certain statements in this presentation and on this call are forward-looking statements. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today, except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks and uncertainties described in our most recent Form 10-K and in other filings made with the SEC. We published our quarterly earnings press release, prepared remarks and supplemental slides to our Investor Relations website earlier today, and we ask you to review those documents if you haven't already. We will open up the call to questions following brief opening remarks from Dara. With that, let me hand it over to Dara. Dara Khosrowshahi: Thanks, Alax. Uber had an exceptional start to 2026, driven by strong execution and a continued focus on product innovation. Despite a complex backdrop marked by war and weather, we delivered top line and profitability at or above the high end of our guidance. Gross bookings were up 21% year-on-year, reflecting the durability of our platform and that growth was once again trip and audience-led with our audience growing 17% alongside strong engagement. Our performance this quarter was balanced and broad-based. Mobility gross bookings accelerated to 20% with record margins. Delivery grew 23%, led by grocery and retail and supported by strong retention and freight returned to growth for the first time in nearly 2 years. Importantly, we're scaling this growth profitably. Non-GAAP EPS increased 44% year-over-year, more than twice as fast as our bookings growth, driven by disciplined cost management and operating leverage. We also generated strong free cash flow and returned a record $3 billion to shareholders through buybacks this quarter. We're also continuing to invest in the strength of our platform, which is compounding over time. We've now surpassed 50 million Uber One members and 10 million drivers and couriers globally, both important milestones that reflect strong customer loyalty and expanding number of earner opportunities on our platform. On the product front, our GO-GET event last week showcased how we're expanding Uber's role in everyday life across travel and local commerce. From hotel bookings and travel mode to new ways to shop and coordinate across our platform, these innovations are designed to deepen the everyday utility of our services and to build engagement and loyalty. We're also making strong progress across our strategic priorities, including autonomous, where we continue to believe a hybrid network will unlock significant long-term value. We now have more than 30 autonomous partners across Mobility and Delivery and are scaling deployments globally. AV Mobility trips grew more than 10x year-on-year, and we remain on track to be live in up to 15 cities by the end of the year, including new deployments in the U.S. And with the launch of Uber Autonomous Solutions, we're building the technical and operational infrastructure to help our partners commercialize faster. Looking ahead, our guidance reflects continued momentum, disciplined capital allocation and a clear focus on durable, profitable growth. And with that, operator, if we could open it up for questions. Operator: Your first question comes from Doug Anmuth with JPMorgan. Douglas Anmuth: Dara, can you just talk about how the early benefits of insurance cost savings are playing out in L.A. and San Francisco? And what gives you the confidence in continued further U.S. Mobility acceleration in '26? And then also just following up on GO-GET last week, how do you shift Uber users to more of an on-demand -- from more of an on-demand mentality into booking hotels ahead of time, ahead of when it's needed? Dara Khosrowshahi: Yes, absolutely, Doug. I'll start with GO-GET and then Balaji can jump in on insurance. We've always had an internal debate whether or not we can make the transition from on-demand kind of behaviors to more kind of preparing ahead, reserving ahead kind of behaviors. And it really started with the build of Uber Reserve. We have thought about Uber Reserve as a product that we would build mostly for airport travel. We had some kind of feedback from our users. Well, the reliability of Uber is awesome, but I absolutely knew that the driver was going to show up 15 minutes early, et cetera. It could reduce some of the stress as it related to travel. And of course, there was a great opportunity for us to continue to increase travel bookings. And we've consistently seen our Uber Reserve service growth rates continue to grow well in excess of the Mainline business. And as you know, the Mainline business is growing at healthy rates as well. The margins on Uber Reserve are higher. Customer satisfaction is very, very strong. And now we're developing the Reserve service, not just as a service for people to go to airports, but people to get picked up when they land in airports as well. The experience with Reserve for us demonstrated our ability to go from on-demand to planned services, so to speak. Travel is a very, very natural category for us to get into. Airports are about 15% of our Mobility gross bookings and 40% of, for example, our U.S. riders take trips outside of their home city. And globally, just last year, we had over 1.5 billion trips happening outside one of our users' home cities. So when you put that together, which is proving ourselves with Reserve, moving from on-demand to kind of planning ahead, and then the incredible audience and efficacy we have with the travel consumer, hotels was, of course, a very, very natural expansion for us. We're very happy to have a relationship with Expedia. Their inventory is second to none. So now we've got 700,000 hotels available on Uber as we speak. And we've taken most of the economics of that deal, and we are giving it back to our Uber One members. Uber One members get 10% Uber credits. There's a rolling list of 10,000 hotels where you get another 20% off as well. So really, the focus for us is drive that cross-platform activity, give a bunch of money back to Uber One members. And obviously, you've seen kind of the momentum that we've had with Uber One with over 50 million members growing 50%. The retention rates are higher. They spend 3x more. It's a unique advantage that we have over our competition. So we're very much looking forward to the product. We're really happy that the team put it together and happy about our partnership, and we're hoping hotels can be just as big as Reserve. Balaji, do you want to talk insurance? Balaji Krishnamurthy: Yes, sure. Thanks for the question, Doug. I'll level set first on where we are with our insurance journey. And as we said at the end of last year, we expect to see hundreds of millions of dollars of savings in our insurance line this year, thanks to the great work our policy teams have done as well as the tech improvements we have implemented in the market. In addition to that, we also had our auto insurance renewals that went into effect in March, and we've seen continued improvement in rates there, which is also with the improvement in the market conditions here for auto insurance, we have found opportunities to also offload more risk to third-party carriers. And with that favorable market environment, we've taken advantage of that opportunity. So all in all, it's putting us in a place where this will be the first year since COVID where we expect to see good leverage on our insurance cost line for the U.S. Mobility business. And as we've said before, our philosophy has been to return that goodness back to the market and consumers see improvement in the pricing environment for Uber rides on the system. So as a result of that, we are seeing really good elasticity. And as we would have expected, we've seen that price reduction translate to acceleration in trip growth. And the overall California market growth has accelerated. If you look at L.A., which is the market with the most significant insurance headwinds over the last few years, the trip growth trends there are significantly better than California and the rest of the country. And we expect to see this translating to accelerating U.S. business growth in 2026, as we've previously said, and we feel even more confident today than we did in December or January. Operator: Your next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe building on Doug's question, I wanted to go a little bit deeper in what you see as some of the critical technology investments you're making on the consumer-facing side to tie all of these services together and layer in elements of personalization and recommendation, so increasingly, consumers know how to find these services on your platforms. And how much over time do you think some of that behavior will be more agentic driven? And how does that again line up with what you're making on the investment side? Dara Khosrowshahi: Yes, absolutely, Eric. So in terms of our tech investment and general investment, the one thing that I would highlight is it remains of utmost important for us to get the basics right. That means reliability as it relates to Mobility, increasing selection of the kinds of rides that you can get and same thing, reliability and selection in Delivery. Those are kind of the core precepts and we think we provide the best reliability, best selection, both Mobility and Delivery globally. And then once you do that -- and by the way, we seek to improve that every single year, you can add on services on top of that. And we think AI and agents provide a unique benefit in that. One of the challenges that we've had in the past in terms of offering all of these experiences on our app is that you have to build out UIs that essentially user interfaces that are standard for all of your users. And the fact is that different users like to interact with our services in different ways. And so if you have to kind of build a fixed UI for the majority or the optimized average of your users on a global basis, there are some users who may not see what you've got to offer or may prefer to interact with you in a different way. AI solves all that because essentially, the way that any user wants to interact with your services is up to that user. They can talk and they can ask for whatever they want, "Hey, search for hotels for me, get me an Uber to the airport, get me an Uber from the airport to the hotel, et cetera." And the UI is whatever the user wants that UI to be. That creates unique opportunities for us to build out new services on our platform, and we think also affords us the ability to drive cross-platform usage, which, as you know, is a very important strategic initiative of ours and a unique way in which we differentiate versus others. The growth of cross-platform consumers is growing 1.5x faster than the overall growth of consumers. We're locking in consumers with our Uber One membership where they spend 3x more than others. And we're using AI, one, to make sure that consumers can interact the way that they want to. So for example, Cart Assistant, you can just take a picture of something that you see on a table or in a store or on a menu, and we'll create a shopping cart for you. Our earners can ask our AI agents questions about earnings, where they should go, when they should work, et cetera, and you can get the exact personalized answers for you. And then we're using larger models to essentially upsell and offer products for you in a very, very personalized way. And that can work in very simple ways, like 3/4 of the time when you get a ride on an Uber, we have preselected the destination for you. In other words, we anticipate where you're going to go. We offer it up as a card. And 3/4 of the rides on Uber, we have successfully actually predicted with AI algorithms where we think you're likely to go. After work, you're probably going to go home, for example. and at the same time, come up with upsells that delight and surprise you like a hot cup of coffee waiting for you in that Uber Reserve when you're going to the airport. AI makes this all possible, and we're very, very early in the early innings, and we're extremely excited about the potential that it has for cross-platform usage on our platform. Balaji Krishnamurthy: And I'll just augment what Dara said. As you think about the cross-platform opportunity for us, we are also investing in new entry points on both our Rides and Eats app. And at GO-GET, we talked about One Search, as another feature that we are introducing that is basically universal search across the product. Just to paint a picture of the size of the prize here, we are already seeing nearly $15 billion of run rate gross bookings for our Delivery business coming from our Mobility app and 30% of our eligible mobility consumers have never even used Uber Eats yet. So there's a lot of headroom here. Operator: Next question comes from Brian Nowak with Morgan Stanley. Brian Nowak: I want to ask one about U.S. Suburban Delivery. You made a lot of progress on the Suburban Mobility side. Where are you on sort of the overall Suburban Delivery business sort of using the Mobility growth to drive better Delivery growth as well? That's one. And then two, the strength of the Uber One -- bless you -- the strength of Uber One was pretty strong. It seems like quarter-over-quarter. Can you just walk us through some of the drivers of growth of Uber One at this point in the quarter? Dara Khosrowshahi: Sure, absolutely. So we're very happy with the suburban -- with our development in terms of U.S. Suburban Delivery. But I'd tell you, Brian, it's very, very early innings. And I would actually expand this not just to the U.S. Suburban Delivery, but just growth in sparse markets in the U.S., outside of the U.S., pretty much in every single country that we operate in. We're going out and acquiring Selection. And generally, as we add selection to these markets, whether it's more drivers in your suburbs or outside of the big cities or it's more merchant selection in the U.S. suburbs or many other suburbs across the world, we're seeing that trip growth rates are growing 2x faster generally in Mobility and Delivery in these sparse markets versus the core urban markets where kind of we grew up as a company. So this is a global playbook that we've got. It's about expanding selection. It's about investing in reliability. And then it is also about tailoring our products. So for example, we see a higher percentage of Reserve and Wait & Save. Grocery is very strong in suburbs as well. And it's -- we think we're very early in terms of the selection and reliability improvements that we see in those markets. So lots to go. It's working in the U.S., and it's certainly working pretty much everywhere outside of the U.S. as well. And in certain markets like in Australia, the size of those sparse markets are about 2x the size of the average sparse markets in other countries around the world. So we think there's a huge amount of potential here. In terms of Uber One and the growth here, it's continuing. So I wouldn't say that it's any one item that's driving the growth of Uber One. It's 50 million members. It accounts for over 50% of our bookings now and growing 50% year-on-year. We ended [indiscernible] with 30 million members. So we've added 20 million members in just a single year, which is pretty extraordinary. And number one is the membership benefits themselves. The membership costs a similar amount as competitive membership programs, but we offer you no delivery fees, and we offer you credits on Mobility as well. So just the benefits of our membership program are structurally better than the benefits, we believe, of any other membership program out there, local membership program. And then we are introducing benefits. We talked about hotels, getting 10% back on hotels. On a long weekend in New York City, that's getting $100 back, which pays for your entire Uber One membership for the year. We're also increasing benefits like membership benefits are now going to work globally. We have a lot of global travelers and you get benefits for your global travel. We introduced new features like no fees above $60 basket for Grocery as well. And then we're also going to run member days again, which has been a big feature for our members, delivering lots and lots of savings for the members. So we've seen this growth going on for a long time. We've kind of wondered when it's going to slow down. At this point, we don't see it slowing down, thanks to the innovation of the team that I'm very, very proud of. Operator: Next question comes from Justin Post with Bank of America. Justin Post: We'll go to AVs. I know Waymo is launched in a bunch of southern cities. Just wondering what you're seeing in those cities? Any changes to your growth rate? And then second, some real progress with partners during the quarter. What's kind of putting you over the top with like Zoox and others getting those deals done? Dara Khosrowshahi: Yes, absolutely, Justin. So we continue to believe AVs are huge opportunities for the entire industry. This is, we think, another $1 trillion TAM. And we don't see this as being a winner-take-all market. We certainly see Waymo moving very quickly as we are moving very quickly. And I'll remind you, we expect to be in 15 markets by year-end and then significantly more than that going into next year with partners like Nuro, like NVIDIA, like Zoox as well. So we're very, very happy about what's going on there. Our Mobility business accelerated versus last quarter. Our U.S. Mobility business actually accelerated more than the overall business, and we talked about the anticipation that U.S. Mobility is going to continue to accelerate for the balance of the year. So at this point, we don't see any effect of the Waymo launches on our overall business. And we continue to see Waymo kind of the performance of our businesses with Waymo in Austin, Atlanta continue to be strong. Driver earnings are up, more drivers are joining those platforms as well. And then if you look at kind of markets where Waymo has been launching -- has been around for some period of time, San Francisco and L.A., for example, our category position, both in San Francisco and L.A. is higher today than it was 6 months ago. So this is an overall business that is of scale, the overall Mobility business, we continue to see very, very healthy trends, and we don't see any signs of that abating at this point. And of course, we continue to invest in AV aggressively with our partnership model. And then I think, listen, why are we having success in signing up partners? I think it's self-evident, which is we've got demand. We have shown that the utilization of these cars, which are very, very expensive on our platform is higher. And then we're also very excited to talk about Uber with the launch of Uber Autonomous Solutions. which helps our AV partners focus on kind of building the driver, and we can build everything else around them, whether that's fleet management, helping them with data collect, et cetera. So we think we're very early innings here, and we're very excited about the AV trends that we're seeing. Operator: Next question comes from Nikhil Devnani with Bernstein. Nikhil Devnani: I had a couple, please. Balaji, maybe for you first. I appreciate the ROI framing in the letter. So you've clearly been investing behind the business and making some near-term margin trade-offs. What does the successful payback look like for Uber at the aggregate level? Is it this ability to compound at 20% for much longer? How do you think about that? And then maybe for Dara, the Santander deal announcement yesterday was interesting around financing. It looks like there's line of sight to financing AV fleets in the future as well. What has that broader conversation been like with those partners? And how do you think about integrating those partners into scaling these fleets over time? Balaji Krishnamurthy: All right. I can take the first one. So thanks for the question. And I think the starting position you should think about is this is a global, very broad business, and there isn't a single formula that would help us decide on ROI and payback period for the investments we are making. And we have to be cognizant of that, and we kind of take each product initiative on its own merits. Generally, what we are looking for is either the products that we are investing behind should be able to drive incremental audience acquisition or frequency lifts and/or it needs to be able to drive margins for the company. And I think a good way to think about this instructively is to look at the barbell strategy that we have been executing. On our barbell for Mobility, the low-cost products that we've been investing behind, they drive 75% higher frequency than our core products. And on the other end of the spectrum, our higher fare premium products drive 3.5x higher profit growth for the company. And all of these products are driving 25% lift in first-time acquisition for us as well, right? So effectively, as you pair those kind of -- as you put those kind of fact patterns together, what you're driving towards is the highest lifetime value we can get for the investments we're making. The payback period will vary. There are certain products where you get the payback instantly, and there are others where it may take a few quarters. But as we think about this portfolio, we're able to balance it in a way where we can drive healthy growth on the top line, and we can show you healthy annual margin expansion for the company as well, and we are pretty happy to -- with the momentum that we're delivering right now. Dara Khosrowshahi: Yes. And as far as the Santander deal, it's something that we're very, very excited about. I think to step back for a second, in order for AV to scale and get into the hundreds of millions in terms of trip count, we really have to build out a whole ecosystem around the development of these AV drivers. And that ecosystem includes fleet management, it includes depots and charging and repair and cleaning. It includes financing. It includes insurance as well. And we're investing in that entire ecosystem. We talked about a new relationship that we're building with Hertz on the fleet management side. We have teams going out and securing depots in markets that we think are ready from a regulatory standpoint as well now. And we have been doing so to some extent and working with these fleets for some period of time as an increasing percentage of our drivers had moved from combustion vehicles to EVs as well. So these are muscles that we've built for some period of time. Financing and building out kind of financing for AVs is, to some extent, trickier because the residual value of these AVs is not something that is clear, right? There's a residual value for cars and used cars, there are very liquid markets for them. That is not true of AVs at this point, although it will be true. And for us, the advantage that we have is that AVs on our network have a very predictable use in terms of revenues or trips per vehicle per day, which at a premium to kind of 1P type networks and as a result, revenue per vehicle per day. And that kind of creates the circumstances where we think you can build a very, very healthy financing ecosystem. So we can build AV, but we can also build a capital-light essentially. We're really happy to work with Santander that has been incredibly innovative in this field on a global basis. And then on insurance, for example, we talked about a relationship with Marsh and Apollo as well to build out insurance. And we think actually AV insurance is going to be cheaper than human insurance because AVs ultimately will be safer as well. So we're investing in the whole ecosystem, very happy with the Santander relationship, and we're looking forward to building from there. Operator: Next question comes from John Colantuoni with Jefferies. John Colantuoni: Starting with AI spending, where you already bumped up on your original full year budget not long after the first quarter ended. When thinking about how you're approaching layering AI capabilities into workflows, are you viewing them as more supplementing or replacing existing processes to give -- just to give a sense for how much those investments are incremental to the existing spend? And second, maybe you could just talk a little bit about any notable market share trends across your top 10 Delivery and Mobility markets. And maybe talk a little bit about what's helping you deliver leverage across Delivery specifically while growth is simultaneously benefiting from faster growth in some lower-margin offerings like Grocery & Retail. Dara Khosrowshahi: Yes, absolutely. So we're seeing the use of AI just grow at unbelievable rates, and you're seeing it in the market rates in the market as well. We're certainly seeing it within our company. I think if you look at Uber, we have been using AI tools, whether it's for pricing or matching or routing for years and years. We're kind of very comfortable in the real world, which is a probabilistic world versus a deterministic world. So using these AI tools and building with these AI tools, it's just kind of how we build and how we build for many, many years. So we're seeing uptake of these tools, whether it's our legal team or marketing team or developers and we think it's creating kind of employees with superpowers. And I would say that it's important to note that AI, for example, our engineers don't just write code. There's a lot more that goes into it. There's prototyping ideas and design ideas with designers and PM. There's certainly coding activity, which AI helps with. There's reviewing and testing your code, whether it's an AI agent reviewing that code and then humans as well to make sure that there's a proper code review before you check in that code, whether it's being on call and making sure that all the systems are running or it's maintenance, it's migrating code or improving kind of performance of that code. AI is helping our engineers and our employees across the company become more efficient to move faster across the board in almost every single step of building. And we are seeing it. Like if we look at the number of code commits per engineer, it's increasing. The number of lines per code is increasing. About 10% of our code now is committed. That committed is built by agents, autonomous agents out there. Obviously, we check the code before it gets committed. So I think you should just look at AI as an accelerator for us, for every company. It means that our investment in AI tools and infrastructure is increasing. That will be offset by slower headcount growth. But if every person in this company can increase their throughput by 20%, 30%, 50%, 100% then I think metering headcount growth and leaning in on AI investment is going to be well worth it. And Balaji, do you want to talk about the competitive environment? Balaji Krishnamurthy: Yes, I'll get there. And just one last comment on AI. I would say, candidly, when we set up budgets for 2026 in November, we underestimated the amount of impact the AI tools could have. And obviously, in December, we had new models come in. So we've re-upped our investment here. And as Dara said, we are trading that off against incremental headcount growth, which we noted in the remarks as well. On Delivery competition, so first of all, as we noted in the earnings materials, we are seeing our Delivery position improving quite substantially across the globe. We are -- as we think about our top 10 markets, really in the U.S., we are continuing to invest in our sparse markets expansion, and we expect to see results from that over time. In international markets, we are very much on an offensive footing. So if you think about Europe, where we are seeing an incremental level of competitive intensity from both DoorDash and Prosus as they have expanded into the market, we've held our own quite well. And in addition to defending our core positions, we are on the offensive in the market. We've announced expansion to 7 new markets. Just this morning, we launched in Finland. We are already at the #1 position on the App Store there. And we've talked about the other large markets in the region that we will continue to go into. In APAC, we are seeing very good trends in Australia, Japan, Taiwan. Australia has been a standout from its highly penetrated position. As we've gone into sparser markets, we've reaccelerated that business back to 30% growth. And similarly, in Japan, we're seeing very good trends as well. Operator: Next question comes from Ron Josey with Citi. Ronald Josey: Maybe one on AV and another one on just trips growth. On AV, Dara, getting back to your comment on just how everything needs to come together, charging, insurance, financing, et cetera. As we reach services in 15 cities by the end of this year, just would love to hear your thoughts on perhaps what are the bottlenecks or are there bottlenecks as we scale supply and demand really grows across these cities more as more services launch. And then on trip growth in San Fran and L.A., I think we talked about it improving meaningfully. Talk to us a little bit more about the drivers here. I know we mentioned greater affordability insurance, but just wondering if you're seeing perhaps greater adoption of Uber One and cross-platform usage in those cities specifically and using that as a guide for others. Dara Khosrowshahi: Yes, absolutely. So in terms of getting to market and scaling in market, obviously, we're -- we continue to expand the number of partners that we have and our partnerships are very, very broad from Zoox to a Nuro/Lucid to Pony and WeRide and Baidu as well in international markets. And we think they'll continue to broaden. Right now, I'd say the blockers are -- we just need more cars on the road. We have to make sure that these drivers are safe. So usually, we introduce them with the safety driver, and then we'll take the safety driver out when our partners kind of pass our safety case as well, such as Abu Dhabi and Dubai as well. And at the same time, we have to make sure that we are introducing these autonomous vehicles into local markets with the appropriate dialogue with those local markets, making sure that we have dialogue with regulators, which will take time and regulators are kind of -- they're asking the right questions, which is how are AVs going to interact with -- in situations where the power goes out or interacting in school zones or working with firefighters, et cetera, in the city. Just the interaction between AVs and real life is something that is critical. Questions about safety, about congestion, about the effect on work and drivers as well. These are all important questions and dialogues that we have to have, both in the AI space, in the digital AI space and the physical AI space as it relates to AVs as well. We want to be a part of that dialogue. You'll see us kind of expanding on our thinking there. But this is going to take time, both in terms of scaling the business, fleet management, financing, insurance and also making sure that we have the right dialogue with regulators on a local basis and all the constituents that are going to be affected by these changes in our society. So it will take time, but we think it's worth investment. Balaji, do you want to talk about trips? Balaji Krishnamurthy: Yes. So on SF and LA, we already talked about this even in the Q4 earnings release that we were seeing the impact of incremental AV adoption in the market as being expansionary for ridesharing in the cities in aggregate. And as Dara mentioned, our category position in these markets has also expanded over the last 6 months, which has had an accelerating impact on the sort of trajectory we're seeing there. Looking ahead, all of the comments I made earlier about insurance-driven goodness as well will show up in the trip trajectory that you should see in these markets. So not only are we seeing these healthy trends in the market today, we expect that the acceleration should continue as we go through the rest of the year. Operator: Your last question comes from Michael Morton with MoffettNathanson. Michael Morton: I wanted to talk about an inbound question we're getting from investors a lot, and that's a greater risk to marketplaces direct relationship with their users as we could see an adoption of personal agents going forward. So the view is someone is going to talk to their personal agent that either Meta or Google builds and they say, order me a rideshare ride with the fastest ETA or order me pizza from my favorite place, and they never interact with their go-to apps and you get like abstracted away. Could you talk about Uber's approach to this, how you're viewing the risk, if there's like some preventative measures in your terms of services or any ways to push back around those fears? Dara Khosrowshahi: Yes, absolutely. So I think the first thing that I would say is we are building an indispensable, what we view as an indispensable local service. And the breadth that we have in terms of operating in over 70 countries and many of them, both Mobility and Delivery is really unparalleled. And we continue to make investments in engagement of our users and our earners as well with the 50 million Uber One members that we talked about growing 50% year-on-year. So that engagement that they have is a real direct and deep engagement that they have with us. First thing I'd say is we are investing in these agents, and we are investing in these AI tools, and we're seeing kind of the interaction directly with our agents be the first use case. That's a magical use case. And I talked about this earlier in the call, like 3/4 of the time, for example, the Mobility, we're guessing, we can anticipate where you're going to go. So it's just kind of a one-push button, our agent knows, "Hey, Balaji, time to go home, right, for you." And those are kind of unique benefits that we bring. At the same time, we are working and talking to many of these third-party agents. We have a great market position. So we're able to kind of often dictate the terms of trade in those discussions. I think you know that I came from the travel industry many, many years ago, and there were fears, for example, in travel in terms of metasearch and this layer above the travel companies. And as the Travel business consolidated with an Expedia or Booking and Airbnb, which are incredible companies, most of the value of those front ends accrued to the large players, the consolidated players, Expedia, the Airbnbs and the Booking.com. So we've kind of seen this movie before. As long as we are building terrific core products, we think we will get more than our fair share of consumers coming direct to our services. We will build in APIs to whether it's an Apple or an OpenAI or a Claude or Gemini, we will work with these agents as well. But I think we'll continue to see that the majority of our transactions come direct. We saw the same theme play out in metasearch. I don't know if folks remember, but at one point, even Google Maps had kind of comparison shopping between Uber and Lyft, and it wasn't the same experiences coming direct to the app. So we're very confident that AI is going to empower entirely new experiences, but we think the majority of those experiences are going to come direct to us. All right. So I think that's it. Thank you very much for joining the call. Huge thank you to the Uber teams who delivered another terrific quarter for us. And another thank you to our partners, whether it's our earners, couriers, drivers and also merchants who make this all possible. Thank you very much for joining, and I look forward to talking to you in the next couple of quarters. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Greetings. Welcome to Alcon's First Quarter 2026 earnings call. [Operator Instructions] Please note that this conference is being recorded. At this time, I'll turn the conference over to Dan Cravens. Vice President and Global Head of Investor Relations. Thank you. You may now begin. Daniel Cravens: Welcome to Alcon's First Quarter 2026 Earnings Conference Call. Yesterday, we issued our press release, Interim financial report and earnings presentation. All of these documents are available on our website at investor.alcon.com. Joining me on today's call are David Endicott, our Chief Executive Officer; and Tim Stonesifer, our Chief Financial Officer. Before we begin, please note that our press release, presentation and remarks today will include forward-looking statements, including statements regarding our future outlook. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. Actual results may differ materially from those expressed or implied in these forward-looking statements. Please do not place undue reliance on them. Important factors that could cause actual results to differ are included in our Form 20-F, earnings press release and inter financial report each of which is on file with the Securities and Exchange Commission and available on their website at sec.gov. We will discuss certain non-IFRS financial measures. These measures may be calculated differently from and may not be comparable to similar measures used by other companies. They should be considered in addition to and not as a substitute for IFRS prescribed performance measures. Reconciliation between our non-IFRS measures and the most directly comparable IFRS measures can be found in our earnings press release. For discussion purposes, our comments on growth rates are expressed in constant currency. In a moment, David will begin with highlights from the first quarter. After his remarks, Tim will walk through our financial performance and outlook for the remainder of 2026. David will then return with closing comments before we open the line for Q&A. Before I turn the call over, I'd like to share that Alan Trang has accepted a new finance leadership role within Alcon, supporting our surgical business in Singapore. On a personal note, I want to thank Alan for his deep expertise, sound judgment and the partnership and friendship he has brought to our team and to our engagement with the investment community. He has made a meaningful impact on Alcon. And while we'll miss him in his current role, we're excited to see him take on this next chapter within the company, and we expect to announce Alen's replacement in the near future. With that, I'll turn the call over to our CEO, David Endicott. David Endicott: Good afternoon, and thanks for joining us. Let me start by recognizing the incredible work of our talented teams around the world. Your ongoing dedication, innovation and commitment to our customers continue to move Alcon forward. and make a meaningful difference in patients' lives. Now the first quarter was an important step forward for our new products, demonstrating strong market acceptance and share gains. In a quarter marked by uneven market conditions, particularly in cataract, our teams stayed focused and delivered results that reflect the strength of our innovative portfolio. . Our recent product launches contributed meaningfully to top line growth in the first quarter, and we expect that contribution to continue to build as the year progresses. Importantly, we're seeing market share gains across key categories particularly in U.S. AT-IOLs, surgical equipment and consumables and contact lenses as well as dry eye. That momentum was clear at the ASCRS meeting last month. Across more than 60 presentations and peer-to-peer sessions, we saw strong surgeon engagement driven by impactful scientific data and hands-on demonstrations. Discussions focused on consistency, workflow integration and matching technology to patient and doctor needs. This real-time feedback reinforces our confidence in our ability to translate innovation into real-world clinical value. I'll now move to discussing recent innovation, starting with our Unity [indiscernible] device. As we discussed in the past the Unity platform represents our most significant equipment upgrade opportunity in more than a decade, and the scientific community continues to recognize that. In addition to previous top innovation awards, I'm pleased to report that Unity VCS was named an Edison Award winner last week. This is one of the most recognized honors for market-ready innovation and reflects its meaningful impact on surgical technology. Launched in 2025, Unity VCS is engineered to enhance surgeon control, improve efficiency and streamline the surgical workflow. VCS has been introduced across most major markets worldwide and continues to build momentum and performed well in the quarter. In late last year, we expanded the platform with Unity CS, our stand-alone cataract system. It's designed to increase surgical throughput while maintaining precision and safety. Unity CS has also been very well received. Surgeons have noted its seamless workflow and next-generation energy delivery that help optimize case efficiency without compromising outcomes. With a substantial installed base of legacy machines and a compelling value proposition across both efficiency and clinical performance, Unity represents a significant technology upgrade. Beyond the replacement market, Unity is also showing strengthening share and actually expanding our installed base. As a result, our order pipeline remains robust, especially post ASCRS. We're continuing to work closely with customers to manage all our installations with the quality, service and support they expect from Alcon. Now alternative plantable where our innovation is strengthening our competitive position and driving solid performance. In fact, in the U.S., we gained share in IOL category in the first quarter. I'll start with PanOptix Pro, our latest trifocal IOL. Pro builds on the proven success of PanOptix, which is already the world's #1 most implanted trifocal with over 4 million implants. Pro introduces new features that reduce light scatter and delivers greater quality of vision. In the U.S., this lens has helped to drive almost 2 share points of growth in the PC-IOL category. Internationally, we're just getting started. We recently had an upcoming launch in Australia, Japan, South Korea and now Europe. Feedback from these launches have been positive, and we're confident that PanOptix Pro will bolster our presbyopia correcting Iowa leadership globally. Building on PanOptix Pro momentum, we launched True Plus, our new enhanced monofocal IOL. This lens extends the range of vision of a traditional monofocal providing enhanced intermediate vision without compromising distance performance. TruPlus is designed for surgeons who want an enhanced monofocal option. It enables us to compete more effectively while defending our Clarion monofocal base. Importantly, TruPlus launches with a toric version from day 1 and having a toric modality is a meaningful advantage for competing in the astigmatism-correcting segment and growing our ATIL share. Finally, we remain on track to launch an upgraded version of Vivity, our extended depth of focus well in early 2027. With more than 2 million implants, Vivity is already the world's most implanted EDOF lens and this enhancement is designed to improve near vision while preserving vivity's low visual disturbance profile. Now I'll move to retina, where Valeda, our photo biomodulation device for intermediate dry AMD continues to see encouraging early adoption. Valeda is the first and only therapy clinically shown to maintain vision improvement in dry AMD patients with some patients achieving about a one-line gain in visual acuity. This technology uses 3 specific wavelengths of light to improve mitochondrial activity and retinal health, giving [indiscernible] a noninvasive treatment option for dry AMD that they've never had before. Importantly, reimbursement is progressing with all but one Medicare administrative contractor covering Valeda, and we're actively engaging private payers and expanding physician education. Valeda complements Voyager by expanding our office-based procedures, enabling practices to operate more efficiently while offering patients convenient noninvasive options. Now I'll move to contact lenses, where we continue to gain traction with our innovative reusable portfolio. More than half of new wearers started reusables, which is a segment that supports strong patient retention and delivers highly attractive margins. Given our under-indexed share position, this category remains an important growth opportunity for us. Our reusable portfolio is anchored by total 30 of the industry's first and only monthly lens with water ingredient technology, which delivers exceptional comfort for 30 days of wear. Last year, we expanded the total 30 family to cover all major modalities, sphere, toric and multifocal. And in February, we introduced total 30 multifocal for astigmatism, which is our first multifocal toric contact lens. This lens fills an important unmet need for presbyopic patients with the stigmatism, a group that historically has had very few options. Initial feedback has been excellent with ECPs highlighting [indiscernible] Vision at all distances and long-lasting comfort. pAlongside Total 30, Precision7 broadens our portfolio with a high-quality accessible 1-week replacement lens. Designed for patients where daily disposables are not an option, Precision7 delivers a comfortable experience at an attractive price point while introducing a replacement schedule that many optometrists view as more intuitive than traditional 2-week lenses. Combined, these innovations drove share gains in the quarter, and we are expected to continue to do so in this category. Now finally, in ocular health, we continue to strengthen our leadership in the expanding dry eye category through innovation in both our over-the-counter and pharmaceutical products. On the over the counter side, our sustained family of artificial tears delivered another quarter of high single-digit growth. Most notably, last year, we launched SustainPro, our most advanced artificial tier. It's triple action formula is designed to hydrate, restore and protect the ocular surface delivering long-lasting relief. Early performance has been strong, contributing to continued share gains in U.S. artificial tears and reinforcing our leadership as that category expands. In Pharmaceuticals, Tryptyr continues to perform well. Doctors appreciate its rapid onset and novel mechanism of action. Importantly, Tryptyr is already capturing share with approximately 4 share points in just 8 months into the launch. We've also made great progress with payers. In the first quarter, we expanded coverage to more than half of our commercial lives, our focus for the remainder of the year is on broadening the prescriber base and securing future Medicare Part D coverage, which will significantly expand patient access and make Tryptyr easier to prescribe. Tryptyr and SustainPro together represent significant innovation in dry eye, extending our reach across the full spectrum of dry eye sufferers and reinforcing Alcon's leadership in this category. Looking ahead, our innovation pipeline remains strong. With upcoming launches, including a new entry into a high whitening category as well as UnityM, our newest microscope and UnityDx, our whole eye diagnostic device. And these programs build on the momentum we're seeing across the portfolio and reflect our continued focus on advancing differentiated innovation. Together, they reinforce our confidence in the durability of our pipeline and our ability to drive sustained growth over time. Now I'd like to turn to operational improvements where we are making a number of things happen internally. As we scale innovation across the portfolio, artificial intelligence has become an important enabler at Alcon, helping us operate faster and make better decisions. We started applying AI selectively where it enhances productivity, quality and speed. In R&D, we've deployed solutions that we expect will increase speed to approval while working on AI-enabled modeling and simulation for accelerating design and development. In operations and quality, we are leveraging AI solutions to improve yield and perform automated inspections. And on the commercial side, AI-assisted analytics are enabling deeper customer insights and more personalized engagement. So while it's still early in our journey with AI, these advancements are fortifying our operational foundation at a pivotal moment and enabling us to leverage a more stable cost structure and seize emerging opportunities. Now before I close, I want to share a few observations on the market environment. In cataract surgery, consistent with prior quarters, we estimate that global procedure volumes grew low single digits. While this relative softness has persisted for several quarters, we continue to believe that market growth will return to historical levels as health care systems adapt to increasing demand. However, for 2026, our guidance continues to assume that current trends continue. On the other hand, we estimate that global ATI well penetration was up 130 basis points to approximately 17%. There was broad-based strength in most regions of the globe, which was pressured by weakness in China. If you would exclude China, global penetration was up approximately 220 basis points. In contact lenses, we estimate the global market grew at the low end of mid-single digits, led by strength in the United States. In summary, while market conditions remain mixed, our strong portfolio of innovation is performing well and continues to deliver solid results. We're operating from a position of greater strength backed by a deeper innovation engine and a more resilient commercial model. This positions us to deliver durable, profitable growth and create meaningful long-term value for shareholders. With that, I'll turn it over to Tim, who will walk you through the financials. Timothy Stonesifer: Thanks, David. Our first quarter sales of $2.7 billion were up 6% versus prior year. In our surgical franchise, revenue was up 6% year-over-year to $1.5 billion. Implantable sales were $438 million in the quarter, up 1% versus the prior year period. As David mentioned, PanOptix Pro growth continued to perform well. We saw solid growth in IOLs in the U.S., partially offset by ongoing competitive pressures internationally. We also saw some pressure in surgical glaucoma. In consumables, first quarter sales of $769 million were up 4%, which reflects softer than historical market conditions as well as price increases. . In equipment, we saw another quarter of accelerating growth with sales of $253 million, up 23%, driven by strong momentum from Unity. Early adoption has been encouraging, and we're seeing Unity active and meaningful catalysts for equipment growth. Turning to Vision Care. First quarter sales of $1.2 billion were up 6%. The Contact lens sales were up 4% to $738 million. This growth was primarily driven by product innovation and price increases, partially offset by declines in legacy products where we've limited our promotional activity. In ocular health, first quarter sales of $487 million were up 10%, led by continued strength of our dry eye portfolio, including Tryptyr and sustain. Tryptyr continues to perform well with strong refill rates and broad prescriber enthusiasm. As access expands and awareness builds, we continue to expect Tryptyr to be a meaningful growth driver this year. And as David mentioned, our sustained family of eyedrops also had another great quarter with high single-digit growth. Within that portfolio, our multi-dose preservative-free formulations contributed nicely, growing more than 20% year-over-year. Now moving down the income statement. First quarter core gross margin was 63%, down 40 basis points year-over-year. This is primarily due to 120 basis points of pressure from incremental tariffs. Core operating margin was 21.2%, which was flat year-over-year. Improved operating leverage from higher sales and manufacturing efficiencies were partially offset by the pressure from tariffs that I just mentioned as well as investment behind new product lenses and R&D. First quarter interest expense was $52 million and other financial income and expense was a net benefit of $2 million. The average core tax rate in the first quarter was 19.7%, down from 21% in the prior year. And finally, core diluted earnings were $0.85 per share in the quarter. Turning to cash. We generated $279 million of free cash flow in the first quarter, which was flat when compared to the same period last year. Lastly, with respect to tariffs, we incurred $33 million of incremental tariff-related charges in the first quarter, which is recognized in cost of sales. Now moving to our outlook for the remainder of the year. Our outlook assumes that aggregate eye care markets grow 3% to 4% for the year at exchange rates as of the end of April hold through year-end, and regarding tariffs, we are now assuming that an average tariff rate of approximately 10% on U.S. imports holds for the remainder of the year versus our previous assumption of 15%. We also assume retaliatory tariffs remain unchanged. This change results in an estimated $25 million reduction in tariff expense versus our February guidance, which we would expect to reinvest back into the business. Based on these assumptions and our performance through the first quarter, our guidance is as follows. We continue to expect constant currency sales growth of between 5% and 7%. Turning to margin, we continue to expect core operating margin expansion of between 70 and 170 basis points. We expect the majority of this expansion to occur in the second half of the year. As in prior years, SG&A is expected to peak in the second quarter due to normal seasonality with incremental spend this year and support of product launches. Accordingly, we expect second quarter core operating margin to be below the prior year period. And lastly, we now expect core diluted EPS growth of between 10% and 13%. Moving on, I'm happy to announce that our Board has approved a new $1.5 billion share repurchase program to be executed over the next 3 years. This authorization reflects the strength of our balance sheet and robust cash flow generation, and is fully aligned with our long-standing capital allocation priorities. We will continue to prioritize investments in top line growth through R&D and disciplined bolt-on M&A. This program enables us to return incremental capital to shareholders in a measured and disciplined way without constraining our ability to fund growth or maintain a healthy deal pipeline. And before I wrap up, I'm also pleased to report that our -- at our Annual General Meeting last week, our shareholders approved a dividend of $0.28 teams per share, which we expect to pay on or around May 7. I'd like to thank our shareholders for their continued support. And lastly, I'd also like to extend my thanks to our more than 25,000 associates across the organization for their dedication and hard work. And with that, I'll turn it back to David. . David Endicott: Thanks, Tim. To close, the first quarter underscored the strength of our business. Our steady cadence of innovation, balanced portfolio and strong execution are driving durable performance across the company. New product launches are gaining traction. Our pipeline continues to advance, and we're utilizing tools like AI to help us operate with greater speed, precision and scale. Taken together, these advantages position Alcon to navigate the environment with confidence and deliver steady profitable growth and long-term value for our shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] And our first question today is from the line of Ryan Zimmerman with BTIG. . Ryan Zimmerman: Maybe to start with the implantable category growth for a minute here, David. If you look at the growth over the last 5 quarters or so, you think about the peers in the category, it's been a bit below that market rate. And so I'm wondering how much you -- surgical glaucoma dragging down your growth, given what you're seeing in PanOptix Pro and the Clarion launch? And if you could kind of parse out what's China VBP versus glaucoma versus maybe more of your core AT-IOL adoption, I'd appreciate it. . David Endicott: Yes. Thanks, Ryan. Really good question. Look, the 1% growth on the implantables broadly is made up of a number of things. And one of the reasons we kind of called out glaucoma implantables is because, as you know, the reimbursement changed this year. And we also had about a $3 million, $4 million kind of supply issue on Hydrus kind of late in the quarter. So our core growth there, actually, when you back just the Hydrus piece out is about 3% -- if you looked at it in the U.S., it was 6%. So we had a very good quarter in the U.S. And if you look at it without China, it gets higher because China, we had -- as we kind of moved forward with [indiscernible] last year, we had some inventory come in, so the comp is a little bit big. So we've actually had a pretty good quarter in implantables around the world in various markets. I think as we go forward, PanOptix Pro really looks to be doing very well. I think in the U.S., in particular, we gained share in the implantables. It was maybe gained in AT-IOL more than a share point of 1.4. I think. We were up AT-IOL 2.2. So we've stabilized that market a bit. And I think we're feeling like once we get Pro into Europe, which is just launching this month. It's had a nice reception in Japan, but we just got that in, I think, in February. So we're getting a number of other markets now as we launch those, doing well. And I think when you add to that True Plus. And then you think about going forward at the end of the year, we've got Vivity Pro, we won't have the same kind of exposure for a long duration of periods to competitive products. Most of the products you're seeing right now come in the market we've seen for a long time. So we've got a number of new things right now coming in that are hopefully going to offset it. Make no mistake, it's going to be competitive. And I think what we've said in the past, and I still would reiterate is I think we can grow at market rate here, but it's going to be competitive. The best thing that happened, honestly, was AT-IOL was up 230 basis points in the U.S. So really nice movement around the world on AT-IOL well penetration, and we seem to be doing pretty well right now in the U.S. We'll see how that takes shape as other products launch, but I generally think it's going to be a competitive fight, but pretty healthy position we're in. . Ryan Zimmerman: Understood. And maybe for Tim. Gross margins came in a bit better than I think -- the Street was looking for here. It sounds like some of that was priced -- you have a little bit less of a tariff impact. You're not assuming refunds. I'm just wondering kind of with gross margins trending higher than maybe -- the Street was looking for. One, what are your expectations there? But do why can't that flow through at a higher level to the op margin line and subsequently EPS? Timothy Stonesifer: Yes. I think you got the pieces of the pie correct. I mean we did see -- we did still see tariff pressure. So when you look at it from a year-over-year perspective, the rate cuts that we talked about, those really will hit in the back half of the year, starting, I think, it's in March. But listen, we're seeing some nice, when you take into account the projects we're working on in our manufacturing plants from a productivity perspective, to your point, we are still getting price. So I'd expect those margins -- the gross margin to continue to be in that neighborhood of 63% as we go out through the course of the year. . Operator: Our next questions are from the line of Veronika Dubajova with Citi. Veronika Dubajova: First one, kind of how you think about the market momentum, I guess, lots of moving parts, obviously, in Q1, especially on the surgical side. with weather and some strikes that some of your peers have called out. I'm just curious, I think you described the market growing as 3% in Q4. sounds like maybe Q1 on the surgical side was a little bit softer. What's your degree of confidence that we're going to be within that 3% to 4% range that you guided for, for the year? And I guess to what extent you're seeing a momentum that has improved looking at March and April, if you can comment on that, that would be super helpful. And then my second question is on contact lenses. We've seen the gap between you and the market really narrow. And looking at the last couple of quarters, certainly on a sort of sell-in perspective, it seems to be that you are tracking market very, very closely. I was just hoping that you can talk about how you feel about the competitive dynamics there and your degree of confidence in your ability to outgrow that market as we look through the remainder of the year? David Endicott: Yes. Thanks, Veronica. Let me start with the surgical market. Yes, there were strikes. There was weather. There was all that stuff going on, and I do think some of that had some effect. But I think the way to think about this market is kind of as we described it, 3% to 4% to remember is the aggregate market number for us. So that is contact lenses, which grows 4% to 6% generally. The cataract market, which, again, generally grows kind of in that 3% range. And then you've got the pharmaceutical markets and the OTC markets, and those grow right now a little bit better than that. So we are confident in that 3% to 4% range. In the quarter, we were on the lower end of that because, frankly, the U.S. market in Surgical was soft. And so we can put it in the weather, we can put it on [indiscernible]. You do any of that stuff. But I think at the core of it, there is a lot of demand for cataracts that is not currently being met. The demand for cataract is very high. Number of days of wait time has gone up. And I think what's really happening, and we've been seeing it for a while is this kind of restructuring of the service -- the workflow here. Surgeons are hiring optometrists. They're using office-based surgery. They're finding more ASC time in other places. But to do that, it takes a little bit of time. And I think as they work through to try and capture the economics of what is kind of I don't want to say an unlimited demand, but there's plenty of cataracts out there to do. They need to find more OR time and they do more in a day, and that's what they're working through right now. So as we see 3% to 4% going forward, I don't really think there's a big change in the U.S. cataract market this year, we kind of called the market as we saw it at the beginning of the year. We think that continues all year. But I do think we feel comfortable with that range in aggregate. So again, there'll be some markets that bounce around a little bit more than others, but that's where we are right now. On the other point on the contact lenses, what I'd say is that -- we've done real well with a lot of our products. I think reusable -- 1 of the things you'll note is that -- for example, we gained, I think, a share point change on reusables. But our DAILIES business was a little bit flat. It was slightly up. I think we were only 1 of 2, I think, of the bunch of us that gain share. So we are gaining share, but it is more modest than it was when we first came out with P1 or with or with 30. We're getting a lot of share in the U.S. right now in reusables. We're getting a lot of share in DAILIES in the international markets. And then we're kind of losing -- were flattish in the U.S. on DAILIES -- so I would say it's a mixed bag, but I do think that if you look at where we are with, for example, Precision7 and Total30, we're continuing to grow that market. I think the drawdown on DAILIES has been our legacy business. So if you think about that legacy business, which is kind of getting smaller and smaller, the front half is bigger than the back half, obviously. And so our comp gets a little easier as you move to the back. And that's kind of the -- that's really the story of the year, which is pretty level loaded year broadly. I think what's important to know is that the acceleration of new products really takes off kind of front half, let's call it, 1/3 or a little bit more than that in the back half, kind of 2/3 a little bit more than that. That's the truth on all the new products. Operator: Our next question comes from the line of Matt Miksic, Barclays. Matthew Miksic: So listen, appreciate the color on the market and congrats on the progress on PanOptix Pro. I was just wondering if you could talk a little bit about the effect of some of the pull-through that you've seen from the Unity renewals in terms of either kind of locking down or taking more share in in monofocal Iowa growth -- and then I had 1 quick follow-up. . David Endicott: Well, it's a really good question, Matt, because we did actually see -- and I didn't really mention it, but we took a fair bit of share in monofocal actually in the quarter. globally. And some of that has to do with our presence in the OR. And when you're selling more stuff in the OR, then you can generally sell more stuff. So that's the view that we have on that. So it is connected at one d1 level because we've got a lot of people in the OR right now with a lot of new products. So I think that's been very positive. I would say that the AT-IOL business is still the one we pay most attention to because globally, we've got a challenge at, I would say, in the international markets, and we're stabilized and kind of beginning to grow again in the U.S. market. But again, there's more competition coming. So I'd say the fight is really ATI wells, but you're not wrong, we are gaining a good bit of share in the monofocal business. On the Unity process itself, obviously, the other thing that helps is we just launched CS. And so the benefit of that is, of course, it's a little easier to install. It takes a little less time. It's a less complicated machine and requires a little less handholding. So we're looking forward to -- and there's a lot of cataract surgeons. So just in terms of total sheer number of placements, we're in a lot more ORs right now as we start to expand beyond retina and really kind of begin to sell the CS machine. So that again gives us an opportunity to sell viscoelastic sell BSS, sell all kinds of stuff that we generally do. So a really good important point you're making. Operator: Our next questions come from the line of Jack Reynolds-Clark with RBC Capital Markets. Jack Reynolds-Clark: My first was just coming back to the kind of surgical cataract market. With the waiting list long. What is it -- could you just kind of just talk us through exactly what has to happen for this demand to translate into a higher market growth when that's going to happen? Is it going to be '27, '28 kind of what are the drivers there? And then on AT-IOL well penetration. So could you just remind us what it was in Europe and how you see that progressing over the next kind of couple of years, do you expect to catch up with the U.S. or something like that? . David Endicott: Yes. Look, I mean, I think let me answer the second 1 while I've got the data in front of me. I mean I think -- the Europe PC AT-IOL penetration was pretty good on the quarter. Directionally, it was 1.1% and it was up 260 basis points. So almost the same as the U.S., a little better than that. it was 230 in the U.S. The only thing that cap down was China went the wrong direction because there was a recall from one of our competitors. So the data looks a little weird there. But fundamentally, most markets are beginning to catch up to the U.S. So I think U.S. is sitting somewhere in the 20s like 21% or something and -- so you've got a relative comparison. I do think that historically, this market penetration has grown 50 to 100 basis points, I would still draw that line. I think what you're seeing right now is a lot of promotion from a lot of companies. and that's moving people towards AT-IOL, which is a good thing. There's a lot of room in this market to grow. And I think the upper limit, I think we've said in the past is maybe mid-30s to upper level high 30s. But that's the ceiling. So it's not everybody going to use one of these, but they're worth a lot more to us on a value basis. So moving this market along, I think, is a very positive sign. On the other point you make, which is the surgical market and what it takes to translate demand into revenue. I think that's the big question that most PE guys have in the U.S. is what all the big practices they're working on. And at the core of it, it really is freeing up time to do more surgery. I mean that's just that simple. But that's not so easy when you're competing with, for example, a hospital OPD who wants to give that time to a more productive, more economically valuable procedure somewhere else. So certain parts of the market are shrinking for available time and certain parts are growing. So what's really happening right now is you're seeing this rotation into things like office-based surgery, which is very popular right now is gaining some momentum in the U.S. where they're putting office facilities in play that can carry our machines microscopes, they're setting them up to do surgery. It's a friendlier environment. The reimbursement is still complicated, but I would just say that the -- that's creating more capacity and more flexibility for the surgeon. I think the other thing that happens is you see a lot more ODs entering practices with large group practices, PE groups, even small practices, I was in one recently in Boston where they were -- just hired 2 ODs and they're doing some primary care work and some, pre, post-op work, , and that frees the surgeon to do more time in the OR. So that's the adaptation of practice pattern that has to occur -- and it's going to take some time. I mean I think that's really why we've seen kind of unabated growth by bringing down the time in surgery, the time and surgery is going to only get better by a little bit now. We're flipping rooms just a little bit almost as fast as we can. We'll get a little bit better there with our machine. But I think the opportunity here is really now to see more days in surgery from the core surgeons. Operator: The next question is from the line of Susannah Ludwig with Bernstein. Susannah Ludwig: I guess my first is just on contact lenses. If you could talk a little bit more on the drivers of growth and the contribution from volume price and the mix shift to DAILIES. And then maybe just a little bit about your performance geographically in the U.S. versus Europe versus Japan? And then second, just a follow-up on the questions on IOLs. You have noted sort of heightened competitive pressure in IOLs and international markets for several quarters now. Could you talk maybe about how this pressure has progressed sequentially and when you will start to lap some of that pressure? . David Endicott: Yes. Let me take them on first with -- the first bit of that, which was the contact lens market. Historically, I think the way to think about the contact lens market is we've always said it's kind of mid-single-digit grower 4% to 6%. And price is 2% to 3%, mix is 2% to 3%, volume basically has been flat. You pick up 14-year-olds, you lose 40-year-olds and probably about the same rate. What I think is happening right now and most recently has been the resistance to price internationally in particular, where chains in the Internet have a bigger participation in the process, and they're very sensitive to consumers. So I would say what's really gone on is there's a pause in the ability to push price into the market that's certainly what we see. I think that's really what's driving a little bit of a slower market. But again, we're still in the normal range. I would just say we're on the low end of the normal range there. So going forward, I think what you're going to see is as the consumer gets a little bit stronger. And as you see new products and mix, in particular, for us, the mix to reusables, the mix to DAILIES generally allows us to help outperform. We're also gaining share there. So I think both of those will allow us to kind of grow a little faster than that market. On the geographic performance outside the U.S., the IOLs, our share in the U.S. has been stabilized principally on the back of PanOptix Pro. And we really didn't have a new product in the international market until really Japan at the beginning of this year. So I think what you're going to see is a similar playback where you've got some other pressures coming in, I think they obviously will come in. But again, I think we've seen both of these products in the past in different markets, and we've got data now on them, which I think will help manage, let me just say the impact on that. So the share movements have always been a little bit more significant outside the U.S. where we have I think, a more competitive market where there's more products. And so I think we continue to believe that the introduction of products, meaning specifically PanOptix Pro than TruePlus than Vivity, the N20, I guess, that's the way out of this thing. And so it looks pretty good to us. Operator: Our next questions are from the line of Graham Doyle with UBS. . Graham Doyle: It's just one. In the context of the phasing through this year, you just printed a 6 against what we think is the easiest comp in the year at least optically. And therefore, I think there's -- you can see in the share price today, there's disappointment that maybe we're looking at sort of slowing growth or no improvement from here. Is that a reasonable way of thinking? Or is there actually scope here for growth to improve as you go through the quarters? It'd be good to get that sense, please? . David Endicott: Well, Graham, let me just -- let's clarify the comp itself and the number itself. We had a number of things happened that would have, I think, maybe changed the optics on this a little bit. The Middle East piece of this is that disruption was worth $11 million in shipping to us, which is probably 50 basis points of growth. And then I think if you take the Hydrus piece, there's another 10 basis points. So I think on 6.1, which is where we ended, we would have been something closer to like 6.7%, 6.8%, something like that. I mean I think, candidly, we've had a level-loaded plan for a while. And what you really see is the front edge of this -- front half of this year is going to be a lower amount of new products, and the back half is going to be a much higher amount of new products. And so you're going to see that acceleration kind of coming around on the next comp, which is slightly better than last -- than the front half. on a comp basis, that's how you make up for it. So I think we've had a point of view on this one from the beginning that we were pretty close to the right answer from the beginning of the year, which is markets are going to be kind of 3% to 4%, which is a little softer than we've seen in the past, but new product flow is going to make up for it and it accelerates in the back half. . Graham Doyle: Okay. So fair to say you'd hope to maintain this momentum and avoid the sort of Hydrus and Middle East shipping issues in the next few quarters effectively. . David Endicott: Yes. I mean I think that's probably fair, right? I mean I don't think we believe that we're going to have that challenge. One of them was an outage that we created. So I mean that's a solve problem with Hydrus. already. And then I think the other piece is, we'll have to see, but I'm not a prognosticator on the Middle East. So what I would say is we just watch and see, but that was obviously a problem for us. . Graham Doyle: No, that's super helpful. . Operator: The next question is from the line of David Saxon with Needham & Company. David Saxon: I wanted to ask on trip to her, David or Tim, maybe you can talk about the contribution to growth there. what kind of traction you're seeing in existing accounts and kind of how you're positioning it for expanding the prescriber base as you kind of move into the next wave? David Endicott: Yes, David, we're very excited about what's going on with Tryptyr in the response. I mean I don't know that we knew precisely -- you never know for sure until you get a product into the market and you have an opportunity to watch it for a while. I think we're at a place now where we have a pretty good feel for it. Our refill rates are 70 plus, which is really great. I mean I think there was some criticism, I think, about the comfort of this product. I think what patients are finding is that it is worth -- it does have a little bite to it when we put it in, but at the same time, feel relief quickly. And that relief day 1 is worth it. And so I think what we're seeing is 2 things: patient acceptance as a function of refill rates. And then the breadth of prescribing now has gone very wide. So I think we're getting a lot of trial from the full audience. And so I think our sales force has done a terrific job of getting out to everybody, but also you're seeing kind of repeat prescriptions and refills come nicely along. So that -- I mean, the big thing here, like all pharmaceutical products is going to be reimbursement. We're about 55% of commercial lives right now covered. We expect that to grow throughout the rest of this year. And obviously, as we go into next year, we're expecting to have Medicare coverage come through so that we'll be kind of positioned for a full run next year. But definitely on plan for us, maybe a little bit better than expected. David Saxon: Great. And then just on implantables, I know a lot of focus is on PanOptix Pro and Vivity. But would love to hear how you're thinking about the TruePluslaunch kind of frame it in terms of how meaningful that could be to recapture some of the share you lost to kind of the competitive monofocal Plus launches from the last couple of years? . David Endicott: Yes, it's a good question. And I'm going to -- I'll just tell you this much. I think the True Plus brand is a terrific product. And this product actually has got better intermediate than alternatives out there, and it has the same kind of monofocal distance that you would expect that you want from a monofocal. So if you're going to use and charge a patient, particularly [indiscernible] patient, for a monofocal Plus product, this is going to be, I think, a terrific choice for you because it's going to get them a little bit more intermediate than what's available without compromising any of the kind of monofocal qualities that we would want. I do think we did lose -- in the toric business, in particular, we lost in the U.S. I don't know, about 10 share points to toric competitors. And I think that internationally, the market size is a little bit bigger than that. I don't know that this is going to be a big product incrementally. I do think it will cannibalize and sustain our core business. And so think about it maybe more as an upgrade to our current toric monofocal, our current monofocal with a slight price increase and a real safety margin for competitive intrusion because I don't think anybody is going to be able to match this particular brand in the Clariant platform. Operator: The next question is from the line of Steven Lichtman with William Blair. Steven Lichtman: Maybe start, Tim, with with 1 quarter complete here, I'm wondering if you can provide any more color on the operating margin guidance range -- and whether you see it trending toward upper half or lower half for the year, it seems like FX will be less of a tailwind, but you have the efficiencies kicking in. And I think you said 2Q will be down year-over-year, so it puts more emphasis on second half. So any further color within that range would be helpful. And then I have one quick follow-up. . Timothy Stonesifer: Yes. I mean the 70 to 170 basis point improvement that we guided towards, we're very comfortable with. That's in constant currency. So just keep that in mind. Q2 will be light as we've talked about. And as you've seen, if you go back and look at our historical financials, it's a heavy investment period for us from an SG&A perspective, when you think about back-to-school programs and other programs like that. So first half op margin will be lower than the second half. That will start to accelerate in Q3 and Q4. But overall, we feel very good about the 70 to 170 basis point improvement. . Steven Lichtman: And then just quickly on the accommodating tunable IOL. Any further color when we could see that early data. I think you talked maybe either Q2 call or 3Q call? . David Endicott: Yes. I think somewhere between here and the next call. I think we certainly expect that data to come through. I think we've got most of it in-house now. We're looking at it probably midyear, as I think I said last call. . Operator: The next question is from the line of Young Li with Jefferies. Young Li: Great. I guess start maybe just 1 more on the guidance. So 1Q was the easiest comp of the year. It seems like Unity and Tryptyr doing better than expected, but hitting the midpoint of the full year guidance implies a pretty sizable ramp against tougher comps. I guess, can I just maybe push you on thoughts on which segments get meaningfully better from here? And which segments are going to be the laggers? . David Endicott: Well, I mean, I would think about -- I would go to the new product flow. The easiest way to think about it is I think we have -- I can't count the number at this point, but I think there's 10, maybe 6 that are big new products. almost all of them came out middle of last year. So if you think about the back half of last year and product flow, really, we got a little bit in the third quarter. We got a little bit more in the fourth quarter. But what really you're seeing now is a pickup that's meaningful for the full year effect. And so by the time you get to the fourth quarter, you're kind of 18 months into some of these products, which is really, we should be moving quite well. I would say all of -- most of the big ones, let's call it Unity, Tryptyr, Pro and I think -- don't forget, our OTC brands. Those are doing really well right now. I think one of the underestimated parts of our business tends to be the ocular health business. It's the same size as the implantables and similar profitability and it's growing, I think, at 10%. So I do think that if you just kind of go through the list of products and think about when they were launched and what they're wrapping around on the back half of last year, you'll find where the growth comes from because the core business is going to continue to grow roughly at the core market. slightly better maybe because we gained some share, but that's basically where we are. Young Li: Great. Very helpful. And then I guess on the implantables growth, there wasn't a competitive launch in 1Q. Going forward, there will be for this year, I think you're expecting around 2% growth. how much competitive [indiscernible] baked into that number? Is 2% still the right number for annual growth? . David Endicott: Yes. We haven't -- I don't know that we've guided individual categories, but I would just say that we're very excited about our competitive launch of PanOptix Pro in Europe because I think we will do some positive momentum for Europe, which really has needed it. And I guess you're thinking probably about the U.S. launch of other products and same thing with Europe competitively. My own point of view is we know both those products really well. And I think we've got them pretty much dialed into the forecast as we gave it. My hope is that we see with True Plus and with PanOptix Pro that we do a little better than expected, but we'll see. I these have been aggressive markets and aggressive competitors, and we wouldn't expect any less. So we -- but we're doing well right now. . Operator: The next question is from the line of Richard Felton with Goldman Sachs. Richard Felton: Two for me, please. First one is on China IOLs. I know historically, it was a relatively small part of your business, but I guess there's been a lot of growth for AT-IOLs and share gains for Alcon post [indiscernible]. So any sense of how material that market is for you guys currently? And linked to that, any expectations for the upcoming round of China IOL VBP. And the next one, it would be great to get an update on Orion, please. What's the feedback been like on the commercial launch in Japan any incremental data or insights on efficacy versus the transplants? And if possible, could you give us an update on the time line for Phase III trials in the U.S., please? . David Endicott: Yes. Just on China, Yes. The IOLs are about the same as the full business, which is about 5%. So I would think about it as that -- at one point, we really didn't have much of an IOL business there. We had a small bit, but I think we had a nice run with the VBP piece. It's picked up. Our share is pretty good. We'll see what happens. That VBP rolls around again in the middle part of the year. So we'll certainly look forward to that. I think on the Orion piece, what I would say is that we've started the Phase III already. We had our first dosing, I think last -- earlier last month, so middle of last month. So -- we're excited about that. That's a product that I think if they finish the trial this year, we have a potential to file it next year. That's a really exciting opportunity for us to help a lot of patients avoid a corneal transplant and do something really special for these patients. Operator: Our next questions are from the line of Larry Biegelsen with Wells Fargo. Lei Huang: It's Lei calling in for Larry. I'll ask both the upfront, please. Just on the Unity, you sound very excited about the launch and it seems to be doing well. Can you just talk about how you think about equipment growth for the remainder of the year with both of these products? And if you can give a timing update and whether it's U.S. OUS for some of the new Unity products are coming to the market like [indiscernible], et cetera? And my second question is around M&A. Alcon has recently exited 2 deals, I mean, for different reasons, obviously. -- do you think the space has become tougher in terms of M&A, maybe given Alcon's size or anything about the valuation environment, anything you're thinking differently in terms of how Alcon is approaching M&A going forward? . David Endicott: Yes. On Unity, we expect Unity to continue to grow. I think we had talked a little bit last year about the number of placements. We're still kind of that mind. I don't know that we want to run through the whole thing, but Remember, we've got 30,000-ish of a base that we will replace over 10 years. That's the normal cycle. You put a little more upfront, you take a little way on the back end, and that's what we'll probably see in terms of placements. Now most of those are sold units, some of them are rental units, some of them are leased. Those are all things that go on. But we feel really good about where we are relative to what we said in the past on Unity and both its timing. And to be honest, the Unity CS piece is also exciting because we've kind of gotten through the heavy lifting on the retina side. And we can do more of that, but there will be more of that. But I think we're now in the cataract unit, which will be fun, too. I think on the other pieces of that, Unity M is late this year. I would think about it as a first phase of a multiphase launch, we are excited about it. This is going to be an exciting scope. We'll talk about it later in the year. At DX, I think, is slated for next year. We will -- you'll start to see it later this year, but we're really doing a controlled launch on that one to make sure that, that one is perfect. So I think we're going to be patient with DX and make sure that we get that 1 tied into our [indiscernible] planner and the microscope and a lot of the other stuff that it needs to integrate with. So we're being careful around that one. On M&A, I would just say that we haven't changed anything on M&A really. Our own point of view is still that most of what we are interested in are kind of single product companies that are nice tuck-ins. They probably range, and we've often said this kind of 50 to 500 range, still pretty much the majority of what we do. We're very capable of doing something a bit larger than that, but we don't see any need to do that. And there, frankly, aren't that many targets that we pay attention to that are like that. So I would just say that Star was one of the bigger ones that we talked about, why that didn't happen. And LENSAR was just another one of these kind of smaller things that again, I will see what happens on that one, but I think that's a miss in terms of the opinion on where that sits in the market. I think, unfortunately, there's a short life at this point for [indiscernible] relative to robotics, and we're really -- we're moving on to robotics at this point. Operator: Our last question comes from the line of Brett Fishbin with KeyBanc Capital Markets. Brett Fishbin: Great. And I'll try and keep it fairly brief. So you took the tariff estimate down by $25 million within the guide and mentioned that the plan would be to reinvest within the business. So just curious where you saw incremental need for greater investment activity rather than potentially letting that drop down to earnings. . Timothy Stonesifer: Yes. I think a majority of that you're going to see in the R&D line. There's some innovation that we're very excited about. And again, that drives the whole revenue thesis that we have. So we're going to continue to back that when we can. . Brett Fishbin: All right. Great. And then just a follow-up on margins. You kept the 70 to 170 basis points core operating margin expansion guide. But I think since the last call, there have been noise around the macro, especially energy prices and concerns around inflation. So just curious how that's contemplated in the guide? And any general thoughts on Alcon's exposure to those items? . Timothy Stonesifer: Yes, it's a great question. It's not really that material for us. It's primarily transportation and resins. So we will see -- we've assumed that oil is at a certain price and maintains that price through the course of the year. We've baked that into our guide, but it's not a material amount at this stage. . Operator: At this time, I'll turn the floor to Dan Cravens for closing remarks. . Daniel Cravens: Okay. Thanks, Rob, and thanks, everybody, for joining us. If you have any follow-up questions, please don't hesitate to call either Alan [indiscernible] or myself. Thanks again for your time. Appreciate. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines at this time, and have a wonderful day.
Operator: Hello, everyone, and thank you for joining us, and welcome to the Trimble First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Rob Painter, President and CEO. Please go ahead. Robert Painter: Welcome, everyone. Before I get started, our presentation and safe harbor statements are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis. In addition, we will focus on adjusted numbers that we believe more accurately portray the underlying performance of our business. This means we will exclude the impact from the mobility business, which we divested during the first quarter of 2025. As reported numbers, along with the reconciliation are provided in the appendix of our slide presentation. The Trimble team furthered the momentum of the last couple of years and delivered a great start to the year, with top and bottom line results ahead of expectations. Revenue at $940 million, up 12%; ARR at $2.435 billion, up 13%; and earnings per share above the high end of our range at $0.79. We are raising our guidance for the year. Financial performance is the scoreboard. It's the output. The game on the field or the input is delivering unique value to customers. On Slide 4, I want to highlight how we are partnering with our customer, George Leslie, a Scottish based civil engineering contractor that has embraced the Trimble ecosystem to connect the physical and digital worlds. With our platform, Trimble Connect acts as the orchestration layer of complex workflows, that include marine and peer works, water and wastewater treatment, bridges and infrastructure and energy and power. When performing earthmoving, our laser scanners are deployed for capturing the job site in high fidelity 3D to create a digital twin of the physical earth. While our tools back in the office power the design of the terrain model into a constructible model. Enabled by the Trimble ecosystem, this model is seamlessly deployed to our Trimble survey and machine control systems in the field to execute the work in the physical world, while our project management and scheduling capabilities are managing the work. Physical to digital to physical. When performing complex steel and bridge work, they take the structural and design model that is managed within the Trimble ecosystem and then use our robotic total stations to precisely orient the digital model on the physical job site. Trimble is the data platform through which our customers' data flows and remains in sync as the work moves from the physical to digital to physical to digital and so on. Through the power of the Trimble ecosystem, George Leslie is realizing significant productivity, quality and efficiency in ways that Trimble uniquely delivers. Only Trimble can connect and optimize work like this. That's our Connect & Scale strategy in action, connecting work in the office and the field, connecting our hardware and software, connecting the physical and digital worlds. We see tremendous opportunity as we bring AI to industry workflows and further establish Trimble as the intelligence and execution layer that reconciles our customers' digital and physical realities. Slide 5 shows 4 examples of Trimble AI delivering actionable outcomes and breakthrough levels of productivity across projects in airports, rail, tunnels and roads, for some of the largest and most influential companies and organizations in the industry. Only Trimble. Speaking of AI, we believe customers will adopt AI from trusted platforms like ours, where we deliver to support cyber security, governance and sustaining engineering that our customers expect and require. Integrated workflows with deep domain knowledge at scale is a differentiator and a moat. Our ecosystem of third-party connectivity and platform extensibility compounds value delivery and drives network effects, where every connection point in transaction improves the next autonomous decision, making the data not peripheral to the product, but the product itself. In short, we see a world where AI increases the size of the addressable market, and we believe we have a compelling right to win, thus capturing additional avenues of growth. While we monetize our software and AI today, primarily through named user licenses, we are architecting ourselves to scale hybrid value delivery at the intersection of licenses and consumption. This isn't just a hypothetical thought experiment. We already deliver consumption models today. For example, Trimble Transporeon transacts well over $100 million of revenue through tens of millions of annual transactions on our platform, and our recent native AI products deliver autonomous procurement and autonomous quotation on a consumption basis. In the fourth quarter of 2025, Trimble SketchUp released SketchUp AI as an add-on that is available to our subscriber base. The hybrid add-on is an additional subscription that makes a fixed number of AI credits available to each user each month. We will continue to track market adoption of our AI capabilities along with market readiness for emerging consumption and outcome-based models as our monetization strategy evolves. Let's now turn to some segment level highlights, starting with AECO. The team delivered another outstanding quarter. Both ARR and revenue were up 14%. Cross-sell and upsell performed well, and we extended the reach of Trimble Construction One into the Asia Pacific region. While North America remains our largest market, we are pleased with our performance in Europe as well as the APAC region. Last week, we launched an integration with SketchUp and Anthropic's Claude. This makes it easy for Claude users to create Trimble SketchUp 3D models directly from conversational text, image or speech prompts enabled by a SketchUp MCP service that allows Claude to create and modify SketchUp files. The immediate monetization is downstream in our SketchUp subscriptions. After starting in Claude, users will then bring their files into SketchUp to further iterate on the design, leverage SketchUp's real-time collaboration features to engage project stakeholders, create visualizations, perform daylight analysis and more. The midterm revenue opportunity is expanding the addressable market by converting Claude users into Trimble customers. This is just one of the many examples you are going to see from us throughout 2026. Turning to Slide 6. On April 2, we announced the acquisition of Document Crunch. For context, construction is a relatively low-margin industry, yet remains one of the most risk exposed industries in the world. More than 80% of projects exceed budget. And when disputes arise, the average claim in North America tops $60 million. The root cause is consistent, errors and project documents and stakeholders failing to understand their obligations. With Document Crunch, we're addressing this directly. We're establishing a new AI-powered risk management category within Trimble, bringing contract intelligence and compliance automation into the project management, estimating and ERP workflows our customers already rely on, and that's just the beginning. Think about what that means at scale. Layering these intelligence tools across tens of millions of projects in Trimble Connect, billions and construction managed through our ERPs, and field workflows that have never before been connected to the contract. We're connecting the field to the office, to the risk, to the execution and embedding it all into Trimble Construction One. This isn't just simply AI document review. We are linking the contract and risk elements to the execution in the field and to multiple stakeholders throughout the ecosystem, thereby addressing the core reason for disputes. Early customer feedback has been exceptional, and we're moving quickly to expand reach and to leverage this AI first development team to organically address new categories. Moving next to Field Systems. The physical side of Trimble outperformed in the quarter, with particular strength once again in civil construction. Both ARR and revenue were up 12%. We continue to innovate and execute, with end market strength in infrastructure and data centers supporting our growth. The strategic highlight of the quarter was seeing our team in action at the ConExpo Construction Industry Trade Show in Las Vegas in February, where the 140,000-plus construction professional attendees were able to see Trimble showcased in the booth of 24 leading construction OEMs from North America, Europe and Asia, thus demonstrating the site technology leadership position we hold in the market. Extensibility is core to our Connect & Scale strategy and crucial to extending our leadership position. At our booth, we were able to showcase support for more machine categories such as compact machines, along with new functionality for excavators equipped with dynamic swing booms. We also introduced an integration with ground penetrating radar for real-time asphalt compaction quality control. Combined with our expansion of points of distribution in the market and the linkage with workflow as described in the customer example in my opening remarks, we are as confident as ever that we have the right strategy at the right time, executed by the right team. Moving now to Transportation. ARR was up 9% and revenue was up 7%. Our booking strength in the quarter gives us confidence in our growth plans for the year. The AI ambitions of this team are inspiring and cutting edge. To unlock the potential of AI for product development requires a systemic paradigm shift across the entire product development life cycle. Today, the vast majority of new code is generated with AI tools, and our product development organization is fundamentally rewiring how we work, which in turn is increasing our velocity. In addition, we are approaching our target to dedicate 10% of our development resources to an applied AI organization that is tasked with agentic development as well as safe AI deployment. With a couple of recent customer wins and selling autonomous procurement and autonomous quotation in North America, we are building momentum and demonstrating that we can bring transporting capabilities to North America, and that we can cross-sell into our carrier base. So while the macro environment remains challenged, the North American market is beginning to show some signs of market recovery. In Europe, we continue to hold our competitive win ratios and grow our network density. In the first quarter, our new logo growth increased by more than 50% year-over-year, demonstrating the quality of our solutions, the available market to penetrate and the solid execution of the team. Phil, I'll turn it over to you now. Phillip Sawarynski: Thanks, Rob. Let me start with capital allocation, which remains disciplined and consistent. During the first quarter, we repurchased approximately $317 million of common stock, a direct reflection of our balance sheet and cash flow strength, our confidence in the long-term value of our business and our commitment to delivering shareholder returns. We retain a substantial $608 million under our current repurchase authorization, which continues to give us flexibility for opportunistic buybacks. Longer term, we continue to expect at least 1/3 of our free cash flow to be used for repurchasing shares as we look to provide returns for our shareholders. Our M&A strategy remains focused on strengthening our core market positions and adding capabilities that allow us to run the cross-sell motions and provide high ROI for our customers, such as our recent acquisition of Document Crunch. In the first quarter, we also divested a small business in Field Systems as we continue to sharpen our focus on core competencies and allocate capital and resources to the highest returns. Let's review the first quarter, starting on Slide 7. We delivered organic revenue growth of 12%, which exceeded our outlook. This performance was driven by the strength of AECO and Field Systems, while Transportation & Logistics delivered positive growth despite a constrained freight market. ARR was in line with our outlook at 13% to a record $2.435 billion. The continued growth in our recurring revenue base provides a predictable and resilient foundation for our business. Gross margins expanded to 71%, and we achieved EBITDA margins of 27.4%, which is a 150 basis point expansion compared to the prior year. Reported earnings per share was $0.79 for the quarter, $0.07 better than the midpoint and above the high end of our guidance. Moving to the balance sheet and cash flow items on Slide 8. Our first quarter reported free cash flow remained strong at $275 million. Our sound balance sheet provides financial flexibility with $234 million of cash and a leverage ratio of 1.1x, which is well below our long-term target ratio of 2.5x. Next is our segment review, starting with AECO on Slide 9. AECO delivered a strong quarter, performing in line with expectations. It achieved a record $1.51 billion of ARR, posting 14% ARR growth and 14% revenue growth for the quarter. Operating margin was 31.5%, a 420 basis point expansion over the prior year. Turning to Field Systems on Slide 10. Revenue was up 12% in the first quarter, while absorbing headwinds due to the continued model conversions to recurring revenue. The execution by the team resulted in another strong quarter of ARR growth at 12%. Operating margin was 28.8%, which is slightly down, primarily due to timing of OpEx and growth initiatives in the quarter. Finally, Transportation & Logistics on Slide 11. The segment delivered revenue growth of 7% and ARR growth of 9% for the quarter. This represents a sequential improvement from the previous quarter. Operating margins were at 24.2%, which is a 300 basis point expansion from the previous year. Turning to Slide 12. Let's review our updated outlook for the year. The midpoint of our 2026 full year guidance for revenue is $3.875 billion, a $15 million increase from the prior guidance and represents approximately 8% growth. We are also increasing our EPS guidance to $3.55. We expect the midpoint of ARR growth at 13% and EBITDA margins at 29.7% as our model delivers strong operating leverage while allowing us to reinvest for future growth. Regarding cash flow, we expect free cash flow to be approximately 1x non-GAAP net income, and that we deliver free cash flow greater than non-GAAP net income over the long term. Slide 13 breaks down the full year metrics by segment. The trajectory across all 3 segments is consistent with our prior guidance and remains fully aligned to deliver the Investor Day company targets for 2027: $3 billion in ARR, $4 billion in revenue, and 30% EBITDA margins. Finally, regarding our second quarter outlook on Slide 14. We are setting the midpoints of our guidance at $950 million for revenue, which is approximately 7.5% growth, earnings per share at $0.80, and ARR growth at 13%. We expect EBITDA margins at 27.7%, a 30 basis point expansion year-over-year. Back to you, Rob. Robert Painter: Thanks, Phil. I'll end by summarizing 3 key takeaways from the quarter. First, our Connect & Scale strategy differentiates at the intersection of physical and digital. There's no other company as uniquely positioned as Trimble. Second, we are leveraging AI to transform how we work so that we can transform how our customers work. We believe customers will gravitate towards leveraging our platform for their own AI ambitions because we are connecting their data, their workflow and their industry ecosystems. We believe AI will expand the size of the addressable market, and we are ready to adapt our business models to meet the market where it is. Third, the quality of our strategy is driving financial performance that enables us to differentially invest back into our product and go-to-market motions to ensure the strength of our future. My gratitude to the Trimble team and partners as well as our investors who continue to support our strategy. Operator, let's open the line to questions. Operator: [Operator Instructions] Your first question comes from the line of Kristen Owen with Oppenheimer. Kristen Owen: Nice start to the year, guys. It sounds like things are kind of all rolling in the same direction. You listed your guidance for AECO and Field Systems. You beat by $0.07, you live to the guide by 4. So I'm just kind of wondering what are the back half scenarios? Or how should we think about the level of conservatism that you're baking into the guide given the strong start to the year? Phillip Sawarynski: Kristen, it's Phil, and thanks for the question. So let me start with -- we're in line with our previous guide from earlier this year. Actually, in fact, we raised the guide for the year, and we're on track to be -- to be at or ahead of our 3 4 30 model that we put out in Investor Day. I'd say we have the most visibility we've ever had at the company level with the transformation and the ARR mix. But we do have less visibility on the hardware business. And in light of the conflict we see in the Middle East and uncertainty around tariff policies, along with tougher comps in the back half, we've incorporated those puts and takes into our guide, and we'll update you in a few months as we get more visibility on the year. Kristen Owen: Great. That's very helpful. And then I wanted to dive into some of the consumption model changes that you talked about, Rob, in your prepared remarks. I'm hoping to understand any early indications of how your customers are utilizing tokens for the AI tools that are currently embedded in your products? Just any sort of qualitative or quantitative data that you can provide on like utilization trends or where you're seeing tokens being purchased? How are those early learnings informing your commercialization of AI across the platform? Robert Painter: Kristen, I'll start by discreetly answering the token question. Quantitatively, what we can see is that the usage is growing and that almost all of those credits that are associated with those named user licenses are being consumed. And that's good because it tells us it's actually being used. Qualitatively, what I really like are the learnings we're getting from doing this because the development, the deployment and the monetization motions are all different. Now if we up-level the conversation, I think the real conversation to have is around the commercialization of AI across the platform because the tokens themselves, they're a tactic of commercialization. And of course, we're going to expect to see more of them going forward, and we're building the capabilities in order to do that. But at the same time, we'll deploy many additional commercial tactics. So I'll give you 2 examples. First one, with discrete consumption and transactions. So if you take autonomous procurement and autonomous quotation within transportation, I think that's a great example of that because what we're monetizing through those particular product motions is happening at a higher rate than the traditional non-AI capabilities that we have. And we can charge more because we're demonstrating a higher ROI of our customers when we do that. A second example is we'll create monetization through the good, better, best product motions where we put AI into those better and best upsell motions. And I highlighted 4 examples. I think it was on Slide 5 of the presentation that give examples of this. And one of those examples would be automated feature extraction out of the large point clouds that we deliver to our customers. So in that example of that automation of the feature extraction, which turns hours and days of work into minutes of work. We're monetizing that through that better and the best product sets that we deliver to our customers. And in fact, in that example, we're actually also enabling our customers to create their own proprietary data sets for their own unique work on feature extraction. So many different motions and tactics that we'll apply to achieve and reach that vision of commercializing the value that we're delivering to our customers through AI. Operator: Your next question comes from the line of Rob Wertheimer with Melius Research. Robert Wertheimer: I had 2 questions on trend at AECO and then on monetization along the lines of what you were just talking about. On trend line, obviously, ARR growth was strong. The comp on core is a little bit abnormal. And so I wonder if you could just talk about revenue trends for the quarter. Just any sense of that. And then as we go through the year, there are questions on the competitor call yesterday about whether construction is improving or not. And there's lots of mixed indicators. I wonder if you might weigh in there. Phillip Sawarynski: Rob, it's Phil. Let me start. As we think about the year and the guide for AECO. So let me start with connecting this to some numbers. As I look at the net new ARR, that is growing and has grown in Q1, and we expect that to continue to grow throughout the year. Historically, we also benefited a little bit from a tailwind due to conversion uplifts. So we move from maintenance and support into the subscriptions, there's a bit of an uplift. So if I look over history, again, that was a bit of a tailwind. Still a small amount of that left, but the impact is a bit less. But the Q1 results in the full year guide are fully in line with our expectations and the model we put out in Investor Day with that mid-teens ARR growth and low to mid-teens revenue growth. So again, I think we're in line with the prior guide and in line with our multiyear model that we put out there. Robert Wertheimer: 3 Perfect. Fair enough. And then, Rob, you were just touching on this, but I'm just thinking about how you monetize some of the capabilities you're bringing your -- maybe passing through tokens, I don't know if there's a margin there, but maybe you're hoping to win new logos from competitors, new people entering an ecosystem because the capabilities are bigger and easier. I wonder if you could just talk about what you see as the biggest opportunities as your capabilities expand. Robert Painter: Rob, the frame I have on monetization starts with value delivery and value capture. So expense of which we're creating positive outcomes and positive ROI for our customers, we backwards integrate from that into then what would be the fair share for our value capture out of that. So we're mostly focused on the AI capabilities we can create for ourselves on leveraging the Trimble platform and the unique data set and scope and breadth and depth that we have globally. In doing so, we believe, yes, that we can capture new addressable market. We think we can take market share over time. There, I mentioned 3 different types of motions -- monetization motions in answering that last question, another one would be, if you think about the announcement we made with SketchUp and Claude a few days ago, and the integration there. Another motion we see where we can monetize is by creating new users, creating new customers, expanding that addressable market with Claude users who weren't already SketchUp users. So by creating models in -- out of Claude, you need to bring those into a SketchUp model to be able to do more with that. So we'll watch that to see if that's another avenue by which we can gain new customers. So we see opportunities to increase the size of the addressable market. We see opportunities to monetize through our fair share capture of the value and ROI that we deliver to our customers, and we'll see over time how that plays out into market share. Operator: Your next question comes from the line of Jason Celino with KeyBanc Capital Markets. Jason Celino: Rob, to that point on that SketchUp-Claude partnership that you have, it sounds like the goal is to kind of be trying to convert Claude users to SketchUp users because I imagine they'll need a SketchUp [ seat ]. Is there any consumption credits you were talking about aligned with this partnership? Or is it more on the license component? And then it wasn't lost on me that you were on an only initial partners with this initial announcement. There's one other. But could this -- is this a table stakes kind of feature? How do you think the partnerships with the frontier models kind of evolve for you and kind of the market? Robert Painter: Jason, thanks for the questions. I think that this is going to be more table stakes to have different motions in a way to reach the market. And we embrace that. So expect to see more from us across the portfolio. That's one example where you can start with the modeling in Claude. I flipped that around the inverse of what we launched in Q4 was SketchUp AI where you can do that, what we call [ vibe ] modeling natural language prompts within SketchUp itself to do the model. We want to offer multiple avenues so we'll see going more, call it, atomic level of the capabilities. We want to be able to do that in Trimble Connect, for example, around agentic AI platform. So multiple paths to market, we're learning a lot. We're learning a lot internally. We'll learn a lot by following our customers and how they use it. We'll learn the motions and, let's say, optimize the motions of how to convert users and then to bring them into the Trimble ecosystem. And once you're in that ecosystem, let's say, if you've done a model through Claude, then I talked about it in the prepared remarks, if you want to do rendering or daylight analysis on that, that creates capabilities for us to upsell and deliver more value to the customers once they're coming in to SketchUp. So coming at it from multiple angles, they do think that it's table stakes that we're engaged on a number of levels. And I'm really proud of the team for the entrepreneurial spirit they're displaying. They're all really going after it. Jason Celino: Okay. And then I might have missed it, but the Field Services strength in the quarter, I'm curious if any of this was a demand that was pulled -- pulled forward might not be right word, but maybe deals that closed earlier than expected? It's just I look at kind of the high oil prices, high memory prices. I wonder if clients are trying to maybe get ahead of some of those things? Robert Painter: Good question, Jason. So within Field Systems, the demand was strong intrinsically in the quarter. So we saw no pull forward in the quarter whatsoever. The 2 pillars of strength in the quarter, first one's in civil construction, that really has just been continuing the trend over the last few years. I know you were at ConExpo. You saw our booth. Trimble was on 24 other OEM partner booths at ConExpo. The level of innovation the team continues to deliver extensibility for swing booms on excavators, ground penetrating radar integrated into machine control is impressive to see reaching the machine types like compact track loaders, new OEM partnerships, new go-to-market partnerships with our Trimble technology outlets. I think the sum of activity is creating the demand from the product innovation side as well as the go-to-market reach. The survey team also had and delivered a strong quarter. I'd say also off the back of new platforms, data collector platforms, they've built and continue to go-to-market excellence. So really strong execution in the quarter, and really just a terrific print for the team. Operator: Your next question comes from the line of Nay Soe Naing from Berenberg. Nay Soe Naing: Two, if I may. The first one, if I could start with the AECO. You talked about the strength in your Trimble connection. What Trimble Construction One to Connect outside of the U.S., I was wondering, any highlights that you could call out that's really driving that up for a cross-sell motion as well? And then in the regions outside of North America, if you could maybe talk a little bit about the competitive dynamics that you're seeing as well? That would be really helpful. Robert Painter: This is Rob. I'll take the question. So with respect to Trimble Construction One, we launched the capabilities in Asia Pacific in the quarter. Still -- it's obviously still early as a result of that. But that to me is a real highlight because we've seen the positive benefits of that through North America and Europe. Within Europe -- and we brought project site to Europe in the last few -- in the last couple of quarters. The team is doing a really nice job starting to take that to market. In fact, I think the European growth was even faster than the North American growth in the quarter, and that would be indicative of the cross-sell and upsell motion. Competitively, this is a unique set of capabilities we have at Trimble inside of that TC1, offering the breadth and depth of what we can bring to our customers, much less doing when we now intersect what we can do with Field Systems and AECO. So uniquely positioned at a competitive standpoint, strong highlights that to me -- with the cross-sell and upsell that translated into the strength of not only the ARR and revenue beat, but also the bookings that support that ongoing growth here for the rest of the year. Nay Soe Naing: That's very helpful. And my second question is around the SketchUp to Claude connector, really exciting, I think someone's already flagged it as well. Only a few so vendors or follow this approach in this design software space. I was just thinking more in terms of risk, I was wondering how would it work in terms of the data created is SketchUp through the users coming through Claude? Does Anthropic get hacked? Does it have access to that data? And is there any possibility that they might be able to replicate some of the SketchUp features through the data access that they might have going forward? Or is it something that maybe we shouldn't worry about it at all? Robert Painter: I don't see a near-term concern on that relative to what Claude or another LLM provider could do in that respect. What we like about it is -- in fact, we see more opportunity to expand the addressable market for people who are not Trimble customers today, what they have to do to be able to use these services to create a Trimble identity. So that's important so we can actually know who the user is. So we believe we can capture customers and users who haven't used the tool before. So we seen that opportunity to expand the size of the addressable market. And it becomes relatively easy to do that modeling because you're doing so through tax prompts in order to create that. So then our opportunity then from a downstream monetization play is to create new SketchUp users and then to upsell those SketchUp users into -- inside, excuse me, the Trimble Construction One offering. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Jerry Revich: Rob, I wonder if you just talk about, just a minute on all of the data that you folks have and the value of bringing that together. With using the AI tools, is there a way to quantify in terms of the number of projects that you folks have in the system, et cetera, as just to build comfort around the ability to essentially leverage AI to drive incremental ARR as opposed to the risk factors that everybody is looking at? Robert Painter: Jerry, you've heard me talk before about trillions, billion, millions and thousands. Trillions of dollars of construction run through Trimble today. Tens of billions of freight run through Trimble. We have millions of users deliver software, and hundreds of thousands of instruments machines in the real physical world operate on Trimble. That is singularly unique. If we talk about -- I'll double-click within that and we take Trimble Connect, which provides that single source of truth to create that digital plan between the physical and digital. Today, inside of Trimble Connect, more than 30 million projects have been created. There's been over 50 million users in Trimble Connect since inception. We have thousands of integrations -- third-party integrations into the individual applications we have across Trimble. We have over 130 extensions, integrations that have been created inside our Trimble marketplace, which is part of Trimble Connect. In fact, at the mentions at our user conference in November, which we'd love to see you and the community attend, we're actually going to have hold our first developer conference as part of that. So if you take this unique set of proprietary data. The density of that data, this is singularly unique, creating the ecosystem and the partner network to build upon. This is why we see such an opportunity for AI to be a logical extension of our Connect & Scale strategy, not -- really not even a separate initiative. So we really think there's a lot of compelling aspects here for us and for our customers. Jerry Revich: Super. And then from a margin standpoint, I was really impressed with Transportation & Logistics performance in the quarter. I don't know if the margins exceeded your internal plan or -- but if you could just unpack the drivers of margins in the quarter? And I think typically, you do see a step-up in margins in the business 2Q versus 1Q. And I just want to make sure there's nothing in the base that's extraordinary as we think about the bridge in that business from here? Phillip Sawarynski: Jerry, it's Phil. Yes, thanks for the question. I'm really pleased with the team as we lap ourselves, we had the mobility divestiture last year. And so there were some stranded costs within that business as the team had worked on throughout the year. And so really, really happy with the performance. We're guiding to about the same rate at the end of the year throughout the year, the 24%. So I think you can view this as structural as we go throughout the year. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: Very nice results. Congrats on that. So this is a question from me who's not a designer, and I don't use SketchUp or Claude to draw 3D models. So I apologize for the simplistic nature of the question. But about the Claude partnership, it sounds very interesting, and I appreciate the TAM increase potential. But could you sort of explain, how do you have confidence that Claus users would eventually migrate to using SketchUp instead of just staying on plot that probably keeps getting better at giving customized designs on the platform? Or maybe a better way to ask is, what's there in SketchUp now that Claude doesn't and will not be able to help with? Robert Painter: Tami, thanks for the question. And I will be your personal sales rep to sell you a license of SketchUp and make you a user. Until then, what -- imagine going to Claude and -- your natural language prompting. You don't have to be a user of the underlying modeling technology. So you're new to the software, and you want to create a model. You can do so through just typing the prompt of what you want. If you want a new patio for the backyard and it's of a certain size and, let's say, dimensionality and style that you want to put in there. Okay. So Claude is going to deliver you a model. We believe that, that's not enough. You need to do something with that model. If you just wanted a picture of the model, you could create that in Claude, but that's not actually going to translate into the workflow. What you then do is you create -- if you've created that design of that model on Claude, you bring it into the SketchUp ecosystem in order to iterate on it because the one thing we know with the design is it's not static. You don't just do a prompt and then you're done. You want to iterate on that. You want to collaborate on that. Like one of the real powers of SketchUp is the ability to have multiuser collaboration. And think about the coordination that an architect has with an engineer, much less a contractor or the owner. You're not going to do that through the LLM, you're doing that through SketchUp and then leveraging Trimble Connect to drive that collaboration. And when you want to perform that professional-grade analysis and you want to do the energy modeling of that or the rendering on that model, you're going to come into the authoring application or the othering tool, which is SketchUp to do that. So I go back to the ability to have started, and Claude in this example is we're lowering the barrier to entry to create that next generation of AI-first professionals who can then bring those models into SketchUp for the next iterations of that. So I don't know -- I hope that helps you a little bit understand that is that it's insufficient to complete a workflow with that initial model that you've created in an LLM. I agree with, I think, the assertion you're making is that it's going to get better over time. And you can imagine then we'll put more capabilities into those engines upfront over time. And we want to bring more Trimble capabilities throughout our ecosystem that direction as well this -- and it's so much of that, again, I see it as an ability to create new users for our tools. And remember that within the tools we have themselves, whether it's SketchUp or every other software application we're delivering at Trimble, we also have AI inside of those tools. So think of Claude inside AI -- Claude inside of SketchUp as opposed to Sketchup inside of Claude. We work it from multiple angles. Tami Zakaria: That is extremely helpful. And my second question, I wanted to double click on Field Systems. The year started off really strong, but you're still targeting low to mid-single-digit organic growth. Can you remind us what you're expecting for 2Q? And to get to your full year guide, we need to see a lot of slowdown versus the first quarter number you had. So is it conservatism? Are you seeing an impact from the Iran War in 2Q and you expect that to stay for the rest of the year? So any color on Field Systems? Phillip Sawarynski: Yes, Tami, it's Phil. I'd say -- the first quarter obviously reflected what we saw last year, particularly in civil construction. So the market continues to be strong, particularly in that business. Rob mentioned, geospatial performed well in the first quarter. As we start to think about the rest of the year in that business, this is the one that has -- we have the least visibility with the hardware, particularly. And we start to get into last year, we had a really good strong second half of the year. So part of this is the year-over-year the comps. And part of this is the Middle East, and certainly around the tariff policy, just some of the macros. I'd say -- so we've incorporated the risk, we'll also incorporate the opportunities as we think about the guide and where the strength of the market is. At this point, again, we started the year very well, but we'll continue to keep an eye on it on market and update you in a few months. Operator: Your next question comes from the line of Joshua Tilton with Wolfe Research. Joshua Tilton: Congrats on a good quarter. And just 2 quick ones for me. The first one is kind of a follow-up question. So I think the question a lot of my peers have been trying to ask you on the call so far. And I think that's around the Claude integration announcement. And I think what a lot of people are trying to understand is just as you integrate more and more with Claude, you are increasing your users productivity. And I think people are trying to understand how are you guys setting up yourselves to capture that increase in productivity that the Claude connector will provide your average SketchUp user? And I think the second question that I have, just a quick follow-up is, on that last Field System comment that you mentioned, is it fair to assume that there is more conservatism in the Field Systems outlook today than there was 90 days ago given everything that's going on in the world and the visibility that you just spoke to? Robert Painter: Josh, it's Rob. I'll take both of those. With respect to Field Systems, I'd say, what's -- what I want you to assume is that we're holding -- well, we've actually increased the guide for the year. So I want you to see that we don't see that anything has fundamentally changed in the market. We're 3 months from a reporting standpoint, we're 3 months into the year. We got 9 more to go. Let's see where things are -- how they're shaking out in 3 months from now. So no fundamental change in view in the Field Systems business. In fact, if anything, you could say it's better because of the raise -- some of the raise we put through. That's what you need to hear on that one. With respect to Claude and as we integrate Trimble capabilities with LLM and increase our users' productivity, we start -- what I would want you to hear there, as we start by increasing our users' productivity within the tools they already use from us today, that's the primary place we start. When I think about going the other way. And when we're working with Claude with the SketchUp example or other examples that I think you'll see in time to come, we think of those as opportunities to create new users. We think of that as opportunities for our existing users to start, if that's where they want to start, and then bring those models into SketchUp. I just can't stress enough that for the professional user would separate maybe the professional user from the consumer user of SketchUp. At that professional user level, you need to bring those vials into our ecosystem if you're going to iterate, you're going to collaborate and if you're going to perform professional grade analysis. That's the difference between the professional user and, let's say, the maker or the consumer user of SketchUp. I totally embrace SketchUp consumers. That is the bulk of the user count that we have in that community, and it creates that brand and the content that we have and really monetize at the professional grade level. That is fundamentally a different set of workflow. And hopefully, that helps answer the question. Operator: Your next question comes from the line of Chad Dillard with Bernstein. Charles Albert Dillard: I'm going to continue on the SketchUp and Claude line of questioning. So a few for me. So I guess, first of all, from an economic standpoint, we're assuming you guys price for this added feature. I guess, how do you guys think about the split up between what Trimble gets versus what Claude gets? Who owns the data? And I'm just trying to understand like how does this compress the learning curve going to more of an agentic approach? And maybe lastly, SketchUp was kind of the first deployment, but where else do you see this sort of relationship evolving across your different product sets? Robert Painter: Chad. This is Rob. I'll take that. Okay, there's a few topics in there. Hopefully, I can capture them here. The data is the customer's data. So I always want to orient starting there, and that customer is creating a model, an example that we talked about today. That model is downloadable and you can bring it into SketchUp. From an economic standpoint, let me highlight 2 different motions we have. One motion is the announcement we had in Q4 of last year, where we have SketchUp AI. It's an add-on subscription to the SketchUp license you already have. And with that SketchUp AI license, it's only $11.99 a month for that add-on license. You get a set of credits for tokens, but think of it as credits that you get. So from that, I'll call it, economic standpoint, that is directly to Trimble. It's all Trimble and obviously, there's a variable cost when we're on the consumption side of that. But we built that into the pricing model. What you are asking about, with Claude, if you start in Claude and you create that model that's downloadable, what we really see is the economic model there is to create users downstream. That's the way I would think about that. And how can we create those users downstream. Well at least today, we start by requiring them to have a Trimble ID. And when you have that Trimble ID, that's how you're able to download that SketchUp model and then bring it into SketchUp as the authoring tool. So there's multiple paths to monetization. I think about in the first -- one of the first -- I think it was the second question we got this morning. When we talk about tokens, I see that as a tactic. That's one of multiple tactics that we have. We'll have tactics of monetization where we bundle our capabilities under the good, better, best offerings. And clearly, we want to upsell customers into the better and the best, provide a higher value. We'll monetize there. We'll monetize purely as a stand-alone transaction or consumption. And one of the reasons we were attracted to the Transporeon acquisition when we did it is there's well over $100 million of transactional revenue that comes from that business. We don't have to imagine a world with transactional revenue. We have a world with transactional or consumption-based revenue. And inside of that, we've got autonomous, which, in other words, there's our AI-first products that we're monetizing on a consumption based level. So we're open to multiple doors and avenues as the tactics to monetize the capabilities that we're bringing to market. And we think we can do so in a way that expands the size of the addressable market while we're doing it. And all of this is early days. And we see it as virtue that, that were out there in the market, that we're testing, that we're learning and that we're leading. Charles Albert Dillard: Okay. That's helpful. So second question, can you talk about what Trimble is doing to shift from like, I guess, the Copilot or assistant-based AI to more of an autonomous workflow product? I guess one thing I'm trying to get at is, do you have all the -- everything in your tech stack inside the 4 walls of Trimble? Or do you need to go out and acquire some of those capabilities? And then where is some of the low-hanging fruit today to deploy autonomous workflow in your products? Robert Painter: Chad, let me comment that from a couple of different angles. It's an interesting -- it's an interesting question. In terms of our own agentic AI development, we have multiple teams in the company that are working on it, but really twofold. One, from the engineering and construction, which is an intersection of Field Systems and AECO, and the second in Transportation. So each of those teams have agentic AI teams, and we believe -- we don't need to go acquire, let's say, an agentic AI platform because we're doing it ourselves. We want to do that organically. Now the Document Crunch example is one where we acquired to create a new category. In this case, an AI-powered risk management category. And where we see through Document Crunch that we can link contract intelligence and compliance automation and link that with the project management that we deliver at Trimble, with estimating that we deliver a Trimble with ERP workflows we have at Trimble. That's singularly unique. It's bespoke. It's domain specific. That creates a new category. We're open to that. The last example I'll give you is really coming more at it from a Field Systems perspective. And I'm going to sort of maybe take a play on the word of autonomy. Trimble has been an autonomy company for decades. We happen to call it machine control and guidance. It's between level 2 and 3 autonomy today. We already are an autonomy company. And we see what underlies that is a grade control engine. And we see autonomy as a feature extension of the grade control engine that we take to market today. So we will, on our own, continue to work up the stack of -- in autonomy because we see autonomy as a progressive series of automation and will create extensibility on top of our grade control engine platform. And that's how we reach these new categories, whether they're safety applications, whether they're ground penetrating radar applications, whether it's a new machine type integrations, a lot of which we can believe we can deliver when we focus on the underlying platform and the extensibility of that. Operator: Your next question comes from the line of Clarke Jeffries with Piper Sandler. Clarke Jeffries: And I apologize if I missed this, but I believe reported ARR for AECO was 17% versus the 14% organic. Was there's something driving that? I'd assume Document Crunch is going to be in a future quarter when that closes. So do you want to assume something there? Phillip Sawarynski: Clarke, it's Phil. No, the difference is the FX. There's still a benefit with the weaker dollar for the first quarter of this year. So that's a difference. Clarke Jeffries: Understood. Okay. And then second question, maybe just following up on one of the questions around operating margin. I mean it does seem pretty exceptional what happened in the AECO and Transportation & Logistics from a gross margin and operating margin perspective. Just maybe could we talk about the OpEx timing that did affect Field Systems? To what extent is that onetime and may resolve itself in future quarters in terms of not have that lump of OpEx. Anything to kind of speak about whether or not we're really getting to a point where the leverage of the recurring revenue across these portfolios are starting to really pick up on the margin benefit here? Phillip Sawarynski: Yes. Clarke, it's Phil again. Yes. So at the company level, really good progress on the margin expansion. And what I really like about the company model is there's an end in there. We're able to expand margins, and we're able to reinvest in the growth. So I think the teams have done really well. As I think about -- I think you asked a specific question in Field Systems. We did have some ConExpo Rob had mentioned, trade shows in Q1. And so we've had some additional expenses, and that's where we're seeing some of the timing when I mentioned that. There's a couple of other things on the innovation side and particularly in FedRAMP for our certification that we're investing in and what I mentioned about the investing in future growth, that's one of the additional expenses. But if you look at what we guided for the year, we ended up in Q1 about 28.8% on OI, and we're guiding towards 31% the rest -- for the rest of the year. So we see improvement. Operator: Your next question comes from the line of Jonathan Ho with William Blair. Jonathan Ho: I wanted to start out with Document Conch. Can you give us a sense of how you can cross-sell this to your base? And maybe, what does the economics sort of look like in terms of that incremental add-on? Robert Painter: Jonathan, so I think as you heard me say in the prepared remarks, it creates a new high-value category for us in AI-powered risk of management. So you think about the billions of construction that runs through our ERP today and the tens of millions of projects we have in Trimble Connect, project management capabilities, think about the tools we have in the field. There's an enormous amount of data when we think about linking that contract intelligence and compliance automation that comes from Document Crunch into those project management estimating and ERP workflows that we already have today. And the value proposition is pretty clear in terms of the risk that comes with the construction industry, which I think is relatively well understood. It's particularly in North America, it's a litigious industry. Claims are high dollars in an industry that happens to already be low margin. So this goes well beyond any kind of document review in order to really power that risk management for our customers. So now, okay, with that value proposition, how we take it to market, we'll bundle that inside of Trimble Construction one. Out of the gate, we go about it through, I'll call it, traditional cross-selling and we'll build the motions to more tightly integrate it with Trimble Construction One, in other words, if it's on one piece of paper coming from Trimble. And we like what we see out of the gate relative to customer inquiry in terms of the press that the deal has generated. It's getting nice coverage. Our selling teams are excited to have it, and customers are telling us this is exactly where they want to go. So that intersection of got to have the right product meet the right go-to-market motion, feeling good about this one and stay tuned. We'll keep you updated how it's going. Jonathan Ho: Great. And just as a quick follow-up. With the use of AI potentially maybe displacing some workers, do you see any threat to any of the seat-based licensing models that you have as well? Or is there the opportunity to shift to maybe more value-based pricing over time? Robert Painter: We go back to that monetization conversation we've had in the prepared remarks and through some of the Q&A. That's one of the reasons you see us talking about hybrid models. So we do have a belief that we'll see more hybrid models, hybrid at the intersection of the named user license and consumption. At the same time, we have some consumption only businesses and capabilities as well. So there's multiple tactics that we can deploy in that respect. Our industry today is not demand constrained. We have -- our customers have significant backlog. There's a labor shortage, hundreds of thousands of workers short in North America alone. So in the near term, it's hard to see if any kind of fundamental worker displacement. We always want to anchor to what's the value that we're delivering for our customers and then to meet them on a back into the monetization which is a tactic. We're not shelf ware. We're not a nice-to-have thing that you use every once in a while. We are fundamental to our system, to our customers' work. If you're worker out in the field, they're using our tools all day long. If you're a project manager, you're managing an ERP, you're a civil designer, you're a mechanical estimator, you're an architect, you're working inside of Trimble all day long. So long as -- as long as we've got these labor shortages, as long as we continue to provide the value, I feel good about our ability to continue to drive the revenue in the business. Operator: Your next question comes from the line of Guy Hardwick with Barclays. Guy Drummond Hardwick: Maybe I missed this earlier, apologies if I did, but it does look like you beat your Q1 guidance for revenues for about $35 million and you've raised your full year guidance for revenues by only $15 million. And now look at the supplementary information, it looks like Q1 '26 is going to be a higher proportion of total revenue and you have about 0.5 points for both quarters. So is it really a pull forward you saw in Q1, but at this point, you don't feel you can raise the full year as much as you beat in the first quarter? And then that's the first part of my question. The second part, you also took top end of your EBITDA guidance down 20 bps. So just wondering, was that really mix driven? Was there anything else for reason for that? Robert Painter: Guy, this is Rob. I'll add color to what Phil has already talked about in the call in the prepared remarks and in the Q&A. Answer, no pull forward in the quarter really by our own policy, I do not like to raise guidance after the first quarter, to be 3 months into the year. That's the standard way I want to approach it. Given the strength of that Q1, we did flow $15 million of that into the year. I'm thinking about it from the perspective of the year. I feel good about where we are positioned for the -- I feel good about where we're positioned now. We feel good about the rest of the year. As we all know, there's volatility uncertainty out in the world. We'll update you in 3 months where we are there. So really just think about it as there's a beat and a raise, and it's within the frame of wanting to hold that model for the year. Guy Drummond Hardwick: And just as a follow-up, obviously, you're getting very close to 2027 and potential for meeting some of the 2027 targets this year potentially on the EBITDA margin line. Are you already probably getting questions from investors about future targets? So what could we hear about 2028 targets or beyond? Is that something you would look at maybe later this year? Robert Painter: A good question. I think that's important to reiterate that the 3, 4, 30 model, $3 billion ARR, $4 billion revenue, 30% op margins in 2027, look at the numbers that are in the guide that Phil put forward and we are well on track for that play forward operating leverage on top of revenue growth into 2027. And it stands to reason that why we are affirming our path to that 2027 model. We're continuing to deliver and balance the short term and the long-term progression of Trimble. We're not yet ready to talk about 2028 or to set a frame on that. And we haven't yet even thought about when it would be the next logical Investor Day to have that we think it would be smart to put something together for our user conference in November to invite the analyst community, investors to see Trimble in action at Trimble Dimensions in Las Vegas in November. See that and I think you can get renewed appreciation for the uniqueness and the quality of what we're doing and why we would continue to have conviction that 2028 would continue the path of growth and margin expansion that we're delivering today. Operator: And with that, we have reached the end of the Q&A session. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Thank you for standing by, and welcome to the SharkNinja First Quarter 2026 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to James Lamb, Senior Vice President of Investor Relations and Treasury. You may begin. James Lamb: Good morning, and welcome to SharkNinja's First Quarter 2026 Earnings Conference Call. Earlier today, we issued our Q1 earnings release which is available on the company's website at ir.sharkninja.com. A replay of today's webcast will also be available on the site shortly after the call. Before we begin, let me remind you that today's discussion will include forward-looking statements based on our current perspective of the business environment. These statements involve risks and uncertainties, and actual results may differ materially. For more details, please refer to our earnings release and the company's most recent SEC filings. which outline factors that could impact these statements. The company assumes no obligation to update or revise forward-looking statements in the future. Additionally, during the call, we will reference non-GAAP financial measures, which we believe provide valuable insight into the underlying growth trends of our business. You can find a full reconciliation of these measures to their most directly comparable GAAP measures in the earnings release. Joining me today are our Chief Executive Officer, Mark Barrocas, and Chief Financial Officer, Adam Quigley. Mark will start by providing a business update, followed by Adam, who will review our Q1 financial results and share our outlook for 2026. Mark will then offer some closing remarks before we open the call to the questions. During the Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to Mark. Mark Adam Barrocas: Thank you, James. Good morning, everyone, and thank you for joining us today. SharkNinja is firing on all cylinders as we kick off 2026. Our Q1 results are a powerful testament of what we believe this company is built to do: Win with consumers execute with precision and grow from a position of real strength. Consumers are actively seeking out SharkNinja products, talking about them and making them part of their daily lives from product innovation to marketing to our expanded omnichannel presence, we see exciting momentum across the business. Global sales trends are strong and broad-based. Social engagement is surgeon. We're not just winning with consumers, we're becoming part of culture. And what makes this even more exciting is how we're growing. The diversification of our business across categories, geographies and channels is powering our trajectory in a way we feel is difficult to replicate. While the macro environment has remained unpredictable, our operational discipline never wavered. We stayed focused on what matters most, delivering breakthrough accessible innovation to consumers around the world. That focus is our foundation. And today, it has never felt more solid. Our Q1 financial results reflect these themes in action. Net sales increased nearly 16% year-over-year driven by contributions from all 3 growth pillars. Domestic grew 8.4%, while point-of-sale growth even higher in the double digits. Our international growth accelerated to almost 32% with broad-based strength across geographies. Adjusted EBITDA increased roughly 18%, with higher adjusted EBITDA margins compared to the prior period. This performance was driven by our fourth consecutive quarter of leverage in adjusted operating expense as a percentage of net sales. Finally, adjusted EPS increased more than 25% year-over-year, consistent with our goal of driving strong profitability and earnings growth. Across the board, Q1 was another outstanding quarter for SharkNinja. Our recently released 2025 shareholder letter highlights last year's accomplishments and our ambitions for 2026 and beyond. I encourage everyone to read it. Today, I want to expand on one of its most critical concepts, culture as SharkNinja's superpower and how will harness our unique culture to drive continued success into the future. SharkNinja is a company of world-class problem solvers. Problem-solving is at the core of how we think of who we are. That mindset, what we call outrageously extraordinary, or OE, comes to life through rapid iteration, continuous improvement and an entrepreneurial fearlessness to test, learn and pivot. We believe our unique culture is a powerful competitive advantage, enabling us to move faster, adapt quicker and consistently deliver disruptive innovation at breakneck speed. Importantly, this cultural edge goes way beyond product innovation into all areas of the business, marketing, finance, operations, technology and everywhere else. The OE mentality thrives on adapting quickly to challenges. The macro environment has unfolded in surprising and difficult ways so far in 2026. When excluding SharkNinja's performance, the U.S. market declined in the low single-digit to mid-single-digit range across all 4 of our major categories in Q1 according to [ Sercana ]. In contrast, SharkNinja just delivered our 12th consecutive quarter of double-digit organic net sales growth. While many factors drive this outperformance we believe the key differentiator is the culture that powers our mission, to positively impact people's lives in every home around the world and the existential need to be the best of what we do and to win. Our second mantra, the intrinsic drive to win, requires constant evolution as we grow, new categories, new geographies, new ways to reach and serve consumers. These will always be motivating forces behind how we scale SharkNinja. But there's another force at play here, one that will profoundly reshaped everything going forward, artificial intelligence. In a short time, SharkNinja has rapidly and comprehensively embrace AI across the board. We expect AI will touch every part of our business: consumer insights, product development, marketing and demand generation, supply chain and our omnichannel strategy. SharkNinja stands to benefit from all of it. To unleash this vision, we've launched a company-wide initiative called JailBreak SharkNinja. JailBreak means hacking through limitations to enable full access to a technology. It's the perfect description of how we're leveraging our unique culture to maximize our opportunity with AI. Some companies are hiring AI consultants and taking months to develop a top-down solution. We see other companies reluctant to get started at AI. We're only granting access to very few. We don't think either of approach is right for sharpening. Instead, our program incentivizes broad-based experimentation by proliferating AI tools and trainings company-wide. It's purpose-built for everyone to participate at all levels, an opportunity for early talent to contribute meaningfully and gain senior leadership visibility. We believe that putting technology in the hands of our people the ones who live in the details of our business every day can maximize the insights we capture. What started off in a small way is now growing exponentially and early signs are that it can have a transformational impact on the business. JailBreak SharkNinja aims to drive real business impact and reward employees who deliver breakthrough solutions. This impact is showing up in multiple ways. Our product innovation engine is benefiting from deeper consumer insights all the way through the development process. We're getting smarter at creating consumer demand with tools to improve our content and the efficiency of our media dollars. Operationally, we're discovering meaningful productivity gains. And across the business, we're unlocking intelligent insights we couldn't access before. Most importantly, we're freeing up time spent on mundane tasks to focus on strategic thinking to deliver real insights. JailBreak is spreading across SharkNinja like wildfire. Over 150 employee submissions and counting. Each one a signal of the ingenuity and ambition alive inside the company. A few weeks ago, a 20-year-old intern from Clark University walked up to me at lunch and asked if I had 5 minutes. He had been up until 4:00 a.m. for multiple nights, building an AI solution from scratch. I called over two members of my leadership team and had him presented on the spot. The idea was that good. This is exactly the kind of boldness JailBreak is designed to find fuel and reward. And the world is taking [indiscernible]. When I shared the story on LinkedIn, it went viral, over 500,000 impressions, at a top 1% post across all of SharkNinja's content on the platform. [ Fast Company ] and others have since covered the program and the $1 million price fund we've committed to back it up. We could not be more inspired by the momentum of JailBreak shortenings so far, but we're already thinking bigger and bolder. 10 years ago, we shut down the company for a week and held our first company-wide weeklong hack. That event became a defining moment for SharkNinja. It captured exactly how we operate. moving fast, focusing intently as a team and solving the hard problems. It also made us rethink who we are and what we're capable of. As an example, the very first conversations about moving into outdoor products happened during this hack inspiring years of innovation since. Last week, we did it again. Team members across the globe completely cleared their calendars for JailBreak Live and all company HackWeek devoted to tackling some of our most important and complex problems as we embrace the biggest technological shift of our lifetime. We identified 20 cross-functional projects, spanning product development and quality, to commercial and revenue and supply chain and operations and so much more. We also hacked on over 400 departmental projects that engage thousands of people across the world. truly in all hands on deck moment for SharkNinja. The JailBreak live HackWeek is testament to our desire to find problems and then concentrate our resources to solve them. It's also a direct expression of how we can utilize AI to once again reshape who we are and how we operate. And just like a decade ago, we came away with even more excitement about where we can go from here. SharkNinja is also thinking about the AI long game by building institutional capabilities through 2 parallel initiatives. First, we're investing in training and other resources to scale company-wide AI adoption from beginners to super users. We believe everyone at SharkNinja should consider themselves part of our AI expertise. Second, we're actively recruiting the next generation of AI talent, who we call AI Sharks. These are ambitious forward-thinking builders who are already experimenting with emerging technologies and delivering solutions. This approach ensures we both capture immediate grassroots innovation and build sustainable long-term AI competency. SharkNinja's culture is our superpower. And our most durable competitive advantage, our people don't wait to be asked, they just go. This inpatients for action is defining character trade in people who are successful at SharkNinja. We empower, nurture and reward this OE behavior that we feel distinguishes SharkNinja and drive results. We view the dawn of AI as an opportunity to take this differentiation to the next level. And our JailBreak culture is the powerful force behind how we strive to be the very best and to win. With that, let me turn to our 3-pillar growth strategy beginning with our first pillar: Expansion into new and adjacent categories. At the end of Q1, we launched the [ SharpBlack ], the only indoor outdoor air blasting system that converts into a powerful blast broom to clear loosen, lift and sweep with ease. This innovative multifunctional solution represents a new subcategory for SharkNinja, taking our total to 39. We remain on track to enter another new subcategory in 2026 in line with our goal of adding 2 per year. SharkNinja's product development philosophy centers on listening to consumer problems and innovating in perfect built solutions, often establishing product lines that don't exist elsewhere. The SharkBlastBoss exemplifies this a novel portable device with multiple use cases. Our solution helps solve a problem that we identified through social media comments and other consumer insights. Initial feedback has been exciting. And we think the BlastBoss unlocks a road map for future product development to help us expand outdoors even further. SharkShowHill is a similar story, a revolutionary personal cooling system that offers 3 ways to chill, a blade-less fan, a dry touch mister and our cryoinspired [indiscernible] direct contact cooling play. This technology can lower skin temperature by up to 16 degrees Fahrenheit in seconds, to offer customizable cooling and instant relief. The SharkShowHill has been a smash hit among consumers, generating tens of millions of social media impressions in its first month. We believe such a passionate and growing level of engagement showcase how SharkNinja is increasingly becoming a part of popular culture. Justin Bieber, headlined [indiscernible] a few weeks ago with an exclusive chilled zone featuring a SharkShowHill. We also partnered with Bieber and his lifestyle brands, Skylark on a limited edition ShowHill in a custom heat color wage, extensive press coverage from variety, [indiscernible] and Rolling Stone highlighted this collaboration. As we continue to introduce exciting new products that consumers love, we're confident we can expand the ways the cultural conversation revolves around SharkNinja. To put this in perspective, no one is saying Shark made a new fan, based on our consumer insights feedback. Instead, we're being recognized as creating a new personal cooling system that didn't exist before. In doing so, we've created desire and demand at a premium price point that ShowHill's benefits and lifestyle appeal are resonating with consumers in a remarkable way showcases just how influential the Shark and Ninja brands have become. We derive [indiscernible] cooling plate technology from the expertise we developed with our sharp cryoglo-LED face mask. Within our overall Shark beauty skin care business, the strong holiday momentum has continued into Q1. Consumer demand in POS remained incredibly robust for our disruptive skin care products globally. Our new product road map features exciting new skin care launches in the next 12 to 18 months, further leveraging our beauty technology platform. Let's turn to our second growth pillar: growing share in existing categories. A healthy core business is SharkNinja's cornerstone of success. Our goal is to find new ways to drive growth and productivity within legacy categories through relentless innovation. The new [indiscernible] is a great example of how we keep existing franchises vibrant. The [indiscernible] cleverly combines drying, straightening and combing hair with our heat damage in one convenient device. Importantly, it is designed for every hair type, including [indiscernible] hair, that other products don't address well based on our consumer insights. The [indiscernible] prostrate strengthens an already robust lineup of hair care solutions designed to address a wide array of consumer needs. The Ninja Luxe Cafe is another area in which we continue to push the envelope on innovation and differentiation. Global momentum for Luxe Cafe remains incredibly exciting with consumers eager to see what's next. Last week, we launched limited-edition Lux Cafe Color Collection including our first-ever collaboration with SharkNinja in global ambassador, David Beckham. Our design leaders worked with Beckham to create a one-of-a-kind version of Lux Cafe, featuring a matt black stainless steel body, black chestnut wood grain and gold accents to channel his signature aesthetic. Color and Collections present opportunities across many of our product lines with many more exciting developments in the pipeline. Finally, our large cleaning franchise delivered an exceptional Q1 with [indiscernible] leading the way, highlighted by a standout performance from the recently introduced Shark Stainforce cordless spot and stain cleaner. Strong results in our largest category are an important proof point. Our base business isn't just healthy, it's thriving, and that matters because healthy, profitable core businesses are the engine of everything SharkNinja does. They established the foundation of our growth and fund our expansion into new categories, new geographies and new channels. Later in 2026, we plan to have a meaningful innovation to subcategories like upright vacuums and cordless sticks driving further momentum and reinforcing the strength of the core. Our steadfast focus on refreshing and renewing legacy categories is essential to the success of SharkNinja. But broad-based market share gains we observed this quarter validate this approach. They also underscore the power of diversification as another vital element of our strategy. Our food preparation category declined slightly year-over-year. driven largely by lapping a very large sell-in period for Slushy in Q1 '25. Our strong overall net sales growth underscores the power of category diversification SharkNinja, which we also expect will drive improved trends in our food preparation category going forward. Our third pillar: international expansion, saw robust results across multiple geographies. I spoke last quarter about how our model can scale globally, particularly as we become a direct operator in more countries. Q1 showcased strong international performance even as we work through business model transitions in certain EMEA countries, like Italy and Spain. Net sales growth in the U.K. business accelerated this quarter to over 18% year-over-year after a very strong second half of 2025. We're winning in multiple ways with category and channel diversification, both driving success. We see a lot of excitement for SharkNinja products in the U.K. and expect continued strength for the remainder of the year. Our France and Germany business are a similar story, both continue to grow well with increasing diversification across categories, and we're eager to see what's to come with additional shelf placement in 2026. Since our last update, SharkNinja has successfully earned larger commitments from retailers throughout EMEA for the holiday season. These outcomes reflect deeper relationships with our retail partners and continued exciting demand signals for global consumers. Latin America experienced another exceptionally strong quarter. Last year, we transitioned our Mexico business from a distributor led to a direct business model. Since that time, our results have been outstanding. The benefits of directly operating in Mexico are multiplying. We have strong and growing relationships with retailers. Our consumer engagement continues to expand with local language social media content and we believe our opportunity with partners like Mercado Libre is enormous. Across our international business, we're seeing a strengthening of our omnichannel strategy. Additional placement from retailers reflect the trust and success we're driving together, and we deeply appreciate the partnership. We're also excited about how our direct-to-consumer business is developing. Last fall, we meaningfully improved our capabilities by rolling out new DTC sites in the U.S. and Canada. In the first half of '26, we're bringing this enhanced experience to all our major international markets, including the U.K., France, Germany and more. In parallel, we're activating our presence on TikTok Shop in several countries within EMEA. Our success within TikTok Shop in the U.S. and the U.K. allows us to launch confidently in Germany, France, Spain and beyond. The combination of these elements a healthy and growing retail presence our new DTC platform and further TikTok Shop penetration fortifies our international omnichannel strategy with additional opportunities to come in the back half. To wrap up, the year is off to a fantastic start. We're executing on the complex multidimensional task of growing across categories, geographies and channels. all while navigating a constantly shifting environment. Yet underneath it all, it's business as usual at SharkNinja. Our unique, ambitious culture is as dependable as ever. and it continues to be the driving force behind our strategy and our confidence in where this company is headed. That confidence shows up in our guidance rates for 2026. Even against the backdrop of changing cost dynamics, our momentum is undeniable, and signs what we're seeing give us every reason to lean in. Consumers are responding to our innovation with real enthusiasm. SharkNinja products are becoming an increasingly embedded part of culture and the partnership and support we're seeing from retailers continues to strengthen. The macro environment will likely stay dynamic, but we believe we built this company to handle uncertainty better than anyone. Most of all, we're genuinely energized about everything ahead. With the momentum and fresh creativity coming out of our global HackWeek propelling SharkNinja [indiscernible] into the future. With that, I'll turn it over to Adam, who will walk you through our financial results and share our updated outlook for 2026. Adam Quigley: Thank you, Mark, and good morning, everyone. I'd like to echo the enthusiasm that Mark just shared coming out JailBreak and HackWeek. The [indiscernible] in the entire organization reflects how SharkNinja responds to any major call to action, similar to the [indiscernible] about a year ago. Through intense focus and cross-functional collaboration, we've generated an exciting number of high-impact work streams that we are eager to pursue. When this company drops everything and collaborates to solve problems, we can be unstoppable. Now let's dive into our excellent results for Q1. Net sales in the first quarter increased 15.6% year-over-year to $1.41 billion. By geography, domestic net sales increased 8.4% to $916 million. International net sales were $497 million, up 31.6%. Our U.K. business grew robustly in Q1 with net sales up 18% year-over-year to $220 million. This strong result underscores the power of the category diversification strategy that we intend to utilize across our global markets. The rest of our international business also performed quite well in the quarter. Our EMEA region grew nicely across multiple geographies with encouraging trends in some of the markets we recently converted to a direct business model. Latin America continues to see exciting momentum in Mexico and across the region. Turning to performance by category. Net sales in the cleaning category increased 17% year-over-year to $517 million. [indiscernible] uprights the largest subcategory and the company performed well as did our carpet extraction business. Net sales in the cooking and beverage category increased 19.8% year-over-year to $415 million. Consumer demand for the [indiscernible] cafe espresso machine continues to be strong worldwide. [indiscernible] is also seeing great momentum across multiple markets. Net sales in the food preparation category decreased 3.3% year-over-year to $288 million. Strong growth in our blending franchise was offset by lapping a particularly large quarter of selling for our frozen treats business in Q1 of '25. This is another great example of the importance of healthy core franchises, like lending. Our frozen treatment remains an exciting growth area for us with more innovation coming in the second half of the year. Finally, our beauty and home environment category increased [ 40.8% ] year-over-year to $194 million. Our Shark beauty technology portfolio to stand out in the quarter, particularly our skin care business, led by Shark [indiscernible]. Now let's move to gross profit, where our results came in at the high end of our expectations. Tax presents a sizable headwind for the full quarter of impact in Q1 of 2026 compared to a baseline of minimal tariffs in the prior year period. On the positive side, our [indiscernible] strategies continue to benefit gross margin. Cost optimization efforts remain robust, while favorable trends within pricing and mix also positively impacted margins in the quarter. Adjusted gross margin in the first quarter decreased approximately 100 basis points year-over-year to 49.2% of net sales, and GAAP gross margins decreased roughly 10 basis points to 49.3% of net sales. The difference between our adjusted and GAAP gross profit remains negligible. Moving down to P&L. Our adjusted operating expenses this quarter totaled $495 million or 35% of net sales. This compares to 36% of net sales in the year ago quarter or roughly 100 basis points of favorability year-over-year. SharkNinja has now driven leverage on adjusted operating expense as a percentage of net sales for 4 quarters in a row. We feel that this consistency speaks to how we prioritize investments to fuel growth while remaining disciplined on spending. I will now bring down our operating expense line items on a GAAP basis. Research and development expenses increased 12.9% year-over-year to $99 million compared to $88 million in the prior year period, leveraging almost 20 basis points year-over-year. We believe our robust investment in R&D remains a critical differentiator to SharkNinja's disruptive innovation engine. Sales and marketing expenses increased 14.4% year-over-year to $315 million compared to $276 million in the prior year period, leveraging just over 20 basis points year-over-year. We continue to deploy resources to expand our social media prowess from advertising dollars to additional personnel around the globe. General and administrative expenses increased 22.4% year-over-year to $116 million compared to $95 million in the prior year period, deleveraging about 50 basis points year-over-year. The bulk of this increase came from tax related to share-based compensation. On an adjusted basis, general and administrative expenses grew 11%, roughly 30 basis points of leverage year-over-year. SharkNinja's top priority is to deliver full year adjusted EBITDA growth that outpaces net sales growth. In Q1, we achieved this goal with adjusted EBITDA growing 17.5% year-over-year to $235 million. This represents a 16.7% adjusted EBITDA margin, up approximately 30 basis points compared to the prior year period. Even with all the moving parts on the COGS line, we remain confident in our ability to stay flexible and opportunistic with operating expenses where needed. To wrap up the income statement, our GAAP effective tax rate in Q1 was 17.7%, while our non-GAAP effective tax rate was 20.7%. Adjusted net income in the period was $155 million or $1.09 per diluted share compared to $124 million or $0.87 per diluted share in the year ago period. Our adjusted net income per share in Q1 grew 25% year-over-year, our fourth consecutive quarter of growth in excess of 23%. Turning to the balance sheet and cash flow. At the end of the first quarter, cash and cash equivalents totaled almost $512 million, up more than 100% year-over-year. Total debt outstanding at quarter end was $729 million, and we continue to have nearly $489 million of capacity available to us on our $500 million revolving credit facility. Total inventories were $1.03 billion exiting the quarter, up 6.3% year-over-year. It's important to keep in mind that we are now lapping the large tariff prebuild inventory levels from late 2024 and early 2025. We feel confident that our healthy inventory positions us well to support our growth ambitions. Last quarter, we announced that our Board of Directors had approve SharkNinja's inaugural $750 million share repurchase authorization. Through the end of March, we have repurchased roughly $20 million worth of stock, the details of which will be available in our 10-Q filing. We will continue to utilize the authorization opportunistically when we feel it is appropriate while steadfastly reinvesting into the business as our priority. Let's move to our outlook. As Mark mentioned, we see encouraging trends across the business, including all 3 of our growth pillars. We believe we are executing against what we committed to, which gives us incremental confidence. Consistent with prior quarters, our updated 2026 outlook assumes current tariff levels persist for the remainder of the year, including minimum rates that have shifted from 20% and to 10% for China, Vietnam, Indonesia, Thailand, Malaysia and Cambodia. As of today, our guidance does not incorporate any potential tariff refund benefit. On the raw material side, we continue to actively assess the situation while already taking action on both cost mitigation and supply procurement. The duration of the Middle East conflict is unknown and therefore, [indiscernible] prices may change for resins and other commodities. But we view the potential impact as manageable and have incorporated this into our guidance. For the full year 2026, we now expect net sales to increase between 11.5% and 12.5% compared to our prior guidance of a 10% to 11% increase. Adjusted net income per diluted share is now expected to be in the range of $6 to $6.10 compared to $5.90 to $6 previously. Adjusted EBITDA is now expected to be in the range of $1.29 billion to $1.30 billion, representing growth of 13.5% to 14.5% year-over-year compared to the prior expectation of $1.27 billion to $1.28 billion, representing growth of 11.8% to 12.7% year-over-year. Net interest expense is still expected to be flat relative to 2025. Our GAAP effective tax rate expectation remains approximately 22% to 23%, and capital expenditures are still expected to be between $190 million and $210 million for the year. To close, our Q1 performance demonstrates the best of SharkNinja. Strong net sales growth with contributions across all 3 of our growth pillars, an adaptable P&L that can absorb challenges on the gross margin line while driving material OpEx leverage to deliver on our adjusted EBITDA goals and a robust balance sheet that enables us to retain flexibility while also returning capital to shareholders, these factors, along with continued momentum of the Shark and Ninja brands with consumers worldwide give us the confidence to increase our outlook for FY 2026. None of this is possible without the diligent efforts of the entire team. We exit our JaiLbreak Live HackWeek squarely focused on execution for the remainder of the year while also building for the next chapter at SharkNinja. Thank you. With that, I will now turn it back to Mark. Mark Adam Barrocas: Thanks, Adam. Simply put, SharkNinja is strong today. and we're built to get even stronger. That confidence isn't just about the numbers. It's about how we keep winning, growing fast, tackling problems and pushing our differentiated strategy further than ever before. And at the center of all of it is our cultural DNA. The outrageously extraordinary mindset is not commonplace. It demands bonus, decisiveness and adaptability, and it ignites our people to set their sites on something truly great, not just good enough. That's exactly why we're all in on AI and the JailBreak SharkNinja initiative. We genuinely can't think of a more perfect fit between our unique OE mentality and the most revolutionary technological advancement of our lifetimes. Our culture wasn't built for the old world. It was made for this one. We went deep on cultural differentiation today because we believe it is the single most important driver of our outperformance past, present and future. Since our NYSE listing in July of 2023, the outside world has watched us delivered 12 straight quarters of double-digit organic net sales growth. But inside SharkNinja, we've been living and building this culture for 18 straight years. Long before the spotlight, long before the listings, the results you see today are in a hot street. They are the compounding output of nearly 2 decades of relentless outrageously extraordinary execution, a track record that we believe speaks for itself, and we're just getting started. Thank you. This concludes our prepared remarks, and I'll turn it over to the operator to kick off Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Randy Konik from Jefferies. Randal Konik: Mark, to start off, you gave a perspective on the industry trends for the United States in the quarter. Can you give us some perspective of how you think about how those trends play out for the balance of the year from an industry perspective? And then the second kind of part of the story globally, when you think about you're talking about your bullishness on international, you talked about great order growth for holiday in international markets. When you think about what you said in the past, I think you said, you think international can be about 50% of the business. I don't know about when you think you get there. But when you think about what you said in the past and then combine that with -- your brand awareness is growing internationally but still low. I don't think you started TikTok Shop yet. You're about to. Not all the countries have -- international countries have all your products. The U.K. just showed a big acceleration. You're going to add some more countries on top of that in terms of new organic growth opportunities. Have you changed or become even more bullish on where international can go and how fast you can get there? That would be really helpful in sizing that up for the audience. Mark Adam Barrocas: Yes. Thanks for the question, Randy. Let's start on the North America side. I mean, the industry was down low to mid-single digits. Our U.S. business was up 10%. On shipments, it was up more than that in POS that sets us up really well as we move into the second quarter. Our Canada business had some structural changes and kind of moves from direct import to domestic, that had the Canada business down year-on-year. That will change as we move into the back half of this year. So I think as you look inside the numbers, yes, our international business grew quite a bit, but we're really excited about the domestic business. I mean, we're excited about the fact that our cleaning business is strong. Our cooking business is strong. Our base business is really healthy. Our POS is double-digit increase. And so that bodes really well for us as we move through the year. As it relates to the international business, we actually just went live with our new DTC platform in the U.K. 2 weeks ago. In Germany and France, this week. Spain and Italy are right behind it. We'll have TikTok Shop up and running in France and Germany. We have it up and running right now. It just started. Spain, Italy, Mexico is coming in the next 2 weeks. So when we come out of Q2, Randy, I mean, we're now going to have the entire world on our new sales force platform. We're going to have TikTok Shop operating in 7 countries. It sets us up really well on the D2C business and the TikTok Shop business as we get into the second half of the year. There's also some noise within the international business because we're in the midst right now of transitioning Italy and Spain from a distributor market to a direct market. So we took a bit of a hit in that in Q1. That will get rectified as we close out Q2. And then again, as we move into the back half of the year, we've now transitioned all the major markets that we want to transition to direct. We'll have increased ad spending as we get into the second half of the year in a lot of those markets. And we're expecting a strong holiday season. As I mentioned in the prepared remarks that we received really great signals from the European retailers in terms of commitments as we head into the holiday season into Q4. So that played out as we expected and as we wanted it to. Randal Konik: Great. And then, can we follow up on the beauty category. I think 4 years ago, it was essentially 0% of sales, and now it's almost, I think, around 15% of sales. The buckets I see that you're kind of focused on today are skin care and hair care. Can you kind of frame up how you think about that category in terms of adding more potential areas of that business and frame out how big you think that business can be or how all-encompassing you think that category can be for you guys? Mark Adam Barrocas: Yes. Look, Randy, I've been historically bad at answering how big a business could be because whatever number I give you, I think we're going to undershoot and surpass that number. Look, I think here is a great example. There's still lots of categories in hair that we've yet to enter into. I mean our [indiscernible] our first air straightener product. It puts us in a really attractive price point. That product won't launch into Europe until the second half of the year. So we're expecting a strong holiday season. We've got a back half, second half really strong road map in skin care with new products coming out in skin care. We see other categories on the road map within beauty that we think are exciting. I mean, I'm personally very excited about the wellness category. I think that our beauty business is going to help us ultimately expand into wellness in 2027. So I see it -- I see there's a lot of doors that are open for us. I mean as the consumer accepts us in hair and accepts us in skin and understands us for our LED light therapy, and our cryotherapy. And Randy, I think what's so interesting is look at what we've done with the CryoGlow [indiscernible], we put them on to our Shark ChillPill that just launched. And that product has gone viral here in the last couple of weeks. I mean, we've got tens of millions of social media impressions. So it's not just what we're doing in beauty, it's how is what we're doing from one category, helping us translate to product innovation in another category. Operator: Your next question comes from the line of Brooke Roach from Goldman Sachs. Brooke Roach: Mark, what are the implications of the Iran war and higher oil prices to SharkNinja this year and into 2027? How are you thinking about potential demand implications by geography? Have you seen any change in demand quarter-to-date in any of the consumer bases in any of your geographies? How are you thinking about fuel and freight costs and then raw materials? Mark Adam Barrocas: Yes. Thanks, Brooke. I'll start and then hand it over to Adam. On the demand side, look, we're looking at daily POS around the world, and we have not seen any impacts right now in the second quarter as it relates to demand from the war. Look, Brooke, I mean, this is another one of those challenges that SharkNinja is good at addressing and figuring out. I mean, I think there's a lot of movement in our gross margin line. I think that tariffs have come down since our last call. that present the benefit to us. I think there will be some impact on resin prices that are going to partially offset some of those tariff benefits. I think there's a lot of mix movement going on in our business. Our international business is growing faster than our domestic business. Our D2C business and TikTok Shop business is growing faster than our retail business. So I think there's a lot of different things at play here within gross margin, but it's just another problem that SharkNinja, I think, is so good at managing through. We've demonstrated that year after year. Adam Quigley: And maybe to add to what Mark just said there, I mean, you go back a year ago in the way that we responded to the tariff situation, something that our competitive peer set was also faced with. And our goal at that time was to win in that situation, right, to come out of it better than our competition to come out of it and play the game, play the hand that we dealt better than others. It's the same thing here. The raw materials are going to be an impact to everybody in our industry. Our goal is how do we face that challenge better than others. Mark hit on this, but there's a lot of movement within that gross margin line. And it also gives us a lot of different levers to be able to pull. We are seeing some favorable impact on the tariff front as those rates have softened as we've gone throughout the year. We planned that very much straight up in terms of what the rate is at that moment in time. And so I think there's some conservatism on that front. But also as we go through the rest of the year and look at where we're at, you see it in our guidance, I mean, we're very much feeling very good about where the gross margin trajectory is heading and what we have in front of us in terms of the levers to pull in this macro environment. Brooke Roach: Great. As a follow-up, can you unpack how you're thinking about pricing, both for new innovation and for your existing categories as you look throughout the rest of the year? Mark Adam Barrocas: Yes. Brooke, there's nothing at this point, planned from a price increase standpoint in our guide through the end of the year. As it relates to new product pricing, look, I think we've started that process going back 1.5 years ago and as I've mentioned on other calls, we're doing a lot of price testing. We're probably erring on the side of going a little bit higher as we launch and then seeing how it plays out in the numbers, and we can always adjust accordingly. We launched our Shark ChillPill at $149. We think that's kind of the upper range of what we tested at, but we think it's a fair price, and we think that consumers are responding with strong demand. So we'll continue to evaluate and assess as we see how consumer demand plays out. But from a pricing standpoint, we feel good about where we are. Operator: Your next question comes from the line of Rupesh Parikh from Oppenheimer. Rupesh Parikh: So just going back to the International segment, a very strong momentum in Q1. Just curious how you're thinking about the growth rates for the balance of the year. Mark Adam Barrocas: Yes. Listen, Rupesh, Adam can speak to the specific numbers, but I guess, just qualitatively, I want to point out that what we've done starting last year with kind of rightsizing the international business and moving it from the countries that we want to be selling direct from distributor to direct I can underscore how much of a big challenge that has been and also how successfully we've done it. And I think it's something that kind of goes unnoticed from an investor standpoint. I mean, by the end of Q2, I mean we will completely have rightsized our international sales model in 1.5 years. And I think it sets us up really well as we get into the second half of this year and into next year. We're really understanding more and more the impact of how media and content travels around the world. We call this concept spillover. We just launched, as an example, in South Africa, this week. There's already incredible amount of demand that's been created in South Africa. Our Head of Sales was over in South Africa a couple of weeks ago. The response that he got from retailers was incredible. They all know Shark and Ninja products, consumers know Shark and Ninja products, all of that media, English language media that's generated in the U.S. and the U.K., spills over into places like South Africa. We're seeing our Spanish language content spill over from Spain into Latin America and Latin America into Spain and even into the U.S. Latin market. So I think it's not just about the fact that our products are resonating. Our media is traveling. Our content is traveling and then our omnichannel strategy is getting set up. With expanded brick-and-mortar penetration, our D2C platform getting set up in these markets and TikTok Shops standing up. Adam Quigley: Yes. And maybe just to add a little bit more to that. I mean, I think we feel very strong that international growth will remain in the low 20s range, right, not official guidance, but certainly where we think that business is heading. Some of the things that you can look at in terms of the international business is take a market like the U.K., which is our most domestic -- most developed market overall, and you saw very strong growth from it in Q1. You're seeing a very healthy diversified business, no dependence on any one category and firing on all cylinders and especially porting over the TikTok Shop playbook and seeing that take off really well. You've got a really strong base in international with a market such as that. Mexico being kind of the next one that's really taken hold extremely strong performance coming out of Q1. We've got really high hopes as we look through the rest of the year. And that market is one that's paving the way for other expansion within Latin America, developing some of the playbooks that we're able to deploy across those regions. Mark spoke to the Spanish-speaking media and the impact of that. And so that's one that's taken hold, and we continue to see accelerate. And then there's the seeds, right? The more entry we just got into South Africa as an example, those are the seeds, that are going to continue to grow throughout this year so that we continue to have this maturity cycle across the international business. It's not reaching a matter of development too rapidly. It's a matter of continuing to expand and develop these seeds across the regions. Operator: Our next question comes from the line of Jonna Kim from TD Cowen. Jungwon Kim: Just would love to get more color on how much TikTok and DTC contributed to your domestic sales this quarter. Any further color there? And if you're hearing any sort of pullback in inventory from domestic retailers? And just going forward, what are key building blocks for domestic growth going forward? Mark Adam Barrocas: Yes. Listen, I mean the key building blocks for domestic growth are a strong base business and layering on new innovation on top of that. I think it's a very clear formula. We're not seeing any significant change in terms of inventory levels from retailers. I mean, there's obviously some timing shifts or kind of quarter-to-quarter movements or things like that but kind of structure. We're not hearing from any of our retailers that they're pulling back on weeks of supply or that they have a conscious inventory decision. Listen, on the domestic side, it's we've got a very large base business. We're innovating into the base. I mean, we have new products coming out and upright vacuums and cordless vacuums. We're reinventing our whole blender category in the second half of this year that's going to be launching. We're launching a new category. We're expanding products in existing categories. So I feel really good about the domestic business as we go into the second half of the year as it relates to DTC and TikTok Shop. Adam? Adam Quigley: Jonna, we don't break out specifically D2C and TikTok Shop overall. But what I can say is those channels are growing at a faster rate than the overall domestic business and doing so to a strong capacity. I mean we're starting to annualize TikTok Shops. So certainly, there's an inherent benefit there. But I think what we're also seeing is just the maturity of that channel in terms of our ability to operate and operate well within it. So feeling great on that front. Salesforce, again, another platform that we're annualizing as we go into the first half of this year. So DTC and TikTok Shop are certainly firing on all cylinders and growing very strongly. Operator: Your next question comes from the line of Steve Forbes from Guggenheim Securities. Steven Forbes: Given all the supply chain complexity and the color you provided, I was curious maybe if you can update us on the progress of the one SharkNinja voice initiative. How many of your vendor partners has the team met with thus far? What areas of optimization has the team identified and sort of what are your vendor partners asking of Shark on the back of that? Mark Adam Barrocas: Do you mean our factory partners, Steve? Steven Forbes: Yes, yes, yes. Mark Adam Barrocas: Yes. Listen, the question is framed in a way like supply chain challenges are a new thing. Supply chain challenges have been a thing now for years. And when you say kind of one SharkNinja approach, I mean, tariffs or parity in China right now and outside of China, in about 66% of our business, it allows us now the flexibility of moving production back and forth very easily. There may be a factory that is pushing us more on price and we've had to move some of that production to another factory that is willing to not push on price, but wants more volume. So I think there's a lot of levers at our disposal. I think the work that we've done to diversify our supply chain, all of our top SKUs resourced at more than 1 factory, most of our SKUs are sourced inside of China and outside of China. I think the changes to the tariff that happened in November and then again in -- after the Supreme Court ruling, have played in our benefit of giving us lots more optionality than we had a year ago at this time, and we're leveraging that optionality. I mean we believe that there's lots of opportunity for us to have capacity in different areas of the world. And then assess where is the best place for us to place those orders. And literally, Steve, we're doing it at an individual order-by-order basis. Steven Forbes: That's helpful. And then maybe just a quick follow-up. You mentioned social engagement is surging. And I know we spent a lot of time last year talking about your sort of brand affiliate plans for the future. And I think this was the first quarter, you delivered advertising leverage. So I don't know if you can maybe just update us on the brand affiliate plans, sort of refining the partners and really seeing leverage opportunities while also stimulating demand. Mark Adam Barrocas: Look, I think the work that we're doing with AI and technology on our media and marketing space is going to be transformational to the business, I mean, particularly as we get into Q4. Understanding how TikTok Shop also drives demand off platform. Understanding how median one market drives demand in another market. There is so much what we're putting out into the world, I think we're now getting the tools to kind of understand how one piece of content kind of impacts our business in lots of different ways. I think it's going to help us drive media efficiency. But also I don't think, Steve, that we should think of it is that we're going to get media leverage on a long-term basis. I think there's a lot of countries for us to continue to keep investing into. I think there's a tremendous opportunity in Europe that we've got to just keep spending and investing and building brand awareness and building our product knowledge and who SharkNinja is. I think, Latin America is, again just at its infancy. I was with the CEO of Mercado Libre on Sunday. They're super excited. I mean, we're excited about our partnership with them and developing them as kind of a great pathway to reach Latin American consumers. So I wouldn't expect lots of leverage moving forward, but I would expect that we're going to drive efficiency in our media through all the tools that we're implementing. Operator: And we have reached the allotted time for questions. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the USANA Health Sciences, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Andrew Masuda. Please go ahead, sir. Andrew Masuda: Thank you, Carrie, and good morning, everyone. We appreciate you joining us to review our first quarter results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at ir.usana.com. Shortly following the call, a replay will be available on our website. As a reminder, during the course of this conference call, management will make forward-looking statements regarding future events or the future financial performance of our company. Those statements involve risks and uncertainties that could cause actual results to differ, perhaps materially, from the results projected in such forward-looking statements. Examples of these statements include those regarding our strategies and outlook for fiscal year 2026, uncertainty related to the economic and operating environment around the world, and our operations and financial results. We caution you that these statements should be considered in conjunction with disclosures, including specific risk factors and financial data, contained in our most recent filings with the SEC. I am joined by our Chairman and Chief Executive Officer, Kevin Guest; our Chief Financial Officer, G. Douglas Hekking; our Chief Commercial Officer, Brent L. Neidig; our Chief Operating Officer, Walter Noot; as well as other executives. Yesterday, after the market closed, we announced our first quarter results and posted our management commentary document on the company's website. We will now hear brief remarks from Kevin before opening the call for questions. Kevin Guest: Thank you, Andrew, and good morning, everyone. Our first quarter results reflect USANA Health Sciences, Inc.'s continued and deliberate transformation from a single-channel direct sales business to a diversified omni-channel health and wellness platform. That evolution is the defining story of this company right now, and the progress we are making across our three business segments reinforces our confidence that this strategy will deliver sustained, compounding value over time. In our core nutritional business, we saw sequential improvement in Q1. Net sales of $204 million grew 7% sequentially, driven by active customer growth, particularly in our China market, which benefited from customer acquisition activity around the Lunar New Year. The sequential improvement is encouraging and consistent with our view that the actions we are taking to stabilize the business are beginning to take hold. These actions are organized around three clear priorities. First, we are advancing the rollout of our enhanced brand partner compensation plan, which is designed to strengthen the business opportunity and improve the productivity and retention of our distributor network. Second, we are accelerating new product launches, bringing a robust pipeline of new and upgraded formulations to market. And third, we are accelerating our technology initiatives to modernize our core systems and fundamentally improve how customers experience our brands while driving future cost efficiencies across our IT infrastructure. Taken together, we remain confident that these initiatives will continue to stabilize active customer accounts and position the core nutritional business for a return to sustainable growth. Turning to our omni-channel brands, HYA and Rise Wellness, they are expanding the aperture of what USANA Health Sciences, Inc. can be, reaching consumers in new channels and through innovative formats. HYA generated $32 million in net sales in the first quarter, with active monthly subscribers of 186 thousand, reflecting modest sequential improvement from Q4. The business has been navigating a period of elevated customer acquisition costs stemming from disruptions in the Meta advertising environment beginning in 2025. The HYA team is deploying the resources and capabilities needed to reaccelerate subscriber growth, and we expect 2026 to reflect stronger performance. Several important milestones position HYA well for that recovery. The brand launched in Canada in January and in the United Kingdom in March, establishing its first international direct-to-consumer markets. HYA also expanded into retail, and products are now available at Target, representing the brand's first partner in brick-and-mortar retail. Lastly, I want to point out we are leveraging USANA Health Sciences, Inc.'s assets to accelerate growth and improve margins. Since the acquisition a little over a year ago, we have implemented a new ERP system, transitioned 3PLs, leveraged our R&D team to develop new products, leveraged our market expansion team to expand internationally, and brought manufacturing and packaging of HYA products in-house, a strategic shift that we expect will generate incremental margin efficiencies beginning in 2026. We continue to project full-year 2026 net sales of $140 million to $155 million for HYA. Rise Wellness delivered $14 million in net sales for the first quarter, more than eight times the prior year's first quarter, and a 143% sequential increase. This performance was driven by the national launch of Protein Pop Plus in Costco. Protein Pop's journey from concept to national shelf placement in a matter of months is compelling proof of this team's ability to capitalize on speed and execution. While this has proven to be a competitive and evolving marketplace, Protein Pop has gained meaningful share and emerged as a leading brand that we expect to see on shelves across many more retailers in the coming months and years. Rise Bar also continues to benefit from the retail distribution relationships established last year. As with HYA, we have been able to leverage our significant assets and expertise to benefit the two Rise Wellness brands. We are manufacturing Rise Bars on USANA Health Sciences, Inc.'s high-speed, high-tech bar line. Our world-class operations team is managing inventory and demand planning for both Rise and Protein Pop to create efficiencies. Lastly, our R&D team is reformulating existing products and developing future products for these brands to ensure our customers have an excellent experience while also receiving the best nutritional products possible. We are pleased with the market reception and remain confident in the long-term potential of this segment. We are reaffirming our full-year 2026 guidance across all metrics, projecting consolidated net sales of $925 million to $1 billion. Omni-channel net sales are on track to represent more than 20% of total net sales this year, up from 16% in 2025 and approximately 1% just two years ago. That trajectory speaks to how quickly our omnichannel platform is taking shape. Please note that our guidance includes an incremental but modest investment for our technology modernization initiatives, which we are funding primarily through a repurposing of existing resources as well as savings generated from operational efficiencies and the initiatives, which underscore our commitment to innovate without sacrificing fiscal discipline. Let me close by putting this quarter in context. We came into 2026 with a clear strategy: stabilize the core nutritional business, scale our omni-channel brands, and modernize the platform that ties it all together. The first quarter showed progress on all three fronts. Active customers in the core business grew sequentially. HYA reached new markets and a new retail channel. Rise Wellness delivered a strong launch in the quarter at Costco and Target. And we have formalized technology investment plans that will improve how we operate and how consumers experience our brand. None of this happens overnight. We are committed to making impactful investments that generate robust returns. Our balance sheet is strong, our people are aligned, and our strategy is clear. We have three solid segments, an evolving omni-channel platform, and a mission that resonates with health-conscious consumers around the world. We remain committed to executing with focus and delivering sustainable long-term value for our shareholders. With that, I will now turn the call back over to the operator for Q&A. Operator: Thank you. We will now be conducting a question and answer session. Our first question will come from Anthony Chester Lebiedzinski with Sidoti & Company. Anthony Chester Lebiedzinski: Good morning, everyone, and thank you for taking the questions. Certainly nice to see the better-than-expected results, and specifically I wanted to start with China. So we saw some improvement there in Q1, which is good to see. Just wondering if you have seen any notable changes from a macro perspective in China, or maybe elsewhere, as it relates to increased fuel prices since the Iran conflict started. Just wondering what you have seen from a broader consumer perspective as it relates to higher fuel prices. Kevin Guest: Yes. Brent, I would like you to respond to that. He is our Chief Commercial Officer. Brent? Brent L. Neidig: Yes, Anthony, good morning. It is good to hear from you. As of this point, I would say the macro environment in China is pretty stable relative to the rest of the globe. They have been somewhat insulated from different inflationary pressures that the rest of the markets have been under. I think it is still a little too early to tell in terms of the Iran conflict and what we might see with fuel prices there, but everything that we have seen and that I am hearing from our brand partners and from our leadership there is that there is no material impact as of yet. Anthony Chester Lebiedzinski: That is good to hear. And as it relates to the core nutritional business, you talked about accelerating product development and also timelines for that. Can you share any more specifics as far as maybe the number of new products that are in the pipeline, or anything else that you can share as to what you have coming up as far as new product development? Kevin Guest: Yes, Anthony. We have our Chief Science Officer, Dr. Kathryn Armstrong, here. Kathryn, will you go ahead and handle that question? Kathryn Armstrong: Hi, Anthony. Good to talk with you. Good morning. For us, a lot of the focus has been on how we better leverage our skill sets internally and externally across all of the different product formats that we now offer, against the expanded brand portfolio. When we talk about the number of products under development, there are products under development in all of our sections, as well as in our team in China. It is certainly over 20. I would not go into specifics on launch dates and in which categories they fall, but we have a plethora of products we are developing for all of the brands and for all of the markets. The focus for us is really on how we help more people ingest the products that we are making across the brands, and how we leverage things we have learned in our different channels that appeal to different types of consumers or to different types of use occasions, and how we expand each of the channels to allow for more of those consumers to engage across those channels. For example, you can expect to see us bring in things to our direct sales channel that are aligned with key insights we have had around how consumers are evolving their desired product usage experiences, and really pulling those learnings together to make sure we have products in each of the channels that are appealing to the right consumers to meet them where they are on their health journey. Kevin Guest: Hey, Anthony, this is Kevin. Just to jump in, and I am going to ask Walter to comment on this as well. To your point and what Kathryn just alluded to, one of the things that I have been very optimistic about is how we are leveraging the expertise and knowledge base from other sales channels into our core business, and the learnings that we are gaining from a direct-to-consumer approach and how that helps lend itself in other categories. Walter, just again to Anthony's point about our product strategy overall as it relates to omni-channel and how that is affecting each other. Walter Noot: Yes, cross-platform, what it has done is, traditionally, we have been a direct sales business—and it is an international business—but with the rapid growth we have had with retail, for instance with Protein Pop launching that new product recently, we have seen how quickly trends change. Obviously, there are some really big trends around weight loss and using protein to be able to supplement that weight loss, and that has been a really big benefit. We have been able to leverage that and use product development and the teams we have to design and develop new products for the direct sales channel. I think you are going to see some of the things that we do in retail and direct-to-consumer bleed over into the direct sales channel. Anthony Chester Lebiedzinski: That sounds like you certainly are leveraging all your assets, which sounds promising. Now switching gears to HYA. It is good to see a sequential uptick in sales, though SG&A was higher than the fourth quarter and higher than last year. Is that just seasonality of the business as far as marketing costs, or is there anything else impacting SG&A? G. Douglas Hekking: Yes, Anthony, this is Doug. As Kevin alluded to and Walter contributed as well, HYA is diversifying within its own channel. It had the initial foray into retail towards the latter part of the quarter and also entered both Canada and the UK, and so those things consumed some operational resources as well. The other aspect that you see is the Meta algorithm that we have talked about a few times. The higher short-term cost of acquiring a customer was definitely present there on a year-over-year comparison. Anthony Chester Lebiedzinski: Mhmm. And can you give us an update as to how HYA is doing so far in Canada, the UK, and the selling at Target? Brent L. Neidig: Canada has exceeded the initial targets we put in place. I think that is partly because a lot of people in Canada have probably seen HYA and understand the brand; it kind of bleeds over. With the UK, it is a new market for us. We are using Meta for advertising there, and I would say it is very new—we have been out about a month, maybe five weeks—so it is a slow start because it is a brand-new market. But we have very high hopes for the UK. We looked across the world at what the best markets are for HYA products, and we believe that with the DTC appetite in the UK and the competitive landscape there, HYA is going to do really well. As far as Target goes, it has been a little more than two weeks on shelf. About a week ago, most of the Target stores put end caps in place with HYA products. We went live with Target, then put end caps in place, so we are going to see how that progresses. We really do not know yet; in the next few weeks, we will have a much better idea. But the placement in the store and the amount of attention that Target has given us gives us high hopes, and that is why we have kept our guidance in place. Kevin Guest: And I would say, Anthony, things are going according to plan. As we step into this area, we are even expanding into Amazon a little bit more than we have in the past. Things are going according to plan, but we expect it to be a build as we go, and we are at a very early stage. The other thing that Walter and the business development team have worked with the HYA team on—and what they communicate—is diversification within their advertising and consumer spend, different ways to reach the consumer, and being a little bit more insulated relative to being too committed to just one form of advertising. They have always been diversified, but they continue to work on that aspect as well. Anthony Chester Lebiedzinski: Okay. And then switching gears to Rise, you spoke highly of your relationship with Costco. After the initial sell-in to Costco, have you seen reorder activity from them? And as far as any other retailers, have you seen new order placements? G. Douglas Hekking: Yes, we are seeing reorder placements on a weekly basis with Costco, so we are selling through. If you look at our balance sheet, we used up a lot of cash, and a lot of that was building up Costco inventory, and we are selling through that to Costco. That is ongoing. Target has been in place for a while—we have had Target since around August or September—so Target has been very consistent for us, and we know the cadence and what that business looks like. Costco is still evolving; we have gone through multiple iterations. We had a discount for a couple of weeks that we agreed to upfront with Costco, and that gave us a lot of sell-through, and you see a little bit of up and down as you go through that process. I would not say we know exactly how that is going to go in the long term, but we have a lot of conversations with them about new products and different types of Protein Pop products that they are interested in. The relationship is really good, and I think the opportunity continues. Anthony Chester Lebiedzinski: And just to follow up, as far as other retailers, will you be selling to others in this quarter or in the second half of the year? Brent L. Neidig: Yes. We have already agreed with nine more major U.S. retailers that we have set up for this year—some will be in the second quarter and some in the third quarter—so Protein Pop will continue to expand. We are in 500 Walmart stores already, and that has been good. The Walmart buyers like us, and they feel like it is a good product for them, so we hope to expand that, and we will be adding more retailers throughout the U.S. Anthony Chester Lebiedzinski: Okay. Sounds good. Thank you very much, and best of luck. Kevin Guest: Thank you. Thanks, Anthony. Operator: Our next question will come from Ivan Philip Feinseth with Tigris Financial Partners. Ivan Philip Feinseth: Congratulations on the great results and the success with HYA and Rise. Can you give me some insight into your R&D initiatives and where you see some new growth opportunities going forward? Kathryn Armstrong: Hi, Ivan. It is good to talk with you again. Our focus continues to really deepen into women’s health and children’s health, and, looking across our brands and the integration of OOLA into our direct sales brand, I think that is a very logical place for us to be across all of the channels we are in. You can expect to see us continuing to push further into the real science behind women’s health and children’s health. We have done a lot of investment in terms of true research and working on clinical research to really understand how we more meaningfully impact health for both of those segments of the population. We also have a strong focus on our direct sales business and how we can ensure that that product pipeline is continually updated as well as streamlined to help people navigate it more efficiently and really get the health benefits that they are seeking. I would say those are our big focus areas right now, Ivan—women’s, kids, and ensuring that our core product line is updated and streamlined to enable consumer efficiency. Ivan Philip Feinseth: And how about additional focus on gut health, which seems to be a major driver of overall health? And also any updates or insight to products in your active nutrition category? Kathryn Armstrong: When we think about gut health and the impact across all segments, women have some unique gut health topics that need to be addressed. People tend to think about gut health in less-developed microbiome-focused markets in terms of just digestion, and obviously there is expansion to all possible health benefits beyond digestion and immunity. For women, you will see us putting a focus on what gut health looks like for them in all of the various aspects of what addressing gut health can do holistically and physiologically. For children, we have probiotic lines and fiber lines, and those will continue to expand and continue to be leveraged as appropriate across our channels. On active nutrition, we are hearing, as referenced earlier, a lot of focus on protein and how to help consumers consume protein in ways that are more aligned with their needs and their desired consumption profile. You can expect to see more products in those categories as well, coming to market to ensure that people are supported both on their weight loss journeys as well as on their health and muscle-building journeys. Brent L. Neidig: And, Ivan, this is Brent here, just to add a little bit more color in terms of active nutrition. In the first quarter of this year, we relaunched new active nutrition shakes—weight management and weight loss shakes—in China. We made an investment into manufacturing equipment, filling equipment in that facility so that we could do it in-house and upgraded our formulas. That was launched in Q1 with a lot of excitement from our brand partners. We have a really strong weight management campaign currently running there. It is still a big focus for us, and we will continue to invest in that area. Ivan Philip Feinseth: Alright. Thanks, and congratulations again. Good luck for ’26. Operator: Thanks, Ivan. This now concludes our question-and-answer session. I would like to turn the floor back over to Andrew Masuda for closing comments. Andrew Masuda: Thanks for your questions and participation on today's conference call. If you have any remaining questions, please feel free to contact Investor Relations at (801) 954-7210. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines. Have a wonderful day.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the HNI Corporation First Quarter 2026 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Matthew S. McCall. Please go ahead. Matthew S. McCall: Good morning. My name is Matthew S. McCall. I am Vice President, Investor Relations and Corporate Development for HNI Corporation. Thank you for joining us to discuss our first quarter 2026 results. With me today are Jeffrey D. Lorenger, Chairman, President and CEO, and Vincent Paul Berger, Executive Vice President and CFO. Copies of the financial news release and non-GAAP reconciliations are posted on our website. Statements made during this call that are not strictly historical facts are forward-looking statements, which are subject to known and unknown risks. Actual results could differ materially. The financial news release posted on our website includes additional factors that could affect actual results. The corporation assumes no obligation to update any forward-looking statements made during the call. I am now pleased to turn the call over to Jeffrey D. Lorenger. Jeff? Jeffrey D. Lorenger: Thanks, Matt. Good morning, and thank you for joining us. Our members delivered solid first quarter results that exceeded our internal expectations in a difficult and dynamic environment. The momentum of our strategies, the benefits of our diversified revenue and profit streams, our ongoing focus on items within our control, and the merits of our customer-first business model continued to deliver strong shareholder value. The takeaway from today’s call is we expect a strong year in 2026, with a fifth straight year of double-digit earnings improvement and modest revenue growth in both segments. On today’s call, I will break my comments into three sections. First, our quarterly results. Again, we delivered solid results despite ongoing geopolitical and macro uncertainty. Second, the remainder of 2026. Despite softer-than-anticipated revenue patterns to start the year, we expect net sales to grow in 2026, with another year of double-digit non-GAAP EPS growth anticipated. And third, our outlook beyond 2026. We project double-digit EPS growth again next year as we maintain multiple years of elevated earnings visibility beyond 2027. Following those comments, Vincent Paul Berger will provide more details about the first quarter, our outlook, and our cash flow and balance sheet. I will close with some additional color commentary before we open the call to your questions. I will start with some highlights from the first quarter. Our members continue to focus on controlling the controllables through focused cost management and benefits from price/cost. This was despite demand softness to begin the year, especially in Workplace Furnishings, amid concerns related to the conflict in the Middle East, the U.S. economy broadly, and the impact of tariffs specifically. In our legacy Workplace Furnishings businesses, first quarter net sales were down about 5% year-over-year on an organic basis, with modest growth in our businesses focused on small and medium-sized customers. We saw weakness early in the quarter with large corporate customers as the impacts of global macro uncertainty were most prevalent during January and February. However, we saw organic segment orders turn positive in March with additional acceleration thus far in the second quarter. This supports our bullishness for the remainder of the year, which I will discuss more in a moment. As we finish the quarter, it is important to note the integration of Steelcase is going well. Synergy capture and accretion are on track, and our cultures are melding nicely. Including Steelcase, Workplace Furnishings segment non-GAAP operating profit in the first quarter totaled almost $49 million, nearly double the prior-year level. We continue to expect modest accretion from Steelcase in 2026, and we remain confident in our projected total synergy-driven accretion of $1.20 when fully mature. In Residential Building Products, revenue increased more than 2% versus the prior-year period. These are strong results given the ongoing weakness in the new home market. Our growth investments are bearing fruit, and we are outperforming the market. Our new construction revenue was down mid-single digits year-on-year, which compares favorably to single-family permits, which declined in the high single digits. Our remodel/retrofit revenue was up 13% on a year-over-year basis. First quarter segment operating profit margin expanded 190 basis points year-over-year, reaching 17.6%. Despite expectations of ongoing uncertainty, we remain encouraged by our opportunities, and we continue to invest to grow our operating model and revenue streams. In summary, HNI Corporation’s first quarter performance demonstrates the strength of our strategies, our ability to manage daily uncertainty through varying macroeconomic conditions, all while remaining focused on investing for the future. And we continue to expect strong results in the full year, driven by margin expansion and modest revenue growth. That leads me to my comments on our outlook for the remainder of 2026. I will start with legacy Workplace Furnishings, where we expect segment revenue to increase at a low single-digit pace for the full year, with high single-digit growth in the back half. Additionally, for the Steelcase business, we expect full-year revenue to grow slightly. Our outlook is supported by external industry metrics and by our internal pipeline data. Specifically, in addition to strengthening orders over the past month and a half, our order funnel, bid quotes, and design activity all improved later in the quarter. From an earnings perspective, we expect Steelcase to be net neutral in the first half and turn modestly accretive in the second half and for the full year. In Residential Building Products, our structural changes—organizing around the customer and consumer—along with our growth investments are expected to drive continued market outperformance. For 2026, we expect modest price-driven revenue growth in the second half despite expectations of ongoing housing market softness. From a profitability perspective, we expect both our Workplace Furnishings and our Residential Building Products businesses to expand margins in 2026. While we are optimistic about the year and expect another year of double-digit non-GAAP EPS growth, we will remain focused, conservative, and ready to adjust as required. Our earnings outlook is supported by the anticipated benefits of our ongoing visibility story and our proven ability to manage through changing economic conditions. Moving on to my third point, a few comments on our outlook beyond 2026. We project double-digit EPS growth again in 2027, driven primarily by expected synergies from Steelcase and legacy network optimization projects. Further, we continue to have multiple years of elevated earnings growth visibility beyond 2027. During the first quarter, we made certain key decisions pertaining to Steelcase integration that will have positive longer-term implications. As an example, we terminated Steelcase’s multiyear ERP implementation project. This move is part of a broader effort at Steelcase to streamline priorities to focus on profitable growth, while also avoiding disruption, eliminating substantial future ERP investment, and redeploying resources back into the business toward customer-focused initiatives. Also during the quarter, we began smartly managing costs across all our businesses in response to a softer start to the year, driven by the current geopolitical backdrop. These new actions are in addition to the previously announced $120 million of synergies associated with the integration of Steelcase, which, as I stated earlier, are on track. At the same time, our current synergy projections are focused on the Americas business only and assume no revenue synergies. Importantly, we remain laser-focused on minimizing any front-end disruption across our Workplace Furnishings businesses. Finally, as we discussed last quarter, we continue to expect an additional $30 million of savings from network optimization in our legacy Workplace Furnishings businesses over the next three years. The combination of our disciplined cost management, Steelcase synergies, and our ongoing legacy network optimization projects continue to strengthen our earnings visibility story. Now I will turn the call over to Vincent Paul Berger to provide more details about the first quarter, our outlook, and our cash flow and balance sheet. I will then provide a longer-term perspective on the opportunities surrounding our businesses before we open the call to your questions. VP? Vincent Paul Berger: Thanks, Jeff. I will start with some additional comments about the first quarter. GAAP diluted EPS totaled $0.55. On a non-GAAP basis, diluted EPS totaled $0.34, which was slightly ahead of our internal expectations. Our non-GAAP results exclude several items totaling $88 million, the majority of which was tied to the impact of purchase accounting associated with the Steelcase acquisition. While volume activity was negatively impacted by the geopolitical conditions, especially in the Workplace Furnishings segment, expense control, price/cost, and productivity benefits offset volume softness and continued investment in initiatives aimed at driving future growth. Total net sales in the quarter increased 125% overall, or were down 3% on an organic basis. From a Q1 orders perspective in our Workplace Furnishings segment, orders from small- to medium-sized customers were up low single digits. Orders from contract customers, including both legacy Workplace and Steelcase, were down mid-single digits versus 2025 levels. As Jeff mentioned, we saw order patterns improve late in the quarter. Orders in the Residential Building Products segment increased 4% compared to 2025. Remodel/retrofit orders outperformed those from the new construction channel. The year-over-year average order growth rate over the final five weeks of the quarter was in line with the rate for the quarter overall. Looking ahead, we expect second quarter 2026 net sales in the legacy Workplace Furnishings to increase at a low single-digit rate year-over-year. Including Steelcase, total Workplace Furnishings net sales are expected to grow approximately 155% to 160% versus the prior-year period. In Residential Building Products, second quarter 2026 net sales are expected to decrease at a low single-digit rate compared to the same period in 2025. The impact of the recent order strength includes increased long lead-time orders versus the prior year. These orders will ship in the fall and benefit the back-half results. Non-GAAP diluted earnings per share in the second quarter of 2026 are expected to decline modestly from 2025 levels. The addition of Steelcase is expected to be net neutral to modestly accretive to diluted non-GAAP earnings per share in the quarter. The year-over-year non-GAAP earnings pressure is expected to be driven by lower organic volume and continued investment. Our outlook for 2026 full-year earnings reflects expectations for mid-teens percent non-GAAP EPS growth from 2025 full-year of $3.53, with accelerating double-digit earnings growth in the second half of the year. Given the timing of synergy recognition and cost management savings, we now expect non-GAAP diluted earnings per share to be roughly equal in the third and fourth quarters. Productivity, cost management, network optimization initiatives, Steelcase accretion, and price/cost benefits are expected to more than offset operating profit headwinds associated with volume pressure and continued investments. As we look to 2027 and beyond, as Jeff mentioned, we expect double-digit non-GAAP EPS growth again next year, and we have multiple years of elevated earnings growth visibility beyond 2027. Steelcase accretion and legacy Workplace network optimization initiatives continue to support elevated levels of visibility. In total, these items are expected to yield savings exceeding $70 million in 2027 and more than $150 million when fully mature. These totals do not include the benefits of our new cost management saving efforts. Next, a few additional items to assist you in your 2026 modeling. Combined depreciation and amortization are expected to be approximately $150 million to $155 million, excluding purchase accounting impacts of approximately $105 million. Net interest expense is expected to total between $75 million and $80 million. Our tax rate should be approximately 25%. Finally, from a cash flow and balance sheet perspective, the benefits of the Steelcase acquisition, the strength of our strategies, and our financial discipline are expected to drive free cash flow, which will help us quickly deleverage our balance sheet over the next couple of years. As a result, leverage is expected to return to pre-deal levels in the 1.0x to 1.5x range within two years of the deal closing. Finally, we remain committed to payment of our long-standing dividend and continuing to invest in the business to drive future growth. I will now turn the call back over to Jeff for some longer-term thoughts and closing comments. Jeffrey D. Lorenger: Thanks, VP. In the first quarter, our members remained focused on our strategies. We managed our businesses well. We delivered a solid quarter that modestly exceeded our internal expectations. Looking forward, we remain focused on driving growth and expanding margins, and we will continue to invest for the future with confidence. As I mentioned, we saw a slower start to the year than we had anticipated, particularly in the Workplace segment, where demand activity was clearly impacted by the conflict in the Middle East and U.S. macro uncertainty. However, from a demand indicator perspective, the fact pattern we have discussed in the last couple of quarters is unchanged, and we remain bullish about the segment’s demand environment. Return to office continues to be a positive driver of activity, with levels of remote work expected to fall further in 2026. Office leasing activity grew for the third straight quarter in Q1, with annual leasing activity up more than 7% year-over-year. Net absorption of office space, which has historically been a good leading indicator of future industry demand, was also positive for the third straight quarter, with nearly 3.5 million square feet absorbed. Thus, while supply of new office space will remain a headwind, we see multiple cyclical drivers of growth outside of new construction. These encouraging external industry drivers are consistent with our recent order patterns and internal pre-order metrics in both legacy Workplace and Steelcase. Our funnel continues to expand, with quotes up year-over-year and with the number of large-dollar projects increasing versus the prior-year period. Design activity also strengthened during the first quarter, and jobs won but not yet ordered are up double digits as well. Customers remain engaged. Activity is robust with both dealers and end users, and our businesses are positioned to win. Moving on to housing, headlines continue to point to ongoing softness, especially in the new-build space. Interest rates remain relatively elevated. Prices remain high, and affordability concerns persist, and we expect continued new construction weakness in 2026. However, our structural go-to-market initiatives and growth investments will allow us to continue to outperform the market. In remodel/retrofit, we are assuming modest market growth in 2026. This is consistent with LIRA projections. In addition, we expect continued market outperformance in our R&R business, and we expect ongoing margin and cash flow consistency from this segment. In conclusion, as we discussed in detail last quarter, we are a transformed and fundamentally stronger organization. Upon recognition of all targeted Steelcase synergies, network optimization savings, and cost management benefits, HNI Corporation will have substantially higher earnings, stronger margins, greater cash flow, and a continued strong balance sheet. This will enable us to continue to deliver exceptional value to our shareholders, customers, dealers, members, and communities. I want to thank all HNI Corporation members and specifically the Steelcase employees, as they have engaged enthusiastically to begin their HNI journey. Thank you again for joining us. We will now open the call to your questions. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. Your first question comes from the line of Reuben Garner with The Benchmark Company. Your line is open. Reuben Garner: Thank you. Good morning, everyone. Jeffrey D. Lorenger: Good morning. Reuben Garner: Maybe to start, the change in the Workplace outlook for the full year, it sounds like things actually got better later in the quarter and to start the second quarter. Can you just walk through the progression of orders through Q1 and what you saw in April? And if things are improving of late, what kind of other internal indicators are making you take that outlook down? Or is it just the slower start that is going to be hard to catch up? Or is it conservatism? Any thoughts there would be helpful. Vincent Paul Berger: Sounds good, Reuben. I will walk you through it. Jeff mentioned the actual order numbers. If we look at the first quarter overall, the legacy Workplace side was down 3%. The contract side was off a little bit more, both for Steelcase as well as the legacy HNI, closer to 5%. The important point is it was a slower start, which for sure is taking our full-year expectation down a little bit. But in March, it did pick up. As it continued to progress through the quarter, it actually got stronger. If I look at the last five weeks, that momentum has continued across the different segments. The way we are thinking about it, we are going to show this first quarter down about 5%, and then in the second quarter, we are going to pivot back to growth. We have got low single digits pivoted for the second quarter, which is supported by our recent order trends as well as how we finished the first quarter. As we think about the full year, we have enough indicators—and Jeff will talk to the internal metrics and some of the other external metrics—that say the back half actually has strong high single-digit growth. We think we caught an air pocket, and the order trends that are coming in now are supporting growth for the second quarter as well as even stronger growth for the back half. Jeffrey D. Lorenger: Yes, I think that is a good summary. The other thing, Reuben, with the Steelcase business, some of the larger projects are spaced out a little bit more. We are dialing in on when the revenue hits. I had mentioned that our order book is solid. Some of the ship dates are moving around. The other thing we noticed, once we got out of this air pocket, customers concluded they learned their lesson during COVID: they cannot wait. They have capital to deploy and want to get moving. That is really what we saw, but it definitely was a slower start to the year than we had anticipated. We think we are behind that now. Reuben Garner: Okay. Embedded in your second quarter outlook, how much near-term price/cost noise is there from the quickly rising transportation and energy situation? How quickly can you offset? Can you talk about what pricing tactics you are using to offset those costs? Vincent Paul Berger: Sure. Consistent with our goal, we aim to offset tariffs or general inflation over time. Specifically, there is about a $2 million headwind in Q2 that we will catch back up in Q3 and Q4 through price surcharges, similar to what we have done in the past. I know it is dynamic—things are changing. The AD/CVD piece came off, then we added the new Section 232s. Even with all that, we expect to offset it, and we will probably have a couple million dollars of headwind in Q2. Reuben Garner: Okay. Last one for me. The comments about the cost management efforts tied to the slower environment—can you elaborate on some of the moves that you are making there? And then if I heard you correctly, I think you used the word “terminate” for Steelcase’s ERP project—that was not delayed. A little more detail on what is going on there, why that move, and what the benefits of the change will be to the organization. Jeffrey D. Lorenger: I will hit the ERP, Reuben. A couple of things drove that. One, now that we are a combined entity, we wanted to step back and take a look at what the best program was going to be for the HNI network. Two, they had quite a ways to go in that project, and we felt like stepping back from that and resetting and reexamining was best for the business. Also, those take a lot of effort, and we have a lot in front of us where we can redeploy assets to grow the business, whether it be in product development or sales, or other network optimization across the network. We stepped back from that. We think it is going to be an unlock relative to being able to focus the business on customer-centric growth initiatives, and that is really without a lot of downside. Vincent Paul Berger: On cost management, similar to what we have done in the past, we want to control the controllables. We got out of the gate slow with some revenue pressure. It was in all areas of the business, actually, Reuben. In all the business segments, we looked at open headcount, discretionary spend, and, with the termination of the business transformation going on with Steelcase, we had some headcount adjustments. It is never in one spot. The whole idea is to still protect our goal and target of double-digit EPS growth. If you delever what is happening—if you are pulling sales down from mid single digits that were forecast for Workplace to low single digits—we adjusted our cost structure to ensure that we can still have double-digit non-GAAP EPS growth over the prior year. Reuben Garner: Thanks for the detail, guys, and good luck. Operator: Your next question comes from the line of Gregory John Burns with Sidoti & Company. Your line is open. Gregory John Burns: Was the impact from the war in the Middle East localized to that region, or did it create a more global impact for your office business? I want to better understand the commentary about how that impacted demand in the quarter. Jeffrey D. Lorenger: Yes, I think it is a little of both, Greg. We are watching the international businesses closely and monitoring those impacts. I think it was more of a general feeling where customers hit pause. But all our channel checks now are consistent that we are back in the game, and the optimism is there. It is hard to pinpoint exactly where it hit, other than it was broad-based across all our businesses. We play in most markets. We play in all the verticals. We play small, medium, and large corporate. With the small business side continuing on, everything else took a step back in January and February. We believe it was a combination of the war and uncertainty. Then, as I stated earlier, in engaging with customers, they said the boss told them to slow down for a minute, and now he or she is saying, let us keep this moving. That is the bottom line. It was a broad-based macro slowdown that now seems to be behind us. Gregory John Burns: Okay. Thank you. Operator: Your next question comes from the line of David Sutherland MacGregor with Longbow Research. Your line is open. David Sutherland MacGregor: Good morning, everyone, and thanks for taking my questions. During January and February, it seems like people, as you say, hit pause on releasing purchase orders. Can you talk about what you were seeing otherwise underneath that in the market? Was quoting activity continuing? Were people still doing mockups? Was it business as usual there that would give you a little more confidence in the longer-term view? Jeffrey D. Lorenger: Yes, David, that is right on. It felt a little like what we first saw when we came out of COVID. People were still active. The difference this time is they have been through that now and were ready to go. It was more of a slight delay in placing the PO, but quoting was rolling. Activity was high at dealers. Activity was high in the sales force. Optimism remained. It never really muted; the order book just did not flow like we had anticipated. That is why we are pretty bullish based on all the indicators and what we are now seeing start to flow for the full year. David Sutherland MacGregor: Right. Did you see any order cancellations? Was there much activity there? Jeffrey D. Lorenger: No. We really did not. We monitor that as well. If anything, we saw just a general slowdown and then the normal project delays with construction and things like that, but no cancellations. David Sutherland MacGregor: Okay. Great. Are you conducting any repricing of backlog orders? Vincent Paul Berger: We are not. We confirm the orders and let them flow out. That creates a little bit of the headwind of a couple million dollars in the short term, but our process has it covered, and we catch it back up. David Sutherland MacGregor: Okay. Are you far enough along now in terms of your thinking around Steelcase that you can talk about international and what actions you may be contemplating aimed at achieving higher levels of profitability from that business? Vincent Paul Berger: David, we are getting more and more up to speed on that business every day. We understand their go-to-market now. We are locked in with how we forecast their business. Key there is what we talked about before: they had already started some pretty significant profit improvement plans, which included restructuring and transformation. They were in the late innings of that, and we feel good about the overall profit improvement year-over-year that that business is going to drive for shareholder value. David Sutherland MacGregor: Okay. Thanks, VP. Last question for me is on the RBP business. Can you talk about the brand consolidation and how that is being received in the channels? Will there need to be any clearance of inventory? If so, how should we think about potential margin headwind in terms of magnitude and timing? Jeffrey D. Lorenger: Are you speaking specifically on the stove side, David? David Sutherland MacGregor: Yes, I am. Thanks. Vincent Paul Berger: We are in a three-year journey, and it is actually going really well. It began about 18 months ago to put an overarching brand called “Forn & Flame” over top of all of our biomass products. That was more of a digital way to get to the consumer. We are now in the journey to talk about how we will badge those different brands and then use their names as technology. We do not see any downside with this. We already were the industry leader; now we are clearly the industry leader from a digital standpoint. It will take us probably another 18 months to get all the way through, and we are not going to strand inventory. We are taking our time with it. That business is performing very well. Year-over-year, we continue to take market share. It is where a lot of our initiatives are. I think you will see this play out behind the scenes. Jeffrey D. Lorenger: Okay. David Sutherland MacGregor: Great. Thank you very much, and good luck. Jeffrey D. Lorenger: Thank you. Operator: Your next question comes from the line of Catherine Thompson with Thompson Research Group. Good morning, and thank you for taking my questions today. Could you talk a little bit more about what you are seeing in terms of demand trends for non-office verticals in the quarter, and break it down by end market and by geography, U.S. versus Europe? How do you expect this to shape through the year? Are there any ways where you can benefit more specifically as we look at the broad reindustrialization trend in the U.S.? Jeffrey D. Lorenger: In the office verticals, we are seeing positive trends in health and education. We are getting lots of higher-ed businesses that are leaning in to not only Steelcase but our Allsteel side. We are positioned well with the federal government on the Steelcase side and seeing positive trends there. As it relates to international, year-over-year, their orders are actually up, so they are hanging in there across both in-market/for-market as well as the global business accounts. The longer-term outlook is a little early to tell, but we are pretty disciplined in our thinking about where we shift resources. We have breadth and depth to cover all the verticals and core customers. We have geographies covered now and really strong distribution. We are monitoring enterprise networks and where people are making investments. Manufacturing is doing pretty well right now. We have strong research and strong ability to pivot as those markets develop. Right now, we are playing all the bases and have not overweighted any of them, but we will when the hot hand appears—that has been our history. With the Steelcase adder to the HNI Corporation network, it gives us a lot more geographic coverage and diversity to do that. Analyst: Following up on that, when you think about the different types of construction projects beyond traditional, we are seeing different types of players working creatively with builders and developers. Have you changed or thought about doing anything differently in terms of winning different types of business in this dynamic market? Jeffrey D. Lorenger: One way we get at that is co-development. We have teams that engage with customers and businesses early. You are upstream of that when you talk construction, but that sometimes leads to how people are thinking about how they want their workspace to be branded. We are seeing a lot more engagement from customers the last couple of years. It is less cookie-cutter and more dynamic around what they need—whether to get employees back in the office, what they want their brand to be, or the new ways of working. We have shifted resources to more dynamic co-development and set up manufacturing flows to be more versatile and agile around making product that is nonstandard. That is how we are evolving our business model to be more dynamic and play these different elements as they appear, because they shift and move fairly quickly. Analyst: That is helpful. Final question: Steelcase following up on their small/mid-sized business growth initiatives—can you compare how they are doing in that segment versus what core HNI Corporation is doing, and whether you are adjusting any Steelcase strategy to that end market? Vincent Paul Berger: Very similar businesses. We definitely are not adjusting strategy related to the Steelcase SMB and the legacy SMB, and they are both performing very similar. The SMB business has been resilient in both Steelcase as well as the legacy HNI Corporation if you look over the last few quarters. They are going to continue to win on those smaller projects. The main difference in the Steelcase SMB is they play, in some cases, on seat counts that are more than our traditional SMB plays on. Other than that, they are very similar in how they go to market and how they are performing. Jeffrey D. Lorenger: Long term, we will look for opportunities as we go. To clarify, their SMB metrics—size, type of job, order book, average order size—are a little bit higher than our traditional. They are both called SMB to start, but what it has done is stretch the coverage model so we have no gaps depending on how you define SMB. That is the benefit. That is why we are not making any sudden adjustments. We will see how it all flows and where there is leverage versus where it is simply nice new business that we did not have or that they did not have. Analyst: Thanks so much, and best of luck. Jeffrey D. Lorenger: Thank you. Operator: Your next question comes from the line of David Sutherland MacGregor with Longbow Research. Your line is open. David Sutherland MacGregor: Thank you for taking my follow-up questions. I want to think about the second half of this year. It seems as though there is going to be some push-forward benefit against some fairly stiff compares from last year, and that will help you. I am thinking about the government shutdown in 2025, and you should be comping against that. That should be a source of benefit as well. Is there any way to dimension that for us? Vincent Paul Berger: Yes, David. I do not know if we have specifically thought about it that way. If we think about how volume will play out, you are right—we will have some comps that, if I get into the fourth quarter, could see mid single-digit volume year-over-year versus just price in the third and fourth quarter. Whether it is through government, SMB, or large global/corporate accounts, we believe that sets us up for a strong back half and supports what we are saying with a relatively flat first half and mid single digits in the second half. David Sutherland MacGregor: That is helpful. Thank you for that, VP. Secondly, it is still early, but to what extent, if at all, are you seeing any cannibalization between Steelcase and Allsteel? Jeffrey D. Lorenger: Good question. We really have not seen that, David. Our premise going in—and it seems to have been playing out—is they both are in the contract space, but Steelcase plays with a certain type of customer and has strength in markets where we have maybe not been as strong. They are stronger with large corporate, big customers, global customers with large networks, and Allsteel and some of our contract brands are maybe a click down from that. We have not really seen cannibalization. I am not saying there is none out there on a project here or there, but on a macro basis, it is complementary, and that was the pre-deal premise and what we have seen so far. David Sutherland MacGregor: Great. Good to hear. Thanks very much, and good luck. Vincent Paul Berger: Thanks. Operator: I will now turn the call back over to Jeffrey D. Lorenger for closing remarks. Jeffrey D. Lorenger: Thank you for joining us today. We look forward to speaking to you again in July. We appreciate your time. Thanks so much. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Welcome, and thank you for standing by. Your line has been placed on a listen-only mode until the question and answer session. The conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Whit Kincaid. Whit Kincaid: Good morning, everyone. Thank you for joining us for Mueller Water Products, Inc. second quarter conference call. Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended March 31, 2026. A copy of the press release is available on our website, muellerwaterproducts.com. I am joined this morning by Paul McAndrew, our president and chief executive officer, and Melissa Rasmussen, our chief financial officer. Following our prepared remarks, we will address questions related to the information covered on the call. As a reminder, please keep to one question and a follow-up and then return to the queue. This morning’s call is being recorded and webcast live on the Internet. We have also posted slides on our website to accompany today’s discussion. They also address forward-looking statements and our non-GAAP disclosure. At this time, please refer to Slide 2. This slide identifies non-GAAP financial measures referenced in our press release, on our slides, and on this call. It discloses the reasons why we believe these measures provide information to investors. Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website. Slide 3 addresses forward-looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward-looking statements. Please review Slides 2 and 3 in their entirety. During this call, all references to a specific year or quarter, unless specified otherwise, refer to our fiscal year, which ends September 30. A replay of this morning’s call will be available for thirty days at 1-808-391-334. The archived webcast and corresponding slides will be available for at least ninety days on the Investor Relations section of our website. I will now turn the call over to Paul. Paul McAndrew: Thanks, Whit. Good morning, everyone. Thank you for joining our second quarter earnings call. I am pleased with our strong performance this quarter, as we set new quarterly records for net sales, adjusted EBITDA, and adjusted net income per share. We delivered net sales growth of 5.5% in the quarter, demonstrating the strength of our brands and resilient end market demand. We also expanded our adjusted EBITDA margin 210 basis points year over year. Our operations and supply chain teams performed well, driving year-over-year gross margin expansion. With an ongoing commitment to operational excellence and cost management, manufacturing efficiencies more than offset the impact of higher tariffs and inflationary pressures, driving year-over-year gross margin expansion. Based on our outstanding performance through the first half of the year, and our current expectations for the remainder of the year, we are raising our fiscal 2026 outlook for adjusted EBITDA. We continue to anticipate that healthy municipal repair and replacement activity and strong growth in project-related work using specialty valves will help offset slower new residential construction activity. We believe we are positioned for another record year driven by adjusted EBITDA margin expansion, and supported by our strategic priorities, including our ongoing commercial and operational initiatives and strategic capital investments. While we are experiencing greater uncertainty in the external operating environment, including changes in demand, tariffs, and inflationary pressures, we are focused on driving results and investing in the capabilities and capacity needed to support long-term value creation. I would like to take a moment to explain the ways we are updating our approach to our strategic priorities. Throughout our long history, Mueller Water Products, Inc. has played a critical and essential role as a leader in the water infrastructure in North America. We have strong brands and a broad portfolio of products and solutions. Our vision is to be the leader in water infrastructure solutions. Our value creation priorities are driving above-market sales growth, continuing margin expansion, and executing disciplined capital allocation. We expect our ongoing investments in commercial and operational capabilities to enable us to drive above-market sales growth and further expand margins. Additionally, we will continue to take a disciplined approach to capital allocation, balancing organic investments such as our strategic capital expenditures, pursuing targeted acquisitions, and returning cash to shareholders. We have improved operational execution, strengthened stakeholder relationships, and delivered outstanding results, all while navigating a challenging external environment. I believe our performance so far this year and over the last two years is just the beginning. Now I would like to introduce what we are calling our Mueller operating system, which is a formalized system of tools and processes that will drive discipline, execution, and excellence throughout the organization. At Mueller Water Products, Inc., this starts with an engaged employee base, which is the upper left of the diagram. Our team members are the heart and soul of Mueller Water Products, Inc. and critical to our future success. We have made significant progress with our safety-first mindset, resulting in record safety levels. Our next priority centers on enhancing our customer experience, which is supported by our commercial and operational investments. These efforts are dedicated to achieving first-class quality and delivery, fostering seamless engagement, and establishing ourselves as a trusted partner. For example, we are investing in our digital customer-facing tools to enhance the customer experience and accelerate quoting and inventory management. Next, we aim to expand margins by simplifying our business to reduce complexity, drive business process excellence, and deliver strategic price-cost management. As part of this effort, we recently made the difficult decision to exit the i2O pressure monitoring business outside of North America. This impacts business operations and employees in the United Kingdom, Malaysia, and Colombia, as well as customers outside the U.S. and Canada. Pressure management remains a strategic priority for us, as the demand for pressure monitoring continues to grow in North America, where it is increasingly specified alongside hydrants and valves. We plan to use and further develop the pressure technology originally acquired from i2O to strengthen our competitive position. We expect the cost savings and tax benefits to more than offset the revenue loss and support margin expansion and enhance free cash flow beyond 2026. Lastly, to accelerate our growth, we will drive market-leading innovation, focused market expansion, and disciplined strategic acquisitions. We have streamlined our new product R&D to focus on the most impactful near-term and long-term opportunities. We remain excited about expanding our specialty valve commercial and operational capabilities to deliver highly engineered valves for large projects. While we have benefited from improving our commercial and operational execution, we are confident that we can build on our momentum to accelerate net sales growth and expand margins further through our new operating system. We look forward to sharing examples of successes along the way. With that, I will turn it over to Melissa to take us through the financials. Melissa Rasmussen: Thanks, Paul, and good morning, everyone. We are pleased to report another quarter of strong performance. Consolidated net sales increased 5.5% to a new record of $384.4 million, driven primarily by higher pricing across most product lines along with modest volume growth. Gross profit increased 12.9% to $144.5 million with gross margin expanding 250 basis points to 37.6%. The improvement was driven primarily by favorable pricing, improved manufacturing efficiencies, and higher volumes. Manufacturing efficiencies reflected the anticipated benefits associated with the transition to our new brass foundry, including the absence of approximately $0.8 million of inventory and other asset write-downs associated with the closure of our legacy brass foundry in the prior year. These benefits were partially offset by higher tariffs and ongoing inflationary cost pressures. Total SG&A expenses for the quarter of $59.7 million increased $4 million year over year, primarily reflecting unfavorable foreign currency impacts and continued inflationary pressures. During the quarter, we incurred $4.4 million of strategic reorganization and other charges, primarily related to expenses associated with our leadership transition, transaction-related expenses, and severance. These items have been excluded from adjusted results. Adjusted EBITDA reached a record of $97.2 million, an increase of 15% compared to the prior year quarter. Adjusted EBITDA margin expanded 210 basis points year over year to 25.3%, also a new quarterly record. This strong performance was primarily driven by higher pricing, continued manufacturing efficiencies, and increased volume, partially offset by higher tariffs, inflationary pressures, and higher SG&A expenses. On a trailing twelve-month basis, adjusted EBITDA was $348 million or 23.7% of net sales, representing a 140 basis point improvement versus the prior twelve-month period. Adjusted net income per diluted share increased 17.6% year over year to $0.40, setting another quarterly record. During the quarter, we benefited from lower net interest expense, which declined $0.7 million driven by higher interest income. Our second quarter effective income tax rate was 25% compared with 24.2% in the prior year quarter. Turning now to segment performance, starting with net sales increased 1% to $218.3 million, reflecting higher pricing across most product lines and increased volumes in specialty valves, partially offset by lower service brass volumes. Adjusted EBITDA grew 16.4% to $72.4 million, driven by manufacturing efficiencies and higher pricing, which more than offset increased tariffs, inflationary pressures, and lower brass volumes. Adjusted EBITDA margin expanded 440 basis points to 33.2% compared with 28.8% in the prior year period, representing a new record. Moving to WMS, net sales increased 12.2% to $166.1 million, driven by higher pricing across most product lines and volume growth of hydrant and repair products. These benefits were partially offset by lower volumes in applications and natural gas distribution products. Adjusted EBITDA in the quarter increased 11.5% to $40.6 million. The increase reflects benefits from higher pricing and volume growth, which more than offset increased tariffs, manufacturing inefficiencies, and higher SG&A expenses, including unfavorable foreign currency impacts and inflationary pressures. Adjusted EBITDA margin contracted 20 basis points to 24.4%. Turning to free cash flow, for the six-month period, free cash flow decreased $30.8 million to $16.5 million and was 15% of adjusted net income. The decrease was driven by lower net cash provided by operating activities and higher capital expenditures. Net cash provided by operating activities for the first six months decreased $20 million compared with the prior year. The decline was primarily driven by changes in working capital and other assets and liabilities, partially offset by higher net income and noncash adjustments. Higher working capital was largely driven by increased inventory levels, reflecting higher tariffs, inflationary pressures, and strategic investments. We invested $31.9 million in capital expenditures during the first six months of the year compared with $21.1 million in the prior year period, reflecting continued investments in our iron foundries. We ended the quarter with $452 million of total debt and $421 million of cash and cash equivalents. Our balance sheet remains strong and flexible with no debt maturities until June 2029 and $450 million senior notes at a 4% fixed interest rate. We had no borrowings under our ABL and ended the quarter with $585 million of total liquidity, including $164 million of availability under the ABL. As a result, we continue to maintain ample liquidity, capacity, and financial flexibility to support our strategic priorities, including pursuing acquisitions. Turning now to our outlook for fiscal 2026, we are reiterating full-year guidance for consolidated net sales growth to be between 2.8% and 4.2% year over year, reflecting our current expectations for end market demand, volumes, and price realization. Based on our performance through the first half of the year, we are raising our annual adjusted EBITDA guidance by $5 million at the midpoint to a new range of $360 million to $365 million. This range reflects our first half performance and updated expectations for volumes, price realization, inflationary pressures and tariffs, as well as ongoing manufacturing efficiencies. At the midpoint, our updated guidance range represents an adjusted EBITDA margin of more than 24.5%, an improvement of 170 basis points year over year. We are maintaining our expectations for total SG&A expenses within this updated guidance. With increased uncertainty in the external operating environment, including the anticipated slowdown in new residential construction activity, we are working closely with customers and suppliers to adapt as needed to changes in demand, tariffs, and inflationary pressures. We are reaffirming our capital expenditure outlook of $60 million to $65 million. We now expect our free cash flow to exceed 70% of adjusted net income for the full year, reflecting higher levels of working capital. With that, I will turn it back to Paul for closing comments. Paul McAndrew: Thanks, Melissa. I want to provide a few closing comments before opening it up for Q&A. Overall, I am excited about our team’s outstanding performance this quarter. Also, I am pleased to be raising our annual guidance at this point in the year. We remain vigilant as our end markets evolve in this increasingly uncertain external operating environment. We expect the municipal repair and replacement market to remain resilient. We are closely watching the anticipated slowdown in new residential construction activity. We continue to be focused on what we can control: executing our ongoing investments in our commercial and operational capabilities. Our teams are prepared to take action to help offset changes in end market demand, if needed. With our focused strategic priorities and investments in our capabilities, we believe we can continue to drive results and deliver long-term value creation. I want to thank all our employees worldwide for their extraordinary commitment and passion supporting our customers and communities. They are the reason for our success and why Mueller Water Products, Inc. has been a trusted partner for over a century. That concludes our comments. Operator, please open the line up for questions. Operator: We will now open the call for questions. Thank you. We will now begin the question and answer session. Our first question comes from Jeff Reif with RBC Capital Markets. Your line is open. You may ask your question. Jeff Reif: Good morning. Appreciate all the details thus far. Can you start by talking about sell-in versus sell-out trends in the quarter across your segments? And how would you characterize inventory levels in the channel today? Paul McAndrew: Hey, good morning, Jeff. In terms of how we look at channel inventory, the foresight we have in the channel inventory, we believe it is at normalized levels. Of course, our channel partners are managing the uncertainty in the external environment the same as everybody else at this point. In terms of your other question on sell-through, it is about a backlog reduction in the quarter. We had a kind of normalized backlog change from a seasonality perspective in our Q2, where we see a rise in backlog around our price increase, which goes out in February, a little bit of pull-ahead from an order perspective, and our specialty valve business still continues to be the large portion of our backlog. Jeff Reif: Got it. And maybe just as a follow-up on WMS, sales came in a bit better than expected this quarter, yet you are reiterating the full-year outlook. Does that imply a more moderated growth cadence in the year? Was there any pull-forward there? Just anything there? Melissa Rasmussen: Hi, Jeff. With WMS, yes, we did have double-digit growth in the quarter, and that was primarily driven by higher pricing and volume gains, which were primarily in the hydrant and repair product lines. Hydrant shipments are benefiting from an elevated backlog that we started the year with this year. Despite the lower volumes associated with a slowdown in residential construction activity, we do expect to see growth in the remainder of the year. However, the first half of the year has been a stronger growth, and we expect WMS to normalize as the year progresses. Paul McAndrew: Yeah, Jeff, just to add on to that. Obviously, the prior year we had a service brass backlog reduction and that has been flipped now with the hydrant. It is why the normalized backlog changes are just a flip between segments. Jeff Reif: Got it. Makes sense. Appreciate it. Thanks. Operator: Thank you. Our next question comes from Brian Lee with Goldman Sachs. Your line is open. You may ask your question. Brian Lee: Hey, good morning, everyone. Thanks for taking the questions. Maybe first on the updated outlook for the year. It sounds like you have seen good pricing realization, so kudos on the nice results here. But the revenue guidance is intact. Can you speak to how much you are expecting from price versus volume? And some of the price actions you saw come to fruition in the first part of the year—is that expected to persist through the rest of the year? Is volume maybe a little bit lighter? Wondering why there might not be a little bit more upside to the revenue outlook given the strong pricing capture you saw earlier in the year? Paul McAndrew: Yeah, good morning, Brian. We went up with our annual price increase in February, low single digit. As a reminder, we had a tariff-related price increase really taking effect in Q3 and Q4 of last year, so we will start to lap that tariff-related price as we move into the second half of the year. Melissa Rasmussen: Brian, we saw price realization through the second quarter in the mid single-digit range, which was slightly higher than the first quarter, and that was because we did see a slight benefit from our February price actions due to the execution of our commercial team. Brian Lee: And then just the slowdown in resi activity—you have kind of been calling this out for a little bit of time, so the tone is consistent. But can you quantify the impact? Is it maybe more of a headwind than you are assuming? Presumably, the impact is already embedded in the balance of your fiscal 2026 guide, but thinking ahead to 2027, how much of a continued headwind or just any color on how this evolves over the next year or so for your business? Paul McAndrew: Look, yes, we believe the external environment continues to evolve. We use public homebuilders’ data points, land development. We still believe resi is down high single to low double-digit range. But on the external market and the outlook beyond that, there is still pent-up demand for resi construction. It is really trying to manage the uncertainty right now, and that is why I talked about in my prepared remarks that we will pivot as an organization and manage this closely. Brian Lee: One for me and I will pass it on. Obviously, the balance sheet is in a pretty good spot here. On M&A and the capital allocation strategy, can you give us a sense of how high up the priority chain that is? How active you are there? Maybe what kind of pipeline you are looking at or opportunities that are most interesting right now? Thank you. Paul McAndrew: Yes, great point. Look, our balance sheet is really strong, and we have definitely increased our activity about how we look for acquisitions to expand our portfolio. We want to find key criteria where we can expect sales and profitability and cost synergies. The challenge here is unlocking some of those acquisitions, but we are far more active in trying to tap into what would be a good acquisition for us as an organization. Whit Kincaid: Thank you. Operator: Our next question comes from Walter Liptak with Seaport Research. Your line is open. You may ask your question. Walter Liptak: Hi, thanks. Good morning, guys. Paul McAndrew: Good morning. Walter Liptak: I wanted to ask a free cash flow question. You called out some of the working capital accounts, and accounts receivable were up a little bit. I wonder if you could provide a little bit more detail on the free cash flow. And did you—I cannot remember—but did you take the free cash flow guidance down or were you always at that 70% of net income for the year? Melissa Rasmussen: Good morning, Walt. Yes. A couple of things related to free cash flow. The second quarter is typically our lower quarter for cash generation, and that is primarily due to receivables. The first quarter is our lowest revenue-generating quarter, typically, so we have lower collections in the second quarter related to those receivables from the first quarter. That said, we also during the second quarter are ramping our inventory levels in anticipation of our seasonal ramp for the construction season. With this specific second quarter, we did have lower-than-expected free cash flow, and that was primarily due to higher levels of working capital as a result of increased inventory. The increased inventory balance reflects higher tariffs, inflationary pressures, and some strategic inventory build. We talked about growth in sales related to our specialty valve product lines. We expect to see some double-digit growth in that product line this year. That product line particularly has a long backlog and lead time, so that will stay in inventory for a bit longer. And so we did decrease our expectation of free cash flow as a percentage of net income this period to 70% as a result of the inventory balances as well as increased capital expenditures for the year. Walter Liptak: Okay. And what was it before? Was it 85% now down to 70%? Paul McAndrew: Yes, it was 85% previously. Walter Liptak: Okay, got it. Thank you. And then just a follow-up on the residential questions. Can you help us remember, if the residential sector does still look pretty slow and kind of uncertain, are there any things that you can do around those businesses either with some of your overhead costs or strategically to try and pick up some market share? Paul McAndrew: Walt, there is a lot of crossover in products between the resi plus the muni market and how we distinguish those. From a strategic perspective, our specialty valve business is definitely less residential construction exposed, and that is where we continue our investments. We have continued operationally consolidating those plants from an engineering skill set perspective in terms of developing those products. We believe there is a lot more growth opportunity that we can start to tap into from an industrial water perspective. Operator: Thank you. And at this time, I will turn the call over to Paul for closing remarks. Paul McAndrew: Thank you, operator. To everyone who joined us on the call today, overall, we are excited about the record quarter and our team’s ability to execute. Our increased annual guidance for adjusted EBITDA reflects the confidence we have in our commercial and operational capabilities. We remain vigilant in an increasingly uncertain external operating environment as it relates to demand, tariffs, and inflationary pressures. While we expect the muni repair and replacement market to remain resilient, we remain closely watching the anticipated slowing residential construction activity. We will stay focused on what we can control and take action if needed. I want to once again thank our dedicated team members who have been and always will be the driving force behind our success. Thank you all, and we look forward to speaking with you again with our third quarter results when they are announced in early August. And with that, operator, please conclude the call. Operator: Thank you. That does conclude today’s conference. We thank you for your participation. At this time, you may disconnect your lines.
Operator: Hello, everyone, and welcome to the Johnson Controls Q2 2026 Earnings Conference Call. My name is Ryan, and I'll be coordinating the call today. [Operator Instructions] I will now hand the call over to Mike Gates, Senior Director of Investor Relations to begin. Mike, please go ahead. Michael Gates: Good morning, and thank you for joining our conference call to discuss Johnson Controls Fiscal Second Quarter 2026 results. Joining me on the call today are Johnson Controls' Chief Executive Officer; Joakim Weidemanis; and Marc Vandiepenbeeck, our Chief Financial Officer. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements that reflect our current views about our future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to our SEC filings for a list of these important risk factors that could cause actual results to differ from our predictions. We will also reference certain non-GAAP measures throughout today's presentation. Reconciliations of these non-GAAP measures are contained in the schedules attached to our press release and in the appendix to this presentation both of which can be found on the Investor Relations section of Johnson Controls' website. I will now turn the call over to Joakim. Joakim Weidemanis: Thanks, Mike, and good morning, everyone. Thank you for joining us on today's call. Before I begin, I want to acknowledge our more than 2,500 colleagues in the Middle East. Against the backdrop of ongoing conflict and an increasingly complex geopolitical environment, they continue to show commitment to our customers and to one another. Our thoughts are with them and their families and we remain focused on their safety and well-being. Let's begin with Slide 4. We entered the year with strong momentum, and this quarter demonstrates continued progress. Demand for our products, solutions and services remains strong, led by data centers where we're holding a leading position. In these environments, customers need high-performance cooling, delivering precise operating conditions while requiring better energy efficiency. Meeting those requirements depends on how well we execute across the business. While early in the journey, our proprietary business system is beginning to strengthen how we lead and execute throughout parts of the organization. I continue to be encouraged as leaders spend more time focusing on customers, and as teams begin to adopt more common language and approach to problem solving together at Gemba. Against that backdrop, yesterday, we announced the release of our second AI factory reference design guide focused on air cooled chiller architectures and providing customers with globally repeatable blueprints for cooling gigawatt-scale AI factories. This builds on our water-cooled guide released earlier this year. It's the next step in a comprehensive set of global design guides mapping the full data center thermal chain, providing clear design parameters to enable high-performance, efficient operation as customers plan and scale AI with greater clarity. Turning to the results. Orders increased 30% this quarter, building on the nearly 40% growth we delivered last quarter. That consistency reflects sustained customer demand in the markets where our technology-based innovation and strong field footprint differentiates us. And with our pipeline remaining strong, it gives us confidence as we move forward. Revenue grew 6%. Adjusted EBIT margin expanded 310 basis points to 15.5%, and adjusted EPS was up 45% and exceeded our guide. Backlog grew 26% to a record $20 billion, providing an improved visibility and confidence in the trajectory of the business. This quarter reinforces our ability to convert demand strength into consistent growth, margin expansion and earnings performance. Given our strong start in the first half and the visibility we have across the business, we are raising our full year guidance. Marc will walk through the details later in the call. Before that, I want to step back and talk about why we're seeing this consistency. Please turn to Slide 5. The breakthroughs our customers are pursuing are advancing society. Take, for example, biologics, semiconductor and advanced battery manufacturing and data centers where the need for indoor operating conditions within tight tolerances is driving greater reliance on high-capacity, high-precision application-specific thermal management systems. At the same time, these industries are much more energy intense than their previous generation. Biologics are 7x as energy intense as traditional pharma manufacturing. And in light of material energy cost increases, energy-efficient solutions are essential. Let's take, for example, our high-performance York chillers. To simplify, this is about customers getting rapid, high-capacity cooling precisely when it's needed, enabling mission-critical operating conditions that deliver their targeted outcomes. As you can see on Slide 5, our differentiation operates both at the subsystem level and at the overall system level. Our York chillers leverage 5 core subsystems enhanced by our Metasys proprietary intelligent controls and further strengthened by our OpenBlue proprietary digital AI capabilities. Because we own the underlying technology platforms as well as design, develop and manufacture these subsystems, we're positioned to innovate faster and deliver application-specific higher performance with structural cost advantages. That capability has been built over decades and includes more than 1,000 patents each focused on higher performance, reliability and energy efficiency for our customers. With that context, let me briefly walk through the 5 subsystems in our high-performance York chillers because this is where the differentiation really comes to life. And this is exactly what many of you will see in action during our upcoming in-person investor visit starting at JADEC, our Advanced Development Engineering Center in Pennsylvania. Let me start with the aerodynamic innovation centered on our compressor design. We hold over 270 patents, specifically related to the compressor technology. Simply put, the compressor is the heart of the engine of the chiller. It does the heavy lifting, and it's one of the biggest drivers of performance and efficiency. We design our compressors specifically for applications that require high capacity, precision and reliability, like data centers, advanced manufacturing and large health care facilities. What differentiates us is ownership. While much of the industry relies on third-party compressor platforms, we design and manufacture our own application-specific compressor architectures. That gives us greater control over speed of innovation and the ability to optimize performance for our target applications. Next is power electronics. Our variable speed drives, or VSDs, where we hold over 220 patents. Innovative VSDs allow the chiller to precisely adjust output in real time rather than running at a fixed speed. That precision helps customers achieve and sustain tight operating tolerances while reducing energy consumption under real-world operating conditions. The third subsystem is oil-free compression or magnetic bearings, where we hold over 65 patents. By eliminating physical contact inside the compressor, we reduced friction, wear and noise while improving reliability and energy efficiency. Because we design and manufacture our own magnetic bearing compressors, we can fully integrate [ sensing and controlled ], enabling higher uptime and predictive maintenance. Fourth is thermal transfer where we hold over 260 patents. Our heat exchanger designs are engineered end-to-end as part of the full system, helping minimize material and refrigerant usage. This allows customers to get consistent, dependable performance in demanding environments. And finally, our embedded intelligent chiller controls. We hold over 300 patents in this area. These controls optimize the overall system performance in real time. Because the controls are designed with proprietary insights of our subsystems, they allow us to clearly understand how each part of the system is performing and turn that into a more precise and reliable operation and better service outcomes over the customer life cycle. The result of that subsystem ownership and overall system integration starts with thermal performance, delivering precise, reliable operations in the most demanding environments and extends to higher energy efficiency and flexibility across applications. That comes from deep technical expertise across each subsystem and the ability to design them together as one system. This gives us confidence that we can continue to drive further differentiated performance and margin improvement. Now let me connect that system-level technology advantage to how we're ensuring it shows up consistently for our customers. Our technology platforms are a clear strength, and we continue to invest. The opportunity ahead is translating that strength more reliably through both rate and speed of innovation, meaning reductions in speed to market through innovation, manufacturing, delivery and field execution. Our proprietary business system is how we do that. Please turn to Slides 6 and 7. Our business system is how we win with customers, how we empower our frontline colleagues, including our innovation teams, to perform their very best for our customers and how we run the company. It is anchored in a global cross-functional language and methodology for how we communicate, collaborate and drive strong continuous improvement momentum to win. As a reminder, our business system is built on 3 pillars: simplify, apply 80/20 principles to focus on what matters most; accelerate, use lean methodologies to remove waste to speed up execution, improving productivity and reducing assets such as working capital tied up in the process. In short, I think of it as helping us accelerate work from weeks to days. Amplify, leverage digital and AI approaches to amplify impact across the enterprise. In short, I think of it as taking that same work and reducing it from days to hours and minutes. Real change in culture sustainment doesn't happen over a single quarter's time line. It takes time to put the right practices in place, learn what works and then scale it with discipline. Slide 7 shows how this journey looks in practice. The starting point is adoption and alignment. Think of it as connecting head, heart and hands. What you know, what you believe and how you show up differently. That begins with leaders, and we're seeing real momentum here. Today, approximately 1,400 colleagues are actively engaged in this work and about 1,000 leaders have been trained on the business system. More importantly, we're beginning to see early shifts in how work gets done and prioritize the narrow areas as leaders and teams apply these behaviors and use the business system approaches more consistently. While doing that, we start narrow and go deep in a few areas of opportunity. As we've highlighted in the previous quarters, we have early and strong examples of cross-functional teams concentrating on specific priority areas, getting to root causes and implementing countermeasures leading to a significant performance improvement. To date, we've completed more than 150 kaizens across roughly 20 priority areas around the world. Only after that work is proven, do we scale. And this must be done by deliberately replicating what works and standardizing it across the organization. Earlier, I commented on an opportunity we have to extend our technology-based strengths through the entire customer life cycle by better enabling our people to deliver for our customers. A strong example is our service sales work stream which helps ensure we establish a service engagement shortly after our new chillers are commissioned. Unnecessary internal processes weigh down our sellers' ability to proactively engage with customers for service needs, assessments and proposals. Starting in West Florida, a cross-functional team used business system approaches like problem solving, value stream mapping, kaizen and daily management to redesign the process end to end, taking the process for an individual customer from weeks and days to a matter of hours. The focus on the customer and the frontline enablement led to tripling service agreements immediately following new chiller start-up commissioning. After proving success in one market, we scaled the same playbook to two additional local markets with strong follow-on progress. This is also what many of you will see at our upcoming investor event in real operating environments at Gamba where the value is created. At JADEC, we will illustrate how the business system accelerates innovation, both rate and speed from development to new product launch. At our Airside Center of Excellence, or ACE, and in our Baltimore local market office, we will show the same system driving scalable manufacturing, commercial execution and service delivery using common tools, language and leadership behaviors to deliver more consistently and predictable outcomes. With that, Marc will walk you through the details. Andrew Obin: Thanks, Joakim, and good morning, everyone. We delivered another quarter of solid execution, building on the momentum from a strong first quarter with healthy demand across our core markets. Performance this quarter reflects continued progress across the enterprise as operational discipline and commercial focus are translating more consistently into results. This reinforces our focus on disciplined execution, margin performance and operating rigor. Let's turn to the results on Slide 8. Organic revenue grew 6%, led by continued strength in applied HVAC and mid-single-digit growth across both service and systems. Segment margin increased 180 basis points to 18.5%, and EBIT margins expanded 310 basis points to 15.5% driven by better operating leverage and productivity improvements. Adjusted EPS of $1.19 increased 45% year-over-year and exceeded our guidance. These results highlight the operating momentum building across the business as we enter the second half of the year. Let's now discuss our segment results in more detail on Slide 9 and 10. Orders increased 30% this quarter, building on a strong first quarter, reflecting sustained demand led by large data center activity, while demand across our other key end markets remain stable. Customers continue to value Johnson Controls for our ability to deliver integrated mission-critical solution at scale, backed by liability, deep domain expertise and life cycle services. By region, orders in Americas grew 40%, led by nearly 60% growth in systems supported by large-scale data center projects. In EMEA, orders increased 11%, led by strong growth in data center-related projects. In APAC, orders grew 4% led by Southeast Asia, while system delivered mid-single-digit growth at the segment level. Turning to revenue performance by region. In the Americas, organic revenue increased 7% led by continued strength in applied HVAC and solid double-digit growth in service. In EMEA, sales increased 1% as system growth offset disruption caused by the Middle East conflicts, and lower service volumes. APAC grew 13%, led by over 20% growth in applied HVAC. Across the portfolio, revenue performance showed continued momentum underpinned by strong execution from our teams. Moving to margins by region. In the Americas, adjusted segment EBITDA margin improved 100 basis points to 19.5% driven by higher volume and price realization. In EMEA, margins expanded by 370 basis points to 14.9%, reflecting productivity gains and improved leverage on higher revenue. In APAC, margin expanded 350 basis points to 19.8% with improved volumes and productivity gains. Our record backlog grew over 25% to $20 billion, providing confidence in our growth rate over the next 12 months. Turning to our balance sheet and cash flow on Slide 11. On the balance sheet, we ended the quarter with approximately $700 million of available cash and total liquidity remained strong. Net debt declined to 2x remaining within our long-term target range. Overall, the balance sheet continues to support disciplined capital allocation and financial flexibility, giving us the ability to invest in the business, maintain balance sheet strength and return capital to shareholders. Let's now discuss our fiscal third quarter and full year guidance on Slide 12. As we look to the third quarter, our guidance incorporates the momentum we've established year-to-date. We anticipate organic sales growth of approximately 6%, operating leverage of approximately 45% and adjusted EPS of approximately $1.28. For the full year, improved performance and backlog strength support our expectation of organic sales growth of approximately 6%. We continue to expect operating leverage of approximately 50% for the full year, reflecting continued progress in cost management and productivity. As a result, we are raising our adjusted EPS guidance to approximately $4.85, representing roughly 30% growth and $0.30 higher than our original guide at the beginning of the year. We continue to expect adjusted free cash flow conversion of approximately 100% for the full year, demonstrated that improved profitability is translating directly into cash. This is supported by disciplined working capital management, while early progress in our business system is beginning to reinforce more consistent execution in targeted parts of the organization. Operator, we are now ready for questions. Operator: [Operator Instructions] The first question comes from Scott Davis from Melius Research. Scott Davis: Great. Everything looked pretty consistent with what we would expect the services order is still a little sluggish. Is there some timing issues there or any dynamic? And I guess what I'm asking is when do you expect that to pick back up again because it clearly should given the installed orders you have. Joakim Weidemanis: Scott, yes, correct. Those were a little softer than some of the other numbers that we published. So just as a reminder, service is about 1/3 of our revenue. And in our case, we do not include retrofit in the service revenue as some other companies do. Now our service fundamentals remain solid and particularly in HVAC, where we continue to perform very well, but it was offset in the quarter by weaker performance, particularly in security. And we have, over the last couple of quarters, been digging into our security business as a service business deeper and have found that over the years, the balance between volume and price probably hasn't been appropriately been managed. So during the -- and it's also, by the way, the part of our service business that's a little less differentiated. HVAC applied being the most differentiated. So we're rebalancing in the security service business between price and volume. So as a result of that, we were down in security service in the quarter. Margin-wise, we were up. So we're just managing and finding a better balance between price and volume in that part of the business. Scott Davis: Okay. That's helpful. And then just to back up a little bit on the business system stuff because it obviously matters a lot. Walk us through, when you talk about -- and I'm on Slide 7, the 7 lighthouse sites projected in 2 years, I think you're starting with a couple of lighthouse sites now. How does that kind of -- does that go exponential after that? Do you go from 2 to 7 to 40. I mean what -- how does that kind of work? Because I'm just trying to get a sense of how long it might take you to get just across the organization, really the business system deployed to a level of excellence. Joakim Weidemanis: Yes. So lighthouse sites are internal sites where new leaders, for example, can go and spend a week or a few days to experience what really, really good looks like. So think of these as Olympic gold medal sites. So we're unlikely to add a lot more than 7. I think that's probably a good number. And the 7 just simply comes from that we need a couple on commercial and service, a couple on manufacturing and a couple on innovation. And the lighthouse sites is one part of how you roll out a business system more widely. It doesn't mean that those are the only places where we roll out the business system, not at all. Those are the Olympic gold medal sites that others will aspire to as we roll out more broadly. And at the Investor Day, you will see -- that's upcoming in the Baltimore and the Pennsylvania area. You're going to see, as we're standing up lighthouse sites, a couple of them. Operator: Our next question will come from Amit Mehrotra from UBS. Amit Mehrotra: I wanted to ask about orders. Obviously, 30% growth is very strong, but it did plateau from the prior quarter, at least on an absolute basis. So I guess, one, are we at peak orders in your opinion? And any additional color on sort of your thoughts on how long and wide the runway is from here on orders and new business opportunity just after this huge, almost unprecedented increase we've seen both with you and across the board? Joakim Weidemanis: Yes. Order is plateauing. I think when you're talking about 30% to 40% rates, I think both of these quarters, we're very, very happy about. Our pipelines remain strong, growing at a double-digit rate. And so we expect continued strong orders. It's not just, of course, the data center market is fueling part of that, but we're also very pleased with the stability in so many of our other verticals. And I mentioned some of them in the prepared remarks here, for example, within pharma, biologics as well as advanced manufacturing. And as you know, we don't guide on orders specifically. But as I said, the pipeline remains very strong, and we're very confident and happy about our record backlog here. Amit Mehrotra: Okay. And just maybe a quick follow-up. I wanted to ask about the strategic direction of the business. There were some reports on asset sales. I'm sure you can't specifically talk about that. But maybe just talk about how you're thinking about the moving pieces sort of both strategically and financially. I assume maybe some of these sales may be dilutive in the near term and how you're thinking about sort of the near-term and long-term strategic dynamics? Joakim Weidemanis: Yes, very good. I think unchanged, our job here is to make sure we maximize shareholder value. And over the last year, we've had a chance to go through, with fresh eyes, the whole portfolio. And of course, as every company I've worked, no one ever has the perfect portfolio at any one point in time. But then the way I think about it is the different parts of the portfolio, it's kind of like a sports team, different parts to play, different roles. For example, we're playing more offense with Applied and other parts of the business, I would think as being more of defense players contributing very, very nicely to profitability and cash flow, for example. But we continue to review our portfolio. And with the goal of strengthening shareholder value, and we'll keep you posted as we make progress on that. Operator: Our next question will come from Joe O'Dea with Wells Fargo. Joseph O'Dea: Some really hopeful color about a product portfolio and technology as well as business system. Can you just talk about the time line on kind of business system implementation. When you talk about 1,400 colleagues being engaged today, any mile markers you have out there for how you expect that to move forward? It certainly seems to be translating on the margin expansion that we're seeing here. But would expect as that continues to move forward, you continue to unlock other opportunities? Joakim Weidemanis: Yes. So the way I've grown up, I've been applying business system throughout most of my careers. You never really measure your progress in terms of numbers of kaizens or people engaged internally. The only reason we're offering that on these calls is just to give you a sense of the momentum. Internally, we're really focused on the outcomes that this effort is generating. And we'll talk a little bit more about that at the upcoming investor event. But we're doubling down on a number of improvement opportunities or growth blockers, unlocking growth blockers. And in terms of results showing up, on the P&L. I mean we're still very, very early stages, right? I mean as I explained, you always start narrow and go really deep and then before you cascade and so on. So we're still in the very early innings here. And it's really over the next year and two years that we're going to start to see more meaningful results show up on the P&L. Joseph O'Dea: And then on the Alloy Enterprises acquisition, could you talk about what that brings to you from a differentiation advantage what it means for your CDU offerings and when those advantages will be in the market? Joakim Weidemanis: So Alloy, which is a fantastic company with so many capable PhDs from reputable academic institutions in the Boston area really brings to us unique, highly proprietary thermal management capabilities which is both anchored in Material Sciences as well as manufacturing capabilities. And we might share a little bit more about them at our investor event. But think of it as adding capabilities in the heat transfer area, which is our thermal transfer area, which is one of the elements that I discussed around our chillers. But of course, there are heat transfer elements to CDUs as well. There are heat transfer elements to cold plates in -- within liquid cooling systems. And so we're going to be looking to apply Alloy's technology in all those areas, chillers, CDUs and eventually cold plates. And -- we -- I don't think we will disclose here exactly when we're going to apply it in the CDUs, but it will be shortly. Very excited about that acquisition. Operator: Our next question will come from Chris Snyder with Morgan Stanley. Christopher Snyder: I wanted to ask about June quarter margins. It seems like there's not much sequential margin embedded in the guide. But typically, the company sees pretty nice sequential expansion alongside the higher volumes into the June quarter. So I guess are there any headwinds coming through or mixed tailwinds in Q2 that is not driving that sequential step up to the third quarter? Marc Vandiepenbeeck: Yes, Chris. So if you look at the volume and growth we anticipate in the third quarter, it's very similar to what we saw in the second quarter. So that's all integrating till the 6% growth for Q3 which means from a volume leverage standpoint quarter-over-quarter, you're not going to see as much of a step-up that you might have seen in prior period. However, I'd point to the fact that the way we've guided, it's a pretty impressive operating leverage year-on-year of 45%. If the volume would come out a little bit higher, based on certain risk and opportunities we have in the quarter, could we see a little bit of a better sequential improvement in margin? Yes. But at this stage, I think embedded in our guide with that 45% operating leverage year-on-year improvement. I think we are pretty much locked and loaded. Christopher Snyder: I appreciate that. Maybe if I could follow up on a longer-term question. You referenced working with the hyperscalers on the future data center architecture. I guess when you look out into the future, how do you see underlying content shifting between the CDU, which I think would be on the positive side versus air handlers and chillers on the other side perhaps? And then even within chillers, are you seeing any shifts between air cooled, where you guys have a very strong market position versus the water chilled side? Joakim Weidemanis: Yes. Great question. I think the big picture -- and by the way, I've spent the last few weeks in the field, of course, I spent a lot of time in the field all the time. But I visited 7 data centers in the last 3 weeks on site, both up and running and data centers under construction on 2 continents. So fresh input from the field. So there are more things that generate heat in the data center than the actual chips and I'm sure you've read about some of the things that are happening outside of thermal management on the electrical side, for example. And so what that does is that even though liquid cooling is being implemented, I think there was maybe a concern about a year ago that there would be less need for air handling units. And I think we're seeing the opposite at this point in time. So our Silent-Aire franchise is enjoying very healthy growth, and we expect that to continue because of other things than the chip generating heat. So our content, I think, is going to actually continue to increase a little bit as a result of that. And then I know there was some speculation about chiller content. And I think we discussed that in prior quarters. I think those fears were overstated. Maybe on the margin over the next couple of years, there might be a slight headwind, but the upside versus what we originally thought on air handling units will nicely offset that. And then, of course, our CDU business has just started to ramp. And we have hundreds of millions of dollars in the pipeline and expect about $100 million worth of business this year. And why not more? And it's just simply because naturally, many of our customers, they want to pilot and test them and so on before they place the big orders. So -- but we're very bullish about our opportunities. And in all those different franchises for data centers. So both chillers, air cooled, water cool as well as our air handling units, our Silent-Aire franchise and now with the addition of the Alloy technological capabilities, I think will only strengthen our positioning. Operator: Our next question will come from Julian Mitchell with Barclays. Julian Mitchell: Maybe starting with the Americas kind of operating leverage there. You've touched on margins a little bit. You started the year a bit muted on that second quarter, a nice pickup in Americas operating leverage. How are you thinking about the operating leverage for that segment in the back half? And I wondered really if there's been any change to your assumption around sort of gross cost headwinds because of Section 232 changes or broader inflation within that Americas business, please? Marc Vandiepenbeeck: Yes. So if you look at the margin improvement year-on-year this quarter of Americas, about 100 basis points. A lot of that came from pure growth and leverage. That means we had a little bit of a productivity headwind in the quarter and that came from mostly the ramp-up in our capacity. If you recall, a couple of years ago, we made substantial investment to increase hard capacity within our factories in North America to keep up with the demand. We are likely going to continue making investment in capacity. But as that capacity continues to accelerate and ramp, you have the natural production ramping in efficiency that comes with that as you train and onboard a whole lot more people as the processes get practice over time. You have a little bit of a short-term dynamic happening in productivity. That ramp and productivity opportunity will remain probably for the balance of the year as you're thinking about the operating leverage of the Americas. But there's enough kind of juice in the backlog for us to continue to see year-on-year margins to improve, and that's entirely embedded in our guide as an enterprise of an operating leverage of around 50%. On the 232, as you know, and consistently with how we've dealt with tariff for the past year or two, we've been able to navigate those both through long-term and short-term countermeasures. But given our current product mix and the way it's been classified under the different regulations, we've not seen a material impact specifically to 232, thanks to the fact that chiller are a category that are -- that is not including in that Section 232. There are some other parts of the business that have been affected by that, but it's rather minimal, and we feel very comfortable that's similar to what we've done in the prior 12, 18 months, we'll be able to pass on that -- some of that risk to pricing dynamics in the market. Julian Mitchell: And then my second question around shorter-term top line dynamics in the Middle East, I realize it's a very dynamic environment to put it politely. I think you saw a little bit of an impact in the second quarter, maybe just flesh that out on what it meant and what it means for your EMEA business and anything that you've assumed for improvement or deterioration or what have you there in the second half, please? Joakim Weidemanis: Yes. So we actually have an important business in the Middle East. We have about 2,500 colleagues on the ground. And our priority short term is very much about their safety and well-being. But of course, what we do is mission-critical for our customers and actually for some communities there as well. So we're trying to strike the balance between taking care of our customers and our people here. The Middle East, overall, for context, is about 2% to 3% of our overall revenue. But for EMEA, it's almost 10% or a little bit more than 10%. And in the quarter, about 1/3 of that business was really impacted, delayed, if you will, by the conflict here. So we're not anticipating a full return here in the quarter that we're actually in right now. But over time, we hope that, and if you're as good of a predictor of that as we are, but we hope that over time, things will go back to normal here in the last quarter of the year. Operator: Our next question will come from Andrew Obin of Bank of America. Andrew Obin: Can we talk about -- I know lots of times spent on HVAC, but clearly, we're also hearing is putting a lot more focus on [ buyer ] and control business. Can you just talk about the initiatives that are taking place in terms of market pricing? And also, can you remind us the impact of data center business on growth profile of those verticals? Marc Vandiepenbeeck: Yes. So obviously, HVAC has been one of the great growth benefit of what you've seen in the market particularly on data center, but other vertical as well, as we've mentioned them in the open remarks. A data center, just like any other infrastructure requires specific fire detection and fire suppression application as well as controls, both building controls and then, of course, equipment control associated to that. We have made a substantial investment over the last few quarters in creating specific applications for this vertical and we continue to see a lot of momentum building within these businesses, both fire detection, fire suppression, but also, of course, our Metasys building control solution. And we see that as a great opportunity moving forward. They have not yet gained the same level of opportunistic growth that the HVAC business has, but we believe the opportunity on a relative basis is probably as high. Andrew Obin: And maybe can you just share with us outside of data centers sort of growth initiatives at fire and control? Because as I said, the feedback is that they're doing quite a bit better. Joakim Weidemanis: Well, we have the same opportunities there, Andrew, as we have been applied. If you recall in prior calls, I talked about the early progress with the business system and commercial application. I talked about selling hours and a week for our salespeople or our solution architects where we -- for HVAC, it went from less than 10 hours a week selling to now above 20 hours in the areas where we've implemented that work. That exact same approach. We're now applying in controls, for example, in a number of places. And we're finding that we have the same opportunity, if not a bigger opportunity in terms of giving back more hours to our people, our solution architects in the Street. And the same -- we haven't gotten started yet as much on fire detection because we've prioritized Applied and Controlled, but fire detection, which is -- has some similarities with the selling motion and control, meaning that it's a system. I think we have very, very similar opportunities as in Controls and HVAC and Applied. That's on the selling side and on the service side, and I think you will see this a little bit in the Investor Day that's coming up, similar opportunities. Again, we're -- in terms of giving hours back to our field colleagues, there's significant opportunity on capacity. And it's not just capacity, it's of course if you have more capacity, you're able to respond faster and you're also in a position where you can have more choice around which -- on the service side of things, for example, choice around which field colleagues to send, not all field colleagues are, as an example, as competent on all parts of our offerings, right? So by having more capacity, you can both respond faster and you have greater choices around who to send. So some very, very good opportunities in those businesses. Andrew Obin: And so the margin opportunity associated with these initiatives is commensurate with what we have on the HVAC side, right? Joakim Weidemanis: Yes, exactly, yes. Because what we -- as we've discussed in prior calls, what -- the consequence of what I just described is that we can continue to grow without adding people. And at some point in time, of course, we'll also add people. But we're really trying to decouple the top line growth from the cost growth or head count growth, and that's going to drive margin expansion. Marc Vandiepenbeeck: And overall, the margin profile of our controls franchise is very accretive to fleet average, has been and will continue to be for [indiscernible] controls. Operator: Our next question will come from Patrick Baumann with JPMorgan. Patrick Baumann: I had one on the EMEA margin trajectory. It looks like second quarter was a really good result there. And I'm just wondering if you could give any context on where you think margins in that area can get to in the second half and then longer term, what the vision is? And then along those lines, you mentioned that earlier in the call, like the 80/20 focus. And it sounds like maybe that's playing out in security service as an example. Maybe that's in Europe. Just curious how much of a revenue headwind do you expect from this type of activity across the portfolio? Marc Vandiepenbeeck: Yes. So first on margin. If you look at EMEA for the year, it's improving nicely, give or take 100 basis points, and we are really happy with the big ramp we had this particular quarter because of the headwind we are seeing associated with the different macro challenges [ that we are seeing ]. The balance of the year, depending on how volume will shake out, you will see a, I wouldn't say, pressure on margin, but you will see a slowdown in the progression of that margin over time, maybe with a little bit of pressure in the third quarter and then some recovery in the fourth quarter. Net-net for the year, I think EMEA will come out very strongly and really helping for us to achieve that operating leverage. Longer term, I think we remain consistent. EMEA has been an area with a bit underinvested historically on both capabilities and products. We've been working diligently over the past 12, 18 months in fixing and addressing some of those gaps and making the right level of investments to have the same level of quality, differentiation and competitive products for EMEA. And as that comes, we feel very strong that EMEA has the opportunity to continue to raise and catch up to its regional peers within the segments of JCI. It's still a business as you can tell that operates at 300 to 400 basis points lower margin than its regional peers. It will probably remain slightly lower, but not to that level in the long run. Patrick Baumann: And on the 80/20 stuff, is that -- like what's the revenue headwind you expect from these type of actions across the portfolio? Have you provided context on that before? Marc Vandiepenbeeck: Yes. When 80/20 is applied, well, you should not see a massive long-term revenue impact because you actually free up room for the team to focus on the product where you have the most differentiation, the greater ability to drive value. Now obviously, in the short term, in sort of the pocket of the market, you will see some softness as we reposition the portfolio against higher runner. But I wouldn't anticipate any activity from the business system to impact whatsoever our ability to grow and compete. Patrick Baumann: Got it. And then on the backlog, have you -- can you quantify the shape in terms of the percentage you expect to deliver over the next 12 months? Marc Vandiepenbeeck: Yes. As the demand continues to ramp for our solution and as customers put orders ahead of really their ability to take delivery. We think easily 70% of our backlog can be turned into revenue over the next 12 months. The balance remains a little bit challenged right now. The main driver for that is power, electrical infrastructure for some of our data center customers that continues to kind of put a damper on their ability to commit on deliveries within the next 12, 18 months, and some of that have pushed a little further than we'd like. Joakim Weidemanis: Yes. And maybe just to add to that, we're also seeing customers place orders earlier for those reasons that Marc mentioned then. A little bit earlier than perhaps a year ago. So there has been a slight timing shift in our backlog here for that reason. Meaning beyond [indiscernible]. Operator: Our next question will come from Andy Kaplowitz with Citigroup. Andrew Kaplowitz: So I just wanted to follow up on that last comment. Obviously, you're growing nicely here, but you've had orders accelerated over the last couple of quarters. Your capacity to be able to sort of ramp up in '27, obviously, the timing of these big data center orders is key. But do you have the capacity you need considering that you will be delivering more of those bigger projects next year and beyond? Joakim Weidemanis: Yes. The short answer is yes, over the next 12-plus months. And because we built hard capacity that Marc was referring to, the actual factories, the buildings some time ago before I joined the company. And what's going on right now is we're ramping within those new buildings, if you will. And so we will have capacity for the next 12, let's call it, 18 months. And there's also plenty of productivity improvement opportunities, as I've talked about on previous calls. Now as we've all seen, the order entry has been very healthy here over the last couple of quarters. And our pipeline, as I referred to, remains very strong. And so of course, we're continuously looking at where we would need to add more hard capacity, meaning more footprint. And so that's an ongoing effort. And I think as long as we stay 12 to 18 months ahead of that, which we can right now based on what I said, we're going to be in good shape here. Andrew Kaplowitz: And then maybe just a bit more color on sales by geography. I know that you've had a bit of disruption in the Middle East as you talked about, but orders in EMEA have been accelerating lately on data center strength. Does that start to reflect into stronger sales growth in that segment as well as you go into '27? And then I think you said sales up 13% in Asia Pac, backlog is up double digits. Is China turning around? Or has it turned the corner for you? Marc Vandiepenbeeck: So starting with EMEA, I mean, we had a really strong 11% order growth on a compare of almost 13% last year. So it's a double stack that's pretty strong. That's a sign that some of our solutions are really starting to resonate, particularly in the data center vertical, but there's other aspects of the business that we see very positive there in the market in EMEA. And that's despite the disturbance we saw associated with the conflict in the Middle East. As far as APAC goes, that order rate of about 4% was on an easy compare, right? And transparently, we barely had any growth in order last year. It was, I think, flat. And so I would say, yes, we've bottomed out. We have passed that point. I think we passed that one probably a quarter or two ago. Now it's not a big return to growth, particularly in China. However, the same vertical where we see great opportunities, I'm thinking data center, semi car manufacturing as well as the biologics that we talked about in prior quarter. That continues to be a big tailwind, particularly for China. Our ability to convert there is not the same as maybe the rest of the world, but those opportunities are so large that we see an opportunity to continue to build some momentum in APAC and drive some growth. Operator: Our next question will come from Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Just wanted to follow on to Pat's question about backlog cadence. I guess it seems to suggest then that we're kind of exiting the year with 6% organic in the second half that you guys would expect to see a pretty big step-up in organic growth in the first half of '27 based on that backlog lead time that you provided. Just wanted to confirm that that's not a crazy assumption to be making? Marc Vandiepenbeeck: It's a little bit early for us to start forecasting next year, but it's not a crazy assumption. Yes, we're going to have a very strong backlog entering the year. I think the reason I'm pausing a little bit is some of the headwind Joakim talked about around our service business and some of more mundane parts of the portfolio where differentiation is a little bit harder to achieve. It depends how quickly we can turn that around to help support the level of growth you just mentioned. Nicole DeBlase: Understood. That makes sense. And then I guess just -- I don't think the question has been asked yet on Asia Pac margins also up really nicely year-on-year despite the tough organic environment in that region that you just spoke to. So Marc, can you just talk about the expectation for Asia Pac margins as we progress into the back half of the year? Marc Vandiepenbeeck: Yes. So they still had a pretty good revenue quarter. Their book and bill within the quarter was very strong. So 13% top line growth, really allow them to both drive net growth leverage as well as very strong productivity. We talk about around $20 million of productivity for that segment on $150 million or so of segment margin. That's a very material uplift. As you look at the balance of the year, we think Q3 is going to be probably closer to flat year-on-year associated with the fact that the level of growth that you saw this quarter will probably not repeat in the third or fourth quarter, and it's going to be closer to mid-single-digit type of growth for that period. But we still see some full year margin improvement for that segment, probably reaching the high 18% type of margin for full year for that particular segment. Operator: This concludes our question-and-answer session. I will now hand the call back to Joakim Weidemanis for any closing remarks. Joakim Weidemanis: Thank you. and thank you for all your questions. This quarter's results reflect the momentum that's building across Johnson Controls as our teams operate with greater clarity, discipline and consistency. We're seeing those improvements show up in how we serve our customers and in the strength of our results, and there's more to come. I want to thank our 90,000 colleagues for their commitment and passion in delivering a strong quarter and their energy and embracing our new way of working with our business system. This is how we're going to win. While we're early in our journey, we're excited by the momentum we see. Finally, today is National Skilled Trades day. So I want to extend a special thank you to our more than 40,000 field colleagues for all they do every day for our customers. You are such an important part of our competitive advantage. I look forward to continuing my conversation with all of our stakeholders. Thank you for joining us today. Operator: This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Chord Energy Corporation First Quarter 2026 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, 05/06/2026. I would now like to turn the conference over to Bob Bakanauskas, vice president of finance. Please go ahead. Bob Bakanauskas: Thanks, and good morning, everyone. This is Bob Bakanauskas, and today, we are reporting our first quarter 2026 financial and operational results. We are delighted to have you on the call. I am joined today by Danny Brown, our CEO; Michael H. Lou, our chief strategy officer and chief commercial officer; Darrin J. Henke, our COO; Richard N. Robuck, our CFO; as well as other members of the team. Please be advised that our remarks, including the answers to your questions, include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings releases and on conference calls. Those risks include, among others, matters that we have described in our earnings releases as well as in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During this conference call, we will make reference to non-GAAP measures, and reconciliations to the applicable GAAP measures can be found in our earnings releases and on our website. We may also reference our current investor presentation, which you can find on our website. I will now turn the call over to our CEO, Danny Brown. Danny Brown: Thanks, Bob. Good morning, everyone, and thanks for joining our call. Last night, we issued our first quarter results and our updated investor presentation. These materials outline key strategic, operational, and financial details along with our updated 2026 outlook. I plan on highlighting a few key points, then we will open it up for Q&A. To start, looking at the first quarter briefly, Chord Energy Corporation delivered another consecutive quarter of solid operating performance. The team did an excellent job executing through adverse weather conditions and some midstream constraints to deliver oil volumes above the high end of guidance. Additionally, we maintained solid cost control. Adjusted free cash flow for the first quarter was $324 million, substantially exceeding expectations, and we returned $145 million of this amount to shareholders through a combination of our base dividend and share repurchases. After accounting for lease acquisitions occurring in the quarter, we were also able to send $175 million to the balance sheet. Second, as we assess the macro environment, there is clearly an unprecedented amount of volatility and uncertainty in commodity markets. Chord Energy Corporation has been running a maintenance-plus program for more than five years, with the goal of maximizing free cash generation for our stakeholders. One of the key factors influencing this strategy has been the high levels of excess low-cost oil capacity, which has weighed on global oil markets and contributed to persistent backwardation. We will continue to monitor global supply-demand balances and, for now, given the uncertainty of how much and how quickly oil volumes will find their way into the market, we are comfortable staying the course with a flat-to-slight-growth volume outlook. Given this, drilling and completions capital is expected to stay consistent with our February outlook. However, we are seeing improvements in cycle times which accelerate some activity into the second quarter. Although 2026 capital spending expectations remain unchanged, we do have some flexibility within our program. Over the past two years, we have consistently outperformed initial expectations and have generally prioritized capital reduction over incremental volume growth. In the current environment, if efficiencies continue to improve and oil prices remain high, we are inclined to allow modest volume upside rather than focusing solely on reducing capital. For clarity, this does not bias our CapEx higher but simply means we are not focused on reducing CapEx in this environment and will let incremental volumes roll through should we continue to outperform. Additionally, Chord Energy Corporation is pursuing various initiatives to optimize our production base with efforts centered around maximizing very short-cycle volumes through high-return projects across our roughly 5,000 operated wells. These activities include accelerating workovers, reducing cycle times for down wells, various chemical jobs, debottlenecking surface constraints, optimizing artificial lift through the utilization of artificial intelligence, and a host of other projects. Accordingly, last night, we updated our 2026 outlook to reflect a 2,000 barrel per day increase in oil volumes, with a slight increase in LOE and capital remaining unchanged. Assuming $80 oil, the net impact is over $40 million in incremental free cash flow versus our February expectations. From an activity standpoint, we are currently running five rigs, one full-time frac crew, and one spot crew, with the spot crew scheduled to drop around midyear which, because of faster cycle times, is a little earlier than our February expectations. We continue to expect approximately 80% of TILs will be longer laterals split fairly evenly between three- and four-milers. We have also updated our 2026 guidance to reflect improving oil realizations. Currently, Chord Energy Corporation is realizing modest premiums to WTI and we expect that to persist through most of 2026 given the structure of the futures curve and linkage to waterborne crudes. Assuming benchmark prices of $80 per barrel of oil and $3.25 per MMBtu of natural gas for the balance of 2026, we expect to generate approximately $1.4 billion of free cash flow this year. With high levels of free cash flow anticipated, we expect shareholder distributions to remain robust in 2026 with a continued focus on a healthy and sustainable base dividend, supplemented by share repurchases. In the current environment, share repurchases continue to look attractive. However, in the interest of avoiding procyclical buybacks, Chord Energy Corporation may choose to taper repurchases if and when we see higher oil prices more fully reflected in our share price. In addition, we currently do not envision resuming variable dividends and plan to let excess free cash flow go to the balance sheet. This will reduce net debt and allow us to create per-share value in the future. Turning to our updated hedge position, you can see Chord Energy Corporation added significant hedged volumes in 2026 and a moderate amount in outer years as well. As a reminder, our hedge program is designed to systematically hedge more when prices are above historical levels and conversely hedge less when the strip is below historical pricing. In any prompt quarter, we have the ability to lock in up to 55% of our volumes if pricing surpasses certain thresholds, and the program deliberately moves at a slower pace further out on the curve. Currently, we have approximately one third of our 2026 oil volumes hedged and less than 15% of 2027. Turning to the long lateral front, I am happy to report Chord Energy Corporation successfully executed and turned in line its first full four-mile BSU development, the Tuni pad. The pad consisted of five wells, including one alternate shape, and Chord Energy Corporation was able to clean out to total depth on all wells. Both execution and early performance are in line with expectations. Slide 11 in our investor presentation highlights the Tuni success as well as Chord Energy Corporation’s progress on four-mile laterals in development across the perimeter of the basin. A significant reduction in drilling and completion cost per foot underpins the strong economics of these wells. Slide 10 on the upper right illustrates a 37% reduction in Chord Energy Corporation’s D&C cost per foot over the past four years. These benefits can be seen in Chord Energy Corporation’s improving program-level capital year over year. If you look at volumes delivered relative to capital spent—essentially the inverse of an F&D calculation—you can see the 2026 program is more efficient than 2025. Additionally, Chord Energy Corporation’s future F&D costs on a company level have trended 22%–25% lower over the past few years, clearly demonstrating sustained efficiency gains. Overall, we are very pleased with execution and early results from the four-mile program. As a reminder, Chord Energy Corporation is scaling its four-mile program in 2026 with approximately 40% of TILs and 60% of spuds expected to be four-mile laterals. In closing, Chord Energy Corporation remains committed to delivering affordable and reliable energy in a sustainable and responsible manner. We continue to improve the business, growing production while simultaneously improving the depth and quality of our inventory, driving operational efficiencies, and enhancing free cash flow. We will now open the call for questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. One moment for your first question. Your first question comes from John Abbott with Wolfe Research. Please go ahead. John Holliday Abbott: Hey, thank you very much for taking our questions. Danny, I appreciate the opening comments on the macro front; there is a lot of uncertainty there. My two questions are really on growth and on inventory. My understanding from our previous virtual events is that you do have the ability to grow at some point when the fundamentals support the long-term commodity price being higher. How do you think about that appropriate long-term price? And then the second part is on inventory: if you do grow when the commodity price is higher, how does that change the depth of your inventory as commodity prices were to go higher? Danny Brown: Thanks, John. Those are both great questions. From an oil price perspective, you are exactly right in our philosophy. It is not necessarily a specific price, but whether the durability in the macro setup supports that price over the long term. That has been fundamentally why we have been focused on more of a maintenance program as opposed to a growth program, because we have seen significant behind-choke volumes in the global market that could come to market at any time. That could undermine our price expectations, and we could invest a lot of capital and not get the returns off that investment that we may have expected when we undertook it in the first place, and we do not want to be exposed to that. As I look at the amount of volume not flowing currently within the global market, we just do not know how much and how quickly this volume will return to the market, which means the durability of any price signal is something we are somewhat circumspect on. If we did see a more constructive macro setup from a supply-demand balance where we thought the durability of, let us say, above mid-cycle pricing would be sustained for some period of time, we are in a great position in that we have a deep bench of low-cost inventory that we could accelerate into. We could deliver modest growth into the system—probably mid-single digits is something that we would be comfortable with if the structural setup was conducive to that. From an inventory standpoint, if we saw that setup and we were at, call it, above mid-cycle pricing and we thought that would stay for some period of time, clearly that is a tailwind for our inventory. We would look at new development opportunities; some incremental evaluation on our spacing would likely be appropriate at that point; and some areas on the periphery of the basin would come into the fold. So I think it would be a tailwind to inventory. We have been able to maintain 10 years of inventory for the last five years. I would expect in a higher commodity price environment, if we did push growth into the system, that would also mean our inventory was marching up as well. John Holliday Abbott: Appreciate it. Thank you, Danny. Operator: Your next question comes from Oliver Huang with TPH. Please go ahead. Oliver Huang: Good morning, Danny and team, and thanks for taking my questions. I wanted to start on the base production enhancement program. There were a number of callouts in the release—AI-optimized artificial lift, workover-intense programs, less downtime, among other things. Are you viewing this as something more structural, driving lower base declines for the portfolio across multiple years, or is this more of a one-time addition on the set of wells the program is targeting? I am trying to understand the sustainability of that uplift better and what sort of upside running room there might be beyond what is baked into this year’s guide. Danny Brown: I think it is a great question, Oliver, and the answer is a bit of both. We have had efforts underway as an organization to optimize the production from our base wells and have seen early success. In a world where the market is telling us it needs very short-cycle oil, we have had opportunities to lean in. I am going to ask Darrin to talk through some specifics and some of the early results we are seeing. Darrin J. Henke: Yeah, Oliver, we have seen a dramatic increase in productivity on our older wells. We have lowered some rod pumps further into the wells, and we have adjusted our artificial intelligence to focus on maximizing productivity out of our older rod pump wells. As you see on slide 12, lower right, you can see a positive impact to base production and really arresting decline on this group of wells. The teams are consistently generating new ideas, and as Danny said, it will take time to figure out how sustainable these changes are to the wells that have already improved. We have picked up a couple of additional workover rigs, we are focusing on longer-term shut-in wells that have some challenging downhole problems, and we are finding that we are able to get those wells back online and producing as well. There are a number of wells in that category that we are working on. While we see these higher prices, we are definitely trying to take advantage of maximizing our base production. Oliver Huang: Thanks for that color. For my second question, on the four-mile laterals, you have talked about verifying the toe contribution with tracers. As you get more data and a greater sample set, is there a point or quantitative benchmark where you would revisit and start to assume greater than the 80% contribution on the last mile of the well’s lateral if the data were to be supportive? Danny Brown: I think the answer is yes. Just like the three-mile laterals—after we got enough production history, we said we were no longer underwriting that last mile at 80%; we moved that up to 100% because we were seeing it in the production data. I think it would be a similar case for four-mile laterals. It is a little too early for us to say that right now, but we are continuing to monitor production. If we continue to see positive indications, we will come out with an update at some point in the future indicating that we are getting more from that last mile than we are currently underwriting. Oliver Huang: Makes sense. Thanks for the time. Danny Brown: Thanks, Oliver. Operator: Your next question comes from BMO Capital Markets. Please go ahead. Analyst: Hi. This is Jack Kindergen on for Phil. Just hoping you could touch on crude differentials a little bit. I think I have a decent understanding of the near-term premium to WTI, but can you help us understand what the second half might look like and why you could still price barrels above WTI at that point? Danny Brown: Yeah, Jack, good question. Over the end of the first quarter and into the second quarter, you are seeing stronger differentials in the basin. As you think about Brent-TI differentials, they have widened. A lot of our barrels get to the coastal markets, and you are seeing very strong differentials in basin. A lot of that is going to depend on how the broader global markets act, but we think that it certainly will last through the second quarter and maybe beyond into the second half. Analyst: Understood. Thank you. And you touched on your capital plans for the balance of the year a little bit, but seeing the oil uplift in 1Q and the better 2Q and 3Q guide, I am trying to get a sense of the April dip and whether there is a case for running higher activity—filling in completion white space—just to maintain operational momentum even if it leads to some CapEx creep. Danny Brown: I think at this point, we are pretty happy with our activity levels. We have the spot crew we will release later this year, and we run that crew continuously until we drop it. It is not like we need to manage white space in between an existing program; we will just drop that. I do not think there is a lot of efficiency improvement we would pick up by pushing incremental activity through the system. We are happy with our activity levels where they are right now. We will continue to monitor the macro situation, but it is too early for us to pivot off that. We are comfortable with where we are now. Analyst: Great. Thank you for the time. Operator: Your next question comes from Scott Hanold with RBC Capital Markets. Please go ahead. Scott Michael Hanold: Thanks. I was wondering if you could pivot to shareholder returns. You all had a pretty good appetite to be aggressive with buybacks, getting close to 100% in past quarters. It sounds like you want to be a little bit reserved just not to be procyclical, but when you look at your stock price today with oil near $100 a barrel, is this an opportunity for you to continue to be assertive with buybacks and push it a little bit harder? Or would you rather wait for a more countercyclical time to get that robust with buybacks? Danny Brown: Scott, I would frame it this way. If you look at the headline oil price, our stock is not underwriting anywhere near that level, in our opinion. We really like where our stock is at right now, and buybacks are very attractive at current levels. At some point, it may be that we see our stock price underwriting at significantly higher oil prices; we are not seeing that today, but we may at some point. At that point, we would consider tapering back on buybacks to avoid being procyclical. But I like where our shares are now. Scott Michael Hanold: Okay, understood. And looking at the Tuni pad, could you talk about the learnings from that? Have you seen cost reductions consistent or better than expected, and what does that mean for four-mile pad development moving forward? Danny Brown: Generally speaking, we are really happy with what we saw at Tuni. Anytime you get to pad-level development, you pick up efficiencies versus doing one-offs. Getting to pads is a pretty big cost improvement for us organizationally. I will let Darrin expand. Darrin J. Henke: We have 12 four-mile laterals now producing, five of them on the Tuni pad, and we have drilled 33 four-mile laterals. There are tons of learnings not only on Tuni but across other four-mile pads. We are consistently getting those wells drilled with one BHA. We recently drilled our first hairpin with one BHA, a pretty neat accomplishment. Tuni allowed us to put it all together on one pad and we saw efficiencies across the entire pad that we will take into future pads. As far as costs and performance, the costs were in line with what we expected on that pad, and well productivity is in line with expectations. We are very pleased with what we are seeing in our four-mile program at this time. Scott Michael Hanold: Appreciate that. Thank you. Operator: We now have a question from Neil Dingmann with William Blair. Please go ahead. Neal Dingmann: My first question, Danny, is on capital allocation. Specifically, I have seen a couple of guys now talk about dialing down buybacks perhaps in the turn-up cycle. What are your thoughts on incremental buybacks versus debt repayment for the remainder of this year if prices stay here? Danny Brown: In the current environment, we think our return of capital framework provides a great approach for capital allocation. Based on a lot of investor feedback, we are not focused on variable dividends at this point. So our return of capital program is really going to be made up of what we think is a strong base dividend plus share repurchases. We really like the shares where we are at right now. We recognize that if oil prices are elevated, we may think about whether it is the right time to be buying back shares aggressively. We have said for a long time we are not fans of procyclical buybacks. I do not think with where we are currently that is what we are doing. We think shares are very attractive, and they are currently commanding a significant focus from a capital allocation perspective. Neal Dingmann: Makes sense. Thank you. Second question, around slide 15 and inventory. You suggest—and I agree—10-plus years of low breakeven inventory. Have the assumptions changed at all when you include your price deck and costs? What dictates how you view the breakevens and the corresponding inventory? Danny Brown: The inventory that we put out there is really low sub-$60 WTI inventory, and that determines the count. If our pricing assumptions from a commodity perspective were higher than that, you would see more inventory from a count perspective. If structurally we get to a situation where we see a longer-term higher oil price, then we might think differently about our inventory position and you would see more inventory flow in. But we are looking at it from a sub-$60 standpoint. Neal Dingmann: Great. Thank you, Danny. Danny Brown: Thanks, Neil. Operator: Your next question comes from Pickering Energy Partners. Please go ahead. Analyst: Danny, I want to follow up on that last statement. You mentioned how higher oil prices would unlock some inventory that might not have been economical a few months prior. Would that change your capital allocation priorities, or would you still plan on targeting your highest-return wells first? Danny Brown: I think we would continue to focus on our highest-return wells. Analyst: Got it. That makes sense. As a follow-up, there is some volatility this morning. It seems clear that activity levels are unlikely to change given the current market dynamics. What other levers can the company pull to capitalize on higher prices? Danny Brown: When we say activity, our drilling and completion activity, we do not anticipate changing. We have flexed up on some of the very near-term, more OpEx-related opportunities—workovers and chemical jobs—across our 5,000 existing wells. Those can deliver very short-cycle volumes at incredibly high IRRs and profitability. You have seen us deliver some incremental volumes in the first quarter as a result. The other thing I would say is we continue to focus on improvement across all aspects of our business. We cannot control oil prices, but we can control our cost structure and how we develop the field. We have around 800 people who wake up every morning focused on making tomorrow better than today from a cost and productivity perspective. We will flex into those short-cycle OpEx opportunities that can deliver oil next week or next month, and we will keep improving the business across the board. Analyst: That is great color. Thanks for your time. Danny Brown: Thank you. Operator: You have a question from Texas Capital. Please go ahead. Analyst: Hey, good morning all, and thanks for taking my questions. For my first one, building off what you just mentioned, could you provide some color on the organizational changes you have made—whether it is standing up new teams or shifting allocation of resources—that have been driving the improvement in base production optimization initiatives? Danny Brown: It is a great question. One of the most significant organizational changes we have made recently is within our production engineering team. We have bifurcated that team into those looking at our wells on ESPs—our high-rate wells—and a separate team looking at the balance of our wells, measured in the thousands, that are not on ESPs. Naturally, a team responsible for all wells will appropriately focus on the high-rate ESP wells because they have the biggest impact, but that can mean you do not focus as much on the other wells, which in aggregate can still provide meaningful value. Recognizing that dynamic, we now have a group dedicated to the lower-producing wells. In aggregate, they can have a big impact on what we deliver and what our overall cost structure looks like. We have seen success with that, and I am pleased with the focus and results from both teams. Analyst: Terrific. For my follow-up, you are guiding around 40% of 2026 TILs and 60% of spuds being four-mile laterals. Could you provide some color on how the four-mile spud tilt this year potentially impacts the 2027 production profile? And is there a ceiling on the four-mile development mix given 50% of your inventory are four-mile locations and DSU geometry constraints? Danny Brown: We think about 50% of our inventory as four miles. In any given year, our development program will largely mirror our inventory makeup—some years slightly above, some slightly below that 50%. Because we are spudding about 60% four miles this year, that will obviously roll into 2027 from a production perspective. We have started that ramp this year and will continue it into 2027. Operator: Your next question comes from Capital One. Please go ahead. Analyst: Hey, thanks for the time. I wanted to ask you about the XPO assets. I recall you are in the process of re-permitting most of those wells for longer laterals. Where are we in that process and when might we see some of those wells coming into the fray? Danny Brown: As we moved into four-mile laterals and looked at spacing and lateral lengths, we wanted to make sure we maximize the contribution from that asset. We have taken our time doing that. As we look toward developing in that area, that is probably more of a late 2027 phenomenon. We might get some contribution in 2027, but more likely going into 2028. Analyst: Okay, sounds good. I am sure you cannot comment too much on this one, but what is the latest messaging regarding long-term plans for the Marcellus acreage? Danny Brown: The messaging around Marcellus remains consistent. We continue to see it as a non-core asset and have been very clear that we are looking to maximize value for our shareholders, which would include divesting that asset. We are not in a rush, but it is non-core, and we want to maximize value from it. In the meantime, it has very low friction cost to hold, and you can see from our first quarter results the significant value that asset contributed. We are absolutely open to divesting it, but we want to do so in a manner that maximizes value for shareholders. Analyst: Sounds good. Thank you, Danny. Operator: As a reminder, if you wish to ask a question, please press 1. Your next question comes from Jefferies. Please go ahead. Analyst: Hey, Dan and team, appreciate you getting me on. Just a quick one for me. I heard from NOG earlier last week about a large Bakken package coming for sale. What are your thoughts on M&A in the current elevated price environment, and what type of leverage are you able to stretch to in an upside scenario for the right type of inventory mix? Danny Brown: I will make some opening comments, then pass it over to Michael. From a positioning perspective, our footprint in the Bakken stretches across the entirety of the basin, so we think we could be quite competitive on any package that comes to market. We can bring synergies to bear like no one else can. We have great supply chains in place and know the subsurface well. We are believers in consolidation and think we can compete well in any process, but we will also be very disciplined in what we do. You have not seen us win every deal in the Bakken, and oftentimes that is because the market-clearing price was not something that would make us a better company at the end of the day. Michael? Michael H. Lou: John, usually when prices are moving very rapidly, there is a bit of a lull in M&A opportunities. As you have seen elevated pricing for, call it, two months now, I think you will see some assets come to market. The big question is whether you can close the gap between buyers and sellers in terms of valuations. As Danny mentioned, we think we are in great shape to be a consolidator in the Bakken, but we are going to be disciplined in the way we look at that marketplace. Operator: This looks like all the questions for now. I will turn the call over to Danny Brown for closing remarks. Please continue. Danny Brown: Thanks. To close out, I want to extend my sincere thank you to all of our employees, who through their hard work have positioned us for continued success. Chord Energy Corporation has consistently delivered results that have exceeded expectations while improving the quality and depth of our inventory and enhancing profit margins. Chord Energy Corporation has created what we believe is a valuable and increasingly rare asset: a substantial low-decline, high oil-cut production base paired with a deep inventory of highly economic, conservatively spaced, oil-weighted locations. We feel great about our competitive position and have a lot of confidence in our ability to deliver going forward. Thank you for joining our call. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
Unknown Executive: Our earnings release and Form 10-Q were issued earlier this morning and are available on our IR website. Our IR website includes a cautionary statement regarding the forward-looking statements. Today's webcast may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions and decisions and legal and regulatory developments. Refer to our IR website, the earnings release and 10-Q issued today and the risks and uncertainties described in our Form 10-K and subsequent filings with the SEC for more information on risks that could cause results to differ. A reconciliation of certain non-GAAP measures referred to on this webcast to the most comparable GAAP measures is on our IR website. Benjamin Daniel Swinburne, C.F.A.: Good morning. Welcome to the Walt Disney Company Fiscal Second Quarter Earnings Call. Thank you for joining us. I'm Ben Swinburne, Executive Vice President of Investor Relations and Corporate Strategy. With me today are Josh DAmaro, our Chief Executive Officer; and Hugh Johnston, our Chief Financial Officer. While we intend to keep our prepared remarks brief on future earnings calls. As this is Josh's first opportunity to speak to the investment community as CEO, we wanted to take the extra time for you to hear from him directly regarding his priorities for the company. You will notice that we've adjusted our earnings materials to shift our focus more toward the Walt Disney Company as a whole rather than its individual segments. This is deliberate as we hope it helps explain why we believe the company is uniquely positioned, lays out our strategy and illustrates how our various business lines operate together. We also shifted to a shareholder letter this quarter, with the intent of including all the information we hope is helpful to the financial markets in one place. After Josh's remarks, we will take questions from the analyst community. And with that, let me turn it over to Josh. Josh D’Amaro: Thank you, Ben. I want to begin by saying just how honored I am to be leading the Walt Disney Company. This is one of the world's truly great companies built over more than a century through powerful storytelling, constant innovation and a singular ability to forge deep emotional connections with audiences all around the world. I step into this role with genuine appreciation, a strong sense of responsibility and real optimism about what lies ahead. I also want to express my gratitude to Bob Iger. Bob led Disney with extraordinary vision. He led it with discipline and ambition. And because of that leadership, this company stands on a strong foundation with real momentum. I'm fortunate to be leading a company with exceptional assets, talented leaders and a well-defined strategic direction. My immediate focus, it's clear. We will execute with discipline against the plans and commitments we've already communicated to the market, staying focused on the priorities that we believe will unlock value for our shareholders. First, investing in the breakthrough creative storytelling that sets Disney apart; second, strengthening our streaming business through product and technology innovation; third, fully capturing the power of live sports as we continue building ESPN's direct-to-consumer business; and fourth, delivering on our bold growth plans at Disney Experiences. At the same time, while we execute our current plan with focus on precision, we're actively laying the groundwork for Disney's next phase of growth. Disney is uniquely positioned in the entertainment industry. No other company reaches consumers to the same degree across both digital and physical environments. Our goal is to leverage that position to extend our reach, deepen engagement and generate greater value from our world-class intellectual property. To fully capture this opportunity, we'll embrace technology more aggressively and build a more connected consumer experience with Disney+ right at the center. However, this morning, I want to stay focused on execution, how it's showing up in our results today and what it means as we head into the back half of the year. In the second quarter, we grew revenue and total segment operating income 7% and 4%, respectively, relative to the prior year and outperformed our guidance for the quarter. The outperformance was driven by stronger-than-expected revenue growth. Let's turn to our operating results in the quarter starting with streaming. Our focus remains consistent, improve the consumer experience, deepen engagement and continue building a healthy and more durable growth business. We made meaningful progress during the quarter on the platform itself with product enhancements that improve the Disney+ user experience. We were pleased with our entertainment SVOD financial performance this quarter notably a sequential acceleration in revenue growth from 11% in Q1 of '26 to 13% in Q2. Importantly, subscription revenue growth was driven by both rate and volume. Additionally, we saw double-digit advertising revenue growth compared to the prior year period. We are highly focused on churn, and we continue to see the integrated Disney+ and Hulu experience benefiting retention. Disney+ has meaningful opportunity for growth internationally, and we're focused on scaling outside the U.S. We are increasing our local content investments and early results that are encouraging. While more work remains, we're pleased with the progress we're making in both the consumer experience and underlying economics. Our IP remains central to our long-term streaming success. And we continue to invest in the great storytelling franchises and talent that define Disney and fuel our film and television content. Highlights in the quarter that demonstrated this focus included returning Series High Potential and Paradise along with our new limited series Love Story: John F. Kennedy Jr. & Carolyn Bessette. And we, of course, see the potential of the strategy in films like Zootopia 2, which not only generated $1.9 billion in global box office, but the franchise has now surpassed 1 billion hours streamed on Disney+. . During the quarter, we released Pixar's Hoppers to critical success. A strong reminder of Pixar's track record of creating meaningful original IP that resonates with audiences all around the world. We are thrilled with last weekend's opening of The Devil Wears Prada 2. And as we look ahead, we're excited about our upcoming film slate, including The Mandalorian & Grogu, Toy Story 5, the Live-Action Moana and Avengers Doomsday. When you look at our upcoming slate of franchise films, each has potential to resonate with our fans well beyond its initial release, moving across platforms, experiences and products in a way that deepens engagement and extends reach over time. At Disney Experiences, we continue to demonstrate strength in the core business and make progress against our growth initiatives with strong revenue growth of 7% and segment operating income growth of 5% in the quarter. Both revenue and segment operating income were ahead of our prior expectations and represent second quarter records. Over the past few quarters, the team has successfully navigated known attendance headwinds. We are now starting to lap these headwinds and expect attendance trends at our domestic parks to improve in Q3 when compared to the results we reported for Q2 today. Since our last call, Disney Cruise Line launched the Disney Adventure, our first ship homeported in Asia. And at Disneyland Paris, we opened World of Frozen as part of the reimagined Disney adventure world. These are meaningful milestones that extend the reach of our brands to new markets and new fans around the world. The strong demand that we're seeing for these attractions reinforces our confidence in the long-term opportunity across our portfolio of experiential assets, parks, cruise line and immersive experiences alike. We remain mindful of the near-term variability but are also well positioned to benefit from sustained consumer demand for live entertainment at a scale unique to Disney. Speaking of the power of Live, ESPN continues to build toward a stronger direct-to-consumer future. Enhancements to the ESPN app, including Multiview, Verts and SportsCenter for You are making the offering increasingly compelling for fans. As we manage this business in transition, we remain focused on serving sports fans in a way that fully captures the value of ESPN and live sports within Disney's broader direct-to-consumer offering. Looking at the first half of the fiscal year and our expectations for the second half, we're executing with focus, delivering against our stated commitments and investing in areas that we believe will drive long-term value. As we look ahead, my strategic priority as a CEO build directly on that foundation. Let me summarize my long-term perspective briefly here. First, creative excellence, it will remain at the center of everything that we do. Disney's greatest competitive advantage. It's always been the quality of our storytelling and the enduring connection our brands have with audiences all around the world. Second, we have a real opportunity to deepen our direct relationship with our fans by creating more connected Disney experience across streaming, sports, games and experiences with Disney+ playing an increasingly central role. Third, technology, it can be a powerful accelerant for Disney, improving the consumer experience across our business lines, driving operational efficiency and unlocking new possibilities for creativity, growth and returns. To wrap up, our immediate priority is disciplined execution, but I'm equally energized about the opportunities ahead. Disney has iconic brands, extraordinary creative talent, powerful platforms and unmatched experiences. Our job is to execute with rigor to invest with confidence and connect those strengths in ways that create lasting value for consumers and shareholders alike. With that, I'll turn it back over to Ben to begin our Q&A. Benjamin Daniel Swinburne, C.F.A.: Thanks, Josh. We will now turn to questions from the analyst community. So our first question is from Sean Diffley from Morgan Stanley. This is for you, Josh, on strategic priorities. What are your 3 biggest priorities going forward? What are the biggest synergies between the businesses today? And any examples to Disney can leverage learnings across its businesses? Josh D’Amaro: Okay. Great. Well, thanks, Sean. I guess, first and foremost, what I'm focused on is executing on the priorities that we've already communicated to the market. And I think this group knows these. In fact, I just hit them in my prepared marks -- prepared remarks. First, we're focused on creating best-in-class content. We're doing really well there. Second, we're strengthening our streaming businesses and driving top line growth and profitability as well. Third, we're continuing to take advantage of the growing power of live sports and build ESPN's direct-to-consumer business. And then, of course, we're turbocharging Disney experiences all across the globe. . while we're focused on executing these priorities, we're also starting to lay the groundwork for the next phase of growth. And you're going to hear more about this over time, but maybe today, I'll just share some high-level thoughts on that. First, we're going to continue to build and fully leverage all of our IP. Of course, this starts with great storytelling. But the opportunity is going to be much broader than that. We'll invest in both existing franchises and new IP, so that means building on brands like like Toy Story, while also at the same time, creating new stories that connect with generations of fans across the globe. And the key here is fully harnessing that IP across the whole company. That's in film and streaming across our experiences and products and games so that each of our successes it compounds and value over time. Then second, I think we have a real opportunity to deepen our direct relationships with our fans, and we can do this by creating a much more connected Disney experience, and we'll do that across streaming and sports. And games and experiences and we'll put Disney+ right at the middle, playing an increasingly central role. And then third, technology. I think it can be a real powerful accelerant for Disney. I think it can improve the consumer experience across our businesses. It will certainly drive operational efficiency for us and then unlock brand-new possibilities for creativity, for growth and returns. And then when you step back and you put all that together, our next phase of growth, it will be centered on creative excellence. It will be a more connected fan experience, and we'll use technology as an accelerate. But I just want to be clear, as I said in the immediate term, I'm staying focused on delivering the priorities that we currently have the motion. But thanks for the question. Benjamin Daniel Swinburne, C.F.A.: Great. Thank you, Sean. Thank you, Josh. We're going to now turn to 2 questions on our direct-to-consumer streaming strategy. First question is from Michael Ng from Goldman Sachs, probably for you, Josh. The success in the parks was built on driving per capita and attendance though high-touch immersive storytelling. As you take the helm of the company, how do you replicate this high LTV model within Disney+? Specifically, does Disney+ become less a video repository and more of an interactive hub, including merchandise park access and games integration? Josh D’Amaro: Okay. Well, thanks, Michael. I guess I'll start. Lifetime value is something that we're focused on across the whole enterprise. And -- you start with our fan base. Disney has the world's most passionate and loyal fans. It's something -- if you go to our theme parks, you see it all the time. They're a high touch, high LTV business and our biggest fans, they come off it and they tend to be repeat visitors. Now a large number of our park visitors, they're also Disney+ subscribers, but there are millions of Disney+ subscribers who aren't regular park visitors. And so this is where we're focused. Our parks -- they're essentially the physical center piece of the company. And similarly, we're building Disney+ to serve as the immersive interactive digital center piece of the company. And in the long term, what you'll see is those pieces of the company become increasingly connected. And when we do this well, which we will, the lifetime value equation, it starts to change fundamentally. A fan who watches a Disney film, for example, or visits a park or plays a game and buys our merchandise, it's not just a subscriber. They're in a relationship with a company, one that spans years and can generate value across every part of our business. And that's the model that we're building toward right now. Benjamin Daniel Swinburne, C.F.A.: Great. We're now going to take a question from David Karnovsky from JPMorgan. Again, I think for you, Josh. As you think about Disney+ domestically, what path do you see to organically grow engagement? How do you think about this in terms of your own content but also through making the platform a portal through which third parties can distribute programming? Josh D’Amaro: Okay. A lot in there. Thanks, David, for the question. So I'm happy to talk about engagement. I think you asked domestically, but truly around the world. I'll start with maybe something that's obvious. It's a competitive streaming marketplace out there right now, but despite that, we saw an increase in engagement in the quarter. And then when we look ahead, our key drivers for engagement growth, they include content and product enhancements. On the content side, we're obviously going to continue to deliver exceptional content, not just the popular franchise films, but across television and live sports and general entertainment and international local programming as well. On the product side, our team is really focused on improvements that reduce user friction that allow more intuitive discovery for our subscribers and help users decide what to watch and to decide sooner. So you think of it like a visual homepage, easier navigation, more personalized recommendations. There's a good example of this in our video and browse initiative. It launched in the United States back in January. And what it does is it lets subscribers preview content directly while still browsing. So they don't have to click in and out of titles. So yes, our tech team is making some really nice strides here, always learning and iterating and doing a lot of experimentation. And then engagement, of course, is critical to reducing churn on the service. All of the opportunities that we have to drive value at this company, reducing churn, Disney+ might be the single most significant opportunity that we have. And so it's probably not surprising on pushing the entire organization to prioritize against that goal. And then on third-party distribution, I guess that I'd position it as we're selective, but we're not closed off the right partnerships, whether it be on content or distribution, they have to strengthen the Disney+ experience and then deepen that fan relationship. And our bundling approach inside of Disney, I think it's a good example of how that works well. It drives lower churn, drives higher engagement than any of the services if they were just on their own. So we'll continue to evaluate those opportunities through that specific lens. Benjamin Daniel Swinburne, C.F.A.: Okay. Next question is from Rich Greenfield at LightShed Partners. I think this is for you, Josh. You recently stated Disney+ will continue to evolve beyond the traditional streaming service to become the digital centerpiece of the company a portal that connects stories, experiences, games, films and more in entirely new ways. Rich's questions are he's curious what you mean by digital center piece? Does it imply a shift away from third-party licensing, distribution to drive engagement with Disney+. How do you think about the trade-offs of reach and exposure on third-party platforms versus keeping content exclusive to Disney streaming platforms? And then the last piece is how do you reconcile Disney+ as the digital center piece, we are Epic Games partnership that will place a Disney universe into Fortnite? Josh D’Amaro: Okay. Great question. And it's -- I think, as I'm listening to that, it's really 3 questions. So I'm going to take them in turn here. So first, digital centerpiece means Disney+ becomes the primary relationship between Disney and its fans, the place where everything comes together, entertainment, sports, experiences, all of that convergence. So it's less about a product. It's more about how we're -- it's a strategic posture essentially. On third-party licensing, we've always distinguished between franchise, IP and general entertainment. So franchise and brand IP stays on the platform and general entertainment, that library content can find audiences elsewhere, and that's -- it's been working pretty well for us financially. And then on your question about Epic Games and its relation to our Disney ecosystem. I think -- so Disney+ is the hub, but the hub needs spokes. Epic gives us an interactive a gaming native environment to reach audiences that we don't currently own, and by the way, particularly younger audiences. So think of this as acquisition and engagement, feeding the centerpiece, not necessarily competing with it. The road map runs from near-term streaming optimization and content investment through medium-term interactivity, things like vertical video, personalized ESPN, the Parks AI work all the way to a longer-term single point of contact with our fans that drives lifetime value across everything that we're doing. The through line here is going to be the same on that fan relationship. So thanks for the question, Rich. . Benjamin Daniel Swinburne, C.F.A.: Okay. We're now going to move to 3 questions on Disney Experiences. So I think for Hugh, a question from Sean Diffley at Morgan Stanley. On core U.S. parks trends, can you unpack the international visitation and Epic-related headwinds that you are seeing and if they are sequentially better or worse over the last few quarters? Hugh Johnston: Right. Thanks for the question, Sean. Answering directly, we expect international visitation and Epic related headwinds to ease in the coming quarters as we begin to lap both of those impacts. Q2 experiences results came in ahead of our prior guidance despite the fact that these headwinds did have some impact in the quarter on segment OI, which was up 5%. And and attendance in domestic parks, which was down 1%. While Q2 were the full impact of those headwinds, excluding just the international visitation impact the domestic parks attendance would have grown. Despite this, our revenue growth for the quarter was 7% in experiences and the lack of flow-through to operating income this quarter was driven primarily by preopening costs for World of Frozen and the adventure, which we won't be incurring obviously, in the second half of the year. We recognize that domestic attendance is an important metric for investors and we're focused on it as well. However, as you know, we're investing to grow our global footprint, including plans to expand the cruise line fleet from 8 currently to 13 ships by 2031. So tying our guest demand to our capital plans more directly, global guests, which aggregates domestic and international parks attendance along with passenger cruise days grew more than 2% in Q2. The good news is, as we look forward, we expect growth to improve in the back half, and our forward bookings are very encouraging as we look to the rest of the year. Benjamin Daniel Swinburne, C.F.A.: Great. Another question. This is from Steven Cahall from Wells Fargo. Hugh, have you picked up any change in behavior at domestic or international parks due to the increased price of oil, gasoline, how are you managing around these risks? And at this point, do you anticipate any shift to your adjusted EPS growth guidance for fiscal '26 or fiscal '27 due to the macro factors? Hugh Johnston: Thanks, Steve. No, we haven't seen any change in consumer behavior from elevated gas prices thus far and are currently seeing a material impact on the remainder of the fiscal year based on forward bookings. Disney World bookings are pacing up strongly. And even with our 40% increase in cruise capacity, booked occupancy remains in line with the prior year. However, we're mindful of the macro uncertainty consumers are facing, and we're not immune to the impacts, including how a significant further rise in fuel prices from current levels could eventually lead to changes in consumer behavior. If that possibility were to occur, each business has levers in place to make adjustments in order to help offset those kinds of macro pressures. So as we communicated in our letter, we expect 12% growth adjusted EPS for fiscal '26 and double-digit growth of adjusted EPS for fiscal '27 both excluding the impact of the 53rd week. Benjamin Daniel Swinburne, C.F.A.: Great. Maybe over to you, Josh, kind of last question on experiences. So looking for an update, this is from Rick Prentiss at Raymond James, looking for an update on capital expenditure investment program. What are you most excited about? What have you learned from the recent openings of the World of Frozen at Disneyland Paris? When can we expect the investments to drive inflection upward in attendance at the parks? Josh D’Amaro: Okay. Great. Well, first, I'm excited about a lot. So thanks for the question, Rick. The capital investments that we're making to create these new experiences based on our most popular IP, they're obviously an important part of our strategy to continue growing our experiences business. And these investments, they're diversifying our portfolio and allowing us to reach a lot more Disney fans. I was at the opening of World of Frozen in Paris in March. And if you get an opportunity to go and see it, you can understand why the guest response has been so great. I mean it's completely transformed our second gate at Disneyland Paris. And we have so much more of this coming around the world, and the investments are working hard for us. I'll say that well, we haven't officially announced opening dates for some of our other major attractions that are coming, we have more projects underway around the globe than at any time in our history. So we're being very ambitious and very exclusive on this front. In '26, most of our forecasted CapEx and experiences includes the new ship and the ramp of major new expansions at Walt Disney World in Orlando, Disneyland and our Shanghai Disney Resort. And then when we think about the next decade, the majority of our CapEx is earmarked for investments that that are expanding our capacity. Our business has a solid track record of generating great returns and driving long-term earnings and cash flow growth. And each one -- this is important. Each one of these investments is individually justified and designed to entertain guests for literally generations to come. I think it's worth noting that we also have a few exciting expansions underway using what we're calling a capital-light model. So we've got a new cruise ship with the oriented land company in Japan and a new theme park in Abu Dhabi with our partner, Miral. And then finally, when we look forward, demand is healthy. We're expecting attendance at our domestic parks in Q3 compared to the prior year period to show improvement compared to the 1% decline that we had reported in Q2, and this will happen as headwinds related to international visitation stabilized, and we begin to lap the opening of Epic Universe. Benjamin Daniel Swinburne, C.F.A.: Great. We have 2 questions now on the content front. I think Josh, this one's probably from you. This is from Jessica Reif Ehrlich from Bank of America. Josh, some of Disney's greatest growth years were driven by original IP from Disney Pixar and Marvel. Can you provide color on how you plan to supercharge your content division? What changes should we expect now that content is unified under Dana Walden? . Josh D’Amaro: Okay. Thanks, Jessica. This morning, you heard me talk about how creativity is absolutely central to the execution of our strategy. And we're focused on investing in IP that really breaks through that builds those fan connections endure. And as you heard me say this morning, Zootopia is a prime example of this. We understand the importance of investing in existing franchises but then also taking creative risk to build brand-new ones. And I think the studio teams all over that, you take Hoppers as an example. So this is original IP from Pixar, great critical reception, and we're pleased with how fans have embraced the film and all the new characters that come along with it. And just -- just think about this relative to original films. Pixar, the Pixar alone has released 8 original films since 2017 as it feels like Coco, Soul and Elemental. And when you step back and think about it, that's more than all of the other major non-Disney animation competitors combined during that same period. So in an industry that's changed so much since the pandemic area -- pandemic era, I should say, we've continued to make bets on original stories and characters. And I think the team is doing a really great job continuing to push here. And then, Jessica, you asked about Dana Walden as well. As you know, we consolidated our creative engines and distribution under Disney Entertainment. And we did this to streamline operations to unlock synergies where we could and to accelerate decision-making and sharpen our strategic focus. And Dana is already moving on this. She I think, is uniquely suited to lead this new organization. She has a long track record of high-performing creative businesses. And under her leadership, we're starting to break down silos. We're prioritizing investment and maintain a quality audiences expect from the Disney. And a lot has already happened and what is it, 6 weeks, she's already made moves that signal what's ahead. We centralized television programming within Disney Entertainment DTC. So we're programming for Disney+ and Hulu, while being smart about window and content to linear so that we can expand reach and maximize monetization. And we also integrated our Games business into Disney Entertainment. And this creates new opportunities to cross-promote franchises and use games to extend storytelling and ultimately develop new IP. So essentially, Dana is making sure that every decision we make in content from development all the way through how we distribute that it's optimized for the fan and for the long-term strength of our brands. Benjamin Daniel Swinburne, C.F.A.: Okay. A question from Jason Bazinet at Citi. I think this is also for you, Josh. Does Disney believe there is a secular shift towards short form and user-generated content? And if so, how can Disney capitalize on this shift? Josh D’Amaro: Okay. Thanks, Jason. The short answer is yes. It's something that we're seeing and we're actively leaning into. So short form and creative content, they've exploded in the past few years. And it's an area we're focused on because we have deeply committed fans who love our brands and our franchises and characters, and they want to engage with them in this new way. And this is specifically important when we think about Gen Alpha, obviously, the newest generation of Disney fans. So what we're doing is we're experimenting a short form content in a variety of ways. You saw it, maybe some of you saw it in our creators collection initiative, which brought Predator and Lilo & Stitch creator led videos to our streaming platforms. And we're going to continue to advance that work in the months ahead. We're also really focused on making sure that our IP shows up in relevant ways across social platforms. Probably not surprisingly, our brands have an enormous following with people around the world, everything from short-form video to music videos, podcasts and the like. And then we're adjusting our own products to reflect the way consumers want to interact with our content. You probably saw that we recently introduced vertical video on Disney+. And we're still in early days here, but it's already driving deeper engagement. In fact, we did the same thing on our ESPN app and the early performance of the ESPN Verts, it's been really promising. So I think across the board on on our platforms, on social and how we're building our products. We're trying to meet fans where they are in terms that makes sense to them. But it's a great question. Thanks, Jason. Benjamin Daniel Swinburne, C.F.A.: Okay. Thank you. Question on the NFL for Hugh. The NFL appears intent on reopening -- excuse me, this is from David Karnovsky from JPMorgan. The NFL appears intent on reopening media rights deals, given Disney and ESPN have guaranteed programming through the 2030 season, how do you weigh the opportunity to engage with the league now versus sitting on your existing deal until the opt-outs? Hugh Johnston: Thanks, David. Our relationship with the NFL is as broad as deep as it's ever been, and we're excited looking ahead to the upcoming NFL season with the NFL network and with Red Zone linear now part of our distribution portfolio on top of Monday night football and broader NFL coverage. To get to your question specifically, we haven't yet engaged with the league on early renewal conversations. Well, we're not dogmatic about the process, and we're always willing to have a conversation with the NFL in an effort to find new opportunities for growth. We expect to be in the business with the league for years to come, and we'll, of course, evaluate this deal as we would any deal with discipline and a focus on driving value for Disney shareholders. In that regard, we're really looking forward to our year of the Super Bowl and all that it can bring to both all fans and Disney shareholders in the coming year. Benjamin Daniel Swinburne, C.F.A.: Okay. Our next topic. We have 2 questions on technology. This is from Robert Fishman from MoffettNathanson. This is directed at you, Josh. Given your second priority of embracing technology, should investors expect to see any differences in the way technology is already being used at the company and across your streaming services? Are there specific improvements or metrics like higher Disney+ engagement that we should use to judge success? Josh D’Amaro: Okay. Great. Thanks, Robert. Yes, embracing emerging technologies is one of the 3 priorities that we laid out in our shareholder letter this morning. So it's something that every part of our company is squarely focused on. That focus is on both our internal operations as well as our customer-facing areas across each of our business segments. In terms of what will be visible to you, maybe a couple of examples. First, you'll see a greater level of interactive entertainment for Disney+ subscribers. Second, you'll see more personalized content feeds across all of our streaming services. And that personalization effort, it's already starting. It's something that I use all the time is a big sports fan is SportsCenter for You. I hope some of you are using it. You can kind of think of it like your own personalized SportsCenter, where each day you get automatically curated content related to the teams in sports that are most interesting to you with all the familiar ESPN anchor voice is narrowing it. The goal with all of this is to drive higher engagement, obviously, which in turn supports greater retention, and then ultimately delivers on the bottom line for our shareholders. Benjamin Daniel Swinburne, C.F.A.: And then we have a question also on technology from Laura Martin at Needham. Probably probably each of you may want to chime in here. Where is Disney integrating generative AI to lower costs and/or accelerate revenue growth today? And what's on the road map to keep growing AI benefits to Disney shareholders? Josh D’Amaro: Okay. So Hugh, maybe we split this one up if you're good with that. Laura, as I touched on in the last question, we look at advanced technologies, including AI, is a meaningful long-term opportunity for us at Disney. At the same time, we're committed to implementing AI in a way that keeps human creativity at the center of everything that we do. And of course, respects creators and the tremendous value of our own intellectual property. And when we think about AI specifically, there's a lot of opportunity here. I'll take 3 categories or so, and then Hugh, I'll hand it to you, and you can talk about some additional ones. First, we want Disney to remain a leader in the use of technology to enhance creativity. This is -- it's just part of our legacy going all the way back to when Walt was pioneering synchronized sound and Steamboat Willie, and moves all the way through to Pixar's advanced computer animation and then even recently in series like The Mandalorian on Disney+. And when we do this right, will be a place where I think the best talent works because they'll have access to the deep dialogue of beloved characters with opportunities to tell new stories. And and even the potential to innovating content production using all the latest technology, including AI. Now for our shareholders, we see AI as a potential driver of improved returns over time, which will -- it will include making the production process more efficient and increasing the volume of content that we actually put out. In streaming specifically, we've got a lot of work going on to develop really like a hyper-personalized recommendation engine across Disney+ and ESPN. And then we're implementing AI to enhance our ad targeting capabilities, letting our partners develop and and execute truly dynamic brand messaging. If I move over to the experiences side, we see a significant opportunity to make it easier for families to plan their trip to optimize all the time with us and to personalize their experience. Disney Vacation means a lot to our fans, and we're using AI to reduce the complexities around planning and booking a trip and trying to make that whole experience specifically tailored to what our guests want most. So a fair amount going on there, but Hugh... Hugh Johnston: I'll jump in on the last couple, sure. On workforce productivity, we're focused across several areas. One of the ones I find particularly interesting is an initiative to implement precision labor demand forecasting across our theme parks. We think that one has the potential to create a better guest experience, a better employment experience and also better cost management for the company. So we're very excited about that. And then on enterprise operations, as is true with really many, many companies the pathways to both drive efficiency and reduce costs are really quite numerous across the enterprise. Last, Laura, you didn't specifically ask but we do see our experiences business as well positioned structurally in a world of rising AI-driven content. We think it may end up increasing even more the value consumers place on authentic real-life experiences to -- with those that they are close to like we deliver across the parks and resorts every day. Benjamin Daniel Swinburne, C.F.A.: Great. Okay. We're going to now take 2 questions on the portfolio of assets at the Walt Disney Company. I think these are probably both for Hugh. So this is from Robert Fishman at MoffettNathanson. How do you view the importance of ESPN and linear networks through the lens of your priorities to create -- to drive creativity, quality and global scale at the company? Hugh Johnston: Yes, it's a great question, Robert, and obviously, one that we hear a lot. So I'm going to try to be as clear as I can in the answer on this. We do understand there is a lot of focus on linear and entertainment assets and ESPN. So I'll explain our view here. Let me start with linear entertainment cable networks and 3 points. First, these networks are better thought of as brands with studios that produce content like the Bayer or show gun and we monetize that content across multiple distribution platforms. Separating those monetization platforms into discrete businesses is highly complex and in our view, unlikely to create incremental value for shareholders especially given where linear networks are valued in today's marketplace. Second, we're managing a monetization transition of these brands, and we are actually far down that migration path. We're generating more revenue at Disney Entertainment in streaming than in linear, more than double if we look at it in this most recent quarter. So the linear earnings base is becoming smaller and smaller every quarter within our P&L. Finally, yes, linear revenues are declining, but Disney Entertainment as a segment is growing nicely. Our guidance continues for double-digit segment OI growth. This fiscal year, excluding the 53rd week. So with all the cord-cutting pressure, we're all aware of. Disney Entertainment is actually one of the faster-growing media businesses out there, and we're actually very, very proud of that. Turning to sports in totality. We view ABC as strategically connected when we think about ESPN and sports in general. Sports is admittedly a separate discussion in that it is much earlier in its monetization transition, having just launched unlimited last year. However, when we look at the marketplace for streaming in our competitive set, Netflix, Prime video, YouTube, Paramount+, all of them are increasing their position in live sports. Sports rights are expensive and can be dilutive without scale but we have scale in our most important market, the U.S. and the biggest sports media brand in the world in ESPN. We view sports as a key part of our programming strategy and ESPN as an important contributor to our distribution portfolio. For sure, we have to continue to work through this economic transition for ESPN while also better leveraging it for our overall business. As we do this, we will continue to deliver healthy consolidated earnings growth for shareholders. More broadly, when it comes to capital allocation, we're always assessing and looking to maximize shareholder value of our portfolio. That is our responsibility to shareholders, and we will continue to do that in the future. Benjamin Daniel Swinburne, C.F.A.: Okay. Great. Thank you, Hugh. Next, on the portfolio. Can you expand on the One Disney strength as it relates to your sports businesses and general entertainment assets. Specifically, how do those businesses fit into a Disney focused paradigm that is strong across both entertainment and experiences? Are there any elements of the company that you would consider noncore in the context of One Disney? And I apologize, this is for Mike Morris at Guggenheim. Hugh Johnston: Sure, Mike. We do see One Disney as an important priority for the company. It really is more than a strategic headline. It's about how we create, distribute, engage and monetize our stories and brands across the company in a way that increases the lifetime value of our consumers and drives compounding returns for our bottom line, and thus for our shareholders. It's also about how we operate as a company, less a portfolio of assets and more a set of connected businesses that are focused on the fan, the consumer with an enterprise-wide lens store engagement and lifetime value. Turning to what is more of a portfolio optimization question. As I mentioned earlier, the entertainment networks are better thought of as brands with studios that produce content that we distribute across our platforms with the intent to increase reach and engagement. And at ESPN, we have the biggest sports media brand in the world, as I mentioned earlier. That now includes even more NFL content. In fact, I think it's the most we've ever had from the NFL, which is being made accessible to consumers across all distribution platforms and devices. And Mike, to your question on noncore assets, know that we're always evaluating the merits of our brands, org structure and business priorities to deliver long-term value for our shareholders. If there is a compelling case to consider strategic alternatives for any noncore assets, you can reasonably conclude that, a, we've already looked at it; and b, we'll continue to do so in the future as the marketplace and our businesses evolve. Benjamin Daniel Swinburne, C.F.A.: And then moving to a question from Steven Cahall at Wells Fargo on efficiency. I think for you, Hugh. It appears that one of the early initiatives is to increase efficiency, including some recently announced workforce reductions. How big is the opportunity as you take a fresh look at the operations, where is the most room for improvement? And should we think about efficiency gains as falling to the bottom line or being reinvested into areas of growth like content technology spend? Hugh Johnston: Right. Thanks, Steve. These are always difficult exercises for the organization. But let me assure you, this management team is acutely focused on this. At a high level, however, we're working towards driving efficiency and rightsizing our organization for the state of the business today and where we want to go over time. And second, shifting more of our expense base into areas that we expect to drive growth. That's content and technology. The most recent example you cited is a part of our push to unified enterprise marketing organization, and the recent staff reductions reflect a deliberate shift toward a more agile, technologically enabled and resilient workforce. We aren't going to size the opportunity or rank order the areas that we're focused on, in part because this is an ongoing exercise and a muscle we're building for the company. We want to build a culture of efficiency, and we want to fund growth opportunities from within the existing expense base. Across the company, we're aligning structures, capabilities and talent to what the business needs next. We're simplifying where we can, while investing where it matters most, and we're using technology to fundamentally change how work gets done. We have been and will continue to look for these types of opportunities to redeploy capital, both financial and human, to areas we see driving the highest returns for shareholders. Benjamin Daniel Swinburne, C.F.A.: Okay. With time for 2 more questions or 2 more analysts asking questions, and these are focused on our second quarter results that we just released in our outlook. So I think a few Hugh, worth hitting from David Karnovsky from JPMorgan, starting with -- on the sports OI guidance. So that is now mid-single digits, which includes the NFL network transaction. Can you help quantify if the change from the prior commentary of up low single digits, is that all NFL network? And any comment on what drove the stronger second quarter sports results versus our guidance? Hugh Johnston: Sure. As a reminder, the prior guidance of low single-digit increase was before the NFL transaction, as you probably know, but just in case. So yes, the primary change here is incorporating the NFL transaction. Regarding the quarter, sports OI in Q2 came in a little bit better than expected, simply because our revenues came in slightly ahead and programming fees slightly under, but really small variances to each. Benjamin Daniel Swinburne, C.F.A.: Okay. And then David asked, is there any additional detail here you can give us around the 53rd week impact by segment? Hugh Johnston: Yes. It really impacts all of our segments to a degree. So we wouldn't want to be overly precise on that. But think about it as essentially 153 or a little less than 2% benefit on our full year revenues. Then we had some modest margin uplift given some of the fixed costs that are accrued over the course of the year. So a bit of an uplift, overall, it delivers about 4%. Benjamin Daniel Swinburne, C.F.A.: Okay. And then lastly, on the park side, what drove the better-than-expected top line, which was up 6% relative to the guidance we provided? And any indicators that give you confidence on domestic attendance or international parks and the macro impact to consider? Hugh Johnston: Sure. The outperformance really came from core Park's revenue and it was broad-based. Admissions were stronger. Food and beverage, [ merch ], really everything came in a little bit stronger than expected. So revenue really came in nicely. Nothing unusual to call out other than a bit better on the top line than we thought earlier in the quarter. Right now, we're not seeing any macro weakness to point to, including at the international parts. We also obviously have the benefit of the Paris World of Frozen opening. So feel very, very good there. Benjamin Daniel Swinburne, C.F.A.: Okay. Great. And then I think our last question is coming from John Hodulik from UBS. So John asked about the cadence of SVOD entertainment margins now that we've hit double digits here in the second quarter, Hugh. Hugh Johnston: Okay. Yes. Thanks for noticing, John. We're proud to hit double digits this quarter. Look, we're focused on driving top line growth. And you noticed in the letter, we're investing. So we want to keep growing this business profitably. We're focused on the long term and making sure we maximize what Disney+ can be for this company over time, as you heard Josh discuss at length today. We had previously talked earlier about accelerating revenue growth in that business. And we feel terrific about the fact that we have, in fact, been able to do so. Benjamin Daniel Swinburne, C.F.A.: Great. That's all the time we have this morning. Thank you for your time. To close this out, I'm going to hand it over to Josh. Josh D’Amaro: Thanks, Ben, and thanks, everyone, for your time this morning. We realized that we packed a lot of information into a new format, both on the call and in the letter, with this being my first earnings call as CEO, we felt that it was important to spend extra time laying out our strategy and then, of course, taking your questions. We also felt it was important to discuss our results with more of a unified approach rather than focusing on individual segments. I'll conclude by saying that I look forward to engaging with the investment community and our shareholders in the future, including on our fiscal Q3 earnings call in August. Thanks for joining today, everybody.
Operator: Greetings, and welcome to the Solstice Advanced Materials First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Mike Leithead, Vice President of Investor Relations. Please go ahead. Michael Leithead: Thank you, and good morning, everyone. Welcome to Solstice's First Quarter 2026 Earnings Call. We released our first quarter 2026 financial results earlier this morning. Today's presentation, including non-GAAP reconciliations and our earnings press release are available on the Investor Relations portion of Solstice's website at investor.solstice.com. Our discussion today will include forward-looking statements that are based on our best view of the world and our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. Joining me today are David Sewell, our President and CEO; and Tina Pierce, our CFO. David will open today's call with highlights of our first quarter results. Tina will then review our segment performance and financial outlook before turning the call back to David for closing remarks. We will then be happy to take your questions. With that, I'll now turn the call over to David. David Sewell: Thank you, Mike, and thank you, everyone, for joining us today. During the first quarter, Solstice Advanced Materials delivered strong top and bottom line results, reflecting ongoing robust demand trends across several of our key businesses, including Nuclear, Electronic Materials and Refrigerants. I would like to take a moment to thank our entire Solstice team for this strong outcome in what was our first full stand-alone quarter as an independent company. This performance demonstrates Solstice's ongoing disciplined execution and agility, not only through our transition to a stand-alone company, but also in a dynamic macro environment. At the same time, our top-tier return profile and conservative leverage position allows us to reinvest in growth at a time when many in the industry have needed to pare back. We continue to invest in compelling growth areas aligned with our strategic pillars such as our Electronic Materials, Safety & Defense Solutions and Nuclear businesses, consistent with what we believe are attractive long-term outlooks for demand. This growth investment is not just in CapEx, but also higher spending on our R&D pipeline as we work to advance the next generation of critical molecules for our customers. The first quarter was also a strong cash quarter for Solstice, generating nearly $200 million in operating cash flow. We are able to use this cash to not only fund our growth investments, but also return cash to shareowners as highlighted by our recently announced quarterly dividend. We will continue to be disciplined in our capital allocation, ensuring that we are prudently balancing shareowner returns with opportunities that we believe will unleash long-term growth. With this strong start to 2026, today, we are reaffirming our full year 2026 guidance that we provided on our last quarterly call. We continue to believe we remain very well positioned for the year. Turning to Slide 4. I'd like to spend a moment to highlight our ongoing growth investments in advanced computing, which is a key strategic pillar for the company. The semiconductor industry is evolving rapidly, and we believe the ongoing shift to advanced nodes and advanced packaging creates significant growth opportunities for Solstice's core deposition and thermal management platforms. Our Electronic Materials business had a fantastic quarter, delivering 21% year-on-year revenue growth following 19% year-on-year growth in the fourth quarter of 2025. We think it's also important to note that thermal management for Solstice extends into our RAS business with accelerating sales of refrigerants into data centers and a pipeline of next-generation molecules under development. Solstice has a rich history of partnering both with semiconductor companies and HVAC solution providers, and we believe this provides us with significant opportunities in this space as the data center ecosystem become increasingly integrated. At a product level, an area we want to highlight this quarter is our sputtering targets offerings for deposition, which we believe are the materials of choice for leading-edge semiconductor nodes used for AI and data center applications. With robust demand, we are investing $200 million in our Spokane, Washington facility to double our targets capacity, reduce customer lead times and at the same time, provide sustainability benefits through increased recycling and CO2 emissions reduction. This is a clear example of where we have the opportunity to invest to benefit our customers, shareowners and broader stakeholders. Importantly, as with all projects we evaluate, we analyze opportunities through a strict returns-based approach, and we do expect this project to exceed Solstice's acceptable hurdle rate of a mid-teens percentage IRR, underscoring our commitment to our top-tier return profile. Given the increasing customer demand trends, we are also evaluating opportunities to further accelerate similar organic growth investments as well as strengthen our innovation pipeline in this space. All in, we are excited about the growth prospects and recent performance of this strategic pillar, and we look forward to building on our strong foundation of innovation with ongoing high-return growth investments. Turning to Slide 5. I'd like to discuss our first quarter 2026 consolidated results. In the first quarter of 2026, Solstice recorded $991 million in net sales, up 10% year-over-year, which exceeded the top end of our guidance we provided for the quarter. In our Refrigerants & Applied Solutions segment, strong demand for refrigerants driven by the ongoing HFO transition as well as healthy performance in our Nuclear business drove top line growth for the segment. In our Electronic & Specialty Materials segment, net sales growth was driven by robust demand in our Electronic Materials business for semiconductor applications. Adjusted EBITDA for the first quarter of 2026 was $249 million, relatively flat year-over-year and exceeding the top end of the guidance we provided for the quarter. Adjusted EBITDA margin was 25.1%, in line with our expectations for the quarter. The decline in margin year-over-year was primarily driven, as expected, by refrigerant mix related to the ongoing HFO transition as well as higher R&D investment as we prioritize next-generation innovation and opportunities. As a reminder, this refrigerant dynamic has been previously communicated as we see ongoing strong demand for our LGWP product. Now approximately 4 quarters into the 454B transition, we do expect sequential refrigerant margin improvement from first quarter levels, and we remain optimistic about the opportunity for further margin expansion as the aftermarket develops. We reported GAAP net income attributable to Solstice of $85 million for the first quarter of 2026. The decrease year-over-year was primarily driven by costs associated with being a stand-alone public company, such as higher SG&A and interest expense. We would also note that our noncontrolling interest was atypically high this quarter at $20 million, with the increase driven by favorable ConverDyn margins and the impact from a consolidated entity associated with our SinoChem JV and does not reflect the expected quarterly run rate going forward. This quarter, we also reported adjusted diluted EPS for our first full quarter as a stand-alone company, which was $0.63 for the first quarter. Finally, free cash flow for the first quarter of 2026 was $124 million, which is inclusive of the significant year-over-year increase in growth CapEx as we invest in high-return opportunities across the business, including the Spokane expansion that I previously discussed. With that, I'll now turn it over to Tina Pierce, our CFO, to discuss our financial results for the first quarter in more detail. Tina Pierce: Thank you, David. Turning to Slide 6. I'd like to discuss in more detail the key drivers of our year-over-year net sales and adjusted EBITDA performance in the first quarter. Beginning with our net sales of $991 million for the quarter, organic net sales growth was 8%, including 6% from volume growth and 2% due to pricing. This primarily reflects volume growth and favorable pricing in both Nuclear and Refrigerants as well as volume growth in Electronic Materials. Our net sales growth also included a 2.5% increase due to foreign currency translation. Turning to our adjusted EBITDA of $249 million for the quarter, which was fairly comparable to the prior year period. Year-over-year improvement in ESM as well as prudent corporate cost management was largely matched by a decline in RAS, which is primarily attributable to the shift in refrigerants mix that David just discussed. Turning to Slide 7. I'll now discuss the results in each of our 2 segments in more detail, beginning with Refrigerants & Applied Solutions. Overall, the segment achieved $711 million in net sales for the first quarter of 2026, reflecting 12% growth year-over-year. The growth is composed of 9% organic net sales growth and 3% increase due to foreign currency translation. The segment posted $242 million in adjusted EBITDA for the first quarter of 2026, down 3% year-over-year and adjusted EBITDA margin of 34.1%, down 522 basis points year-over-year. As mentioned previously, this decrease was primarily driven by anticipated shifts in refrigerants mix and higher R&D spending, which more than offset volume growth and favorable pricing in the segment. Turning to performance of our subsegments. Refrigerants net sales increased 19% year-over-year to $389 million, driven by both favorable pricing and volume growth across our product offerings. In addition to the strong demand for 454B that David mentioned, the subsegment also benefited from accelerating orders for data centers, underscoring how this business sits at the intersection of multiple key secular growth trends. Our Nuclear business had $107 million in net sales, up 27% year-over-year, reflecting both favorable pricing and increased volumes. We remain excited about the future of this differentiated business, which we believe is well positioned to play a critical role in the advanced nuclear renaissance that we are beginning to see unfold. Building Solutions and Intermediate net sales were $167 million, down 8% year-over-year. Although continued softness in the construction market impacted performance, we remain focused on driving LGWP solutions and on continuing our strong operational execution to ensure we are well positioned to serve our customers upon a return to more normalized demand in key end markets. Lastly, for Healthcare Packaging, net sales were $47 million, up 9% year-over-year. The increase was driven by a recovery in customer demand patterns following the destocking we saw in the second half of 2025. Now turning to our Electronic & Specialty Materials segment on Slide 8. The segment achieved $281 million in net sales for the first quarter of 2026, reflecting 7% growth year-over-year. The growth is composed of 5% organic net sales growth and a 3% increase due to foreign currency translation. The segment posted $58 million in adjusted EBITDA for the first quarter of 2026, up 10% year-over-year and adjusted EBITDA margin of 20.8%, up 52 basis points year-over-year. The increase was primarily driven by volume growth in Electronic Materials. Looking at the performance of our subsegments, Electronic Materials net sales increased 21% year-over-year to $109 million, driven by volume growth and robust customer demand across semiconductor applications. As David discussed earlier, we continue to invest in capacity expansion for electronic materials with semiconductor dynamics and secular trends for AI and data centers driving a significant opportunity for Solstice. Safety & Defense Solutions had $50 million in net sales, flat year-over-year. We anticipate strong growth in the second quarter based on order patterns, and we continue to invest in capacity expansion to support long-term market demand for our Spectra line of solutions. Finally, Research & Performance Chemicals net sales remained steady year-over-year at $121 million, with growth in fine chemicals offset by ongoing end market softness in Specialty Additives. Moving to Slide 9 to discuss Solstice's balance sheet and capital management. Our strong balance sheet, cash flow generation and conservative leverage position continue to enable financial flexibility and fuel Solstice's many attractive growth investments. I'd like to start with cash, with Solstice generating $199 million of operating cash flow in the quarter. In addition to healthy earnings generation, we were able to execute strong working capital management, reducing our dollar inventory and receivables in the quarter despite the healthy increase in revenue and rising input costs. Our capital expenditures for the first quarter were $82 million, a 32% increase compared to the prior year period due to planned increases in capital spending to drive long-term growth in high-return areas of the business. As a reminder, beyond the electronic materials project discussed earlier, we are actively investing in our Spectra ballistic Fibers expansion in Virginia as well as exploring further expansion opportunities in our nuclear conversion business. Turning to our capital structure. We have maintained a conservative leverage profile and strong liquidity position. As of March 31, 2026, our long-term debt was $2 billion, and we had cash and cash equivalents of $642 million, resulting in net debt of approximately $1.3 billion and net leverage ratio of approximately 1.4x based on a trailing 12-month adjusted EBITDA. As of March 31, 2026, we also had $1 billion of availability under our revolving credit facility. Combined with the cash on the balance sheet, this results in approximately $1.6 billion of total liquidity. As David mentioned earlier, we announced last week approval of a quarterly dividend of $0.075 per share, in line with last quarter. We continue to view returning excess capital to shareholders as a key piece of our overall capital allocation approach. Turning to Slide 10. I'd like to discuss our outlook and financial guidance for both the full year and second quarter of 2026. For the full year 2026, we are reaffirming our guidance announced on our last quarterly call. We expect to deliver net sales between $3.9 billion and $4.1 billion, adjusted EBITDA between $975 million and $1.025 billion and adjusted diluted earnings per share between $2.45 and $2.75. Additionally, we continue to expect capital expenditures between $400 million to $425 million. As David mentioned earlier, the strong first quarter results gives us increased confidence in the year. Today, we are also providing guidance for the second quarter of 2026 as we want to help investors better understand our business and our first year as a public company. Second quarter, we expect to deliver net sales between $1.06 billion and $1.1 billion with an approximately 25% to 26% adjusted EBITDA margin. Our outlook for the second quarter assumes continued momentum in Refrigerants, Nuclear and Electronic Materials and growth in Safety & Defense Solutions based on order patterns. Importantly, it also reflects modest margin expansion as we expect commercial actions to more than fully offset inflation. This 2Q outlook also contemplates a $10 million of planned downtime-related expense. Finally, looking ahead, we are pleased to announce that we will be hosting a virtual webinar on June 4 to provide more insight into our Nuclear business. Additional details can be found on the Events portion of our Investor Relations website. We look forward to sharing more during the event in June. I'd now like to pass it back over to David for some closing remarks. David Sewell: Thank you, Tina. Please turn to Slide 11. With strong performance in the first quarter and solid momentum heading into the remainder of the year, we are well positioned to deliver on our full year 2026 guidance. As we discussed today, we are seeing continued strong demand in our businesses that serve key end markets aligned with secular growth trends, including nuclear, high-performance computing, data centers and defense spending. As a stand-alone company, Solstice is able to now accelerate our innovation pipeline to stay on the cutting edge needs of our customers, which is critical to capture this growth opportunity. We are doing this through reinvesting in our businesses, both in terms of expanding our R&D pipeline as well as high-return growth CapEx. As highlighted earlier in the call with advanced computing, these are core strategic areas for Solstice where we have both a clear right to play and a right to win. Fueling all of this growth investment is our current business performance, which continues to demonstrate specialty characteristics of strong pricing power, durable margins and high ROIC. We are deploying our strong cash flow in a prudent manner with high-growth investments and returning cash to shareholders through our quarterly dividend. We remain excited about the significant opportunities ahead in 2026. We look forward to sharing additional updates throughout the year, and we hope to see you all at our virtual nuclear webinar next month. With that, we are now happy to take your questions. Operator: [Operator Instructions] Our first question is from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: David, nice to see the 27% sales growth in Nuclear. A few questions on that business. Can you help us understand the relative volume and price contributions that are flowing through there? Also, I think you had a loan that you'll be repaying this year. And so perhaps you can comment on whether that's occurred yet or might be in the future part of the year. And just another question also on long-term expansion potential following on the expansion that you've already done and whether that might be in the cards? David Sewell: Kevin, thanks for the question. And to jump right into Nuclear, we saw with the strong performance in Q1, both price and volume. We don't split it out exactly, but I would tell you that it was a combination of both. And so we feel really good about that business. And it dovetails right into your question on expansion. Our debottlenecking efforts are going extremely well. We feel very good about the 25% increase in volume that we're going to deliver from our 2024 numbers. And then on the future expansion, we are going down 2 paths right now. As we mentioned on our last call, we have engaged with an engineering firm to do a study on a variety of options for us to significantly expand our production capabilities, which we see as a need going into the 2030s beyond our current capabilities. And then the discussions we're having with customers and regulators. So customer discussions have already begun to understand what that new demand is going to be as nuclear continues to grow around the world. And those conversations are going extremely well. Very good engagement for customers to ensure that we are partnered with them for their needs as they continue to expand. Very good discussions with the Department of Energy and U.S. regulators and the NRC on expansion opportunities as well. And so it will certainly come down to a combination of both, what those global customer demand needs are going to be with the expansion of nuclear energy and that build-out continues. especially with the acceleration of SMRs and then the discussions we're having with the U.S. government. So that's going extremely well. We will probably be in a position to share more on the engineering work we're doing later this year. It's pretty expensive, as you can imagine. And then the last part of your question on the loan. We are doing that loan return, as you mentioned, it's about a $30 million impact for the year. We will not see that in first quarter, probably not much in second quarter, but we'll see that return really in the second half of the year. And then once that is complete, all of our loan returns will be complete. So we'll be moving forward in full capacity for our customers going into 2027. Kevin McCarthy: Very helpful. As a follow-up, if I may, just a broad question about what you're seeing following the war in the Middle East. Maybe you could comment on how you're looking at cost and availability trends and whether or not you foresee the need for any incremental price actions or surcharges as you look across the portfolio? David Sewell: Sure. I'll give a kind of a broader view, and I'll turn it over to Tina to give you a little bit more specifics. We certainly are not immune from some of the inflationary impact from what's happening in the Middle East. We're certainly seeing it in our logistics costs with diesel fuel and shipping costs. It has had an impact on some of our raw materials such as sulfuric acid. Having said that, we've been able to partner with our customers and offset that inflation with the needed pricing that we've had to do to offset that inflation. And Tina, I'll just have you kind of give a little bit more color. Tina Pierce: Yes. Kevin. So yes, in regards to the sulfuric olefins and freight that David just mentioned, that represents less than 10% of our total material spend. So rather insignificant. And then as it relates to sulfur, I would just add that we do have kind of a regional approach from sourcing, both in Americas and Europe. So really minimal disruption as a result of the Middle East. And then we covered price cost in quarter 1. We expect to do the same for the remainder of the year. And as we mentioned during our Investor Day, this was a set of muscles that we developed during '21, '22. We have very strong analytical tools. So we're extremely well positioned. Operator: Our next question is from John McNulty with BMO Capital Markets. John McNulty: So maybe to start out on the refrigerant side, I guess, can you speak to the growth that you're seeing and interest that you're seeing from the data center industry and in particular, also speaking to kind of the next-generation opportunities. I know you kind of provide them with traditional services now, but I also know there's a lot of interest in some of the 2-phase direct chip side. And so maybe if you can give us an update as to how those discussions and trials may be progressing. David Sewell: John, thanks for the question. Our data center growth has really been a key part of these secular growth trends that we're seeing. From a refrigerant standpoint, we are definitely seeing double-digit growth in refrigerants and data centers. We don't pinpoint the number exactly. We have a few different products that go into data centers. So -- and we're a step removed from that process. But the partnership we have with our customers that are selling into that, we have really good line of sight to a strong double-digit growth in data centers. Your comment on next generation is part of the reason why you're seeing a little bit of that R&D spend. We have multiple, multiple projects co-innovating with customers both on the chip side and at the data center infrastructure side. And you're exactly right. I think as you look at what needs to happen as these leading edge nodes, next-generation advanced electronics happen, the heat that's being generated, the ambient cooling that's going on is going to continue to be a need, but it's not going to be enough. We're going to have to get the heat off the chip. And that is exactly what we're working on. There's multiple avenues. There's single-phase direct-to-chip, which is kind of happening now. I think you'll see soon 2-phase direct-to-chip, that is really going to be a key component, which we feel very good about with a lot of the innovation we're doing. And then as you look a little bit longer term, the next 4, 5 years, we're exploring things like immersion cooling and other types of solutions because the heat is just going to be greater and greater. I would add, we're also working with data centers on what to do with that heat. So not emitting it into the atmosphere outside of the data center, how do we repurpose that heat and use it to heat communities nearby. So there's an enormous amount of opportunity, and we just feel we're extremely well positioned not only to work with customers on leading-edge nodes, but also the cooling with our RAS business, our thermal interface business and advanced electronics. So a lot going on there. And then at a tertiary level, we need more energy for data centers. I mean that is certainly an issue that needs to be addressed. There's an enormous amount of momentum in nuclear energy to help be a solution, which is dovetailing right into our nuclear expansion as well. So a lot going on in data centers, and we just feel like we're extremely well positioned, which is driving some of that R&D costs that we're seeing, but the co-innovation pull that we're getting from customers is significant. Operator: Our next question is from John Roberts with Mizuho Securities. John Ezekiel Roberts: Nice clean quarter and guidance. I have just one question. Your growth in electronics was also at the high end of what we've seen with other electronic material businesses. I think you have an expansion underway, but it doesn't start up for a while. Do you expect to get capacity constrained before that start-up comes online? And maybe talk a little bit about the growth path there. David Sewell: John, you're exactly right. We're -- for lack of a better word, we are selling everything we can make in our Spokane facility. And we are going through work right now to accelerate the expansion that we're doing, looking at it in a little bit of a modular design just to help meet the customer demand that's happening globally. So we are doing an enormous amount of work. We want to expand even faster. The growth is -- for the forecast that we have is significant. When you look at the numbers for leading-edge nodes going into the 2030s, that growth rate, we really believe is going to continue. So we're doing a lot of work on that, on how we're trying to expand our capacity. We just feel that our technology in copper manganese is a better technical solution, and it's just getting broader adoption in the marketplace. as the preferred technical solution. So we feel great about that. And I'd also add what we're seeing in our TIMs business is also significant. And so we're doing a lot of work on expansion there and the growth rates that we're doing. So we feel very good about our electronics business moving forward, and the team is working extremely hard to accelerate our capacity in Spokane. Operator: Our next question is from Hassan Ahmed with Alembic Global. Hassan Ahmed: In Q4, you guys had highlighted a fairly severe destock that you guys saw in health care packaging. So is that mostly behind us? And if you could just sort of talk about that end market. David Sewell: Hassan, I appreciate that. We were really happy with the recovery in Q1 following that destocking, which we talked about. So we're very cautiously optimistic about the rest of the year that we are definitely through the destocking piece of it. I would also add the growth that we have with our metered dose inhaler and the opportunity we have in that marketplace. So we're seeing that growth in Aclar. We're also seeing it in our inhaler business. And so we feel like the destocking is behind us as we move forward into 2027, and it was a nice start to the year. Hassan Ahmed: Very helpful, David. And as a follow-up, the $30 million in legacy costs, how are those trending? If you could just give us an update on the TSAs as well. Tina Pierce: The TSAs are going extremely well. We'll -- here at midyear, we're going to have the most significant milestones behind us. We spent roughly $15 million in quarter 1. So essentially, we're on track with kind of the spin transition. Michael Leithead: And Hassan, would just remind you and everybody that we talked about $30 million of TSA costs this year. As we roll those off and into next year, that will be a good guy as third-party spend will come in at a number much lower than that $30 million. Operator: Our next question is from Arun Viswanathan with RBC Capital Markets. Michael Leithead: Let's just go to the next question and we can come back to Arun if he finds us. Operator: Our next question is from Josh Spector with UBS. Joshua Spector: I was wondering if you could unpack some of the moving parts in Refrigerants for us a bit. I think one of your peers reported and talked about some pricing up in some of the legacy refrigerants. They seem to have maybe some different position than you in R134a. I'm wondering if you're starting to see any benefits there, if that played into the quarter at all in terms of pricing or if your 20-ish percent growth was primarily HFO-driven adoption? David Sewell: Josh, I can't speak specifically to our competitor. I haven't seen the specifics there. But what I would tell you is our focus has been on HFO transition. We feel very good about market share gains there and our growth there. It's been really strong double digits. As we entered 2026, we had about a ratio of 60% HFOs, 40% HFCs. And as we exit 2026 into '27, I think we're going to approach 70-30, which is exactly where we want to be, which is where the market is going. I think there's always some opportunistic opportunities with HFCs, but where the market is going with where the caps are, we feel very good about our position. As we mentioned at Investor Day, we knew we would be at a point where our margins are year-over-year as we go through this transition and gain share and position ourselves really as a leader in this segment. And then we'll start to see that sequential growth now moving that full transition is behind us. So we're right on track with where we want to be. We feel very good about our growth. We feel very good about our position in data centers with HFOs, which is where we really want to establish ourselves as a strong leader there. So I guess I would phrase it as we're right on track with how we want to be. The 19% growth was mostly driven through HFOs, which positions us for long-term growth. And we feel like we're in a great position with data centers as well. Joshua Spector: That's very helpful. I just wanted to follow up on the noncontrolling interest. You called out that, that $20 million was kind of anomalous high. What's the right run rate? What would that be ex the SinoChem kind of impact in 1Q? And what do you expect in your guidance for the rest of the year? Tina Pierce: So yes, Josh, it would be closer to -- yes, we were around $20 million for quarter 1, which as you highlighted. We had some favorable mix and pricing in one of our businesses. And then we also had kind of one item that was a little bit unusual in one of the other JVs. So going forward, we anticipate more like a $10 million per quarter. Operator: Our next question is from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Apologies for that earlier. I guess first question was just on the guidance. I think in the past, you guys had alluded to Q1 being maybe 23%, 24% of the year, Q2 being 26%, 27%. So it looks like your Q1 was about 25% of your full year guidance and Q2 maybe 27%. So you're tracking slightly ahead of those initial expectations that I had. So just wondering if there's an element of conservatism in your guidance. It is obviously very early in the year still, and you guys have a lot going on from a growth perspective. So is that the right way to frame it up? Or do you see actually a slightly lower second half now? How would you kind of frame that up for us? David Sewell: Thanks, Arun. I'm actually glad you asked that question. We're really pleased with how we started the year, and we feel very good about the year. The way we think about it is we have really good momentum heading into Q2. We have -- I think we highlighted 5 planned maintenance outages in Q2. We want to make sure we get through those very solidly. So far, everything is on track. We feel very good about that. Notwithstanding some announcements last night, there was a tremendous amount of geopolitical environment that was wanting to make sure we had the right amount of conservatism knowing what's going on in the world today. But I would frame it the exact way you framed it. We feel very good about the year. We reinforced knowing that there's definitely some inputs geopolitically that we want to make sure that we took a conservative stance about. And then as we come out of Q2, we'll certainly relook at where we're at in the year. And if that geopolitical environment kind of subsides and we continue to have this great momentum in these secular growth trends, which we fully expect, we'll then give an update at that point. Arun Viswanathan: Okay. And as a follow-up, maybe I can ask a question on some of your growth projects. So you've announced investments in ballistic fibers as well as electronic materials and AES. For most of those, I think you've alluded to or you cited maybe double-digit returns. And so if I'm thinking about it correctly, you have a $220 million or so investment in ballistics and similar amount in electronic materials. So if you look at double-digit returns on those, would that be kind of in the order of $30 million to $40 million EBITDA each? And what's kind of the timing of that kind of flowing into the company? David Sewell: Yes. Thanks. The way we're thinking -- and this is kind of going to -- we're looking at accelerating some of these because the demand profile is so strong right now. I guess I would think about it is these were originally multiyear projects. So we were sprinkling in that strong return over a multiyear where we'd start to see the full benefit probably 2 to 3 years out. What we're trying to -- with incremental benefits as we went along, what we're trying to do with electronics, with our defense business, especially is pull in some of these CapEx projects because the demand is so strong. So that would give us returns a little bit higher earlier versus the longer profile that we had of 2 to 3 years out. I would say on AES, we are well on track to the debottlenecking for 2026. And so that's going to be a more immediate return. But I think generally, you're thinking about it exactly the right way. It's just the timing -- but we do fully expect all these projects to be in that above teens ROIC. Michael Leithead: Yes. Arun, this is Mike. The only other kind of just clarification I would provide to add on to David is, remember, we talk about things on an IRR basis. So that's after tax. So when you're talking about EBITDA, just a reminder, you're going to have to gross that up, which is probably a little bit higher of a number overall. Operator: There are no further questions at this time. I would like to hand the floor back over to Mike Leithead for any closing comments. Michael Leithead: Great. Really appreciate everybody joining us today and look forward to everybody joining us first week in June for our webinar on nuclear. Thank you, and have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.
Operator: Hello, everyone, and thank you for joining us, and welcome to Cencora Inc. Q2 2026 Earnings Call. After today's prepared remarks, we'll host a question-and-answer session. [Operator Instructions] I will now hand the conference over to Bennett Murphy, Senior Vice President, Head of Investor Relations and Enterprise Productivity. Please go ahead. Bennett Murphy: Good morning, good afternoon. Thank you all for joining us for this conference call to discuss Cencora's fiscal 2026 second quarter results. I am Ben Murphy, Senior Vice President, Investor Relations and Enterprise Productivity. Joining me today are Bob Match, President and CEO; and Jim Mary, Executive Vice President and CFO. On today's call, we will be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website, investor.cencora.com. We have also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will discuss forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including, but not limited to, EPS, operating income and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer today's press release and our SEC filings, including our most recent 10-K. Cencora assumes no obligation to update forward-looking statements, and this call cannot be your broadcast without the express permission of the company. And you will have the opportunity to ask questions after today's remarks by management. We ask that you limit your questions to 1 participant in order for us to get to as many as possible within the hour. With that, I will turn the call over to Bob. Robert Mauch: Thank you, Bennett. Hi, everyone, and thank you for joining Cencora's Fiscal 2026 Second Quarter Earnings Call. In our fiscal second quarter, we saw operating income growth in both our U.S. and International Healthcare Solutions segments and delivered adjusted diluted EPS growth of 7.5%. These results reflect the resilience of our business, and we remain confident in our full year fiscal 2026 guidance. Building upon that confidence, today, we announced the resumption of opportunistic share repurchases. Today, I'll focus on how our growth priorities and performance drivers support continued long-term growth. Specifically, building upon the critical role we play within the pharmaceutical supply chain through digital transformation, strengthening our position in specialty pharmaceuticals across channels. and optimizing our portfolio to focus on our pharmaceutical-centric strategy. I'll start with building on the critical role we play within the pharmaceutical supply chain through digital transformation. We serve as the backbone of the pharmaceutical supply chain, ensuring the safe and secure delivery of medications from the manufacturers who develop them to the sites of care supporting patients. Every day, our teams move millions of medications through the supply chain to thousands of health care sites, creating significant efficiency for our manufacturer and provider partners through advanced technology and a network of highly automated fulfillment centers we help simplify ordering and inventory processes, providing centralized access to products, ranging from over-the-counter treatments to highly complex specialty pharmaceuticals. Our services streamline the industry's logistics and working capital needs, provide data and insights and drive reliable patient access, ultimately lowering costs. Given our critical role, we continuously invest to strengthen our physical and digital infrastructure, driving enhanced customer visibility, accelerated issue resolution and improvements, depending on the value we provide. We are seeing positive impact from these efforts, recently launching AI-supported tools, improving consistency and quality across our customer support operations benefiting both our customers and team members. We're excited to continue deeply embedding these capabilities across our enterprise. Second, we are strengthening our position in specialty pharmaceuticals across channels. I've spoken extensively about the investments we've made in management services organizations that provide physician practices with the tools needed to thrive. But MSOs are just one example of how we're supporting the growth of specialty pharmaceuticals across Cencora. In our global specialty logistics business, the efforts we've taken to improve performance have yielded results and we're pleased to report our second consecutive quarter of operating income growth. We're winning new contracts in areas like cell and gene therapies and laboratory logistics as well as executing productivity initiatives to drive sustained success. As manufacturers increasingly develop products targeting smaller patient populations, our global reach and ability to support complex specialty products positions us uniquely as a trusted partner. Health systems represent another area where specialty pharmaceuticals have seen continued growth and our teams have worked to build comprehensive solutions designed to provide end-to-end support to these customers. Through our Accelerate Pharmacy Solutions portfolio, we offer services aimed at streamlining the complexity of health systems operations from specialty strategy enablement to freight management optimization. This offering has been well received in the market with health systems increasingly seeking to deepen and form new partnerships with us due to our differentiated consultative approach. The breadth of our specialty solutions and market-leading customer portfolio allow us to capitalize on the growing specialty pharmaceutical market. And finally, we're optimizing our portfolio to provide focus. During the quarter, we took key steps in our ongoing work to focus our portfolio, including the agreement to merge MWI Animal Health with Covetrus and the sale of our U.S. hub consulting services positioning these businesses for success with strategically aligned partners. Optimizing our portfolio supports focus on our investments in MSOs and ongoing integration efforts. While it's still early days, we are encouraged by our initial progress in building shared capabilities across OneOncology and RCA that will drive growth across our MSO platform. We've established joint teams to share best practices in key areas like research and clinical trials, back-office services and physician recruitment and retention, so we can leverage what is working well across the platform. Before turning to my closing remarks, I'll now pass the call to Jim for a discussion of our financial results and updated fiscal 2026 guidance. Jim? James Cleary: Thanks, Bob. Good morning and good afternoon, everyone. Cencora delivered solid performance in our second quarter, demonstrating the resilience of our business and our team members' execution to serve our customers and partners. In the quarter, we delivered adjusted diluted EPS of $4.75, reflecting growth of 7.5% and which puts us on track to achieve our increased EPS guidance of $17.65 to $17.90. During my remarks today, I'll provide an overview of our consolidated results before turning to our segment level results and updated guidance. As a reminder, unless otherwise stated, my remarks will focus on our adjusted non-GAAP financial results. For further discussion of our GAAP results, please refer to our earnings press release and presentation. Turning now to consolidated revenue. Consolidated revenue was $78.4 billion, up 4%, driven by growth in both reportable segments and in other, which I will describe in more detail when discussing segment level results. Moving to gross profit. Consolidated gross profit was $3.4 billion, up 16% primarily due to growth in the U.S. Healthcare Solutions segment. Consolidated gross profit margin was 4.31%, an increase of 45 basis points, largely driven by the February 2026 acquisition of OneOncology. Consolidated operating expenses were $2.1 billion, up 22.5%, which included the impact of the February 2026 acquisition of OneOncology, excluding both MSOs operating expenses grew 5% on a constant currency basis. In the second half of the year, we expect our core expense growth will moderate particularly in the fourth quarter with an easier comparison for the U.S. Healthcare Solutions segment, excluding OneOncology. Turning now to operating income. Consolidated operating income was $1.3 billion, an increase of 6% compared to the prior year quarter, driven by solid growth in both our U.S. and International Healthcare Solutions segments more than offsetting the slight decline in other. Moving now to our interest expense and effective tax rate for the second quarter. Net interest expense was $140 million an increase of $36 million versus the prior year quarter, primarily due to debt raised in February to finance the OneOncology acquisition. We expect third quarter net interest expense to be roughly the same as our second quarter interest expense. Our effective income tax rate was 18.9% and compared to 20.8% in the prior year quarter as we benefited from discrete tax items in the current year quarter. Finally, diluted share count was 195.4 million shares a 0.1% increase compared to the prior year second quarter. Regarding our cash balance and adjusted free cash flow, we ended March with $2.2 billion of cash reflecting $1.1 billion of free cash flow generated in the March quarter. Our full year adjusted free cash flow guidance of approximately $3 billion remains unchanged as we expect to continue to generate cash in the back half of the fiscal year. This completes the review of our consolidated results. Now I'll turn to our segment results for the second quarter. U.S. Healthcare Solutions revenue was $68.8 billion, up 3% and in the quarter, we saw continued volume growth, including specialty sales to health systems and physician practices and in sales of GLP-1s, which increased $1.9 billion year-over-year. Despite these trends, our revenue growth was tempered by 3 main factors, 2 of which were fully contemplated. The 2 factors that were fully contemplated were: first, manufactured list price reductions, which represented a $2 billion revenue headwind in the quarter; and second, the previously disclosed fiscal 2025 loss of an oncology customer and a grocery customer. The third factor, which was not fully contemplated was the speed of brand conversions for our large mail order pharmacy customer. These sales are low margin, which concentrates their impact to our revenue line. The increase in brand conversions is a meaningful contributor to our reduced revenue growth expectations for the fiscal year but results in higher margins for Cencora overall. Moving now to operating income. U.S. Healthcare Solutions segment operating income increased 6% to $998 million. In the quarter, we saw good trends across much of our business. However, there were a few items that impacted our growth. First, we have not yet lapped the loss of an oncology customer that began to hit our numbers in July 2025 due to its acquisition. This headwind was larger than the contribution we recognized from our February 2026 acquisition of OneOncology. Second, many physician offices had lower volumes due to missed patient appointments as a result of inclement weather across the U.S. And given our leading presence in this channel, we saw some lighter volumes in late January and early February. We were encouraged to see a rebound in patient appointments and specialty product volumes in March. Overall, we estimate that weather represented a $10 million headwind to U.S. segment operating income growth in the quarter. And finally, as we noted on our earnings call last May, we had a $15 million contribution from COVID-19 vaccines in the fiscal 2025 second quarter. This quarter, COVID vaccines represented a $10 million operating income headwind for the segment. Taking a step back, if we exclude the OneOncology acquisition and the 2025 loss of the oncology customer the U.S. Healthcare Solutions segment growth would have been approximately 7% in line with our long-term guidance in spite of the transitory weather and COVID items. Turning now to our International Healthcare Solutions segment. International Healthcare Solutions revenue was $7.6 billion, up 13% on an as-reported basis and up 7% on a constant currency basis primarily driven by growth in our European distribution business. In the quarter, International Healthcare Solutions operating income was $176 million, up approximately 14% on an as-reported basis and up 13% on a constant currency basis. In the quarter, our European distribution business benefited from the shift in timing of manufacturer price adjustments in a developing market country, as I called out last quarter and the continued rebound of our global specialty logistics business, where we saw a second consecutive quarter of operating income growth. We are very pleased with this rebound of our global specialty logistics business. Moving to other. Revenue in Other was $2.1 billion, up 5% and largely due to growth at Pro Pharma and MWI Animal Health, partially offset by an expected revenue decline in our legacy U.S. hub consulting services, which was divested on April 30. Operating income was $92 million, down 1% due to a decline in operating income in our U.S. hub consulting service business resulting from the fiscal 2025 loss of a manufacturer program partially offset by operating income growth at MWI Animal Health. That completes the review of our segment level results. I will now discuss our updated fiscal 2026 guidance expectations. As a reminder, we do not provide forward-looking guidance for certain metrics on a GAAP basis, so the following information is provided on an adjusted non-GAAP basis, except with respect to revenue. I will start with adjusted diluted earnings per share. We are pleased to raise our full year guidance range to $17.65 to $17.9 and up from $17.45 to $17.75. The updated guidance reflects our strong full year fiscal 2026 operating income growth expectations for the U.S. and International Healthcare Solutions segments and our updated expectations in other. I will now turn to updates to our revenue guidance. On a consolidated basis, we now expect revenue growth to be in the range of 4% to 6%, down from the previous expectations of 7% to 9%. This is driven by our lower expectations for revenue growth in the U.S. Healthcare Solutions segment, where we now expect revenue growth of 4% to 6%. As a reminder, our guidance for fiscal 2026 has always contemplated the impact of manufacturer WACC price reductions. However, our updated guidance reflects the faster-than-expected branded conversions at our large mail order customer and slower anticipated GLP-1 growth than we had been expecting. In the International Healthcare Solutions segment, we now expect revenue growth to be in the range of 8% to 10% on an as-reported basis to reflect changes in foreign exchange rates. Our International Healthcare Solutions segment constant currency revenue growth expectations remain unchanged at 6% to 8% growth. Our revenue growth expectations for other remain unchanged. Moving to operating income. We expect consolidated operating income growth to be in the range of 12% to 14%, up from our previous guidance of 11.5% to 13.5%. This is driven by our updated full year expectations for other to show operating income growth in the high single-digit percent range due to MWI now being accounted for as an asset held for sale and as a result, depreciation expenses suspended. Our full year operating income expectations of 14% to 16% growth for the U.S. Healthcare Solutions segment remain unchanged, but as you think about our second half cadence, we continue to expect to see our strongest growth of the fiscal year in the fourth quarter after we lapped the loss of the oncology customer that occurred on July 1, 2025, and as OneOncology accretion ramps. Our expectations for International Healthcare Solutions segment operating income growth remains unchanged at growth of 5% to 8%. Moving now to interest expense. We expect interest expense to be approximately $485 million compared to our previous range of $480 million to $500 million reflecting progress on debt paydown and incrementally better-than-expected rates on our senior notes that we priced in February. As you look at your models, in the third quarter, we anticipate net interest expense will be at a similar level as this quarter before modestly stepping down in the fourth quarter, given working capital dynamics. Finally, turning to share count. We expect our full year diluted shares outstanding to be under 195.5 million shares as we resume opportunistic share repurchases and -- as we indicated in our press release, we expect to repurchase $1 billion worth of shares by calendar year-end. That concludes our updated full year guidance assumptions. As it relates to quarterly cadence, I would point out that we expect third quarter adjusted diluted EPS growth to be in the high single digits, partly as a result of our net interest expense remaining at that $140 million level in the quarter. To close, I am proud of our teams who worked diligently to support our customers and partners guided by our purpose and pharmaceutical-centric strategy. As we continue to prioritize a balanced approach to capital deployment, we are pleased to be resuming opportunistic share repurchases that will support value creation. Despite noise today, given some transitory items causing our results to be below expectations, we remain on track to deliver strong guidance for fiscal 2026 and I'll now turn the call back to Bob for some closing remarks before moving to Q&A. Bob? Robert Mauch: Thank you. As Jim said, today's results are impacted by transitory items and our full year guidance remains strong. reflecting the strength of our business and execution to drive sustainable long-term growth. The critical role we play in the pharmaceutical supply chain and the investments we are making allow us to capitalize on growth opportunities. As we look to the balance of the fiscal year and beyond, our focused strategy guided by our purpose, growth priorities and performance drivers positions us to continue creating value for all our stakeholders. Before opening the call for Q&A, I want to take a moment to acknowledge that today is Jim's final earnings call before his retirement as CFO in June and from the company in December. On behalf of all of us at Cencora, I thank Jim for his many years of service. His leadership and expertise have shaped our company and performance, and Jim has been a terrific partner to me. I wish him all the best. Operator: [Operator Instructions] Your first question comes from the line of Lisa Gill at JPMorgan. Lisa Gill: Jim, I wish you the best in your retirement. I just really wanted to understand and Jim, I appreciate you kind of laying out that the core underlying growth was about 7%. But when we look at stripping out WAC, IRA changes, the lost business, everything you talked about. How do we think about the impact to operating profit from those changes as well as the shift in the mail channel that you talked about, generally, that's going to be lower margin. And how -- when we put this all together, how do we think about -- does this have an impact on your long-term growth rates on either revenue or operating profit as we see these changes, especially on WACC and IRA moving forward? . James Cleary: Sure. Thank you very much for the question, Lisa. And what I'll do is I'll go through our revenue and our operating income and the key drivers in Q2. And so as you know, our revenue growth was 4% during the quarter and in the U.S. health care segment, it was 3%, and I'll go through some of the growth drivers and the growth headwinds. First of all, with regard to growth drivers, we saw continued volume growth, including specialty sales to health systems and physician practices. We also saw $1.9 billion of growth from GLP-1s and we're still seeing growth in GLP-1s, of course, but at a slower pace than we expected, which is contributing to our lower revenue guidance. And then we saw some growth headwinds on the revenue front. For instance, we saw $2 billion from IRA WACC reductions. And so that had a 3% impact to U.S. revenue growth during the quarter. And then as previously disclosed, there's a loss of an oncology customer and a grocery customer that impacted growth in the quarter. And then there were also faster-than-anticipated brand conversions at a large mail order customer that meaningfully contributes to the reduced revenue growth. Of course, in international, we saw a 13% revenue growth, primarily due to Alliance Healthcare, but also saw growth in global specialty logistics. And then in other, we saw 5% growth driven by MWI and pro forma and so you ask kind of what is driving the operating income growth during the quarter. And so let me go through those factors. Operating income up 6% in the quarter and in U.S. operating income up 6%. And we continue to have the headwind related to the loss of an oncology customer due to its acquisition, and this headwind during the quarter was larger than the contribution we recognized from the February acquisition of OneOncology. And if we exclude the impact of the oncology customer loss and our February 2026 acquisition of OneOncology our growth would have been approximately 7% in line with our long-term guidance. And we were able to achieve this in spite of 2 headwinds. And the 2 headwinds where we saw a $10 million operating income headwind related to weather and specialty practices due to some patient visit cancellations and delays and we did see the business rebound in March and saw good trends in April as well. And we also had a $10 million operating income headwind related to COVID-19 vaccines. And as a reminder, we had $15 million of COVID-19 contributions in the second quarter of fiscal year '25. And then I'll say to address your question as we talk about the things that impacted operating income in the quarter, we haven't called out the faster-than-anticipated brand conversions, which are lower margin, and we haven't called out the IRA WACC reductions when we're talking about the quarter. In international, we had good growth of operating income in the quarter, 14% driven by growth in our European distribution business and also we benefited from a shift in the timing of manufacturer price adjustments in a developing market country, which was mentioned on our February call. And we also saw the second consecutive quarter at growth of our global specialty logistics business. We were very pleased to see this business continue to rebound. And so that's really kind of a driver of our revenue growth during the quarter and our operating income growth. And you asked about our long-term guidance, and we continue to have confidence in our long-term guidance, which is, of course, 7% to 10% organic operating income growth, another 3% to 4% from capital deployment and 10% to 14% EPS growth. So thanks a lot for the question, Lisa. Robert Mauch: So I'll just -- I'll follow on to Jim's excellent answer and just summarize by -- and reinforcing the last point that Jim just made, which is while there are times where there'll be revenue pressure. They are generally -- these are lower margin activities in the case of WACC decreases as you know, we've been able to recoup the value of those changes. And we guide on operating income for the long term, and it's for that very reason because there can be some variability in revenue, especially as we cycle through some of the policy initiatives and other things that we'll see in the U.S. market, but our confidence in maintaining our operating income growth is high. [Operator Instructions] Operator: Your next question comes from the line of Michael Cherny at Leerink Partners. Michael Cherny: And yes, I'll echo Lisa's comments, Jim. Congratulations and good luck in retirement. Lisa kind of hit on some of the longer-term dynamics, I want to dive in, if I can, on the second half of the year. As I understand, as I think through the moving pieces, obviously, you have some comp dynamics, you have some deals. But as we think about the acceleration of growth, can you kind of risk weight where you have the most confidence versus the most potential variability in terms of the U.S. AOI build, in particular, into the back half of the year, both because of comp dynamics, but also because of what you're seeing in the market relative to customer behavior and other key factors. James Cleary: Yes. Thank you very much for that question. And Michael, what I'll do is I'll start by describing our guidance update and some of the key drivers. And then I'll finish up with what really gives us confidence in our growth acceleration in the balance of the fiscal year. And so first of all, with regard to our guidance update and drivers, as you know, we are increasing our EPS guidance to a range of $17.65 to $17.90 up from the previous range of $17.45 to $17.75 and this reflects our strong fiscal 2026 guidance and growth in both the U.S. and International Healthcare Solutions segments, it also reflects the increase in expectations for other as a result of MWI being classified as an asset held for sale and excluding this asset held for sale benefit, our full year fiscal 2026 EPS guidance would have remained largely unchanged with the incrementally lower interest expense and share count moving EPS up modestly. Our revenue growth guidance for the fiscal year is now 4% to 6% down from the previous range. And in the U.S. Healthcare segment, growth is also 4% to 6% for revenue down from the previous range and this is driven by a reduction in growth expectations for GLP-1s. That's one of the few things that's driving it. And given the size of this product class, a 5% delta in growth year-over-year represents approximately $2 billion in annual revenue. It's also driven by the faster-than-expected brand conversions at our large mail order pharmacy customer and updated expectations for mix, including slower growth in lower-margin categories. In International, we're now guiding to growth of 8% to 10%, up from the previous range of 7% to 9%, and this reflects updates to foreign exchange rates and constant currency guidance remains unchanged. Now talking about operating income growth, we've increased our operating income growth guidance of 12% to 14%, up from the previous range of growth of 11.5% to 13.5% in and U.S. health care and international Healthcare Solutions guidance remains unchanged for operating income, and our guidance now calls for high single-digit growth, up from flat and this reflects MWI now being classified as an asset held for sale, as I previously discussed. So what's giving us confidence in our growth acceleration in the balance of the year, I'd really like to address that. And we do have high confidence in our full year fiscal 2026 guidance that contemplates operating income growth of 12% to 14% and strong growth across both reportable segments and other and there are a few factors that support the growth ramp in the balance of the year. In U.S. health care, there's the lapping of the loss of the oncology customer due to its acquisition in July 2025. We also see, as we talked about in the past, OneOncology accretion ramping over the fiscal year, and we also see an easier expense comparison for our U.S. Healthcare Solutions segment in the fourth quarter. Also in the International Healthcare Solutions segment, our global specialty logistics business is seeing continued growth, and it also has easier comps in the balance of the year. And then another, of course, we have the benefit of MWI asset held for sale accounting treatment. And so those are some of the key things that give us confidence in growth acceleration in the balance of the year and give us confidence in our guidance for the fiscal year. Thank you for the question. Operator: Your next question comes from the line of Glen Santangelo at Barclays. Glen Santangelo: I also have a longer-term operating profit growth question. it seems to me that investors, they're obviously aware of the increasing generics and biosimilar pipeline that is emerging here over the next couple of years. And -- and while I think the traditional generics opportunity is well understood, I think especially the biosimilar conversion is much less understood. And we saw it perhaps have an impact on revs this quarter with your mail order customer. But more importantly, we're hearing concerns from investors that the lower-priced biosimilars could potentially have a negative impact on some of the profit pools in your specialty. And so what I was hoping you'd do is just spend a minute and talk about these biosimilar conversions and maybe the longer-term impact do you think they'll have on your long-term operating profit growth in your distribution business. Robert Mauch: Thanks, Glen. I'll take that. Terrific question. And it's -- I think it's probably best to start by taking a step back just with a little context. And separating the biosimilar market in the Part D mail market and then the biosimilar market in the Part B space. And I think if we go down the Part D path for a second, I think that's where people would rightly assume that as a product moves from brand to biosimilar that it's very likely to move away from the wholesaler, which is exactly what happened in oral generics. And so that's part of the model that we have with our customers currently. So that's not surprise. And then on the kind of revenue and profit side, but again, just to reiterate that. So that's a revenue hit, but it's not a meaningful profit hit. So to the extent that the mail order pharmacies and PBMs have selection choice over the biosimilar, and that could go around the wholesaler. I think that is -- that's going to be true in many cases, but that's part of the model today. So that's not incremental pressure. And then next to that, it's important to talk about how the Part B space is not that. So the Part B space, which is where we have an important presence both with our GPO distribution and with MSOs and that as a product converts from the brand to the biosimilar in that space, it actually is incrementally beneficial to to the practice and to Cencora. So I think those are good things for us to watch over time. There are all things that we have contemplated in our planning. But again, there's not unknown pressure out there as biosimilars grow in the Part D space, and there is actually benefit as biosimilars grow in the Part B space. Thank you for the question. Operator: Your next question comes from the line of Elizabeth Anderson at Evercore ISI. Elizabeth Anderson: Jim, congrats on your retirement. My question is about U.S. oncology. I heard your call out about some of the transitory issues sorry, OneOncology. I heard some of your transitory issues about weather and stuff in the first quarter. My question is sort of how are you thinking about that business and its performance on a run rate business basis? Can you talk to us a little bit more about sort of the synergy acquisition? How is the rest of it tracking versus your expectations minus obviously, the transitory issues? Robert Mauch: Yes. Thanks, Elizabeth, for the question. We couldn't be happier with being able to acquire OneOncology in February. We have now full ownership of that business. And what's exciting is having the opportunity for RCA and OneOncology to now collaborate. As I said in my prepared remarks, we're really starting to see the benefits of that collaboration. And as we signaled over several quarters as we were kind of awaiting this full acquisition at some point was that we -- there are best practices that exist within both of those MSO platforms that are transferable to the other. So there are strengths within one that are different than the strength in the other. And now we're able to all get in a room together and those teams are formed and they're working on making sure that we can deliver the value to the practices, which is value to the patients, ultimately, and it's going really well. And as you mentioned, I think this is a new phenomenon for Cencora where a significant storm could have some pressure on office visits, but it's -- as Jim said, the volume comes back, which we've seen already, and we're very happy with the acquisition. We're very happy with the integration progress to date. And I would say most importantly, we're really happy that OneOcology and RCA are now able to work more closely together along with the expertise that we have within Cencora to make sure that we're driving long-term value. . James Cleary: Bob, and I'll just add one thing, if I may. And that's that OneOncology and RCA have both been significant contributors to our specialty growth for several years. And so it's, of course, wonderful to have the MSO presence now, which we're very pleased with both platforms. But I also wanted to call out that they've been significant contributors to our very important specialty growth for many years. . Operator: Your next question comes from the line of Eric Percher, Nephron Research. . Eric Percher: A question relative to some of the pressures that you faced from price reductions. And I'd like to better understand when you sit across from a manufacturer and you have a discussion whether it has been AMP or where we are this year with the price reductions and also as we think about GLP-1 reductions coming 1/1/2027. What is the basis for the discussion of value? Is it simply pick-pack and ship? Is it receivables or capital put to work? And how confident are you that you continue to be able to maintain absolute margin on lower prices? Robert Mauch: Yes. Eric, thank you for the question. It's an important question, and I'll begin with the end of your question, which is we're very confident that we can maintain that dollar profit through these discussions and it's really because of the scope and scale and quality of the services that we provide to the manufacturers and the providers. And you listed a few of them, and you know them well. But our ability to run provide the quality and efficiency that we do as an industry, frankly, with the massive investments that we have in the distribution networks. And so that's the technology for ordering. It's the highly automated distribution that's there. It's the secure handling of those products across the board that is very efficient, very low cost and very high value and frankly, would be impossible to replicate outside of the system that exists here in particular, in the United States. We often are able to talk about a study that the health care distribution alliance updates every few years, but it's probably worth mentioning that those services contribute about $80 billion a year to the health care system. In other words, without those services, the cost would be that much higher within the system. So Eric, it's not an automatic, right? And we do have to go in and we have to have a real conversation with a partner that has to see the value in what we do. But we are confident that manufacturers will continue to see the value in what we do for all of the reasons that I just described. And of course, those are -- that's the base case, and we're always working to innovate to create new services and new solutions and new data and analytics opportunities that provide value. So again, it's a commercial relationship. It's something that we have to demonstrate our value all the time, but because of the investments that we've made over decades, we feel confident that, that will continue. Operator: Your next question comes from the line of Charles Rhyee at Cowen. . Charles Rhyee: Jim, good luck to your retirement and best wishes. I guess maybe first to follow up a little bit on Glenn's question. Bob, I appreciate that Part B is the real focus, particularly when we think about specialty, but we -- and that in the Part D side, it's pretty much more of a revenue hit. But is it fair to think that we're still making some margin on these revenues. And certainly, when we think about your large mail order customer shifting and then moving that volume to their own sort of distribution business. When we think about sort of that impact in that faster conversion, was that -- how do we understand that kind of speed of conversion that might have been sort of outside your expectations? And then when we think about the pipeline of future drugs, is that something that you are contemplating when you're in your long-term guide of what products you think will continue to be through your channel versus what might go through some of your customers' own internal channels? And then secondly, just real quickly, Jim, you talked about sort of the lots of the big OneOncology contract last year as well as the grocery store chain. Were there any other kind of movements? I know there are some other M&A activity going on in the space over the last year or so, and some of that work oncology. Just curious if the ones that you called out is the only one that's been sort of a headwind for you. Robert Mauch: Charles, I'll take the biosimilar part of your question first. And so there's 2 or 3 things happening. One that we called out is the speed of conversion from the brand to the biosimilar was something that we hadn't necessarily planned for. So that's not something we'll always know. And as you know, traditionally, the speed from brand to generic within the PBML space hadn't always been quick. There have been products that, that transition took longer. So something that we weren't really aware that would happen that quickly. That's one. Two, is, yes, we would have a small part of the margin, if that biosimilar stayed with the wholesaler, but I think it's important to say that, that would not be the norm. That's not what would normally happen. And again, if you go back over the models between the wholesalers and the PBMs and mail pharmacies over time is when a product went from brand to generic that was then in-sourced. So the wholesaler wasn't then generally going to be providing that generic, whether that was an oral solid generic or a biosimilar. So what we're seeing is what would be expected within the model. What we've called out here was that the pace of conversion was faster than we had anticipated. . James Cleary: Great. And Bob, I'll take the last part of that question. And first of all, with regard to the brand conversion to the biosimilar at the large mail order customer. As you know, brand sales to this customer are low margin. And so the impact of the shift is impactful to the revenue line, but not a meaningful driver at all of operating income. And then with regard to the last part of your question, of course, we have called out the loss of the oncology customer in July of last year and then the grocery customer. And there's really nothing else size that would be meaningful for us to call out. And with regard to the oncology customer, of course, we've indicated that, that does have an impact on operating income. And of course, we disclosed that in the past. And then the grocery customer -- it's not something that we've called out as having an impact on operating income. . Robert Mauch: Yes, Charles, I would just add from time to time, there are smaller customers who would be acquired or who would move that wouldn't be material enough for us to call out. And that's exactly what Jim is saying. And so any of those smaller activities have been contemplated in our guidance, but not anything to call out. . Operator: next question comes from the line of Allen Lutz at Bank of America. . Allen Lutz: First, Jim, congrats on your retirement. A clarification question here. On the 7% U.S. Healthcare Solutions EBIT growth, excluding OneOncology and the loss of an oncology customer. Can you also mention that there's a 1% headwind from COVID-19 and another 1% headwind from weather. So is it fair to assume that the starting point, excluding those would be 9% and then more broadly on the GLP-1 growth, you said that grew $1.9 billion in the quarter. How much lower are GLP-1s growing relative to your expectations? And I know they're not a big driver of profitability. But as that mix shift changes from injectable to oral, are you seeing or expecting any change in profitability there? James Cleary: Yes, sure. So let me first say, the answer is yes to the first part of your question. We saw the $10 million operating income headwind related to weather and specialty practices due to some patient visit cancellations and delays. And as I said, have seen a rebound from that in March and April. So you're absolutely right. Our operating income growth would have been higher if it were not for that headwind and then the same thing as it relates to a headwind from COVID-19 vaccines That's, again, a $10 million headwind. And as a reminder, we had $15 million of COVID-19 vaccine contributions in the second quarter fiscal in 2025, and we were $10 million down from there. And so if you add back for both of those things, our operating income would have been $20 million higher during the quarter. And of course, our growth rate would have been higher. And so thank you very much for asking the question. Operator: Your next question comes from the line of Daniel Grosslight at CITI. Daniel Grosslight: I'd like to focus on the international business and really the solid quarter that you the World Courier. You mentioned some nice new contract wins. And it looks like the overall just the macro environment for biotech is a bit better. As we look to the remainder of the fiscal year, I'm curious how sustainable that growth is. And I get that comps get easier in the second half of the year. But on a sequential basis throughout the year, do you think you'll continue to see World Courier growth? Robert Mauch: Thanks for the question. Yes, we're really pleased with the progress that World Courier is making. And it's a combination of -- yes, I think the market is -- it's not getting significantly better, but it's not getting worse. And so I think that's a positive for us. And we've also been working hard at the business. We've been working hard at making sure that we're commercially rightsized. So that's sales process and pricing and making sure that we're as efficient as we can possibly be in the business. And as we said, we're really happy to see multiple quarters now of operating income growth and also volume growth within the business, which is an important thing that we track. So yes, we're excited and I'll pass it to Jim for the second part of your question. . James Cleary: Sure. And so I'll just say that we have good confidence in our guidance for the fiscal year in our international business. We've been very pleased as Bob talked about with World Courier and we've been very pleased with our distribution business and our 3PL business and the international market also. And so thank you. It is nice to see growth in that business and our optimism for future growth. Operator: Your next question comes from the line of Kevin Caliendo at UBS. . Kevin Caliendo: Jim, it's been a pleasure knowing you over all this time even back to the MWI Day. So good luck with everything going forward. I want to focus a little bit on -- you made a comment ex all the onetimers and weather and everything else. Your EBIT growth would have fallen within your LRP, it would have been roughly 7%. That's still a core sort of ex all one-timers, a pretty material slowdown in core growth from what we've seen over the last several years. And so I just wanted to know sort of what exactly changed this quarter that you saw? And two, these changes in pricing and changes in GLP-1s and everything else. We would have expected to see a decline in gross margin, but that actually wasn't the issue. It was more that the G&A leverage was worse than what we had anticipated. And can you maybe -- is there anything in that occurred? Anything that changed there? I'd just love to get some additional color on that aspect as well as the core growth. . James Cleary: Yes. Let me address both those things. First of all, to the first part of your question, and we were pleased to see the core operating income growth aligned with our long-term guidance despite the weather-related softness and despite the lower demand for COVID-19 vaccines. And so we were within that long-term guide rate before those headwinds. And so if you add back those headwinds, it would move us up within the long-term guidance range. And then with regard to your question about gross margin and operating expenses. We had high operating expense growth in the quarter. And it's important to look at our business, excluding MSOs so the shape of the MSO income statement is very different than the shape of the core distribution income statement. And if you back out the MSO business, our operating expense growth rate in the quarter on a constant currency basis was about 5%. And so that is a kind of -- it is important to think about the business that way also, and I did mention that in my prepared remarks. Now I'll also say that the MSOs really bring up our gross margin, and they bring up our operating margin also. And so you saw a nice increase in operating margin during the quarter. And the biggest reason for that was the MSO business. But I think it's important as you're looking at our operating leverage, gross margin to operating expenses to think about the business without the MSOs. Thank you for the question. Operator: Your next question comes from the line of Erin Wright at Morgan Stanley. Erin Wilson Wright: Great -- and Jim and I want to echo it's been great working with you. Yes, also going back to the MWI days, but appreciate all the support and insights over the years. On capital deployment, you mentioned you'll be back in the market potentially buying back shares. Do you still see the longer-term opportunities across the MSO assets that are out there I know you did the more recent South deal, but how do you think about that in the context of also the timing and magnitude of share repurchases? . James Cleary: Yes. So we'll continue to have balanced capital deployment, which will, as it always had, include investments in the business and CapEx, which always have very good returns for us. It will include strategic M&A. It will include opportunistic share repurchases, and it will include growing our dividend and having a reasonable growing dividend over time, which we've been growing within our long-term guidance range for EPS growth. And we really are getting back into opportunistic share repurchases, we had paused for a while because of the acquisitions, but we've been very successful in paying down some of the term loans. We paid down $500 million so far this fiscal year, and our plan is to pay down $1.3 billion of term loans during the fiscal year. And we've had good success there, and we anticipate that we'll hit our guidance of $3 billion in free cash flow. So that gives us the opportunity to do these important opportunistic share repurchases, and we're planning on doing $1 billion between now and the end of the calendar year. And with regard to the MSO business, we're very pleased to have announced the South acquisition, and we see very good bolt-on opportunities for our MSO businesses over time and feel that our strong platforms will be very attractive to physicians. So -- thank you very much for the question. Operator: Your next question comes from the line of George Hill at Deutsche Bank. . George Hill: And Jim, I will echo everybody's well wishes we've been great to work with. Mine's pretty simple, Jim. Just as we think about pro forma for the acquisition of iSouth, is there any change you would give us what portion of the AOI in the U.S. segment now comes from physician administered or I'll call them Part B businesses versus the key businesses? And just because if we look back at the last year, I mean, I always talked about the loss of the grocery customers. There's been some smaller losses. We talked about what's going on with the big mail customer just been lots of acquisitions. Just trying to get a good sense of the apportionment of the business from an earnings perspective at this point. James Cleary: And so I think what the question is kind of the earnings from Part B versus the earnings from Part D. And that's not the way that we present the financials now, but it's something that we're always evaluating what is the best way to talk about our business and present our business over time so that we can give the best visibility. So -- thank you very much for the question. . Bennett Murphy: Yes. And George, just to be clear, the current FY '26 guidance does not include any contribution from iSouth, as we stated in the press release announcing that deal -- and then we've given some of the pieces to disclose what the relative size of the different MSOs would be, obviously, we've lapped the RCA 1-year annualization and we're beginning on the OneOncology side, which will continue to ramp in the balance of the year. . James Cleary: Thank you, Bennett. . Operator: We've reached the end of the Q&A session. I will now turn the call back to Bob March for closing remarks. Robert Mauch: Thank you, everyone, for your thoughtful questions and continued interest in Cencora. As we've emphasized today, we have conviction on our fiscal 2026 guidance, reflecting the strength and resilience of our pharmaceutical-centric strategy powered by a purpose, we're executing on our growth priorities and performance drivers positioning our business to deliver sustainable long-term value creation. Thanks, everyone. Operator: This concludes today's call. Thank you for attending. You may now disconnect.